<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1997
REGISTRATION STATEMENT NO. 333-30785
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
CALIFORNIA INFRASTRUCTURE AND
ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST SCE-1
(Issuer of Securities)
SCE FUNDING LLC
(Depositor of the Trust described herein)
(Exact Name of Registrant as Specified in Its Certificate of Formation)
<TABLE>
<S> <C>
DELAWARE 95-4640661
(State or Other Jurisdiction of Organization) (I.R.S. Employer Identification Number)
</TABLE>
SCE FUNDING LLC
2244 WALNUT GROVE AVENUE, ROOM 180, ROSEMEAD, CA 91770, (626) 302-1850
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
KENNETH S. STEWART
SECRETARY
SCE FUNDING LLC
2244 WALNUT GROVE AVENUE, ROOM 180, ROSEMEAD, CA 91770, (626) 302-1850
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
Copies to:
<TABLE>
<S> <C> <C>
DAVID B. ROGERS ERIC D. TASHMAN GREGORY M. SHAW
JOHN M. JAMESON CATHY M. KAPLAN CRAVATH, SWAINE & MOORE
GEOFFREY K. HURLEY BROWN & WOOD LLP WORLDWIDE PLAZA
LATHAM & WATKINS 555 CALIFORNIA STREET, 50TH FLOOR 825 EIGHTH AVENUE
633 WEST FIFTH STREET, SUITE 4000 SAN FRANCISCO, CALIFORNIA 94104 NEW YORK, NEW YORK 10019
LOS ANGELES, CALIFORNIA 90071
</TABLE>
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO AMOUNT TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED(2) PER UNIT OFFERING PRICE FEE(3)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rate Reduction
Certificates.......... $3,000,000,000 100%(1) $3,000,000,000(1) $908,787.88
- ---------------------------------------------------------------------------------------
Notes.................. $3,000,000,000 (2) (2) None
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) No additional consideration will be paid by the purchasers of the Rate
Reduction Certificates for the Notes which secure the Rate Reduction
Certificates.
(3) Aggregate fee of $909,090.91 less fee of $303.03 previously paid in
connection with original Registration Statement filed on July 3, 1997.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[FORM OF PROSPECTUS SUPPLEMENT]
SUBJECT TO COMPLETION
DATED NOVEMBER 10, 1997
PRELIMINARY PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1997)
$
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST SCE-1
RATE REDUCTION CERTIFICATES, SERIES 199 -
$ CLASS % CERTIFICATES
$ CLASS % CERTIFICATES
$ CLASS % CERTIFICATES
$ CLASS % CERTIFICATES
[$ CLASS FLOATING RATE CERTIFICATES]
SCE FUNDING LLC
ISSUER OF THE NOTES
SOUTHERN CALIFORNIA EDISON COMPANY
SELLER AND SERVICER
THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
STATE OF CALIFORNIA, THE INFRASTRUCTURE BANK, ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR THE SELLER OR ANY OF ITS AFFILIATES. NONE OF THE OFFERED
CERTIFICATES, THE UNDERLYING NOTES OR THE TRANSITION PROPERTY WILL BE
GUARANTEED OR INSURED BY THE STATE OF CALIFORNIA, THE INFRASTRUCTURE BANK, THE
TRUST OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE SELLER OR
ITS AFFILIATES.
(Continued on following page)
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.
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE OFFERED CERTIFICATES, AND
THERE IS NO ASSURANCE THAT ONE WILL DEVELOP.
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH UNDER THE CAPTION "RISK FACTORS," WHICH BEGINS ON PAGE 26 IN THE
PROSPECTUS.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT TRUST(1)(2)
<S> <C> <C> <C>
Per Class Certificate................... % % %
Per Class Certificate................... % % %
Per Class Certificate................... % % %
Per Class Certificate................... % % %
Per Class Certificate................... % % %
Total....................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1)Plus accrued interest, if any, at the applicable Certificate Interest Rate
from , 199 .
(2)Before deduction of expenses estimated to be $ .
The Offered Certificates are offered by the Underwriters when, as and if issued
by the Trust and accepted by the Underwriters and subject to the Underwriters'
right to reject orders in whole or in part. It is expected that the Offered
Certificates will be delivered on or about , 199 , in book-entry form
through the facilities of The Depository Trust Company[, Cedel Bank, societe
anonyme, and the Euroclear System].
SALOMON BROTHERS INC LEHMAN BROTHERS
CHASE SECURITIES INC.
GOLDMAN, SACHS & CO.
PAINEWEBBER INCORPORATED
ARTEMIS CAPITAL GROUP, INC.
BLAYLOCK & PARTNERS, L.P.
UTENDAHL CAPITAL PARTNERS, L.P.
The date of this Prospectus Supplement is , 199
<PAGE>
(Continued from previous page)
The California Infrastructure and Economic Development Bank Special Purpose
Trust SCE-1 Rate Reduction Certificates, Series 199 - (the "Offered
Certificates") offered hereby will consist of the following Classes:
. Each Class of Offered Certificates represents a fractional undivided
beneficial interest in the related class of SCE Funding LLC Notes, Series
199 - (the "Underlying Notes"), issued by SCE Funding LLC, a Delaware special
purpose limited liability company (the "Note Issuer") [and, with respect to
the Class Certificates (the "Floating Rate Certificates"), payments
pursuant to the Swap Agreement]. Each Underlying Note will be secured
primarily by the Transition Property owned by the Note Issuer, as described
under "Description of the Transition Property" herein and in the Prospectus;
the Underlying Notes will also be secured by the other Note Collateral
described under "Description of the Notes--Security" in the Prospectus. The
Underlying Notes, together with other Series of notes issued from time to time
by the Note Issuer under the Note Indenture (together with the Underlying
Notes, the "Notes"), are owned by the California Infrastructure and Economic
Development Bank Special Purpose Trust SCE-1 (the "Trust").
Interest on each Class of Offered Certificates at the applicable Certificate
Interest Rate will be distributable quarterly on or about the 25th day of
March, June, September and December or, if any such day is not a Certificate
Business Day, the next succeeding Certificate Business Day (each, a
"Distribution Date") commencing , 199 . INTEREST AND PRINCIPAL ON ANY
CLASS OF OFFERED CERTIFICATES WILL BE DISTRIBUTABLE ONLY TO THE EXTENT OF
PAYMENTS RECEIVED BY THE TRUST ON THE RELATED CLASS OF UNDERLYING NOTES. See
"Description of the Notes" herein.
The Offered Certificates are part of a separate Series of California
Infrastructure and Economic Development Bank Special Purpose Trust SCE-1 Rate
Reduction Certificates being offered by the Trust from time to time pursuant
to a Prospectus dated , 1997 (the "Prospectus"), of which this Prospectus
Supplement is a part and which accompanies this Prospectus Supplement.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE OFFERED CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS. PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE OFFERED CERTIFICATES MAY
NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
THE TRANSITION PROPERTY OWNED BY THE NOTE ISSUER AND CERTAIN OTHER ASSETS OF
THE NOTE ISSUER ARE THE SOLE SOURCE OF PAYMENTS ON THE UNDERLYING NOTES.
PAYMENTS ON THE UNDERLYING NOTES [AND PAYMENTS ON ANY RELATED SWAP AGREEMENT]
RECEIVED BY THE TRUST ARE THE SOLE SOURCE OF DISTRIBUTIONS ON THE OFFERED
CERTIFICATES. NONE OF THE STATE OF CALIFORNIA, THE INFRASTRUCTURE BANK, THE
TRUST OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR THE SELLER OR ANY
OF ITS AFFILIATES WILL HAVE ANY OBLIGATIONS IN RESPECT OF THE OFFERED
CERTIFICATES, THE UNDERLYING NOTES OR THE UNDERLYING TRANSITION PROPERTY,
EXCEPT AS EXPRESSLY SET FORTH HEREIN AND IN THE PROSPECTUS.
NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF
CALIFORNIA OR ANY POLITICAL SUBDIVISION, AGENCY OR INSTRUMENTALITY THEREOF IS
PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, OR INTEREST ON, THE OFFERED
CERTIFICATES OR THE UNDERLYING NOTES, OR TO THE PAYMENTS IN RESPECT OF THE
TRANSITION PROPERTY, NOR IS THE STATE OF CALIFORNIA OR ANY POLITICAL
SUBDIVISION OR AGENCY OR INSTRUMENTALITY THEREOF IN ANY MANNER OBLIGATED TO
MAKE ANY APPROPRIATION FOR THE PAYMENT THEREOF.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SEE "UNDERWRITING"
HEREIN.
Prospective investors should refer to the "Index of Principal Definitions"
which begins on page S-35 herein and which begins on page 91 in the Prospectus
for the location of the definitions of capitalized terms that appear in the
Prospectus and this Prospectus Supplement.
S-2
<PAGE>
REPORTS TO HOLDERS
Unless and until the Offered Certificates are no longer issued in book-entry
form, the Servicer indirectly will provide to Cede & Co., as nominee of The
Depository Trust Company ("DTC") and registered holder of the Offered
Certificates and, upon request, to Participants of DTC, periodic reports
concerning the Offered Certificates. See "Servicing--Statements by Servicer"
herein and in the Prospectus. Such reports may be made available to the
holders of interests in the Offered Certificates (the "Certificateholders")
upon request to their Participants. Such reports will not constitute financial
statements prepared in accordance with generally accepted accounting
principles. The financial information provided to Certificateholders will not
be examined and reported upon, nor will an opinion thereon be provided by, any
independent public accountant.
The Note Issuer will file with the Securities and Exchange Commission (the
"Commission") such periodic reports as are required by the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules, regulations or
orders of the Commission thereunder. Copies of the Registration Statement and
exhibits thereto may be obtained at the locations specified in the Prospectus
under "Available Information" at prescribed rates. Information filed with the
Commission can also be inspected at the Commission's site on the World Wide
Web at http://www.sec.gov. The Note Issuer may discontinue filing periodic
reports under the Exchange Act at the beginning of the fiscal year following
the issuance of the Offered Certificates if there are fewer than 300 holders
of such Offered Certificates.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE SELLER, THE NOTE ISSUER, THE TRUST, THE INFRASTRUCTURE BANK,
THE UNDERWRITERS OR ANY DEALER, SALESPERSON OR OTHER PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITY IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY
SUCH OFFER OR SOLICITATION.
S-3
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following Prospectus Supplement Summary is qualified in its entirety by
reference to the detailed information appearing elsewhere herein and in the
Prospectus. Certain capitalized terms used but not defined in this Prospectus
Supplement Summary have the meanings ascribed to such terms elsewhere in this
Prospectus Supplement or, to the extent not defined herein, have the meanings
assigned to such terms in the Prospectus. The Index of Principal Definitions
included in this Prospectus Supplement which begins on page S-35 sets forth the
pages on which the definitions of certain principal terms appear.
Summary of Offered
Certificates................ The California Infrastructure and Economic
Development Bank Special Purpose Trust SCE-1 Rate
Reduction Certificates, Series 199 - (the
"Offered Certificates"). On the date of initial
issuance of the Offered Certificates (the "Series
Issuance Date"), the Offered Certificates will be
issued as described below.
<TABLE>
<CAPTION>
INITIAL CERTIFICATE
PRINCIPAL SCHEDULED FINAL INTEREST
CLASS AMOUNT DISTRIBUTION DATE TERMINATION DATE RATE
- ----- --------- ----------------- ---------------- -----------
<S> <C> <C> <C> <C>
$ , ( years) , ( years) . %
$ , ( years) , ( years) . %
$ , ( years) , ( years) . %
$ , ( years) , ( years) . %
[ $ , ( years) , ( years) (1)]
</TABLE>
- --------
[(1) Calculated as described under "Description of the Certificates--Floating
Rate Certificates--Determination of Certificate Interest Rate on Floating
Rate Certificates."]
Transaction Overview........
For a brief summary of the statutes and
proceedings which form the basis for the issuance
and sale of the Offered Certificates by the
Trust, and a diagram of the parties to the
transaction, their roles and their various
relationships to the other parties, investors are
directed to the discussion under the heading
"Prospectus Summary--Transaction Overview" in the
Prospectus.
The Note Issuer will issue the Underlying Notes,
and sell the Underlying Notes to the Trust in
exchange for the proceeds of the sale of the
Offered Certificates. The Trust has been
established by the Infrastructure Bank. The
Trust, whose sole assets will be the Underlying
Notes and other Notes issued under the Indenture
[and its rights under the Swap Agreement], will
issue the Offered Certificates, which will be
sold to the Underwriters. The Offered
Certificates of each Class represent fractional
undivided beneficial interests in the related
Class of Underlying Notes and the proceeds
thereof [, together, in the case of the Floating
Rate Certificates, with the proceeds of the Swap
Agreement]. The Underlying Notes will be secured
primarily by the Transition Property. The
Underlying Notes will also be secured by the
Transition Property Purchase and Sale Agreement
between Edison and the Note Issuer, any
subsequent sale agreement relating to a separate
Series of Notes, the Transition Property
Servicing Agreement between Edison and the Note
Issuer, the Collection Account and all amounts or
investment property on deposit therein or
credited thereto from time to time, all other
property of whatever kind (other than certain
cash amounts described herein) owned from time to
time by the Note Issuer, if
S-4
<PAGE>
any, all present and future claims, demands,
causes and choses in action in respect of any or
all of the foregoing and all payments on or under
and all proceeds in respect of any or all of the
foregoing. See "Description of the Notes--
Security" herein.
The charges included in the Transition Property
described in the Prospectus are calculated to be
sufficient over time to pay principal and
interest on the Offered Certificates, to pay all
related fees and expenses, to collect the
Overcollateralization Amount described herein and
to replenish the Capital Subaccount to the extent
that amounts are drawn therefrom. These charges
will be subject to adjustment pursuant to the
true-up mechanism described in the Prospectus
over the life of the Offered Certificates to
enhance the likelihood of timely recovery of such
amounts, although there can be no assurance that
the true-up mechanism will operate as intended or
that any of the Offered Certificates will mature
as scheduled. See "Description of the Transition
Property--Adjustments to the FTA Charges" in the
Prospectus.
Risk Factors................
Investors should consider the risks associated
with an investment in the Offered Certificates.
For a discussion of certain material risks
associated therewith, investors should review the
discussion under "Risk Factors" which begins on
page 26 of the Prospectus.
[In addition, an investment in the Floating Rate
Certificates involves the additional risks
discussed herein under "Additional Risk Factors
Relating to the Floating Rate Certificates."]
The Offered Certificates....
The California Infrastructure and Economic
Development Bank Special Purpose Trust SCE-1 Rate
Reduction Certificates, Series 199 - . The
Offered Certificates are comprised of the
following classes (each, a "Class"): .
As of the Series Issuance Date, the aggregate
principal balance of the Offered Certificates
(the "Original Certificate Principal Balance")
will be $ . Each Class of Offered
Certificates will have a principal balance (the
"Class Principal Balance") equal to the initial
amount of principal allocable to such Class,
reduced by principal distributed to such Class in
accordance with the terms of the Trust Agreement.
See "Description of the Certificates" herein and
in the Prospectus.
None of the Offered Certificates, the Underlying
Notes or the Transition Property will be
guaranteed or insured by the State of California,
the Infrastructure Bank, the Trust or any other
governmental agency or instrumentality or by the
Seller or any of its affiliates. Neither the full
faith and credit nor the taxing power of the
State of California or any political subdivision,
agency or instrumentality thereof is pledged to
the distributions of principal of, or interest
on, the Offered Certificates or the Underlying
Notes or to the payments in respect of the
Transition Property. The issuance and sale of the
Offered Certificates are contingent upon the
effectiveness of the Issuance Advice Letter
related thereto. See "Description of the
Transition Property--Financing Order and Advice
Letters" in the Prospectus.
S-5
<PAGE>
Seller and Servicer......... Southern California Edison Company, a California
corporation ("Edison" or, in its capacity as
seller of the Transition Property, the "Seller"
or, in its capacity as servicer of the Transition
Property, the "Servicer"). For a more complete
discussion of Edison and its roles as Seller and
Servicer, see "The Seller and Servicer" herein
and in the Prospectus.
Issuer of Certificates......
A trust entitled California Infrastructure and
Economic Development Bank Special Purpose Trust
SCE-1 (the "Trust") established by the California
Infrastructure and Economic Development Bank (the
"Infrastructure Bank"). The Trust will not be an
agency or instrumentality of the State of
California. The Infrastructure Bank will not
guarantee or insure the Offered Certificates, the
Underlying Notes or the Transition Property. For
a more complete discussion of the Trust, see "The
Trust" in the Prospectus, and for a more complete
discussion of the Infrastructure Bank, see "The
Infrastructure Bank" in the Prospectus.
Certificate Trustee.........
Bankers Trust Company of California, N.A., a
national banking association (the "Certificate
Trustee").
Delaware Trustee............
Bankers Trust (Delaware), a Delaware banking
corporation (the "Delaware Trustee").
Note Issuer.................
SCE Funding LLC, a Delaware special purpose
limited liability company whose single member is
Edison (the "Note Issuer"). The principal
executive office of the Note Issuer is located at
2244 Walnut Grove Avenue, Room 180, Rosemead, CA
91770, and its telephone number is (626) 302-
1850.
The Underlying Notes........
SCE Funding LLC Notes, Series 199 - (the
"Underlying Notes"), issued by the Note Issuer.
The Underlying Notes are comprised of
classes (each, a "Class"). As of the Series
Issuance Date for the Underlying Notes, the
aggregate principal balance thereof will be
$ . Each Class of Underlying Notes
secures the payment of the corresponding Class of
Offered Certificates and will have the same Class
Principal Balance as the corresponding Class of
Offered Certificates. See "Description of the
Notes" herein and in the Prospectus.
Note Trustee................
Bankers Trust Company of California, N.A., a
national banking association (the "Note
Trustee").
Transition Property......... As more fully described under "Description of the
Transition Property" herein and in the
Prospectus, the property right created under the
PU Code including, without limitation, the right,
title and interest of an electrical corporation
or its transferee (i) in and to the FTA Charges,
as adjusted from time to time, (ii) to be paid
the FTA Payments, and (iii) to obtain adjustments
to the FTA Charges as provided in the PU Code.
FTA Charges.................
As more fully described under "Description of the
Transition Property" in the Prospectus,
nonbypassable, usage-based, per kilowatt hour
charges payable by Residential Customers and
Small
S-6
<PAGE>
Commercial Customers, which will yield the
amounts which are necessary to provide for the
amortization of all Certificates in accordance
with the applicable Expected Amortization
Schedule, the payment of fees and expenses
related to the issuance and servicing of the
Certificates, the collection of the
Overcollateralization Amount described herein and
the replenishment of the Capital Subaccount to
the extent that amounts are drawn therefrom.
Based on the Expected Amortization Schedule set
forth herein and the assumptions related thereto,
the initial FTA Charge payable by Residential
Customers would be cents per kilowatt hour
and the initial FTA Charge payable by Small
Commercial Customers would be cents per
kilowatt hour. See "Description of the Notes--
Principal" herein.
Adjustments to FTA Charges.. In order to enhance the likelihood that the FTA
Collections are neither more nor less than the
amount necessary to amortize the Offered
Certificates in accordance with the Expected
Amortization Schedule, fund the
Overcollateralization Subaccount as scheduled,
pay fees and expenses relating to the issuance
and servicing of the Offered Certificates and
replenish the Capital Subaccount, the Servicing
Agreement and the Financing Order require the
Servicer to seek periodic adjustments to the FTA
Charges based on actual FTA Collections and
updated assumptions by the Servicer as to, among
other factors, the electricity usage by Customers
and the rate of delinquencies and write-offs. The
adjustments to the FTA Charges will continue
until all interest and principal on all Series of
Notes and corresponding Series of Certificates
have been paid or distributed in full.
Distribution Dates..........
Each March 25, June 25, September 25 and December
26 (or, if any such date is not a Certificate
Business Day, the next succeeding Certificate
Business Day) commencing , 199 , the
dates on which distributions will be made to
holders of Offered Certificates (each, a
"Distribution Date"). Each Distribution Date with
respect to the Certificates will also be a date
on which payments are made with respect to the
Notes (each, a "Payment Date").
Record Date.................
With respect to any Distribution Date, the
Business Day preceding such Distribution Date if
the Offered Certificates are Book-Entry
Certificates or, if Definitive Certificates are
issued, the last day of the preceding calendar
month (each, a "Record Date").
Scheduled Final
Distribution and
Termination Dates.......... The Scheduled Final Distribution Date for each
Class of the Offered Certificates, which is the
date when all principal and interest on such
Class of Offered Certificates is expected to be
distributed in full, based on certain assumptions
described herein, and the Termination Date for
each Class of Offered Certificates are specified
herein under "Description of the Certificates."
S-7
<PAGE>
Failure to distribute principal of any Class of
Offered Certificates in full by the related
Termination Date shall constitute an Event of
Default, and the Certificate Trustee may and,
upon the written direction of the holders of a
majority in principal amount of all Certificates
of all Series then outstanding, shall declare the
unpaid principal amount of all the Notes of all
Series then outstanding to be due and payable.
See "Description of the Certificates--Events of
Default" and "Ratings" in the Prospectus.
Issuance of New Series......
The Trust may issue new Series of Certificates
from time to time. A new Series may be issued
only upon satisfaction of the conditions
described under "Description of the
Certificates--Conditions of Issuance of
Additional Series" in the Prospectus.
[Swap Agreement.............
The Trust will enter into a swap agreement dated
the Closing Date (the "Swap Agreement") with
Caisse des Depots et Consignations, as swap
counterparty (the "Swap Counterparty"). Pursuant
to the Swap Agreement, on each Distribution Date,
the Trust will be obligated to pay to the Swap
Counterparty, solely from payments received with
respect to the Class Notes, an amount equal to
the interest due on the Class Notes on such
Distribution Date, and the Swap Counterparty will
be obligated to pay to the Trust an amount equal
to the product of (a) the Floating Rate and (b)
the Class Principal Balance as of the close of
business on the preceding Distribution Date after
giving effect to all payments of principal made
to the holders of the Class Certificates on
such preceding Distribution Date. All such
payments will be made on a net basis as described
below.
The Swap Agreement will terminate or may be
terminated upon the occurrence of certain events
of default or termination events as described
herein under "Summary of Certain Provisions of
the Swap Agreement." Upon termination of the Swap
Agreement, the Certificate Interest Rate payable
with respect to the Floating Rate Certificates
will automatically convert to a fixed rate equal
to the interest rate payable on the Class
Notes. See "Description of the Certificates--
Floating Rate Certificates" and "Additional Risk
Factors Relating to the Floating Rate
Certificates" herein. With respect to each
Distribution Date, any difference between the
quarterly payment by the Swap Counterparty to the
Trust and the quarterly payment by the Trust to
the Swap Counterparty will be referred to herein
as the "Net Trust Swap Receipt," if such
difference is a positive number, and the "Net
Trust Swap Payment," if such difference is a
negative number. Net Trust Swap Receipts will be
included in funds available for distribution to
Floating Rate Certificateholders on each
Distribution Date and Net Trust Swap Payments
will be paid to the Swap Counterparty out of
payments on the Class Notes on each
Distribution Date.]
S-8
<PAGE>
Interest....................
On each Distribution Date, the Certificate
Trustee shall distribute pro rata to the
Certificateholders of each Class as of the
related Record Date interest in an amount equal
to one-fourth of the product of (a) the
applicable Certificate Interest Rate and (b) the
applicable Class Principal Balance as of the
close of business on the preceding Distribution
Date after giving effect to all payments of
principal made to the Certificateholders on such
preceding Distribution Date; provided, however,
that with respect to the initial Distribution
Date, interest on each outstanding Class
Principal Balance will accrue from and including
the Series Issuance Date to, but excluding, such
initial Distribution Date. Interest will be
calculated on the basis of a 360-day year of
twelve 30-day months [except that with respect to
the Floating Rate Certificates interest will be
calculated as described under "Description of the
Certificates--Floating Rate Certificates"
herein]. Interest on any Class of Offered
Certificates will be distributable only to the
extent interest has been paid on the related
Class of Underlying Notes [and, in the case of
the Floating Rate Certificates, interest will be
distributed at the variable rate payable pursuant
to the Swap Agreement (the "Floating Rate") so
long as payments are received under the terms of
the Swap Agreement]. Interest on the Offered
Certificates will be distributed prior to any
distribution of principal on the Offered
Certificates. See "Description of the
Certificates--Distributions of Interest" herein
and "Description of the Notes--Interest and
Principal" in the Prospectus.
Principal...................
On each Distribution Date, the Certificate
Trustee shall distribute to the
Certificateholders as of the related Record Date
amounts distributable as principal, in the
following order and priority: [TO BE DETERMINED
UPON ISSUANCE]. The principal amounts
distributable with respect to any Class of
Offered Certificates will be payable only to the
extent of payments of principal made on the
related Class of Underlying Notes. See
"Description of the Certificates--Distributions
of Principal" herein and "Description of the
Notes--Interest and Principal" in the Prospectus.
Optional Redemption.........
The Note Issuer may redeem the Underlying Notes
relating to the Offered Certificates, and
accordingly cause the Trust to redeem the Offered
Certificates, on any Payment Date if the
outstanding principal balance of the Underlying
Notes (after giving effect to payments that would
otherwise be made on such date) has been reduced
to less than five percent of the initial
principal balance of the Underlying Notes. See
"Description of the Certificates--Optional
Redemption" herein.
Mandatory Redemption........ The Seller may be required to repurchase the
Transition Property under certain circumstances
as described under "Description of the Transition
Property--Seller Representations and Warranties
and Repurchase Obligation" in the Prospectus,
which repurchase will require the Trust to redeem
the Offered Certificates.
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<PAGE>
Collection Account and
Subaccounts................. Upon issuance of the initial Series of Notes, the
Note Issuer will establish the Collection
Account, which will be held by the Note Trustee
for the benefit of the Noteholders. The
Collection Account will consist of four
subaccounts: a general subaccount (the "General
Subaccount"), a reserve subaccount (the "Reserve
Subaccount"), a subaccount for the
Overcollateralization Amount (the
"Overcollateralization Subaccount") and a capital
subaccount (the "Capital Subaccount"). Unless the
context indicates otherwise, references herein to
the Collection Account include each of the
subaccounts contained therein. Withdrawals from
and deposits to these subaccounts will be made as
described under "Description of the Notes--
Allocations; Payments" in the Prospectus.
Credit Enhancement.......... The Offered Certificates will benefit from the
following forms of credit enhancement:
Overcollateralization. The Financing Order
provides that the Note Issuer, as the owner of
the Transition Property, is entitled to collect
an additional amount (for the Underlying Notes,
the "Overcollateralization Amount"), which is
intended to enhance the likelihood that payments
on the Underlying Notes will be made in
accordance with the Expected Amortization
Schedule. The Overcollateralization Amount for
the Underlying Notes will be $ , which is 0.50
percent of the initial principal amount of the
Underlying Notes. The FTA Charges will be set and
adjusted at a rate which is intended to recover
the Overcollateralization Amount ratably over the
life of the Offered Certificates according to the
schedule set forth under "Description of the
Notes--Overcollateralization Amount" herein. The
Overcollateralization Amount for all Series of
Certificates will be held in the
Overcollateralization Subaccount, as described
further under "Description of the Notes--
Overcollateralization Amount" in the Prospectus,
and will be available to pay any periodic
shortfalls in amounts available for scheduled
payment on the Notes. The amount required to be
on deposit in the Overcollateralization
Subaccount as of any Payment Date, as specified
in the schedule set forth in this Prospectus
Supplement, is referred to herein as the
"Required Overcollateralization Level."
Capital Subaccount. Upon the issuance of the
Underlying Notes, the Seller will make a capital
contribution of $ to the Note Issuer.
Such amount is equal to 0.50 percent of the
initial principal amount of the Underlying Notes.
Such amount, less $100,000 in the aggregate for
all Series of Notes, is the Required Capital
Level with respect to the Underlying Notes and
will be deposited into the Capital Subaccount.
Withdrawals from and deposits to the Capital
Subaccount will be made as described under
"Description of the Notes--Allocations; Payments"
in the Prospectus.
Reserve Subaccount. FTA Collections available
with respect to any Payment Date in excess of
amounts payable as (a) fees and expenses of the
Note Issuer and the Trust, (b) payments of
principal of and
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<PAGE>
interest on the Underlying Notes, (c) allocations
to the Overcollateralization Subaccount and (d)
allocations to the Capital Subaccount (all as
described under "Description of the Notes--
Allocations; Payments" in the Prospectus), will
be allocated to the Reserve Subaccount. On each
Payment Date, the Note Trustee will draw on
amounts in the Reserve Subaccount, to the extent
amounts available in the General Subaccount are
insufficient to make scheduled payments on the
Underlying Notes or to make required allocations
to the Overcollateralization Subaccount or the
Capital Subaccount.
Collections; Allocations;
Distributions............... On each Distribution Date, amounts on deposit in
the Collection Account will be applied in the
manner described under "Description of the
Notes--Allocations; Payments" in the Prospectus.
Servicing Compensation......
The Servicer will be entitled to receive a fee on
each Payment Date with respect to the Offered
Certificates in an amount equal to (i) one-fourth
of percent of the outstanding principal
balance of the Underlying Notes (before giving
effect to payments on such date) for so long as
FTA Charges are included as a line item on bills
otherwise sent to Customers and (ii) one-fourth
of percent of the outstanding principal
balance of the Underlying Notes (before giving
effect to payments on such date) if FTA Charges
are not included as a line item on bills
otherwise sent to Customers but, instead, are
billed separately to Customers (the "Servicing
Fee"). The Servicing Fee will be paid prior to
the distribution of any amounts in respect of
interest on and principal of the Underlying
Notes. The Servicer will be entitled to retain as
additional compensation net investment income on
FTA Payments received by the Servicer prior to
remittance thereof to the Collection Account, and
the portion of late fees, if any, paid by
Customers relating to the FTA Payments. See
"Servicing--Servicing Compensation" herein and in
the Prospectus.
No Servicer Advances........ The Servicer will not make any advances of
interest or principal on the Underlying Notes.
Maturity, Weighted Average
Life and Yield
Considerations..............
The actual Distribution Dates on which principal
is distributed on each Class of Certificates will
be affected by, among other things, the amount
and timing of receipt of FTA Collections and
amounts available in the Overcollateralization
Subaccount, Capital Subaccount and Reserve
Subaccount. Since each FTA Charge will consist of
a charge per kilowatt hour of usage by the
applicable class of Customers in the Territory,
the aggregate amount and timing of FTA
Collections (and the resulting amount and timing
of principal amortization on the Offered
Certificates) will depend, in part, on actual
usage of electricity by Customers and the rate of
delinquencies and write-offs. Although the amount
of the FTA Charges will be adjusted from time to
time based in part on the actual rate of FTA
Collections, no assurances can be given that the
Servicer will be able to forecast accurately
actual Customer
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<PAGE>
electricity usage and the rate of delinquencies
and write-offs and implement adjustments to the
FTA Charges that will cause FTA Payments to be
made at any particular rate. See "Risk Factors--
Unusual Nature of the Transition Property--
Reliance on FTA Adjustments" in the Prospectus.
If FTA Collections are received at a slower rate
than expected, distributions on a Certificate may
be made later than expected, and Offered
Certificates may be retired later than expected.
Because principal will only be distributed at a
rate not faster than that contemplated in the
Expected Amortization Schedule, except in the
event of an early redemption or the acceleration
of the maturity of the Certificates after an
Event of Default, the Certificates are not
expected to be retired earlier than scheduled.
If the Note Issuer exercises its option to redeem
all of the outstanding Underlying Notes on any
Payment Date commencing on the Payment Date on
which the outstanding principal balance of the
Underlying Notes (after giving effect to payments
that would otherwise be made on such date) has
been reduced to less than five percent of the
initial principal balance of the Underlying
Notes, the Certificate Trustee will be required
to redeem the Offered Certificates. Such
redemption may adversely affect the yield to
maturity of the Offered Certificates. See
"Certain Distribution, Weighted Average Life and
Yield Considerations" and "Description of the
Transition Property--Adjustments to the FTA
Charges" in the Prospectus.
Denominations............... Each Class of Offered Certificates will be issued
in minimum initial denominations of [$1,000] and
in integral multiples thereof.
Registration of the
Certificates................ The [Offered] [Class ] Certificates will
initially be represented by one or more
certificates registered in the name of Cede & Co.
("Cede") ("Book-Entry Certificates"), the nominee
of The Depository Trust Company ("DTC"), and
available only in the form of book-entries on the
records of DTC, its Participants and its Indirect
Participants. Holders may also hold such
Certificates through CEDEL or the Euroclear
system in Europe. For a more complete discussion
of the Book-Entry Certificates, see "Risk
Factors" and "Description of the Certificates--
Book-Entry Registration" in the Prospectus.
Ratings.....................
It is a condition of issuance of the Offered
Certificates that the Offered Certificates be
rated " " by , " " by ,
" " by and " " by (each of
, , and , a
"Rating Agency"). Each Class of Underlying Notes
will receive the same rating from each Rating
Agency as the corresponding Class of Offered
Certificates.
A security rating is not a recommendation to buy,
sell or hold securities and may be subject to
revision or withdrawal at any time. No person is
obligated to maintain any rating on any Offered
Certificate and, accordingly, there can be no
assurance that the
S-12
<PAGE>
ratings assigned to any Class of Offered
Certificates upon initial issuance thereof will
not be revised or withdrawn by a Rating Agency at
any time thereafter. If a rating of any Class of
Offered Certificates is revised or withdrawn, the
liquidity of such Class of Offered Certificates
may be adversely affected. In general, the
ratings address credit risk and do not represent
any assessment of the rate of principal payments
on the Offered Certificates. See "Risk Factors--
Nature of the Certificates--Uncertain
Distribution Amounts and Weighted Average Life"
in the Prospectus, "Certain Distribution,
Weighted Average Life and Yield Considerations"
herein and in the Prospectus and "Ratings" herein
and in the Prospectus.
Tax Status of the
Certificates................
The Offered Certificates[, other than the
Floating Rate Certificates,] will be treated as
representing ownership of an interest in the
related Underlying Notes for federal income tax
purposes. [The Floating Rate Certificates will be
treated as representing ownership of an interest
in the related Underlying Notes and the related
Swap Agreement.] Interest and original issue
discount, if any, on the Offered Certificates
generally will be included in gross income for
federal income tax purposes. [All holders of
Floating Rate Certificates, and all individual
holders in particular, should seriously consider
making an election to "integrate" the Underlying
Notes and the related Swap Agreement for tax
purposes by making a notation on their books and
records on or before the date the Floating Rate
Certificates are acquired.] See "Certain Federal
Income Tax Consequences" in the Prospectus and
herein.
Interest and original issue discount, if any, on
the Offered Certificates will be exempt from
California personal income tax, but not exempt
from the California franchise tax applicable to
banks and corporations. See "State Taxation" in
the Prospectus and herein.
ERISA Considerations........ Subject to the considerations described in "ERISA
Considerations" herein and in the Prospectus, the
Offered Certificates are eligible for purchase
with "plan assets" of any Plan (as defined below)
("Plan Assets"). A fiduciary or other person
contemplating purchasing the Offered Certificates
on behalf of or with Plan Assets of any employee
benefit plan or other plan or arrangement
(including but not limited to an insurance
company general account) that is subject to Title
I of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or Section 4975 of
the Internal Revenue Code of 1986, as amended
(the "Code") (collectively, "Plans"), should
carefully review with its legal advisors whether
the purchase or holding of the Offered
Certificates could give rise to a transaction
prohibited or not otherwise permissible under
ERISA or Section 4975 of the Code.
S-13
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The California Infrastructure and Economic Development Bank Special Purpose
Trust SCE-1 Rate Reduction Certificates, Series 199 - (the "Offered
Certificates"), together with the Certificates of other Series issued by the
Trust (collectively, the "Certificates"), will be issued by the Trust pursuant
to the Trust Agreement and the Series 199 - Supplement thereto. Pursuant to
the Trust Agreement, the Infrastructure Bank and the Certificate Trustee may
execute further series supplements in order to issue additional Series of
Certificates. This summary should be read together with the material under the
heading "Description of the Certificates" in the Prospectus.
GENERAL
The Offered Certificates will be issued on the Series Issuance Date and will
consist of Classes in the initial principal amounts, bearing the
Certificate Interest Rates and having the Scheduled Final Distribution Dates
and Termination Dates described under "Prospectus Supplement Summary--Summary
of Offered Certificates" herein.
[FLOATING RATE CERTIFICATES
Determination of Certificate Interest Rate on Floating Rate Certificates.
The initial Certificate Interest Rate on the Floating Rate Certificates for
the Interest Accrual Period (as defined below) ending , 1998, will be
percent. Following the initial Interest Accrual Period ending , the
Certificate Interest Rates applicable from time to time to the Floating Rate
Certificates will be determined by Bankers Trust Company (together with any
successor Agent Bank under the Trust Agreement, the "Agent Bank") in
accordance with the following provisions:
(a) On the second day on which dealings in deposits in U.S. Dollars are
transacted in the London interbank market (a "London Banking Day")
immediately preceding the first day of each Interest Accrual Period (as
defined below) and on the Closing Date with respect to the first Interest
Accrual Period (each such day, an "Interest Determination Date"), the Agent
Bank will determine "LIBOR" based on the offered rate for deposits in U.S.
Dollars for a period of three months commencing on the first day of such
Interest Accrual Period that currently appears on display page 3750 of the
Dow Jones Telerate Service for the purpose of displaying the London
interbank offered rate of major banks for U.S. Dollars as of 11:00 a.m.,
London time, on such Interest Determination Date (such display page being
the "Telerate Page"). Notwithstanding the foregoing, if no offered rate
appears, LIBOR for such Interest Accrual Period will be determined as if
the parties had specified the rate described in clause (b) below. The
Certificate Interest Rate applicable to the Class Certificates for the
Interest Accrual Period relating to an Interest Determination Date shall be
the sum of LIBOR as determined by the Agent Bank on the most recent
Interest Determination Date plus percent.
(b) With respect to an Interest Determination Date on which no offered
rate appears on the Telerate Page, the Agent Bank will request the
principal London office of each of four major banks in the London interbank
market, selected by the Agent Bank, to provide the Agent Bank with its
offered quotation for deposits in U.S. Dollars for a period of three
months, commencing on the second London Banking Day immediately following
such Interest Determination Date, to prime banks in the London interbank
market at approximately 11:00 a.m., London time, on such Interest
Determination Date and in a principal amount not less than $1 million that
is representative for a single transaction in U.S. dollars in such market
at such time. If at least two such quotations are provided, LIBOR for the
relevant Interest Accrual Period will be the arithmetic mean of such
quotations. If fewer than two quotations are provided, LIBOR for such
Interest Accrual Period will be the arithmetic mean of the rates quoted at
approximately 11:00 a.m. in The City of New York, on such Interest
Determination Date by three major banks in The City of New York selected by
the Agent Bank for loans in U.S. Dollars to leading European banks, for the
period of three months, commencing on the second London Banking Day
immediately following such Interest Determination Date and in a principal
amount not less than $1 million that is representative for a single
transaction in
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<PAGE>
U.S. dollars in such market at such time; provided, however, that if any of
the banks so selected by the Agent Bank are not quoting as mentioned in
this sentence, the Certificate Interest Rate in effect for such Interest
Accrual Period will be the Certificate Interest Rate in effect on such
Interest Determination Date.
(c) There will be no maximum or minimum Certificate Interest Rate.
Notwithstanding the foregoing, in the event that the Swap Agreement has been
terminated, the interest rate with respect to the Floating Rate Certificates
shall be percent per annum (calculated on the basis of a 360-day year
consisting of twelve 30-day months), effective as of the first day of the
Interest Accrual Period in which the termination of the Swap Agreement occurs.
Calculation of Quarterly Interest. The Agent Bank will, as soon as
practicable after 11:00 a.m. (London time) on each Interest Determination
Date, determine the Certificate Interest Rate applicable to, and calculate the
amount of interest payable on, each of the Floating Rate Certificates for the
relevant Interest Accrual Period. Interest payments will be made in an amount
equal to the product of (a) (1) the actual number of days in the related
Interest Accrual Period divided by 360, multiplied by (2) the applicable
Certificate Interest Rate and (b) the Class Principal Balance (as defined
herein) as of the close of business on the preceding Distribution Date after
giving effect to all payments of principal made to the Class
Certificateholders on such preceding Distribution Date (or, in the case of the
first Distribution Date, as of the Closing Date) (such amount, the "Quarterly
Interest" with respect to such Class). The "Interest Accrual Period" with
respect to any Distribution Date shall be the period from and including the
preceding Distribution Date (or, in the case of the first Distribution Date,
from and including the Closing Date) to and excluding such Distribution Date.
The determination of the Certificate Interest Rate and the Quarterly Interest
by the Agent Bank shall (in the absence of manifest error) be final and
binding upon all parties.
Notice of Floating Rate and Interest Payments. The Agent Bank will notify
the Infrastructure Bank, the Certificate Trustee and any Paying Agents of the
Floating Rate and the Quarterly Interest due on the Floating Rate Certificates
for each Interest Accrual Period and the relevant Distribution Date as soon as
possible after their determination but in no event later than the first
Business Day of any Interest Accrual Period.
Determination or Calculation by Certificate Trustee. If the Agent Bank fails
to determine a Floating Rate or calculate Quarterly Interest as described
under "--Calculation of Quarterly Interest" above at any time or for any
reason, the Certificate Trustee shall determine the Floating Rate and
calculate the Quarterly Interest as described under "--Calculation of
Quarterly Interest" above, and each such determination or calculation shall be
deemed to have been made by the Agent Bank. The determination by the Agent
Bank or the Certificate Trustee (as the case may be) of any Floating Rate and
calculation thereby of any Quarterly Interest shall, in the absence of
manifest error, be final and binding on all parties.
Agent Bank. The Infrastructure Bank will agree that, so long as any of the
Certificates remain outstanding, there will at all times be an Agent Bank. The
initial Agent Bank will be Bankers Trust Company. The Infrastructure Bank,
upon written notice to the Agent Bank and the Certificate Trustee, may
terminate the appointment of the Agent Bank for any reason. Notice of any such
termination will be given by the Certificate Trustee to Certificateholders
within ten days of such termination. If (a) any person is unable or unwilling
to continue to act as the Agent Bank, (b) the appointment of the Agent Bank is
terminated or (c) the Agent Bank fails duly to determine the Floating Rate
and/or the Quarterly Interest for any Interest Accrual Period, then the
Infrastructure Bank will appoint a successor Agent Bank to act as such in its
place and give notice of such appointment to the Certificate Trustee, provided
that neither the resignation nor removal of the Agent Bank shall take effect
until a successor has been appointed. Notice of any appointment of a successor
Agent Bank will be given by the Certificate Trustee to the Certificateholders
within ten days of such appointment. Any successor Agent Bank will be a
banking institution organized under the laws of any state or of the United
States with capital and surplus of at least $50 million and which is an active
dealer in LIBOR-based securities.]
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<PAGE>
DISTRIBUTIONS OF INTEREST
Interest on each Class of the Offered Certificates will accrue from the
Series Issuance Date at the rates indicated above (each, a "Certificate
Interest Rate"), in each case distributable quarterly on March 25, June 25,
September 25 and December 26 (or, if any such date is not a Certificate
Business Day, the next succeeding Certificate Business Day) each year (each, a
"Distribution Date"), commencing .
On each Distribution Date, the Certificate Trustee will distribute pro rata
to the Certificateholders of each Class as of the related Record Date interest
to the extent paid on such date with respect to the Class of Underlying Notes
with the same alphanumeric designation, as described below under "Description
of the Notes--Interest" [or, with respect to the Floating Rate Certificates,
payments received from the Swap Counterparty pursuant to the Swap Agreement.]
DISTRIBUTIONS OF PRINCIPAL
On each Distribution Date, the Certificate Trustee will distribute to the
Certificateholders of each Class as of the close of business on the related
Record Date principal to the extent paid on such date with respect to the
Class of Underlying Notes with the same alphanumeric designation, as described
below under "Description of the Notes--Principal."
The entire unpaid principal amount of the Offered Certificates will be due
and distributable on the date on which a Certificate Event of Default has
occurred and is continuing, if the Certificate Trustee or holders of a
majority in principal amount of the Offered Certificates of all Series then
outstanding have declared the Certificates to be immediately due and payable.
See "Description of the Certificates--Events of Default" in the Prospectus.
OPTIONAL REDEMPTION
The Trust shall be required to redeem the Offered Certificates if the Note
Issuer elects to redeem the Underlying Notes, which the Note Issuer may elect
to do on any Payment Date commencing with the Payment Date on which the
outstanding principal balance of the Underlying Notes (after giving effect to
payments that would otherwise be made on such date) has been reduced to less
than five percent of the initial principal balance. Such Payment Date will
correspond to the Distribution Date on which the outstanding principal balance
of the Offered Certificates has been reduced to less than five percent of the
Original Certificate Principal Balance. Notice of such redemption will be
given by the Trust to each holder of Certificates to be redeemed by first-
class mail, postage prepaid, mailed not less than five days nor more than 25
days prior to the date of redemption.
MANDATORY REDEMPTION
If the Seller is required to repurchase the Transition Property as described
under "Description of the Transition Property--Seller Representations and
Warranties and Repurchase Obligation" in the Prospectus, the Note Issuer will
be required to redeem the Underlying Notes on the fifth Certificate Business
Day following the date of such repurchase, and accordingly the Trust will be
required to redeem the Offered Certificates on such date. See "Description of
the Certificates--Mandatory Redemption" in the Prospectus.
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<PAGE>
[SUMMARY OF CERTAIN PROVISIONS OF THE SERIES SUPPLEMENT
TO THE TRUST AGREEMENT
SUMMARY OF CERTAIN PROVISIONS OF THE SWAP AGREEMENT
Pursuant to the Swap Agreement, on each Distribution Date, the Trust will be
obligated to pay to the Swap Counterparty the Net Trust Swap Payment (solely
from payments received on the related Class of Notes) or the Swap Counterparty
will be obligated to pay to the Trust an amount equal to the Net Trust Swap
Receipt.
The Swap Agreement requires that in the event of a downgrading of the Swap
Counterparty's credit rating by either of Moody's or S&P below "AAA" (a
"Downgrade Event"), the Swap Counterparty must attempt to assign its rights
and obligations under the Swap Agreement to a replacement counterparty (a
"Replacement Counterparty") rated "AAA" by such Rating Agencies.
If (a) the Swap Counterparty does not successfully make such an assignment
within 90 days of such a Downgrade Event, or (b) prior thereto the rating of
the Swap Counterparty is reduced below "AA" by either of Moody's or S&P and a
Replacement Counterparty rated "AAA" by both Moody's and S&P has not assumed
the Swap Counterparty's rights and obligations under the Swap Agreement within
30 days, then the Trust may attempt to assign the Swap Agreement as further
described below. If the Swap Counterparty certifies to the Trust that a
Replacement Counterparty rated "AAA" by both Moody's and S&P will not bid to
replace the Swap Counterparty, and such certification is reviewed and
confirmed by a recognized ISDA swap dealer appointed by the Trust with capital
and surplus of at least $50 million (the "Swap Agent"), then the Swap
Counterparty may assign the Swap Agreement to a Replacement Counterparty that
is rated "AAA" by either of Moody's or S&P, and not rated below "AA" by the
other Rating Agency. This process will continue until the highest rated
Replacement Counterparty can be identified, which, in any event, will be rated
not lower than "A" by Moody's and S&P.
If, upon conclusion of the above-referenced 90 day or 30 day period, the
Swap Counterparty's rights and obligations under the Swap Agreement have not
been successfully assigned by the Swap Counterparty, then the Swap Agent shall
independently solicit a Replacement Counterparty using the process described
above for a period not exceeding 90 days, but in no event later than the date
the Swap Counterparty is no longer rated at least "A" by both Moody's and S&P.
If the Swap Agent is successful in identifying a Replacement Counterparty, the
Trust will execute an agreement (substantially in the form of the Swap
Agreement) with the Replacement Counterparty and the Swap Agreement and the
Swap Counterparty's rights and obligations shall be deemed to have been
assigned to such Replacement Counterparty effective as of the Distribution
Date immediately succeeding such execution, without any further action by the
Swap Counterparty. If, upon conclusion of such 90 day period (or, if earlier,
upon the downgrading of the Swap Counterparty below "A" by either Moody's or
S&P), a qualified Replacement Counterparty has not entered into a Swap
Agreement with the Trust, an event of default will be deemed to have occurred
with respect to the Swap Agreement, with the Swap Counterparty as the
defaulting party. In addition, an event of default will also occur upon the
failure by either the Trust or the Swap Counterparty to make, when due, any
payment under the Swap Agreement if such failure is not remedied on or before
the fifth Certificate Business Day after the occurrence of such failure. Upon
the occurrence of any event of default by the Swap Counterparty, the Trust is
required under the Trust Agreement to terminate the Swap Agreement, and upon
the occurrence of an event of default by the Trust, the Swap Counterparty may
terminate the Swap Agreement.
An "Event of Default" under the Swap Agreement, in addition to the Downgrade
Event discussed above, would also occur upon: (i) the failure of the Trust or
the Swap Counterparty to pay any amount when due under the Swap Agreement
after giving effect to the applicable grace period, if any; (ii) the
occurrence of certain events of insolvency or bankruptcy of the Trust or the
Swap Counterparty and (iii) certain other standard events of default which are
applicable (solely with respect to the Swap Counterparty) under the Swap
Agreement.
The Swap Agreement may also be terminated in the event of an "illegality,"
which would occur due to the adoption of, or any change in, any applicable
law, or due to the promulgation of, or any change in, the
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interpretation by any court, tribunal or regulatory authority with competent
jurisdiction over any applicable law, as a result of which it becomes unlawful
for the Trust or the Swap Counterparty to perform any obligation to make a
payment or to receive a payment or to comply with any other material provision
of the Swap Agreement. If the Swap Agreement is terminated because of an
"illegality" as described above, neither the Trust nor the Swap Counterparty
will be required to pay the other party's resulting out-of-pocket expenses.
If the Swap Agreement is terminated because of an event of default as
described above and the Swap Counterparty is the defaulting party, the Swap
Counterparty is required to pay the Trust's resulting out-of-pocket expenses.
The Trust is not required to pay the Swap Counterparty's out-of-pocket
expenses even if the Trust is the defaulting party. In addition, upon an
assignment of the Swap Agreement as a result of a Downgrade Event, the Swap
Counterparty will be responsible for the payment of all resulting fees and
expenses with respect thereto, including any Swap Agent's fees. In the event
of an early termination of the Swap Agreement for any reason, the Swap
Counterparty is required to make a marked-to-market payment of its obligations
to the Trust, but the Trust is not required to make any marked-to-market
payment of its obligations to the Swap Counterparty. Any such termination
payment will be distributed to the Floating Rate Certificateholders on a pro-
rata basis on the Distribution Date so received, or if not received on a
Distribution Date, on a Special Distribution Date.
In the event that the Swap Agreement is terminated for any reason, the
interest rate payable with respect to the Floating Rate Certificates will
automatically convert to a fixed rate equal to the interest rate payable on
the related Class of Notes effective as of the first day of the Interest
Accrual Period in which such termination event occurs or, in the case of a
termination resulting from the failure of the Swap Counterparty to pay a Net
Trust Swap Receipt, effective as of the first day of the Interest Accrual
Period preceding such termination. Such fixed interest rate may be
substantially less than the rate that might otherwise be payable on the
Floating Rate Certificates, and such conversion may adversely affect both the
liquidity and the market value of the Floating Rate Certificates.
Under the Trust Agreement, the Trust has covenanted to enforce its rights
under the Swap Agreement, and to promptly appoint a Swap Agent, during the
continuance of a Downgrade Event.]
THE SWAP COUNTERPARTY
Caisse des Depots et Consignations (the "Swap Counterparty") is a special
national legislative public instrumentality (etablissement public a statut
legal special) governed by French administrative law. As of December 31, 1996,
the consolidated balance sheet total assets of Caisse des Depots et
Consignations was FRF 842.7 billion and equity was FRF 57.8 billion. Upon
written request additional information can be obtained from Caisse des Depots
et Consignations, Services des etudes economiques et financieres, 195
Boulevard Saint Germain, 75007 Paris, France.]
DESCRIPTION OF THE NOTES
GENERAL
The SCE Funding LLC Notes, Series 199 - (the "Underlying Notes"), will be
issued by the Note Issuer to the Trust on (the "Series Issuance
Date"), pursuant to the Note Indenture and the Series 199 - Supplement
thereto. Pursuant to the Note Indenture, the Note Issuer and the Note Trustee
may execute further series supplements in order to issue additional Series of
Notes. This summary should be read together with the material under the
heading "Description of the Notes" in the Prospectus.
S-18
<PAGE>
The Underlying Notes, together with the Notes of other Series issued by the
Note Issuer (collectively, the "Notes"), will be issued pursuant to the Note
Indenture. The Underlying Notes will be comprised of the following
Classes:
<TABLE>
<CAPTION>
INITIAL NOTE
PRINCIPAL SCHEDULED MATURITY INTEREST
CLASS AMOUNT DATE FINAL MATURITY DATE RATE
----- ---------- ---------------------- ---------------------- --------
<S> <C> <C> <C> <C>
$ , ( years) , ( years) . %
$ , ( years) , ( years) . %
$ , ( years) , ( years) . %
$ , ( years) , ( years) . %
$ , ( years) , ( years) . %
</TABLE>
SECURITY
To secure the payment of principal of and interest on the Notes, the Note
Issuer has granted to the Note Trustee, for the benefit of the holders of the
Notes (the "Noteholders"), a security interest in all of the Note Issuer's
right, title and interest in and to the Note Collateral. The Note Collateral
is described more specifically under "Description of the Notes--Security" in
the Prospectus.
INTEREST
Interest on each Class of the Underlying Notes will accrue from the Series
Issuance Date at the rates indicated above (each, a "Note Interest Rate"), in
each case payable quarterly on March 25, June 25, September 25 and December 26
(or, if any such date is not a Certificate Business Day, the next succeeding
Certificate Business Day) each year (each, a "Payment Date"), commencing
, to the persons in whose names the Underlying Notes are registered
at the close of business on the related Record Date.
On each Payment Date, Noteholders of each Class will be entitled to receive
an amount equal to one-fourth of the product of (a) the applicable Note
Interest Rate and (b) the applicable Class Principal Balance as of the close
of business on the preceding Payment Date after giving effect to all payments
of principal made to the Noteholders on such preceding Payment Date; provided,
however, that with respect to the initial Payment Date, interest on each
outstanding Class Principal Balance will accrue from and including the Series
Issuance Date to but excluding such first Payment Date. Interest will be
calculated on the basis of a 360-day year of twelve 30-day months[, except
that interest on Floating Rate Certificates will be calculated based upon the
actual days in the Interest Accrual Period and a 360 day year]. See
"Description of the Notes--Interest and Principal" in the Prospectus.
PRINCIPAL
On each Payment Date, each Class of the Underlying Notes will be entitled to
receive payments of principal as follows: [TO BE PREPARED AT ISSUANCE].
Principal will be payable at the Corporate Trust Office of the Note Trustee in
the City of , or at the office or agency of the Note Issuer maintained
for such purposes in the Borough of Manhattan, the City of New York.
The following Expected Amortization Schedule sets forth the scheduled
outstanding Class Principal Balance for each Class of the Underlying Notes at
each Payment Date from the Series Issuance Date to the Scheduled Maturity Date
for such Class. In preparing the following table, it has been assumed that (i)
the Offered Certificates are issued on , (ii) payments on the Offered
Certificates are made on each Distribution Date, commencing ,
199 , (iii) the Servicing Fee equals percent, (iv) there are no net
earnings on amounts on deposit in the Collection Account, (v) Operating
Expenses are $ per quarter, Quarterly Administration Fees are $ per
quarter, and amounts owed to the Note Trustee, the Delaware Trustee and the
Certificate Trustee are $ per quarter, and all such amounts are payable in
arrears and (vi) all FTA Collections are deposited in the Collection Account
in accordance with the Seller's forecasts.
S-19
<PAGE>
EXPECTED AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
OUTSTANDING PRINCIPAL BALANCE
-----------------------------------------------------
DATE CLASS CLASS CLASS CLASS CLASS SERIES 199 -
- ---- ------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Series Issuance Date
, 199 .......... $ $ $ $ $ $
, 199 ..........
, 199 ..........
, 199 ..........
, 199 ..........
[Etc.]
Weighted Average Life...
</TABLE>
There can be no assurance that the Class Principal Balances of the
Underlying Notes and the related Offered Certificates will be reduced at the
rates indicated in the foregoing table, and the actual reductions in such
Class Principal Balances may be slower than those indicated in the chart. See
"Risk Factors" in the Prospectus for a discussion of various factors which
may, individually or in the aggregate, affect the rate of reductions of the
Class Principal Balances of the Underlying Notes and the Offered Certificates.
The entire unpaid principal amount of the Underlying Notes will be due and
payable on the date on which a Note Event of Default has occurred and is
continuing, if the Note Trustee or holders of a majority in principal amount
of the Notes of all Series then outstanding have declared the Underlying Notes
to be immediately due and payable. See "Description of the Notes--Note Events
of Default; Rights Upon Note Event of Default" in the Prospectus.
OPTIONAL REDEMPTION
The Note Issuer may redeem, at its option, the Underlying Notes, and
accordingly cause the Trust to redeem the Offered Certificates, on any Payment
Date commencing with the Payment Date on which the outstanding principal
balance of the Underlying Notes (after giving effect to payments that would
otherwise be made on such date) has been reduced to less than five percent of
the initial principal balance of the Underlying Notes. Notice of such
redemption will be given by the Note Issuer to each holder of Underlying Notes
by first-class mail, postage prepaid, mailed not less than five days nor more
than 25 days prior to the date of redemption.
OVERCOLLATERALIZATION AMOUNT
The Financing Order provides that the Note Issuer, as the owner of the
Transition Property, is entitled to collect an additional amount (for the
Underlying Notes, the "Overcollateralization Amount") which is intended to
enhance the likelihood that payments on the Underlying Notes will be made in
accordance with the Expected Amortization Schedule. The Overcollateralization
Amount for the Underlying Notes will be $ , which is 0.50 percent of the
initial principal amount of the Underlying Notes. The Overcollateralization
Amount will be collected ratably over the life of the Offered Certificates
according to the following schedule:
REQUIRED OVERCOLLATERALIZATION LEVEL SCHEDULE
<TABLE>
<CAPTION>
REQUIRED
OVERCOLLATERALIZATION
PAYMENT DATE LEVEL
------------ ---------------------
<S> <C>
, 199 ....................................... $
, 199 ....................................... $
, 199 ....................................... $
[Etc.].............................................. $
</TABLE>
S-20
<PAGE>
OTHER CREDIT ENHANCEMENT
Capital Subaccount. Upon the issuance of the Underlying Notes, the Seller
will make a capital contribution of $ to the Note Issuer. Such amount
is equal to 0.50 percent of the initial principal amount of the Underlying
Notes. Such amount, less $100,000 in the aggregate for all Series of Notes, is
the Required Capital Level with respect to the Underlying Notes and will be
deposited into the Capital Subaccount. Withdrawals from and deposits to the
Capital Subaccount will be made as described under "Description of the Notes--
Allocations; Payments" in the Prospectus.
Reserve Subaccount. FTA Collections available with respect to any Payment
Date in excess of amounts payable as (a) expenses of the Note Issuer and the
Trust, (b) payments of principal of and interest on the Underlying Notes, (c)
allocations to the Overcollateralization Subaccount and (d) allocations to the
Capital Subaccount (all as described under "Description of the Notes--
Allocations; Payments" in the Prospectus) will be allocated to the Reserve
Subaccount. On each Payment Date, the Note Trustee will draw on amounts in the
Reserve Subaccount, to the extent amounts available in the General Subaccount
are insufficient to make scheduled payments on the Underlying Notes or to make
required allocations to the Overcollateralization Subaccount or the Capital
Subaccount.
ALLOCATIONS; PAYMENTS
On each Payment Date, the Note Trustee will at the direction of the Servicer
apply all amounts on deposit in the Collection Account with respect to the
prior three-month period in the manner described under "Description of the
Notes--Allocations; Payments" in the Prospectus.
The Certificate Trustee will then apply all amounts paid by the Note Trustee
on the related Payment Date with respect to the Underlying Notes in the
following priority:
[TO BE PREPARED AT ISSUANCE]
DESCRIPTION OF THE TRANSITION PROPERTY
FINANCING ORDER AND ADVICE LETTERS
The Financing Order requires the Seller to submit an Issuance Advice Letter
to the CPUC with respect to each Series of Certificates issued. The first
Issuance Advice Letter [, which was filed in connection with the Offered
Certificates,] established the FTA Charges pursuant to which nonbypassable
charges will be payable by the applicable classes of Customers in an amount
sufficient to recover, within the time period specified in the Issuance Advice
Letter, the FTA Charges designated in the Issuance Advice Letter based on
factors including, but not limited to, the projected electricity usage of each
such Customer and the rate of delinquencies and write-offs. These charges are
nonbypassable in that applicable consumers cannot avoid paying them by
purchasing electricity from a supplier other than the Seller. [Subsequent
Issuance Advice Letters have modified the FTA Charges to support the issuance
of additional Series of Certificates, including the Offered
Certificates.]
The Issuance Advice Letter filed in connection with the Offered Certificates
establishes the following initial FTA Charges which will be billed to
Customers beginning on the Series Issuance Date and will remain in effect
until such FTA Charges are adjusted as described below:
<TABLE>
<CAPTION>
CLASS OF
CUSTOMERS FTA CHARGE PER KILOWATT HOUR
--------- ----------------------------
<S> <C>
RESIDENTIAL
SMALL
COMMERCIAL
</TABLE>
As of the date hereof, the FTA Charge for an average Residential Customer
will amount to approximately $ per month, and the FTA Charge for an
average Small Commercial Customer will amount to approximately
S-21
<PAGE>
$ per month. The average monthly electricity bill (excluding local taxes)
during 1996 was $64.98 for a Residential Customer and $114.15 for a Small
Commercial Customer.
ADJUSTMENTS TO THE FTA CHARGES
[The following table reflects information regarding the changes to the FTA
Charges which have been requested through Advice Letters since the Financing
Order was issued:]
FTA CHARGE FOR RESIDENTIAL CUSTOMERS
<TABLE>
<CAPTION>
RESULTING
ADJUSTMENT AGGREGATE
ADVICE LETTER TO FTA CHARGE FTA CHARGE EFFECTIVE DATE
FILING DATE PER KILOWATT HOUR PER KILOWATT HOUR OF ADJUSTMENT
------------- ----------------- ----------------- --------------
<S> <C> <C> <C>
</TABLE>
[TO BE PREPARED UPON ISSUANCE]
FTA CHARGE FOR SMALL COMMERCIAL CUSTOMERS
<TABLE>
<CAPTION>
RESULTING
ADJUSTMENT AGGREGATE
ADVICE LETTER TO FTA CHARGE FTA CHARGE EFFECTIVE DATE
FILING DATE PER KILOWATT HOUR PER KILOWATT HOUR OF ADJUSTMENT
------------- ----------------- ----------------- --------------
<S> <C> <C> <C>
</TABLE>
[TO BE PREPARED UPON ISSUANCE]
See "Description of the Transition Property--Adjustments to the FTA Charges"
in the Prospectus.
CERTAIN DISTRIBUTION, WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS
The rate of principal distributions on each Class of Offered Certificates,
the aggregate amount of each interest distribution on each Class of Offered
Certificates and the actual maturity date of each Class of Offered
Certificates will be related to the rate and timing of FTA Collections.
Accelerated receipts of FTA Collections will not result in principal
distributions on the Offered Certificates earlier than the Scheduled Final
Distribution Dates since receipts in excess of the amounts necessary to
amortize the Offered Certificates in accordance with the applicable Expected
Amortization Schedule will be deposited in the Reserve Subaccount for
distribution in accordance with such schedule. However, delayed receipts of
FTA Collections may result in principal distributions on the Offered
Certificates that occur later than the related Scheduled Final Distribution
Dates.
The actual distributions on each Distribution Date for each Class of Offered
Certificates and the weighted average life thereof will be affected primarily
by the rate of FTA Collections and the timing of receipt of such FTA
Collections, as well as amounts available in the Overcollateralization
Subaccount, Capital Subaccount and Reserve Subaccount. Since each FTA Charge
will consist of a charge per kilowatt hour of usage by the applicable classes
of Customers, the aggregate amount of FTA Collections and the rate of
principal amortization on the Offered Certificates will depend, in part, on
actual energy usage by Customers and the rate of delinquencies and write-offs.
Although the amounts of the FTA Charges will be adjusted from time to time
based in part on the actual rate of FTA Collections, no assurances are given
that the Servicer will be able to forecast accurately actual electricity usage
and the rate of delinquencies and write-offs or implement adjustments to the
FTA Charges that will cause FTA Collections to be received at any particular
rate. If FTA Collections are received at a slower rate than expected, an
Offered Certificate may be retired later than expected. Because principal will
only be distributed at a rate not faster than that contemplated in the
Expected Amortization Schedule, except in the event of an early redemption or
the acceleration of the maturity of the Offered Certificates after an Event of
Default, the Offered Certificates are not expected to mature earlier than
scheduled. A distribution on a date that is earlier than forecasted will
result in a shorter weighted average life, and a distribution on a date that
is later than
S-22
<PAGE>
forecasted will result in a longer weighted average life. In addition, if a
larger portion of the delayed distributions on the Offered Certificates are
received in later years, this will result in a longer weighted average life of
the Offered Certificates.
No assurances are given that the representations made herein and in the
Prospectus as to the particular factors that will affect the rate of FTA
Collections, the relative importance of such factors, the percentage of the
principal balance of the Offered Certificates that will be distributed as of
any date or the overall rate of FTA Collections will be realized.
In addition, the Note Issuer has the option to redeem all of the outstanding
Underlying Notes on any Payment Date commencing on the Payment Date on which
the outstanding principal balance of the Underlying Notes (after giving effect
to payments that would otherwise be made on such date) has been reduced to
less than five percent of the initial principal balance of the Underlying
Notes. Redemption of the Underlying Notes will require the Certificate Trustee
to redeem the Offered Certificates. Redemption will cause such Offered
Certificates to be retired earlier than would otherwise be expected and may
adversely affect the yield to maturity of the Offered Certificates. There can
be no assurance as to whether the Note Issuer will exercise the option to
redeem the Underlying Notes, or as to whether Certificateholders will be able
to receive an equally attractive rate of return upon reinvestment of the
proceeds resulting from any such redemption.
THE SELLER AND SERVICER
The following is information which supplements that provided under the
heading "The Seller and Servicer" in the Prospectus. For a more complete
discussion of the Seller and Servicer, see "The Seller and Servicer" in the
Prospectus.
Southern California Edison Company reported net income of $233.3 million on
revenues of $2.4 billion for the quarter ended September 30, 1997, as compared
with net income of $255.6 million on revenues of $2.3 billion for the quarter
ended September 30, 1996. Southern California Edison Company reported net
income of $655.4 million on revenues of $7.6 billion for the year ended
December 31, 1996, as compared with net income of $679.7 million on revenues
of $7.9 billion for the year ended December 31, 1995.
SERVICING
GENERAL
The Servicer, as agent for the Note Issuer, will manage, service and
administer, and make collections in respect of, the Transition Property
pursuant to the Servicing Agreement between the Servicer and the Note Issuer.
For a detailed discussion of the Servicer's procedures, the manner in which
payments from Customers are remitted to the Collection Account, and related
matters, see "Servicing" in the Prospectus.
NO SERVICER ADVANCES
The Servicer will not make any advances of interest or principal on the
Underlying Notes.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee for each calendar
quarter on each Payment Date, in an amount equal to (i) one-fourth of
percent of the outstanding principal balance of the Underlying Notes (before
giving effect to payments on such date) for so long as FTA Charges are
included as a line item on bills otherwise sent to Customers and (ii) one-
fourth of percent of the outstanding principal balance of the Underlying
Notes (before giving effect to payments on such date) if FTA Charges are not
included as a line item on bills otherwise sent to Customers but, instead, are
billed separately to Customers. The Servicing Fee (together
S-23
<PAGE>
with any portion of the Servicing Fee that remains unpaid from prior Payment
Dates) will be paid solely to the extent funds are available therefor as
described under "Description of the Notes--Allocations; Payments" in the
Prospectus. The Servicing Fee will be paid prior to the distribution of any
amounts in respect of interest on and principal of the Underlying Notes. The
Servicer will be entitled to retain as additional compensation net investment
income on FTA Payments received by the Servicer prior to remittance thereof to
the Collection Account and the portion of late fees, if any, paid by Customers
relating to the FTA Payments.
AGGREGATORS AND ALTERNATIVE ENERGY SUPPLIERS
As part of the deregulation of the California electric industry described
elsewhere herein, there will be an unbundling of generation, transmission,
distribution and billing services. A decision of the CPUC allows alternative
energy service providers ("ESPs") to provide a consolidated bill to their
retail customers covering amounts owed to the ESP for electricity, amounts
owed to the utilities for distribution and the other charges, including the
applicable FTA Charge.
Any ESP that provides consolidated billing is required to pay the utility
amounts billed by the utility to the ESP, including the FTA Charges,
regardless of the ESP's ability to collect such amounts from its customers. In
such event, the collecting ESP will, in effect, replace the Customer as the
obligor with respect to such FTA Charges, and the Servicer, on behalf of the
Note Issuer, will have no right to collect such FTA Charges from the Customer.
There can be no assurance that each ESP will utilize the same customer credit
standards as the Servicer, or that the Servicer will be able to mitigate
credit risks relating to ESPs in the same manner in which it mitigates such
risks relating to its Customers. The Servicer, on behalf of the Note Issuer,
will pursue any ESP that fails to remit applicable FTA Charges in a manner
similar to that in which the Servicer will pursue any failure by a Customer to
remit FTA Charges. The Servicer will not have the right to pursue Customers of
an ESP that defaults in the payment of FTA Charges. However, the Servicer will
have the right to bill and collect FTA Charges and other amounts payable to
the Servicer directly from all of the ESP's consolidated billing Customers
following certain payment defaults by an ESP. An ESP that has defaulted will
nevertheless have the right to elect consolidated billing six months after
cure of its default upon the satisfaction of certain conditions. Frequent
changes in Customer billing and payment arrangements may result in Customer
confusion and the misdirection of payments, which could have the effect of
causing delays in distribution to Certificateholders. Neither the Seller nor
the Servicer will pay any shortfalls resulting from the failure of any ESPs to
forward FTA Payments to Edison, as Servicer. The true-up adjustment mechanism
for the FTA Charges, as well as amounts available in the Overcollateralization
Subaccount, the Capital Subaccount and the Reserve Subaccount, are intended to
mitigate this risk relating to the timing of collections and payments.
However, delays in distributions to Offered Certificateholders might occur as
a result of delays in implementation of the adjustment mechanism. See "Risk
Factors--Potential Servicing Issues--Reliance on Aggregators and Other
Suppliers" in the Prospectus.
STATEMENTS BY SERVICER
For each Remittance Date and each Distribution Date, the Servicer will
provide the statements and reports described under "Servicing--Statements by
Servicer" in the Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Interest on the Offered Certificates will be included in gross income for
federal income tax purposes.
GENERAL
The following is a general discussion of material federal income tax
consequences relating to the purchase, ownership and disposition of an Offered
Certificate, and is based on the opinion of Brown & Wood LLP, counsel to the
Trust ("Special Counsel"). This discussion represents the opinion of Special
Counsel, subject to the qualifications set forth therein or herein. This
discussion is based on current provisions of the Internal Revenue
S-24
<PAGE>
Code of 1986, as amended (the "Code"), currently applicable Treasury
regulations and judicial and administrative rulings and decisions.
Legislative, judicial or administrative changes may be forthcoming that could
alter or modify the statements and conclusions set forth herein. Any such
changes or interpretations may or may not be retroactive and could affect tax
consequences to Offered Certificateholders.
The discussion does not address all of the tax consequences relevant to a
particular Offered Certificateholder in light of that Offered
Certificateholder's circumstances, and some Offered Certificateholders may be
subject to special tax rules and limitations not discussed below (e.g., life
insurance companies, tax-exempt organizations, financial institutions or
broker-dealers). CONSEQUENTLY, EACH PROSPECTIVE OFFERED CERTIFICATEHOLDER IS
URGED TO CONSULT ITS OWN TAX ADVISOR IN DETERMINING THE FEDERAL, STATE, LOCAL
AND FOREIGN INCOME AND ANY OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF AN OFFERED CERTIFICATE.
For purposes of this discussion, "U.S. Person" means (i) a citizen or
resident of the United States; (ii) a corporation (or entity treated as a
corporation for tax purposes) created or organized in the United States, or
under the laws of the United States or of any state thereof (including the
District of Columbia); (iii) a partnership (or entity treated as a partnership
for tax purposes) organized in the United States, or under the laws of the
United States or of any state thereof (including the District of Columbia),
unless provided otherwise by future Treasury regulations; (iv) an estate the
income of which is includible in gross income for U.S. federal income tax
purposes regardless of its source; or (v) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons has the authority to control all
substantial decisions of the trust. Notwithstanding the last clause of the
preceding sentence, to the extent provided in Treasury regulations, certain
trusts in existence on August 20, 1996, and treated as U.S. Persons prior to
such date, may elect to continue to be U.S. Persons. The term "U.S. Offered
Certificateholder" means any U.S. Person and any other person to the extent
that income attributable to its interest in an Offered Certificate is
effectively connected with that person's conduct of a U.S. trade or business.
The term "non-U.S. Offered Certificateholder" means any person other than a
U.S. Offered Certificateholder.
The discussion assumes that an Offered Certificate is issued in registered
form. Moreover, the discussion assumes that any original issue discount
("OID") on the Underlying Notes (i.e., any excess of the stated redemption
price at maturity of the Underlying Note over its issue price) is less than a
de minimis amount (i.e., 0.25 percent of its stated redemption price at
maturity multiplied by the Underlying Note's weighted average maturity), all
within the meaning of the OID regulations.
TREATMENT OF THE OFFERED CERTIFICATES
The Seller has received a ruling from the Internal Revenue Service ("IRS")
holding that the Underlying Notes are obligations of the Seller for federal
income tax purposes. Special Counsel has opined that the Trust will not be a
business entity classified as a corporation or a publicly traded partnership
treated as a corporation, but will be treated as a grantor trust. Further,
Special Counsel has opined that each Class of Offered Certificates bearing a
fixed interest rate (the "Fixed Rate Certificates") will evidence ownership of
a fractional undivided beneficial interest in the related Class of Underlying
Notes, and each Class of Floating Rate Certificates will evidence ownership of
a fractional undivided beneficial interest in the related Class of Underlying
Notes and the related Swap Agreement.
TAXATION OF U.S. FIXED RATE CERTIFICATEHOLDERS
General. Assuming, in accordance with Special Counsel's opinion, that the
Fixed Rate Certificates represent ownership of the Underlying Notes for
federal income tax purposes, stated interest on a beneficial interest in such
Offered Certificates will be taxable as ordinary income when received or
accrued by U.S. Offered Certificateholders in accordance with their method of
accounting. Generally, interest received on the Fixed Rate Certificates will
constitute "investment income" for purposes of certain limitations of the Code
concerning the deductibility of investment interest expense.
S-25
<PAGE>
Market Discount. A U.S. Offered Certificateholder who purchases (including a
purchase at original issuance for a price less than the issue price) an
interest in a Fixed Rate Certificate at a discount that exceeds any
unamortized OID may be subject to the "market discount" rules of sections 1276
through 1278 of the Code. These rules generally provide that, subject to a
statutorily-defined de minimis exception, if a U.S. Offered Certificateholder
acquires a Fixed Rate Certificate at a market discount (i.e., at a price below
its stated redemption price at maturity or its revised issue price if it was
issued with OID) and thereafter recognizes gain upon a disposition of the
Fixed Rate Certificate (or disposes of it in certain non-recognition
transactions, including by gift), the lesser of such gain (or appreciation, in
the case of an applicable non-recognition transaction) or the portion of the
market discount that accrued while the Fixed Rate Certificate was held by such
holder will be treated as ordinary interest income at the time of the
disposition. In addition, a U.S. Offered Certificateholder who acquired a
Fixed Rate Certificate at a market discount would be required to treat as
ordinary interest income the portion of any principal payment attributable to
accrued market discount on such Fixed Rate Certificate. Generally, market
discount accrues ratably over the life of a debt instrument unless the debt
holder elects to accrue market discount on a constant yield to maturity basis.
It is not clear how either the ratable accrual or constant yield accrual
methodologies apply to instruments such as the Fixed Rate Certificates where
the timing of principal payments is uncertain. Investors should consult their
own tax advisors concerning the accrual of market discount. The market
discount rules also provide that a U.S. Offered Certificateholder who acquires
a Fixed Rate Certificate at a market discount may be required to defer a
portion of any interest expense that otherwise may be deductible on any
indebtedness incurred or maintained to purchase or carry the Fixed Rate
Certificate until the holder disposes of the Offered Certificate in a taxable
transaction.
A U.S. Offered Certificateholder who acquired a Fixed Rate Certificate at a
market discount may elect to include market discount in income as the discount
accrues, either on a ratable basis or, if elected, on a constant yield basis.
The current inclusion election, once made, applies to all market discount
obligations acquired on or after the first day of the first taxable year to
which the election applies, and may not be revoked without the consent of the
IRS. If a holder elects to include market discount in income in accordance
with the preceding sentence, the foregoing rules with respect to the
recognition of ordinary income on sales, principal payments and certain other
dispositions of the Fixed Rate Certificates and the deferral of interest
deductions on indebtedness related to the investor certificates will not
apply.
Amortizable Bond Premium. A U.S. Offered Certificateholder who purchases an
interest in a Fixed Rate Certificate at a premium may elect to offset the
premium against interest income under the constant yield method over the
remaining term of the Fixed Rate Certificate in accordance with the provisions
of Section 171 of the Code. A holder that elects to amortize bond premium must
reduce the tax basis in the related Fixed Rate Certificate by the amount of
bond premium used to offset interest income. If a Fixed Rate Certificate
purchased at a premium is redeemed in full prior to its maturity, a holder who
has elected to amortize bond premium should be entitled to a deduction in the
taxable year of redemption in an amount equal to the excess, if any, of the
adjusted basis of the Fixed Rate Certificate over the greater of the
redemption price or the amount payable on maturity.
[TAXATION OF U.S. FLOATING RATE CERTIFICATEHOLDERS
Generally, as explained above, each Floating Rate Certificateholder will be
treated as having purchased an interest in an Underlying Note and an interest
in the related Swap Agreement. The tax treatment of the Certificateholder's
interest in the Underlying Note would generally be the same as that described
above in the case of a Certificateholder who purchased an interest in a Class
of Fixed Rate Certificates.
Each Floating Rate Certificateholder will include in income its share of the
fixed rate interest on the Underlying Note in accordance with its regular
method of tax accounting. As the tax owner of an undivided interest in the
Swap Agreement related to that Class, the Certificateholder would account for
income and expense with respect to the Swap Agreement under the rules set out
in Treas. Reg. (S)1.446-3 (the "Notional Principal Contract" or "NPC"
regulations).
S-26
<PAGE>
The tax treatment of payments made or received under the Swap Agreement
depends on whether the payments are periodic payments, nonperiodic payments,
or termination payments. A periodic payment is any payment made under a
contract payable at intervals of one year or less that is based on a specified
index (which includes a fixed rate) and a notional principal amount. A
nonperiodic payment is usually an upfront payment made by one party to a
notional principal contract to induce the other party to enter into the
contract. The Swap Agreement will not call for any non-periodic payments.
For any taxable year, a Floating Rate Certificateholder would include in, or
deduct from, gross income the Certificateholder's net swap income or expense.
Net swap income or expense would include the sum of all periodic payments
recognized and attributable to the year.
Periodic payments made on any quarterly payment date would be allocated
ratably among the days in the quarter, and a Floating Rate Certificateholder
would include or deduct its share of the net periodic payments allocated to
the year.
Each purchaser of a Floating Rate Certificate would be required to allocate
its purchase price between the Underlying Note and the related Swap Agreement
based on their relative fair market values. For example, even if a Floating
Rate Certificate were purchased for its face amount, the holder might be
considered to have acquired the Underlying Note at a discount and to have
acquired the related Swap Agreement for the remaining purchase price. This
bifurcation of the purchase price of the Floating Rate Certificate could
result in aggregate net income to the Floating Rate Certificateholder that
differed somewhat in any particular year from the interest actually payable on
the Certificate for such year. A holder could avoid such results by making an
integration election on or before the acquisition date of the Floating Rate
Certificate in the manner described below under "--Integration of the
Underlying Notes and the Swap Agreement."
Moreover, if an individual were to hold a Floating Rate Certificate, any net
swap expense for any year would be treated as a miscellaneous itemized
deduction. In computing taxable income, an individual is allowed to deduct
miscellaneous itemized deductions only to the extent the sum of such
deductions exceeds two percent of the individual's adjusted gross income.
Further, an individual is not allowed a deduction for miscellaneous itemized
deductions in computing alternative minimum taxable income. Thus, for any
period for which the fixed rate on the Underlying Notes exceeded the floating
rate payments made to the Trust under the Swap Agreement, an individual would
include in income interest at the full fixed rate payable on the Underlying
Note, but could be precluded from deducting the net swap expense for the
period due to the limitations imposed on miscellaneous itemized deductions. An
individual could avoid such treatment by making an integration election in the
manner described below under "--Integration of the Underlying Notes and the
Swap Agreement."
A termination payment is a payment made to assign or extinguish a party's
rights and obligations under a swap contract. If a Certificateholder were to
sell its interest in a Floating Rate Certificate, it would be considered to
have made or to have received a termination payment with respect to its
interest in the Swap Agreement. The Certificateholder would recognize gain or
loss in the year that it terminated its interest in the Swap Agreement
determined by reference to the amount of the termination payment made or
received and the Certificateholder's basis in the Swap Agreement.
A Floating Rate Certificateholder could also receive a termination payment
if a Swap Counterparty default event were to occur. If such an event were to
occur, the Certificateholder could recognize gain upon receipt of a
termination payment.
INTEGRATION OF THE UNDERLYING NOTES AND THE SWAP AGREEMENT
In lieu of the tax treatment described above, a Floating Rate
Certificateholder could identify the purchase of a Floating Rate Certificate
as the acquisition of a fixed rate debt instrument together with a Treas. Reg.
(S)1.1275-6 hedge, under Treas. Reg. (S)1.1275-6. In essence, if the
Certificateholder identifies the Underlying Note and the related Swap
Agreement as an integrated transaction on its books and records, on or before
the acquisition date
S-27
<PAGE>
of the Floating Rate Certificate, it may be able to integrate the cash flows
on the Swap Agreement and the fixed rate Underlying Note and treat the
combined cash flows as a single synthetic floating rate debt instrument. All
interest on the synthetic floating rate debt instrument would be treated as
original issue discount, includible in income as it accrues regardless of the
holder's method of accounting. The disposition of a Floating Rate Certificate
that was identified under the integration regime would be treated as the
disposition of a single synthetic floating rate debt instrument.
If a Swap Counterparty default event were to occur so that the Swap
Agreement terminated, a Certificateholder who had made an integration election
would be treated as having "legged-out" of integration. Such a
Certificateholder could recognize gain as a result of such legging-out.
Certificateholders are urged to consult their own tax advisors concerning the
integration election.]
SALE OR EXCHANGE OF FIXED RATE CERTIFICATES
Upon a disposition of an interest in a Fixed Rate Certificate, a U.S.
Offered Certificateholder generally will recognize gain or loss equal to the
difference between (i) the amount of cash and the fair market value of any
other property received (other than amounts attributable to, and taxable as,
accrued stated interest) and (ii) the U.S. Offered Certificateholder's
adjusted basis in its interest in the Fixed Rate Certificate. The adjusted
basis in the interest in the Offered Certificate will equal its cost,
increased by any OID or market discount included in income with respect to the
interest in the Fixed Rate Certificate prior to its disposition and reduced by
any payments reflecting principal or OID previously received with respect to
the interest in the Fixed Rate Certificate and any amortized premium. Subject
to the OID and market discount rules, gain or loss will generally be capital
gain or loss if the interest in the Fixed Rate Certificate was held as a
capital asset. Capital losses generally may be used by a corporate taxpayer
only to offset capital gains and by an individual taxpayer only to the extent
of capital gains plus $3,000 of other income.
[SALE OR EXCHANGE OF FLOATING RATE CERTIFICATES
If a Floating Rate Certificateholder does not make an integration election,
then the sale or exchange of a Floating Rate Certificate will be treated as
the sale of an interest in the Underlying Note, and an assignment of an
interest in the Swap Agreement. The total sale proceeds would be allocated
between the Underlying Note and the Swap Agreement in proportion to their
relative fair market values. Gain or loss on the Underlying Note would be
determined in the manner described above, and gain or loss on the Swap
Agreement would give rise to gain or loss as described above for termination
payments. If the Swap Agreement has a negative value at the time of the sale
of a Floating Rate Certificate, the Floating Rate Certificateholder would
apparently be treated as having sold the Underlying Note for its fair market
value (which would exceed the sale proceeds) and as having paid such excess to
the purchaser of the Floating Rate Certificate in consideration for the
assumption of the obligations under the Swap Agreement. If an integration
election is made, however, the Certificateholder would be viewed as having
sold a single floating rate debt instrument and could recognize gain or loss
on such sale.]
NON-U.S. OFFERED CERTIFICATEHOLDERS
In general, a non-U.S. Offered Certificateholder will not be subject to U.S.
federal income tax on interest (including OID) on a beneficial interest in an
Offered Certificate unless (i) the non-U.S. Offered Certificateholder is a
controlled foreign corporation that is related to the Seller through stock
ownership or (ii) the non-U.S. Offered Certificateholder is a bank which
receives interest as described in Code Section 881(c)(3)(A). To qualify for
the exemption from taxation, the last U.S. Person in the chain of payment
prior to payment to a non-U.S. Offered Certificateholder (the "Withholding
Agent") must have received (in the year in which a payment of interest or
principal occurs or in either of the two preceding years) a statement that (i)
is signed by the non-U.S. Offered Certificateholder under penalties of
perjury, (ii) certifies that the non-U.S. Offered Certificateholder is not a
U.S. Person and (iii) provides the name and address of the non-U.S. Offered
Certificateholder. The statement may be made on a Form W-8 or substantially
similar substitute form, and the non-U.S. Offered Certificateholder must
inform the Withholding Agent of any change in the information on the statement
within
S-28
<PAGE>
30 days of the change. If an Offered Certificate is held through a securities
clearing organization or certain other financial institutions, the
organization or institution may provide a signed statement to the Withholding
Agent. However, in that case, the signed statement must be accompanied by a
Form W-8 or substitute form provided by the non-U.S. Offered Certificateholder
to the organization or institution holding the Offered Certificate on behalf
of the non-U.S. Offered Certificateholder. The U.S. Treasury Department is
considering implementation of further certification requirements aimed at
determining whether the issuer of a debt obligation is related to holders
thereof.
Generally, any gain or income realized by a non-U.S. Offered
Certificateholder upon retirement or disposition of an interest in an Offered
Certificate (other than gain attributable to accrued interest or OID, which is
addressed in the preceding paragraph) will not be subject to U.S. federal
income tax, provided that in the case of an Offered Certificateholder that is
an individual, such Offered Certificateholder is not present in the United
States for 183 days or more during the taxable year in which such retirement
or disposition occurs. Certain exceptions may be applicable, and an individual
non-U.S. Offered Certificateholder should consult a tax advisor.
[If a non-U.S. Certificateholder were to hold an interest in a Floating Rate
Certificate, generally, any income attributable to the non-U.S.
Certificateholder's interest in the Swap Agreement, irrespective of whether an
integration election were made, would not be U.S. source income. Consequently,
it would not be subject to U.S. federal income tax.]
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding of U.S. federal income tax at a rate of 31 percent may
apply to payments made in respect of an Offered Certificate to a registered
owner who is not an "exempt recipient" and who fails to provide certain
identifying information (such as the registered owner's taxpayer
identification number) in the manner required. Generally, individuals are not
exempt recipients whereas corporations and certain other entities are exempt
recipients. Payments made in respect of a U.S. Offered Certificateholder must
be reported to the IRS, unless the U.S. Offered Certificateholder is an exempt
recipient or otherwise establishes an exemption.
In the case of payments of principal of and interest on (and the amount of
OID, if any, accrued on) Offered Certificates to non-U.S. Offered
Certificateholders, temporary Treasury regulations provide that backup
withholding and information reporting will not apply to payments with respect
to which either requisite certification has been received or an exemption has
otherwise been established (provided that neither the Certificate Trustee nor
a paying agent has actual knowledge that the holder is a U.S. Person or that
the conditions of any other exemption are not in fact satisfied). Payments of
the proceeds of the sale of an Offered Certificate to or through a foreign
office of a broker that is a U.S. Person, a controlled foreign corporation for
United States federal income tax purposes or a foreign person 50 percent or
more of whose gross income is effectively connected with the conduct of a
trade or business within the United States for the specified three-year period
are currently subject to certain information reporting requirements, unless
the payee is an exempt recipient or such broker has evidence in its records
that the payee is not a U.S. Person and no actual knowledge that such evidence
is false and certain other conditions are met. Temporary Treasury regulations
indicate that such payments are not currently subject to backup withholding.
Under current Treasury regulations, payments of the proceeds of a sale to or
through the United States office of a broker will be subject to information
reporting and backup withholding unless the payee certifies under penalties of
perjury as to his or her status as a non-U.S. Person and certain other
qualifications (and no agent of the broker who is responsible for receiving or
reviewing such statement has actual knowledge that it is incorrect) and
provides his or her name and address or the payee otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules from a payment to an
Offered Certificateholder would be allowed as a refund or a credit against
such Offered Certificateholder's U.S. federal income tax, provided that the
required information is furnished to the IRS.
The Treasury Department recently promulgated final regulations regarding the
withholding and information reporting rules discussed above. In general, the
final regulations do not significantly alter the substantive
S-29
<PAGE>
withholding and information reporting requirements but rather unify current
certification procedures and forms and clarify reliance standards. In
addition, the final regulations permit the shifting of primary responsibility
for withholding to certain financial intermediaries acting on behalf of
beneficial owners. The final regulations are generally effective for payments
made after December 31, 1998, subject to certain transition rules. Offered
Certificateholders should consult their own tax advisors with respect to the
impact, if any, of the final regulations.
STATE TAXATION
CALIFORNIA TAXATION
In the opinion of Special Counsel, interest and OID on the Offered
Certificates will be exempt from California personal income tax, but not
exempt from the California franchise tax applicable to banks and corporations.
Gain or loss, if any, resulting from an exchange or redemption of Offered
Certificates will be recognized in the year of the exchange or redemption.
Present California law taxes both long-term and short-term capital gains at
the rates applicable to ordinary income. Interest on indebtedness incurred or
continued by an Offered Certificateholder in connection with the purchase of
Offered Certificates will not be deductible for California personal income tax
purposes.
OTHER STATES
The discussion above does not address the taxation of the Trust or the tax
consequences of the purchase, ownership or disposition of an interest in the
Offered Certificates under any state or local tax law other than that of the
State of California. Each investor should consult its own tax advisor
regarding state and local tax consequences.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and/or Section 4975 of the Code impose certain requirements on employee
benefit plans and certain other plans and arrangements, including individual
retirement accounts and annuities, Keogh plans and certain collective
investment funds or insurance company general or separate accounts in which
such plans, accounts or arrangements are invested, that are subject to the
fiduciary responsibility and prohibited transaction provisions of ERISA and/or
Section 4975 of the Code (collectively, "Plans"), and on persons who are
fiduciaries with respect to Plans, in connection with the investment of assets
that are treated as "plan assets" of any Plan for purposes of applying Title I
of ERISA and Section 4975 of the Code ("Plan Assets"). ERISA imposes on Plan
fiduciaries certain general fiduciary requirements, including those of
investment prudence and diversification and the requirement that a Plan's
investments be made in accordance with the documents governing the Plan.
Generally, any person who has discretionary authority or control respecting
the management or disposition of Plan Assets, and any person who provides
investment advice with respect to Plan Assets for a fee or other
consideration, is a fiduciary with respect to such Plan Assets.
Subject to the considerations described below, the Offered Certificates are
eligible for purchase with Plan Assets of any Plan.
ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving Plan Assets and persons who have certain specified relationships to
a Plan or its Plan Assets ("parties in interest" under ERISA and "disqualified
persons" under the Code (collectively, "Parties in Interest")), unless a
statutory or administrative exemption is available. Parties in Interest and
Plan fiduciaries that participate in a prohibited transaction may be subject
to penalties imposed under ERISA and/or excise taxes imposed pursuant to
Section 4975 of the Code, unless a statutory or administrative exemption is
available. These prohibited transaction rules generally are set forth in
Section 406 of ERISA and Section 4975 of the Code.
S-30
<PAGE>
Any fiduciary or other Plan investor considering whether to purchase the
Offered Certificates of any Class on behalf of or with Plan Assets of any Plan
should determine whether such purchase is consistent with its fiduciary duties
and whether such purchase would constitute or result in a non-exempt
prohibited transaction under ERISA and/or Section 4975 of the Code because any
of Edison, the Certificate Trustee, the Underwriters or their respective
affiliates may be deemed to be benefiting from the issuance of the Offered
Certificates and is a Party in Interest with respect to the investing Plan. In
particular, the Offered Certificates may not be purchased with Plan Assets of
any Plan if any of Edison, the Certificate Trustee, the Underwriters or their
respective affiliates (a) has investment or administrative discretion with
respect to the Plan Assets used to effect such purchase; (b) has authority or
responsibility to give, or regularly gives, investment advice with respect to
such Plan Assets, for a fee and pursuant to an agreement or understanding that
such advice (1) will serve as a primary basis for investment decisions with
respect to such Plan Assets, and (2) will be based on the particular
investment needs of such Plan; or (c) is an employer maintaining or
contributing to such Plan. Each purchaser of the Offered Certificates will be
deemed to have represented and warranted that its purchase of the Offered
Certificates or any interest therein does not violate the foregoing
limitations.
PLAN ASSET REGULATION
Because the Offered Certificates are likely to be treated as "equity
interests" in the Trust under a regulation (the "Plan Asset Regulation")
issued by the U.S. Department of Labor (the "DOL"), which provides that
beneficial interests in a trust are equity interests, purchasing the Offered
Certificates with Plan Assets may cause the assets of the Trust to be deemed
Plan Assets of the investing Plan which, in turn, would subject the Trust and
its assets to the fiduciary responsibility provisions of ERISA and the
prohibited transaction provisions of ERISA and Section 4975 of the Code. A
violation of the prohibited transaction rules could occur if the Offered
Certificates are purchased with Plan Assets of any Plan and any of Edison, the
Certificate Trustee, the Swap Counterparty, the Underwriters or their
respective affiliates is a Party in Interest with respect to such Plan, unless
a statutory or administrative exemption is available or an exception applies
under the Plan Asset Regulation. However, the possibility that prohibited
transactions may occur by reason of the operation of the Trust is
substantially less than in other pass-through trusts because each Class of
Offered Certificates represents an interest in the corresponding Class of
Underlying Notes and only minimal administrative activity is expected to occur
at the Trust level.
Before purchasing any Class of Offered Certificates of this Series, a
fiduciary or other Plan investor should consider whether a prohibited
transaction might arise by reason of any such relationship between the
investing Plan and any of Edison, the Certificate Trustee, the Underwriters or
their respective affiliates and consult its legal advisors regarding the
purchase in light of the considerations described herein and in the
Prospectus. The DOL has issued five class exemptions that may afford exemptive
relief for otherwise prohibited transactions arising from the purchase or
holding of the Offered Certificates, i.e., DOL Prohibited Transaction
Exemptions 96-23 (Class Exemption for Plan Asset Transactions Determined by
In-House Investment Managers), 95-60 (Class Exemption for Certain Transactions
Involving Insurance Company General Accounts), 91-38 (Class Exemption for
Certain Transactions Involving Bank Collective Investment Funds), 90-1 (Class
Exemption for Certain Transactions Involving Insurance Company Pooled Separate
Accounts) or 84-14 (Class Exemption for Plan Asset Transactions Determined by
Independent Qualified Professional Asset Managers). A purchaser of the Offered
Certificates should be aware, however, that even if the conditions specified
in one or more of the above exemptions are met, the scope of the relief
provided by the exemption might not cover all acts which might be construed as
prohibited transactions.
CONCLUSION
In light of the foregoing, fiduciaries or other Plan investors considering
whether to purchase the Offered Certificates with Plan Assets of any Plan
should consult their own legal advisors regarding whether the Trust assets
would be considered Plan Assets of Plan investors, the consequences that would
apply if the Trust's assets were considered Plan Assets, and the availability
of exemptive relief from the prohibited transaction rules or an
S-31
<PAGE>
exception under the Plan Asset Regulation. Fiduciaries and other Plan
investors should also consider the fiduciary standards under ERISA or other
applicable law in the context of the Plan's particular circumstances before
authorizing an investment of Plan Assets in the Offered Certificates. Among
other factors, such persons should consider whether the investment (a)
satisfies the diversification requirement of ERISA or other applicable law,
(b) is in accordance with the Plan's governing instruments, and (c) is prudent
in light of the "Risk Factors" and other factors discussed herein and in the
Prospectus.
For further information see "ERISA Considerations" in the Prospectus.
S-32
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Trust has agreed to sell to each of the Underwriters named below (the
"Underwriters"), and each of the Underwriters, for whom Salomon Brothers Inc
and Lehman Brothers Inc. are acting as representatives, has severally agreed
to purchase, the respective principal amounts of the Offered Certificates set
forth opposite its name below.
<TABLE>
<CAPTION>
CLASS CLASS CLASS CLASS CLASS
NAME CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
- ---- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Salomon Brothers Inc.... $ $ $ $ $
Lehman Brothers Inc. ...
Chase Securities Inc. ..
Goldman, Sachs & Co. ...
PaineWebber
Incorporated...........
Artemis Capital Group,
Inc. ..................
Blaylock & Partners,
L.P. ..................
Utendahl Capital
Partners, L.P. ........
----------- ----------- ----------- ----------- -----------
Total................. $ $ $ $ $
=========== =========== =========== =========== ===========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and to pay for all of the Offered
Certificates offered hereby, if any are taken.
The Underwriters propose to offer the Offered Certificates in part directly
to retail purchasers at the initial public offering price set forth on the
cover page of this Prospectus Supplement, and in part to certain securities
dealers at such price less a concession not in excess of percent of the
principal amount of the Class Certificates, percent of the principal
amount of the Class Certificates, percent of the principal amount of the
Class Certificates, percent of the principal amount of the Class
Certificates and percent of the principal amount of the Class
Certificates. The Underwriters may allow and such dealers may reallow a
concession to certain brokers and dealers not in excess of percent of the
principal amount of the Class Certificates, percent of the principal
amount of the Class Certificates, percent of the principal amount of the
Class Certificates, percent of the principal amount of the Class
Certificates and percent of the principal amount of the Class
Certificates. After the Offered Certificates are released for sale to the
public, the offering price and other selling terms may from time to time be
varied by the Underwriters.
The Offered Certificates are a new issue of securities with no established
trading market. The Offered Certificates will not be listed on any securities
exchange. The Trust has been advised by the Underwriters that they intend to
make a market in the Offered Certificates but are not obligated to do so and
may discontinue market making at any time without notice. No assurance can be
given as to the liquidity of the trading market for the Offered Certificates.
The Underwriters may engage in overallotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids with respect to
the Offered Certificates in accordance with Regulation M under the Exchange
Act. Overallotment transactions involve syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the Offered Certificates so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Offered Certificates in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the Underwriters to reclaim a selling
concession from a syndicate member when the Offered Certificates originally
sold by such syndicate member are purchased in a syndicate covering
transaction. Such overallotment transactions, stabilizing transactions,
syndicate covering transactions and penalty bids may cause the prices of the
Offered Certificates to be higher than they would otherwise be in the absence
of such transactions. Neither the Seller, the Note Issuer, the Trust, the
Infrastructure Bank, the California State
S-33
<PAGE>
Treasurer's Office nor any of the Underwriters represent that the Underwriters
will engage in any such transactions or that such transactions, once
commenced, will not be discontinued without notice at any time.
The Note Issuer and the Seller have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act.
RATINGS
It is a condition of issuance of the Offered Certificates that the Offered
Certificates be rated " " by , " " by , " " by
and " " by (each of , and , a "Rating
Agency"). Each Class of Underlying Notes will receive the same ratings from
each Rating Agency as the corresponding Class of Offered Certificates.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
Rating Agency. No person is obligated to maintain the rating on any Offered
Certificate, and, accordingly, there can be no assurance that the ratings
assigned to any Class of Offered Certificates upon initial issuance will not
be revised or withdrawn by a Rating Agency at any time thereafter. If a rating
of any Class of Offered Certificates is revised or withdrawn, the liquidity of
such Class of Offered Certificates may be adversely affected. In general,
ratings address credit risk and do not represent any assessment of the rate of
principal payments.
LEGAL MATTERS
Certain legal matters relating to the Underlying Notes will be passed upon
by Latham & Watkins, Los Angeles, California, counsel to the Seller and the
Note Issuer. Certain legal matters relating to the Offered Certificates and
certain federal and California income tax consequences of the issuance of the
Offered Certificates will be passed upon by Brown & Wood LLP, San Francisco,
California, counsel to the Trust. Certain legal matters relating to the
Offered Certificates will be passed upon by Richards, Layton & Finger, P.A.,
Wilmington, Delaware, Delaware counsel to the Trust, and by Cravath, Swaine &
Moore, New York, New York, counsel to the Underwriters.
S-34
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and defined herein and the pages on which the definitions of such
terms may be found herein. Certain defined terms used in this Prospectus
Supplement are defined in the Prospectus. See "Index of Principal Definitions"
in the Prospectus.
<TABLE>
<CAPTION>
PAGE
--------------
<S> <C>
Agent Bank ...................................................... S-14
Book-Entry Certificates.......................................... S-12
Capital Subaccount............................................... S-10
Cede............................................................. S-12
Certificate Interest Rate........................................ S-16
Certificate Trustee.............................................. S-6
Certificateholders............................................... S-3
Certificates..................................................... S-14
Class............................................................ S-5, S-6
Class Principal Balance.......................................... S-5
Code............................................................. S-13, S-25
Commission....................................................... S-3
Delaware Trustee................................................. S-6
Distribution Date................................................ S-2, S-7, S-16
DOL.............................................................. S-31
Downgrade Event.................................................. S-17
DTC.............................................................. S-3, S-12
Edison........................................................... S-6
ERISA............................................................ S-13, S-30
ESPs............................................................. S-24
Exchange Act..................................................... S-3
Fixed Rate Certificates.......................................... S-25
Floating Rate.................................................... S-9
Floating Rate Certificates....................................... S-2
General Subaccount............................................... S-10
Infrastructure Bank.............................................. S-6
Interest Accrual Period.......................................... S-15
Interest Determination Date...................................... S-14
IRS.............................................................. S-25
LIBOR............................................................ S-14
London Banking Day............................................... S-14
Net Trust Swap Payment........................................... S-8
Net Trust Swap Receipt........................................... S-8
Non-U.S. Offered Certificateholder............................... S-25
Note Interest Rate............................................... S-19
Note Issuer...................................................... S-2, S-6
Note Trustee..................................................... S-6
Noteholder....................................................... S-19
Notes............................................................ S-2, S-19
Notional Principal Contract...................................... S-26
NPC.............................................................. S-26
Offered Certificates............................................. S-2, S-4, S-14
OID.............................................................. S-25
Original Certificate Principal Balance........................... S-5
Overcollateralization Amount..................................... S-10, S-20
</TABLE>
S-35
<PAGE>
<TABLE>
<CAPTION>
INDEX OF PRINCIPAL DEFINITIONS--(CONTINUED)
-------------------------------------------
PAGE
--------------
<S> <C>
Overcollateralization Subaccount................................. S-10
Parties in Interest.............................................. S-30
Payment Date..................................................... S-7, S-19
Plans............................................................ S-13, S-30
Plan Assets...................................................... S-13, S-30
Plan Asset Regulation............................................ S-31
Quarterly Interest............................................... S-15
Rating Agency.................................................... S-12
Record Date...................................................... S-7
Replacement Counterparty......................................... S-17
Required Overcollateralization Level............................. S-10
Reserve Subaccount............................................... S-10
Seller........................................................... S-6
Series Issuance Date............................................. S-4, S-18
Servicer......................................................... S-6
Servicing Fee.................................................... S-11
Special Counsel.................................................. S-24
Swap Agent....................................................... S-17
Swap Agreement................................................... S-8
Swap Counterparty................................................ S-8, S-18
Telerate Page.................................................... S-14
Trust............................................................ S-2, S-6
U.S. Offered Certificateholder................................... S-25
U.S. Person...................................................... S-25
Underlying Notes................................................. S-2, S-6, S-18
Underwriters..................................................... S-33
Withholding Agent................................................ S-28
</TABLE>
S-36
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED NOVEMBER 10, 1997
PROSPECTUS
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST SCE-1
RATE REDUCTION CERTIFICATES
ISSUABLE IN SERIES
-----------
SCE FUNDING LLC
(ISSUER OF THE NOTES)
-----------
SOUTHERN CALIFORNIA EDISON COMPANY
(SELLER AND SERVICER)
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE STATE
OF CALIFORNIA, THE INFRASTRUCTURE BANK, ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR THE SELLER OR ANY OF ITS AFFILIATES. NONE OF THE
CERTIFICATES, THE NOTES OR THE UNDERLYING TRANSITION PROPERTY WILL BE
GUARANTEED OR INSURED BY THE STATE OF CALIFORNIA, THE INFRASTRUCTURE BANK, THE
TRUST OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE SELLER OR
ITS AFFILIATES.
The California Infrastructure and Economic Development Bank Special Purpose
Trust SCE-1 Rate Reduction Certificates (the "Certificates") offered hereby in
an aggregate principal amount of up to $3,000,000,000 may be sold from time to
time in series (each, a "Series"), each of which may be comprised of one or
more classes (each, a "Class"), as described in the related Prospectus
Supplement. Each Series of Certificates will be issued by the California
Infrastructure and Economic Development Bank Special Purpose Trust SCE-1 (the
"Trust") established by the California Infrastructure and Economic Development
Bank (the "Infrastructure Bank").
The assets of the Trust will consist solely of the SCE Funding LLC Notes (the
"Notes") issued by SCE Funding LLC, a Delaware special purpose limited
liability company (the "Note Issuer"), and the proceeds thereof. The sole
member of the Note Issuer is Southern California Edison Company, a California
corporation ("Edison"). The Notes will be secured primarily by the Transition
Property, as described under "Prospectus Summary--Transition Property" and
"Description of the Transition Property" herein. The Notes will also be secured
by each Transition Property Purchase and Sale Agreement between Edison and the
Note Issuer, the Transition Property Servicing Agreement between Edison and the
Note Issuer, the Collection Account and all amounts or investment property on
deposit therein or credited thereto from time to time, all other property of
whatever kind (other than certain cash amounts described herein) owned from
time to time by the Note Issuer, if any, all present and future claims,
demands, causes and choses in action in respect of any or all of the foregoing
and all payments on or under and all proceeds in respect of any or all of the
foregoing.
Edison will sell Transition Property (in such capacity, the "Seller") to the
Note Issuer pursuant to a Transition Property Purchase and Sale Agreement
between the Seller and the Note Issuer. See "Description of the Transition
Property--Sale and Assignment of Transition Property" herein. The Seller will
also service the Transition Property (in its capacity as servicer, the
"Servicer") pursuant to the Transition Property Servicing Agreement between the
Servicer and the Note Issuer. See "Servicing" herein.
(Continued on following page)
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.
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION
SET FORTH UNDER THE CAPTION "RISK FACTORS," WHICH BEGINS ON PAGE 26 HEREIN.
THE TRANSITION PROPERTY OWNED BY THE NOTE ISSUER AND CERTAIN OTHER ASSETS OF
THE NOTE ISSUER WILL BE THE SOLE SOURCE OF PAYMENTS ON THE NOTES. PAYMENTS
ON THE NOTES RECEIVED BY THE TRUST AND PAYMENTS ON ANY RELATED SWAP
AGREEMENT ARE THE SOLE SOURCE OF DISTRIBUTIONS ON THE CERTIFICATES.
NONE OF THE STATE OF CALIFORNIA, THE INFRASTRUCTURE BANK, THE TRUST
OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR ANY OF THE
SELLER OR ITS AFFILIATES WILL HAVE ANY OBLIGATIONS IN RESPECT OF
THE CERTIFICATES, THE NOTES OR THE TRANSITION PROPERTY, EXCEPT
AS EXPRESSLY SET FORTH HEREIN OR IN THE RELATED PROSPECTUS
SUPPLEMENT.
NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF
CALIFORNIA OR ANY POLITICAL SUBDIVISION, AGENCY OR INSTRUMENTALITY THEREOF
IS PLEDGED TO THE PAYMENT OF PRINCIPAL OF, OR INTEREST ON, THE CERTIFICATES
OR THE NOTES, OR TO THE PAYMENTS IN RESPECT OF THE TRANSITION PROPERTY,
NOR IS THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION OR AGENCY
OR INSTRUMENTALITY THEREOF IN ANY MANNER OBLIGATED TO MAKE ANY
APPROPRIATION FOR THE PAYMENT THEREOF.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES OFFERED
HEREBY UNLESS ACCOMPANIED BY THE RELATED PROSPECTUS SUPPLEMENT.
Prospective investors should refer to the "Index of Principal Definitions"
which begins on page 91 herein for the location of the definitions of
capitalized terms that appear in this Prospectus.
, 1997
<PAGE>
(Continued from previous page)
The Note Issuer will issue Notes from time to time in series to the Trust,
and the Trust will issue to investors separate Series of Certificates from
time to time upon terms determined at the time of sale and described in the
related Prospectus Supplement. Each Series of Notes (each, a "Series") may be
issuable in one or more classes (each, a "Class"). A Series may include
Classes which differ as to the interest rate, timing, sequential order and
amount of distributions of principal or interest or both or otherwise. As more
specifically described under "Description of the Notes--Allocations; Payments"
herein, the Note Issuer will use all payments made with respect to Transition
Property to pay certain expenses described herein, interest due on the Notes
and principal payable on the Notes, allocated among the Series and Classes of
Notes based on the priorities described herein and in the related Prospectus
Supplement. All principal not previously paid, if any, on any Note is due and
payable on the Final Maturity Date of such Note. Each Class of Certificates
will correspond to a Class of Notes and will represent fractional undivided
beneficial interests in such underlying Class of Notes, the proceeds thereof
and payments pursuant to any related Swap Agreement. As such, each Class of
Certificates will entitle the holders thereof to receive the payments received
by the Trust in respect of the corresponding Class of Notes. The funds
received by the Trust from the payments on each Class of Notes and from
payments pursuant to any Swap Agreement entered into with respect to such
Class will be the only source of distributions on the Certificates of the
corresponding Class. While the specific terms of any Series of Certificates
(and the Classes, if any, thereof) will be described in the related Prospectus
Supplement, the terms of such Series and any Classes thereof will not be
subject to prior review by, or consent of, the holders of the Certificates of
any previously issued Series.
Offers of the Certificates of a Series may be made through one or more
different methods, including offerings through underwriters, as described
under "Plan of Distribution" herein and "Underwriting" in the related
Prospectus Supplement. There will have been no secondary market for the
Certificates of any Series prior to the offering thereof. There can be no
assurance that a secondary market for any Series of Certificates will develop
or, if one does develop, that it will continue. It is not anticipated that any
of the Certificates will be listed on any securities exchange.
2
<PAGE>
No dealer, salesperson, or any other person has been authorized to give any
information, or to make any representations, other than those contained in
this Prospectus or the related Prospectus Supplement and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Seller, the Note Issuer, the Trust, the Infrastructure Bank
or any dealer, salesperson, or any other person. Neither the delivery of this
Prospectus or the related Prospectus Supplement nor any sale made hereunder or
thereunder shall under any circumstances create an implication that there has
been no change in the information herein or therein since the date hereof.
This Prospectus and the related Prospectus Supplement do not constitute an
offer to sell or a solicitation of an offer to buy any security in any
jurisdiction in which it is unlawful to make such offer or solicitation.
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE RELATED SERIES OF CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER THIS
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT
AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
AVAILABLE INFORMATION
The Note Issuer has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (as amended, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Certificates and the Notes. This Prospectus, which
forms a part of the Registration Statement, and any Prospectus Supplement
describe the material terms of each document filed as an exhibit to the
Registration Statement; however, this Prospectus and any Prospectus Supplement
do not contain all of the information contained in the Registration Statement
and the exhibits thereto. Any statements contained herein concerning the
provisions of any document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission are not necessarily complete, and in
each instance reference is made to the copy of such document so filed. Each
such statement is qualified in its entirety by such reference. For further
information, reference is made to the Registration Statement and the 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, and at its regional offices located as follows:
Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and New York Regional Office, 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement and exhibits thereto may be obtained at the above locations at
prescribed rates. Information filed with the Commission can also be inspected
at the Commission's site on the World Wide Web at http://www.sec.gov.
The Note Issuer will file with the Commission such periodic reports with
respect to each Series of Certificates as are required by the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules,
regulations or orders of the Commission thereunder. The Note Issuer may
discontinue filing periodic reports under the Exchange Act at the beginning of
the fiscal year following the issuance of the Certificates of any Series if
there are fewer than 300 holders of such Certificates.
REPORTS TO HOLDERS
Unless and until the Certificates are no longer issued in book-entry form,
the Servicer will provide to Cede & Co., as nominee of The Depository Trust
Company ("DTC") and registered holder of the Certificates and, upon request,
to Participants of DTC, periodic reports concerning the Certificates. See
"Description of the Certificates--Reports to Certificateholders" herein. Such
reports may be made available to the holders of interests in the Certificates
(the "Certificateholders") upon request to their Participants. Such reports
will not constitute financial statements prepared in accordance with generally
accepted accounting principles. The financial information provided to
Certificateholders will not be examined and reported upon, nor will an opinion
thereon be provided, by any independent public accountant.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Note Issuer pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering made hereby shall be
deemed to be incorporated by reference in this Prospectus and to be part
hereof. Any statement contained herein or in a Prospectus Supplement, or in a
document incorporated or deemed to be incorporated by reference herein or
therein shall be deemed to be modified or superseded for purposes of this
Prospectus and any Prospectus Supplement to the extent that a statement
contained herein or in any other subsequently filed document that also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
or any Prospectus Supplement.
The Note Issuer will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such
person, a copy of any of or all the documents incorporated herein by reference
(other than exhibits to such documents). Requests for such copies should be
directed to the Note Issuer at 2244 Walnut Grove Avenue, Room 180, Rosemead,
CA 91770 or by telephone at (626) 302-1850.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement for a Series of Certificates will describe the
following terms of such Series and, if applicable, the Classes thereof: (a)
the designation of the Series and, if applicable, the Classes thereof, (b) the
principal amount, (c) the annual rate at which interest accrues or, if the
Trust has entered into a Swap Agreement with respect to such Series, the index
on which a variable rate of interest will be based, (d) the dates on which
distributions of interest and principal will occur, (e) the Scheduled Final
Distribution Date, (f) the Termination Date of the Series, (g) the issuance
date of the Series, (h) the place or places for the payment of principal and
interest, (i) the authorized denominations, (j) the provisions for redemption
by the Trust as a result of an optional redemption by the Note Issuer of the
underlying Notes which will, in no event, be permitted unless the outstanding
principal balance thereof is less than five percent of the initial principal
balance thereof, (k) the Expected Amortization Schedule for principal of such
Series and, if applicable, the Classes thereof, (l) the FTA Charges as of the
date of issuance of such Series of Certificates, (m) any other terms of such
Series and any Class thereof that are not inconsistent with the provisions of
the Certificates and that will not result in any Rating Agency reducing or
withdrawing its then current rating of any outstanding Series or Class of
Notes or Certificates, (n) the identity of the Certificate Trustee and the
Delaware Trustee and (o) the terms of any Swap Agreement executed solely to
permit the issuance of variable rate Certificates.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...................................................... 3
REPORTS TO HOLDERS......................................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 4
PROSPECTUS SUPPLEMENT...................................................... 4
PROSPECTUS SUMMARY......................................................... 8
RISK FACTORS............................................................... 26
Unusual Nature of the Transition Property................................ 26
Potential Servicing Issues............................................... 29
Uncertainties Related to the Electric Industry Generally................. 31
Bankruptcy and Creditors' Rights Issues.................................. 33
Nature of the Certificates............................................... 35
Additional Risks of Floating Rate Certificates........................... 37
ENERGY DEREGULATION AND NEW CALIFORNIA MARKET STRUCTURE.................... 38
DESCRIPTION OF THE TRANSITION PROPERTY..................................... 39
General.................................................................. 39
Financing Order and Advice Letters....................................... 39
Transition Property...................................................... 40
Nonbypassable FTA Charges................................................ 41
Adjustments to the FTA Charges........................................... 41
Sale and Assignment of Transition Property............................... 42
Seller Representations and Warranties and Repurchase Obligation.......... 43
CERTAIN DISTRIBUTION, WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS....... 45
THE TRUST.................................................................. 46
THE INFRASTRUCTURE BANK.................................................... 46
THE NOTE ISSUER............................................................ 47
Officers and Directors................................................... 48
THE SELLER AND SERVICER.................................................... 49
General.................................................................. 49
Edison Customer Base and Electric Energy Consumption..................... 49
Forecasting Consumption.................................................. 50
Forecast Variance........................................................ 50
Credit Policy; Billing; Collections; Restoration of Service.............. 51
Loss Experience.......................................................... 52
Aging.................................................................... 53
Delinquencies............................................................ 53
Revenue.................................................................. 54
SERVICING.................................................................. 55
Servicing Procedures..................................................... 55
Servicing Standards and Covenants........................................ 55
Remittances to Collection Account........................................ 56
No Servicer Advances..................................................... 56
Servicing Compensation................................................... 56
Aggregators and Other Suppliers.......................................... 57
Servicer Representations and Warranties.................................. 57
Statements by Servicer................................................... 58
Evidence as to Compliance................................................ 58
Certain Matters Regarding the Servicer................................... 58
Servicer Defaults........................................................ 59
Rights Upon Servicer Default............................................. 59
</TABLE>
5
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Waiver of Past Defaults.................................................. 60
Successor Servicer....................................................... 60
Amendment................................................................ 60
Termination.............................................................. 60
DESCRIPTION OF THE NOTES................................................... 61
General.................................................................. 61
Security................................................................. 61
Collection Account....................................................... 61
Interest and Principal................................................... 62
Optional Redemption...................................................... 63
Mandatory Redemption..................................................... 63
Overcollateralization Amount............................................. 63
Capital Subaccount....................................................... 64
Reserve Subaccount....................................................... 64
Allocations; Payments.................................................... 64
Actions by Noteholders................................................... 66
Note Events of Default; Rights Upon Note Event of Default................ 66
Certain Covenants of the Note Issuer..................................... 67
Reports to Noteholders................................................... 69
Annual Compliance Statement.............................................. 69
DESCRIPTION OF THE CERTIFICATES............................................ 70
General.................................................................. 70
State Pledge............................................................. 70
Payments and Distributions............................................... 70
Floating Rate Certificates............................................... 72
Voting of the Notes...................................................... 74
Events of Default........................................................ 74
Optional Redemption...................................................... 76
Reports to Certificateholders............................................ 76
Supplemental Trust Agreements............................................ 76
List of Certificateholders............................................... 77
Registration and Transfer of the Certificates............................ 77
Book-Entry Registration.................................................. 78
Definitive Certificates.................................................. 80
Conditions of Issuance of Additional Series.............................. 81
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 82
General.................................................................. 82
Treatment of the Certificates............................................ 82
Taxation of U.S. Fixed Rate Certificateholders........................... 83
Taxation of U.S. Floating Rate Certificateholders........................ 84
Integration of the Underlying Notes and the Swap Agreement............... 85
Sale or Exchange of Fixed Rate Certificates.............................. 85
Sale or Exchange of Floating Rate Certificates........................... 85
Non-U.S. Certificateholders.............................................. 86
Information Reporting and Backup Withholding............................. 86
STATE TAXATION............................................................. 88
California Taxation...................................................... 88
Other States............................................................. 88
ERISA CONSIDERATIONS....................................................... 88
</TABLE>
6
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
USE OF PROCEEDS............................................................ 89
PLAN OF DISTRIBUTION....................................................... 89
RATINGS.................................................................... 89
LEGAL MATTERS.............................................................. 90
INDEX OF PRINCIPAL DEFINITIONS............................................. 91
FINANCIAL STATEMENTS....................................................... F-1
</TABLE>
7
<PAGE>
PROSPECTUS SUMMARY
The following Prospectus Summary is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus and by
reference to the information with respect to each Series of Certificates
contained in the related Prospectus Supplement. Capitalized terms used but not
defined in this Prospectus Summary have the meanings ascribed to such terms
elsewhere in this Prospectus. The Index of Principal Definitions which begins
on page 91 sets forth the pages on which the definitions of certain principal
terms appear.
Transaction Overview........ Assembly Bill 1890, Chapter 854, California
Statutes of 1996 (as amended, the "Statute"),
permits the California investor-owned utilities
(collectively, the "Utilities"), including
Edison, to finance the recovery of a portion of
their respective "Transition Costs" through the
issuance of the Certificates, in conjunction with
a reduction in electricity rates for Residential
Customers and Small Commercial Customers.
Transition Costs consist of the costs of
generation-related assets and obligations that
may become uneconomic as a result of a
competitive generation market, together with
certain other costs associated therewith.
The Seller will sell to the Note Issuer the
Transition Property, which represents the right
to receive payments made in respect of certain
nonbypassable charges included in the regular
utility bills of residential and small commercial
consumers located in the historical service
territory of the Seller. These charges are
nonbypassable in that applicable consumers cannot
avoid paying them if they purchase electricity
from a supplier other than the Seller. The Seller
will sell the Transition Property to the Note
Issuer in exchange for the proceeds of the Notes.
The Note Issuer will issue the Notes and sell the
Notes to the Trust in exchange for the proceeds
of the sale of the Certificates. The Trust is
being established by the Infrastructure Bank. The
Trust, whose sole assets will be the Notes and
any interest rate exchange agreement executed
solely to permit the issuance of variable rate
Certificates (a "Swap Agreement"), will issue the
Certificates, which will be sold to the
underwriters named in each Prospectus Supplement.
The Certificates of each Class represent a
fractional undivided beneficial interest in the
related Class of Notes, the proceeds thereof and
payments pursuant to any related Swap Agreement.
The Notes will be secured primarily by the
Transition Property. The Notes also will be
secured by each Transition Property Purchase and
Sale Agreement between the Seller and the Note
Issuer, the Transition Property Servicing
Agreement between the Servicer and the Note
Issuer, the Collection Account and all amounts or
investment property on deposit therein or
credited thereto from time to time, all other
property of whatever kind (other than certain
cash amounts described herein) owned from time to
time by the Note Issuer, if any, all present and
future claims, demands, causes and choses in
action in respect of any or all of the foregoing
and all payments on or under and all proceeds in
respect
8
<PAGE>
of any or all of the foregoing. See "Description
of the Notes--Security" herein.
The charges represented by the Transition
Property are calculated to be sufficient over
time to amortize the Notes in accordance with the
Expected Amortization Schedule, pay all related
fees and expenses, and fund the
Overcollateralization Subaccount up to the
Required Overcollateralization Level, all as more
fully described herein. These charges will be
subject to adjustment pursuant to the true-up
mechanism described under "Description of the
Transition Property--Adjustments to the FTA
Charges" herein over the term of each Series of
Certificates to enhance the likelihood of timely
recovery of such amounts, although there can be
no assurance that the true-up mechanism will
operate as intended or that principal of and
interest on any Series or Class of Certificates
will be paid as scheduled.
The following diagram represents a general
summary of the parties to the transactions
contemplated hereby, their roles and their
various relationships to the other parties.
[The omitted graphic reflects the various parties
to the transaction, their roles and their
contractual relationships to various other
parties.]
Risk Factors................ Investors should consider, among other things,
the following risks associated with an investment
in the Certificates. Such risks may adversely
affect the timing of payments to
Certificateholders or cause Certificateholders to
suffer losses on their investment in
Certificates.
9
<PAGE>
The ability of the Note Issuer to receive FTA
Payments and make payments on the Notes could be
affected adversely by: a legal challenge to the
validity or enforceability of the Statute, the
Financing Order or the Advice Letters or the
failure of the CPUC to implement timely
adjustments under the true-up mechanism described
in "Description of the Transition Property--
Adjustments to the FTA Changes" herein; any
attempted limitation or alteration of the
Statute, the Transition Property or related
matters, or amendment or repeal of the Statute,
whether by the Legislature of the State of
California, voter initiative or legal challenge;
the resignation or removal of the Servicer; the
ability of the Servicer to forecast accurately
the aggregate electricity usage of Customers and
the delinquency and write-off experience relating
to FTA Payments; problems in the implementation
of the new California electricity market system;
changes in the regulatory framework applicable to
the electricity industry; economic and
technological factors affecting electricity
consumption; the bankruptcy or insolvency of the
Seller, the Servicer or the Infrastructure Bank;
federal preemption of the Statute adversely
affecting the ability of the Note Issuer to
receive payments in respect of the FTA Charges;
any alteration by the Servicer or any successor
thereto of its billing and collection practices;
or any of the factors described below potentially
affecting the price and liquidity of the
Certificates.
The price and liquidity of the Certificates and
the dates of maturity thereof, and, accordingly,
the weighted average lives thereof, may be
affected by: any delay in adjustments to the FTA
Charges or a delay or failure by the Servicer or
an alternative energy service provider (an "ESP")
to remit FTA Payments; or incorrect evaluation by
the Servicer of the creditworthiness of a
significant number of the Customers.
There are no historical performance data for an
asset type such as the Transition Property and
the Servicer does not have any experience
administering this specific type of regulatory
asset. In addition, foreclosure upon the
Transition Property may not be a realistic or
practical remedy for the Certificateholders.
The Certificates will have limited liquidity,
will be available only in book-entry form, will
not be obligations of any entity other than the
Trust, will be issuable in Series, will have
ratings which are limited in nature, will have
uncertain distributions of interest and principal
and weighted average lives, and will be subject
to optional redemption.
For a more detailed discussion of certain
material risks associated therewith, investors
should review the discussion under "Risk Factors"
which begins on page 26.
Seller and Servicer......... Southern California Edison Company, a California
corporation ("Edison"). Edison will sell the
Transition Property (in its capacity as seller,
the "Seller") to SCE Funding LLC, a Delaware
limited liability company of which the Seller is
the sole member (the "Note
10
<PAGE>
Issuer"), pursuant to a Transition Property
Purchase and Sale Agreement between the Seller
and the Note Issuer (together with any subsequent
sale agreement relating to Subsequent Transition
Property, the "Sale Agreement").
Edison will also act as the servicer of the
Transition Property (in its capacity as servicer,
the "Servicer") pursuant to a Transition Property
Servicing Agreement between the Note Issuer and
the Servicer (the "Servicing Agreement").
Edison is a public utility primarily engaged in
the business of supplying electric energy to
customers in an approximately 50,000 square-mile
area of central and southern California,
excluding the City of Los Angeles and certain
other cities.
See "The Seller and Servicer" herein.
Issuer of Certificates......
A trust entitled "California Infrastructure and
Economic Development Bank Special Purpose Trust
SCE-1" (the "Trust") to be established by the
California Infrastructure and Economic
Development Bank (the "Infrastructure Bank"). The
Trust will not be an agency or instrumentality of
the State of California. The Trust will be
governed by an Amended and Restated Declaration
and Agreement of Trust among the Infrastructure
Bank, the Delaware Trustee and the Certificate
Trustee (the "Trust Agreement"). The
Certificateholders will be the beneficiaries of
the Trust upon the issuance of the Certificates.
See "The Trust" herein.
Infrastructure Bank......... A public body established within the state
government of the State of California. Under the
Statute, the Infrastructure Bank must approve the
issuance of Certificates by the Trust. However,
the Infrastructure Bank will not guarantee,
insure or otherwise support payments or
distributions on, as applicable the Certificates,
the Notes or the Transition Property, nor will
the Infrastructure Bank have any other
obligations with respect thereto. See "The
Infrastructure Bank" herein.
Certificate Trustee......... The entity named as co-trustee under the Trust
Agreement, as set forth in each Prospectus
Supplement (the "Certificate Trustee").
Delaware Trustee............ The Delaware entity named as co-trustee under the
Trust Agreement, as set forth in each Prospectus
Supplement (the "Delaware Trustee").
The Certificates............ The California Infrastructure and Economic
Development Bank Special Purpose Trust SCE-1 Rate
Reduction Certificates (the "Certificates"),
issuable in Series. The Certificates will be
issuable under the terms of the Trust Agreement.
The Certificates may be issued in one or more
series (each, a "Series"), and the Certificates
of each Series may be issued in one or more
classes (each, a "Class"). Each Class of
Certificates will correspond to a Class of Notes
and will represent fractional undivided
beneficial interests in such underlying Class of
Notes, the
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proceeds thereof and payments pursuant to any
related Swap Agreement. Accordingly, each Class
of Certificates will entitle the holders thereof
to receive the payments received by the Trust in
respect of the corresponding Class of Notes. The
funds received by the Trust from the payments on
each Class of Notes, and from the payments
pursuant to any related Swap Agreement, will be
the only source of distributions on the
Certificates of the corresponding Class. The
Notes will be secured by all of the Transition
Property owned by the Note Issuer and the other
Note Collateral described under "Description of
the Notes--Security" herein. The Certificates are
entitled to all of the benefits accorded to "rate
reduction bonds" by the Statute. The issuance and
sale of any Series or Class of Certificates is
contingent upon the effectiveness of the
Financing Order and the applicable Issuance
Advice Letter.
A Series may include two or more Classes of
Certificates that differ as to the interest rate,
timing, sequential order and amount of
distributions of principal or interest or both or
otherwise.
Each Series of Certificates may include one or
more Classes of Certificates that accrue interest
at a variable rate based on the index described
in the related Prospectus Supplement (the
"Floating Rate Certificates"). See "Description
of the Certificates--Floating Rate Certificates."
While the specific terms of any Series of
Certificates (and the Classes thereof, if any) in
respect of which this Prospectus is being
delivered will be described in the related
Prospectus Supplement, the terms of such Series
and any Classes thereof will not be subject to
prior review by, or consent of, the holders of
the Certificates of any previously issued Series.
The assets of the Trust will be allocated among
the Certificateholders of each Series of
Certificates issued by the Trust in the manner
described herein. If a Series includes two or
more Classes of Certificates, the assets of the
Trust allocable to the Certificates of such
Series will be further allocated among each Class
in such Series in the manner described in the
Prospectus Supplement.
All Certificates of the same Series will be
identical in all respects except for the
denominations thereof, unless such Series is
comprised of two or more Classes, in which case
all Certificates of the same Class will be
identical in all respects except for the
denominations thereof.
So long as any Certificates are outstanding, the
Certificateholders will direct the Certificate
Trustee, as sole Noteholder, as to matters in
which the Noteholders are permitted or required
to take action; provided, however, that the
Certificate Trustee will be permitted to take
certain actions specified in the Trust Agreement
without the direction of the Certificateholders.
See "Description of the Notes--Actions by
Noteholders" herein.
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None of the Certificates, the Notes or the
underlying Transition Property will be guaranteed
or insured by any governmental agency or
instrumentality or by the Seller or any of its
affiliates. Neither the full faith and credit nor
the taxing power of the State of California or
any political subdivision, agency or
instrumentality thereof is pledged to the payment
of principal of or interest on the Certificates
or the Notes or to the payments in respect of the
Transition Property.
See "Description of the Certificates" and
"Description of the Notes" herein.
Note Issuer.................
SCE Funding LLC, a Delaware special purpose
limited liability company whose single member is
Edison. The assets of the Note Issuer will
consist of the Transition Property and the other
Note Collateral, including the capital
contributed by Edison in an amount specified in
each Prospectus Supplement.
The principal executive office of the Note Issuer
is located at 2244 Walnut Grove Avenue, Room 180,
Rosemead, CA 91770, and its telephone number is
(626) 302-1850.
The Notes................... The Notes of each Series and Class issued by the
Note Issuer will be in an initial aggregate
principal amount equal to the initial aggregate
principal amount of the related Series and Class
of Certificates, and the Notes of each Series and
Class will bear interest at an interest rate
equal to the interest rate of the related Series
and Class of Certificates, unless a Swap
Agreement is entered into in connection with the
issuance of any Series or Class of Certificates,
as described in the related Prospectus
Supplement.
The Note Issuer will use all collections received
with respect to the Transition Property (FTA
Collections, as more specifically defined below)
to pay fees payable to the Note Trustee, the
Certificate Trustee, the Delaware Trustee, the
Servicer and the Administrator, other Operating
Expenses, interest due on the Notes and principal
payable on the Notes, allocated among the Series
and Classes of Notes based on the priorities
described herein and in the Prospectus
Supplement, until each outstanding Series and
Class of Notes is retired. However, as described
under "Description of the Notes--Interest and
Principal" herein, principal of any Series or
Class of Notes on any Payment Date will only be
paid until the outstanding principal balance of
such Series or Class has been reduced to the
principal balance specified in the applicable
Expected Amortization Schedule for such
Distribution Date. Any FTA Collections remaining
with respect to such Distribution Date will be
allocated to the various subaccounts of the
Collection Account, as described below. All
principal not previously paid, if any, on a Note
is due and payable on the Final Maturity Date of
such Note, which will correspond with the
Termination Date of the related Class of
Certificates.
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<PAGE>
Each Series of Notes represents a non-recourse
obligation of the Note Issuer, and will be
secured only by Transition Property owned by the
Note Issuer, together with the other Note
Collateral.
See "Description of the Notes" herein.
Note Trustee................ The entity named as trustee under the Note
Indenture, as set forth in each Prospectus
Supplement (the "Note Trustee").
Transition Costs............ In connection with the restructuring of the
electric utility industry in California to
facilitate increased competition among providers
of electricity, Sections 367 and 369 of the
California Public Utilities Code (the "PU Code")
provide the Seller, as well as the other
Utilities providing electricity to consumers in
California, with an opportunity to recover
certain costs. These costs, commonly known as
stranded costs and referred to herein and in the
Statute as "Transition Costs," consist of the
costs of generation-related assets and
obligations that may become uneconomic as a
result of a competitive generation market,
together with certain other costs associated
therewith. Examples of generation-related assets
include generation facilities, generation-related
regulatory assets, amounts recoverable in
electric rates pursuant to settlement agreements
with the California Public Utilities Commission
(the "CPUC") in connection with nuclear power
plants and power purchase contracts with third-
party generators of electricity (including
voluntary restructuring, renegotiations or
terminations thereof). These assets may become
uneconomic in a competitive generation market,
since they are obligations that were undertaken
either pursuant to legal requirements or with the
understanding that they would be recoverable in
rates approved by the CPUC. Since other
participants in a competitive market, unburdened
by these uneconomic assets, may be able to offer
electricity at lower rates, the costs relating to
these uneconomic assets may not be recoverable in
a competitive market.
FTA Charges.................
Under Section 840 of the PU Code, the Seller has
obtained from the CPUC a Financing Order and
related interim opinion (together, the "Financing
Order") designating the amount of the Seller's
Transition Costs to be financed, along with the
costs of providing, recovering, financing or
refinancing the Transition Costs, including the
costs of issuing, servicing and retiring the
Certificates. The total amount specified in the
Financing Order which may be financed is
$3,000,000,000. In order to enable the Seller to
recover the Transition Costs and associated
costs, the CPUC has authorized, in the Financing
Order, the establishment of nonbypassable, usage-
based, per kilowatt hour charges on designated
consumers of electricity (the "FTA Charges"). The
FTA Charges will be payable by existing and
future Residential Customers and Small Commercial
Customers (each, as defined below and
collectively, the "Customers") of electricity in
the territory of the Seller specified by the
Statute. The territory specified by the Statute
is the territory in which the Seller provided
electricity services as of December 20,
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1995 (the "Territory"). The two defined classes
of consumers comprising the Customers are
(i) residential consumers (the "Residential
Customers") and (ii) small commercial consumers,
which are defined as commercial consumers whose
peak demand did not exceed 20 kilowatts for any
three of the twelve billing periods prior to
October 1, 1997 and new commercial customers
since that time whose peak demand is estimated
not to exceed 20 kilowatts for any three of the
twelve billing periods since that time ("Small
Commercial Customers"). Because of differences in
the tariff rate for each class of Customers, the
FTA Charge payable by Residential Customers is
expected to be different from the FTA Charge
payable by Small Commercial Customers. The ratio
of the FTA Charge payable by the Small Commercial
Customers to the FTA Charge payable by the
Residential Customers will be the same as the
ratio of the tariff rates in effect for Small
Commercial Customers at June 1996 to the tariff
rates in effect for Residential Customers at June
1996. The initial FTA Charges are expected to
result in FTA Payments by the Residential
Customers and Small Commercial Customers
representing approximately 83 percent and 17
percent, respectively, of the aggregate FTA
Payments expected to be collected in 1998. The
foregoing percentages may change from time to
time based on fluctuations in Customer
composition, electricity usage and delinquency
and write-off rates. To the extent Customers
choose to take service from an ESP that provides
consolidated billing, the payments in respect of
the FTA Charges owing on account of the usage by
such Customers will, in effect, be owed by the
ESP rather than the Customer. See "Risk Factors--
Potential Servicing Issues--Reliance on
Aggregators and Other Suppliers" and "Servicing--
Aggregators and Other Suppliers" herein.
The FTA Charges will be calculated and adjusted
from time to time to generate projected
collections sufficient to provide for the
amortization of each Series of Certificates in
accordance with the related Expected Amortization
Schedule, the collection of the
Overcollateralization Amount described herein,
the payment of fees and expenses related to the
issuance and servicing of the Certificates and
the replenishment of the Capital Subaccount to
the extent that amounts are drawn therefrom. The
FTA Charges are, specifically, separate charges
that will be assessed on (i) the class of
electricity consumers comprised of Residential
Customers and (ii) the class of electricity
consumers comprised of Small Commercial
Customers. In each case, the FTA Charges will be
assessed for the benefit of the Note Issuer as
owner of the Transition Property based on the
applicable Customer's actual consumption of
electricity. Such amounts will be collected by
the Servicer, either directly from Customers or
from ESPs that collect such amounts from
Customers, as part of its normal collection
activities and will be deposited into the
Collection Account under the terms of the Note
Indenture and the Servicing Agreement on each
Remittance Date (as defined herein).
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<PAGE>
The Financing Order requires a notification
letter (each, an "Issuance Advice Letter") to be
submitted to the CPUC prior to the issuance of
each Series of Certificates. The first Issuance
Advice Letter will establish the initial FTA
Charges, calculated using the Base Calculation
Model which is described under "Description of
the Transition Property--Financing Order and
Advice Letters" herein. Subsequent Issuance
Advice Letters may modify the FTA Charges to
support the issuance of additional Series of
Certificates. The Issuance Advice Letters and the
True-Up Mechanism Advice Letters (as defined
herein) are collectively referred to as "Advice
Letters." The Servicing Agreement requires the
Servicer to calculate adjustments to the FTA
Charges and to file the True-Up Mechanism Advice
Letters from time to time as needed, but not less
than annually.
Transition Property.........
The right to collect payments based on the FTA
Charges from the Customers (such payments,
whether collected directly from Customers or
through ESPs, being the "FTA Payments") gives
rise to a separate property right under
California law and is referred to herein
generally as the "Transition Property." FTA
Payments received by the Servicer and remitted to
the Collection Account are referred to generally
herein as the "FTA Collections." "Transition
Property" is defined more specifically in Section
840(g) of the PU Code as the property right
created under the PU Code including, without
limitation, the right, title and interest of an
electrical corporation or its transferee (i) in
and to the FTA Charges, as adjusted from time to
time, (ii) to be paid the FTA Payments, and (iii)
to obtain adjustments to the FTA Charges, as
provided in the PU Code.
Adjustments to FTA Charges..
In order to enhance the likelihood that actual
FTA Collections are neither more nor less than
the amount necessary to amortize the Notes in
accordance with the Expected Amortization
Schedules, pay all related fees and expenses,
fund the Overcollateralization Subaccount up to
the Required Overcollateralization Level and
replenish the Capital Subaccount up to the
Required Capital Level, the Servicing Agreement
requires the Servicer to seek, and the Statute
and the Financing Order require the CPUC to
approve, periodic adjustments to the FTA Charges
based on actual FTA Collections and updated
assumptions by the Servicer as to future usage of
electricity by Customers, future expenses
relating to the Transition Property, the Notes
and the Certificates, and the rate of
delinquencies and write-offs and assuming no net
earnings on any amounts in the Collection
Account. Each Advice Letter relating to an
adjustment to the FTA Charges is referred to as a
"True-Up Mechanism Advice Letter." The
adjustments to the FTA Charges will continue
until all interest on and principal of all Series
of Notes and corresponding Series of Certificates
have been paid or distributed in full.
The Servicer will file a routine True-Up
Mechanism Advice Letter annually, requesting
modifications to the FTA Charges. Calculations
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<PAGE>
of appropriate modifications to the FTA Charges
will be made based on the True-Up Mechanism
Calculation Model, which is described under
"Description of the Transition Property--
Adjustments to the FTA Charges" herein. If so
specified in the related Prospectus Supplement,
the Servicer may also file a routine True-Up
Mechanism Advice Letter quarterly on the basis
specified in the Prospectus Supplement. In
addition, the Servicer may file a non-routine
True-Up Mechanism Advice Letter as often as
quarterly, to revise the Base Calculation Model
or True-Up Mechanism Calculation Model, if either
of such models no longer accurately calculates
FTA Charges. True-Up Mechanism Advice Letters
will take into account amounts available in the
General Subaccount and Reserve Subaccount, and
amounts necessary to replenish the Capital
Subaccount and fund the Overcollateralization
Subaccount to required levels, in addition to
amounts payable on the Notes and related fees and
expenses.
See "Description of the Transition Property--
Adjustments to the FTA Charges" herein.
State Pledge................
Pursuant to Section 841(c) of the PU Code, the
Infrastructure Bank, on behalf of the State of
California, pledges and agrees with the Note
Issuer, the Trust and the holders of the
Certificates that the State of California shall
neither limit nor alter the FTA Charges, the
Transition Property, or the Financing Order or
Advice Letters relating thereto, or any rights
thereunder, until the Certificates, together with
the accrued and unpaid interest thereon, are
fully paid and discharged, provided nothing
contained in such pledge and agreement precludes
such limitation or alteration if and when
adequate provision shall be made by law for the
protection of the holders (the "State Pledge").
Customers................... The Customers consist of Residential Customers
and Small Commercial Customers in the Territory.
The sole source of payments on the Certificates
will be payments on the Notes and payments
pursuant to any related Swap Agreement; the sole
sources of payments on the Notes will be FTA
Payments collected from the Customers and amounts
available or realized from the other Note
Collateral (which is not expected to be
substantial). Amounts billed to Customers will
include amounts owing to Edison and others, in
addition to FTA Charges owing to the Note Issuer.
Of amounts collected from the Customers, only the
portion of amounts collected that is attributable
to the FTA Charges, as adjusted from time to
time, will be available for distributions on the
Certificates.
Distribution and Payment
Dates...................... Unless otherwise specified in the related
Prospectus Supplement, each March 25, June 25,
September 25 and December 26 (or, if any such
date is not a Certificate Business Day, the next
succeeding Certificate Business Day) following
the Closing Date for a Series of Certificates,
the quarterly dates on which distributions will
be made to specified holders of Certificates of
such Series (each, a "Distribution Date"). Each
Distribution Date with respect to the
Certificates will also be a date on which
payments are made with respect to the Notes
(each, a "Payment Date").
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Record Dates................
With respect to any Distribution Date, the
Business Day preceding such Distribution Date if
the Certificates are Book-Entry Certificates or,
if Definitive Certificates are issued, the last
day of the preceding calendar month (each, a
"Record Date").
Final Distribution and
Termination Dates..........
For each Class of Certificates, the related
Prospectus Supplement will specify a Scheduled
Final Distribution Date and a Termination Date.
The "Scheduled Final Distribution Date" will be
the date when all principal of the related Class
of Certificates is expected to be distributed in
full, based on various assumptions described
herein. Failure to pay principal of and interest
on any Class of Certificates in full by the
"Termination Date," which will be a date
specified in the related Prospectus Supplement
after the related Scheduled Final Distribution
Date, shall constitute an Event of Default and
the Certificate Trustee may, and upon the written
direction of the holders of not less than a
majority in principal amount of all Certificates
of all Series then outstanding shall, declare the
unpaid principal amount of all the Notes of all
Series then outstanding to be due and payable.
The Scheduled Final Distribution Date and the
Termination Date for any Class of Certificates
will coincide with the Scheduled Maturity Date
and Final Maturity Date, respectively, for the
related Class of Notes. See "Description of the
Certificates--Events of Default" and "Ratings"
herein.
Issuance of New Series......
The Trust is authorized to issue new Series of
Certificates from time to time. See "Description
of the Transition Property--Financing Order and
Advice Letters." A new Series may be issued only
upon satisfaction of the conditions described
under "Description of the Certificates--
Conditions of Issuance of Additional Series"
herein. Each Series of Certificates will
represent a fractional undivided beneficial
interest in payments to be made on a Series of
Notes, which in turn will be secured by the
Transition Property and the other Note
Collateral. A Certificate Event of Default with
respect to one Series of Certificates (or one or
more Classes thereof) may adversely affect other
outstanding Classes and Series of Certificates
since such event will be considered a Certificate
Event of Default with respect to all Series of
Certificates and each such Class or Series will
be entitled only to its ratable portion of the
Transition Property. In addition, all Transition
Property owned by the Note Issuer will secure all
Series of Notes and any remedial action taken by
holders of one Series will affect the other
Series.
Interest.................... Unless otherwise specified in the related
Prospectus Supplement, interest on each Class of
Certificates will accrue and be distributable in
arrears at the interest rate for such Class
specified in the related Prospectus Supplement.
Interest accrued on each Class of Certificates at
the applicable interest rate will be distributed,
to the extent monies are available therefor, on
each Distribution Date, commencing on the day
specified in the related Prospectus Supplement
and will be distributed in the manner specified
in such Prospectus Supplement, to the extent of
payments received with
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<PAGE>
respect to the related Class of Notes or any
related Swap Agreement on the Payment Date for
the Notes occurring on the same day as such
Distribution Date. Note Events of Default will
include failure to make any payment of interest
within five days after the Payment Date on which
such payment is due.
Principal...................
Principal of each Class of Certificates will be
distributed to the Certificateholders of such
Class in the amounts and on the Distribution
Dates specified in the related Prospectus
Supplement, but only to the extent that amounts
in the Collection Account are available therefor,
and subject to the other limitations described
below. See "Description of the Notes--
Allocations; Payments" and "Description of the
Certificates--Payments and Distributions" herein.
The related Prospectus Supplement will set forth
a schedule of the expected amortization of
principal of the related Series of Certificates
and, if applicable, the Classes thereof (for any
Series or Class, the "Expected Amortization
Schedule"). On any Payment Date, the Note Issuer
will make principal payments on the Notes only
until the outstanding principal balances thereof
have been reduced to the principal balances
specified in the applicable Expected Amortization
Schedules for such Payment Date; accordingly, on
the related Distribution Date, the Trust
similarly will only make principal distributions
on the Certificates in such amounts. Any FTA
Collections in excess of amounts payable as (a)
expenses of the Note Issuer and the Trust, (b)
payments of interest on and principal of the
Notes, (c) allocations to the
Overcollateralization Subaccount and (d)
allocations to the Capital Subaccount (all as
described herein under "Description of the
Notes--Allocations; Payments" herein) will be
retained by the Note Trustee in the Reserve
Subaccount for payment on subsequent Payment
Dates. However, if insufficient FTA Collections
are received with respect to any Payment Date,
and amounts in the Collection Account are not
sufficient to make up the shortfall, principal of
any Series or Class of Certificates may be
distributed later than reflected in the related
Expected Amortization Schedule, as described
herein and in the related Prospectus Supplement.
See "Risk Factors--Nature of the Certificates--
Uncertain Distribution Amounts and Weighted
Average Life" and "Certain Distribution, Weighted
Average Life and Yield Considerations" herein.
If an event of default under the Trust Agreement,
other than a breach of the State Pledge by the
State of California, has occurred and is
continuing with respect to any Series or Class of
Certificates, the Certificate Trustee may, and
upon the written direction of the holders of a
majority in principal amount of all Series of
Certificates then outstanding shall, declare the
unpaid principal amount of all the Notes of all
Series then outstanding to be due and payable. An
event of default is defined as the occurrence and
continuance of an event of default under the
Notes (a "Note Event of Default") or a breach by
the State of California of the State Pledge
(collectively, "Certificate Event of Default,"
and, together with a Note Event of
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Default, an "Event of Default"). See "Description
of the Certificates--Events of Default" herein.
Optional Redemption.........
The Note Issuer may redeem any Series of Notes
relating to a Series of Certificates, and
accordingly cause the Trust to redeem the related
Series of Certificates, on any Distribution Date
if, after giving effect to distributions that
would otherwise be made on such date, the
outstanding principal balance of such Series of
Notes has been reduced to less than five percent
of the initial principal balance thereof. See
"Description of the Certificates--Optional
Redemption" herein.
Mandatory Redemption........ If the Seller is required to repurchase the
Transition Property as described under
"Description of the Transition Property--Seller
Representations and Warranties and Repurchase
Obligation," herein, the Note Issuer will be
required to redeem the Notes on the fifth
Certificate Business Day following the date of
such repurchase, and accordingly the Trust will
be required to redeem the Certificates on such
day.
Collection Account and
Subaccounts................ Upon issuance of the initial Series of Notes, the
Note Issuer will establish the Collection
Account, which will be held by the Note Trustee
for the benefit of the Noteholders. The
Collection Account will consist of four
subaccounts: a general subaccount (the "General
Subaccount"), a reserve subaccount (the "Reserve
Subaccount"), a subaccount for the
Overcollateralization Amount (the
"Overcollateralization Subaccount") and a capital
subaccount (the "Capital Subaccount"). Unless the
context indicates otherwise, references herein to
the Collection Account include each of the
subaccounts contained therein. Withdrawals from
and deposits to these subaccounts will be made as
described under "Description of the Notes--
Allocations; Payments" herein.
Overcollateralization.......
The Financing Order provides that the Note
Issuer, as the owner of the Transition Property,
is entitled to collect an additional amount (for
any Series, the "Overcollateralization Amount")
specified in the related Prospectus Supplement
which is intended to enhance the likelihood that
distributions on each Series of the Notes will be
made in accordance with their Expected
Amortization Schedules. The Financing Order
provides further that the Infrastructure Bank
and/or the California State Treasurer's Office
should determine the Overcollateralization Amount
required for each Series of Notes prior to their
issuance. The Overcollateralization Amount for
each Series of Notes will be (a) 0.50 percent of
the initial principal amount of such Series of
Notes or (b) such greater amount as is necessary
to obtain from the Rating Agencies the highest
possible investment grade ratings for the related
Certificates upon issuance. FTA Charges will be
set and adjusted at a level that is intended to
collect the Overcollateralization Amount
ratably over the life of the related Certificates
according to a schedule set forth in the related
Prospectus Supplement. The Overcollateralization
Amount for all Series of Certificates will be
held in the Overcollateralization
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Subaccount, as described further under
"Description of the Notes--Overcollateralization
Amount" herein, and will be available to pay any
periodic shortfalls in amounts available for
scheduled payments on the Notes. The amount
required to be on deposit in the
Overcollateralization Subaccount as of any
Payment Date, as specified in the schedule set
forth in the Prospectus Supplement, is referred
to herein as the "Required Overcollateralization
Level."
Capital Subaccount..........
Upon the issuance of each Series of Notes, the
Seller will contribute capital to the Note Issuer
in an amount specified in each Prospectus
Supplement, which will equal 0.50 percent of the
initial principal amount of each such Series of
Notes. Such amount, less $100,000 in the
aggregate for all Series of Notes (with respect
to each Series, the "Required Capital Level"),
will be deposited into the Capital Subaccount. On
each Payment Date, the Note Trustee will draw on
amounts in the Capital Subaccount, if any, to the
extent amounts available in the General
Subaccount, the Reserve Subaccount and the
Overcollateralization Subaccount are insufficient
to pay expenses of the Note Issuer and the Trust
and to make scheduled payments on the Notes. If
amounts on deposit in the Capital Subaccount are
used to pay such amounts, on subsequent Payment
Dates the Capital Subaccount will be replenished
to the extent FTA Collections exceed amounts
required to pay amounts having a higher priority
of payment, as more fully described under
"Description of the Notes--Allocations;
Payments."
Reserve Subaccount.......... FTA Collections available with respect to any
Payment Date in excess of amounts payable as (a)
expenses of the Note Issuer and the Trust, (b)
payments of principal of and interest on the
Notes, (c) allocations to the
Overcollateralization Subaccount and
(d) allocations to the Capital Subaccount (all as
described under "Description of the Notes--
Allocations; Payments" herein), will be allocated
to the Reserve Subaccount. On each Payment Date,
the Note Trustee will draw on amounts in the
Reserve Subaccount, to the extent amounts
available in the General Subaccount are
insufficient to make scheduled payments on the
Notes.
Collections; Allocations;
Distributions..............
Except as otherwise specified herein, on the
twentieth calendar day of each calendar month
(or, if such day is not a Certificate Business
Day, the following Certificate Business Day), the
Servicer will remit to the Collection Account FTA
Payments expected to have been received during
the preceding Servicer Month (each such Servicer
Month preceding a monthly Remittance Date being a
"Collection Period"). Because the Servicer does
not track cash collections on bills rendered
within a particular Servicer Month (each such
Servicer Month during which bills are rendered
being a "Billing Period"), the amount remitted
will be based on estimates using the model
described herein under "Servicing--Remittances to
Collection Account." A "Servicer Month" is a
period created by dividing the calendar year into
twelve consecutive periods of approximately 21
Servicer Business Days each.
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On each Payment Date, amounts in the Collection
Account, including net earnings thereon, will be
allocated to the following (in the priority
indicated, subject to the priority of withdrawals
described in the following paragraph): (1) all
amounts owed by the Note Issuer or the Trust to
the Note Trustee, the Delaware Trustee and the
Certificate Trustee will be paid to such persons;
(2) the Servicing Fee and all unpaid Servicing
Fees from any prior Payment Dates will be paid to
the Servicer; (3) the Quarterly Administration
Fee payable under the Administrative Services
Agreement between the Note Issuer and an
administrator (the "Administrator"), initially
Edison, and all unpaid Quarterly Administration
Fees from prior Payment Dates will be paid to the
Administrator; (4) so long as no Event of Default
has occurred or would be caused by such payment,
all other fees, costs, expenses and indemnities
of the Note Issuer and the Trust ("Operating
Expenses") will be paid to the persons entitled
thereto; (5) any overdue Quarterly Interest and
then Quarterly Interest with respect to each
Series of Notes will be transferred to the
Certificate Trustee, as Noteholder, for
distribution to the Certificateholders;
(6) principal on any Series of Notes payable as a
result of a Note Event of Default or on the Final
Maturity Date for such Series of Notes will be
transferred to the Certificate Trustee, as
Noteholder, for distribution to the
Certificateholders; (7) funds necessary to pay
Quarterly Principal for any Series of Notes based
on priorities described in each Prospectus
Supplement will be transferred to the Certificate
Trustee, as Noteholder, for distribution to the
applicable Certificateholders; (8) unpaid
Operating Expenses will be paid to the persons
entitled thereto; (9) the amount, if any, by
which the Required Overcollateralization Level
exceeds the amount in the Overcollateralization
Subaccount as of such Payment Date will be
allocated to the Overcollateralization
Subaccount; (10) the amount, if any, by which the
Required Capital Level with respect to all
outstanding Series of Notes exceeds the amount in
the Capital Subaccount as of such Payment Date
will be allocated to the Capital Subaccount;
(11) funds up to the net earnings on amounts in
the Collection Account for the prior quarter
without cumulation will be released to the Note
Issuer; (12) if any Series of Notes has been
retired as of such Payment Date, the excess of
the amount in the Overcollateralization
Subaccount over the aggregate Required
Overcollateralization Level with respect to all
Series of Notes remaining outstanding will be
released to the Note Issuer; (13) if any Series
of Notes has been retired as of such Payment
Date, the excess of the amount in the Capital
Subaccount over the aggregate Required Capital
Level with respect to all Series of Notes
remaining outstanding will be released to the
Note Issuer; (14) the balance, if any, will be
allocated to the Reserve Subaccount for
distribution on subsequent Payment Dates; and
(15) following the repayment of all outstanding
Series of Notes, the balance, if any, will be
released to the Note Issuer.
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If on any Payment Date funds on deposit in the
General Subaccount are insufficient to make the
transfers contemplated by clauses (1) through (7)
above, the Note Trustee will (i) first, draw from
amounts on deposit in the Reserve Subaccount,
(ii) second, draw from amounts on deposit in the
Overcollateralization Subaccount, and
(iii) third, draw from amounts on deposit in the
Capital Subaccount, up to the amount of such
shortfall, in order to make the transfers
described above. In addition, if on any Payment
Date funds on deposit in the General Subaccount
are insufficient to make the transfers described
in clauses (9) and (10) above, the Note Trustee
will draw from amounts on deposit in the Reserve
Subaccount to make such transfers. See
"Description of the Notes--Allocations; Payments"
herein.
The following diagram provides a general summary
of the flow of funds from the Customers through
the Servicer to the Collection Account, and the
various allocations therefrom.
[The omitted graphic reflects the flow of funds
from Customers, in the form of FTA Payments, to
the Servicer, monthly remittances by the Servicer
to the Collection Account, and quarterly
applications of amounts in the manner described
under "Description of the Notes--Allocations;
Payments" in the Prospectus.]
Servicing................... The Servicer is responsible for servicing,
managing and receiving FTA Payments in the same
manner that it services and administers bill
collections for its own account and the accounts
it services for others. On each Remittance Date,
the Servicer will remit FTA Payments expected to
have been received during the preceding
Collection Period (or, if Remittance Dates are
more frequent, for the period since the preceding
Remittance Date). Because the Servicer does not
track cash collections on bills rendered during
each Billing Period, the amounts remitted will be
based on estimates using the model described
under "Servicing--Remittances to Collection
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<PAGE>
Account" herein, adjusted for actual write-offs.
Subject to certain conditions described herein,
pending deposit into the Collection Account,
actual FTA Payments received by the Servicer may
be invested by the Servicer at its own risk and
for its own benefit, and will not be segregated
from other funds of the Servicer. See
"Servicing--Remittances to Collection Account"
herein.
Servicing Compensation......
The Servicer will be entitled to receive a
Servicing Fee on each Payment Date in an amount
equal to one-fourth of the percent specified in
the related Prospectus Supplement of the then
outstanding principal amount of the Notes (the
"Servicing Fee"). The Servicing Fee will be paid
prior to the distribution of any amounts in
respect of interest on and principal of the
Notes. The Servicer will be entitled to retain as
additional compensation net investment income on
FTA Payments received by the Servicer prior to
remittance thereof to the Collection Account and
the portion of late fees, if any, paid by
Customers relating to the FTA Payments. See
"Servicing--Servicing Compensation" herein.
No Servicer Advances........ The Servicer will not make any advances of
interest or principal on the Notes.
Denominations............... Each Class of Certificates will be issued in the
minimum initial denominations set forth in the
related Prospectus Supplement and in integral
multiples thereof.
Registration of the
Certificates............... Each Class of Certificates may be issued in
definitive form or initially may be represented
by one or more certificates registered in the
name of Cede & Co. ("Cede") ("Book-Entry
Certificates"), the nominee of The Depository
Trust Company ("DTC"), and available only in the
form of book-entries on the records of DTC,
participating members thereof ("Participants")
and other entities, such as banks, brokers,
dealers and trust companies, that clear through
or maintain custodial relationships with a
Participant, either directly or indirectly
("Indirect Participants"). If so indicated in the
applicable Prospectus Supplement,
Certificateholders may also hold Book-Entry
Certificates of a Series through CEDEL or
Euroclear (in Europe), if they are participants
in such systems or indirectly through
organizations that are participants in such
systems. Certificates representing Book-Entry
Certificates will be issued in definitive form
only under the limited circumstances described
herein and in the related Prospectus Supplement.
With respect to the Book-Entry Certificates, all
references herein to "holders" reflect the rights
of owners of the Book-Entry Certificates as they
may indirectly exercise such rights through DTC
and Participants, except as otherwise specified
herein. See "Risk Factors" and "Description of
the Certificates--Book-Entry Registration"
herein.
Ratings..................... It is a condition of issuance of each Class of
Certificates that at the time of issuance such
Class receive the rating indicated in the related
Prospectus Supplement, which will be in one of
the four highest categories, from one or more
nationally recognized statistical rating
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<PAGE>
agencies (each, a "Rating Agency") specified
therein. Each Class of Notes will receive the
same rating from the applicable Rating Agencies
as the corresponding Class of Certificates. See
"Ratings" in the related Prospectus Supplement.
A security rating is not a recommendation to buy,
sell or hold securities and may be subject to
revision or withdrawal at any time. No person is
obligated to maintain any rating on any
Certificate and, accordingly, there can be no
assurance that the ratings assigned to any Class
of Certificates upon initial issuance thereof
will not be revised or withdrawn by a Rating
Agency at any time thereafter. If a rating of any
Class of Certificates is revised or withdrawn,
the liquidity of such Class of Certificates may
be adversely affected. In general, the ratings
address credit risk and do not represent any
assessment of the rate of principal payments on
the Certificates. See "Risk Factors--Nature of
the Certificates--Uncertain Distribution Amounts
and Weighted Average Life," "Certain
Distribution, Weighted Average Life and Yield
Considerations" and "Ratings" herein.
Tax Status of the
Certificates...............
Each Class of Certificates bearing a fixed
interest rate will be treated as representing
ownership of an interest in the related Class of
Notes (the "Underlying Notes") for federal income
tax purposes. Each Class of Floating Rate
Certificates will be treated as representing
ownership of an interest in the Underlying Notes
and the related Swap Agreement. Interest and
original issue discount, if any, on the
Certificates generally will be included in gross
income for federal income tax purposes. All
holders of Floating Rate Certificates, and all
individual holders in particular, should
seriously consider making an election to
"integrate" the Underlying Notes and the related
Swap Agreement for tax purposes by making a
notation on their books and records on or before
the date the Floating Rate Certificates are
acquired. See "Certain Federal Income Tax
Consequences" herein and in the related
Prospectus Supplement.
Interest and original issue discount, if any, on
the Certificates will be exempt from California
personal income tax, but not exempt from the
California franchise tax applicable to banks and
corporations. See "State Taxation" herein.
ERISA Considerations........ A fiduciary of any employee benefit plan or other
plan or arrangement that is subject to the
Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or Section 4975 of the
Internal Revenue Code of 1986, as amended (the
"Code"), should carefully review with its legal
advisors whether the purchase or holding of the
Certificates of any Class or Series could give
rise to a transaction prohibited or not otherwise
permissible under ERISA or the Code. See "ERISA
Considerations" herein and in the related
Prospectus Supplement.
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<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of Certificates:
UNUSUAL NATURE OF THE TRANSITION PROPERTY
RELIANCE ON FTA ADJUSTMENTS
The Servicer will be obligated to submit True-Up Mechanism Advice Letters to
the CPUC at least annually and, if so specified in the related Prospectus
Supplement, as often as quarterly, seeking adjustments to the FTA Charges to
reflect the actual rate of FTA Collections and changes in projections
regarding such rate. Such adjustments will also reflect amounts available in
the General Subaccount and Reserve Subaccount and amounts required to fund the
Overcollateralization Subaccount and replenish the Capital Subaccount to
required levels. The actual rate of FTA Collections will vary from projections
upon which the FTA Charges were based, primarily as a result of variations
from projected electricity usage by Customers and expected delinquencies and
write-offs. PU Code Section 841(c) requires the CPUC to approve adjustments
requested by True-Up Mechanism Advice Letters necessary to assure timely
recovery of Transition Costs, including interest on and principal of the
Certificates in accordance with the related Expected Amortization Schedule,
the funding of the Overcollateralization Subaccount and payment of related
fees and expenses. Despite the Statute and the Financing Order, there can be
no assurance that the CPUC will approve such requests in a timely manner. Any
delay in adjustments to the FTA Charges, and any litigation that might ensue
as a consequence, might adversely affect the price and liquidity of the
Certificates and the dates of maturity thereof, and, accordingly, the weighted
average lives thereof.
POSSIBLE STATE AMENDMENT OR REPEAL OF THE STATUTE AND RELATED LITIGATION
Under the Statute, the State of California pledged and agreed with the
owners of Transition Property and the holders of the Certificates, and the
Infrastructure Bank as agent for the State of California will pledge and agree
in the Trust Agreement for the benefit of Certificateholders, that the State
will neither limit nor alter the fixed transition amounts, transition
property, financing orders and all rights thereunder until all obligations
under the Certificates are fully met and discharged; provided that nothing
contained in the Statute or the Trust Agreement precludes such limitation or
alteration by the State if and when adequate provision shall be made by law
for the protection of the Certificateholders. It is unclear what "adequate
provision" would be afforded to Certificateholders by the State if such
limitation or alteration were attempted. Accordingly, no assurance can be
given that any such provision would not adversely affect the price of the
Certificates, or the timing of receipt of payments with respect to the
Certificates.
Under California law, the electorate has the right, through its initiative
powers, to propose statutes as well as amendments to the California
Constitution. Generally, any matter that is a proper subject of legislation
can become the subject of an initiative. Among other procedural requirements,
in order for an initiative measure to qualify for an election, the initiative
measure must be submitted to the State Attorney General and a petition signed
by electors constituting five percent, in the case of a statutory initiative,
and eight percent, in the case of a constitutional initiative, of the votes
cast at the immediately preceding gubernatorial election must be submitted to
the Secretary of State. To become effective, the initiative must then be
approved by a majority vote of the electors voting at the next general
election.
Consumer advocacy groups have publicly announced their opposition to certain
elements of the restructuring plan embodied in the Statute, including the
ability of the Utilities to recover fully their stranded costs and the
issuance of the Certificates. These opponents have indicated their intent to
commence litigation to prevent the sale of the Certificates and have
challenged the validity of the Financing Order, as described below under "--
Legal Challenges." In addition, opponents who include Ralph Nader and the head
of a prior successful initiative campaign relating to automobile insurance
have announced their intention to draft a ballot initiative intended to
eliminate the recoveries of stranded costs, including the cost of nuclear
plants, and intended to
26
<PAGE>
prohibit the collection of FTA Charges. The first step in commencing the
initiative qualification process would be a submission of an initiative
measure to the State Attorney General. No assurances are given as to whether
any such litigation will commence, whether any such voter initiative measure
will be introduced or adopted, the terms of any such voter initiative measure
or the effect of any such litigation or voter initiative measure on the
Certificate.
In the opinion of Brown & Wood LLP, counsel to the Trust ("Special
Counsel"), under applicable United States and State of California
Constitutional principles relating to the impairment of contracts, the State
of California could not repeal or amend the Statute (by way of either
legislative process or California voter initiative) or take, or refuse to
take, any action required by the State of California under its pledge and
agreement with the Certificateholders (described above) if such repeal or
amendment, or such action or inaction would substantially impair the rights of
the Certificateholders, absent a demonstration by the State of California of a
"great public calamity" that justifies a contractual impairment. There have
been numerous cases in which legislative or popular concerns with the burden
of taxation or governmental charges have led to adoption of legislation
reducing or eliminating taxes or charges which supported bonds or other
contractual obligations entered into by public instrumentalities. However,
such concerns have not been considered by the courts to provide sufficient
justification for a substantial impairment of the security for such bonds or
obligations provided by the taxes or governmental charges involved. Based upon
such analogous case law (which, however, does not address these particular
circumstances directly), it would appear unlikely that the State could reduce,
modify or alter the Transition Property, or take, or refuse to take, any
action with respect to the Transition Property in a manner which would
substantially impair the rights of the Note Issuer, as owner of the Transition
Property, or of Certificateholders. Nonetheless, no assurance can be given
that a repeal of or amendment to the Statute will not be sought or adopted or
that any action, or refusal to act, by the State may not occur, any of which
might constitute a violation of the State's pledge and undertaking with the
Certificateholders. In any such event, costly and time consuming litigation
might ensue. Any such litigation might adversely affect the price and
liquidity of the Certificates and the dates of maturity thereof, and,
accordingly, the weighted average lives thereof. Moreover, given the lack of
judicial precedent directly on point, and the novelty of the security for the
Certificates, the outcome of any such litigation cannot be predicted with
certainty and, accordingly, Certificateholders could incur a loss on their
investment.
Furthermore, Section 3 of Article XIIIC of the California Constitution
("Proposition 218") provides that the initiative process shall not be
prohibited or otherwise limited in matters of reducing or repealing any
"local" tax, assessment, fee or charge. There is no controlling precedent
interpreting Proposition 218, given its recent adoption. However, in the
opinion of Special Counsel, the FTA Charges are not a "local" tax, assessment
fee or charge to which Proposition 218 applies, and the initiative power
described in Proposition 218 is therefore inapplicable to the FTA Charges, the
Transition Property, the Notes and the Certificates.
POSSIBLE FEDERAL PREEMPTION OF THE STATUTE
At least one bill was introduced in the 105th Congress, First Session,
prohibiting the recovery of stranded costs such as the Transition Costs, which
could negate the existence of the Transition Property that is the source of
payments on the Notes and the Certificates. The bill is H.R. 1230 (The
Consumers Electric Power Act of 1997) ("H.R. 1230"), which was introduced on
April 8, 1997, and has been referred to the House Commerce Committee, where no
further action has been taken. However, the entire 52-member California
delegation to the House of Representatives is on record opposing any federal
bill that does not grandfather the provisions of the Statute. No prediction
can be made as to whether H.R. 1230, or any future proposed bill that would
prohibit the recovery of stranded costs, will become law or, if it becomes
law, what its final form or effect will be. Federal preemption of the Statute
could prevent Certificateholders from receiving the principal and interest
payable on the Certificates and Certificateholders could suffer a loss on
their investment. See "Energy Deregulation and the New California Market
Structure" herein.
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<PAGE>
LEGAL CHALLENGES
The existence of the Transition Property and its adequacy as a source of
distributions on the Certificates are dependent on relevant provisions of the
PU Code, the Financing Order and applicable Advice Letters. In addition,
resolutions adopted by the Infrastructure Bank relating to the issuance of the
Certificates are subject to legal challenge within 60 days of their adoption.
If the relevant provisions of the PU Code, the Financing Order or any such
Advice Letters were determined to be unlawful, invalid or unenforceable in
whole or in part, or if the resolutions of the Infrastructure Bank were
determined to be invalid, any such determination could adversely affect the
validity of the Certificates or the ability of the Note Issuer to make timely
payments on the Notes, and in either case, the Certificateholders could suffer
a loss. At the time of issuance of the Certificates, the General Counsel of
the Infrastructure Bank will deliver an opinion to the effect that the
issuance resolutions were validly adopted and are in full force and effect at
such time.
On October 6, 1997, The Utility Reform Network ("TURN"), a California
consumer advocacy group, filed an application for rehearing with the CPUC
seeking rehearing of the Financing Order, alleging that the Financing Order is
unlawful on various grounds. The CPUC denied the applications for rehearing on
October 22, 1997. TURN has announced that it will challenge the CPUC's denial
by filing a petition for writ of review of the Financing Order with the
California Supreme Court. If the petition for writ of review were to be
granted by the California Supreme Court under the PU Code, the court would
determine only whether the CPUC acted within its authority in issuing the
Financing Order. A decision by the California Supreme Court to hear such a
case in and of itself could adversely affect the liquidity and value of the
Certificates.
As of the date of this Prospectus, the Financing Order is in full force and
effect. If the relevant provisions of the Financing Order, the PU Code or any
Advice Letters are determined to be unlawful, invalid or unenforceable under
existing law, such determination may result in a breach of a representation
and warranty requiring the Seller, under certain circumstances, to repurchase
the Transition Property as described under "Description of the Transition
Property--Seller Representations and Warranties and Repurchase Obligation"
herein. No assurances are given that Edison, as Seller, will be able to
repurchase the Transition Property.
UNCERTAINTIES ASSOCIATED WITH NEW ASSET TYPE
There are no historical performance data for an asset type such as the
Transition Property. Although energy usage records are available, such records
have limited predictive value with respect to the Certificates. Furthermore,
the Servicer does not have any experience administering this specific type of
regulatory asset. See "Servicing" herein. In addition, foreclosure upon the
Transition Property may not be a realistic or practical remedy for the
Certificateholders.
LIMITED RIGHTS AND REMEDIES
Under the terms of the Sale Agreement, Edison, as the Seller, will be
required to repurchase the Transition Property, at a purchase price equal to
the outstanding principal amount of the Notes and all accrued and unpaid
interest thereon as of the repurchase date, if, among other things, there has
been a breach of the Seller's representation that the Financing Order and each
Issuance Advice Letter pursuant to which any applicable Transition Property
has been created are valid, binding and irrevocable as of the date of any sale
of Transition Property but only if such breach continues beyond a 90-day grace
period and has a material adverse effect on the Certificateholders. A
determination by a court that, based on laws in effect on the date any
Transition Property is sold, the Transition Property, the Financing Order or
any Issuance Advice Letter violated any such laws, or is otherwise invalid or
unenforceable, would be considered to be a breach of the Seller's
representation, thereby obligating the Seller to repurchase the Transition
Property under the Sale Agreement. The Seller will not be in breach of any
representations and warranties as a result of a change in law by legislative
enactment, voter initiative or constitutional amendment, including a breach of
the State Pledge, or as a result of a breach of the State Pledge otherwise
effected that constitutes a temporary impairment of the Certificateholders'
rights which under current law would be permitted as necessary to advance an
important public interest, as described below.
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<PAGE>
No assurances are given that the Seller will be able to repurchase the
Transition Property. In the event of any such repurchase, the Note Issuer
would be obligated to redeem the Notes and accordingly cause the Trust to
redeem the Certificates. See "Description of the Transition Property--Seller
Representations and Warranties and Repurchase Obligation" herein.
In contrast, the Seller will not be required to repurchase the Transition
Property if the FTA Charges become uncollectible as a result of a change in
law by any legislative enactment, voter initiative or constitutional amendment
occurring after the date the Transition Property is sold. In addition, no
breach of the Seller's representations will be deemed to have occurred if the
State breaches the State Pledge by otherwise effecting a temporary impairment
of the Certificateholders' rights which under current law would be permitted
as necessary to advance an important public interest. Such a public interest
may arise in connection with a great public calamity, which might include, for
example, economic upheaval or natural disasters. A repeal of the Statute, an
amendment thereto voiding the Transition Property or the adoption of a federal
statute prohibiting the recovery of all stranded costs are examples of changes
in law. If any such event were to occur, the Servicer, on behalf of the
Certificateholders, would be required to bring legal action seeking to
overturn any such change in law. The Servicer would be entitled to
reimbursement of its expenses in connection with such legal or administrative
action as an operating expense of the Trust under the Note Indenture. Any such
litigation might adversely affect the price and liquidity of the Certificates
and the dates of maturity thereof, and, accordingly, the weighted average
lives thereof. Moreover, given the lack of judicial precedent directly on
point, and the novelty of the security for the Certificates, the outcome of
any such litigation cannot be predicted with certainty and, accordingly,
Certificateholders may suffer a loss of their investment in the Certificates.
POTENTIAL SERVICING ISSUES
RELIANCE ON SERVICER
The Trust relies on the Servicer for the determination of any adjustments to
the FTA Charges and for the Customer billing and collection that is necessary
to recover the FTA Payments and, therefore, necessary to make distributions on
the Certificates. If, as a result of its insolvency or liquidation or
otherwise, Edison were to cease servicing the Transition Property, determining
any adjustments to the FTA Charges or collecting FTA Payments, it may be
difficult to find a substitute servicer. In such an event, the timing of
recovery of payment on the Transition Property could be delayed. Any successor
servicer under current law may not be able to invoke a remedy of shutting off
service to a consumer for nonpayment of the FTA Charge. A successor servicer
may otherwise experience difficulties in collecting FTA Payments and
determining appropriate adjustments to FTA Charges. A transfer of servicing
will require regulatory cooperation. See "Servicing" herein.
INACCURATE USAGE AND CREDIT PROJECTIONS
The ability of the Servicer to forecast accurately the electricity usage of
Customers and the delinquency and write-off experience relating to FTA
Payments will affect significantly whether Certificateholders will receive
timely distributions on the Certificates. Actual energy usage may differ from
projections as a result of weather during the relevant period that is warmer
or cooler than expected. In addition, actual energy usage, delinquencies and
write-offs may differ from projections as a result of general economic
conditions, trends in demographics that are not precisely as predicted,
unexpected catastrophes, and other causes. During the past five years, the
Servicer's forecasts for energy consumption have averaged a 0.3 percent
overestimate of usage for Residential Customers and a 2.7 percent
underestimate of usage for Small Commercial Customers. See "The Seller and
Servicer--Forecast Variance" herein. The accuracy of the Servicer's historical
forecasts is not necessarily indicative of the accuracy of the Servicer's
future forecasts, and there can be no assurances that actual usage,
delinquencies and write-offs will not be significantly different from future
forecasts thereof. The adjustment mechanism for the FTA Charges described
under "Description of the Transition Property--Adjustments to the FTA
Charges," as well as the Overcollateralization Amount and the amounts
deposited in the Capital Subaccount, are intended to mitigate these risks
relating to the timing of collections and payments, although the frequency of
the adjustments to the FTA Charges is limited, and, accordingly, delays in
distributions to Certificateholders might result. See "The Seller and the
Servicer--Credit Policy; Billing; Collections; Restoration of Service" herein.
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<PAGE>
DELAYS CAUSED BY CHANGES IN PAYMENT TERMS
The Servicer is permitted to alter the terms of billing and collection
arrangements and modify amounts due from Customers. Although the Servicer does
not have the right to change the amount of a Customer's individual FTA Charge,
it does have the right to take actions that in its judgment will maximize
actual collections from Customers with respect to any utility bill. In
addition, the Servicer has the right to write off outstanding bills that it
deems uncollectible in accordance with its customary practices. Such actions
might include, for example, agreeing to an extended payment schedule or
agreeing to write off a portion of an outstanding bill in order to recover a
portion thereof. While Edison has no current intention of taking actions that
would change the billing and collection arrangements in a manner which would
affect adversely the collection of FTA Payments, there can be no assurance
that changes in Edison's customary and usual practices for comparable assets
it services for itself might not result in a determination to do so or that a
successor servicer may not make such a determination. It is possible that any
such changes could delay collections from Customers or result in lower
collections, and accordingly could adversely affect the distribution of
interest on the Certificates on a timely basis or the distribution of the
principal of the Certificates pursuant to the Expected Amortization Schedules
or in full by the applicable Scheduled Final Distribution or Termination
Dates. See "Certain Distribution, Weighted Average Life and Yield
Considerations" herein.
LIMITED CREDIT POLICY AND PROCEDURES
The ability of the Servicer to collect amounts billed to Customers under the
FTA Charges, as adjusted from time to time, will depend in part on the
creditworthiness of the Customers. Edison generally is obligated to provide
service to new Customers under California law, and generally no outside credit
investigations are performed on new Customers. Edison's information regarding
the credit status of new Customers is limited to information regarding prior
service, if any, by Edison to such Customers. Edison relies on the information
provided by Customers and its customer information system audits to indicate
whether a new Customer has had previous service from Edison. If Edison
evaluates the creditworthiness of a significant number of its Customers
incorrectly, resulting in significant increases in delinquencies and write-
offs, delays in distributions to Certificateholders may occur. It is expected
that by the middle of 1998, the creditworthiness of new Customers will be
verified using an on-line credit bureau database. If a Customer falls below a
specific credit score, a security deposit will be required. See "The Seller
and Servicer--Credit Policy; Billing; Collections; Restoration of Service"
herein.
RELIANCE ON AGGREGATORS AND OTHER SUPPLIERS
As part of the deregulation of the California electric industry described
elsewhere herein, there will be an unbundling of generation, transmission,
distribution and billing services. A decision of the CPUC allows alternative
energy services providers ("ESPs") to provide a consolidated bill to their
retail customers covering amounts owed to the ESP for electricity, amounts
owed to the utilities for distribution and other charges, including the
applicable FTA Charges.
The CPUC has determined that if an ESP provides consolidated billing, the
ESP must first establish its creditworthiness by either (1) demonstrating that
it has a credit rating of "Baa2" or higher from Moody's or "BBB" or higher
from S&P, Fitch Investors Service, L.P. or Duff & Phelps Credit Rating Co.,
(2) submitting a credit application to the Servicer for evaluation, with final
credit approval granted by the Servicer, or (3) submitting to the Servicer a
deposit equal to twice the estimated maximum monthly amount owed to the
Servicer. Any ESP that provides consolidated billing, including monthly
amounts with respect to the FTA Charges, is required to pay the utility
periodic amounts billed by the utility to the ESP, including the FTA Charges,
regardless of the ESP's ability to collect such amounts from its Customers. In
such event, the collecting ESP will, in effect, replace the Customer as the
obligor with respect to such FTA Charges, and the Servicer, on behalf of the
Note Issuer, will have no right to collect such FTA Charges from the Customer.
There can be no assurance that each ESP will utilize the same customer credit
standards as the Servicer, or that the Servicer will be able to mitigate
credit risks relating to ESPs in the same manner in which it mitigates such
risks relating to its
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Customers. See "Servicing--Aggregators and Other Suppliers" herein. The
Servicer, on behalf of the Note Issuer, will pursue any ESP that fails to
remit applicable FTA Charges in a manner similar to that by which the Servicer
will pursue any failure by a Customer to remit FTA Charges. The Servicer will
not have the right to pursue Customers of an ESP that defaults in the payment
of FTA Charges. However, the Servicer will have the right to revert to
separate billing upon certain payment defaults by an ESP. An ESP that has
defaulted will nevertheless have the right to reinstate consolidated billing
six months after its default upon the satisfaction of certain conditions.
Frequent changes in Customer billing and payment arrangements may result in
Customer confusion and the misdirection or delay of payments, which could have
the effect of causing delays in distributions to Certificateholders. Neither
the Seller nor the Servicer will pay any shortfalls resulting from the failure
of any ESPs to forward FTA Payments to Edison, as Servicer. The true-up
adjustment mechanism for the FTA Charges, as well as the Overcollateralization
Amount and the amounts deposited in the Capital Subaccount, are intended to
mitigate this risk relating to the timing of collections and payments.
However, delays in distributions to Certificateholders might occur as a result
of delays in implementation of the adjustment mechanism.
In addition, to the extent that Customers choose to purchase their
electricity from ESPs that provide consolidated billing, the Note Issuer may
be relying on a small number of ESPs, rather than a large number of Customers,
to remit FTA Charges. Under these circumstances, a default in the payment of
FTA Charges by a single ESP that provides electricity services to a large
number of Customers may adversely affect the timing of payments on the
Certificates.
COMMINGLING OF FTA PAYMENTS WITH SERVICER'S OTHER FUNDS; INVESTMENT OF FTA
PAYMENTS FOR SERVICER'S ACCOUNT
Except as described under "Servicing--Remittances to Collection Account"
herein, on each Remittance Date the Servicer will remit to the Collection
Account FTA Payments expected to have been received during the preceding
Collection Period. Accordingly, FTA Payments received by the Servicer will not
be segregated from the Servicer's general funds until they are remitted to the
Collection Account. The Servicer will invest FTA Payments received but not yet
remitted for its own account. A failure or inability of the Servicer to remit
the full amount of the estimated FTA Payments on any Remittance Date, whether
voluntary or involuntary, might result in delays in distributions to
Certificateholders. The true-up adjustment mechanism as well as the
Overcollateralization Amount and the amounts deposited in the Capital
Subaccount, are intended to mitigate this risk relating to the timing of
collections and payments. However, delays in distributions to
Certificateholders may occur as a result of delays in implementation of the
adjustment mechanism. Furthermore, six months after the Billing Period during
which bills are rendered, the Actual FTA Payments with respect to such Billing
Period are determined. If there has been a Remittance Shortfall (i.e., Actual
FTA Payments exceed Estimated FTA Payments), the Servicer is required to
increase the amount that it otherwise would remit on the Remittance Date
following the calculation of the Remittance Shortfall, with such increased
amount coming from its own funds. In the event of the insolvency of the
Servicer, payments of the Remittance Shortfall by the Servicer may be delayed
significantly.
UNCERTAINTIES RELATED TO THE ELECTRIC INDUSTRY GENERALLY
UNTRIED NEW CALIFORNIA MARKET STRUCTURE
The California electric industry will change dramatically in the near
future, as a result of recent decisions by the CPUC and enactment of the
Statute. See "Energy Deregulation and New California Market Structure" herein.
The new California electric market structure, scheduled to begin January 1,
1998, has neither been tested nor implemented. Many elements of the new market
structure present novel regulatory issues yet to be resolved as well as many
practical issues of implementation such as the development of systems,
software and procedures for each of (a) the independent power exchange (the
"PX"), which will provide an auction process to match electricity supply and
demand, (b) the independent system operator (the "ISO"), which will have
operational control of the Utilities' transmission facilities and (c) all of
the market participants who will transact with the PX and ISO. If the new
market structure is not implemented in a timely and orderly fashion,
electricity
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generation, transmission and distribution may be adversely affected, FTA
Payments may not be made as expected, the Servicer's business may be affected
or Certificateholders may fail to receive distributions of principal and
interest.
CHANGING REGULATORY ENVIRONMENT
In addition to actions taken by the California Legislature and regulation by
the CPUC, the electric industry is also subject to federal law and regulation
by the Federal Energy Regulatory Commission (the "FERC"). At least five bills
were introduced into the 105th Congress, First Session, mandating the
deregulation of the electric utility industry on the state level. In general,
the bills provide for open competition in the furnishing of electricity to all
retail customers. As described above under "--Unusual Nature of the Transition
Property--Possible Federal Preemption of the Statute," at least one of the
bills may prohibit the recovery of FTA Charges; however; none of the bills has
passed in committee. No prediction can be made as to whether these bills, or
any future proposed bills to mandate the deregulation of the electric
industry, will become law or, if they become law, what their final form or
effect would be. Any changes in the existing legal structure regulating the
electric industry might have an impact on the manner in which electricity is
distributed and payments therefor are collected, or on the Servicer and its
business, and thus the likelihood that Certificateholders will receive
distributions in the amounts and at the times scheduled.
CHANGES IN GENERAL ECONOMIC CONDITIONS AND ELECTRICITY USAGE
General economic conditions and technological changes that would
significantly alter power consumption or reduce the residential and small
commercial consumer base in the Seller's historical service area may affect
payments on the Notes and, accordingly, distributions on the Certificates.
Changes in business cycles, departures of Customers from the Seller's
historical service area, weather, occurrence of natural disasters such as
earthquakes and floods, implementation of energy conservation efforts and
increased efficiency of equipment all affect energy usage. If a sufficient
number of Customers reduce significantly their electricity consumption or
cease consuming electricity altogether, the FTA Charges, as adjusted from time
to time through True-Up Mechanism Advice Letters, as described herein,
required to be paid by each remaining Customer may become burdensome. See "--
Unusual Nature of the Transition Property--Reliance on FTA Adjustments"
herein.
RELIANCE ON BROAD BASE OF CUSTOMERS
The FTA Charges are relatively modest in amount on an individual Customer
basis, when imposed on the Seller's current base of Customers. However, if one
or more of the risks described under the heading "--Uncertainties Relating to
the Electric Industry Generally" or an unforeseen catastrophe were to occur,
the number of Customers on whom the FTA Charges would be levied might be
reduced significantly. Such a reduction would increase the amount of the
applicable FTA Charge for each Customer, which might cause more Customers to
avoid paying the applicable FTA Charge after the Rate Freeze Period by leaving
the Territory. If the number of Customers were to be substantially reduced,
the remaining Customers might be unable or unwilling to pay the FTA Charges.
Alternatively, a reduced number of Customers and corresponding higher per
kilowatt hour FTA Charges might increase the reluctance of the CPUC to allow
adjustments to the FTA Charges or provide greater incentive for the California
legislature to amend the Statute in a manner intended to reduce or eliminate
the FTA Charges in respect of the Transition Property. Although the Note
Issuer believes that the likelihood of this scenario occurring is remote, this
result might cause Certificateholders to fail to receive the full amount of
distributions to which they are entitled. Furthermore the Note Issuer expects
that the applicable FTA Charge could be imposed on certain Customers who self-
generate their electricity, based on historical usage. However, the ability of
the Servicer to collect such FTA Charges may be limited because the Servicer
will not have ready access to data about which consumers are self-generating
and will not be able to exercise shut-off rights as an enforcement tool
against a self-generator. Nevertheless, the Servicer's current forecasts of
future electricity demand do not include any shift by Customers to self-
generation because self-generation of electricity by Customers is not expected
to be economically viable during the period in which the Certificates will be
outstanding.
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In addition, to the extent that Customers choose to purchase their
electricity from ESPs that provide consolidated billing, the Note Issuer may
be relying on a small number of ESPs, rather than a large number of individual
Customers, to remit FTA Payments. Under these circumstances, a default in the
payment of FTA Charges by a single ESP that provides electricity services to a
large number of Customers may adversely affect the timing of payments on the
Certificates. See "--Potential Servicing Issues--Reliance on Aggregators and
Other Suppliers" and "Servicing--Aggregators and Other Suppliers" herein.
BANKRUPTCY AND CREDITORS' RIGHTS ISSUES
POTENTIAL BANKRUPTCY OF SELLER
The Seller will represent and warrant in the Sale Agreement that the
transfer of the Transition Property pursuant thereto to the Note Issuer is a
valid sale and assignment of such Transition Property from the Seller to the
Note Issuer. The Seller and the Note Issuer will also represent and warrant
that they will each take the appropriate actions under the PU Code to perfect
this sale. The Statute provides that the transactions described in the Sale
Agreement shall constitute a sale of the Transition Property to the Note
Issuer, and the Seller and the Note Issuer will treat the transactions as a
sale under applicable law, although for financial reporting purposes the
transactions will be treated as debt of the Seller. If the Seller were to
become a debtor in a bankruptcy case, and a creditor or bankruptcy trustee of
the Seller or the Seller itself as debtor in possession were to take the
position that the sale of the Transition Property to the Note Issuer should be
recharacterized as a pledge of such Transition Property to secure a borrowing
of the Seller, and a court were to adopt such position, then delays or
reductions in distributions on the Certificates could result. Regardless of
any specific adverse determinations in an Edison bankruptcy proceeding, the
fact of an Edison bankruptcy proceeding could have an adverse effect on the
liquidity and value of the Certificates.
The Seller and the Note Issuer have taken steps to minimize the risk that in
the event the Seller or an affiliate of the Seller were to become the debtor
in a bankruptcy case, a court would order that the assets and liabilities of
the Seller or such affiliate be substantively consolidated with those of the
Note Issuer. The Note Issuer is a separate, special purpose limited liability
company, the organizational documents of which provide that it shall not
commence a voluntary bankruptcy case without the unanimous affirmative vote of
all of its directors. Nonetheless, no assurance can be given that if the
Seller or an affiliate of the Seller were to become a debtor in a bankruptcy
case, a court would not order that the assets and liabilities of the Note
Issuer be consolidated with those of the Seller or such affiliate, thus
resulting in delays or reductions in distributions on the Certificates.
Should the transfer of the Transition Property to the Note Issuer be
recharacterized as a borrowing by the Seller, the Statute provides that there
is a perfected first priority statutory lien on the Transition Property that
secures all obligations to the holders of the Certificates. In addition, in
the Sale Agreement, the Seller grants to the Note Issuer a security interest
in the Transition Property and covenants that the appropriate actions will be
taken to perfect such security interest, although the Seller takes the
position that it has no rights in the Transition Property to which a security
interest could attach.
Pursuant to the Statute and the Financing Order, upon the effective date of
each Issuance Advice Letter associated with the Financing Order, the
Transition Property identified in such Issuance Advice Letter constitutes a
current property right and it thereafter continuously exists as property for
all purposes. Nonetheless, no assurances can be given that if the Seller were
to become the debtor in a bankruptcy case, a creditor of, or a bankruptcy
trustee for, the Seller or the Seller itself as debtor in possession would not
attempt to take the position that, because the payments based on the FTA
Charges are usage-based charges, Transition Property comes into existence only
as Customers use electricity. If a court were to adopt this position, no
assurances can be given that either the statutory lien created by the Statute
or the security interest granted in the Sale Agreement would attach to FTA
Collections in respect of electricity consumed after the commencement of a
bankruptcy case by or against the Seller. If it were determined that the
Transition Property has not been sold to the Note Issuer, and that the
statutory lien created by the Statute and the security interest granted in the
Sale Agreement do not attach to collections of FTA Payments in respect of
electricity consumed after the commencement of a bankruptcy case
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of the Seller, then the Certificate Trustee, as Noteholder and for the benefit
of holders of the Certificates, would be an unsecured creditor of the Seller,
and delays or reductions in distributions on the Certificates could result.
Whether or not the court determined that the Transition Property had been sold
to the Note Issuer, no assurances can be given that the court would not rule
that any FTA Payments relating to electricity consumed after the commencement
of the Seller's bankruptcy cannot be transferred to the Note Issuer or the
Certificate Trustee, thus resulting in delays or reductions of distributions
on the Certificates.
Because the FTA Charges arise from usage-based charges, if the Seller were
to become the debtor in a bankruptcy case, a creditor of, or a bankruptcy
trustee for, the Seller, or the Seller itself as debtor in possession could
take the position that the Note Issuer should pay a portion of the costs of
the Seller associated with the generation, transmission, or distribution by
the Seller of the electricity whose consumption gave rise to the FTA
Collections that are used to make distributions on the Certificates. If a
court were to adopt this position, the result could initially be a reduction
in the amounts paid to the Note Issuer, and thus to the holders of the
Certificates. The FTA Charges may be adjusted through True-Up Mechanism Advice
Letters, although delays in implementation thereof may cause delays or
reductions in receipt of scheduled distributions.
Regardless of whether the Seller is the debtor in a bankruptcy case, if a
court were to accept the arguments of a creditor of the Seller that Transition
Property comes into existence only as Customers use electricity, a tax or
government lien or other nonconsensual lien on property of the Seller arising
before the Transition Property came into existence may have priority over the
Note Issuer's interest in such Transition Property, thereby possibly initially
resulting in a reduction of amounts distributed to the holders of the
Certificates. The FTA Charges may be adjusted through True-Up Mechanism Advice
Letters, although delays in implementation thereof may cause a delay in
receipt of scheduled distributions.
POTENTIAL BANKRUPTCY OF SERVICER
For so long as the Servicer maintains a short-term debt rating of at least
"A-1" by Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("S&P") and "P-1" by Moody's Investors Service, Inc. ("Moody's") or certain
other conditions are satisfied, the Servicer is entitled to commingle FTA
Payments with its own funds until the relevant Remittance Date. In the event
of a bankruptcy of the Servicer, the Note Trustee likely will not have a
perfected interest in such commingled funds and the inclusion thereof in the
bankruptcy estate of the Servicer may result in delays in distributions due on
the Certificates. Furthermore, if the Servicer is in bankruptcy, it may stop
performing its functions as Servicer and it may be difficult to find a third
party to act as successor Servicer. See "--Potential Servicing Issues--
Reliance on Servicer" herein.
POTENTIAL BANKRUPTCY OF INFRASTRUCTURE BANK
The Infrastructure Bank is a public body established within the state
government of the State of California. The State of California cannot be a
debtor in a case under the Bankruptcy Code. If a court were to determine that
the Infrastructure Bank is an "instrumentality" of the State, rather than an
integral part of the State, then the Infrastructure Bank could become a debtor
in a case commenced under Chapter 9 of the Bankruptcy Code if the requirements
set forth in the Bankruptcy Code for the commencement of a voluntary case
under Chapter 9 were met. An involuntary case cannot be commenced against the
Infrastructure Bank under Chapter 9 and neither a voluntary nor an involuntary
case can be commenced by or against the Infrastructure Bank under any other
chapter of the Bankruptcy Code.
The Certificates will be issued by the Trust, which is a business trust
formed by the Infrastructure Bank under Title 12, Chapter 38 of the Laws of
the State of Delaware (the "Delaware Business Trust Act"). The Trust may be
subject to a voluntary or involuntary case under the Bankruptcy Code. However,
the Trust will be created solely to issue and administer the Certificates, and
the only assets of the Trust will consist of the Notes and the right to
receive payments under any Swap Agreement. The Trust and the Infrastructure
Bank have taken steps to minimize the risk that in the event the
Infrastructure Bank becomes a debtor in a case under Chapter 9 of the
Bankruptcy Code, a bankruptcy court having jurisdiction over such case should
not order that the assets
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and liabilities of the Trust be substantively consolidated with those of the
Infrastructure Bank. These steps include (a) creating the Trust as a separate
business trust under the Delaware Business Trust Act which includes provisions
preventing creditors of the Infrastructure Bank from having any right to the
assets of the Trust, (b) limiting interaction between the Infrastructure Bank
and the Trust, (c) maintaining accounting, bookkeeping, business forms and
financial statements for the Trust separate from those of the Infrastructure
Bank, and (d) restricting the nature of the Trust's business and its ability
to commence a voluntary case under the Bankruptcy Code.
NATURE OF THE CERTIFICATES
LIMITED LIQUIDITY
There is no assurance that a secondary market for any of the Certificates
will develop or, if one does develop, that it will provide the
Certificateholders with liquidity of investment or that it will continue for
the life of such Certificates. It is not anticipated that any Certificates
will be listed on any securities exchange.
RESTRICTIONS ON BOOK-ENTRY REGISTRATION
The Certificates will be initially represented by one or more Certificates
registered in Cede's name, as nominee for DTC, and will not be registered in
the names of the Certificateholders or their nominees. Therefore, unless and
until Definitive Certificates are issued, Certificateholders will not be
recognized by the Certificate Trustee as Certificateholders. Hence, until such
time, Certificateholders will only be able to receive distributions from, and
exercise the rights of Certificateholders indirectly through, DTC and
participating organizations, and, unless a Certificateholder requests a copy
of any such report from the Certificate Trustee or the Servicer, will receive
reports and other information provided for under the Servicing Agreement only
if, when and to the extent provided to Certificateholders by DTC and its
participating organizations. In addition, the ability of Certificateholders to
pledge Certificates to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such Certificates, may be
limited due to the lack of physical certificates for such Certificates. See
"Description of the Certificates--Book-Entry Registration" herein.
LIMITED OBLIGATIONS
Neither the Notes nor the Certificates will represent an interest in or
obligation of the Seller, the State of California or the Infrastructure Bank.
The Transition Property owned by the Note Issuer and the other Note
Collateral, which is expected to be relatively small, are the sole source of
payments on the Notes. It is anticipated that the Note Collateral, which is
described under "Description of the Notes--Security" herein, will with limited
exceptions specified therein constitute the Note Issuer's only asset. The Note
Issuer's organizational documents will restrict its right to acquire other
assets unrelated to the transactions described herein. The Notes are limited
obligations of the Note Issuer, and are the sole assets of the Trust other
than the Trust's rights under any Swap Agreement. The Certificates represent
fractional undivided beneficial interests in the related Class of Notes held
by the Trust, and the sole source of distributions thereon is the payments on
such Notes and, for Floating Rate Certificates, the proceeds of any Swap
Agreement. If distributions are not made on the Certificates in a timely
manner as a result of nonpayment of the related Notes, the Certificateholders
may direct the Certificate Trustee to bring an action against the Note Issuer
to foreclose upon the Transition Property and the other Note Collateral
securing the Notes and, if the Certificate Trustee fails to bring such action,
the Certificateholders may bring such an action themselves, as described under
"Description of the Certificates--Events of Default" herein. If the Swap
Contemporary fails to remit payment of Net Trust Swap Receipts, the interest
rate on the related Floating Rate Certificates will convert to a fixed rate
equal to the rate on the related Class of Notes effective as of the
Distribution Date immediately preceding such default. None of the
Certificates, the Notes or the underlying Transition Property will be
guaranteed or insured by the State of California, the Infrastructure Bank, the
Trust or any other governmental agency or instrumentality or by the Seller or
its affiliates. Neither the full faith and credit nor the taxing power of the
State of California is pledged to the payment of principal of or interest on
the Certificates or the Notes or payments in respect of the Transition
Property.
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ISSUANCE IN SERIES
The Note Issuer expects to issue new Series of Notes from time to time, and
accordingly the Trust is expected to issue new corresponding Series of
Certificates from time to time. While the terms of any Series of Notes and the
corresponding Series of Certificates will be specified in supplements to the
Note Indenture and the Trust Agreement, respectively, and described in the
related Prospectus Supplement, the provisions of supplements to the Note
Indenture and the Trust Agreement and, therefore, the terms of any new Series,
will not be subject to the prior review or consent of holders of the Notes or
Certificates of any previously issued Series. The terms of a new Series of
Certificates may include without limitation the matters described under
"Description of the Certificates--General" herein. The ability of the Trust to
issue any new Series of Certificates is subject to the condition, among
others, that such issuance will not result in any Rating Agency reducing or
withdrawing its then existing rating of the Certificates of any outstanding
Class. There can be no assurance, however, that the issuance of any other
Series of Certificates, including any Series issued from time to time
hereafter, might not have an impact on the timing or amount of distributions
received by a Certificateholder. See "Description of the Certificates--
Conditions of Issuance of Additional Series" herein. In addition, various
matters relating to the Certificates are subject to a vote of all
Certificateholders for all Series and Classes of Certificates, even though
there may be differences in the interests or positions among such Series or
Classes which could result in voting outcomes adverse to the interests of one
or more Series or Classes of Certificates.
LIMITED NATURE OF RATINGS
It is a condition of issuance of each Class of Certificates that they
receive from the Rating Agencies the respective ratings set forth in the
applicable Prospectus Supplement. The ratings of the Certificates address the
likelihood of the ultimate distribution of principal and the timely
distribution of interest on the Certificates. The ratings do not represent an
assessment of the likelihood that the rate of FTA Collections might differ
from that originally anticipated; as a result of such differences, any Series
or Class of Certificates might mature later than scheduled, resulting in a
weighted average life of such Certificates which is more than expected. A
security rating is not a recommendation to buy, sell or hold securities. There
can be no assurance that a rating will remain in effect for any given period
of time or that a rating will not be revised or withdrawn entirely by a Rating
Agency if, in its judgment, circumstances so warrant.
UNCERTAIN DISTRIBUTION AMOUNTS AND WEIGHTED AVERAGE LIFE
The actual dates on which principal is paid on each Class of Certificates
might be affected by, among other things, the amount and timing of receipt of
FTA Collections. Since each FTA Charge will consist of a charge per kilowatt
hour of usage by the applicable class of Customers in the Territory, the
aggregate amount and timing of receipt of FTA Collections (and the resulting
amount and timing of principal amortization on the Certificates) will depend,
in part, on actual usage of electricity by Customers and the rate
delinquencies and write-offs. See "--Potential Servicing Issues--Inaccurate
Usage and Credit Projections" herein. Although the amount of the FTA Charges
will adjust from time to time based in part on the actual rate of FTA
Collections, no assurances can be given that the Servicer will be able to
forecast accurately actual Customer energy usage and the rate of delinquencies
and write-offs and implement adjustments to the FTA Charges that will cause
FTA Payments to be made at any particular rate. If FTA Collections are
received at a slower rate than expected, distributions on a Certificate may be
made later than expected. Because principal will only be distributed at a rate
not to exceed that set forth in the Expected Amortization Schedules, except in
the event of an early redemption, the Certificates are not expected to be
retired earlier than scheduled. A distribution on a date that is earlier than
forecasted will result in a shorter weighted average life, and a distribution
on a date that is later than forecasted will result in a longer weighted
average life. See "Certain Distribution, Weighted Average Life and Yield
Considerations" and "Description of the Transition Property--Adjustments to
the FTA Charges" herein.
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EFFECT OF OPTIONAL REDEMPTION ON WEIGHTED AVERAGE LIFE AND YIELD
As described more fully under "Description of the Notes--Optional
Redemption" herein, the Note Issuer has the option to redeem all of the
outstanding Notes of any Series on any Payment Date if, after giving effect to
payments that would otherwise be made on such date, the outstanding principal
balance of such Series of Notes has been reduced to less than five percent of
the initial outstanding principal balance thereof. Redemption of a Series of
Notes will require the Certificate Trustee to redeem the related Series of
Certificates. Redemption will cause such Certificates to be retired earlier
than would otherwise be expected, and if the payment schedule otherwise does
not differ from that originally anticipated, will result in a shorter than
expected weighted average life for such Certificates. Such a redemption may
also adversely affect the yield to maturity of the Certificates. There can be
no assurance as to whether the Note Issuer will exercise the option to redeem
any Series of Notes, or as to whether Certificateholders will be able to
receive an equally attractive rate of return upon reinvestment of the proceeds
resulting from any such redemption.
ADDITIONAL RISKS OF FLOATING RATE CERTIFICATES
As described herein under "Description of the Certificates--Floating Rate
Certificates," upon the occurrence of an event of default or termination
event, the Swap Agreement pursuant to which interest will be paid on any
Floating Rate Certificates will terminate or may be terminated. In particular,
the Swap Agreement will be terminated if the Swap Counterparty's rating by
either of Moody's or S&P falls below "AAA" (or the equivalent rating) (a
"Downgrade Event") and the Swap Agreement is not assigned to a replacement
swap counterparty satisfying such ratings criteria or such lower ratings
criteria as may be permitted by the Swap Agreement within the time period
specified in the related Prospectus Supplement. In no event will any successor
swap counterparty, be rated below "A" (or the equivalent rating) by either of
the above-referenced Rating Agencies. Upon the occurrence of a Downgrade Event
and the failure to assign the Swap Agreement, an event of default will have
occurred under the Swap Agreement and, in such event or upon any other swap
termination, the interest rate payable with respect to the Floating Rate
Certificates will convert permanently to a fixed rate equal to the interest
rate on the related Class of Notes, which may be substantially less than the
rate otherwise payable on the Floating Rate Certificates. In the event of such
conversion to a fixed interest rate, both the liquidity and the market value
of the Floating Rate Certificates may be adversely affected.
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ENERGY DEREGULATION AND NEW CALIFORNIA MARKET STRUCTURE
The electric industry is experiencing intensifying competitive pressures,
particularly in the wholesale generation and industrial customer markets.
Historically, electric utilities operated as regulated monopolies in their
service territories, pursuant to which they were the sole suppliers of
electricity, and in California their rates were set by the CPUC based upon the
utilities' cost of providing services and a reasonable return on their capital
investments. Changes to the traditional market structure are occurring at both
the federal and state levels.
At the federal level, the National Energy Policy Act of 1992 was designed to
increase competition in the wholesale electric generation market by easing
regulatory restrictions on producers of wholesale power and by authorizing the
FERC to mandate access to electric transmission systems by wholesale power
generators. In addition, at least five bills have been introduced in the 105th
Congress, First Session, which would mandate the deregulation of the electric
industry on the state level; however, none of these bills has passed in
committee. In their current forms, some but not all of the bills contain
provisions recognizing the validity of prior state actions relating to
deregulation. At least one of the bills, H.R. 1230, prohibits the recovery of
stranded costs such as the Transaction Costs. The entire California delegation
to Congress has signed a letter to the chairman of the House Subcommittee
responsible for holding hearings regarding the bills, which expresses the
shared concern that the effect of the Statute should not be impacted by
federal legislation. No prediction can be made as to whether any of these
bills, or any future proposed bills to deregulate the electric industry, will
become law or, if they become law, what their final form or effect will be.
At the state level, the California electric industry will change
dramatically in the near future as a result of recent decisions by the CPUC
and enactment of the Statute. Among other things, the PX will create a
competitive market for electric energy in California through the creation of a
competitive auction where all suppliers, including the Utilities, municipal
utilities, power marketing agencies, independent power producers, and out-of-
state generators, will have the opportunity to sell electricity according to
established competitive bidding procedures with winning bids awarded to those
suppliers that bid to supply electricity at the lowest price. In addition, the
Utilities will be required, and other transmission owners will be permitted,
to place certain of their transmission facilities under the operational
control of the ISO. Ownership and maintenance of the transmission lines will
remain with the transmission line owners. All power suppliers will receive
nondiscriminatory access to the transmission grid under the control of the ISO
and will be subject to the same protocols and pricing procedures. Customers
will have the opportunity to choose the generators from whom they purchase
their electricity. Notwithstanding these changes, the Utilities are expected
to continue to be the sole providers of electricity distribution services
within their service territories. The Utilities have been encouraged, through
CPUC-established incentives, to divest at least 50 percent of their fossil-
fueled electricity generation assets, in order to address market power issues.
Edison is undertaking to divest all twelve of its natural gas-fired generating
stations.
The changes which are occurring at both the federal and the California
levels will have a significant impact on Edison and the other Utilities, as
well as other entities in the industry. Edison faces greater competition for
resources and for customers. Competitors include privately owned independent
power producers, exempt wholesale power generators, industrial customers
developing their own generation resources, suppliers of natural gas and other
fuels, other investor-owned electric utilities and municipal generators. There
can be no assurance that such trends will not have a significant adverse
impact on Edison's business in the future.
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DESCRIPTION OF THE TRANSITION PROPERTY
GENERAL
In September 1996, legislation implementing an electric industry
restructuring program for the State of California became law. The Statute was
adopted to provide, among other things, for the issuance of "rate reduction
bonds" which are the Certificates issued hereunder, and a ten percent
reduction in rates for services charged to Residential Customers and Small
Commercial Customers, effective as of January 1, 1998 and generally continuing
until the earlier of March 31, 2002 or the date on which Transition Costs have
been fully recovered (the "Rate Freeze Period"). As part of the Statute,
Sections 367 and 369 of the PU Code provide the Seller an opportunity to
recover the Transition Costs. The Transition Costs consist of the costs of
generation-related assets and obligations that may become uneconomic as a
result of a competitive generation market, together with costs for capital
additions to generating facilities that the CPUC determines to be reasonable,
costs of refinancing or retiring of debt or equity capital, and associated
federal and state tax liabilities. Examples of generation-related assets
include generation facilities, amounts recoverable in electric rates pursuant
to settlement agreements with the CPUC in connection with nuclear power
plants, power purchase contracts with third-party generators of electricity
(including voluntary restructuring, renegotiations or terminations thereof)
and generation-related regulatory assets. Generation-related regulatory assets
are those "regulatory assets" whose origin can be attributed to the generation
portion of a utility's business. "Regulatory assets" reflect incurred costs
that otherwise would have been expensed, but have been capitalized because it
is probable that such costs will be recovered in future rates. All of the
foregoing generation-related assets may become uneconomic in a competitive
generation market, since they are obligations that were undertaken either
pursuant to legal requirements or with the understanding that they would be
recoverable in rates approved by the CPUC. Since other participants in a
competitive market, unburdened by these uneconomic assets, may be able to
offer electricity at lower rates, the costs relating to these uneconomic
assets may not be recoverable in market prices in a competitive market.
The Statute provides for the creation of the Transition Property, which is
the right to be paid the FTA Payments based on the FTA Charges in order to
recover a portion of the Transition Costs. The Seller has estimated its total
Transition Costs to be as much as $12 billion, and the Financing Order
authorizes the issuance of up to $3 billion of Certificates.
FINANCING ORDER AND ADVICE LETTERS
The Statute authorizes the CPUC to issue the Financing Order, a regulatory
order which allows the Seller to reduce electricity rates for the Customers by
ten percent, and approves the amount of the Seller's Transition Costs which
the Seller is permitted to finance through the issuance of rate reduction
bonds. On May 6, 1997, Edison filed its application for the Financing Order
with the CPUC. The CPUC issued the Financing Order dated September 3, 1997.
The Financing Order also permits the sale of Certificates in an aggregate
principal amount not to exceed $3,000,000,000. As issued, the Financing Order
also requires the Seller to reduce electricity rates for the Customers by ten
percent through the Rate Freeze Period. The principal amount of the
Certificates approved in the Financing Order was calculated so as to result in
a reduction in revenue requirements for the Seller sufficient to enable the
Seller to provide the ten percent rate reduction and to enable the owner of
Transition Property to pay interest on and principal of the Certificates,
together with related fees and expenses, including the Overcollateralization
Amount. The principal amount of the Certificates was derived based upon a
number of variables, including sales forecasts and the expected interest rate
and amortization schedule for the Certificates. If estimated usage exceeds the
assumptions used in the Financing Order, the Seller intends to request the
authority to issue additional Certificates to support the rate reduction
resulting from this increased usage. The issuance of additional Certificates
will result in a corresponding increase in the FTA Charges, and thus in the
amounts payable with respect thereto by Customers. See "Description of the
Certificates--Conditions of Issuance of Additional Series" herein.
The Financing Order, together with the applicable Issuance Advice Letter,
establishes, among other things, the FTA Charges, which constitute separate
nonbypassable charges payable by Residential Customers and Small
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Commercial Customers in an aggregate amount sufficient to repay in full the
Certificates, fund the Overcollateralization Subaccount and pay all related
fees and expenses. The FTA Charges are stated to be nonbypassable on the basis
that the Statute authorizes the Note Issuer, as the owner of the Transition
Property, to continue to collect payments based on the FTA Charges from all
Customers notwithstanding any of the circumstances described under "--
Nonbypassable FTA Charges" below. The Statute provides that the right to
collect payments based on the FTA Charges is a property right which may be
pledged, assigned or sold in connection with the issuance of the Certificates.
Under the Statute and the Financing Order, the owner of the Transition
Property is entitled to collect FTA Charges until such owner has received FTA
Collections sufficient to retire all outstanding Series of Certificates and
cover related fees and expenses and the Overcollateralization Amount. The
Customers consist of those persons whose service falls under the tariffs
described below in "The Seller and Servicer--Edison Customer Base and Electric
Energy Consumption."
The Financing Order entitles the Note Issuer, as the owner of the Transition
Property, to receive the payments made pursuant to the FTA Charges from all
Residential Customers and Small Commercial Customers. Such payments are
referred to herein as the FTA Payments. The Financing Order requires the
Seller to submit an Issuance Advice Letter to the CPUC with respect to each
Series of Certificates issued. The first Issuance Advice Letter will establish
the initial FTA Charges. The Financing Order provides that Issuance Advice
Letters become effective five business days after filing with the CPUC.
Subsequent Issuance Advice Letters may increase the FTA Charges to support the
issuance of additional Series of Certificates. The Financing Order permits the
Servicer to file True-Up Mechanism Advice Letters to modify the FTA Charges
from time to time, in order to enhance the likelihood of retirement of each
Series and Class of Certificates on a timely basis. See "--Adjustments to the
FTA Charges" herein.
The initial FTA Charges will be calculated by determining first (i)
projected monthly electricity sales to the Customers and the timing and extent
of receipt of payments therefor during the first year following the Closing
Date and (ii) the required amounts to be covered by FTA Collections on a
projected basis, including interest on the Notes, ongoing transaction expenses
including the Servicing Fee, the related Overcollateralization Amount and
scheduled principal payments on the Notes. Then, based on the figures
determined for the two foregoing amounts, the lowest aggregate charges which
will be adequate to cover all of the amounts to be covered by FTA Collections
will be calculated (the "Base Calculation Model"). Because of differences in
the tariff rate for each class of Customers, the FTA Charge payable by
Residential Customers is expected to be different from the FTA Charge payable
by Small Commercial Customers. The initial FTA Charges are expected to result
in FTA Payments by Residential Customers and Small Commercial Customers
representing approximately 83 percent and 17 percent, respectively, of the
aggregate FTA Payments expected to be collected in 1998. The foregoing
percentages may change from time to time based on fluctuations in Customer
composition, electricity usage and delinquency and write-off rates.
The Prospectus Supplement related to a Series of Certificates will specify,
based on the applicable Issuance Advice Letter, the amount of each of the FTA
Charges as of the date thereof.
TRANSITION PROPERTY
The right to be paid the FTA Payments gives rise to a separate property
right under California law and is referred to herein generally as the
"Transition Property." "Transition Property" is defined more specifically in
Section 840(g) of the PU Code as the property right created under the PU Code
including, without limitation, the right, title and interest of an electrical
corporation or its transferee (i) in and to the FTA Charges, as adjusted from
time to time, (ii) to be paid the FTA Payments, and (iii) to obtain
adjustments to the FTA Charges, as provided in the PU Code.
Each Class of Notes will be issued in connection with a specific issuance of
a Class of Certificates. Each Note will be secured by Transition Property, as
well as the other Note Collateral described under "Description of the Notes--
Security" herein. Following the initial Issuance Advice Letter, each
subsequent Issuance Advice
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Letter will authorize the creation of additional Transition Property to
support payments on the related Series or Class of Notes. Any additional
Transition Property acquired by the Note Issuer pursuant to a Sale Agreement
will be combined into a single asset with all other Transition Property
acquired by the Note Issuer pursuant to previous Sale Agreements. Accordingly,
the aggregate amount of Transition Property will increase as additional
Issuance Advice Letters become effective.
NONBYPASSABLE FTA CHARGES
The Financing Order provides that the FTA Charges are nonbypassable, meaning
that Customers still will be required to make payments with respect to the
applicable FTA Charges even if the Customer purchases power from a third party
or if another entity takes over a portion of Edison's existing service
territory. Each Customer who leaves Edison's system during the Rate Freeze
Period through annexation by another electricity supplier will pay an ongoing
charge based on the electricity usage of such Customer prior to annexation or
the Customer's actual or estimated current consumption. In such events the
applicable FTA Charge will be based on (i) the last twelve months of the
Customer's recorded pre-departure use, (ii) an average derived from the last
three years of recorded use or (iii) actual use. Small Commercial Customers
whose usage increases to a level above what qualifies under the applicable
tariffs for such customer class are not obligated to pay the FTA Charge. To
the extent that Customers choose to purchase their electricity from ESPs that
provide consolidated billing, the Note Issuer will be relying on a small
number of ESPs, rather than a large number of Customers, to remit FTA
Payments. Under these circumstances, a default in the payment of FTA Charges
by a single ESP that provides electricity services to a large number of
Customers may adversely affect the timing of payments on the Certificates. See
"Servicing--Aggregators and Other Suppliers" herein. In addition, the Note
Issuer expects that the applicable FTA Charge (which will be based on historic
usage) could be imposed on certain Customers who self-generate their
electricity; however, the ability of the Servicer to collect such FTA Charges
may be limited because the Servicer will not have ready access to data about
which consumers are self-generating and will not be able to exercise shut-off
rights as an enforcement tool against a self-generator. Nevertheless, the
Servicer's current forecasts of future electricity demand do not include any
shift by Customers to self-generation, because self-generation of electricity
by Customers is not expected to be economically viable during the period in
which the Certificates will be outstanding.
ADJUSTMENTS TO THE FTA CHARGES
In order to enhance the likelihood that the actual FTA Collections are
neither more nor less than the amount necessary to amortize the Notes in
accordance with the Expected Amortization Schedule, pay all related fees and
expenses, fund the Overcollateralization Subaccount as scheduled and replenish
the Capital Subaccount, the Servicing Agreement requires the Servicer to seek,
and the Financing Order and the Statute require the CPUC to approve, periodic
adjustments to the FTA Charges based on actual FTA Collections and updated
assumptions by the Servicer as to future usage of electricity by Customers,
future expenses relating to the Transition Property, the Notes and the
Certificates, and the rate of delinquencies and write-offs. The date as of
which any calculation is performed and which forms the basis for a requested
adjustment to the FTA Charges is referred to as a "Calculation Date." The
adjustments to the FTA Charges will continue until all interest and principal
on all Series of Notes and corresponding Series of Certificates have been paid
or distributed in full.
The Financing Order provides that the Servicer will file a routine True-Up
Mechanism Advice Letter annually, requesting modifications to the FTA Charges
which are intended to return the projected principal balance of each
outstanding Series of Certificates to the amount provided for in the Expected
Amortization Schedule within a twelve month period or, if earlier, by the
Final Maturity Date. Modifications to the FTA Charges will also factor in any
amount in the Reserve Subaccount available for distribution to
Certificateholders and any amounts necessary within a twelve-month period: (i)
to fund the Overcollateralization Subaccount up to the Required
Overcollateralization Level and (ii) to the extent that withdrawals have been
made from the Capital Subaccount, to ensure that the amount on deposit in the
Capital Subaccount will equal the Required Capital Level.
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Calculations of appropriate modifications to the FTA Charges will be made
based on the Base Calculation Model, except that (i) the amount of debt
service and related expenses including funding of the Overcollateralization
Subaccount for the following year and replenishing the Capital Subaccount
shall be increased or decreased to reflect the amount by which expected FTA
Collections through the end of the month of calculation was less than or
exceeded the aggregate actual portion of the debt service on the Certificates
and related expenses for such period, (ii) forecasted electricity sales for
the remaining period of the transaction will be revised based on the
methodologies described in "The Seller and Servicer--Forecasting Consumption"
herein, (iii) estimated transaction expenses will be modified to reflect
changed circumstances, (iv) assumed delinquencies and write-offs will be
modified to reflect changed circumstances and (v) an adjustment will be made
to reflect any collections which are expected to be received at the existing
levels of FTA Charges from the end of the month preceding the month of
calculation through the end of the month in which the new FTA Charges become
effective (the "True-Up Mechanism Calculation Model").
The Servicer may also file a routine True-Up Mechanism Advice Letter
quarterly if so specified in the related Prospectus Supplement. Furthermore,
the Financing Order provides that the Servicer may file a non-routine True-Up
Mechanism Advice Letter as often as quarterly, to reflect any changes to the
Base Calculation Model or True-Up Mechanism Calculation Model which are
necessary to meet any Expected Amortization Schedule and fund the Capital
Subaccount and Overcollateralization Subaccount as described above. Finally,
the Statute requires the Servicer to file a True-Up Mechanism Advice Letter
with the CPUC annually, prior to each anniversary of the issuance of the
Financing Order (a "Financing Order Anniversary"); however, given the other
routine filings required to be made, the Servicer does not intend to seek
adjustments on each Financing Order Anniversary, unless necessary. True-Up
Mechanism Advice Letters will take into account amounts available in the
General Subaccount and Reserve Subaccount, and amounts necessary to fund the
Overcollateralization Subaccount and the Capital Subaccount to required
levels, in addition to amounts payable on the Notes.
The Servicing Agreement will require the Servicer to deliver a written copy
of each True-Up Mechanism Advice Letter, together with a copy of all
supporting calculations, to the Note Issuer, the Note Trustee, the
Infrastructure Bank and the Certificate Trustee upon filing such True-Up
Mechanism Advice Letter with the CPUC.
The Financing Order provides that (i) routine True-Up Mechanism Advice
Letters shall be filed with the CPUC annually at least fifteen days before the
end of each calendar year, with resulting adjustments to the FTA Charges to
become effective at the beginning of the next calendar year, (ii) routine
True-Up Mechanism Advice Letters may be filed with the CPUC quarterly at least
fifteen days before the end of each calendar quarter, with resulting
adjustments to the FTA Charges to become effective at the beginning of the
next calendar quarter, (iii) non-routine True-Up Mechanism Advice Letters may
be filed with the CPUC quarterly at least 90 days before the end of each
calendar quarter, with resulting adjustments to the FTA Charges to become
effective at the beginning of the next calendar quarter, and (iv) True-Up
Mechanism Advice Letters shall be filed with the CPUC at least fifteen days
before each Financing Order Anniversary, with resulting adjustments to the FTA
Charges, if necessary, to become effective within 90 days of such Financing
Order Anniversary.
SALE AND ASSIGNMENT OF TRANSITION PROPERTY
On the date on which the initial Series of Certificates is issued and sold
(the "Closing Date"), pursuant to the Sale Agreement the Seller will sell and
assign to the Note Issuer, without recourse, its entire interest in the
Transition Property that is described in the first Issuance Advice Letter
submitted by the Servicer (the "Initial Transition Property"). The net
proceeds received by the Note Issuer from the sale of the Notes will be
applied to the purchase of the Initial Transition Property. Thereafter the
Seller may agree with the Note Issuer to sell additional Transition Property
("Subsequent Transition Property") to the Note Issuer, subject to the
satisfaction of certain conditions. Such Subsequent Transition Property will
be sold to the Note Issuer effective on a date (a "Subsequent Transfer Date")
specified in the written agreement between the Seller and the Note Issuer. The
Note Issuer will issue and sell additional Notes to the Trust, and the Trust
will issue and sell additional Certificates, in connection therewith.
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The Note Issuer will appoint the Servicer as custodian of the documentation
relating to the Transition Property. The Seller's data systems will reflect
the sale and assignment of the Transition Property to the Note Issuer. The
Seller's financial statements will indicate that the Transition Property has
been sold to the Note Issuer and will not be available to creditors, although
for financial reporting purposes the Seller will treat the Transition Property
as representing debt of the Seller.
Subsequent Transition Property may be sold by the Seller to the Note Issuer
from time to time, solely in connection with the issuance and sale of
additional Notes by the Note Issuer and of corresponding additional
Certificates by the Trust. Any conveyance of Subsequent Transition Property is
subject to the following conditions, among others:
(a) the Seller shall have entered into a written sale agreement with the
Note Issuer;
(b) the Seller shall have filed an Issuance Advice Letter with the CPUC
relating to such Subsequent Transition Property, which Issuance Advice Letter
shall have become effective;
(c) as of the applicable Subsequent Transfer Date, the Seller shall not be
insolvent and shall not be made insolvent by such conveyance;
(d) the Rating Agency Condition shall have been satisfied with respect to
such conveyance;
(e) such conveyance will not result in an adverse tax consequence to the
Trust or the Certificateholders;
(f) as of the applicable Subsequent Transfer Date, no breach by the Seller
of its representations, warranties or covenants in the applicable Sale
Agreement shall exist; and
(g) as of the applicable Subsequent Transfer Date, the Note Issuer shall
have sufficient funds available to pay the purchase price for the Subsequent
Transition Property to be transferred on such date and all conditions to the
issuance of new series of Notes and Certificates shall have been satisfied or
waived.
SELLER REPRESENTATIONS AND WARRANTIES AND REPURCHASE OBLIGATION
In the initial Sale Agreement and each subsequent Sale Agreement, the Seller
will make representations and warranties to the Note Issuer to the effect,
among other things, that: (a) the information provided by the Seller to the
Note Issuer with respect to the applicable Transition Property is correct in
all material respects; (b) at the related Series Issuance Date, the applicable
Transition Property is owned by the Seller and is free and clear of all
security interests, liens, charges and encumbrances, no offsets, defenses or
counterclaims exist or have been asserted or threatened with respect thereto
and the Seller, in its capacity as Seller or Servicer, will not at any time
assert any security interest, lien, charge or encumbrance against or with
respect to any applicable Transition Property; (c) at the related Series
Issuance Date, the applicable Transition Property has been validly transferred
and sold to the Note Issuer and all filings (including filings with the CPUC
under the PU Code) necessary in any jurisdiction to give the Note Issuer a
first perfected ownership interest in the applicable Transition Property shall
have been made; (d) under the laws of the State of California and the United
States in effect on the Series Issuance Date (i) the Financing Order and each
Issuance Advice Letter pursuant to which any applicable Transition Property
has been created are in full force and effect; (ii) as of the issuance of the
Certificates, the Certificates are entitled to certain protections provided in
the PU Code and, accordingly, the Financing Order and the Issuance Advice
Letter are not revocable by the CPUC; (iii) none of the State of California,
the CPUC or the Infrastructure Bank may revoke, limit, alter or modify the
Transition Property, the Financing Order or the Advice Letters, and all rights
thereunder, in a manner adversely affecting the Noteholders, other than a
temporary impairment necessary to advance an important public interest, until
the Certificates are fully discharged unless adequate provision shall be made
by law for the protection of the Certificateholders; (iv) the process by which
the Financing Order and the resolutions of the Infrastructure Bank were
approved and the Issuance Advice Letter was filed, and such order, resolutions
and letter themselves, comply with all applicable laws, rules and regulations,
and no court or other administrative body can, prior to the discharge in full
of the Certificates unless adequate provision shall be made by law for the
protection of the Certificateholders, order the revocation, limitation or
other impairment of the Financing Order, the Issuance Advice Letter, the
approving resolutions of
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the Infrastructure Bank, the Transition Property or the FTA Charges or to
enjoin the performance of any obligations thereunder; and (v) no other
approval or filing with any other governmental body is required in connection
with the creation of the Transition Property, except those that have been
obtained or made; (e) the assumptions used in calculating the FTA Charges
related to the applicable Transition Property are reasonable and made in good
faith; (f) upon the effectiveness of the Issuance Advice Letter: (i) all of
the Transition Property constitutes a current property right; (ii) the
Transition Property includes, without limitation, (A) the right, title and
interest in and to the FTA Charges, as adjusted from time to time, (B) the
right to be paid the total amounts set forth in the Issuance Advice Letter,
(C) the right, title and interest in and to all revenues, collections, claims,
payments, money, or proceeds of or arising from the FTA Charges set forth in
the Issuance Advice Letter, and (D) all rights to obtain adjustments to the
FTA Charges pursuant to the Financing Order; and (iii) the holders of the
Transition Property are entitled to recover the Transition Costs described in
the Financing Order or the Issuance Advice Letter in the aggregate amount
equal to the principal amount of the Notes and the Certificates, all interest
thereon, the Overcollateralization Amount (as such term is defined in the
Servicing Agreement) relating to the Notes and all related fees, costs and
expenses in respect of the Notes and the Certificates until they have been
paid in full; (g) the Seller is a corporation duly organized and in good
standing under the laws of the State of California, with power and authority
to own its properties and conduct its business as currently owned or conducted
and to execute, deliver and perform the terms of the Sale Agreement; (h) the
execution, delivery and performance of the Sale Agreement have been duly
authorized by the Seller by all necessary corporate action; (i) the Sale
Agreement constitutes a legal, valid and binding obligation of the Seller,
enforceable against the Seller in accordance with its terms; (j) the
consummation of the transactions contemplated by the Sale Agreement do not
conflict with the Seller's articles of incorporation or bylaws or any material
agreement to which the Seller is a party or bound, result in the creation or
imposition of any lien upon the Seller's properties or violate any law or any
order, rule or regulation applicable to the Seller; (k) no governmental
approvals, authorizations or filings are required for the Seller to execute,
deliver and perform its obligations under the Sale Agreement except those
which have previously been obtained or made; and (l) except as disclosed to
the Note Issuer, no court or administrative proceeding or investigation is
pending or, to the Seller's knowledge, threatened (i) asserting the invalidity
of, or seeking to prevent the consummation of the transactions contemplated
by, the Sale Agreement, the Note Indenture, the Trust Agreement or any of the
other Basic Documents, (ii) seeking a determination that might materially and
adversely affect the performance by the Seller of its obligations thereunder,
or (iii) which might adversely affect the federal or state income tax
attributes of the Notes or the Certificates.
In the event of a breach by the Seller of any representation specified in
clause (d) or clause (f) above that has a material adverse effect on the
Certificateholders, the Seller shall be obligated to repurchase the Transition
Property from the Note Issuer at a purchase price equal to the outstanding
principal amount of the Notes and all accrued and unpaid interest thereon as
of the date that is five Certificate Business Days after the repurchase date
(the "Repurchase Price"); provided, however, that the Seller shall not be
obligated to repurchase the Transition Property if (A) within 90 days after
the date of the occurrence thereof such breach is cured or the Seller takes
remedial action such that there is not and will not be a material adverse
effect on the Certificateholders as a result of such breach and (B) the Seller
either (i) if the Seller had, immediately prior to the breach, a long term
debt rating of at least "BBB-" or the equivalent by each of the Rating
Agencies immediately prior to the breach and enters into a binding agreement
with the Note Issuer to pay any amounts necessary so that all interest
payments due on the Notes during such 90-day period will be paid in full or
(ii) if the Seller does not have such long term debt ratings, deposits, within
two business days of such breach, an amount in escrow with the Note Trustee
sufficient to pay all interest payments, taking into account amounts available
in the Collection Account, which will become due on the Notes during such 90-
day period, which will be used by the Note Trustee to make such interest
payments if there are not sufficient funds otherwise available therefor. The
Sale Agreement will provide that any change in the law by legislative
enactment, constitutional amendment or voter initiative that renders any of
the foregoing representations untrue would not constitute a breach under the
Sale Agreement.
In the event of a breach by the Seller of any other representation or
warranty specified in clauses (b), (c), (g), (h), (i) or (j) above, if, within
30 days after the Seller receives written notice from the Note Trustee or the
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Certificate Trustee or otherwise becomes aware of such breach, such breach has
not been cured and the Seller has not taken remedial action such that there is
not and will not be a material adverse effect as a result of such breach then
the Seller shall be required to repurchase the Transition Property for the
Repurchase Price. Upon the payment by the Seller of the Repurchase Price, no
person shall have any other claims, rights or remedies against the Seller for
a breach of the foregoing representations and warranties. In the event of a
breach of any other representation or warranty of the Seller specified above,
the Seller shall be required to indemnify, defend and hold harmless the Note
Issuer, the Trust, the Noteholders, the Note Trustee, the Delaware Trustee,
the Certificate Trustee, the Certificateholders, the California State
Treasurer's Office (the "STO"), as agent for sale, and the Infrastructure Bank
against any costs, expenses, losses, claims, damages and liabilities incurred
as a result of such breach. The Seller will also agree to take any legal or
administrative action, including defending against or instituting and pursuing
legal actions, as may be reasonably necessary to protect the Note Issuer and
the Certificateholders from claims, state actions or other actions or
proceedings of third parties which, if successfully pursued would result in a
breach of any representation described above.
CERTAIN DISTRIBUTION, WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS
The rate of principal distributions on each Class of Certificates, the
aggregate amount of each interest distribution on each Class of Certificates
and the actual maturity date of each Class of Certificates will be related to
the rate and timing of receipt of FTA Collections. Accelerated receipts of FTA
Collections will not result in principal distributions on the Certificates
earlier than the Scheduled Maturity Dates since receipts in excess of the
amounts necessary to amortize the Certificates in accordance with the
applicable Expected Amortization Schedule will be deposited in the Reserve
Subaccount for distribution in accordance with such schedule. However, delayed
receipts of FTA Collections may result in principal distributions on the
Certificates that occur later than the related Scheduled Maturity Dates.
The actual distributions on each date for each Class of Certificates and the
weighted average life thereof will be affected primarily by the rate of FTA
Collections and the timing of receipt of such FTA Collections, as well as
amounts available in the Reserve Subaccount, the Overcollateralization
Subaccount and the Capital Subaccount. Since each FTA Charge will consist of a
charge per kilowatt hour of usage by the applicable class of Customers, the
aggregate amount of FTA Collections and the rate of principal amortization on
the Certificates will depend, in part, on actual energy usage by Customers and
the rate of delinquencies and write-offs. Although the amounts of the FTA
Charges will be adjusted from time to time based in part on the actual rate of
FTA Collections, no assurances are given that the Servicer will be able to
forecast accurately actual electricity usage and the rate of delinquencies and
write-offs or implement adjustments to the FTA Charges that will cause FTA
Collections to be received at any particular rate. See "Risk Factors--Unusual
Nature of the Transition Property" and "Description of the Transition
Property--Adjustment to the FTA Charges--Reliance on FTA Adjustments" herein.
If FTA Collections are received at a slower rate than expected, a Certificate
may be retired later than expected. Because principal will only be distributed
at a rate not faster than that contemplated in the Expected Amortization
Schedules, except in the event of an early redemption or the acceleration of
the maturity of the Certificates after an Event of Default, the Certificates
are not expected to mature earlier than scheduled. A distribution on a date
that is earlier than forecasted will result in a shorter weighted average
life, and a distribution on a date that is later than forecasted will result
in a longer weighted average life. In addition, if a larger portion of the
delayed distributions on the Certificates are received in later years, this
will result in a longer weighted average life of the Certificates.
No assurances are given that the representations made herein and in the
Prospectus Supplement as to the particular factors that will affect the rate
of FTA Collections, the relative importance of such factors, the percentage of
the principal balance of the Certificates that will be distributed as of any
date or the overall rate of FTA Collections will be realized.
In addition, the Note Issuer has the option to redeem all of the outstanding
Notes of any Series on any Payment Date if, after giving effect to payments
that would otherwise be made on such date, the outstanding principal balance
of such Series of Notes has been reduced to less than five percent of the
initial outstanding principal balance thereof. Redemption of a Series of Notes
will require the Certificate Trustee to redeem the
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related Series of Certificates. Redemption will cause such Certificates to be
retired earlier than would otherwise be expected and may adversely affect the
yield to maturity of the Certificates. There can be no assurance as to whether
the Note Issuer will exercise the option to redeem any Series of Notes, or as
to whether Certificateholders will be able to receive an equally attractive
rate of return upon reinvestment of the proceeds resulting from any such
redemption.
THE TRUST
The Trust will be specifically created for the purpose of acquiring the
Notes. The Trust will be formed under the laws of the State of Delaware
pursuant to the Trust Agreement to be entered into among the Infrastructure
Bank, the Delaware Trustee and the Certificate Trustee, each such trustee not
in its individual capacity but acting as trustee on behalf of the holders of
the Certificates. The Trust will not be an agency or instrumentality of the
State of California. The Trust will have no assets other than the Notes and
the Trust's rights under any Swap Agreement. The Trust Agreement will not
permit the Trust to engage in any activities other than holding such assets,
issuing the Certificates, acting as paying agent and engaging in certain other
activities related thereto.
Each Class of Certificates offered hereby will represent a fractional
undivided beneficial interest in the corresponding Class of Notes, including
all monies due and to become due under such corresponding Class of Notes, and
will represent the right to receive a portion of the payments of principal of
and interest on the corresponding Class of Notes, together with payments
pursuant to any related Swap Agreement. See "Description of the Certificates--
Payments and Distributions" herein.
The Fee and Indemnity Agreement among the Note Issuer, the Note Trustee, the
Infrastructure Bank, the Delaware Trustee and the Certificate Trustee (the
"Fee Agreement") will provide that the Note Issuer will pay the Delaware
Trustee's and the Certificate Trustee's fees and expenses. The Fee Agreement
will further provide that the Delaware Trustee, the Certificate Trustee, the
STO and the Infrastructure Bank will be entitled to indemnification by the
Note Issuer for, and will be held harmless against, any loss, liability or
expense incurred by the Delaware Trustee, the Certificate Trustee, the STO and
the Infrastructure Bank, as applicable, arising from the issuance of the
Certificates and any ongoing responsibilities associated therewith (other than
through such party's own willful misconduct, bad faith or negligence or by
reason of a breach of any of its representations or warranties set forth in
the Trust Agreement).
The fiscal year of the Trust will be the calendar year.
The Trust will be formed shortly prior to the first offering of Certificates
as a special purpose Delaware business trust and, as of the date of this
Prospectus, has not carried on any business activities and has no operating
history. Because the Trust does not have any operating history, this
Prospectus does not include any financial statements or related information
for the Trust.
THE INFRASTRUCTURE BANK
The Infrastructure Bank is a public body organized within the government of
the State of California and created pursuant to the Bergeson-Peace
Infrastructure and Economic Development Bank Act, codified at (S) 63000 et
seq. of the California Government Code, as amended (the "Act"). The
Infrastructure Bank is governed, and its corporate powers are exercised, by a
Board of Directors consisting of the State Director of Finance, the State
Treasurer and the State Secretary of Trade and Commerce.
Pursuant to the Act and the Statute, the Infrastructure Bank may authorize a
"special purpose trust" created by the Bank to issue "rate reduction bonds"
and to purchase with the proceeds of such "rate reduction bonds" notes issued
by the Utilities or their affiliates secured by Transition Property. For the
purposes of the Act and the Statute, the Trust will constitute a "special
purpose trust" and each Series of Certificates issued by the Trust will
constitute "rate reduction bonds" entitled to all of the benefits under the
Statute.
46
<PAGE>
Pursuant to resolutions duly adopted by the Infrastructure Bank, the
Infrastructure Bank, at or before the delivery of any Series or Class of
Certificates, has made or will make certain findings, determinations and
approvals with respect to such Certificates, as required by the Act and
Statute. The validity of any such resolutions may be subject to challenge
under applicable law for 60 days. At the Closing Date for any Series or Class
of Certificates, Brooke Bassett, the General Counsel to the Infrastructure
Bank, will issue an opinion to the effect that such resolutions have been duly
and validly adopted by the Infrastructure Bank and that such resolutions are
in full force and effect.
Pursuant to the Act, the Infrastructure Bank has no authority to alter or
modify any term or condition related to the Transition Costs or the Transition
Property as set forth in the Financing Order, and has no authority over any
matter that is subject to the approval of the CPUC.
The Certificates do not represent an interest in or obligation of the State
of California, the Infrastructure Bank, any other governmental agency or
instrumentality or the Seller or any of its affiliates. None of the
Certificates, the Notes or the underlying Transition Property will be
guaranteed or insured by the State of California, the Infrastructure Bank, the
Trust or any other governmental agency or instrumentality or by the Seller or
any of its affiliates. None of such entities will have any obligations in
respect of the Certificates, except as expressly set forth herein or in the
related Prospectus Supplement.
Neither the full faith and credit nor the taxing power of the State of
California or any agency or instrumentality thereof is pledged to the
distributions of principal of, or interest on, the Certificates or the Notes
or to the payments in respect of the Transition Property.
THE NOTE ISSUER
The Note Issuer is a special purpose, single member limited liability
company organized under the laws of the State of Delaware. The Seller is the
sole member of the Note Issuer. The principal executive office of the Note
Issuer is located at 2244 Walnut Grove Avenue, Room 180, Rosemead, CA 91770.
The telephone number of the Note Issuer is (626) 302-1850. The Note Issuer was
organized for the limited purpose of holding and servicing the Transition
Property and issuing Notes secured by the Transition Property and the other
Note Collateral and related activities, and is restricted by its
organizational documents from engaging in other activities. The assets of the
Note Issuer will consist primarily of the Transition Property and the other
Note Collateral, including the capital contributed by Edison as described
under "Description of the Notes--Capital Subaccount." In addition, the Note
Issuer's organizational documents require it to operate in a manner such that
it should not be consolidated in the bankruptcy estate of Edison in the event
Edison becomes subject to such a proceeding.
The Note Issuer is a recently formed special purpose limited liability
company and, as of the date of this Prospectus, has not carried on any
business activities and has no operating history. Audited financial statements
of the Note Issuer are included as an exhibit to this Prospectus.
47
<PAGE>
OFFICERS AND DIRECTORS
The following is a list of the principal officers and the directors of the
Note Issuer. All such officers have served in the capacities set forth below
since July 1, 1997, and all directors have served in such capacity since
November 6, 1997. The officers and directors will devote such time as is
necessary to the affairs of the Note Issuer. The Note Issuer will have
sufficient officers and employees to carry on its business.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Theodore F. Craver, Jr. .... 46 President and Director
Mary C. Simpson............. 46 Vice President, Treasurer and Director
Kenneth S. Stewart.......... 46 Secretary
George T. Tabata............ 39 Assistant Treasurer and Assistant Secretary
Anand Maniktala............. 48 Director
</TABLE>
Theodore F. Craver, Jr., is President and a director of the Note Issuer. Mr.
Craver has served as Vice President and Treasurer of Edison and its parent
Edison International since he joined Edison on September 3, 1996. Previously,
Mr. Craver served as executive vice president and corporate treasurer of First
Interstate Bancorp from 1991 to 1996. In this role, he was responsible for
corporate development, treasury, and sales and trading of investment and
insurance products. Mr. Craver also served as executive vice president and
chief financial officer of First Interstate's wholesale banking subsidiary
from 1986 to 1991.
Mary C. Simpson is Vice President, Treasurer and a director of the Note
Issuer. Dr. Simpson has served as an Assistant Treasurer of Edison and its
parent Edison International since July 18, 1996 and has served as Director of
Treasury Operations and Regulatory Finance of Edison since October 6, 1997,
with responsibility for cash management, long-term finance, pension
investments, and regulatory finance. Previously, Dr. Simpson has held various
positions as director and manager of these functions.
Kenneth S. Stewart is Secretary of the Note Issuer. Mr. Stewart has served
as Assistant General Counsel of Edison and its parent Edison International
since March 1, 1992. In addition, Mr. Stewart served as Secretary of both
companies from November 19, 1992 until January 1, 1996 and has served as an
Assistant Secretary of both companies since January 1, 1996.
George T. Tabata is Assistant Treasurer and Assistant Secretary of the Note
Issuer. Mr. Tabata has served as Project Manager of Long-Term Finance at
Edison since October 6, 1997. Previously, Mr. Tabata has held various project
manager, supervisor and analyst positions in business planning, cash
management, and corporate financing planning and analysis.
Anand Maniktala is the independent director of the Note Issuer
(the"Independent Director"). Mr. Maniktala was appointed to serve as the
Independent Director of the Note Issuer on November 6, 1997. Mr. Maniktala is
Senior Vice President of the Credit Policy Division of Home Savings of
America, where he has been employed since October 15, 1997. From May through
December 1996, Mr. Maniktala served as a Senior Vice President of Wells Fargo
Bank, where he was responsible for credit risk management and loan acquisition
and underwriting. From 1983 to 1996, Mr. Maniktala served in various executive
positions at First Interstate Bancorp.
No compensation has been paid by the Note Issuer to any officer or director
of the Note Issuer since the Note Issuer was formed. The officers and
directors of the Note Issuer, other than the Independent Director, will not be
compensated by the Note Issuer for their services on behalf of the Note
Issuer. The Independent Director will be paid an annual retainer of $6,500,
plus a fee of $500 per meeting of the board of directors, and will be
reimbursed for expenses. Each officer serves in such capacity at the
discretion of the Note Issuer's Board of Directors. Edison is an affiliate of
the Note Issuer. The Note Issuer's organizational documents limit, to the
extent permitted by Delaware law, the personal liability of each officer and
director of the Note Issuer to the Note Issuer for monetary damages resulting
from breaches of such officer's or director's duty of care. The Note Issuer's
organizational documents provide that officers and directors of the Note
Issuer shall be indemnified against liabilities incurred in connection with
their services on behalf of the Note Issuer, including liabilities under
applicable securities laws.
48
<PAGE>
THE SELLER AND SERVICER
GENERAL
The Seller was incorporated under California law in 1909. The Seller is a
public utility primarily engaged in the business of supplying electric energy
to an approximately 50,000 square-mile area of central and southern
California, excluding the City of Los Angeles and certain other cities. This
area includes some 800 cities and communities and a population of more than
11,000,000 people. During 1996, 39 percent of the Seller's total operating
revenue was derived from residential customers, 37 percent from commercial
customers, twelve percent from industrial customers, seven percent from public
authorities, four percent from agricultural and other customers and one
percent from resale customers. The Seller comprises the major portion of the
assets and revenues of Edison International, its parent holding company.
As an investor-owned electric utility, the Seller is regulated by the CPUC
and the FERC.
EDISON CUSTOMER BASE AND ELECTRIC ENERGY CONSUMPTION
Edison's customer base is divided into several categories, including the
residential and small commercial categories covered by the Statute.
Residential Customers are all customers served on rate schedules in Edison's
"Domestic" rate group, including all customers on Schedules D, D-APS, D-CARE,
DE, DM, DMS-1, DMS-2, DMS-3, DS, TOU-D-1, TOU-D-2 and TOU-EV-1. These rates
are available for residential uses such as lighting, heating, cooking and
other domestic purposes. Small Commercial Customers are all customers on
Edison's rate schedules GS-1, TOU-GS-1, TOU-EV-3 and GS-1 customers taking
service on GS-APS. These rates are available to general service customers
whose monthly maximum demand does not exceed twenty kilowatts for any three
billing periods during the preceding twelve month period. General service
usage is service to any lighting or power installation except those eligible
for service on single-family and multi-family domestic, street lighting,
outdoor area lighting, traffic control, resale or standby schedules.
Factors influencing the number of customers and kilowatt-hour consumption
include the general economic climate in Edison's service territory as it
impacts net migration of Residential Customers and Small Commercial Customers.
Another factor influencing kilowatt-hour sales is temperature through its
impact on air conditioning and cooling usage. The number of Small Commercial
Customers and kilowatt-hour consumption would also be influenced by the level
of business activity associated with the particular Small Commercial Customer.
Other factors impacting the kilowatt-hour consumption of both Residential
Customers and Small Commercial Customers, primarily over the longer term,
would include the availability of more energy efficient appliances, new energy
consuming technologies and the customer's ability to acquire these new
products.
For each of the two categories of Customers specified by the Statute, the
table below sets forth the number of Customers and electric energy consumption
in recent years.
CUSTOMERS AND ENERGY CONSUMPTION
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Average Number of Customers:
Residential............... 3,527,410 3,546,065 3,560,951 3,586,918 3,618,734
Small Commercial.......... 380,104 389,917 394,992 400,824 404,577
Energy Consumption (GWh):
Residential............... 22,136 21,375 22,163 22,070 22,751
Small Commercial.......... 4,048 3,866 3,965 4,000 4,142
--------- --------- --------- --------- ---------
Total................... 26,184 25,241 26,128 26,070 26,893
========= ========= ========= ========= =========
Average Revenue per Customer
(c/kWh) :
Residential............... 12.061 12.029 12.264 12.833 12.402
Small Commercial.......... 13.264 13.171 13.387 14.065 13.379
</TABLE>
49
<PAGE>
FORECASTING CONSUMPTION
The Base Calculation Model and the True-Up Mechanism Calculation Model rely
on Edison's electric sales forecast. The short-term forecast uses statistical
methods to relate kilowatt-hour sales growth by customer class to key economic
and demographic variables. The statistical method used is multiple linear
regression. The customer classes included in the forecast are residential,
commercial, industrial, public authorities and agricultural. The key variables
used have included: number of customers, employment, personal income, price of
electricity and weather (temperature and rainfall). The economic variables
used are developed specific to the Edison service territory by using county
employment data. The forecast of California economic growth is based upon the
forecasts provided by the UCLA Economic Forecasting Project. Other factors
which are included in the forecast are the effects of military base shutdowns,
the effects of energy conservation programs (including Edison programs,
Federal appliance and lighting standards, and State building standards),
specific trends in certain industries, and certain cogeneration (self-
generation). Data on a quarterly basis are used in the model. These short-term
models are relatively easy to implement and can be updated more than once a
year if needed. These forecasts also will be used in calculating the FTA
Charges for any given period, in order to determine the revenues required (in
the form of FTA Payments) to meet the Expected Amortization Schedules.
FORECAST VARIANCE
Edison conducts sales forecast variance analyses on a regular basis to
monitor the accuracy of forecasts against recorded consumption. This is
important for short-term resource procurement functions as well as budgeting
and financial reporting.
The table below presents the forecasts of retail sales of Edison for the
years 1992 through 1996. Each forecast was made in the prior year. For
example, the 1992 forecast of 22,298 GWh was prepared in 1991.
ANNUAL FORECAST VARIANCES (GWH)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
RESIDENTIAL
Forecast............................. 22,298 22,389 22,021 22,111 22,068
Actual............................... 22,136 21,375 22,163 22,070 22,751
Variance........................... 0.7% 4.5% -0.6% 0.2% -3.1%
SMALL COMMERCIAL
Forecast............................. 4,330 3,851 3,591 3,780 4,002
Actual............................... 4,048 3,866 3,965 4,000 4,142
Variance........................... 6.5% -0.4% -10.4% -5.8% -3.5%
</TABLE>
During the last five years, no discernible trend is apparent with respect to
the historical forecast variance relating to the Residential Customers or the
Small Commercial Customers. With respect to the Residential Customers, the
variance has ranged from a 4.5 percent overestimate of usage to a 3.1 percent
underestimate of usage, with an average 0.3 percent overestimate of usage.
With respect to the Small Commercial Customers the variance has ranged from a
6.5 percent overestimate of usage to a 10.4 percent underestimate of usage,
with an average 2.7 percent underestimate of usage.
Actual usage depends on several factors, including weather and economic
conditions. For example, while Edison's forecast methodology assumes normal
conditions, abnormally hot summers can add an extra two percent in sales. In
addition, regional economic conditions, like the recent Southern California
recession, can affect sales. Accordingly, variations in conditions will affect
the accuracy of a forecast.
50
<PAGE>
CREDIT POLICY; BILLING; COLLECTIONS; RESTORATION OF SERVICE
The credit, billing, collections and restoration of service policies and
procedures of Edison are subject to CPUC guidelines which may, from time to
time, change. In addition, Edison may change such policies and procedures from
time to time. It is expected that any such change would be designed to enhance
Edison's ability to make timely recovery of amounts billed to Customers. Under
the Servicing Agreement, the changes so instituted by Edison will also apply
to the servicing by Edison, as the Servicer, of the Transition Property.
Credit Policy. Edison is obligated to provide service to all customers in
its historical service territory under California law. Edison relies on the
information provided by the customer and its customer information system
audits to indicate whether the customer has been previously served by Edison.
It is expected that by the middle of 1998, the creditworthiness of new
Customers will be verified using an on-line credit bureau database. If a
Customer falls below a specific credit score, a security deposit will be
required.
Certain accounts are secured with deposits or guarantees to reduce losses.
Since the vast majority of customers pay their bills within the allotted time,
it is not necessary to require deposits from all customers. Specific criteria
have been developed for establishing credit. These criteria are based on such
factors as prior service, property ownership, or providing an acceptable
guarantor.
As a rule, Residential Customers may establish credit by depositing cash
equal to twice the average monthly bill, furnishing a satisfactory guarantor,
or owning the premises to be served or other property in the service
territory. Deposits or guarantees may not be required if the applicant has
been an Edison customer during the past two years, and (a) the applicant has
not had more than two past-due billings during the last twelve consecutive
months, (b) the applicant has paid all bills for domestic service previously
supplied to the applicant and has proof of payment, or (c) the applicant's
credit is otherwise established to the satisfaction of Edison. Credit that is
"established to the satisfaction of Edison" is a broad category that includes
options such as acceptable payment records with other utilities, credit
scoring, and other factors that would establish creditworthiness.
Small Commercial Customers may establish credit by depositing cash equal to
twice the maximum monthly bills, owning substantial equity in the location to
be served, furnishing a satisfactory guarantor or otherwise establishing
credit to the satisfaction of Edison.
Deposits or guarantees may not be required if the applicant has been an
Edison customer during the past two years with like service, during the past
twelve consecutive months of that prior service has not had more than two past
due bills, the billing for the previous service was equal to at least 50
percent of that estimated for the new service, and the customer has paid all
prior Edison bills.
Billing Process. Edison bills its customers once every 27 to 33 days, with
approximately an equal number of bills being distributed each Servicer
Business Day. Any day other than a Saturday, a Sunday or a day on which the
Servicer's offices are not open for business is a "Servicer Business Day." For
the year ending December 31, 1996, Edison mailed out an average of 200,000
bills on each Servicer Business Day to customers in its various customer
categories.
For accounts with potential billing errors exception reports are generated
for manual review. This review examines accounts that have abnormally high or
low bills, potential meter-reading errors and possible meter malfunctions.
Collection Process. Edison receives approximately 76 percent of its total
bill payments, by number of bills, via the U.S. mail. Approximately nineteen
percent are received at authorized payment agencies and one percent of bill
payments are received at local offices. Edison receives the remainder of
payments via electronic payment options, electronic funds transfer, credit
card payments and electronic data interchange.
51
<PAGE>
Two days after the meter is scheduled to be read, bills are processed and
mailed to customers. Bills are due on presentation, and are considered past
due after nineteen calendar days for both small commercial and residential
accounts. Timing and collection follow-up is based on customer type, as
follows.
For Residential Customers, an overdue notice is sent with the second month's
bill if a payment has not been received by the time the second month's bill is
prepared for presentation to the Customer on a monthly basis. Eight days after
the overdue notice is issued, a final call notice is mailed directly to the
Customer if the past due amount is still outstanding. The due date on the
final call is approximately 50 days after the initial bill is presented to the
Customer. The Customer is subject to service disconnection if the amount owing
is unpaid upon expiration of the final call notice. A telephone contact, or
reasonable attempt at making a telephone contact, is made to all Residential
Customers prior to service shut off as required by the PU Code.
For Small Commercial Customers, twenty calendar days after the first
billing, a fifteen day notice is mailed directly to Small Commercial
Customers. A 24-hour notice, although not required, is often given to notify
Small Commercial Customers that shut-off is scheduled.
For both Residential and Small Commercial Customers, a closing bill
including all unpaid amounts is generally issued within three to ten days
after service termination. Unpaid closed accounts are written-off six months
after the closing bill is issued.
Restoration of Service. Before restoring service that has been shut-off for
non-payment, Edison has the right to require the payment of all of the
following charges: (i) certain amounts owing on an account including the
amount of any past-due balance for disconnectible charges for which legal
noticing requirements were met prior to service termination, the current
billing, and a credit deposit, if requested; (ii) any miscellaneous charges
associated with the reconnection of service (i.e., reconnection charges, field
collection charges, and/or returned check charges); (iii) any charges assessed
for unusual costs incidental to the termination or restoration of service
which have resulted from the customer's action or negligence; and (iv) any
unpaid closing bills from other accounts in the name of the customer of
record.
LOSS EXPERIENCE
The following table sets forth information relating to the historical net
write-offs of the Servicer for Residential Customers and Small Commercial
Customers for each of the years shown. Such historical information is
presented herein because Edison's actual experiences with respect to write-
offs may be indicative of the timing of FTA Payments.
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997(2)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Residential(1)......................... 0.60% 0.82% 0.55% 0.51% 0.55% 0.67%
Small Commercial(1).................... 0.33% 0.54% 0.39% 0.36% 0.39% 0.49%
</TABLE>
- --------
(1) Edison has not historically maintained information regarding write-offs by
customer group, but has maintained such information in the aggregate for
all customers and at the individual account level. The percentages
disclosed in this table are Edison's best estimate based on available
information. Accordingly, the estimated write-off information may not be
representative of actual write-off experience for Small Commercial
Customers.
(2) The information for 1997 is based on loss experience for the period
beginning January 1997 through June 1997.
During the last five and a half years, the historical net write-offs for
both Residential Customers and Small Commercial Customers have remained
relatively constant with no discernible trend upwards or downwards. The trend
in historical net write-offs for both categories of Customers continues to be
statistically insignificant.
52
<PAGE>
AGING
The following table sets forth information relating to the average number of
days bills remain outstanding, measured from the midpoint of customer usage
(rather than when the bill is rendered) with respect to Residential Customers
and commercial customers (including Small Commercial Customers).
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997(2)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Residential................................. 41.3 40.9 39.8 39.9 40.9 41.8
Commercial(1)............................... 43.0 42.3 42.2 42.5 41.0 40.4
</TABLE>
- --------
(1) Commercial customers include both large commercial customers and Small
Commercial Customers. Small Commercial Customers constituted approximately
19.6 percent (based on revenues) of the commercial customer class in 1996.
Since the composition of the Small Commercial Customer class differs from
the composition of the combined large commercial customer and Small
Commercial Customer classes, the aging experience of the larger combined
class may not be indicative of the aging experience of the Small
Commercial Customer class.
(2) The information for 1997 is based on the aging of bills for the period
beginning January 1997 through July 1997.
During the last five and a half years, the aging of billings for both
Residential Customers and commercial customers has remained relatively
constant with no discernible trend upwards or downwards.
DELINQUENCIES
The following table sets forth information relating to the delinquency
experience of Edison for (i) Residential Customers and (ii) commercial
customers for each of the years shown. Such historical information is
presented herein because Edison's actual experience with respect to
delinquencies may be indicative of the timing of FTA Payments.
RESIDENTIAL CUSTOMERS
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997(2)
----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Percentage Outstanding After:
30 days........................ 22.25% 22.55% 20.98% 21.56% 21.92% 21.32%
60 days........................ 6.67% 5.98% 3.90% 4.32% 6.63% 8.43%
120 days....................... 0.60% 0.82% 0.55% 0.51% 0.55% 0.65%
COMMERCIAL CUSTOMERS(1)
<CAPTION>
1992 1993 1994 1995 1996 1997(2)
----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Percentage Outstanding After:
30 days........................ 16.42% 16.39% 16.52% 17.28% 12.39% 10.69%
60 days........................ 3.93% 3.55% 3.94% 4.74% 4.37% 4.80%
120 days....................... 0.16% 0.22% 0.13% 0.13% 0.15% 0.19%
</TABLE>
- --------
(1) Commercial customers include both large commercial customers and Small
Commercial Customers. Small Commercial Customers constituted approximately
19.6 percent (based on revenues) of the commercial customer class in 1996.
Since the composition of the Small Commercial Customer class differs from
the composition of the combined large commercial customer and Small
Commercial Customer classes, the delinquency experience of the larger
combined class may not be indicative of the delinquency experience of the
Small Commercial Customer class.
(2) The information for 1997 is based on collections for the period beginning
January 1997 through May 1997.
During the last five and a half years, the delinquency experience for both
Residential Customers and commercial customers have remained relatively
constant with no discernible trend upwards or downwards. The Note Issuer does
not believe that the delinquency experience with respect to FTA Payments will
differ substantially from the approximate rates indicated above.
53
<PAGE>
REVENUE
The following table indicates the total revenues from electricity sales to
each of Residential Customers and Small Commercial Customers during the last
five years (dollars in thousands):
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Residential.......... $2,669,818 $2,571,229 $2,718,206 $2,832,280 $2,821,633
Small Commercial..... 536,912 509,237 530,856 562,565 554,213
---------- ---------- ---------- ---------- ----------
Total.............. $3,206,730 $3,080,466 $3,249,062 $3,394,845 $3,375,846
========== ========== ========== ========== ==========
</TABLE>
54
<PAGE>
SERVICING
SERVICING PROCEDURES
The Servicer, as agent for the Note Issuer, will manage, service and
administer, and make collections in respect of, the Transition Property
pursuant to the Servicing Agreement between the Servicer and the Note Issuer.
The Servicer's duties will include calculation and billing of all amounts
based on the FTA Charges, receipt and posting of all FTA Payments, responding
to inquiries of Customers and the CPUC with respect to the Transition Property
and the FTA Charges, obtaining usage calculations, accounting for collections
and furnishing monthly, quarterly and annual statements to the Note Issuer,
the Note Trustee and the Certificate Trustee and taking action in connection
with periodic revisions to the FTA Charges as described below.
Each FTA Charge will be expressed as an amount per kilowatt hour of
electricity usage by the applicable Customer, regardless of whether the
Customer purchases its electricity from the Servicer or from another
electricity provider. The Servicer expects the applicable FTA Charge to be
separately identified on each Customer's bill, with an aggregate amount to be
paid to the Servicer. Bills are sent to each Customer every 27 to 33 days.
Any amounts collected by the Servicer that represent partial payments of the
total amount billed will be proportionately allocated between the Note Issuer
and Edison based on the portions of the amount billed allocable to the FTA
Charge and the charges due to Edison. If such amounts are billed and collected
for an ESP or the Servicer pursuant to a consolidated billing arrangement, the
total charges due to the ESP will be paid after applying the partial payments
to the FTA Charge and the charges due to Edison.
In addition, the Servicer will agree to take such legal or administrative
actions, including defending against or instituting and pursuing legal actions
and appearing or testifying in hearings or similar proceedings, as may be
reasonably necessary to block or overturn any attempts to cause a repeal,
modification or supplement to the Statute or the Financing Order or the rights
of holders of Transition Property by legislative enactment, voter initiative
or constitutional amendment that would be adverse to Certificateholders. The
cost of any such action will be payable from FTA Payments as an expense of the
Trust.
SERVICING STANDARDS AND COVENANTS
The Servicing Agreement will require the Servicer, in servicing and
administering the Transition Property, to employ or cause to be employed
procedures and exercise the same care it customarily employs and exercises in
servicing and administering bill collections for its own account and for
others.
Consistent with the foregoing, the Servicer may in its own discretion waive
any late payment charge or any other fee or charge relating to delinquent
payments, if any, and may waive, vary or modify any terms of payment of any
amounts payable by a Customer, in each case, if such waiver or action (a)
would be in accordance with the Servicer's customary practices or those of any
successor Servicer with respect to comparable assets that it services for
itself and for others, (b) would not materially adversely affect the
Certificateholders and (c) would comply with applicable law. In addition, the
Servicer may write off any amounts that it deems uncollectible in accordance
with its customary practices.
In the Servicing Agreement, the Servicer will covenant that, in servicing
the Transition Property it will: (a) manage, service, administer and make
collections in respect of the Transition Property with reasonable care and in
accordance with applicable law, including all applicable guidelines of the
CPUC, using the same degree of care and diligence that the Servicer exercises
with respect to bill collections for its own account and for others; (b)
follow customary standards, policies and procedures for the industry in
performing its duties as Servicer; (c) use all reasonable efforts, consistent
with its customary servicing procedures, to enforce, and maintain rights in
respect of, the Transition Property; (d) comply with all laws applicable to
and binding on it relating to the Transition Property; and (e) submit True-Up
Mechanism Advice Letters to the CPUC seeking adjustments to the FTA Charges as
described herein.
55
<PAGE>
In the event of a breach by the Servicer of any of these covenants, the
Servicer will indemnify, defend and hold harmless the Note Issuer, the Trust,
the Noteholders, the Note Trustee, the Certificate Trustee, the Delaware
Trustee, the Certificateholders, the STO and the Infrastructure Bank against
any costs, expenses, losses, claims, damages and liabilities incurred as a
result thereof.
REMITTANCES TO COLLECTION ACCOUNT
Periodically, the Servicer will prepare a forecast of the percentages of
amounts billed in a particular month that are expected to be received during
the current Collection Period and each of the following five Collection
Periods (the "Collections Curve"). For so long as (a) no Servicer Default
shall have occurred and be continuing and (b) the Rating Agency Condition
shall have been satisfied (and any conditions or limitations imposed by the
Rating Agencies in connection therewith are complied with), the Servicer is
required to remit FTA Payments expected to have been received during the
preceding Collection Period, based on the applicable Collections Curve at the
time the charges were billed, to the Collection Account on or before the
twentieth day of each calendar month (or, if such twentieth day is not a
Certificate Business Day, the Certificate Business Day immediately following
such twentieth day). The sum of the amounts remitted with respect to a Billing
Period during the six months following the beginning of such Billing Period
based on the Collections Curve is referred to as the "Estimated FTA Payments"
herein. Pending remittance to the Collection Account, FTA Payments received by
the Servicer may be invested by the Servicer at its own risk and for its own
benefit, and will not be segregated from funds of the Servicer. If any of the
conditions described above are not satisfied, the Servicer will remit to the
Collection Account an amount equal to the FTA Payments estimated to have been
received on each Servicer Business Day within two Servicer Business Days of
such day. The date on which FTA Payments received by the Servicer with respect
to the FTA Charges are required to be deposited in the Collection Account is
referred to herein as the "Remittance Date."
On or prior to the Remittance Date in the seventh month following the end of
each Billing Period, the Servicer will compare actual FTA Payments received
with respect to that Billing Period (the "Actual FTA Payments") to the
Estimated FTA Payments for that Billing Period previously remitted to the
Collection Account. If Estimated FTA Payments remitted with respect to a
Billing Period exceed Actual FTA Payments attributable to such Billing Period
(such excess, an "Excess Remittance"), the Servicer shall be entitled to
reduce the amount which the Servicer remits to the Collection Account on such
Remittance Date by the amount of such Excess Remittance, the amount of such
reduction becoming the property of the Servicer. If Estimated FTA Payments
remitted with respect to a Billing Period are less than Actual FTA Payments
attributable to such Billing Period (such deficiency, a "Remittance
Shortfall"), the amount which the Servicer remits to the Collection Account on
such Remittance Date will be increased by the amount of such Remittance
Shortfall, such increase coming from the Servicer's own funds. The Estimated
FTA Payments calculated for any Remittance Date shall not be affected by any
Excess Remittance or Remittance Shortfall which modifies the actual amount
remitted by the Servicer on such Remittance Date.
NO SERVICER ADVANCES
The Servicer will not make any advances of interest or principal on the
Notes.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee on each Payment
Date, in an amount equal to one-fourth of the percent per annum specified in
the related Prospectus Supplement of the then outstanding principal amount of
the Notes. The Servicing Fee (together with any portion of the Servicing Fee
that remains unpaid from prior Payment Dates) will be paid solely to the
extent funds are available therefor as described under "Description of the
Notes--Allocations; Payments." The Servicing Fee will be paid prior to the
distribution of any amounts in respect of interest on and principal of the
Notes. The Servicer will be entitled to retain as additional compensation net
investment income on FTA Payments received by the Servicer prior to remittance
thereof to the Collection Account and the portion of late fees, if any, paid
by Customers relating to the FTA Payments.
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AGGREGATORS AND OTHER SUPPLIERS
As part of the deregulation of the California electric industry described
elsewhere herein, there will be an unbundling of generation, transmission,
distribution and billing services. A decision of the CPUC allows ESPs to
provide a consolidated bill to their retail customers covering amounts owed to
the ESP for electricity, amounts owed to the utilities for distribution and
other charges, including the applicable FTA Charges.
The CPUC has determined that if an ESP provides consolidated billing, the
ESP must first establish its creditworthiness by either (1) demonstrating that
it has a credit rating of "Baa2" or higher from Moody's or "BBB" or higher
from S&P, Fitch Investors Service, L.P. or Duff & Phelps Credit Rating Co.,
(2) submitting a credit application to the Servicer for evaluation, with final
credit approval granted by the Servicer, or (3) submitting to the Servicer a
deposit equal to twice the estimated maximum monthly amount owed to the
Servicer.
Any ESP that provides consolidated billing is required to pay the utility
amounts billed by the utility to the ESP, including the FTA Charges,
regardless of the ESP's ability to collect such amounts from its Customers. In
such event, the collecting ESP will in effect replace the Customer as the
obligor with respect to such FTA Charges and the Note Issuer, as the holder of
the Transition Property, will have no right to collect such FTA Charges from
the Customer. There can be no assurance that each ESP will utilize the same
customer credit standards as the Servicer, or that the Servicer will be able
to mitigate credit risks relating to ESPs in the same manner in which it
mitigates such risks relating to its Customers. The Servicer, on behalf of the
Note Issuer, will pursue any ESP that fails to remit applicable FTA Charges in
a manner similar to that in which the Servicer will pursue any failure by a
Customer to remit FTA Charges. The Servicer will not have the right to pursue
Customers of an ESP that defaults in the payment of FTA Charges. However, the
Servicer will have the right to bill and collect FTA Charges and other amounts
payable to the Servicer directly from all of the ESP's consolidated billing
Customers following certain payment defaults by an ESP. An ESP that has
defaulted will nevertheless have the right to elect consolidated billing six
months after its default upon the satisfaction of certain conditions. The
Servicer has the right to revert to separate billing upon certain payment
defaults by an ESP. Frequent changes in Customer billing and payment
arrangements may result in Customer confusion and the misdirection or delay of
payments, which could have the effect of causing delays in distributions to
Certificateholders. Neither the Seller nor the Servicer will pay any
shortfalls resulting from the failure of any ESPs to forward FTA Payments to
Edison, as Servicer, which may result in delays in distributions to
Certificateholders. The true-up adjustment mechanism for the FTA Charges, as
well as the collection of the Overcollateralization Amount and the pledge of
amounts deposited in the Capital Subaccount, are intended to mitigate this
risk relating to the timing of collections and payments. However, delays in
distributions to Certificateholders might occur as a result of delays in
implementation of the adjustment mechanism.
In addition, to the extent that Customers elect to have their electricity
provided by ESPs that provide consolidating billing, the Note Issuer may be
relying on a small number of ESPs, rather than a large number of Customers, to
remit FTA Charges. In this circumstance, a default in the payment of FTA
Charges by a single ESP that provides electricity services to a large number
of Customers may adversely affect the timing of payments on the Certificates.
SERVICER REPRESENTATIONS AND WARRANTIES
In the Servicing Agreement, the Servicer will make representations and
warranties to the Note Issuer to the effect, among other things, that: (a) the
Servicer is a corporation duly organized and in good standing under the laws
of the State of California, with power and authority to own its properties and
conduct its business as currently owned or conducted and to execute, deliver
and carry out the terms of the Servicing Agreement; (b) the execution,
delivery and carrying out of the Servicing Agreement have been duly authorized
by the Servicer by all necessary corporate action; (c) the Servicing Agreement
constitutes a legal, valid and binding obligation of the Servicer, enforceable
against the Servicer in accordance with its terms; (d) the consummation of the
transactions contemplated by the Servicing Agreement does not conflict with
the Servicer's articles of incorporation or bylaws or any agreement to which
the Servicer is a party or bound, result in the creation or
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imposition of any lien upon the Servicer's properties or violate any law or
any order, rule or regulation applicable to the Servicer; (e) the Servicer has
all licenses necessary for it to perform its obligations under the Servicing
Agreement; (f) no governmental approvals, authorizations or filings are
required for the Servicer to execute, deliver and perform its obligations
under the Servicing Agreement except those which have previously been obtained
or made; and (g) except as disclosed to the Note Issuer, no court or
administrative proceeding or investigation is pending or, to the Servicer's
knowledge, threatened (i) asserting the invalidity of, or seeking to prevent
the consummation of the transactions contemplated by, the Servicing Agreement
or (ii) seeking a determination that might materially and adversely affect the
performance by the Servicer of its obligations thereunder.
In the event of a breach by the Servicer of any of its representations and
warranties described in the preceding paragraph, the Servicer will indemnify,
defend and hold harmless the Note Issuer, the Trust, the Noteholders, the Note
Trustee, the Certificate Trustee, the Delaware Trustee, the
Certificateholders, the STO and the Infrastructure Bank against any costs,
expenses, losses, claims, damages and liabilities incurred as a result
thereof.
STATEMENTS BY SERVICER
On or before each Remittance Date, the Servicer will prepare and furnish to
the Note Trustee, the Certificate Trustee, the Infrastructure Bank and the
Note Issuer a statement for the applicable Collection Period (the "Monthly
Servicer's Certificate") setting forth the aggregate amount of FTA Payments
remitted by the Servicer to the Collection Account and the Excess Remittance
or the Remittance Shortfall. In addition, the Servicer will prepare, and the
Note Trustee will furnish to the Noteholders on each Payment Date the
Quarterly Servicer's Certificate described under "Description of the Notes--
Reports to Noteholders." The Servicer will also prepare and the Certificate
Trustee will furnish to the Certificateholders on each Payment Date the report
described under "Description of the Certificates--Reports to
Certificateholders" herein.
EVIDENCE AS TO COMPLIANCE
The Servicing Agreement will provide that a firm of independent public
accountants will furnish to the Note Issuer, the Note Trustee and the
Certificate Trustee on or before September 30 of each year, beginning
September 30, 1998, a statement as to compliance by the Servicer during the
preceding twelve months ended June 30 with certain standards relating to the
servicing of the Transition Property. This report (the "Annual Accountant's
Report") shall state that such firm has performed certain procedures in
connection with the Servicer's compliance with the servicing procedures of the
Servicing Agreement, identifying the results of such procedures and including
any exceptions noted. The Annual Accountant's Report will also indicate that
the accounting firm providing such report is independent of the Servicer
within the meaning of the Code of Professional Ethics of the American
Institute of Certified Public Accountants.
The Servicing Agreement will also provide for delivery to the Note Issuer,
the Infrastructure Bank, the Note Trustee and the Certificate Trustee, on or
before September 30 of each year, commencing September 30, 1998, of a
certificate signed by an officer of the Servicer stating that the Servicer has
fulfilled its obligations under the Servicing Agreement throughout the
preceding twelve months ended June 30 (or in the case of the first such
certificate, the period from the Closing Date to June 30, 1998) or, if there
has been a default in the fulfillment of any such obligation, describing each
such default. The Servicer has agreed to give the Note Issuer, the
Infrastructure Bank, the Note Trustee and the Certificate Trustee notice of
certain Servicer Defaults under the Servicing Agreement.
Copies of such statements and certificates may be obtained by
Certificateholders by a request in writing addressed to the Certificate
Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicing Agreement will provide that Edison may not resign from its
obligations and duties as Servicer thereunder, except upon either (a) a
determination that Edison's performance of such duties is no longer
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permissible under applicable law or (b) satisfaction of the Rating Agency
Condition and consent of the CPUC. No such resignation will become effective
until a successor Servicer has assumed Edison's servicing obligations and
duties under the Servicing Agreement.
The Servicing Agreement will further provide that neither the Servicer nor
any of its directors, officers, employees, and agents will be under any
liability to the Note Issuer, the Note Trustee, the Infrastructure Bank, the
Trust, the Noteholders, the Certificate Trustee, the Delaware Trustee, the
Certificateholders or any other person, except as provided under the Servicing
Agreement, for taking any action or for refraining from taking any action
pursuant to the Servicing Agreement, or for errors in judgment; provided,
however, that neither the Servicer nor any such person will be protected
against any liability that would otherwise be imposed by reason of willful
misconduct, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties thereunder. In
addition, the Servicing Agreement will provide that the Servicer is under no
obligation to appear in, prosecute, or defend any legal action that is not
incidental to its servicing responsibilities under the Servicing Agreement and
that, in its opinion, may cause it to incur any expense or liability.
Under the circumstances specified in the Servicing Agreement, any entity
into which the Servicer may be merged or consolidated, or any entity resulting
from any merger or consolidation to which the Servicer is a party, or any
entity succeeding to the business of the Servicer or, with respect to its
obligations as Servicer, which corporation or other entity in each of the
foregoing cases assumes the obligations of the Servicer, will be the successor
of the Servicer under the Servicing Agreement.
SERVICER DEFAULTS
"Servicer Defaults" under the Servicing Agreement will include (a) any
failure by the Servicer to make any required deposit into the Collection
Account, which failure continues unremedied for three Servicer Business Days
after written notice from the Note Issuer or the Note Trustee is received by
the Servicer or after discovery by the Servicer; (b) any failure by the
Servicer or the Seller, as the case may be, duly to observe or perform in any
material respect any other covenant or agreement in the Servicing Agreement,
the Sale Agreement or any other Basic Document to which it is a party which
failure materially and adversely affects the rights of Noteholders and which
continues unremedied for 30 days after the giving of notice of such failure
(i) to the Servicer or the Seller, as the case may be, by the Note Issuer or
the Note Trustee or (ii) to the Servicer by holders of Notes evidencing not
less than 25 percent in principal amount of the outstanding Notes of all
Series; (c) any representation or warranty made by the Servicer in the
Servicing Agreement shall prove to have been incorrect when made, which has a
material adverse effect on the Note Issuer or the Certificateholders and which
material adverse effect continues unremedied for a period of 60 days after the
giving of notice to the Servicer by the Note Issuer or the Note Trustee; and
(d) certain events of insolvency, readjustment of debt, marshaling of assets
and liabilities, or similar proceedings with respect to the Servicer or the
Seller and certain actions by the Servicer or the Seller indicating its
insolvency, reorganization pursuant to bankruptcy proceedings, or inability to
pay its obligations.
RIGHTS UPON SERVICER DEFAULT
As long as a Servicer Default under the Servicing Agreement remains
unremedied, either the Note Trustee or holders of Notes evidencing not less
than 25 percent in principal amount of then outstanding Notes of all Series
may terminate all the rights and obligations of the Servicer (other than the
Servicer's indemnity obligation) under the Servicing Agreement, whereupon a
successor servicer appointed by the Note Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under the Servicing
Agreement and will be entitled to similar compensation arrangements. In
addition, upon a Servicer Default, each of the following shall be entitled to
apply to the CPUC for sequestration and payment of revenues arising with
respect to the Transition Property: (1) the Certificateholders and the
Certificate Trustee as beneficiary of any statutory lien permitted by the PU
Code; (2) the Note Issuer or its assignees; or (3) pledgees or transferees,
including transferees under PU Code (S) 844, of the Transition Property. If,
however, a bankruptcy trustee or similar official has been appointed for the
Servicer, and no Servicer Default other than such appointment has occurred,
such trustee or
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official may have the power to prevent the Note Trustee or the Noteholders
from effecting a transfer of servicing. The Note Trustee may appoint, or
petition a court of competent jurisdiction for the appointment of, a successor
servicer which satisfies criteria specified by the Rating Agencies. The Note
Trustee may make such arrangements for compensation to be paid.
WAIVER OF PAST DEFAULTS
Holders of Notes evidencing at least a majority in principal amount of the
then outstanding Notes of all Series, on behalf of all Noteholders, may waive
any default by the Servicer in the performance of its obligations under the
Servicing Agreement and its consequences, except a default in making any
required deposits to the Collection Account in accordance with the Servicing
Agreement. The Servicing Agreement provides that no such waiver will impair
the Noteholders' rights with respect to subsequent defaults.
SUCCESSOR SERVICER
If for any reason a third party assumes the role of the Servicer under the
Servicing Agreement (in such role, the "Successor Servicer"), the Servicing
Agreement will require the Servicer to cooperate with the Note Issuer, the
Note Trustee and the Successor Servicer in terminating the Servicer's rights
and responsibilities under the Servicing Agreement, including the transfer to
the Successor Servicer of all cash amounts then held by the Servicer for
remittance or subsequently acquired. The Servicing Agreement will provide that
the Servicer shall be liable for all reasonable costs and expenses incurred in
transferring servicing responsibilities to the Successor Servicer. There can
be no assurance that the Note Issuer will be able to engage a Successor
Servicer if Edison ceases to act as Servicer for any reason.
Furthermore, even if the Note Issuer appoints a Successor Servicer, a
Successor Servicer may encounter difficulties in collecting FTA Payments and
determining appropriate adjustments to FTA Charges. Any Successor Servicer may
have less experience than Edison and less capable systems than those employed
by Edison. In addition, under current law the Successor Servicer may not be
able to invoke a remedy of shutting off service to a Customer for nonpayment
of the FTA Charges.
AMENDMENT
The Servicing Agreement may be amended by the parties thereto, without the
consent of the Noteholders (or, accordingly, the Certificateholders), but with
the consent of the Note Trustee, for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of that
agreement or of modifying in any manner the rights of the Noteholders (or,
accordingly, the Certificateholders), provided that such action will not, as
certified in a certificate of an officer of the Servicer delivered to the Note
Trustee and the Note Issuer, materially and adversely affect the interest of
any Noteholder (or, accordingly, any Certificateholder). The Servicing
Agreement may also be amended by the Servicer and the Note Issuer with the
consent of the Note Trustee and the holders of Notes evidencing at least a
majority in principal amount of the then outstanding Notes of all Series and
Classes for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of such agreement or of modifying in any
manner the rights of the Noteholders or the Certificateholders; provided,
however, that no such amendment may (i) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, FTA Collections or (ii)
reduce the aforesaid percentage of the Notes the holders of which are required
to consent to any such amendment, without the consent of the holders of all
the outstanding Notes.
TERMINATION
The obligations of the Servicer and the Note Issuer pursuant to the
Servicing Agreement will terminate upon the payment to the Noteholders and
corresponding distribution to the Certificateholders of all amounts required
to be paid or distributed to them pursuant to the Servicing Agreement, the
Notes, the Note Indenture, the Certificates and the Trust Agreement.
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DESCRIPTION OF THE NOTES
The Notes of any Class will be issued by the Note Issuer to the Trust (as
such, the "Noteholder") pursuant to the terms of an Indenture (the "Note
Indenture") between the Note Issuer and the Note Trustee, in a principal
amount equal to the initial aggregate principal amount of the related Class of
Certificates. The following summary describes the material terms and
provisions of the Note Indenture. The particular terms of the Notes of any
Class will be established in a supplement to the Note Indenture and the
material terms thereof will be described in the Prospectus Supplement for the
related Series of Certificates. This summary does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the terms
and provisions of the Note Indenture and related supplements thereto, forms of
which are filed as exhibits to the Registration Statement.
GENERAL
The Notes may be issued in one or more Series, any one or more of which may
be comprised of one or more Classes. All Notes of the same Series will be
identical in all respects except for the denominations thereof, unless such
Series is comprised of more than one Class, in which case all Notes of the
same Class will be identical in all respects except for the denominations
thereof.
The Prospectus Supplement for a Series of Certificates will describe the
following terms of the related Series of Notes and, if applicable, the Classes
thereof: (a) the designation of the Series and, if applicable, the Classes
thereof, (b) the principal amount, (c) the annual rate at which interest
accrues (the "Note Interest Rate"), (d) the Payment Dates, (e) the scheduled
maturity date (the "Scheduled Maturity Date"), (f) the final termination date
of the Series (the "Final Maturity Date"), (g) the issuance date of the Series
(the "Series Issuance Date"), (h) the place or places for the payment of
principal, (i) the authorized denominations, (j) the provisions for optional
redemption by the Note Issuer, (k) the Expected Amortization Schedule for
principal of such Series and, if applicable, the Classes thereof, (l) the FTA
Charges as of the date of issuance of such Series of Notes, and the portion of
the FTA Charges attributable to such Series of Notes and (m) any other terms
of such Class that are not inconsistent with the provisions of the Notes and
that will not result in any Rating Agency reducing or withdrawing its then
current rating of any outstanding Class of Notes or Certificates (the
notification in writing by each Rating Agency to the Seller, the Servicer, the
Note Trustee and the Note Issuer that any action will not result in such a
reduction or withdrawal is referred to herein as the "Rating Agency
Condition").
SECURITY
To secure the payment of principal of and interest on the Notes, the Note
Issuer will grant to the Note Trustee a security interest in all of the Note
Issuer's right, title and interest in and to (a) all of the Transition
Property and all proceeds thereof, (b) the Sale Agreement, (c) the Servicing
Agreement, (d) the Collection Account and all amounts or investment property
on deposit therein or credited thereto from time to time, (e) all other
property of whatever kind owned from time to time by the Note Issuer, which
such other property is expected to be relatively small, (f) all present and
future claims, demands, causes and choses in action in respect of any or all
of the foregoing and all payments on or under the foregoing and (g) all
proceeds in respect of any or all of the foregoing; provided, however, that
(1) the cash contributed to the Note Issuer by the Seller which is not held in
the Capital Subaccount, including cash that has been released to the Note
Issuer following retirement of a related Series of Certificates, (2) net
investment earnings which have been released to the Note Issuer by the Note
Trustee pursuant to the terms of the Indenture and (3) the
Overcollateralization Amount with respect to a Series of Certificates that has
been released to the Note Issuer following retirement of such Series will not
be covered by the foregoing security interest. The foregoing assets to which
the Note Issuer will grant the Note Trustee a security interest are referred
to collectively as the "Note Collateral" herein.
COLLECTION ACCOUNT
The Note Issuer will establish, in the name of the Note Trustee, a
segregated identifiable account (the "Collection Account") with an Eligible
Institution. The Collection Account will be held by the Note Trustee for
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the benefit of the Noteholders. The Collection Account will consist of four
subaccounts: a general subaccount (the "General Subaccount"), a reserve
subaccount (the "Reserve Subaccount"), a subaccount for the
Overcollateralization Amount with respect to each Series of Notes (the
"Overcollateralization Subaccount") and a capital subaccount (the "Capital
Subaccount"). All amounts in the Collection Account not allocated to any other
subaccount will be allocated to the General Subaccount. Unless the context
indicates otherwise, references herein to the Collection Account include each
of the subaccounts contained therein.
An "Eligible Institution" means (a) the corporate trust department of the
Note Trustee or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), which (i) has either (A)
a long-term unsecured debt rating of "A" by S&P and "A2" by Moody's or (B) a
certificate of deposit rating of "A-1" by S&P and "P-1" by Moody's, or any
other long-term, short-term or certificate of deposit rating acceptable to the
Rating Agencies and (ii) whose deposits are insured by the Federal Deposit
Insurance Corporation (the "FDIC").
Funds in the Collection Account may be invested in any of the following: (a)
direct obligations of, or obligations fully and unconditionally guaranteed as
to timely payment by, the United States of America, (b) demand deposits, time
deposits, certificates of deposit or bankers' acceptances of Eligible
Institutions, (c) commercial paper (other than commercial paper issued by the
Seller) having, at the time of investment, a rating in the highest rating
category from each Rating Agency, (d) money market funds which have the
highest rating from each Rating Agency, (e) demand deposits, time deposits and
certificates of deposit which are fully insured by the FDIC, (f) repurchase
obligations with respect to any security that is a direct obligation of, or
fully guaranteed by, the United States of America or certain agencies or
instrumentalities thereof, entered into with certain depository institutions
or trust companies, or (g) any other investment permitted by each Rating
Agency (collectively, the "Eligible Investments"), in each case which mature
on or before the Certificate Business Day preceding the next Payment Date. The
Note Trustee and the Certificate Trustee will have access to the Collection
Account for the purpose of making deposits in and withdrawals from the
Collection Account in accordance with the Note Indenture.
The Servicer will remit to the Collection Account, on each Remittance Date,
FTA Payments expected to have been received during the preceding Collection
Period, based on the Collections Curve, modified by the Excess Remittance or
Remittance Shortfall, if any, as described under "Servicing--Remittances to
Collection Account" herein.
INTEREST AND PRINCIPAL
Interest will accrue on the principal balance of Notes of a Class of Notes
at the per annum rate either specified in or determined in the manner
specified in the related Prospectus Supplement and will be payable on the
Payment Dates specified in the related Prospectus Supplement. FTA Collections,
including such amounts as are available in the Reserve Subaccount and the
Overcollateralization Subaccount and, if necessary, the amounts available in
the Reserve Subaccount, will be used to make interest payments to the
Noteholders of each Class on each Payment Date with respect thereto.
Principal of the Notes of each Class will be payable in the amounts and on
the Payment Dates specified in the related Prospectus Supplement, but only to
the extent that amounts in the Collection Account are available therefor, and
subject to the other limitations described below. See "--Allocations;
Payments" herein. Each Prospectus Supplement will set forth the Expected
Amortization Schedule for the related Series of Notes and, if applicable, the
Classes of such Series. On any Payment Date, the Note Issuer will make
payments on the Notes only until the outstanding principal balances thereof
have been reduced to the principal balances specified in the applicable
Expected Amortization Schedule for such Distribution Date. Any FTA Collections
in excess of amounts payable as (a) expenses of the Note Issuer and the Trust,
(b) payments of interest on and principal of the Notes, (c) allocations to the
Overcollateralization Subaccount and (d) allocations to the Capital Subaccount
(all as described herein under "--Allocations; Payments" herein) will be
retained by the Note Trustee in the Reserve Subaccount for payment on
subsequent Payment Dates. However, if insufficient FTA Collections are
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received with respect to any Payment Date, and amounts in the Collection
Account are not sufficient to make up the shortfall, principal of any Class of
Notes may be payable later than expected as described herein. See "Risk
Factors--Unusual Nature of the Transition Property" and "Risk Factors--
Uncertain Distribution Amounts and Weighted Average Life" herein. The entire
unpaid principal amount of the Notes of a Class will be due and payable on the
date on which a Note Event of Default has occurred and is continuing with
respect to such Class, if the holders of a majority in principal amount of the
Notes of all Series then outstanding have declared the Notes to be immediately
due and payable. See "--Note Events of Default; Rights Upon Note Event of
Default" herein.
Unless the context requires otherwise, all references in this Prospectus to
principal of the Notes of a Series includes any premium that might be payable
thereon if Notes of such Series are redeemed, as described in the related
Prospectus Supplement.
OPTIONAL REDEMPTION
The Note Issuer may redeem, at its option, any Series of Notes and
accordingly cause the Trust to redeem the related Series of Certificates on
any Distribution Date if, after giving effect to distributions that would
otherwise be made on such date, the outstanding principal balance of the
Series of Notes has been reduced to less than five percent of the initial
principal balance thereof. The Notes may be so redeemed upon payment by the
Note Issuer of the outstanding principal amount of the Notes and accrued but
unpaid interest thereon as of the date of redemption. Unless otherwise
specified in the related Prospectus Supplement, notice of such redemption will
be given by the Note Issuer to each holder of Notes to be redeemed by first-
class mail, postage prepaid, mailed not less than five days nor more than 25
days prior to the date of redemption.
MANDATORY REDEMPTION
If the Seller is required to repurchase the Transition Property as described
herein under "Description of the Transition Property--Seller Representations
and Warranties and Repurchase Obligation," the Note Issuer will be required to
redeem all Series of Notes on the fifth Certificate Business Day following the
date of such repurchase.
OVERCOLLATERALIZATION AMOUNT
The Financing Order provides that the Note Issuer, as the owner of the
Transition Property, is entitled to recover FTA Charges in amounts equal to
the scheduled principal amount of all Series of Notes, all interest thereon,
an additional amount (for any Series, the "Overcollateralization Amount")
specified in the related Prospectus Supplement and all related fees, costs and
expenses. The Overcollateralization Amount with respect to each Series is
intended to enhance the likelihood that distributions on each Series of the
Notes will be made in accordance with their expected Amortization Schedules.
The Financing Order provides further that the Infrastructure Bank and/or the
STO should determine the Overcollateralization Amount required. The
Overcollateralization Amount for each Series of Notes will be either (a) 0.50
percent of the initial principal amount of the Series of Notes or (b) such
greater amount as is necessary to obtain from the Rating Agencies the highest
possible investment grade ratings for such Certificates upon issuance. FTA
Charges will be set and adjusted at a level that is intended to collect the
Overcollateralization Amount ratably over the life of the related Certificates
according to a schedule set forth in the related Prospectus Supplement.
On each Payment Date, all FTA Collections will be applied as described under
"--Allocations; Payments" herein. On any Payment Date, an amount equal to the
lesser of (a) the amount remaining after payment of scheduled amounts due on
the Notes and related fees and expenses and (b) the amount, if any, by which
the Required Overcollateralization Level exceeds the amount in the
Overcollateralization Subaccount, will be deposited in the
Overcollateralization Subaccount. Amounts in the Overcollateralization
Subaccount will be invested in Eligible Investments, and the Note Issuer will
be entitled to earnings thereon, subject to the limitations described under
"--Allocations; Payments" herein. Amounts in the Overcollateralization
Subaccount are intended to cover any shortfall in FTA Collections that might
otherwise occur on any Payment Date or at the
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last Scheduled Maturity Date for any Series or Class of Notes. Any amounts
remaining in the Overcollateralization Subaccount with respect to a particular
Series of Notes in excess of the amounts required to make distributions on the
related Series of Certificates in full at the Termination Date will be
returned to the Note Issuer, which may distribute such amounts to its members
under the circumstances described under "--Certain Covenants of the Note
Issuer" herein.
CAPITAL SUBACCOUNT
Upon the issuance of each Series of Notes, the Seller will contribute
capital to the Note Issuer in an amount specified in each Prospectus
Supplement, which will equal 0.50 percent of the initial principal amount of
such Series of Notes. Such amount, less $100,000 in the aggregate for all
Series of Notes (with respect to each Series, the "Required Capital Level"),
will be deposited into the Capital Subaccount. On each Payment Date, the Note
Trustee will draw on amounts in the Capital Subaccount, if any, to the extent
amounts available in the General Subaccount, the Reserve Subaccount and the
Overcollateralization Subaccount are insufficient to make scheduled payments
on the Notes and pay expenses of the Note Issuer and the Trust. Deposits to
the Capital Subaccount will be made as described under "--Allocations;
Payments" herein.
RESERVE SUBACCOUNT
FTA Collections available with respect to any Payment Date in excess of
amounts payable as expenses of the Note Issuer and the Trust, as payments of
interest and principal on the Notes, as allocations to the
Overcollateralization Subaccount and as allocations to the Capital Subaccount
(all as described under "--Allocations; Payments" herein), will be allocated
to the Reserve Subaccount. On each Payment Date, the Note Trustee will draw on
amounts in the Reserve Subaccount, if any, to the extent amounts available in
the General Subaccount are insufficient to make scheduled payments on the
Notes, pay expenses of the Note Issuer and the Trust, replenish the Capital
Subaccount up to the Required Capital Level and fund the Overcollateralization
Subaccount up to the Required Overcollateralization Level. Amounts in the
Reserve Subaccount will be invested in Eligible Investments, and the Note
Issuer will be entitled to earnings thereon, subject to the limitations
described under "--Allocations; Payments" herein.
ALLOCATIONS; PAYMENTS
On each Payment Date, the Note Trustee will apply, at the direction of the
Servicer, all amounts on deposit in the Collection Account, including net
earnings thereon (subject to the priority of withdrawals described in the
following paragraph), to pay the following amounts in the following priority:
(a) all amounts owed by the Note Issuer or the Trust to the Note Trustee,
the Delaware Trustee and the Certificate Trustee will be paid to such persons;
(b) the Servicing Fee and all unpaid Servicing Fees from any prior Payment
Dates will be paid to the Servicer;
(c) the Quarterly Administration Fee and all unpaid Quarterly Administration
Fees from prior Payment Dates will be paid to the Administrator;
(d) so long as no Event of Default has occurred or would be caused by such
payment, all other Operating Expenses will be paid to the persons entitled
thereto;
(e) any overdue Quarterly Interest (together with, to the extent lawful,
interest on such overdue Quarterly Interest at the applicable Note Interest
Rate) and then Quarterly Interest with respect to each Series of Notes will be
transferred to Certificate Trustee, as Noteholder, for distribution to the
Certificateholders;
(f) principal on the Notes payable as a result of a Note Event of Default or
on the Final Maturity Date for any Notes will be transferred to the
Certificates Trustee, as Noteholder, for distribution to the
Certificateholders;
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(g) funds necessary to pay Quarterly Principal for any Series of Notes based
on priorities described in each Prospectus Supplement will be transferred to
the Certificate Trustee, as Noteholder, for distribution to the applicable
Certificateholders;
(h) unpaid Operating Expenses will be paid to the persons entitled thereto;
(i) the amount, if any, by which the Required Overcollateralization Level
exceeds the amount in the Overcollateralization Subaccount as of such Payment
Date will be allocated to the Overcollateralization Subaccount;
(j) the amount, if any, by which the Required Capital Level with respect to
all outstanding Series of Notes exceeds the amount in the Capital Subaccount
as of such Payment Date will be allocated to the Capital Subaccount;
(k) funds up to the net earnings on amounts in the Collection Account for
the prior quarter without cumulation will be released to the Note Issuer;
(l) if any Series of Notes has been retired as of such Payment Date, the
excess of the amount in the Overcollateralization Subaccount over the
aggregate Required Overcollateralization Level with respect to all Series of
Notes remaining outstanding will be released to the Note Issuer;
(m) if any Series of Notes has been retired as of such Payment Date, the
excess of the amount in the Capital Subaccount over the aggregate Required
Capital Level with respect to all Series of Notes remaining outstanding will
be released to the Note Issuer;
(n) the balance, if any, will be allocated to the Reserve Subaccount for
distribution on subsequent Payment Dates; and
(o) following the repayment of all outstanding Series of Notes, the balance,
if any, will be released to the Note Issuer.
If on any Payment Date funds on deposit in the General Subaccount are
insufficient to make the transfers contemplated by clauses (a) through (g)
above, the Note Trustee will (x) first, draw from amounts on deposit in the
Reserve Subaccount, (y) second, draw from amounts on deposit in the
Overcollateralization Subaccount, and (z) third, draw from amounts on deposit
in the Capital Subaccount, up to the amount of such shortfall, in order to
make the transfers described above. In addition, if on any Payment Date funds
on deposit in the General Subaccount are insufficient to make the transfers
described in clauses (i) and (j) above, the Note Trustee will draw from
amounts on deposit in the Reserve Subaccount to make such transfers. If on any
Payment Date when there is more than one Series of Notes outstanding, funds on
deposit in the Collection Account are insufficient to make the transfers
contemplated by clauses (e) and (f) above, such funds will be allocated among
the various Series pro rata, as specified in the related Prospectus
Supplement.
For purposes of the foregoing allocations:
"Quarterly Administration Fee" means the quarterly fee payable to Edison
as the Administrator under the Administrative Services Agreement between
Edison and the Note Issuer, which will be specified in each Prospectus
Supplement.
"Quarterly Interest" means, with respect to any Payment Date and any
Series of Notes, the quarterly interest for such date and Series as
specified in the related Prospectus Supplement.
"Quarterly Principal" means, with respect to any Payment Date and any
Series of Notes, the excess, if any, of the then outstanding principal
balance of such Series of Notes over the outstanding principal balance
specified for such Payment Date on the applicable Expected Amortization
Schedule.
Payments to the Noteholders of a Series will be made to such holders as
specified in the related Prospectus Supplement.
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ACTIONS BY NOTEHOLDERS
The Certificate Trustee, on behalf of the Trust as sole initial holder of
the Notes, has the right to vote and give consents and waivers in respect of
modifications to any Class or Series of Notes and to the provisions of certain
Basic Documents under the Note Indenture. Subject to certain exceptions, the
holders of a majority of the aggregate outstanding amount of the Certificates
of all Series (or, if less than all Series or Classes are affected, the
affected Series or Class or Classes) shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Certificate Trustee, or exercising any trust or power conferred on the
Certificate Trustee under the Trust Agreement, including any right of the
Certificate Trustee as holder of the Notes of the corresponding Series or
Class or Classes, in each case unless a different percentage is specified in
the Trust Agreement; provided that: (1) such direction shall not be in
conflict with any rule of law or with the Trust Agreement and would not
involve the Certificate Trustee in personal liability or expense; (2) the
Certificate Trustee shall not have determined that the action so directed
would be unjustly prejudicial to the holders of Certificates of such Series or
Class or Classes not taking part in such direction; (3) the Certificate
Trustee may take any other action deemed proper by the Certificate Trustee
which is not inconsistent with such direction; and (4) if a Note Event of
Default with respect to such Series or Class or Notes shall have occurred and
be continuing, such direction shall not obligate the Certificate Trustee to
vote more than a corresponding majority of the related Notes held by the Trust
in favor of declaring the unpaid principal amount of the Notes of all Series
and accrued interest thereon to be due and payable or directing any action by
the Note Trustee with respect to such Note Event of Default. In circumstances
under which the Certificate Trustee is required to seek instructions from the
holders of the Certificates of any Class with respect to any such action or
vote, the Certificate Trustee will take such action or vote for or against any
proposal in proportion to the principal amount of the corresponding Class, as
applicable, of Certificates taking the corresponding position. See
"Description of the Certificates--Voting of the Notes" herein.
NOTE EVENTS OF DEFAULT; RIGHTS UPON NOTE EVENT OF DEFAULT
An "Event of Default" with respect to any Series of Notes (a "Note Event of
Default") is defined in the Note Indenture as being: (a) a default for five
days or more in the payment of any interest on any Note; (b) a default in the
payment of the then unpaid principal of any Note of any Series on the Final
Maturity Date for such Series; (c) a default in the payment of the redemption
price for any Note on the redemption date therefor; (d) a default in the
observance or performance of any covenant or agreement of the Note Issuer made
in the Note Indenture and the continuation of any such default for a period of
30 days after notice thereof is given to the Note Issuer by the Note Trustee
or to the Note Issuer and the Note Trustee by the holders of at least
25 percent in principal amount of the Notes of such Series then outstanding;
(e) any representation or warranty made by the Note Issuer in the Note
Indenture or in any certificate delivered pursuant thereto or in connection
therewith having been incorrect in a material respect as of the time made, and
such breach not having been cured within 30 days after notice thereof is given
to the Note Issuer by the Note Trustee or to the Note Issuer and the Note
Trustee by the holders of at least 25 percent in principal amount of the Note
Indenture of such Series then outstanding; or (f) certain events of
bankruptcy, insolvency, receivership or liquidation of the Note Issuer.
If a Note Event of Default should occur and be continuing with respect to
any Series of Notes, the Note Trustee or holders of not less than a majority
in principal amount of the Notes of all Series then outstanding may declare
the principal of the Notes of all Series to be immediately due and payable.
Such declaration may, under certain circumstances set forth in the Note
Indenture, be rescinded by the holders of a majority in principal amount of
the Notes of all Series then outstanding.
If the Notes of all Series have been declared to be due and payable
following a Note Event of Default, the Note Trustee may, in its discretion,
either sell the Transition Property or elect to have the Note Issuer maintain
possession of the Transition Property and continue to apply FTA Collections as
if there had been no declaration of acceleration. There is likely to be a
limited market, if any, for the Transition Property following a foreclosure
thereon, in light of the preceding default, the unique nature of the
Transition Property as an asset and other factors discussed herein. In
addition, the Note Trustee is prohibited from selling the Transition Property
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following a Note Event of Default with respect to any Series, other than a
default in the payment of any principal or redemption price or a default for
five days or more in the payment of any interest on any Note of any Series
unless (a) the holders of all the outstanding Notes of all Series consent to
such sale, (b) the proceeds of such sale are sufficient to pay in full the
principal of and the accrued interest on the outstanding Notes of all Series
or (c) the Note Trustee determines that the proceeds of the Transition
Property would not be sufficient on an ongoing basis to make all payments on
the Notes of all Series as such payments would have become due if the Notes
had not been declared due and payable, and the Note Trustee obtains the
consent of the holders of 66 2/3 percent of the aggregate outstanding amount
of the Notes of all Series.
Subject to the provisions of the Note Indenture relating to the duties of
the Note Trustee, in case a Note Event of Default will occur and be
continuing, the Note Trustee will be under no obligation to exercise any of
the rights or powers under the Notes at the request or direction of any of the
holders of Notes of any Series if the Note Trustee reasonably believes it will
not be adequately indemnified against the costs, expenses and liabilities
which might be incurred by it in complying with such request. Subject to such
provisions for indemnification and certain limitations contained in the Note
Indenture, the holders of a majority in principal amount of the outstanding
Notes of all Series (or, if less than all Classes are affected, the affected
Class or Classes) will have the right to direct the time, method and place of
conducting any proceeding or any remedy available to the Note Trustee and the
holders of a majority in principal amount of the Notes of all Series then
outstanding may, in certain cases, waive any default with respect thereto,
except a default in the payment of principal or interest or a default in
respect of a covenant or provision of the Note Indenture that cannot be
modified without the waiver or consent of all of the holders of the
outstanding Notes of all Classes affected thereby.
With respect to the Notes, no holder of any Note of any Series will have the
right to institute any proceeding with respect to the Notes, unless (a) such
holder previously has given to the Note Trustee written notice of a continuing
Event of Default with respect to such Series, (b) the holders of not less than
25 percent in principal amount of the outstanding Notes of all Series have
made written request of the Note Trustee to institute such proceeding in its
own name as Note Trustee, (c) such holder or holders have offered the Note
Trustee reasonable indemnity, (d) the Note Trustee has for 60 days failed to
institute such proceeding and (e) no direction inconsistent with such written
request has been given to the Note Trustee during such 60-day period by the
holders of a majority in principal amount of the outstanding Notes of all
Series.
In addition, the Servicer will covenant that it will not at any time
institute against the Note Issuer or the Trust any bankruptcy, reorganization
or other proceeding under any Federal or state bankruptcy or similar law.
Neither the Certificate Trustee nor the Note Trustee in its individual
capacity, nor any holder of any ownership interest in the Note Issuer, nor any
of their respective owners, beneficiaries, agents, officers, directors,
employees, successors or assigns will, in the absence of an express agreement
to the contrary, be personally liable for the payment of the principal of or
interest on the Notes of any Series or for the agreements of the Note Issuer
contained in the Note Indenture.
CERTAIN COVENANTS OF THE NOTE ISSUER
The Note Issuer may not consolidate with or merge into any other entity,
unless (a) the entity formed by or surviving such consolidation or merger is
organized under the laws of the United States, any state thereof or the
District of Columbia, (b) such entity expressly assumes by an indenture
supplemental to the Note Indenture the Note Issuer's obligation to make due
and punctual payments upon the Notes and the performance or observance of
every agreement and covenant of the Note Issuer under the Note Indenture, (c)
no Event of Default will have occurred and be continuing immediately after
such merger or consolidation, (d) the Rating Agency Condition will have been
satisfied with respect to such transaction, (e) the Note Issuer has received
an opinion of counsel to the effect that such consolidation or merger would
have no material adverse tax consequence to the Note Issuer, the Trust, any
Noteholder or any Certificateholder and such consolidation or merger complies
with the Notes and all conditions precedent therein provided for relating to
such transaction have been complied with and (f) any action as is necessary to
maintain the lien and security interest created by the Note Indenture will
have been taken.
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The Note Issuer may not convey or transfer substantially all of its
properties or assets to any person or entity, unless (a) the person or entity
acquiring the properties and assets (i) is a United States citizen or an
entity organized under the laws of the United States, any state thereof or the
District of Columbia, (ii) expressly assumes by an indenture supplemental to
the Note Indenture the Note Issuer's obligation to make due and punctual
payments upon the Notes and the performance or observance of every agreement
and covenant of the Note Issuer under the Notes, (iii) expressly agrees by
such supplemental indenture that all right, title and interest so conveyed or
transferred will be subject and subordinate to the rights of Noteholders, (iv)
unless otherwise specified in the supplemental indenture referred to in clause
(ii) above, expressly agrees to indemnify, defend and hold harmless the Note
Issuer against and from any loss, liability or expense arising under or
related to the Note Indenture and the Notes, and (v) expressly agrees by means
of such supplemental indenture that such person (or if a group of persons,
then one specified person) shall make all filings with the Commission (and any
other appropriate person) required by the Exchange Act in connection with the
Notes, (b) no Event of Default will have occurred and be continuing
immediately after such transaction, (c) the Rating Agency Condition will have
been satisfied with respect to such transaction, (d) the Note Issuer has
received an opinion of counsel to the effect that such transaction will not
have any material adverse tax consequence to the Note Issuer, the Trust, any
Noteholder or any Certificateholder and such conveyance or transfer complies
with the Note Indenture and all conditions precedent therein provided for
relating to such transaction have been complied with and (e) any action as is
necessary to maintain the lien and security interest created by the Note
Indenture shall have been taken.
The Note Issuer will not, among other things, (a) except as expressly
permitted by the Note Indenture, sell, transfer, exchange or otherwise dispose
of any of the assets of the Note Issuer, unless directed to do so by the Note
Trustee, (b) claim any credit on, or make any deduction from the principal or
interest payable in respect of, the Notes (other than amounts properly
withheld under the Code) or assert any claim against any present or former
Noteholder because of the payment of taxes levied or assessed upon any part of
the Transition Property and the other Note Collateral, (c) terminate its
existence, dissolve or liquidate in whole or in part, (d) permit the validity
or effectiveness of the Notes to be impaired, (e) permit the lien of the Note
Indenture to be amended, hypothecated, subordinated, terminated or discharged
or permit any person to be released from any covenants or obligations with
respect to the Notes except as may be expressly permitted by the Indenture,
(f) permit any lien, charge, excise, claim, security interest, mortgage or
other encumbrance, other than the lien and security interest created by the
Indenture, to be created on or extend to or otherwise arise upon or burden the
collateral or any part thereof or any interest therein or the proceeds thereof
or (g) permit the lien of the Note Indenture not to constitute a valid first
priority security interest in the Transition Property and the other Note
Collateral.
The Note Issuer may not engage in any business other than financing,
purchasing, owning and managing the Transition Property in the manner
contemplated by the Notes, the Sale Agreement, the Servicing Agreement, the
Trust Agreement, the Note Purchase Agreement between the Note Issuer and the
Trust, or certain related documents (collectively, the "Basic Documents") and
activities incidental thereto.
The Note Issuer will not issue, incur, assume, guarantee or otherwise become
liable for any indebtedness except for the Notes.
The Note Issuer will not, except for any Eligible Investments as
contemplated by the Basic Documents, make any loan or advance or credit to, or
guarantee, endorse or otherwise become contingently liable in connection with
the obligations, stocks or dividends of, or own, purchase, repurchase or
acquire (or agree contingently to do so) any stock, obligations, assets or
securities of, or any other interest in, or make any capital contribution to,
any other person. The Note Issuer will not, except as contemplated by the
Basic Documents, make any expenditure (by long-term or operating lease or
otherwise) for capital assets (either realty or personalty). The Note Issuer
will not, directly or indirectly, make payments to or distributions from the
Collection Account except in accordance with the Basic Documents.
The Note Issuer will not make any payments, distributions or dividends to
any holder of beneficial interests in the Note Issuer in respect of such
beneficial interest for any Collection Period unless no Note Event of Default
shall have occurred and be continuing and any such distributions do not cause
the book value of the remaining
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equity in the Note Issuer to decline below 0.50 percent of the initial
principal amount of all Notes issued and outstanding pursuant to the
Indenture.
The Note Issuer will cause the Servicer to deliver to the Note Trustee and
the Certificate Trustee the annual accountant's certificates, compliance
certificates, reports regarding distributions and statements to Noteholders
and the Certificateholders required by the Servicing Agreement.
REPORTS TO NOTEHOLDERS
With respect to each Series of Notes, on or prior to each Payment Date, the
Servicer will prepare and provide to the Note Issuer, the Infrastructure Bank,
the Note Trustee and the Certificate Trustee a statement (the "Quarterly
Servicer's Certificate") to be delivered to the Noteholders on such Payment
Date. With respect to each Series of Notes, each such statement to be
delivered to Noteholders will include (to the extent applicable) the following
information (and any other information so specified in the related Prospectus
Supplement) as to the Notes of such Series with respect to such Payment Date
or the period since the previous Payment Date, as applicable:
(a) the amount of the distribution to Noteholders allocable to principal;
(b) the amount of the distribution to Noteholders allocable to interest;
(c) the aggregate outstanding principal balance of the Notes, after giving
effect to payments allocated to principal reported under (a) above; and
(d) the difference, if any, between the amount specified in (c) above and
the principal amount scheduled to be outstanding on such date according to the
Expected Amortization Schedule.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Notes, the Note Trustee will
mail to each person who at any time during such calendar year has been a
Noteholder and received any payment thereon, a statement containing certain
information for the purposes of such Noteholder's preparation of Federal and
state income tax returns. See "Certain Federal Income Tax Consequences" and
"State Taxation" herein.
ANNUAL COMPLIANCE STATEMENT
The Note Issuer will be required to file annually with the Note Trustee, the
Certificate Trustee and the Rating Agencies a written statement as to the
fulfillment of its obligations under the Notes.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Trust will issue the Certificates pursuant to the Trust Agreement, the
form of which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The following summary describes the material terms
and provisions of the Trust Agreement. The particular terms of the
Certificates of any Class will be established in a supplement to the Trust
Agreement, and the material terms thereof will be described in the related
Prospectus Supplement. The following summary description of the Certificates
is subject to, and is qualified in its entirety by reference to, all the
provisions of the Trust Agreement and the Certificates, a form of which is
also filed as an exhibit to the Registration Statement.
The Certificates will be issued in fully registered form only. Each Class of
Certificates offered hereby will represent a fractional undivided beneficial
interest in the corresponding Class of Notes, all monies due and to become due
under such corresponding Class of Notes, payments pursuant to any related Swap
Agreement and funds from time to time deposited with the Trustee in certain
accounts relating to the Trust. Each Certificate of each Class will correspond
to a pro rata share of the outstanding principal amount of the corresponding
Class of the Notes held in the Trust and will be issued in minimum
denominations specified in the applicable Prospectus Supplement.
Each Class of Certificates will bear interest at the rate per annum borne by
the corresponding Class of the Notes, unless a Swap Agreement is entered into
in connection with the issuance of any Class of Certificates, as described in
the related Prospectus Supplement, in which case such Class of Certificates
may bear interest at a variable rate. See "Description of the Notes--Interest
and Principal" herein. Payments of interest and principal made in respect of
any Class of Notes are required to be passed through to holders of the
corresponding Class of Certificates or to the Swap Counterparty with respect
to Floating Rate Certificates at the times and in the manner described herein.
See "--Payments and Distributions" below and "Description of the Notes--
Interest and Principal" herein.
The Certificates do not represent an interest in or obligation of the State
of California, the Infrastructure Bank, any other governmental agency or
instrumentality or the Seller or any of its affiliates. The Certificates will
not be guaranteed or insured by the State of California, the Infrastructure
Bank, the Trust or any other governmental agency or instrumentality or by the
Seller or any of its affiliates. Neither the full faith and credit nor the
taxing power of the State of California or any agency or instrumentality
thereof is pledged to the distributions of principal of, or interest on, the
Certificates.
STATE PLEDGE
Pursuant to Section 841(c) of the PU Code, the Infrastructure Bank, on
behalf of the State of California, pledges and agrees with the Note Issuer,
the Trust and the holders of the Certificates that the State of California
shall neither limit nor alter the FTA Charges, the Transition Property, or the
Financing Order or Advice Letters relating thereto, or any rights thereunder,
until the Certificates, together with the accrued and unpaid interest thereon,
are fully paid and discharged, provided nothing contained in such pledge and
agreement precludes such limitation or alteration if and when adequate
provision shall be made by law for the protection of the holders (the "State
Pledge").
PAYMENTS AND DISTRIBUTIONS
The Certificate Trustee is scheduled to receive payments of interest on and
principal of the Notes (in each case, the amounts paid to any Series or Class
of the Notes will be determined from time to time in accordance with the
provisions described under "Description of the Notes--Allocations; Payments"
herein) on each Payment Date.
The Certificate Trustee will distribute on each Distribution Date to the
holders of each Class of Certificates all payments of principal and interest
with respect to the corresponding Class of Notes (other than payments
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received following a payment default in respect of such Class of Notes), or,
in lieu of such interest, payments under the related Swap Agreement with
respect to interest, the receipt of which is confirmed by the Certificate
Trustee by 1:00 p.m. (New York City time) on such Distribution Date or, if
such receipt is confirmed after 1:00 p.m. (New York City time) on such
Distribution Date, then on the following Certificate Business Day. Each such
distribution other than the final distribution with respect to any Certificate
will be made by the Certificate Trustee to the holders of record of the
Certificates of the applicable Class on the Record Date in respect of such
Distribution Date. If a payment of principal or interest with respect to any
Class of the Notes (other than a payment received following a payment default
in respect of such Class of Notes) is not received by the Certificate Trustee
on a Distribution Date but is received within five days thereafter, it will be
distributed to such holders of record on the date receipt thereof is confirmed
by the Certificate Trustee, if such receipt is confirmed by the Certificate
Trustee by 1:00 p.m. (New York City time) or, if such receipt is confirmed
after 1:00 p.m. (New York City time), then on the following Certificate
Business Day. If such payment is received by the Certificate Trustee after
such five-day period, it will be treated as a payment received following a
payment default in respect of such Class of Notes and distributed as described
below. The final distribution with respect to any Certificate, however, will
be made only upon presentation and surrender of such Certificate at the office
or agency of the Certificate Trustee specified in the notice given by the
Certificate Trustee with respect to such final distribution.
Any payment received by the Certificate Trustee following a payment default
in respect of any Class of the Notes ("Special Payments") will be distributed
on the later of (i) the date such receipt is confirmed by the Certificate
Trustee and (ii) the date on which any Special Payment is scheduled to be
distributed by the Certificate Trustee (a "Special Distribution Date").
However, in the case of any such Special Payment receipt of which is confirmed
after 1:00 p.m. (New York City time), such Special Payment will be distributed
on the following Certificate Business Day. The Certificate Trustee will mail
notice to the holders of record of Certificates of the applicable Class as of
the most recent Record Date not less than 20 days prior to the Special
Distribution Date on which any Special Payment is scheduled to be distributed
in respect of Certificates of such Class stating such anticipated Special
Distribution Date. Each distribution of any such Special Payment will be made
by the Certificate Trustee on the Special Distribution Date to the holders of
record of the Certificates of such Class as of the most recent Record Date.
See "--Events of Default" below.
The Trust Agreement requires that the Certificate Trustee establish and
maintain, for the Trust and for the benefit of the holders of each Class of
Certificates, one or more non-interest bearing accounts (a "Certificate
Account") for the deposit of payments on the Notes corresponding to such
Class. Pursuant to the terms of the Trust Agreement, the Certificate Trustee
is required to deposit any payments received by it with respect to any Class
of Notes in the corresponding Certificate Account. All amounts so deposited
will be distributed by the Certificate Trustee to holders of the applicable
Class of Certificates on a Distribution Date or a Special Distribution Date,
as appropriate, unless a different date for distribution of such amount is
specified herein.
At such time, if any, as the Certificates of any Class are issued in the
form of Definitive Certificates and not to DTC or its nominee, distributions
by the Certificate Trustee from the Certificate Account with respect to such
Class on a Distribution Date or a Special Distribution Date will be made by
check mailed to each holder of a Definitive Certificate of such Class of
record on the applicable Record Date at its address appearing on the register
maintained with respect to the Certificates of such Series, or, upon
application by a holder of any Class of Certificates in the principal amount
of $1,000,000 or more to the Certificate Trustee not later than the applicable
Record Date, by wire transfer to an account maintained by the payee in New
York, New York. The final distribution for each Class of Certificates,
however, will be made only upon presentation and surrender of the Certificates
of such Class at the office or agency of the Certificate Trustee specified in
the notice or agency given by the Certificate Trustee of such final
distribution. The Certificate Trustee will mail such notice of the final
distribution to the Certificateholders of such Class, specifying the date set
for such final distribution and the amount of such distribution.
If any Special Distribution Date or other date specified herein for
distribution of any distributions to Certificateholders is not a Certificate
Business Day, distributions scheduled to be made on such Special Distribution
Date or other date may be made on the next succeeding Certificate Business Day
and no interest
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shall accrue upon such distribution during the intervening period.
"Certificate Business Day" means any day other than a Saturday, a Sunday or a
day on which banking institutions or trust companies in New York, New York or
Los Angeles, California are authorized or obligated by law, regulation or
executive order to remain closed.
FLOATING RATE CERTIFICATES
If any Floating Rate Certificates are offered, the Trust will enter into a
swap agreement (the "Swap Agreement") with a swap counterparty identified and
described in the related Prospectus Supplement (the "Swap Counterparty").
Pursuant to the Swap Agreement, on each Distribution Date, the Trust will be
obligated to pay to the Swap Counterparty, solely from payments received with
respect to the related Class of Notes, an amount equal to the interest due on
the related Class of Notes on such Distribution Date, and the Swap
Counterparty will be obligated to pay to the Trust an amount equal to the
product of (a) the Floating Rate and (b) the principal balance of the Floating
Rate Certificates as of the close of business on the preceding Distribution
Date after giving effect to all payments of principal made to the Floating
Rate Certificateholders on such preceding Distribution Date. With respect to
each Distribution Date, any difference between the quarterly payment by the
Swap Counterparty to the Trust and the quarterly payment by the Trust to the
Swap Counterparty will be referred to herein as the "Net Trust Swap Receipt,"
if such difference is a positive number, and the "Net Trust Swap Payment," if
such difference is a negative number. Net Trust Swap Receipts will be included
in available funds on each Distribution Date and Net Trust Swap Payments will
be paid out of available funds on each Distribution Date.
The Swap Agreement will terminate or may be terminated upon the occurrence
of certain events of default or termination events as described in the related
Prospectus Supplement. In particular, the Swap Agreement will be terminated if
the Swap Counterparty's rating by either of Moody's or S&P falls below "AAA"
(or the equivalent rating) (a "Downgrade Event") and the Swap Agreement is not
assigned to a replacement swap counterparty satisfying such ratings criteria
or such lower ratings criteria as may be permitted by the Swap Agreement
within the time period specified in the related Prospectus Supplement. In no
event will any successor swap counterparty be rated below "A" (or the
equivalent rating) by either of the above-referenced Rating Agencies. Upon the
occurrence of a Downgrade Event and the failure to assign the Swap Agreement,
an event of default will have occurred under the Swap Agreement and the
interest rate payable with respect to the Floating Rate Certificates will
automatically convert permanently to a fixed rate equal to the interest rate
payable on the related Class of Notes, which may be substantially more or less
than the rate otherwise payable on the Floating Rate Certificates. See "Risk
Factors--Additional Risks of Floating Rate Certificates" herein.
Unless otherwise specified in the related Prospectus Supplement, the amount
of interest payable on the Floating Rate Certificates from time to time will
be determined as follows.
(i) Determination of LIBOR. The Agent Bank named in the related Prospectus
Supplement (together with any successor Agent Bank under the Trust Agreement
the "Agent Bank") will determine the interest rate payable on the Floating
Rate Certificates in accordance with the following provisions:
(a) On the second day on which dealings in deposits in U.S. dollars are
transacted in the London interbank market (a "London Banking Day")
immediately preceding the first day of each Interest Accrual Period (as
defined below) and on the Closing Date with respect to the first Interest
Accrual Period (each such day, an "Interest Determination Date"), the Agent
Bank will determine "LIBOR" based on the offered rate for deposits in U.S.
dollars for the period specified in the related Prospectus Supplement,
commencing on the first day of such Interest Accrual Period that appears on
the display page of the Dow Jones Telerate Service for the purpose of
displaying the London Interbank offered rate of major banks for U.S.
Dollars as of 11:00 a.m., London time, on such Interest Determination Date
(such display page being the "Telerate Page"). Notwithstanding the
foregoing, if no offered rate appears, LIBOR for such Interest Accrual
Period will be determined as if the parties had specified the rate
described in clause (b) below. The interest rate applicable to the Floating
Rate Certificates for the Interest Accrual Period relating to an Interest
Determination Date shall be the sum of LIBOR as determined by the Agent
Bank on
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the most recent Interest Determination Date plus the margin specified in
any related Prospectus Supplement (the "Floating Rate").
(b) With respect to an Interest Determination Date on which no offered
rate appears on the Telerate Page, the Agent Bank will request the
principal London office of each of four major banks in the London interbank
market, selected by the Agent Bank, to provide the Agent Bank with its
offered quotation for deposits in U.S. Dollars for a period specified in
the related Prospectus Supplement, commencing on the second London Banking
Day immediately following such Interest Determination Date, to prime banks
in the London interbank market at approximately 11:00 a.m., London time, on
such Interest Determination Date and in a principal amount not less than $1
million U.S. Dollars that is representative for a single transaction in
U.S. Dollars in such market at such time. If at least two such quotations
are provided, LIBOR for the relevant Interest Accrual Period will be the
arithmetic mean of such quotations. If fewer than two quotations are
provided, LIBOR for such Interest Accrual Period will be the arithmetic
mean of the rates quoted at approximately 11:00 a.m. in The City of New
York, on such Interest Determination Date by three major banks in The City
of New York selected by the Agent Bank for loans in U.S. Dollars to leading
European banks, for the period specified in the related Prospectus
Supplement, commencing on the second London Banking Day immediately
following such Interest Determination Date and in a principal amount not
less than $1 million U.S. Dollars that is representative for a single
transaction in U.S. Dollars in such market at such time; provided, however,
that if any of the banks so selected by the Agent Bank are not quoting as
mentioned in this sentence, the Floating Rate in effect for such Interest
Accrual Period will be the interest rate in effect on such Interest
Determination Date.
(c) There will be no maximum or minimum Floating Rate.
Notwithstanding the foregoing, in the event that the Swap Agreement has been
terminated, the interest rate with respect to the Floating Rate Certificates
shall be the fixed interest rate payable on the related Class of Notes
(calculated on the basis of a 360-day year consisting of twelve 30-day
months), effective as of the first day of the Interest Accrual Period in which
the termination of the Swap Agreement occurs.
(ii) Calculation of Quarterly Interest. The Agent Bank will, as soon as
practicable after 11:00 a.m. (London time) on each Interest Determination
Date, determine the Certificate Interest Rate applicable to, and calculate the
amount of interest payable on, each of the Floating Rate Certificates for the
relevant Interest Accrual Period. Interest payments will be made in an amount
equal to the product of (a)(1) the actual number of days in the related
Interest Accrual Period (as defined herein) divided by 360, multiplied by (2)
the applicable Floating Rate and (b) the principal balance of the Floating
Rate Certificates as of the close of business on the preceding Distribution
Date after giving effect to all payments of principal made to the Floating
Rate Certificateholders on such preceding Distribution Date (or, in the case
of the first Distribution Date, as of the Closing Date) (such amount, the
"Quarterly Interest" with respect to such Class). The "Interest Accrual
Period" with respect to any Distribution Date shall be the period from and
including the preceding Distribution Date (or, in the case of the first
Distribution Date, from and including the Closing Date) to and excluding such
Distribution Date. The determination of the Floating Rate and the Quarterly
Interest by the Agent Bank shall (in the absence of manifest error) be final
and binding upon all parties.
(iii) Notice of Floating Rate and Interest Payments. The Agent Bank will
notify the Infrastructure Bank, the Certificate Trustee and any Paying Agents
of the Floating Rate and the Quarterly Interest due on the Floating Rate
Certificates for each Interest Accrual Period and the relevant Distribution
Date as soon as possible after their determination but in no event later than
the first Business Day of any Interest Accrual period.
(iv) Determination or Calculation by Certificate Trustee. If the Agent Bank
fails to determine a Floating Rate or calculate Quarterly Interest in
accordance with paragraph (ii) above at any time or for any reason, the
Certificate Trustee shall determine the Floating Rate and calculate the
Quarterly Interest in accordance with paragraph (ii) above, and each such
determination or calculation shall be deemed to have been made by the Agent
Bank. The determination by the Agent Bank or the Certificate Trustee (as the
case may be) of any Floating Rate and calculation thereby of any Quarterly
Interest shall, in the absence of manifest error, be final and binding on all
parties.
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(v) Agent Bank. The Infrastructure Bank will agree that, so long as any of
the Certificates remain outstanding, there will at all times be an Agent Bank.
The Infrastructure Bank may, upon written notice to the Agent Bank and the
Certificate Trustee, terminate the appointment of the Agent Bank for any
reason. Notice of any such termination will be given by the Certificate
Trustee to Certificateholders within ten days of such termination. If (a) any
person is unable or unwilling to continue to act as the Agent Bank, (b) the
appointment of the Agent Bank is terminated or (c) the Agent Bank fails duly
to determine the Floating Rate and/or the Quarterly Interest for any Interest
Accrual Period, then the Infrastructure Bank will appoint a successor Agent
Bank to act as such in its place and notify the Certificate Trustee of such
appointment, provided that neither the resignation nor removal of the Agent
Bank shall take effect until a successor has been appointed. Notice of any
appointment of a successor Agent Bank will be given by the Certificate Trustee
to the Certificateholders within ten days of such appointment. Any successor
Agent Bank will be a banking institution organized under the laws of any state
or of the United States with capital and surplus of at least $50 million and
which is an active dealer in LIBOR-based securities.
VOTING OF THE NOTES
The Certificate Trustee, as sole initial holder of the Notes, has the right
to vote and give consents and waivers in respect of modifications to any Class
of Notes. Subject to certain exceptions, the holders of a majority of the
aggregate outstanding amount of the Certificates of all Series (or, if less
than all Series or Classes are affected, the affected Series or Class or
Classes) shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Certificate Trustee,
or exercising any trust or power conferred on the Certificate Trustee under
the Trust Agreement, including any right of the Certificate Trustee as holder
of the Notes of the corresponding Series or Class or Classes, in each case
unless a different percentage is specified in the Trust Agreement; provided
that: (1) such direction shall not be in conflict with any rule of law or with
the Trust Agreement and would not involve the Certificate Trustee in personal
liability or expense; (2) the Certificate Trustee shall not have determined
that the action so directed would be unjustly prejudicial to the holders of
Certificates of such Series or Class or Classes not taking part in such
direction; and (3) the Certificate Trustee may take any other action deemed
proper by the Certificate Trustee which is not inconsistent with such
direction. If the Certificate Trustee is required to seek instructions from
the holders of the Certificates of any Class with respect to any such action
or vote, the Certificate Trustee will take such action or vote for or against
any proposal in proportion to the principal amount of the corresponding Class,
as applicable, or Certificates taking the corresponding position.
EVENTS OF DEFAULT
An event of default with respect to any Class of Certificates under the
Trust Agreement (a "Certificate Event of Default") is defined as the
occurrence and continuance of a Note Event of Default or a breach by the State
of California of the State Pledge. For a description of the Note Events of
Default, see "Description of the Notes--Note Events of Default; Rights Upon
Note Event of Default" herein.
The Trust Agreement provides that, if a Note Event of Default shall have
occurred and be continuing with respect to any Class of Certificates, the
Certificate Trustee may and, upon the written direction of holders
representing not less than a majority of the aggregate outstanding principal
amount of the Certificates of all Series, shall vote all the Notes of all
Series in favor of declaring the unpaid principal amount of all Series of
Notes and accrued interest thereon to be due and payable. In addition, the
Trust Agreement provides that, if a Note Event of Default with respect to any
Class of Certificates shall have occurred and be continuing, the Certificate
Trustee may and, upon the written direction of holders representing not less
than a majority of the aggregate outstanding principal amount of the
Certificates of all Series, shall vote all the Notes of all Series in favor of
directing the Note Trustee as to the time, method and place of conducting any
proceeding for any remedy available to the Note Trustee or of exercising any
trust or power conferred on the Note Trustee under the Note Indenture.
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As an additional remedy, if a Note Event of Default shall have occurred and
be continuing with respect to a particular Series or Class of Certificates,
the Trust Agreement provides that the Certificate Trustee may and, upon the
written direction of the holders of Certificates representing not less than a
majority of the aggregate outstanding principal amount of the Certificates of
such Series or Class, will sell any Note or Notes, without recourse to or
warranty by the Certificate Trustee or any Certificateholder, to any person.
The Certificate Trustee may, but shall not be obligated to refrain, in its
sole discretion, from liquidating any Notes if (i) the Certificate Trustee
determines that amounts receivable from the Note Collateral with respect to
the applicable Class of Notes will be sufficient to pay (a) all principal of
and interest on that Class of Notes in accordance with its terms without
regard to any declaration of acceleration thereof and (b) all sums due to the
Certificate Trustee and any other administrative expenses specified in the
Trust Agreement, and (ii) holders of Certificates representing not less than a
majority of the aggregate outstanding principal amount of the Certificates of
all Series have not directed the Certificate Trustee to sell any Note or
Notes. In addition, the Certificate Trustee is prohibited from selling any
Notes following certain nonpayment Note Events of Default unless (x) the
Certificate Trustee determines that the amounts receivable from the Note
Collateral with respect to each Class of Notes are not sufficient to pay in
full the principal of and accrued interest on the Notes of each such Class and
to pay all sums due to the Certificate Trustee and other administrative
expenses specified in the Trust Agreement and the Certificate Trustee obtains
the written consent of holders of Certificates of each such Class representing
66 2/3 percent of the aggregate outstanding principal amount of each such
Class of Certificates or (y) the Certificate Trustee obtains the written
consent of holders of 100 percent of the aggregate outstanding principal
amount of each such Class of Certificates. Any proceeds received by the
Certificate Trustee upon any such sale will be deposited in the Certificate
Account for such Class and will be distributed to the holders of Certificates
of such Class on a Special Distribution Date.
If a Certificate Event of Default in the form of a breach by the State of
California of the State Pledge has occurred, then, as the sole and exclusive
remedy for such breach, the Certificate Trustee, in its own name and as
trustee of an express trust, as holder of the Notes, shall be, to the extent
permitted by State and Federal law, entitled and empowered to institute any
suits, actions or proceedings at law, in equity or otherwise, to enforce the
State Pledge and to collect any monetary damages as a result of a breach
thereof, and may prosecute any such suit, action or proceeding to final
judgment or decree.
Any funds (a) representing payments received with respect to any Series or
Class of Notes in default, (b) representing the proceeds from the sale by the
Certificate Trustee of any Class of Notes or (c) otherwise arising from a
Certificate Event of Default, held by the Certificate Trustee in a Certificate
Account shall, to the extent practicable, be invested and reinvested by the
Certificate Trustee in Eligible Investments permitted under the Trust
Agreement maturing in not more than 60 days or such lesser time as is required
for the distribution of any such funds on a Special Distribution Date, pending
the distribution of such funds to Certificateholders as described herein.
The Trust Agreement provides that, with respect to the Certificates of any
Class, within 30 days after the occurrence of any event that is, or after
notice or lapse of time or both would become, a Certificate Event of Default
with respect to such Class of Certificates (a "Default"), the Certificate
Trustee will give to the Infrastructure Bank, the Note Trustee and the holders
of such Certificates notice, transmitted by mail, of all such uncured or
unwaived Defaults known to it. However, except in the case of a Default
relating to the payment of principal of or interest on any of the Notes, the
Certificate Trustee will be protected in withholding such notice if in good
faith it determines that the withholding of such notice is in the interests of
the holders of the Certificates of such Class.
The Trust Agreement contains a provision entitling the Certificate Trustee
to be indemnified by the holders of the Certificates before proceeding to
exercise any right or power under the Trust Agreement at the request or
direction of Certificateholders.
In certain cases, the holders of Certificates representing not less than a
majority of the outstanding aggregate principal amount of the Certificates of
all Series may waive any past Default or Certificate Event of Default under
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the Trust Agreement and thereby annul any previous direction given by the
Certificate Trustee with respect thereto, except a Default (i) in the deposit
or distribution of any payment on the Notes or Special Payment required to be
made with respect to any Class of Certificates, (ii) in the payment of
principal of or interest on any of the Notes, and (iii) in respect of any
covenant or provision of the Trust Agreement that cannot be modified or
amended without the consent of the holder of each Certificate of all Classes
affected hereby. Upon any such direction, the Certificate Trustee shall vote a
corresponding percentage of the corresponding Class of Notes in favor of such
waiver. The Notes provide that, with certain exceptions, the holders of not
less than a majority in aggregate unpaid principal amount of the Notes of all
Series may waive any Note Event of Default or any event that is, or after
notice or passage of time, or both, would be, a Note Event of Default.
The Trust may hold two or more Classes of Notes, each of which may have a
different interest rate and, in the case of different Classes, a different or
potentially different schedule of the repayment of principal and different
rights in the security therefor. Accordingly, the holders of Certificates of
each Class may have divergent or conflicting interests from the holders of
Certificates of other Classes.
REDEMPTION
The Trust shall redeem any Series of Certificates if the related of Series
of Notes is redeemed. Unless otherwise specified in the related Prospectus
Supplement, notice of such redemption will be given by the Trust to each
holder of Certificates to be redeemed by first-class mail, postage prepaid,
mailed not less than five days nor more than 25 days prior to the date of
redemption.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, Special Distribution Date or any other date
specified in the Trust Agreement for distribution of any payments with respect
to any Class of Certificates, the Certificate Trustee will include with each
distribution to holders of Certificates of such Class a statement with respect
to such distribution to be made on such Distribution Date, Special
Distribution Date or other date, as the case may be, setting forth the
following information, in each case, to the extent received by the Certificate
Trustee from the Note Trustee, no later than two Certificate Business Days
prior to such Distribution Date, Special Distribution Date or other date
specified herein for such distribution:
(a) the amount of the distribution to Certificateholders allocable to (i)
principal and (ii) interest, in each case per $1,000 original principal amount
of each Class of Certificates;
(b) the aggregate outstanding principal balance of the Certificates, after
giving effect to distributions allocated to principal reported under (a)
above; and
(c) the difference, if any, between the amount specified in (b) above and
the principal amount scheduled to be outstanding on such date according to the
Expected Amortization Schedule.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Notes, the Certificate
Trustee will mail to each person who at any time during such calendar year has
been a Certificateholder and received any distribution thereon, a statement
containing certain information for the purposes of such Certificateholder's
preparation of Federal and state income tax returns. See "Certain Federal
Income Tax Consequences" and "State Taxation" herein.
SUPPLEMENTAL TRUST AGREEMENTS
The Infrastructure Bank (with the prior written approval of the Note Issuer)
may, and the Certificate Trustee and the Delaware Trustee will, from time to
time, and without the consent of the Certificateholders of any Series, enter
into one or more agreements supplemental to the Trust Agreement, (1) to add to
the covenants of the Infrastructure Bank for the benefit of the
Certificateholders, or to surrender any right or power conferred upon
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the Infrastructure Bank; (2) to correct or supplement any provision in the
Trust Agreement or in any supplemental agreement which may be defective or
inconsistent with any other provision in the Trust Agreement or in any
supplemental agreement or to make any other provisions with respect to matters
or questions arising under the Trust Agreement; provided that any such action
shall not adversely affect the interests of the Certificateholders; (3) to
cure any ambiguity or correct any mistake; (4) to qualify, if necessary, the
Trust Agreement (including any supplement thereto) under the Trust Indenture
Act of 1939, as amended, or (5) to provide for the issuance of the
Certificates of any Series or Class, or to provide for the execution and
delivery of any Swap Agreement.
In addition, the Infrastructure Bank (with the prior written approval of the
Note Issuer) may, and the Certificate Trustee and the Delaware Trustee will,
with the consent of Certificateholders holding not less than a majority of the
aggregate outstanding principal amount of the Certificates of all affected
Classes, enter into one or more agreements supplemental to the Trust Agreement
for the purpose of, among other things, adding any provisions to or changing
in any manner or eliminating any of the provisions of the Trust Agreement. No
amendment, however, may, without the consent of each Certificateholder
affected thereby, (a) reduce in any manner the amount of, or delay the timing
of, deposits or distributions on any Certificate, (b) permit the disposition
of any Note held by the Trust except as permitted by the Trust Agreement, or
otherwise deprive any Certificateholder of the benefit of the ownership of the
related Notes held by the Trust, (c) reduce the aforesaid percentage of the
aggregate outstanding principal amount of the Certificates the holders of
which are required to consent to any such amendment, (d) modify the provisions
in the Trust Agreement relating to amendments with the consent of
Certificateholders, except to increase the percentage vote necessary to
approve amendments or to add further provisions which cannot be modified or
waived without the consent of all Certificateholders, or (e) adversely affect
the status of the Trust as a grantor trust not taxable as a corporation for
federal income tax purposes. Promptly following the execution of any amendment
to the Trust Agreement (other than an amendment described in the preceding
paragraph), the Certificate Trustee will furnish written notice of the
substance of such amendment to each Certificateholder.
Any supplement to the Trust Agreement executed in connection with the
issuance of one or more new Series of Certificates will not be considered an
amendment to the Trust Agreement.
LIST OF CERTIFICATEHOLDERS
Upon written request of any Certificateholder or group of Certificateholders
of any Series or of all outstanding Series of record holding Certificates
evidencing not less than ten percent of the aggregate outstanding principal
amount of the Certificates of such Series or all Series, as applicable, the
Certificate Trustee will afford such Certificateholder or Certificateholders
access during business hours to the current list of Certificateholders of such
Series or of all outstanding Series, as the case may be, for purposes of
communicating with other Certificateholders with respect to their rights under
the Trust Agreement.
The Trust Agreement does not provide for any annual or other meetings of
Certificateholders.
REGISTRATION AND TRANSFER OF THE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more Classes of
Certificates will be issued in definitive form and will be transferable and
exchangeable at the office of the registrar identified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, no service charge will be made for any such registration or
transfer of such Certificates, but the owner may be required to pay a sum
sufficient to cover any tax or other governmental charge.
Each Class of Certificates will be issued in the minimum initial
denominations set forth in the related Prospectus Supplement and, except as
otherwise provided in the related Prospectus Supplement, in integral multiples
thereof.
Distributions of interest and principal will be made on each Distribution
Date to the Certificateholders in whose names the Certificates were registered
on the related Record Date.
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BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, one or more Classes of
Certificates initially may be Book-Entry Certificates, which are initially
represented by one or more certificates registered in the name of Cede, as
nominee of DTC, or another securities depository, and are available only in
the form of book-entries. Any Book-Entry Certificates will initially be
registered in the name of Cede, the nominee of DTC. Holders may also hold
Certificates of a Class through Centrale de Livraison de Valeurs Mobilieres
S.A. ("CEDEL") or the Euroclear System ("Euroclear") (in Europe), if they are
participants in such systems or indirectly through organizations that are
participants in such systems.
Cede, as nominee for DTC, will hold the global Certificate or Certificates.
CEDEL and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective Depositaries (as defined herein) which
in turn will hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC. Citibank, N.A. will act as depositary
for CEDEL and Morgan Guaranty Trust Company of New York will act as depositary
for Euroclear (in such capacities, the "Depositaries").
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 New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC was created to hold securities for its
participating organizations, which are the Participants, and facilitate the
settlement of securities transactions between Participants through electronic
book-entry changes in accounts of its Participants, thereby eliminating the
need for physical movement of securities. 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 Indirect Participants, which are others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants (as defined herein) and Euroclear
Participants (as defined herein) will occur in accordance with their
respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL or
Euroclear Participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant European international clearing
system by its Depositary. Cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving bonds in DTC, and
making or receiving distributions in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in CEDEL or
Euroclear as a result of a transaction with a Participant will be made during
subsequent settlement processing and dated the Certificate Business Day
following the DTC settlement date. Such credits or any transactions in such
Certificates settled during such processing will be reported to the relevant
Euroclear or CEDEL Participant on such Certificate Business Day. Cash received
in CEDEL or Euroclear as a result of sales of Certificates by or through a
CEDEL Participant or a Euroclear Participant to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant CEDEL or Euroclear cash account only as of the Certificate Business
Day following settlement in DTC.
Certificateholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Certificates may do so only through Participants and Indirect
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Participants. In addition, Certificateholders will receive all distributions
of principal and interest on the Certificates from the Certificate Trustee
through DTC and its Participants. Under a book-entry format,
Certificateholders will receive distributions after the related Distribution
Date, as the case may be, because, while distributions are required to be
forwarded to Cede, as nominee for DTC, on each such date, DTC will forward
such distributions to its Participants, which thereafter will be required to
forward them to Indirect Participants or holders of beneficial interests in
the Certificates. The Certificate Trustee, the Seller, the Servicer and any
paying agent, transfer agent or registrar may treat the registered holder in
whose name any Certificate is registered (expected to be Cede) as the absolute
owner thereof (whether or not such Certificate is overdue and notwithstanding
any notice of ownership or writing thereon or any notice to the contrary) for
the purpose of making distributions and for all other purposes.
Unless and until Definitive Certificates (as defined herein) are issued, it
is anticipated that the only "holder" of Book-Entry Certificates of any Series
will be Cede, as nominee of DTC. Certificateholders will only permitted to
exercise their rights as Certificateholders indirectly through Participants
and DTC. All references herein to actions by Certificateholders thus refer to
actions taken by DTC upon instructions from its Participants, and all
references herein to distributions, notices, reports and statements to
Certificateholders refer to distributions, notices, reports and statement to
Cede, as the registered holder of the Certificates, for distribution to the
beneficial owners of the Certificate in accordance with DTC procedures.
While any Book-Entry Certificates of a Series are outstanding (except under
the circumstances described below), under the rules, regulations and
procedures creating and affecting DTC and its operations (the "Rules"), DTC is
required to make book-entry transfers among Participants on whose behalf it
acts with respect to the Book-Entry Certificates and is required to receive
and transmit distributions of principal of, and interest on, the Book-Entry
Certificates. Participants with whom Certificateholders have accounts with
respect to Book-Entry Certificates are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Certificateholders. Accordingly, although Certificateholders will
not possess physical certificates, the Rules provide a mechanism by which
Certificateholders will receive distributions and will be able to transfer
their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of holders of
beneficial interests in the Certificates to pledge Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions
in respect of such Certificates, may be limited due to the lack of a
Definitive Certificate for such Certificates.
DTC has advised the Certificate Trustee that it will take any action
permitted to be taken by a Certificateholder under the Trust Agreement and the
related Prospectus Supplement only at the direction of one or more
Participants to whose account with DTC the Certificates are credited.
Additionally, DTC has advised the Certificate Trustee that it may take actions
with respect to the Certificateholders' Interest that might conflict with
other of its actions with respect thereto.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes
in accounts of CEDEL Participants, thereby eliminating the need for physical
movement of securities. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include any underwriters, agents or dealers with respect
to a Series of Certificates offered hereby. Indirect access to CEDEL is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a CEDEL Participant,
either directly or indirectly.
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Euroclear was created in 1968 to hold securities for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of securities and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 29 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing, and interfaces with
domestic markets in several countries generally similar to the arrangements
for cross-market transfers with DTC described above. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium
office (the "Euroclear Operator"), under contract with Euroclear Clearance
System S.C., a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with
the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries. Indirect access to
Euroclear is also available to other firms that clear through or maintain a
custodial relationship with a Euroclear Participant, either directly or
indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation that is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of Euroclear and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities
and cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific securities to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Certificates held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant systems' rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Certain Federal Income Tax Consequences" herein. CEDEL or
the Euroclear Operator, as the case may be, will take any other action
permitted to be taken by a Certificateholder under the Trust Agreement or the
relevant Prospectus Supplement on behalf of a CEDEL Participant or Euroclear
Participant only in accordance with its relevant rules and procedures and
subject to its Depositary's ability to effect such actions on its behalf
through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Certificates among participants of DTC, CEDEL
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
Certificates of a Class will be issued in registered form to
Certificateholders, or their nominees, rather than to DTC (such Certificates
being referred to herein as "Definitive Certificates") only under the
circumstances provided in the Trust Agreement, which will include (a) DTC
advising the Certificate Trustee in writing that DTC is no longer willing or
able to discharge properly its responsibilities as nominee and depository with
respect to the Book-Entry Certificates of such Class and the Certificate
Trustee or the Infrastructure Bank being unable to locate a qualified
successor, (b) the Infrastructure Bank (with the prior written approval of the
Note Issuer) electing to terminate the book-entry system through DTC or (c)
after the occurrence of an Event of Default under the terms of the Trust
Agreement, holders of Certificates representing not less than 50 percent of
the aggregate outstanding principal amount of the Certificates of all Series
advising DTC in writing that the continuation of a
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book-entry system through DTC (or a successor thereto) to the exclusion of any
physical certificates being issued to Certificateholders is no longer in the
best interests of Certificateholders. Upon issuance of Definitive Certificates
of a Class, such Certificates will be transferable directly (and not
exclusively on a book-entry basis) and registered holders will deal directly
with the Certificate Trustee with respect to transfers, notices and
distributions.
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 DTC of Definitive Certificates. Upon surrender by DTC of
the definitive securities representing the Certificates and instructions for
registration, the Certificate Trustee will issue the Certificates in the form
of Definitive Certificates, and thereafter the Certificate Trustee will
recognize the holders of such Definitive Certificates as Certificateholders
under the Trust Agreement and the related Prospectus Supplement.
Distribution of principal of and interest on the Certificates will be made
by the Certificate Trustee directly to Certificateholders in accordance with
the procedures set forth herein and in the Trust Agreement and the related
Prospectus Supplement. Interest distributions and principal distributions will
be made to Certificateholders in whose names the Definitive Certificates were
registered at the close of business on the related Record Date. Distributions
will be made by check mailed to the address of such Certificateholder as it
appears on the register maintained by the Certificate Trustee. The final
distribution on any Certificate (whether Definitive Certificates or
Certificates registered in the name of Cede), however, will be made only upon
presentation and surrender of such Certificate on the final distribution date
at such office or agency as is specified in the notice of final distribution
to Certificateholders. The Certificate Trustee will provide such notice to
registered Certificateholders not later than the fifth day of the month of the
final distribution.
Definitive Certificates will be transferable and exchangeable at the offices
of the transfer agent and registrar, which initially will be the Certificate
Trustee. No service charge will be imposed for any registration of transfer or
exchange, but the transfer agent and registrar may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
CONDITIONS OF ISSUANCE OF ADDITIONAL SERIES
The issuance of any additional Series of Certificates is subject to the
following conditions, among others:
(a) appropriate documentation required by the Note Indenture and Trust
Agreement, including supplements thereto, shall have been authorized, executed
and delivered by all parties required to do so by the terms of the relevant
documents;
(b) an Issuance Advice Letter shall have been submitted to the CPUC and
shall have become effective;
(c) the Rating Agency Condition shall have been satisfied with respect to
such issuance;
(d) such issuance will not adversely affect the status of the Trust as a
grantor trust not taxable as a corporation for federal income tax purposes;
(e) no Event of Default shall have occurred and be continuing under the Note
Indenture or the Trust Agreement;
(f) as of the date of issuance, the Trust shall have sufficient funds
available to pay the purchase price for the related Series of Notes, as well
as the costs of issuance of the Series of Certificates (to the extent not
payable from Note proceeds) and all conditions to the issuance of a new series
of Notes and Certificates shall have been satisfied or waived; and
(g) delivery by the Note Issuer to the Note Trustee of certain certificates
and opinions specified in the Note Indenture.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Interest on the Certificates will be included in gross income for federal
income tax purposes.
GENERAL
The following is a general discussion of material federal income tax
consequences relating to the purchase, ownership and disposition of a
Certificate, and is based on the opinion of Special Counsel. This discussion
represents the opinion of Special Counsel, subject to the qualifications set
forth therein or herein. Additional federal income tax considerations relevant
to a particular Series may be set forth in the related Prospectus Supplement.
This discussion is based on current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), currently applicable Treasury regulations and
judicial and administrative rulings and decisions. Legislative, judicial or
administrative changes may be forthcoming that could alter or modify the
statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect tax
consequences to Certificateholders.
The discussion does not address all of the tax consequences relevant to a
particular Certificateholder in light of that Certificateholder's
circumstances, and some Certificateholders may be subject to special tax rules
and limitations not discussed below (e.g., life insurance companies, tax-
exempt organizations, financial institutions or broker-dealers). CONSEQUENTLY,
EACH PROSPECTIVE CERTIFICATEHOLDER IS URGED TO CONSULT ITS OWN TAX ADVISER IN
DETERMINING THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND ANY OTHER TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF A CERTIFICATE.
For purposes of this discussion, "U.S. Person" means (i) a citizen or
resident of the United States; (ii) a corporation (or entity treated as a
corporation for tax purposes) created or organized in the United States, or
under the laws of the United States or of any state thereof (including the
District of Columbia); (iii) a partnership (or entity treated as a partnership
for tax purposes) organized in the United States, or under the laws of the
United States or of any state thereof (including the District of Columbia)
unless provided otherwise by future Treasury regulations; (iv) an estate the
income of which is includible in gross income for U.S. federal income tax
purposes regardless of its source; or (v) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons has the authority to control all
substantial decisions of the trust. Notwithstanding the last clause of the
preceding sentence, to the extent provided in Treasury regulations, certain
trusts in existence on August 20, 1996, and treated as U.S. Persons prior to
such date, may elect to continue to be U.S. Persons. The term "U.S.
Certificateholder" means any U.S. Person and any other person to the extent
that income attributable to its interest in a Certificate is effectively
connected with that person's conduct of a U.S. trade or business. The term
"non-U.S. Certificateholder" means any person other than a U.S.
Certificateholder.
The discussion assumes that a Certificate is issued in registered form.
Moreover, the discussion assumes that any original issue discount ("OID") on
the Underlying Notes (i.e., any excess of the stated redemption price at
maturity of the Underlying Note over its issue price) is less than a de
minimis amount (i.e., 0.25 percent of its stated redemption price at maturity
multiplied by the Underlying Note's weighted average maturity), all within the
meaning of the OID regulations. The applicable Prospectus Supplement will set
forth a discussion of any additional material tax consequences with respect to
Certificates not conforming to the foregoing assumptions.
TREATMENT OF THE CERTIFICATES
The Seller has received a ruling from the Internal Revenue Service ("IRS")
holding that the Underlying Notes are obligations of the Seller for federal
income tax purposes. Special Counsel has opined that the Trust will not be a
business entity classified as a corporation or a publicly traded partnership
treated as a corporation, but will be treated as a grantor trust. Further,
Special Counsel has opined that each Class of Certificates bearing
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a fixed interest rate (the "Fixed Rate Certificates") will evidence ownership
of a fractional undivided beneficial interest in the related Class of
Underlying Notes, and each Class of Floating Rate Certificates will evidence
ownership of a fractional undivided beneficial interest in the related Class
of Underlying Notes and the related Swap Agreement.
TAXATION OF U.S. FIXED RATE CERTIFICATEHOLDERS
General. Assuming, in accordance with Special Counsel's opinion, that the
Fixed Rate Certificates represent ownership of the Underlying Notes for
federal income tax purposes, stated interest on a beneficial interest in such
Certificates will be taxable as ordinary income when received or accrued by
U.S. Certificateholders in accordance with their method of accounting.
Generally, interest received on the Fixed Rate Certificates will constitute
"investment income" for purposes of certain limitations of the Code concerning
the deductibility of investment interest expense.
Market Discount. A U.S. Certificateholder who purchases (including a
purchase at original issuance for a price less than the issue price) an
interest in a Fixed Rate Certificate at a discount that exceeds any
unamortized OID may be subject to the "market discount" rules of sections 1276
through 1278 of the Code. These rules generally provide that, subject to a
statutorily-defined de minimis exception, if a U.S. Certificateholder acquires
a Fixed Rate Certificate at a market discount (i.e., at a price below its
stated redemption price at maturity or its revised issue price if it was
issued with OID) and thereafter recognizes gain upon a disposition of the
Fixed Rate Certificate (or disposes of it in certain non-recognition
transactions, including by gift), the lesser of such gain (or appreciation, in
the case of an applicable non-recognition transaction) or the portion of the
market discount that accrued while the Fixed Rate Certificate was held by such
holder will be treated as ordinary interest income at the time of the
disposition. In addition, a U.S. Certificateholder who acquired a Fixed Rate
Certificate at a market discount would be required to treat as ordinary
interest income the portion of any principal payment attributable to accrued
market discount on such Fixed Rate Certificate. Generally, market discount
accrues ratably over the life of a debt instrument unless the debt holder
elects to accrue market discount on a constant yield to maturity basis. It is
not clear how either the ratable accrual or constant yield accrual
methodologies apply to instruments such as the Fixed Rate Certificates where
the timing of principal payments is uncertain. Investors should consult their
own tax advisors concerning the accrual of market discount. The market
discount rules also provide that a U.S. Certificateholder who acquires a Fixed
Rate Certificate at a market discount may be required to defer a portion of
any interest expense that otherwise may be deductible on any indebtedness
incurred or maintained to purchase or carry the Fixed Rate Certificate until
the holder disposes of the Certificate in a taxable transaction.
A U.S. Certificateholder who acquired a Fixed Rate Certificate at a market
discount may elect to include market discount in income as the discount
accrues, either on a ratable basis or, if elected, on a constant yield basis.
The current inclusion election, once made, applies to all market discount
obligations acquired on or after the first day of the first taxable year to
which the election applies, and may not be revoked without the consent of the
IRS. If a holder elects to include market discount in income in accordance
with the preceding sentence, the foregoing rules with respect to the
recognition of ordinary income on sales, principal payments and certain other
dispositions of the Fixed Rate Certificates and the deferral of interest
deductions on indebtedness related to the investor certificates will not
apply.
Amortizable Bond Premium. A U.S. Certificateholder who purchases an interest
in a Fixed Rate Certificate at a premium may elect to offset the premium
against interest income under the constant yield method over the remaining
term of the Fixed Rate Certificate in accordance with the provisions of
section 171 of the Code. A holder that elects to amortize bond premium must
reduce the tax basis in the related Fixed Rate Certificate by the amount of
bond premium used to offset interest income. If a Fixed Rate Certificate
purchased at a premium is redeemed in full prior to its maturity, a holder who
has elected to amortize bond premium should be entitled to a deduction in the
taxable year of redemption in an amount equal to the excess, if any, of the
adjusted basis of the Fixed Rate Certificate over the greater of the
redemption price or the amount payable on maturity.
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TAXATION OF U.S. FLOATING RATE CERTIFICATEHOLDERS
Generally, as explained above, each Floating Rate Certificateholder will be
treated as having purchased an interest in an Underlying Note and an interest
in the related Swap Agreement. The tax treatment of the Certificateholder's
interest in the Underlying Note would generally be the same as that described
above in the case of a Certificateholder who purchased an interest in a Class
of Fixed Rate Certificates.
Each Floating Rate Certificateholder will include in income its share of the
fixed rate interest on the Underlying Note in accordance with its regular
method of tax accounting. As the tax owner of an undivided interest in the
Swap Agreement related to that Class, the Certificateholder would account for
income and expense with respect to the Swap Agreement under the rules set out
in Treas. Reg. (S) 1.446-3 (the "Notional Principal Contract" or "NPC"
regulations).
The tax treatment of payments made or received under a Swap Agreement
depends on whether the payments are periodic payments, nonperiodic payments,
or termination payments. A periodic payment is any payment made under a
contract payable at intervals of one year or less during the entire term of
the contract that is based on a specified index (which includes a fixed rate)
and a notional principal amount. A nonperiodic payment is usually an upfront
payment made by one party to a notional principal contract to induce the other
party to enter into the contract. It is not anticipated that there will be any
nonperiodic payment made with respect to a Swap Agreement. If such a
nonperiodic payment is expected to be made, the tax treatment will be
described in a Prospectus Supplement.
For any taxable year, a Floating Rate Certificateholder would include in, or
deduct from, gross income the Certificateholder's net swap income or expense.
Net swap income or expense would include the sum of all periodic payments
recognized and attributable to the year.
Periodic payments made on any quarterly payment date would be allocated
ratably among the days in the quarter, and a Floating Rate Certificateholder
would include or deduct its share of the net periodic payments allocated to
the year.
Each purchaser of a Floating Rate Certificate would be required to allocate
its purchase price between the Underlying Note and the related Swap Agreement
based on their relative fair market values. For example, even if a Floating
Rate Certificate were purchased for its face amount, the holder might be
considered to have acquired the Underlying Note at a discount and to have
acquired the related Swap Agreement for the remaining purchase price. This
bifurcation of the purchase price of the Floating Rate Certificate could
result in aggregate net income to the Floating Rate Certificateholder that
differed somewhat in any particular year from the interest actually payable on
the Certificate for such year. A holder could avoid such results by making an
integration election on or before the acquisition date of the Floating Rate
Certificate in the manner described below under "Integration of the Underlying
Notes and the Swap Agreement."
Moreover, if an individual were to hold a Floating Rate Certificate, any net
swap expense for any year would be treated as a miscellaneous itemized
deduction. In computing taxable income, an individual is allowed to deduct
miscellaneous itemized deductions only to the extent the sum of such
deductions exceeds two percent of the individual's adjusted gross income.
Further, an individual is not allowed a deduction for miscellaneous itemized
deductions in computing alternative minimum taxable income. Thus, for any
period for which the fixed rate on the Underlying Notes exceeded the floating
rate payments made to the Trust under the Swap Agreement, an individual would
include in income interest at the full fixed rate payable on the Underlying
Notes, but could be precluded from deducting the net swap expense for the
period due to the limitations imposed on miscellaneous itemized deductions. An
individual could avoid such treatment by making an integration election in the
manner described below under "Integration of the Underlying Notes and the Swap
Agreement."
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A termination payment is a payment made to assign or extinguish a party's
rights and obligations under a swap contract. If a Certificateholder were to
sell its interest in a Floating Rate Certificate, it would be considered to
have made or to have received a termination payment with respect to its
interest in the Swap Agreement. The Certificateholder would recognize gain or
loss in the year that it terminated its interest in the Swap Agreement
determined by reference to the amount of the termination payment made or
received and the Certificateholder's basis in the Swap Agreement.
A Floating Rate Certificateholder could also receive a termination payment
if an event of default under the Swap Agreement were to occur. If such an
event were to occur, the Certificateholder could recognize gain upon receipt
of a termination payment.
INTEGRATION OF THE UNDERLYING NOTES AND THE SWAP AGREEMENT
In lieu of the tax treatment described above, a Floating Rate
Certificateholder could identify the purchase of a Floating Rate Certificate
as the acquisition of a fixed rate debt instrument together with a Treas.
Reg. (S) 1.1275-6 hedge. In essence, if the Certificateholder identifies the
Underlying Note and the related Swap Agreement as an integrated transaction on
its books and records, on or before the acquisition date of the Floating Rate
Certificate, it may be able to integrate the cash flows on the Swap Agreement
and the fixed rate Underlying Note and treat the combined cash flows as a
single synthetic floating rate debt instrument. All interest on the synthetic
floating rate debt instrument would be treated as original issue discount,
includible in income as it accrues regardless of the holder's method of
accounting. The disposition of a Floating Rate Certificate that was identified
under the integration regime would be treated as the disposition of a single
synthetic floating rate debt instrument.
If a Swap Counterparty default event were to occur so that the Swap
Agreement terminated, a Certificateholder who had made an integration election
would be treated as having "legged-out" of integration. Such a
Certificateholder could recognize gain as a result of such legging-out.
Certificateholders are urged to consult their own tax advisors concerning the
integration election.
SALE OR EXCHANGE OF FIXED RATE CERTIFICATES
Upon a disposition of an interest in a Fixed Rate Certificate, a U.S.
Certificateholder generally will recognize gain or loss equal to the
difference between (i) the amount of cash and the fair market value of any
other property received (other than amounts attributable to, and taxable as,
accrued stated interest) and (ii) the U.S. Certificateholder's adjusted basis
in its interest in the Fixed Rate Certificate. The adjusted basis in the
interest in the Fixed Rate Certificate will equal its cost, increased by any
OID or market discount included in income with respect to the interest in the
Fixed Rate Certificate prior to its disposition and reduced by any payments
reflecting principal or OID previously received with respect to the interest
in the Fixed Rate Certificate and any amortized premium. Subject to the OID
and market discount rules, gain or loss will generally be capital gain or loss
if the interest in the Fixed Rate Certificate was held as a capital asset.
Capital losses generally may be used by a corporate taxpayer only to offset
capital gains and by an individual taxpayer only to the extent of capital
gains plus $3,000 of other income.
SALE OR EXCHANGE OF FLOATING RATE CERTIFICATES
If a Floating Rate Certificateholder does not make an integration election,
then the sale or exchange of a Floating Rate Certificate will be treated as
the sale of an interest in the related Note and an assignment of an interest
in the Swap Agreement. The total sale proceeds would be allocated between the
Underlying Note and the Swap Agreement in proportion to their relative fair
market values. Gain or loss on the Underlying Note would be determined in the
manner described above, and gain or loss on the Swap Agreement would give rise
to gain or loss as described above for termination payments. If the Swap
Agreement has a negative value at the time of the sale of a Floating Rate
Certificate, the Floating Rate Certificateholder would apparently be treated
as having sold the Underlying Note for its fair market value (which would
exceed the sale proceeds) and as having paid
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such excess to the purchaser of the Floating Rate Certificate in consideration
for the assumption of the obligations under the Swap Agreement. If an
integration election is made, however, the Certificateholder would be viewed
as having sold a single floating rate debt instrument and could recognize gain
or loss on such sale.
NON-U.S. CERTIFICATEHOLDERS
In general, a non-U.S. Certificateholder will not be subject to U.S. federal
income tax on interest (including OID) on a beneficial interest in a
Certificate unless (i) the non-U.S. Certificateholder is a controlled foreign
corporation that is related to the Seller through stock ownership or (ii) the
non-U.S. Certificateholder is a bank which receives interest as described in
Code Section 881(c)(3)(A). To qualify for the exemption from taxation, the
last U.S. Person in the chain of payment prior to payment to a non-U.S.
Certificateholder (the "Withholding Agent") must have received (in the year in
which a payment of interest or principal occurs or in either of the two
preceding years) a statement that (i) is signed by the non-U.S.
Certificateholder under penalties of perjury, (ii) certifies that the non-U.S.
Certificateholder is not a U.S. Person and (iii) provides the name and address
of the non-U.S. Certificateholder. The statement may be made on a Form W-8 or
substantially similar substitute form, and the non-U.S. Certificateholder must
inform the Withholding Agent of any change in the information on the statement
within 30 days of the change. If a Certificate is held through a securities
clearing organization or certain other financial institutions, the
organization or institution may provide a signed statement to the Withholding
Agent. However, in that case, the signed statement must be accompanied by a
Form W-8 or substitute form provided by the non-U.S. Certificateholder to the
organization or institution holding the Certificate on behalf of the non-U.S.
Certificateholder. The U.S. Treasury Department is considering implementation
of further certification requirements aimed at determining whether the issuer
of a debt obligation is related to holders thereof.
Generally, any gain or income realized by a non-U.S. Certificateholder upon
retirement or disposition of an interest in a Certificate (other than gain
attributable to accrued interest or OID, which is addressed in the preceding
paragraph) will not be subject to U.S. federal income tax, provided that in
the case of a Certificateholder that is an individual, such Certificateholder
is not present in the United States for 183 days or more during the taxable
year in which such retirement or disposition occurs. Certain exceptions may be
applicable, and an individual non-U.S. Certificateholder should consult a tax
adviser.
If a non-U.S. Certificateholder were to hold an interest in a Floating Rate
Certificate, generally, any income attributable to the non-U.S.
Certificateholder's interest in the Swap Agreement, irrespective of whether an
integration election were made, would not be U.S. source income. Consequently,
it would not be subject to U.S. federal income tax.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding of U.S. federal income tax at a rate of 31 percent may
apply to payments made in respect of a Certificate to a registered owner who
is not an "exempt recipient" and who fails to provide certain identifying
information (such as the registered owner's taxpayer identification number) in
the manner required. Generally, individuals are not exempt recipients whereas
corporations and certain other entities are exempt recipients. Payments made
in respect of a U.S. Certificateholder must be reported to the IRS, unless the
U.S. Certificateholder is an exempt recipient or otherwise establishes an
exemption.
In the case of payments of principal of and interest on (and the amount of
OID, if any, accrued on) Certificates to non-U.S. Certificateholders,
temporary Treasury regulations provide that backup withholding and information
reporting will not apply to payments with respect to which either requisite
certification has been received or an exemption has otherwise been established
(provided that neither the Certificate Trustee nor a paying agent has actual
knowledge that the holder is a U.S. Person or that the conditions of any other
exemption are not in fact satisfied). Payments of the proceeds of the sale of
a Certificate to or through a foreign office of a broker that is a U.S.
Person, a controlled foreign corporation for United States federal income tax
purposes or a foreign person 50 percent or more of whose gross income is
effectively connected with the conduct of a trade or
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business within the United States for a specified three-year period are
currently subject to certain information reporting requirements, unless the
payee is an exempt recipient or such broker has evidence in its records that
the payee is not a U.S. Person and no actual knowledge that such evidence is
false and certain other conditions are met. Temporary Treasury regulations
indicate that such payments are not currently subject to backup withholding.
Under current Treasury regulations, payments of the proceeds of a sale to or
through the United States office of a broker will be subject to information
reporting and backup withholding unless the payee certifies under penalties of
perjury as to his or her status as a non-U.S. Person and certain other
qualifications (and no agent of the broker who is responsible for receiving or
reviewing such statement has actual knowledge that it is incorrect) and
provides his or her name and address or the payee otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules from a payment to a
Certificateholder would be allowed as a refund or a credit against such
Certificateholder's U.S. federal income tax, provided that the required
information is furnished to the IRS.
THE TREASURY DEPARTMENT RECENTLY PROMULGATED FINAL REGULATIONS REGARDING THE
WITHHOLDING AND INFORMATION REPORTING RULES DISCUSSED ABOVE. IN GENERAL, THE
FINAL REGULATIONS DO NOT SIGNIFICANTLY ALTER THE SUBSTANTIVE WITHHOLDING AND
INFORMATION REPORTING REQUIREMENTS BUT RATHER UNIFY CURRENT CERTIFICATION
PROCEDURES AND FORMS AND CLARIFY RELIANCE STANDARDS. IN ADDITION, THE FINAL
REGULATIONS PERMIT THE SHIFTING OF PRIMARY RESPONSIBILITY FOR WITHHOLDING TO
CERTAIN FINANCIAL INTERMEDIARIES ACTING ON BEHALF OF BENEFICIAL OWNERS. THE
FINAL REGULATIONS ARE GENERALLY EFFECTIVE FOR PAYMENTS MADE AFTER DECEMBER 31,
1998, SUBJECT TO CERTAIN TRANSITION RULES. OFFERED CERTIFICATEHOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE IMPACT, IF ANY, OF THE
FINAL REGULATIONS.
87
<PAGE>
STATE TAXATION
CALIFORNIA TAXATION
In the opinion of Special Counsel, interest and OID on the Certificates will
be exempt from California personal income tax, but not exempt from the
California franchise tax applicable to banks and corporations. Gain or loss,
if any, resulting from an exchange or redemption of Certificates will be
recognized in the year of the exchange or redemption. Present California law
taxes both long-term and short-term capital gains at the rates applicable to
ordinary income. Interest on indebtedness incurred or continued by a
Certificateholder in connection with the purchase of Certificates will not be
deductible for California personal income tax purposes.
OTHER STATES
The discussion above does not address the taxation of the Trust or the tax
consequences of the purchase, ownership or disposition of an interest in the
Certificates under any state or local tax law other than that of the State of
California. Each investor should consult its own tax adviser regarding state
and local tax consequences.
ERISA CONSIDERATIONS
ERISA and/or Section 4975 of the Code impose certain requirements on
employee benefit plans and certain other plans and arrangements, including
individual retirement accounts and annuities, Keogh plans and certain
collective investment funds or insurance company general or separate accounts
in which such plans, accounts or arrangements are invested, that are subject
to the fiduciary responsibility and prohibited transaction provisions of ERISA
and/or Section 4975 of the Code (collectively, "Plans"), and on persons who
are fiduciaries with respect to Plans, in connection with the investment of
assets that are treated as "plan assets" of any Plan for purposes of applying
Title I of ERISA and Section 4975 of the Code ("Plan Assets"). ERISA imposes
on Plan fiduciaries certain general fiduciary requirements, including those of
investment prudence and diversification and the requirement that a Plan's
investments be made in accordance with the documents governing the Plan.
Generally, any person who has discretionary authority or control respecting
the management or disposition of Plan Assets, and any person who provides
investment advice with respect to Plan Assets for a fee or other
consideration, is a fiduciary with respect to such Plan Assets.
ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving Plan Assets and persons who have certain specified relationships to
a Plan or its Plan Assets ("parties in interest" under ERISA and "disqualified
persons" under the Code (collectively, "Parties in Interest")), unless a
statutory or administrative exemption is available. Parties in Interest and
Plan fiduciaries that participate in a prohibited transaction may be subject
to penalties imposed under ERISA and/or excise taxes imposed pursuant to
Section 4975 of the Code, unless a statutory or administrative exemption is
available. These prohibited transactions generally are set forth in Section
406 of ERISA and Section 4975 of the Code.
Any fiduciary or other Plan investor considering whether to purchase the
Certificates of any Class or Series on behalf or with Plan Assets of any Plan
should consult with its legal advisors and refer to the related Prospectus
Supplement for guidance regarding the ERISA Considerations applicable to the
Certificates offered thereby.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33)
of ERISA), are not subject to the requirements of ERISA or Section 4975 of the
Code. Accordingly, except as provided in the applicable Prospectus Supplement,
assets of such plans may be invested in the Certificates of any Class or
Series without regard to the ERISA considerations described herein, subject to
the provisions of other applicable federal and state law. However, any such
plan that is qualified and exempt from taxation under Sections 401(a) and
501(a) of the Code is subject to the prohibited transaction rules set forth in
Section 503 of the Code.
88
<PAGE>
USE OF PROCEEDS
The Trust will use the net proceeds received from each sale of a Series of
Certificates to purchase the related Note or Notes from the Note Issuer. The
Note Issuer will use such proceeds to purchase the Transition Property from
the Seller and to pay issuance costs related to the Notes. The Seller will use
such proceeds to repay outstanding debt and reduce the amount of outstanding
equity.
PLAN OF DISTRIBUTION
The Certificates of each Series may be sold to or through underwriters named
in the related Prospectus Supplement (the "Underwriters") by a negotiated firm
commitment underwriting and public reoffering by the Underwriters or such
other underwriting arrangement as may be specified in the related Prospectus
Supplement or may be offered or placed either directly or through agents. The
Note Issuer and the Trust intend that Certificates will be offered through
such various methods from time to time and that offerings may be made
concurrently through more than one of such methods or that an offering of a
particular Series of Certificates may be made through a combination of such
methods.
The distribution of Certificates may be effected from time to time in one or
more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or in negotiated transactions or otherwise at varying
prices to be determined at the time of sale.
In connection with the sale of the Certificates, Underwriters or agents may
receive compensation in the form of discounts, concessions or commissions.
Underwriters may sell Certificates to certain dealers at prices less a
concession. Underwriters may allow and such dealers may reallow a concession
to certain other dealers. Underwriters, dealers and agents that participate in
the distribution of the Certificates of a Series may be deemed to be
underwriters and any discounts or commissions received by them from the Trust
and any profit on the resale of the Certificates by them may be deemed to be
underwriting discounts and commissions under the Securities Act. Any such
Underwriters or agents will be identified, and any such compensation received
from the Trust will be described, in the related Prospectus Supplement.
Under agreements which may be entered into by the Seller, the Note Issuer
and the Trust, Underwriters and agents who participate in the distribution of
the Certificates may be entitled to indemnification by the Seller and the Note
Issuer against certain liabilities, including liabilities under the Securities
Act.
The Underwriters may, from time to time, buy and sell Certificates, but
there can be no assurance that an active secondary market will develop and
there is no assurance that any such market, if established, will continue.
RATINGS
It is a condition of issuance of each Class of Certificates that at the time
of issuance such Class receive the rating indicated in the related Prospectus
Supplement, which will be in one of the four highest categories, from at least
one Rating Agency. Each Class of Notes will receive the same rating from the
applicable Rating Agencies as the corresponding Class of Certificates.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
Rating Agency. No person is obligated to maintain the rating on any
Certificate, and, accordingly, there can be no assurance that the ratings
assigned to any Class of Certificates upon initial issuance will not be
lowered or withdrawn by a Rating Agency at any time thereafter. If a rating of
any Class of Certificates is revised or withdrawn, the liquidity of such Class
of Certificates may be adversely affected. In general, ratings address credit
risk and do not represent any assessment of the rate of principal payment.
89
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the Notes will be passed upon by Latham &
Watkins, Los Angeles, California, counsel to the Seller and the Note Issuer.
Certain legal matters relating to the Certificates and certain federal income
tax consequences of the issuance of the Certificates will be passed upon by
Brown & Wood LLP, San Francisco, California, counsel to the Trust. Certain
legal matters relating to the Certificates will be passed upon by Richards,
Layton & Finger, P.A., Wilmington, Delaware, Delaware counsel to the Trust,
and by Cravath, Swaine & Moore, New York, New York, counsel to the
Underwriters.
90
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Act...................................................................... 46
Actual FTA Payments...................................................... 56
Administrator............................................................ 22
Advice Letters........................................................... 16
Agent Bank............................................................... 72
Annual Accountant's Report............................................... 58
Base Calculation Model................................................... 40
Basic Documents.......................................................... 68
Billing Period........................................................... 21
Book-Entry Certificates.................................................. 24
Calculation Date......................................................... 41
Capital Subaccount....................................................... 20, 62
Cede..................................................................... 24
CEDEL.................................................................... 78
CEDEL Participants....................................................... 79
Certificate Account...................................................... 71
Certificate Business Day................................................. 72
Certificate Event of Default............................................. 19, 74
Certificate Trustee...................................................... 11
Certificateholders....................................................... 3
Certificates............................................................. 1, 11
Class.................................................................... 1, 11
Closing Date............................................................. 42
Code..................................................................... 25, 82
Collection Account....................................................... 61
Collection Period........................................................ 21
Collections Curve........................................................ 56
Commission............................................................... 3
Cooperative.............................................................. 80
CPUC..................................................................... 14
Customers................................................................ 14
Default.................................................................. 75
Definitive Certificates.................................................. 80
Delaware Business Trust Act.............................................. 34
Delaware Trustee......................................................... 11
Depositaries............................................................. 78
Distribution Date........................................................ 17
Downgrade Event.......................................................... 37, 72
DTC...................................................................... 3, 24
Edison................................................................... 1, 10
Eligible Institution..................................................... 62
Eligible Investments..................................................... 62
ERISA.................................................................... 25
ESP...................................................................... 10, 30
Estimated FTA Payments................................................... 56
Euroclear................................................................ 78
Euroclear Operator....................................................... 80
Euroclear Participants................................................... 80
Event of Default......................................................... 20, 66
</TABLE>
91
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Excess Remittance........................................................ 56
Exchange Act............................................................. 3
Expected Amortization Schedule........................................... 19
FDIC..................................................................... 62
Fee Agreement............................................................ 46
FERC..................................................................... 32
Final Maturity Date...................................................... 61
Financing Order.......................................................... 14
Financing Order Anniversary.............................................. 42
Fixed Rate Certificates.................................................. 83
Floating Rate............................................................ 73
Floating Rate Certificates............................................... 12
FTA Charges.............................................................. 14
FTA Collections.......................................................... 16
FTA Payments............................................................. 16
General Subaccount....................................................... 20, 62
H.R. 1230................................................................ 27
holders.................................................................. 24
Independent Director..................................................... 48
Indirect Participants.................................................... 24
Infrastructure Bank...................................................... 1, 11
Initial Transition Property.............................................. 42
Interest Accrual Period.................................................. 73
Interest Determination Date.............................................. 72
IRS...................................................................... 82
ISO...................................................................... 31
Issuance Advice Letter................................................... 16
LIBOR.................................................................... 72
London Banking Day....................................................... 72
Monthly Servicer's Certificate........................................... 58
Moody's.................................................................. 34
Notional Principal Contract.............................................. 84
Net Trust Swap Payment................................................... 72
Net Trust Swap Receipt................................................... 72
non-U.S. Certificateholder............................................... 82
Note Collateral.......................................................... 61
Note Event of Default.................................................... 19, 66
Note Indenture........................................................... 61
Note Interest Rate....................................................... 61
Note Issuer.............................................................. 1, 10
Note Trustee............................................................. 14
Noteholder............................................................... 61
Notes.................................................................... 1, 13
NPC...................................................................... 84
OID...................................................................... 82
Operating Expenses....................................................... 22
Overcollateralization Amount............................................. 20, 63
Overcollateralization Subaccount......................................... 20, 62
Participants............................................................. 24
Parties in Interest...................................................... 88
Payment Date............................................................. 17
Plan Assets.............................................................. 88
</TABLE>
92
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Plans.................................................................... 88
Proposition 218.......................................................... 27
PU Code.................................................................. 14
PX....................................................................... 31
Quarterly Administration Fee............................................. 65
Quarterly Interest....................................................... 65, 73
Quarterly Principal...................................................... 65
Quarterly Servicer's Certificate......................................... 69
Rate Freeze Period....................................................... 39
Rating Agency............................................................ 25
Rating Agency Condition.................................................. 61
Record Date.............................................................. 18
Registration Statement................................................... 3
Remittance Date.......................................................... 56
Remittance Shortfall..................................................... 56
Repurchase Price......................................................... 44
Required Capital Level................................................... 21, 64
Required Overcollateralization Level..................................... 21
Reserve Subaccount....................................................... 20, 62
Residential Customers.................................................... 15
Rules.................................................................... 79
S&P...................................................................... 34
Sale Agreement........................................................... 11
Scheduled Final Distribution Date........................................ 18
Scheduled Maturity Date.................................................. 61
Securities Act........................................................... 3
Seller................................................................... 1, 10
Series................................................................... 1, 11
Series Issuance Date..................................................... 61
Servicer................................................................. 1, 11
Servicer Business Day.................................................... 51
Servicer Defaults........................................................ 59
Servicer Month........................................................... 21
Servicing Agreement...................................................... 11
Servicing Fee............................................................ 24
Small Commercial Customers............................................... 15
Special Counsel.......................................................... 27
Special Distribution Date................................................ 71
Special Payments......................................................... 71
State Pledge............................................................. 17, 70
Statute.................................................................. 8
STO...................................................................... 45
Subsequent Transfer Date................................................. 42
Subsequent Transition Property........................................... 42
Successor Servicer....................................................... 60
Swap Agreement........................................................... 8, 72
Swap Counterparty........................................................ 72
Telerate Page............................................................ 72
Termination Date......................................................... 18
Terms and Conditions..................................................... 80
Territory................................................................ 15
Transition Costs......................................................... 8, 14
Transition Property...................................................... 16, 40
</TABLE>
93
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
True-Up Mechanism Advice Letter........................................... 16
True-Up Mechanism Calculation Model....................................... 42
Trust..................................................................... 1, 11
Trust Agreement........................................................... 11
TURN...................................................................... 28
U.S. Certificateholder.................................................... 82
U.S. Person............................................................... 82
Underlying Notes.......................................................... 25
Underwriters.............................................................. 89
Utilities................................................................. 8
Withholding Agent......................................................... 86
</TABLE>
- --------
1. The "CPUC" is referred to as the "Commission" in the Financing Order.
2. The "Statute" is referred to as "AB 1890" in the Financing Order.
3. The "Note Issuer" is referred to as the "SPE" in the Financing Order.
4. The "Trust" is referred to either as the "Issuer" or the "SPT" in the
Financing Order.
5. The "Certificates" are referred to as the "rate reduction bonds" or "RRBs"
in the Financing Order.
94
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of September 30, 1997...................... F-3
Consolidated Statement of Income and Changes in Member's Equity........... F-4
Consolidated Statements of Cash Flows for the Period From Inception (July
1, 1997) to September 30, 1997........................................... F-5
Notes to Consolidated Financial Statements................................ F-6
</TABLE>
F-1
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Member of SCE Funding LLC:
We have audited the accompanying balance sheet of SCE Funding LLC (a
Delaware Limited Liability Company) as of September 30, 1997, and the related
statements of income and changes in member's equity and cash flows for the
period from inception (July 1, 1997) to September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We have conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SCE Funding LLC as of
September 30, 1997, and the results of its operations and its cash flows for
the period from inception (July 1, 1997) to September 30, 1997 in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Los Angeles, California
November 7, 1997
F-2
<PAGE>
SCE FUNDING LLC
BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Cash.................................................................... $ 3
Unamortized Debt Issuance Expenses...................................... 2,143
------
Total Assets.......................................................... $2,146
======
<CAPTION>
LIABILITIES AND MEMBER'S EQUITY
-------------------------------
<S> <C>
Accrued Expenses and Accounts Payable................................... $2,143
Member's Equity......................................................... 3
------
Total Liabilities and Member's Equity................................. $2,146
======
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-3
<PAGE>
SCE FUNDING LLC
STATEMENT OF OPERATIONS AND CHANGES IN MEMBER'S EQUITY
FOR THE PERIOD FROM INCEPTION (JULY 1, 1997) TO SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Total Operating Revenue..................................................... $ 0
Operating Expenses.......................................................... 2
---
Net Loss.................................................................. (2)
Member's Equity at Inception (July 1, 1997)................................. 0
Cash Contributed............................................................ 5
---
Member's Equity at September 30, 1997....................................... $ 3
===
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-4
<PAGE>
SCE FUNDING LLC
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JULY 1, 1997) TO SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATIONS:
Net loss.............................................................. $ (2)
Adjustments to reconcile net loss to net cash provided by operations:
Unamortized debt issuance expenses.................................. (2,143)
Changes in working capital
Accrued expenses and accounts payable............................... 2,143
-------
Net Cash Provided by Operations................................... (2)
-------
CASH PROVIDED BY FINANCING ACTIVITIES:
Equity contribution from Southern California Edison................... 5
-------
Net Increase in Cash.................................................. 3
Cash at Inception (July 1, 1997)...................................... 0
-------
Cash at September 30, 1997............................................ $ 3
=======
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-5
<PAGE>
SCE FUNDING LLC
NOTES TO FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The financial statements include the accounts of SCE Funding LLC, a Delaware
special purpose limited liability company, whose sole member is Southern
California Edison Company ("SCE"), a provider of electric services. SCE is a
wholly owned subsidiary of Edison International. SCE Funding LLC was formed on
July 1, 1997, in order to purchase from SCE the Transition Property (as
defined below) and to fund such purchase from the issuance of notes (the
"Underlying Notes") to the California Infrastructure and Economic Development
Bank Special Purpose Trust SCE-1 (the "Trust") which will issue "rate
reduction bonds" in the form of trust certificates with terms and conditions
similar to the Underlying Notes. The proceeds from the sale of the Transition
Property are intended to result in a reduction in revenue requirements for SCE
sufficient to enable SCE to provide a 10 percent electric rate reduction to
SCE's residential and small commercial customers in connection with electric
industry restructuring mandated by California Assembly Bill 1890 ("electric
restructuring legislation").
SCE Funding LLC was organized for the limited purpose of holding and
servicing the Transition Property (the right to be paid a specified amount
from nonbypassable tariffs authorized by the California Public Utility
Commission ("CPUC") pursuant to the electric restructuring legislation) and
issuing the Underlying Notes, and is restricted by its organizational
documents from engaging in other activities. In addition, SCE Funding LLC's
organizational documents require it to operate in such a manner that it should
not be consolidated in the bankruptcy estate of SCE in the event SCE becomes
subject to such a proceeding. The assets of SCE Funding LLC will consist
primarily of the Transition Property.
B. SUMMARY OF ACCOUNTING POLICIES
Unamortized Debt Issuance Expenses
The costs associated with the issuance of the Underlying Notes have been
capitalized and will be amortized over the life of the Underlying Notes.
Income Taxes
SCE Funding LLC is a single-member limited liability company for federal and
state income tax purposes. Accordingly, any tax effect of SCE Funding LLC
activities is accounted for by SCE.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amount of
revenues, expenses, assets, and liabilities and disclosure of contingencies.
Actual results could differ from these estimates.
C. LONG TERM NOTES
The purpose of SCE Funding LLC is to issue the Underlying Notes. The sole
holder of the Underlying Notes will be the Trust.
SCE Funding LLC intends to issue approximately $2.5 billion of Underlying
Notes in December 1997, the maturities and interest rates of which will depend
upon market conditions at the time of issuance. The proceeds will be used to
purchase the Transition Property from SCE. Although for financial reporting
purposes the Transition Property will be shown as Notes Receivable from SCE,
the Notes Receivable will be payable solely out of the Transition Property and
will not constitute a claim against, or be secured by assets of, SCE or Edison
F-6
<PAGE>
SCE FUNDING LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
International. The Notes Receivable will have terms and conditions similar to
the Underlying Notes. The Underlying Notes are expected to be secured solely
by the Transition Property and other assets of SCE Funding LLC. The Underlying
Notes will not constitute a claim against, or be secured by assets of, SCE or
Edison International.
The source of repayment will be the nonbypassable tariffs authorized by the
CPUC, which will be collected from residential and small commercial consumers
who, during the period that the Underlying Notes are outstanding, consume
electricity in the historical service territory of SCE. The payments will be
collected on behalf of SCE Funding LLC by SCE, as servicer.
Principal and interest payments on the Underlying Notes will be due
quarterly and will be deposited monthly with the trustee for the Underlying
Notes by SCE, satisfying the debt service requirements of SCE Funding LLC. The
debt service requirements will include an overcollateralization amount which
will be retained for the benefit of the holders of the Underlying Notes. Any
amounts not required for debt service will be returned to SCE Funding LLC.
D. SIGNIFICANT AGREEMENTS AND RELATED PARTY TRANSACTIONS
Under the Transition Property Servicing Agreement, SCE, the servicer, is
required to manage and administer the Transition Property of SCE Funding LLC
and to collect the nonbypassable tariffs from the electricity ratepayers on
behalf of SCE Funding LLC. SCE Funding LLC shall pay an annual servicing fee
equal to a percentage, which will be determined when the Notes are issued, of
the principal amount from time to time outstanding of each Series of the
Underlying Notes. The Servicer will also be entitled to receive as
compensation any interest earnings on nonbypassable tariff collections prior
to remittance and any late payment charges collected from SCE's customers.
The Trust was created solely for the purpose of purchasing the Underlying
Notes from SCE Funding LLC, facilitating the issuance of rate reduction bonds,
and applying the proceeds from the Underlying Notes to the payment of the rate
reduction bonds. Under the Trust Agreement, Bankers Trust Company of
California, N.A., the Certificate Trustee, is responsible for purchasing the
Underlying Notes and authenticating and delivering the rate reduction bonds
(in the form of trust certificates) to the investors. Bankers Trust
(Delaware), the Delaware Trust, is responsible for the maintenance of all
records that are necessary to form and maintain the existence of the Trust.
All fees and expenses of the Certificate Trustee will be paid by SCE Funding
LLC and those of the Delaware Trustee will be paid by the California
Infrastructure and Economic Development Bank, a unit of the State of
California.
F-7
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE SELLER, THE NOTE ISSUER, THE TRUST, THE INFRASTRUCTURE BANK,
THE UNDERWRITERS OR ANY DEALER, SALESPERSON OR OTHER PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER
TO BUY ANY SECURITY IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY
SUCH OFFER OR SOLICITATION.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PROSPECTUS SUPPLEMENT
<S> <C>
Reports to Holders........................................................ S-3
Prospectus Supplement Summary............................................. S-4
Description of the Certificates........................................... S-14
Summary of Certain Provisions of the Series Supplement to the Trust
Agreement................................................................ S-17
Summary of Certain Provisions of the Swap Agreement....................... S-17
The Swap Counterparty..................................................... S-18
Description of the Notes.................................................. S-18
Description of the Transition Property.................................... S-21
Certain Distribution, Weighted Average Life and Yield Considerations...... S-22
The Seller and Servicer................................................... S-23
Servicing................................................................. S-23
Certain Federal Income Tax Consequences................................... S-24
State Taxation............................................................ S-30
ERISA Considerations...................................................... S-30
Underwriting.............................................................. S-33
Ratings................................................................... S-34
Legal Matters............................................................. S-34
Index of Principal Definitions............................................ S-35
<CAPTION>
PROSPECTUS
<S> <C>
Available Information..................................................... 3
Reports to Holders........................................................ 3
Incorporation of Certain Documents by Reference........................... 4
Prospectus Supplement..................................................... 4
Table of Contents......................................................... 5
Prospectus Summary........................................................ 8
Risk Factors.............................................................. 26
Energy Deregulation and New California Market Structure................... 38
Description of the Transition Property.................................... 39
Certain Distribution, Weighted Average Life and Yield Considerations...... 45
The Trust................................................................. 46
The Infrastructure Bank................................................... 46
The Note Issuer........................................................... 47
The Seller and Servicer................................................... 49
Servicing................................................................. 55
Description of the Notes.................................................. 61
Description of the Certificates........................................... 70
Certain Federal Income Tax Consequences................................... 82
State Taxation............................................................ 88
ERISA Considerations...................................................... 88
Use of Proceeds........................................................... 89
Plan of Distribution...................................................... 89
Ratings................................................................... 89
Legal Matters............................................................. 90
Index of Principal Definitions............................................ 91
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL (90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT), ALL DEALERS
EFFECTING TRANSACTIONS IN THE RELATED SERIES OF CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
AND A PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
$
CALIFORNIA INFRASTRUCTURE AND
ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST SCE-1
RATE REDUCTION CERTIFICATES
SERIES 199 -
$ CLASS % CERTIFICATES
$ CLASS % CERTIFICATES
$ CLASS % CERTIFICATES
$ CLASS % CERTIFICATES
[$ CLASS FLOATING RATE CERTIFICATES]
SCE FUNDING LLC
ISSUER OF THE NOTES
SOUTHERN CALIFORNIA EDISON COMPANY
SELLER AND SERVICER
SALOMON BROTHERS INC
LEHMAN BROTHERS
CHASE SECURITIES INC.
GOLDMAN, SACHS & CO.
PAINEWEBBER INCORPORATED
ARTEMIS CAPITAL GROUP, INC.
BLAYLOCK & PARTNERS, L.P.
UTENDAHL CAPITAL PARTNERS, L.P.
PROSPECTUS SUPPLEMENT
DATED , 199
<PAGE>
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder
other than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Statement Fee.................................... $ 909,090
Printing and Engraving Expenses............................... 100,000
Trustees' Fees and Expenses................................... 30,000
Legal Fees and Expenses....................................... 2,900,000
Blue Sky Fees and Expenses.................................... 10,000
Accountants' Fees and Expenses................................ 200,000
Rating Agency Fees............................................ 400,000
Miscellaneous Fees and Expenses............................... 750,000
----------
Total....................................................... $5,299,090
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 18-108 of the Delaware Limited Liability Company Act provides that
subject to such standards and restrictions, if any, as are set forth in its
limited liability company agreement, a limited liability company may and has
the power to indemnify and hold harmless any member or other person from and
against any and all claims and demands whatsoever. Section 20 of the Amended
and Restated Limited Liability Company Agreement of the Registrant provides
that, to the full extent permitted by applicable law, the Registrant shall
indemnify any member, officer, director, employee or agent of the Registrant
and any employee, representative, agent or affiliate of the member
(collectively, "Covered Persons") for any loss, damage or claim incurred by
reason of any act or omission performed or omitted by such Covered Person in
good faith on behalf of the Registrant and in a manner reasonably believed to
be within the scope of the authority conferred on such Covered Person by the
Amended and Restated Limited Liability Company Agreement, except that the
Registrant shall not indemnify any such Covered Person for any loss, damage or
claim incurred by such Covered Person by reason of such Covered Person's gross
negligence or willful misconduct with respect to such acts or omissions.
Section 317 of the California Corporation Law (the "California Law")
provides that a corporation shall have the power to indemnify any person who
was or is a party or is threatened to be made a party to any proceeding or
action by reason of the fact that he or she is or was a director, officer,
employee or other agent of such corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation or enterprise. Section 317 also grants authority to a
corporation to include in its articles of incorporation indemnification
provisions in excess of that permitted in Section 317, subject to certain
limitations.
Article Eighth of the Articles of Incorporation of Southern California
Edison Company (the "Member") authorizes the Member to provide indemnification
of directors, officers, employees, and other agents through bylaw provisions,
agreements with agents, votes of shareholders or disinterested directors, or
otherwise, in excess of the indemnification otherwise permitted by Section 317
of the California Law, subject only to the applicable limits set forth in
Section 204 of the California Law. The Registrant believes that the officers
of the Registrant are serving at the request of the Member and are therefore
entitled to such indemnity from the Member.
Article VI of the Bylaws of the Member contains provisions implementing the
authority granted in Article Eighth of the Articles of Incorporation. The
Bylaws provide for the indemnification of any director or officer of the
Member, or any person acting at the request of the Member as a director,
officer, employee or agent of another corporation or other enterprise, for any
threatened, pending or completed action, suit or proceeding to the fullest
extent permissible under California Law and the Articles of Incorporation,
subject to the terms of any
II-1
<PAGE>
agreement between the Member and such a person; provided that, no such person
shall be indemnified: (i) except to the extent that the aggregate of losses to
be indemnified exceeds the amount of such losses for which the director or
officer is paid pursuant to any director's or officer's liability insurance
policy maintained by the Member; (ii) on account of any suit in which judgment
is rendered for an accounting of profits made from the purchase or sale of
securities of the Member pursuant to Section 16(b) of the Securities Exchange
Act of 1934; (iii) if a court of competent jurisdiction finally determines
that the indemnification is unlawful; (iv) for any acts or omissions involving
intentional misconduct or knowing and culpable violation of law; (v) for acts
or omissions that the director or officer believes to be contrary to the best
interests of the Member or its shareholders, or that involve the absence of
good faith; (vi) for any transaction from which the director or officer
derived an improper personal benefit; (vii) for acts or omissions that show a
reckless disregard for the director's or officer's duty to the Member or its
shareholders in circumstances in which the director or officer was aware, or
should have been aware, in the ordinary course of performing his or her
duties, of a risk of serious injury to the Member or its shareholders; (viii)
for acts or omissions that constitute an unexcused pattern of inattention that
amount to an abdication of the director's or officer's duties to the Member or
its shareholders; (ix) for costs, charges, expenses, liabilities and losses
arising under Section 310 or 316 of the California Law; or (x) as to
circumstances in which indemnity is expressly prohibited by Section 317. The
exclusions set forth in clauses (iv) through (ix) above shall apply only to
indemnification with regard to any action brought by or in the right of the
Member for breach of duty to the Member or its shareholders. The Bylaws also
provide that the Member shall indemnify any director or officer in connection
with (a) a proceeding (or part thereof) initiated by him or her only if such
proceeding (or part thereof) was authorized by the Board of Directors or (b) a
proceeding (or part thereof), other than a proceeding by or in the name of the
Member to procure a judgment in its favor, only if any settlement of such a
proceeding is approved in writing by the Member. Indemnification shall cover
all costs, charges, expenses, liabilities and losses, including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to
be paid in settlement, reasonably incurred or suffered by the director or
officer.
The Member has directors' and officers' liability insurance policies in
force insuring directors and officers of the Member and its subsidiaries. The
Member has also entered into written agreements with each of its directors
incorporating the indemnification provisions of the Bylaws.
II-2
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
+3.1 Certificate of Formation.
+3.2 Limited Liability Company Agreement.
+3.3 Form of Amended and Restated Limited Liability Company Agreement.
3.4 Amended and Restated Limited Liability Company Agreement.
4.1 Form of Note Indenture.
4.2 Form of Trust Agreement.
4.3 Form of Note.
4.4 Form of Rate Reduction Certificate.
5.1 Opinion of Latham & Watkins with respect to legality of the Notes.
5.2 Opinion of Richards, Layton & Finger, P.A. with respect to legality of
the Rate Reduction Certificates.
5.3 Opinion of Richards, Layton & Finger, P.A. with respect to due
authorization of the Notes and the Indenture by the Note Issuer.
8.1 Opinion of Brown & Wood LLP with respect to federal tax matters.
10.1 Form of Transition Property Purchase and Sale Agreement.
10.2 Form of Transition Property Servicing Agreement.
10.3 Form of Note Purchase Agreement.
10.4 Form of Fee and Indemnity Agreement.
23.1 Consent of Latham & Watkins (included in its opinion filed as Exhibit
5.1).
23.2 Consent of Brown & Wood LLP (included in its opinions filed as
Exhibits 8.1 and 99.8).
23.3 Consent of Richards, Layton & Finger, P.A. (included in its opinions
filed as Exhibits 5.2 and 5.3).
23.4 Consent of Arthur Andersen LLP.
23.5 Consent of Brooke Bassett, Esq.
+25.1 Statement of Eligibility and Qualification of Note Trustee on Form T-
1.
25.2 Statement of Eligibility and Qualification of Certificate Trustee on
Form T-1.
25.3 Statement of Eligibility and Qualification of Note Trustee on Form T-
1.(1)
27.1 Financial Data Schedule.
+99.1 Application for Financing Order.
+99.2 Financing Order.
+99.3 Form of Issuance Advice Letter.
99.4 Application to Infrastructure Bank (Exhibit A to Part I thereof is
incorporated by reference to Exhibit 99.1 of this Registration
Statement; Exhibits B, C, F, G, H, J, K and L to Part II thereof are
incorporated by reference to Exhibits 4.2, 3.3, 10.4, 4.1, 10.3, 10.1,
10.2 and 1.1 of this Registration Statement, respectively, and Exhibit
D to Part II thereof is incorporated by reference to Amendment No. 2
to this Registration Statement).
99.5 Form of Issuance Resolutions of Infrastructure Bank.
+99.6 Interim Opinion of CPUC.
99.7 Form of Opinion of Brown & Wood LLP with respect to impairment of
contracts.
99.8 Opinion of Brown & Wood LLP with respect to Proposition 218.
Form of Opinion of Brooke Bassett, Esq. with respect to validity of
99.9 Issuance Resolutions.
</TABLE>
- --------
+Previously filed.
(1)Replaces Exhibit 25.1 previously filed with Amendment No. 2 to this
Registration Statement.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant on behalf of the California Infrastructure and
Economic Development Bank Special Purpose Trust SCE-1 (the "Trust") hereby
undertakes as follows:
(a)(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement; (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a twenty
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; (iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; provided,
however, that (a)(1)(i) and (a)(1)(ii) will not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering hereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934), with respect to the Trust that
is incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 15
above, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 3
to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Rosemead, State of California, on
November 10, 1997.
SCE FUNDING LLC
as Registrant
By /s/ Theodore F. Craver, Jr.
___________________________________
Theodore F. Craver, Jr.
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED ON NOVEMBER 10, 1997 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ Theodore F. Craver, Jr. Director
___________________________________________
Theodore F. Craver, Jr.
/s/ Mary C. Simpson Director
___________________________________________
Mary C. Simpson
/s/ Anand Maniktala Director
___________________________________________
Anand Maniktala
/s/ Theodore F. Craver, Jr. President (Principal Executive
___________________________________________ Officer)
Theodore F. Craver, Jr.
/s/ Mary C. Simpson Treasurer (Principal Financial
___________________________________________ and
Mary C. Simpson Accounting Officer)
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
+3.1 Certificate of Formation.
+3.2 Limited Liability Company Agreement.
+3.3 Form of Amended and Restated Limited Liability Company Agreement.
3.4 Amended and Restated Limited Liability Company Agreement.
4.1 Form of Note Indenture.
4.2 Form of Trust Agreement.
4.3 Form of Note.
4.4 Form of Rate Reduction Certificate.
5.1 Opinion of Latham & Watkins with respect to legality of the Notes.
5.2 Opinion of Richards, Layton & Finger, P.A. with respect to legality of
the Rate Reduction Certificates.
5.3 Opinion of Richards, Layton & Finger, P.A. with respect to due
authorization of the Notes and the Indenture by the Note Issuer.
8.1 Opinion of Brown & Wood LLP with respect to federal tax matters.
10.1 Form of Transition Property Purchase and Sale Agreement.
10.2 Form of Transition Property Servicing Agreement.
10.3 Form of Note Purchase Agreement.
10.4 Form of Fee and Indemnity Agreement.
23.1 Consent of Latham & Watkins (included in its opinion filed as Exhibit
5.1).
23.2 Consent of Brown & Wood LLP (included in its opinions filed as
Exhibits 8.1 and 99.8).
23.3 Consent of Richards, Layton & Finger, P.A. (included in its opinions
filed as Exhibits 5.2 and 5.3).
23.4 Consent of Arthur Andersen LLP.
23.5 Consent of Brooke Bassett, Esq.
+25.1 Statement of Eligibility and Qualification of Note Trustee on
Form T-1.
25.2 Statement of Eligibility and Qualification of Certificate Trustee on
Form T-1.
25.3 Statement of Eligibility and Qualification of Note Trustee on
Form T-1.(1)
27.1 Financial Data Schedule.
+99.1 Application for Financing Order.
+99.2 Financing Order.
+99.3 Form of Issuance Advice Letter.
99.4 Application to Infrastructure Bank (Exhibit A to Part I thereof is
incorporated by reference to Exhibit 99.1 of this Registration
Statement; Exhibits B, C, F, G, H, J, K and L to Part II thereof are
incorporated by reference to Exhibits 4.2, 3.3, 10.4, 4.1, 10.3, 10.1,
10.2 and 1.1 of this Registration Statement, respectively, and Exhibit
D to Part II thereof is incorporated by reference to Amendment No. 2
to this Registration Statement).
99.5 Form of Issuance Resolutions of Infrastructure Bank.
+99.6 Interim Opinion of CPUC.
99.7 Form of Opinion of Brown & Wood LLP with respect to impairment of
contracts.
99.8 Opinion of Brown & Wood LLP with respect to Proposition 218.
Form of Opinion of Brooke Bassett, Esq. with respect to validity of
99.9 Issuance Resolutions.
</TABLE>
- --------
+Previously filed.
(1)Replaces Exhibit 25.1 previously filed with Amendment No. 2 to this
Registration Statement
<PAGE>
EXHIBIT 1.1
[FORM OF UNDERWRITING AGREEMENT]
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT
BANK SPECIAL PURPOSE TRUST [_]-1
RATE REDUCTION CERTIFICATES
[_] FUNDING LLC
[NAME OF UTILITY]
UNDERWRITING AGREEMENT
New York, New York
[_], 1997
To the Representatives
named in Schedule I
hereto of the Under-
writers named in
Schedule II hereto
Ladies and Gentlemen:
1. Introduction. California Infrastructure and Economic Development
-------------
Bank Special Purpose Trust [_]-1 (the "Trust") proposes to sell to the
underwriters named in Schedule II hereto (the "Underwriters"), for whom you (the
"Representatives") are acting as representatives, the principal amount of the
certificates identified in Schedule I hereto (the "Certificates"). If the firm
or firms listed in Schedule II hereto include only the firm or firms listed in
Schedule I hereto, then the terms "Underwriters" and "Representatives", as used
herein, shall each be deemed to refer to such firm or firms.
The Trust was formed pursuant to a declaration and agreement of trust
dated as of _______________, 1997, between the California Infrastructure and
Economic Development Bank (the "Infrastructure Bank") and Bankers Trust
(Delaware), as Delaware trustee (the "Delaware Trustee"), and the Certificates
will be issued pursuant to an amended and restated declaration and agreement of
trust dated as of _____, 1997 (as amended and supplemented from time to time,
the "Trust Agreement"), among the Infrastructure Bank, the Delaware Trustee and
Bankers Trust Company, as certificate trustee (the "Certificate Trustee"). The
assets of the Trust will consist solely of the [_] Funding LLC Notes, Series
_____ (the "Notes"), issued by
<PAGE>
2
[_] Funding LLC (the "Note Issuer"), and the proceeds thereof. The Notes will be
issued pursuant to an indenture dated as of __________, 1997 (as amended and
supplemented from time to time, including any Series Supplement, the
"Indenture"), between the Note Issuer and Bankers Trust Company, as Note Trustee
(the "Note Trustee"), and purchased by the Certificate Trustee, on behalf of the
Trust, pursuant to a note purchase agreement dated as of ______, 1997 (the "Note
Purchase Agreement"), between the Note Issuer and the Certificate Trustee. Each
Class of Certificates will correspond to a Class of Notes and will represent
undivided interests in such underlying Class of Notes and the proceeds thereof.
The Notes will be secured primarily by the Transition Property described in the
related Issuance Advice Letter. Such Transition Property will be sold to the
Note Issuer by [Name of Utility], a California corporation (the "Company"),
pursuant to a sale agreement dated as of _______________, 1997 (the "Sale
Agreement"), between the Company, as seller, and the Note Issuer. Other
Transition Property may be sold to the Note Issuer by the Company pursuant to an
agreement substantially similar to the Sale Agreement. The Transition Property
will be serviced pursuant to a servicing agreement dated as of _______________,
1997 (as amended and supplemented from time to time, the "Servicing Agreement"),
between the Company, as servicer, and the Note Issuer.
Capitalized terms used and not otherwise defined herein shall have the
meanings given to them in the Indenture.
2. Representations and Warranties. Each of the Company and the Note
-------------------------------
Issuer represents and warrants to, and agrees with, each Underwriter as set
forth below in this Section 2. Certain terms used in this Section 2 are defined
in paragraph (c) hereof.
(a) If the offering of the Certificates is a Delayed Offering (as
specified in Schedule I hereto), paragraph (i) below is applicable and, if
the offering of the Certificates is a Non-Delayed Offering (as so
specified), paragraph (ii) below is applicable.
(i) The Note Issuer and the Notes and the Certificates meet the
requirements for the use of Form S-3 under the Securities Act of 1933
(the "Act"), and the Note Issuer has filed with the Securities and
Exchange Commission (the "Commission") a registration statement (the
file number of which is set forth in Schedule I hereto) on such Form,
including a basic prospectus, for registration under the Act of the
offering and sale of the Certificates. The Note Issuer may have filed
one or more amendments thereto, and may have used a Preliminary Final
Prospectus, each of which has previously been furnished to you. Such
<PAGE>
3
registration statement, as so amended, has become effective. The
offering of the Certificates is a Delayed Offering and, although the
Basic Prospectus may not include all the information with respect to
the Certificates and the offering thereof required by the Act and the
rules thereunder to be included in the Final Prospectus, the Basic
Prospectus includes all such information required by the Act and the
rules thereunder to be included therein as of the Effective Date. The
Note Issuer will next file with the Commission pursuant to Rules 415
and 424(b)(2) or (5) a final supplement to the form of prospectus
included in such registration statement relating to the Certificates
and the offering thereof. As filed, such final prospectus supplement
shall include all required information with respect to the
Certificates and the offering thereof and, except to the extent the
Representatives shall agree in writing to a modification, shall be in
all substantive respects in the form furnished to you prior to the
Execution Time or, to the extent not information and other changes
(beyond that contained in the Basic Prospectus and any Preliminary
Final Prospectus) as the Note Issuer has advised you, prior to the
Execution Time, will be included or made therein.
(ii) The Note Issuer and the Notes and the Certificates meet the
requirements for the use of Form S-3 under the Act and the Note Issuer
has filed with the Commission a registration statement (the file
number of which is set forth in Schedule I hereto) on such Form,
including a basic prospectus, for registration under the Act of the
offering and sale of the Certificates. The Note Issuer may have filed
one or more amendments thereto, including a Preliminary Final
Prospectus, each of which has previously been furnished to you. The
Company will next file with the Commission either (x) a final
prospectus supplement relating to the Certificates in accordance with
Rules 430A and 424(b)(1) or (4), or (y) prior to the effectiveness of
such registration statement, an amendment to such registration
statement, including the form of final prospectus supplement. In the
case of clause (x), the Note Issuer has included in such registration
statement, as amended at the Effective Date, all information (other
than Rule 430A Information) required by the Act and the rules
thereunder to be included in the Final Prospectus with respect to the
Certificates and the offering thereof. As filed, such final prospectus
supplement or such amendment and form
<PAGE>
4
of final prospectus supplement shall contain all Rule 430A
Information, together with all other such required information, with
respect to the Certificates and the offering thereof and, except to
the extent the Representatives shall agree in writing to a
modification, shall be in all substantive respects in the form
furnished to you prior to the Execution Time or, to the extent not
completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
Basic Prospectus and any Preliminary Final Prospectus) as the Note
Issuer has advised you, prior to the Execution Time, will be included
or made therein.
(b) On the Effective Date, the Registration Statement did or will,
and when the Final Prospectus is first filed (if required) in accordance
with Rule 424(b) and on the Closing Date, the Final Prospectus (and any
supplement thereto) will, comply in all material respects with the
applicable requirements of the Act, the Securities Exchange Act of 1934
(the "Exchange Act") and the Trust Indenture Act of 1939 (the "Trust
Indenture Act") and the respective rules thereunder; on the Effective Date,
the Registration Statement did not or will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; on the Effective Date and on the Closing Date the Indenture and
the Trust Agreement did or will comply in all material respects with the
requirements of the Trust Indenture Act and the rules thereunder; and, on
the Effective Date, the Final Prospectus, if not filed pursuant to Rule
424(b), did not or will not, and on the date of any filing pursuant to Rule
424(b) and on the Closing Date, the Final Prospectus (together with any
supplement thereto) will not, include any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that neither the Note Issuer nor
-------- -------
the Company makes any representations or warranties as to (i) that part of
the Registration Statement which shall constitute the Statement of
Eligibility and Qualification (Form T-1) under the Trust Indenture Act of
the Note Trustee, (ii) the information contained in or omitted from the
Registration Statement or the Final Prospectus (or any supplement thereto)
in reliance upon and in conformity with information furnished in writing to
the Note Issuer by or on behalf of any Underwriter through the
Representatives specifically for inclusion in the Registration Statement or
the Final Prospectus (or any supplement thereto) or (iii) the information
included
<PAGE>
5
in the Registration Statement under the captions "The Trust" and "The
Infrastructure Bank".
(c) The terms which follow, when used in this Agreement, shall have
the meanings indicated. The term "the Effective Date" shall mean each date
that the Registration Statement and any post-effective amendment or
amendments thereto became or become effective and each date after the date
hereof on which a document incorporated by reference in the Registration
Statement is filed. "Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto. "Basic
Prospectus" shall mean the prospectus referred to in paragraph (a) above
contained in the Registration Statement at the Effective Date including, in
the case of a Non-Delayed Offering, any Preliminary Final Prospectus.
"Preliminary Final Prospectus" shall mean any preliminary prospectus
supplement to the Basic Prospectus which describes the Certificates and the
offering thereof and is used prior to filing of the Final Prospectus.
"Final Prospectus" shall mean the prospectus supplement relating to the
Certificates that is first filed pursuant to Rule 424(b) after the
Execution Time, together with the Basic Prospectus or, if, in the case of a
Non-Delayed Offering, no filing pursuant to Rule 424(b) is required, shall
mean the form of final prospectus relating to the Certificates, including
the Basic Prospectus, included in the Registration Statement at the
Effective Date. "Registration Statement" shall mean the registration
statement referred to in paragraph (a) above, including incorporated
documents, exhibits and financial statements, as amended at the Execution
Time (or, if not effective at the Execution Time, in the form in which it
shall become effective) and, in the event any post-effective amendment
thereto becomes effective prior to the Closing Date (as hereinafter
defined), shall also mean such registration statement as so amended. Such
term shall include any Rule 430A Information deemed to be included therein
at the Effective Date as provided by Rule 430A. "Rule 415", "Rule 424",
"Rule 430A" and "Regulation S-K" refer to such rules or regulation under
the Act. "Rule 430A Information" means information with respect to the
Certificates and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A. Any
reference herein to the Registration Statement, the Basic Prospectus, any
Preliminary Final Prospectus or the Final Prospectus shall be deemed to
refer to and include the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 which were filed under the Exchange Act on
or before the Effective Date of the Registration Statement or the issue
of the Basic Prospectus, any Preliminary Final Prospectus or Final
<PAGE>
6
Prospectus, as the case may be; and any reference herein to the terms
"amend", "amendment" or "supplement" with respect to the Registration
Statement, the Basic Prospectus, andy Preliminary Prospectus or Final
Prospectus shall be deemed to be incorporated therein by reference. A "Non-
Delayed Offering" shall mean an offering of securities which is intended to
commence promptly after the effective date of a registration statement,
with the result that, pursuant to Rules 415 and 430A, all information
(other than Rule 430A Information) with respect to the securities so
offered must be included in such registration statement at the effective
date thereof. A "Delayed Offering" shall mean an offering of securities
pursuant to Rule 415 which does not commence promptly after the effective
date of a registration statement, with the result that only information
required pursuant to Rule 415 need be included in such registration
statement at the effective date thereof with respect to the securities so
offered. Whether the offering of the Certificates is a Non-Delayed Offering
or a Delayed Offering shall be set forth in Schedule I hereto.
3. Purchase and Sale. Subject to the terms and conditions and in
-----------------
reliance upon the representations and warranties herein set forth, the Trust
agrees to sell to each Underwriter, and each Underwriter agrees, severally and
not jointly, to purchase from the Trust, at the purchase price set forth in
Schedule I hereto the principal amount of the Certificates set forth opposite
such Underwriter's name in Schedule II hereto.
4. Delivery and Payment. Delivery of and payment for the
---------------------
Certificates shall be made on the date and at the time specified in Schedule I
hereto (or such later date not later than five business days after such
specified date as the Representatives shall designate), which date and time may
be postponed by agreement between the Representatives and the Note Issuer or as
provided in Section 9 hereof (such date and time of delivery and payment for the
Certificates being herein called the "Closing Date"). Delivery of the
Certificates shall be made to the Representatives for the respective accounts of
the several Underwriters against payment by the several Underwriters through the
Representatives of the purchase price thereof to or upon the order of the Trust
by certified or official bank check or checks drawn on or by a New York Clearing
House bank and payable in next day funds or by wire transfer of immediately
available funds. Delivery of the Certificates shall be made at such location as
the Representatives shall reasonably
<PAGE>
7
designate at least one business day in advance of the Closing Date and payment
for the Certificates shall be made at the office specified in Schedule I hereto.
The Certificates to be so delivered shall be initially represented by
Certificates registered in the name of Cede & Co., as nominee of The Depository
Trust Company ("DTC"). The interests of beneficial owners of the Certificates
will be represented by book entries on the records of DTC and participating
members thereof. Definitive Certificates will be available only under limited
circumstances.
The Trust agrees to have the Certificates available for inspection,
checking and packaging by the Representatives in New York, New York, not later
than 1:00 PM on the business day prior to the Closing Date.
5. Covenants.
---------
(a) Covenants of the Note Issuer. The Note Issuer covenants and
----------------------------
agrees with the several Underwriters that:
(i) The Note Issuer will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereto, to become effective. Prior to the termination of the
offering of the Certificates, the Note Issuer will not file any amendment
of the Registration Statement or supplement (including the Final Prospectus
or any Preliminary Final Prospectus) to the Basic Prospectus unless the
Note Issuer has furnished you a copy for your review prior to filing and
will not file any such proposed amendment or supplement to which you
reasonably object. Subject to the foregoing sentence, the Note Issuer will
cause the Final Prospectus, properly completed, and any supplement thereto
to be filed with the Commission pursuant to the applicable paragraph of
Rule 424(b) within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing. The Note Issuer
will promptly advise the Representatives (i) when the Registration
Statement, if not effective at the Execution Time, and any amendment
thereto, shall have become effective, (ii) when the Final Prospectus, and
any supplement thereto, shall have been filed with the Commission pursuant
to Rule 424(b), (iii) when, prior to termination of the offering of the
Certificates, any amendment to the Registration Statement shall have been
filed or become effective, (iv) of any request by the Commission for any
amendment of the Registration Statement or supplement to the Final
Prospectus or for any additional information, (v) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any proceeding
for that purpose and (vi) of the receipt by
<PAGE>
8
the Note Issuer of any notification with respect to the suspension of the
qualification of the Certificates for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose. The Note
Issuer will use its best efforts to prevent the issuance of any such stop
order and, if issued, to obtain as soon as possible the withdrawal thereof.
(ii) If, at any time when a prospectus relating to the Certificates
is required to be delivered under the Act, any event occurs as a result of
which the Final Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be necessary to amend
the Registration Statement or supplement the Final Prospectus to comply
with the Act or the Exchange Act or the respective rules thereunder, the
Note Issuer promptly will (i) prepare and file with the Commission, subject
to the second sentence of paragraph (a) of this Section 5, an amendment or
supplement which will correct such statement or omission or effect such
compliance and (ii) supply any supplemented Prospectus to you in such
quantities as you may reasonably request.
(iii) As soon as practicable, the Note Issuer will cause the Trust to
make generally available to the Certificateholders and to the
Representatives an earnings statement or statements of the Trust which will
satisfy the provisions of Section 11(a) of the Act and Rule 158 under the
Act.
(iv) The Note Issuer will furnish to the Representatives and counsel
for the Underwriters, without charge, copies of the Registration Statement
(including exhibits thereto) and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Act, as many copies of any
Preliminary Final Prospectus and the Final Prospectus and any supplement
thereto as the Representatives may reasonably request. The Note Issuer
shall furnish or cause to be furnished to the Representatives copies of all
reports on Form SR required by Rule 463 under the Act. The Note Issuer will
pay the expenses of printing or other production of all documents relating
to the offering.
(v) The Note Issuer will arrange for the qualification of the
Certificates for sale under the laws of such jurisdictions as the
Representatives may designate, will maintain such qualifications in effect
so long as required for the distribution of the Certificates and will
arrange for the determination of
<PAGE>
9
the legality of the Certificates for purchase by institutional investors.
(vi) Until the business date set forth on Schedule I hereto, the
Note Issuer will not, without the consent of the Representatives, offer,
sell or contract to sell, or otherwise dispose of, directly or indirectly,
or announce the offering of, any asset-backed securities of a trust or
other special purpose vehicle (other than the Certificates).
(vii) For a period from the date of this Agreement until the
retirement of the Certificates, or until such time as the Underwriters
shall cease to maintain a secondary market in the Certificates, whichever
occurs first, the Note Issuer will deliver to the Representatives the
annual statements of compliance and the annual independent auditor's
servicing reports furnished to the Note Issuer or the Note Trustee pursuant
to the Servicing Agreement or the Indenture, as applicable, as soon as such
statements and reports are furnished to the Note Issuer or the Note
Trustee.
(viii) So long as any of the Certificates are outstanding, the Note
Issuer will furnish to the Representatives (i) as soon as available, a copy
of each report of the Trust filed with the Commission under the Exchange
Act, or mailed to Certificate-holders, (ii) a copy of any filings with the
California Public Utility Commission pursuant to the Financing Order,
including, but not limited to, any Advice Letters, and (iii) from time to
time, any information concerning the Company or the Note Issuer, and, to
the extent readily available, the Infrastructure Bank or the Trust, as the
Representatives may reasonably request.
(ix) To the extent, if any, that any rating necessary to satisfy the
condition set forth in Section 6(r) of this Agreement is conditioned upon
the furnishing of documents or the taking of other actions by the Note
Issuer on or after the Closing Date, the Note Issuer shall furnish such
documents and take such other actions.
(b) Covenants of the Company. The Company covenants and agrees with
------------------------
the several Underwriters that:
(i) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereto, to become effective. The Company will use its best efforts to
prevent the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement and, if issued, to obtain as
soon as possible the withdrawal thereof.
<PAGE>
10
(ii) As soon as practicable, the Company will cause the Trust to
make generally available to the Certificateholders and to the
Representatives an earnings statement or statements of the Trust which will
satisfy the provisions of Section 11(a) of the Act and Rule 158 under the
Act.
(iii) The Company will arrange for the qualification of the
Certificates for sale under the laws of such jurisdictions as the
Representatives may designate, will maintain such qualifications in effect
so long as required for the distribution of the Certificates and will
arrange for the determination of the legality of the Certificates for
purchase by institutional investors.
(iv) Until the business date set forth on Schedule I hereto, the
Company will not, without the consent of the Representatives, offer, sell
or contract to sell, or otherwise dispose of, directly or indirectly, or
announce the offering of, any asset-backed securities of a trust or other
special purpose vehicle (other than the Certificates).
(v) So long as any of the Certificates are outstanding, the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report of the Trust filed with the Commission under the Exchange Act,
or mailed to Certificate-holders, (ii) a copy of any filings with the
California Public Utility Commission pursuant to the Financing Order,
including, but not limited to, any Advice Letters, and (iii) from time to
time, any information concerning the Company or the Note Issuer and, to the
extent readily available, the Infrastructure Bank or the Trust, as the
Representatives may reasonably request.
(vi) To the extent, if any, that any rating necessary to satisfy the
condition set forth in Section 6(r) of this Agreement is conditioned upon
the furnishing of documents or the taking of other actions by the Company
on or after the Closing Date, the Company shall furnish such documents and
take such other actions.
6. Conditions to the Obligations of the Underwriters. The
--------------------------------------------------
obligations of the Underwriters to purchase the Certificates shall be subject to
the accuracy of the representations and warranties on the part of the Note
Issuer and the Company contained herein and on the part of the Company contained
in Article III of the Sale Agreement and in Section 6.01 of the Servicing
Agreement as of the Execution Time and the Closing Date, to the accuracy of the
statements of the Note Issuer, the Company and the Trust made in any
certificates pursuant to the provisions
<PAGE>
11
hereof, to the performance by the Note Issuer, the Company and the Trust of
their obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Representatives agree in writing to a later
time, the Registration Statement will become effective not later than (i)
6:00 PM New York City time, on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 PM New
York City time on such date, or (ii) 12:00 Noon on the business day
following the day on which the public offering price was determined, if
such determination occurred after 3:00 PM New York City time on such date;
if filing of the Final Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b), the Final Prospectus, and any such supplement,
shall have been filed in the manner and within the time period required by
Rule 424(b); and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or threatened.
(b) The Representatives shall have received opinions of counsel for
the Company, portions of which may be delivered by [_], outside counsel for
the Company, portions of which may be delivered by [_], in-house counsel
for the Company, portions of which may be delivered by [_], special
regulatory counsel for the Company, and portions of which may be delivered
by [_], special Delaware counsel for the Company, each dated the Closing
Date, in form and substance reasonably satisfactory to the Representatives,
to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction in which it is chartered or organized, with full
corporate power and authority to own its properties, conduct its
business as presently conducted and execute, deliver and perform its
obligations under this Agreement, the Sale Agreement and the Servicing
Agreement, and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each
jurisdiction to the extent that such qualification and good standing
is or shall be necessary to protect the validity and enforceability of
this Agreement, the Basic Documents to which the Company is party and
each other instrument or agreement necessary or appropriate to the
proper administration of this Agreement and the transactions
contemplated hereby;
<PAGE>
12
(ii) the Sale Agreement and the Servicing Agreement have been
duly authorized, executed and delivered, and constitute legal, valid
and binding instruments enforceable against the Company in accordance
with their terms (subject, as to enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws or equitable principles affecting creditors' rights
generally from time to time in effect);
(iii) to the best knowledge of such counsel, there is no pending
or threatened action, suit or proceeding before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries of a character required to be
disclosed in the Registration Statement which is not adequately
disclosed in the Final Prospectus, and there is no franchise, contract
or other document of a character required to be described in the
Registration Statement or Final Prospectus, or to be filed as an
exhibit, which is not described or filed as required;
(iv) this Agreement has been duly authorized, executed and
delivered by the Company;
(v) no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transactions contemplated herein, except such as have been obtained
under the California Government Code, the PU Code and the Act and such
as may be required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Certificates by
the Underwriters and such other approvals (specified in such opinion)
as have been obtained;
(vi) subject to the ultimate outcome of any Petition to the
California Supreme Court for Writ of Review by The Utility Reform
Network, neither the execution and delivery of this Agreement, the
Sale Agreement, the Servicing Agreement, nor the consummation of the
transactions contemplated by this Agreement, the Sale Agreement or the
Servicing Agreement, nor the fulfillment of the terms of this
Agreement, the Sale Agreement or the Servicing Agreement by the
Company, will (A) conflict with, result in any breach of any of the
terms or provisions of, or constitute (with or without notice or lapse
of time) a default under the charter, bylaws or other organizational
documents of the Company, or conflict with or breach any of the
material terms or provisions of,
<PAGE>
13
or constitute (with or without notice or lapse of time) a default
under the charter, bylaws or other organizational documents of the
Company, or conflict with or breach any of the material terms or
provisions of, or constitute (with or without notice or lapse of time)
a default under, any indenture, agreement or other instrument known to
such counsel and to which the Company is a party or by which the
Company is bound, (B) result in the creation or imposition of any lien
upon any properties of the Company pursuant to the terms of any such
indenture, agreement or other instrument (other than as contemplated
by the Basic Documents), or (C) violate any law or any order, rule or
regulation applicable to the Company of any court or of any federal or
state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Company, or any of its
properties; and
(vii) the transfer of the Transition Property by the Seller to
the Note Issuer pursuant to the Sale Agreement conveys the Seller's
right, title and interest in the Transition Property to the Note
Issuer and will be treated as an absolute transfer of all of the
Seller's right, title, and interest in the Transition Property, other
than for federal and state income and franchise tax purposes. Such
transfer of the Transition Property is perfected and is of first
priority.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State
of California or the United States, to the extent deemed proper and
specified in such opinion, upon the opinion of other counsel of good
standing believed to be reliable and who are satisfactory to counsel for
the Underwriters and (B) as to matters of fact, to the extent deemed
proper, on certificates of responsible officers of the Company. References
to the Final Prospectus in this paragraph (b) include any supplements
thereto at the Closing Date.
(c) The Representatives shall have received opinions of counsel for
the Note Issuer, portions of which may be delivered by [_], outside
counsel for the Note Issuer, portions of which may be delivered by [_],in-
house counsel for the Note Issuer, portions of which may be delivered by
[_], special regulatory counsel for the Note Issuer, and portions of which
may be delivered by [_], special Delaware counsel for the Note Issuer, each
dated the Closing Date, in form and substance reasonably satisfactory to
the Representatives, to the effect that:
(i) the Note Issuer has been duly formed and is validly existing
as a single member limited liability company and is in good standing
under
<PAGE>
14
the laws of the State of Delaware, with full power and authority to
execute, deliver and perform its obligations under this Agreement, the
Sale Agreement, the Servicing Agreement, the Indenture, the Note
Purchase Agreement and the Notes;
(ii) the Sale Agreement, the Servicing Agreement, the Indenture
and the Note Purchase Agreement have been duly authorized, executed
and delivered, and constitute legal, valid and binding instruments
enforceable against the Note Issuer in accordance with their terms
(subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws or
equitable principles affecting creditors' rights generally from time
to time in effect); and the Notes have been duly authorized and
executed, and when authenticated in accordance with the provisions of
the Indenture and delivered to and paid for by the Trust in accordance
with the terms of the Note Purchase Agreement, will constitute legal,
valid and binding obligations of the Note Issuer entitled to the
benefits of the Indenture and any related Series Supplement (subject,
as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws or
equitable principles affecting creditors' rights generally from time
to time in effect);
(iii) the Notes, the Indenture and the Note Purchase Agreement
conform to the descriptions thereof contained in the Final Prospectus;
(iv) the Indenture has been duly qualified under the Trust
Indenture Act;
(v) to the best knowledge of such counsel, there is no pending
or threatened action, suit or proceeding before any court or
governmental agency, authority or body or any arbitrator involving the
Note Issuer, or relating to the Notes, the Financing Order or the
Statute of a character required to be disclosed in the Registration
Statement which is not adequately disclosed in the Final Prospectus,
and there is no franchise, contract or other document of a character
required to be described in the Registration Statement or Final
Prospectus, or to be filed as an exhibit, which is not described or
filed as required; and the statements included or incorporated in the
Final Prospectus under the headings "Energy Deregulation and New
California Market Structure" (to the extent the Statute is described),
"Description of the Transition Property", "The Note Issuer",
"Servicing" (to the
<PAGE>
15
extent the Servicing Agreement is described) and "Description of the
Notes" fairly summarize the matters described therein;
(vi) the Registration Statement has become effective under the
Act; any required filing of the Basic Prospectus, any Preliminary
Final Prospectus and the Final Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); to the best knowledge
of such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for that
purpose have been instituted or threatened, and the Registration
Statement and the Final Prospectus (other than the financial
statements and other financial and statistical information contained
therein as to which such counsel need express no opinion) comply as to
form in all material respects with the applicable requirements of the
Act, the Exchange Act and the Trust Indenture Act and the respective
rules thereunder; and such counsel has no reason to believe that at
the Effective Date the Registration Statement contained any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading or that the Final Prospectus as of its date and the
Closing Date includes any untrue statement of a material fact or omits
to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading;
(vii) this Agreement has been duly authorized, executed and
delivered by the Note Issuer;
(viii) no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transactions contemplated herein, except such as have been obtained
under the California Government Code, the PU Code and the Act and such
as may be required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Certificates by
the Underwriters and such other approvals (specified in such opinion)
as have been obtained;
(ix) subject to the ultimate outcome of any Petition to the
California Supreme Court for Writ of Review by The Utility Reform
Network, neither the execution and delivery of this Agreement, the
<PAGE>
16
Sale Agreement, the Servicing Agreement, the Indenture or the Note
Purchase Agreement, nor the issue and sale of the Notes, nor the
consummation of the transactions contemplated by this Agreement, the
Sale Agreement, the Servicing Agreement, the Indenture or the Note
Purchase Agreement, nor the fulfillment of the terms of this
Agreement, the Sale Agreement, the Servicing Agreement, the Indenture
or the Note Purchase Agreement by the Note Issuer, will (A) conflict
with, result in any breach of any of the terms or provisions of, or
constitute (with or without notice or lapse of time) a default under
the charter, bylaws or other organizational documents of the Note
Issuer, or conflict with or breach any of the material terms or
provisions of, or constitute (with or without notice or lapse of time)
a default under, any indenture, agreement or other instrument known to
such counsel and to which the Note Issuer is a party or by which the
Note Issuer is bound, (B) result in the creation or imposition of any
lien upon any properties of the Note Issuer pursuant to the terms of
any such indenture, agreement or other instrument, or (C) violate any
law or any order, rule or regulation applicable to the Note Issuer of
any court or of any federal or state regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over
the Note Issuer, or any of its properties;
(x) to the extent that the provisions of Section 843 of the PU
Code apply to the grant of a security interest by the Note Issuer in
the Collateral pursuant to the Indenture, the Indenture creates in
favor of the Note Trustee a security interest in the rights of the
Note Issuer in the Collateral, and such security interest is
enforceable against the Note Issuer and third parties [(subject to the
rights of any third parties holding security interests in such
Collateral perfected in the manner described in Section 843(a) of the
PU Code)], and has attached. Such security interest created by the
Indenture in the Collateral has been perfected, and such perfected
security interest is of first priority (subject to Section 843(g) of
the PU Code). To the extent that the provisions of Section 843 of the
PU Code do not apply to the grant of a security interest by the Note
Issuer in the Collateral pursuant to the Indenture, the Indenture
creates in favor of the Note Trustee a security interest in the rights
of the Note Issuer in the Collateral, and such security interest is
enforceable against the Note Issuer and third parties with respect to
such Collateral. Such
<PAGE>
17
security interest is perfected, and such perfected security
interest is of first priority [(subject to Section 843(g) of the
PU Code)] [ADD LANGUAGE RE LIEN SEARCHES WERE CONDUCTED AND NO
THIRD PARTIES HAVE ANY LIENS]; and
(xi) the Note Issuer is not an "investment company" or
under the "control" of an "investment company" as such terms are
defined under the Investment Company Act of 1940, as amended.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the
State of California or the United States, to the extent deemed proper
and specified in such opinion, upon the opinion of other counsel of
good standing believed to be reliable and who are satisfactory to
counsel for the Underwriters and (B) as to matters of fact, to the
extent deemed proper, on certificates of responsible officers of the
Note Issuer and public officials. References to the Final Prospectus
in this paragraph (c) include any supplements thereto at the Closing
Date.
(d) The Representatives shall have received opinions of counsel
for the Trust and the Infrastructure Bank, portions of which may be
delivered by Brown & Wood LLP, outside counsel for the Trust and The
Infrastructure Bank, portions of which may be delivered by Brooke
Bassett, in-house counsel for the Infrastructure Bank, and portions of
which may be delivered by [_], special Delaware counsel for the
Trust, each dated the Closing Date, in form and substance reasonably
satisfactory to the Representatives, to the effect that:
(i) the Certificates conform to the descriptions thereof
contained in the Final Prospectus;
(ii) the Trust has been duly formed and is validly existing
as a Delaware business trust and is in good standing under the
laws of the State of Delaware, with full power and authority to
execute, deliver and perform its obligations under this Agreement
and the Certificates;
(iii) the Infrastructure Bank has been duly formed and is
validly existing as a public body established within the state
government of the State of California and is in good standing
under the laws of the State of California, with full power and
authority to execute, deliver and perform its obligations under
the Trust Agreement;
<PAGE>
18
(iv) the Trust Agreement has been duly authorized,
executed and delivered by the Infrastructure Bank and constitutes
a legal, valid and binding instrument enforceable against the
Infrastructure Bank in accordance with its terms (subject, as to
enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws or
equitable principles affecting creditors' rights generally from
time to time in effect);
(v) the Certificates have been duly authorized and
executed and, when authenticated in accordance with the
provisions of the Trust Agreement and delivered to and paid for
by the Underwriters pursuant to this Agreement, will be duly
issued and entitled to the benefits of the Trust Agreement;
(vi) the Trust Agreement has been duly qualified under the
Trust Indenture Act;
(vii) to the best knowledge of such counsel, there is no
pending or threatened action, suit or proceeding before any court
or governmental agency, authority or body or any arbitrator
involving the Infrastructure Bank or relating to the
Certificates, the Financing Order or the Statute of a character
required to be disclosed in the Registration Statement which is
not adequately disclosed in the Final Prospectus, and there is no
franchise, contract or other document of a character required to
be described in the Registration Statement or Final Prospectus,
or to be filed as an exhibit, which is not described or filed as
required; and the statements included or incorporated in the
Final Prospectus under the headings "Description of the
Certificates," "The Trust," and "The Infrastructure Bank" fairly
summarize the matters described therein and the statements
included or incorporated in the Final Prospectus under the
headings "Certain Federal Income Tax Consequences", "State
Taxation" and "ERISA Considerations", to the extent that they
constitute matters of California [, Delaware] or federal law or
legal conclusions with respect thereto, provide a fair and
accurate summary of such law of conclusions;
(viii) the Registration Statement has become effective under
the Act; any required filing of the Basic Prospectus, any
Preliminary Final Prospectus and the Final Prospectus, and any
supplements thereto, pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); to the
best knowledge of
<PAGE>
19
such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for that
purpose have been instituted or threatened, and the Registration
Statement and the Final Prospectus (other than the financial
statements and other financial and statistical information
contained therein as to which such counsel need express no
opinion) comply as to form in all material respects with the
applicable requirements of the Act, the Exchange Act and the
Trust Indenture Act and the respective rules thereunder; and such
counsel has no reason to believe that at the Effective Date the
Registration Statement contained any untrue statement of a
material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading or that the Final Prospectus as of its date and the
Closing Date includes any untrue statement of a material fact or
omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading;
(ix) this Agreement has been duly authorized, executed and
delivered by the Trust;
(x) no consent, approval, authorization or order of any
court or governmental agency or body is required for the
consummation of the transactions contemplated herein, except such
as have been obtained under the California Government Code, the
PU Code and the Act and such as may be required under the blue
sky laws of any jurisdiction in connection with the purchase and
distribution of the Certificates by the Underwriters and such
other approvals (specified in such opinion) as have been
obtained;
(xi) subject to the ultimate outcome of any Petition to the
California Supreme Court for Writ of Review by The Utility Reform
Network, neither the execution and delivery of this Agreement or
the Trust Agreement, nor the issue and sale of the Certificates,
nor the consummation of the transactions contemplated by this
Agreement or the Trust Agreement, nor the fulfillment of the
terms of this Agreement or the Trust Agreement by the
Infrastructure Bank will (A) conflict with, result in any breach
of any of the terms or provisions of, or constitute (with or
without notice or lapse of time) a default under the charter,
bylaws or other organizational documents of the Infrastructure
Bank, or conflict with or breach
<PAGE>
20
any of the material terms or provisions of, or constitute (with or
without notice or lapse of time) a default under, any indenture,
agreement or other instrument known to such counsel and to which the
Infrastructure Bank is a party or by which the Infrastructure Bank is
bound, (B) result in the creation or imposition of any lien upon any
properties of the Infrastructure Bank pursuant to the terms of any
such indenture, agreement or other instrument, or (C) violate any law
or any order, rule or regulation applicable to the Infrastructure Bank
of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Infrastructure Bank, or any of its properties;
and
(xii) the Trust is not an "investment company" or under the
"control" of an "investment company" as such terms are defined under
the Investment Company Act of 1940, as amended.
In rendering such opinion, such counsel may rely (A) as to matters
involving the of laws of any jurisdiction other than the State of
California or the United States, to the extent deemed proper and specified
in such opinion, upon the opinion of other counsel of good standing
believed to be reliable and who are satisfactory to counsel for the
Underwriters and (B) as to matters of fact, to the extent deemed proper, on
certificates of responsible officers of the Trust, the Infrastructure Bank
and public officials. References to the Final Prospectus in this paragraph
(d) include any supplements thereto at the Closing Date.`
(e) The Representatives shall have received an opinion of Seward &
Kissel, counsel to the Note Trustee, dated the Closing Date, in form and
substance reasonably satisfactory to the Representatives, to the effect
that:
(i) the Note Trustee is a banking corporation duly incorporated
and validly existing under the laws of the State of New York, with
full corporate trust power to accept the office of trustee under the
Indenture and to enter into and perform its obligations under the
Indenture;
(ii) the Indenture has been duly authorized, executed and
delivered, and constitutes a legal, valid and binding instrument
enforceable against the Note Trustee in accordance with its terms
(subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws or
equitable
<PAGE>
21
principles affecting creditors' rights generally from time to time in
effect); and
(iii) the Notes have been duly authenticated by the Note Trustee.
(f) The Representatives shall have received an opinion of Seward &
Kissel, counsel to the Certificate Trustee, dated the Closing Date, in form
and substance reasonably satisfactory to the Representatives, to the effect
that:
(i) the Certificate Trustee is duly incorporated and is validly
existing as a banking corporation in good standing under the laws of
the State of New York, with full corporate trust power and authority
to enter into and perform its obligations under the Trust Agreement
and, on behalf of the Trust, under the Note Purchase Agreement;
(ii) the Trust Agreement and, on behalf of the Trust, the Note
Purchase Agreement have been duly authorized, executed and delivered
by the Certificate Trustee, and constitute legal, valid and binding
instruments enforceable against the Certificate Trustee in accordance
with their terms (subject, as to enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws or equitable principles affecting creditors' rights
generally from time to time in effect); and
(iii) the Certificate Trustee has duly executed, authenticated
and delivered the Certificates issued on the Closing Date on behalf of
the Trust;
(g) The Representatives shall have received an opinion of Richards,
Layton & Finger, counsel to the Delaware Trustee, dated the Closing Date,
in form and substance reasonably satisfactory to the Representatives, to
the effect that:
(i) the Delaware Trustee is duly incorporated and is validly
existing as a banking corporation in good standing under the laws of
the State of Delaware, with full corporate trust power and authority
to enter into and perform its obligations under the Trust Agreement;
and
(ii) the Trust Agreement has been duly authorized, executed and
delivered by the Delaware Trustee, and constitutes a legal, valid and
binding instrument enforceable against the Delaware Trustee in
accordance with its terms
<PAGE>
22
(subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws or
equitable principles affecting creditors' rights generally from time
to time in effect);
(h) The Representatives shall have received from Cravath, Swaine &
Moore, counsel for the Underwriters, such opinion or opinions, dated the
Closing Date, with respect to the issuance and sale of the Notes and the
Certificates, the Indenture, the Trust Agreement, the Registration
Statement, the Final Prospectus (together with any supplement thereto) and
other related matters as the Representatives may reasonably require, and
the Company, the Note Issuer and the Trust shall have furnished to such
counsel such documents as they request for the purpose of enabling them to
pass upon such matters.
(i) The Representatives shall have received a certificate of the Note
Issuer, signed by the Chairman of the Board or the President and the
principal financial or accounting officer of the Note Issuer, dated the
Closing Date, to the effect that the signers of such certificate have
carefully examined the Registration Statement, the Final Prospectus, any
supplement to the Final Prospectus and this Agreement and that:
(i) the representations and warranties of the Note Issuer in
this Agreement are true and correct in all material respects on and as
of the Closing Date with the same effect as if made on the Closing
Date, and the Note Issuer has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Note Issuer's knowledge,
threatened; and
(iii) since the dates as of which information is given in the
Final Prospectus (exclusive of any supplement thereto), there has been
no material adverse change in the condition (financial or other),
earnings, business or properties of the Note Issuer, whether or not
arising from transactions in the ordinary course of business, except
as set forth in or contemplated in the Final Prospectus (exclusive of
any supplement thereto).
<PAGE>
23
(j) The Representatives shall have received a certificate of the
Company, signed by the Chairman of the Board or the President and the
principal financial or accounting officer of the Company, dated the Closing
Date, to the effect that the signers of such certificate have carefully
examined the Registration Statement, the Final Prospectus, any supplement
to the Final Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement and in Article III of the Sale Agreement and in Section 6.01
of the Servicing Agreement are true and correct in all material
respects on and as of the Closing Date with the same effect as if made
on the Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the dates as of which information is given in the
Final Prospectus (exclusive of any supplement thereto), there has been
no material adverse change in the condition (financial or other),
earnings, business or properties of the Company and its subsidiaries
taken as a whole, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in
the Final Prospectus (exclusive of any supplement thereto).
(k) At the Closing Date, [name of accountants] shall have furnished
to the Representatives (i) a letter or letters (which may refer to letters
previously delivered to one or more of the Representatives), dated as of
the Closing Date, in form and substance satisfactory to the
Representatives, confirming that they are independent accountants within
the meaning of the Act and the Exchange Act and the
<PAGE>
24
respective applicable published rules and regulations thereunder and
stating in effect that they have performed certain specified procedures as
a result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the general
accounting records of the Company and its subsidiaries) set forth in the
Registration Statement and the Final Prospectus, including information
specified by the Underwriters and set forth under the captions "Prospectus
Summary," "Description of the Transition Property," "The Seller and the
Servicer," "Description of the Notes," and "Description of the
Certificates" in the Final Prospectus, agrees with the accounting records
of the Company and its subsidiaries, excluding any questions of legal
interpretation, and (ii) the opinion or certificate, dated as of the
Closing Date, in form and substance satisfactory to the Representatives,
satisfying the requirements of Section 2.10(7) of the Indenture.
References to the Final Prospectus in this paragraph (k) include any
supplement thereto at the date of the letter.
In addition, except as provided in Schedule I hereto, at the Execution
Time, [name of accountants] shall have furnished to the Representatives a
letter or letters, dated as of the Execution Time, in form and substance
satisfactory to the Representatives, to the effect set forth above.
(l) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Final Prospectus (exclusive of any supplement
thereto), there shall not have been any change, or any development
involving a prospective change, in or affecting either (i) the business,
properties or financial condition of the Company, the Note Issuer or the
Infrastructure Bank or (ii) the Transition Property, the Notes, the
Certificates, the Financing Order or the Statute, the effect of which is,
in the judgment of the Representatives, so material and adverse as to make
it impractical or inadvisable to proceed with the offering or delivery of
the Notes or the Certificates as contemplated by the Registration Statement
(exclusive of any amendment thereof) and the Final Prospectus (exclusive of
any supplement thereto).
(m) The Representatives shall have received on the Closing Date an
opinion letter or letters of [_], counsel to the Company and the Note
Issuer, dated the Closing Date, in form and substance reasonably
satisfactory to the Representatives,
<PAGE>
25
(i) with respect to the characterization of the transfer of the
Transition Property by the Company to the Note Issuer as a "true sale" for
bankruptcy purposes and (ii) to the effect that a court would not order the
substantive consolidation of the assets and liabilities of the Note Issuer
with those of the Company in the event of a bankruptcy, reorganization or
other insolvency proceeding involving the Company.
(n) The Representatives shall have received on the Closing Date an
opinion letter of Brown & Wood LLP, outside counsel to the Infrastructure
Bank and the Trust, dated the Closing Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that a court
would not order the substantive consolidation of the assets and liabilities
of the Infrastructure Bank with those of the Trust.
(o) The Representatives shall have received on the Closing Date an
opinion letter or letters of counsel for the Company, portions of which may
be delivered by [_], outside counsel for the Company, portions of which may
be delivered by [_], special regulatory counsel for the Company, and
portions of which may be delivered by [_], in-house counsel for the
Company, each dated the Closing Date, in form and substance reasonably
satisfactory to the Representatives, to the effect that: (i) subject to the
ultimate outcome of any Petition to the California Supreme Court for Writ
of Review filed by The Utility Reform Network, the Financing Order and the
Issuance Advice Letter have been duly authorized and adopted by the CPUC
and are in full force and effect; in reliance on the opinion of Brown &
Wood LLP that the Certificates are "rate reduction bonds" under Section
840(e) of the PU Code, as of the issuance of the Certificates, the
Certificates are entitled to the protections provided in the first
sentences of PU Code Sections 841(c) and 842(d); (ii) no person may
challenge the Financing Order in California state courts other than in a
proceeding pursuant to a Petition for Writ of Review brought by The Utility
Reform Network to the California Supreme Court; (iii) the likelihood that
the ultimate outcome of any Petition to the California Supreme Court for
Writ of Review filed by The Utility Reform Network will result in a
material breach in the representations and warranties of the Company set
forth in Sections 3.08(d) and 3.08(f) of the Sale Agreement is remote; and
(iv) the True-Up Adjustments (as defined in the Servicing Agreement) cover
any default by an ESP (as defined in the Servicing Agreement) under an ESP
Service Agreement (as defined in the Servicing Agreement) and any surcharge
imposed by a bankruptcy court in respect of [describe surcharge].
<PAGE>
26
(p) The Representatives shall have received on the Closing Date an
opinion letter or letters of counsel for the Infrastructure Bank and the
Trust, portions of which may be delivered by Brown & Wood LLP, outside
counsel for the Infrastructure Bank and the Trust, and portions of which
may be delivered by Brooke Bassett, in-house counsel for the Infrastructure
Bank, each dated the Closing Date, in form and substance reasonably
satisfactory to the Representatives, to the effect that: (i) Proposition
218 of the initiative provisions of the Constitution of California does not
apply to AB 1890; (ii) any state action (whether by legislative, CPUC,
initiative or otherwise) to revoke or limit the Financing Order, the
Issuance Advice Letters, the Transition Property or the Fixed Transition
Amounts in a manner which would substantially impair the rights of
Certificateholders would be subject to a successful constitutional
contracts clause defense; (iii) the Infrastructure Bank has validly
authorized and approved the formation of the Trust, the issuance of the
Certificates and all other transactions and actions contemplated by the
Basic Documents; such authorizations and approvals are valid, in full force
and effect and are not subject to review or appeal; the Certificates
qualify as "rate reduction bonds" under Section 840(e) of the PU Code; and
(iv) any existing challenges to the Infrastructure Bank's Resolution or
actions taken by the Infrastructure Bank in connection therewith have no
merit.
(q) The Representatives shall have received on the Closing Date an
opinion letter or letters of [_], special Delaware counsel to the Note
Issuer, dated the Closing Date, in form and substance reasonably
satisfactory to the Representatives, to the effect that: (i) if properly
presented to a Delaware court, a Delaware court applying Delaware law,
would conclude that (x) in order for a person to file a voluntary
bankruptcy petition on behalf of the Note Issuer, the prior unanimous
written consent of the Member and the Independent Director, as provided in
Section 9(j)(iii) of the Amended and Restated Limited Liability Company
Agreement of the Note Issuer (the "LLC Agreement"), is required, and (y)
such provision, contained in Section 9(j)(iii) of the LLC Agreement, that
requires the unanimous written consent of the Member and the Independent
Director in order for a person to file a voluntary bankruptcy petition on
behalf of the Note Issuer, constitutes a legal, valid and binding agreement
of the Member and is enforceable against the Member, in accordance with its
terms; and (ii) the LLC Agreement constitutes a legal, valid and binding
agreement of the Member thereunder, and is enforceable against the Member
in accordance with its terms.
<PAGE>
27
(r) The Notes and the Certificates shall have been rated in the
highest long-term rating category by each of the Rating Agencies.
(s) On or prior to the Closing Date, the Note Issuer shall have
delivered to the Representatives evidence, in form and substance reasonably
satisfactory to the Representatives, that appropriate filings have been or
are being made in accordance with the PU Code and other applicable law
reflecting the grant of a security interest by the Note Issuer in the
Collateral to the Note Trustee, including the filing of the UCC financing
statements in the office of the Secretary of State of California.
(t) On or prior to the Closing Date, the Note Issuer shall have
delivered to the Representatives evidence, in form and substance
satisfactory to the Representatives, of the California Public Utility
Commission's issuance of the Financing Order relating to the Transition
Property.
(u) On or prior to the Closing Date, the Company shall have delivered
to the Representatives evidence, in form and substance reasonably
satisfactory to the Representatives, that the Company has obtained a
release of the Transition Property from the lien of [describe the Company's
current indenture].
(v) Prior to the Closing Date, the Note Issuer, the Company and the
Trust shall have furnished to the Representatives such further information,
certificates, opinions and documents as the Representatives may reasonably
request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Representatives. Notice of
such cancelation shall be given to the Note Issuer and the Trust in writing or
by telephone or telegraph confirmed in writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Cravath, Swaine & Moore, counsel for the
Underwriters, at Worldwide Plaza, 825 Eighth Avenue, New York, New York, or at
any other office designated by counsel for the Underwriters, on the Closing
Date.
<PAGE>
28
7. Reimbursement of Underwriters' Expenses. If the sale of the
----------------------------------------
Certificates provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company or the Note Issuer or
the Trust to perform any agreement herein or comply with any provision hereof
other than by reason of a default by any of the Underwriters, the Company and
the Note Issuer will, jointly and severally, reimburse the Underwriters upon
demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of the Certificates [, provided that the
aggregate amount payable by the Company and the Note Issuer pursuant to this
Section 7 shall not exceed $__________ [to be discussed].]
8. Indemnification and Contribution. (a) The Company and the Note
---------------------------------
Issuer will, jointly and severally, indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person who controls any Underwriter within the meaning of either the
Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the registration statement for the registration of the Certificates as
originally filed or in any amendment thereof, or in the Basic Prospectus, any
Preliminary Final Prospectus or the Final Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and will reimburse each such indemnified
party, as incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that (i) neither the Company nor the
-------- -------
Note Issuer will be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Note Issuer by or on behalf of any Underwriter through the Representatives
specifically for inclusion therein, (ii) neither the Company nor the Note Issuer
will be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or
<PAGE>
29
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Note Issuer by or on behalf of the Infrastructure
Bank specifically for inclusion therein and (iii) such indemnity with respect to
any Preliminary Final Prospectus shall not inure to the benefit of any
Underwriter or any person controlling such Underwriter from whom the person
asserting any such loss, claim, damage or liability purchased the Certificates
that are the subject thereof if such person did not receive a copy of the Final
Prospectus (or the Final Prospectus as supplemented) at or prior to the
confirmation of the sale of such Certificates to such person in any case where
such delivery is required by the Act and the untrue statement or omission of a
material fact contained in the Preliminary Final Prospectus was corrected in the
Final Prospectus (or the Final Prospectus as supplemented). This indemnity
agreement will be in addition to any liability which the Company and the Note
Issuer may otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, the Note Issuer, each of their directors, each of their officers
who signs the Registration Statement, and each person who controls the Company
or the Note Issuer within the meaning of either the Act or the Exchange Act, to
the same extent as the foregoing indemnity from the Company and the Note Issuer
to each Underwriter, but only with reference to written information relating to
such Underwriter furnished to the Note Issuer by or on behalf of such
Underwriter through the Representatives specifically for inclusion in the
documents referred to in the foregoing indemnity[, and each Underwriter
severally will reimburse the Company and the Note Issuer for any legal or other
expenses reasonably incurred by either of them in connection with investigating
or defending any such loss, claim, damage, liability or action.] This indemnity
agreement will be in addition to any liability which any Underwriter may
otherwise have. The Note Issuer acknowledges that the statements set forth in
the last paragraph of the cover page, under the heading "Underwriting" or "Plan
of Distribution" in any Preliminary Final Prospectus or the Final Prospectus
constitute the only information furnished in writing by or on behalf of the
several Underwriters for inclusion in the documents referred to in the foregoing
indemnity, and you, as the Representatives, confirm that such statements are
correct.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party
<PAGE>
30
of substantial rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the indemnified
party in any action for which indemnification is sought (in which case the
indemnifying party shall not thereafter be responsible for the fees and expenses
of any separate counsel retained by the indemnified party or parties except as
set forth below); provided, however, that such counsel shall be reasonably
-------- -------
satisfactory to the indemnified party. Notwithstanding the indemnifying party's
election to appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees, costs
and expenses of such separate counsel if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such counsel
with a conflict of interest, (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of the institution of such action or
(iv) the indemnifying party shall authorize the indemnified party to employ
separate counsel at the expense of the indemnifying party. An indemnifying party
will not, without the prior written consent of the indemnified parties, settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company, the Note Issuer and the
Underwriters agree to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which the Note
Issuer and one or more of the Underwriters may be subject in such proportion as
is appropriate to reflect the relative benefits received by the Note Issuer and
by the Underwriters
<PAGE>
31
from the offering of the Certificates and the Notes; provided, however, that in
-------- -------
no case shall any Underwriter (except as may be provided in any agreement among
underwriters relating to the offering of the Certificates) be responsible for
any amount in excess of the underwriting discount or commission applicable to
the Certificates purchased by such Underwriter hereunder. If the allocation
provided by the immediately preceding sentence is unavailable for any reason,
the Company, the Note Issuer and the Underwriters shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Note Issuer and of the Underwriters in connection with
the statements or omissions which resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Note Issuer shall be
deemed to be equal to the total net proceeds from the offering (before deducting
expenses) of the Certificates (which shall be equal to the net proceeds from the
sale of the Notes to the Trust (before deducting expenses)), and benefits
received by the Underwriters shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set forth on the cover
page of the Final Prospectus. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information provided
by the Note Issuer or the Underwriters. The Company, the Note Issuer and the
Underwriters agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls an Underwriter within the meaning of either the Act or the Exchange Act
and each director, officer, employee and agent of an Underwriter shall have the
same rights to contribution as such Underwriter, and each person who controls
the Note Issuer within the meaning of either the Act or the Exchange Act, each
officer of the Note Issuer who shall have signed the Registration Statement and
each director of the Note Issuer shall have the same rights to contribution as
the Note Issuer, subject in each case to the applicable terms and conditions of
this paragraph (d).
[(e) Pursuant to a separate letter agreement, the Infrastructure Bank
shall agree to indemnify and hold harmless the Underwriters, the directors,
officers, employees and agents of each Underwriter and each person who controls
any Underwriter within the meaning of either the Act or the Exchange Act, to the
same extent as the indemnity set forth in clause (a) above, but only with
reference to written information furnished to the Note Issuer by or on
<PAGE>
32
behalf of the Infrastructure Bank specifically for inclusion in the documents
referred to in clause (a) above.]
9. Default by an Underwriter. If any one or more Underwriters shall
--------------------------
fail to purchase and pay for any of the Certificates agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the nondefaulting Underwriters shall be obligated severally to take
up and pay for (in the respective proportions which the amount of Certificates
set forth opposite their names in Schedule II hereto bears to the aggregate
amount of Certificates set forth opposite the names of all the remaining
Underwriters) the Certificates which the defaulting Underwriter or Underwriters
agreed but failed to purchase; provided, however, that in the event that the
-------- -------
aggregate amount of Certificates which the defaulting Underwriter or
Underwriters agreed but failed to purchase shall exceed 10% of the aggregate
amount of Certificates set forth in Schedule II hereto, the nondefaulting
Underwriters shall have the right to purchase all, but shall not be under any
obligation to purchase any, of the Certificates, and if such nondefaulting
Underwriters do not purchase all the Certificates, this Agreement will terminate
without liability to any nondefaulting Underwriter, the Note Issuer or the
Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
seven days, as the Representatives shall determine in order that the required
changes in the Registration Statement and the Final Prospectus or in any other
documents or arrangements may be effected. Nothing contained in this Agreement
shall relieve any defaulting Underwriter of its liability, if any, to the Note
Issuer and any nondefaulting Underwriter for damages occasioned by its default
hereunder.
10. Termination. This Agreement shall be subject to termination in
------------
the absolute discretion of the Representatives, by notice given to the Note
Issuer and the Trust prior to delivery of and payment for the Certificates, if
prior to such time (i) there shall have occurred any change, or any development
involving a prospective change, in or affecting either (A) the business,
properties or financial condition of the Note Issuer, the Infrastructure Bank or
the Company or (B) the Transition Property, the Notes, the Certificates, the
Financing Order or the Statute, the effect of which, in the judgment of the
Representatives, materially impairs the investment quality of the Certificates
or makes it impractical or inadvisable to market the Certificates, (ii) trading
in the Company's Common Stock shall have been suspended by the Commission or the
New York Stock Exchange or trading in securities generally on the New York Stock
Exchange shall have been suspended or limited or minimum prices shall have been
established on such Exchange, (iii) a banking moratorium
<PAGE>
33
shall have been declared either by Federal, New York State or California State
authorities or (iv) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war or
other calamity or crisis the effect of which on financial markets is such as to
make it, in the judgment of the Representatives, impracticable or inadvisable to
proceed with the offering or delivery of the Certificates as contemplated by the
Final Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective
-------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, the Note Issuer or its officers, the Trust or its
officers and of the Underwriters set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of any Underwriter or of the Company, the Note Issuer, the Trust or
any of the officers, directors or controlling persons referred to in Section 8
hereof, and will survive delivery of and payment for the Certificates. The
provisions of Sections 7 and 8 hereof shall survive the termination or
cancelation of this Agreement.
12. Notices. All communications hereunder will be in writing and may
--------
be given by United States mail, courier service, telegram, telex, telemessage,
telecopy, telefax, cable or facsimile (confirmed by telephone or in writing in
the case of notice by telegram, telex, telemessage, telecopy, telefax, cable or
facsimile) or any other customary means of communication, and any such
communication shall be effective when delivered, or if mailed, three days after
deposit in the United States mail with proper postage for ordinary mail prepaid,
and if sent to the Representatives, to them at the address specified in Schedule
I hereto; and if sent to the Company, to it at [_], Attention: [_]; and if sent
to the Note Issuer, to it at [_], Attention: [_]; and if sent to the Trust, to
it at [_], Attention: [_]. The parties hereto, by notice to the others, may
designate additional or different addresses for subsequent communications.
13. Successors. This Agreement will inure to the benefit of and be
-----------
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and construed
---------------
in accordance with the laws of the State of [_].
15. Counterparts. This Agreement may be signed in any number of
-------------
counterparts, each of which shall be deemed an
<PAGE>
34
original, which taken together shall constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company, the Note Issuer, the Trust and the several Underwriters.
Very truly yours,
[NAME OF UTILITY],
by
__________________________
Name:
Title:
[_] FUNDING LLC,
by
_________________________
Name:
Title:
CALIFORNIA INFRASTRUCTURE AND
ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST [_]-1,
by
________________________
Name:
Title:
<PAGE>
35
The foregoing Agreement is
hereby confirmed and accepted
as of the date specified in
Schedule I hereto.
[SALOMON BROTHERS INC]
[MORGAN STANLEY & CO. INCORPORATED]
LEHMAN BROTHERS
by [SALOMON BROTHERS INC]
[MORGAN STANLEY & CO. INCORPORATED]
by
________________________
Name:
Title:
For themselves and the other
several Underwriters, if any,
named in Schedule II to the
foregoing Agreement.
or
[SALOMON BROTHERS INC]
[MORGAN STANLEY & CO. INCORPORATED]
by
__________________________
Name:
Title:
For itself and the other
several Underwriters, if any,
named in Schedule II to the
foregoing Agreement.
<PAGE>
SCHEDULE I
Underwriting Agreement dated
Registration Statement No.
Representative(s):
Title, Purchase Price and Description of Certificates:
Title:
Principal amount:
Purchase price (include accrued
interest or amortization, if
any):
Redemption provisions:
Other provisions:
Closing Date, Time and Location:
Type of Offering: [Delayed Offering or Non-Delayed Offering]
Date referred to in Section 5(f) after which the Company and the Note Issuer may
offer or sell asset-backed securities in a trust or special purpose vehicle
without the consent of the Representative(s):
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Underwriters Principal Amount
- ------------ of Certificates to
be Purchased
------------------
<S> <C>
$
____________________
Total................................. $
====================
</TABLE>
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
SCE FUNDING LLC
This Amended and Restated Limited Liability Company Agreement
(together with the schedules attached hereto, this "Agreement") of SCE Funding
LLC (the "Company"), is entered into by Southern California Edison Company, a
California corporation, as the sole member (the "Initial Member"). Capitalized
terms used herein and not otherwise defined have the meanings set forth on
Schedule A hereto.
- ----------
The Initial Member, by execution of this Agreement, (i) hereby
continues the Company as a limited liability company pursuant to and in
accordance with the Delaware Limited Liability Company Act (6 Del.C. (S)18-101,
------
et seq.), as amended from time to time (the "Act"), and this Agreement, (ii)
- -- ---
hereby amends and restates in its entirety the initial Limited Liability Company
Agreement of the Company, dated as of June 27, 1997 (the "Initial LLC
Agreement"), and (iii) hereby agrees as follows:
1. Name.
----
The name of the limited liability company heretofore previously formed
and continued hereby is SCE Funding LLC.
2. Principal Business Office.
-------------------------
The principal business office of the Company shall be located at 2244
Walnut Grove Avenue, Room 180, Rosemead, California 91770, or such other
location as may hereafter be determined by the Member.
3. Registered Office.
-----------------
The address of the registered office of the Company in the State of
Delaware is c/o RL&F Service Corp., One Rodney Square, 10th Floor, Tenth and
King Streets, Wilmington, New Castle County, Delaware 19801.
4. Registered Agent.
----------------
The name and address of the registered agent of the Company for
service of process on the Company in the State of Delaware is RL&F Service
Corp., One Rodney Square, 10th Floor, Tenth and King Streets, Wilmington, New
Castle County, Delaware 19801.
-1-
<PAGE>
5. Members.
-------
a. The name and the mailing address of the Initial Member are set
forth on Schedule B attached hereto.
----------
b. Subject to Section 9j, the Member may act by written consent.
6. Certificates.
------------
James G. Leyden, Jr., as an "authorized person" within the meaning of
the Act, has executed, delivered and filed the Certificate of Formation with the
Secretary of State of the State of Delaware. Upon the filing of the Certificate
of Formation with the Secretary of State of the State of Delaware, his powers as
an "authorized person" ceased, and the Member thereupon became the designated
"authorized person" and shall continue as the designated "authorized person"
within the meaning of the Act. The Member or an Officer shall execute, deliver
and file any other certificates (and any amendments and/or restatements thereof)
necessary for the Company to qualify to do business in California and in any
other jurisdiction in which the Company may wish to conduct business.
7. Purposes.
--------
Subject to Section 9j, the purposes of the Company are to engage in
the following activities:
a. (i) to acquire, own, hold, administer, service, or enter into
agreements for the servicing of, finance, manage, sell, assign, pledge, collect
amounts due on and otherwise deal with the Transition Property and other assets
to be acquired pursuant to the Basic Documents and any proceeds or rights
associated therewith;
(ii) to issue, sell, authorize and deliver the Notes and other
evidences of the Indebtedness and to enter into any agreement or document
providing for the authorization, issuance, sale and delivery of the Notes;
(iii) to sell, exchange, pledge, encumber or otherwise dispose of
all or any part of the Transition Property and its other assets and property
and, in connection therewith, to accept, collect, hold, sell, exchange or
otherwise dispose of evidences of indebtedness or other property received
pursuant thereto, including the encumbrance of all of the Transition Property
and its other assets and property as collateral security for the Indebtedness;
(iv) to execute, deliver and perform the Basic Documents;
-2-
<PAGE>
(v) to invest proceeds from the Transition Property and its
other assets and any capital and income of the Company in accordance with the
Basic Documents or as otherwise determined by the Board and not inconsistent
with this Section 7 or the Basic Documents; and
(vi) to do such other things and carry on any other activities
which the Board determines to be necessary, convenient or incidental to any of
the foregoing purposes, and have and exercise all of the power and rights
conferred upon limited liability companies formed pursuant to the Act.
b. The Company, by or through any Officer on behalf of the Company,
may enter into and perform the Basic Documents, including the Note Issuance
Documents, the Notes, the Sale Documents, the Servicing Agreement and all
documents, agreements, certificates, or financing statements contemplated
thereby or related thereto, all without any further act, vote or approval of the
Member or any Director or Officer notwithstanding any other provision of this
Agreement, the Act or applicable law, rule or regulation. The foregoing
authorization shall not be deemed a restriction on the powers of any Officer to
enter into other agreements on behalf of the Company.
8. Powers.
------
Subject to Section 9j, the Company (i) shall have and exercise all
powers necessary, convenient or incidental to accomplish its purposes as set
forth in Section 7 and (ii) shall have and exercise all of the powers and
rights conferred upon limited liability companies formed pursuant to the Act.
9. Management.
----------
a. Board of Directors. Subject to Section 9j, the business and
------------------
affairs of the Company shall be managed by or under the direction of a Board of
one or more Directors. Subject to Section 10, the Member may determine at any
time in its sole and absolute discretion the number of Directors to constitute
the Board. The authorized number of Directors may be increased or decreased by
the Member at any time in its sole and absolute discretion, upon notice to all
Directors, and subject in all cases to Section 10. The initial number of
Directors shall be three, one of which shall be an Independent Director pursuant
to Section 10. Each Director elected, designated or appointed shall hold
office until a successor is elected and qualified or until such Director's
earlier death, resignation or removal. Each Director shall execute and deliver
the Management Agreement. Directors need not be Members.
b. Powers. Subject to Section 9j, the Board of Directors shall have
------
the power to do any and all acts necessary, convenient or incidental to or for
the furtherance of the purposes described herein, including all powers,
statutory or otherwise. Subject to Section 9j, the Board of Directors has the
authority to bind the Company.
-3-
<PAGE>
c. Meeting of the Board of Directors. The Board of Directors of the
---------------------------------
Company may hold meetings, both regular and special, within or outside the State
of Delaware. Regular meetings of the Board may be held without notice at such
time and at such place as shall from time to time be determined by the Board.
Special meetings of the Board may be called by the President on not less than
one day's notice to each Director by telephone, facsimile, mail, telegram or any
other means of communication, and special meetings shall be called by the
President or Secretary in like manner and with like notice upon the written
request of any one or more of the Directors.
d. Quorum; Acts of the Board. At all meetings of the Board, a
-------------------------
majority of the Directors shall constitute a quorum for the transaction of
business and, except as otherwise provided in any other provision of this
Agreement, the act of a majority of the Directors present at any meeting at
which there is a quorum shall be the act of the Board. If a quorum shall not be
present at any meeting of the Board, the Directors present at such meeting may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present. Any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
e. Electronic Communications. Members of the Board, or any committee
-------------------------
designated by the Board, may participate in meetings of the Board, or any
committee, by means of telephone conference or similar communications equipment
that allows all persons participating in the meeting to hear each other, and
such participation in a meeting shall constitute presence in person at the
meeting. If all the participants are participating by telephone conference or
similar communications equipment, the meeting shall be deemed to be held at the
principal place of business of the Company.
f. Committees of Directors.
-----------------------
(i) The Board may, by resolution passed by a majority of the
whole Board, designate one or more committees, each committee to consist of one
or more of the Directors of the Company. The Board may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee.
(ii) In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such members constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member.
(iii) Any such committee, to the extent provided in the resolution
of the Board, shall have and may exercise all the powers and authority of the
Board in the
-4-
<PAGE>
management of the business and affairs of the Company. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board. Each committee shall keep regular minutes of
its meetings and report the same to the Board when required.
g. Compensation of Directors; Expenses. The Board shall have the
-----------------------------------
authority to fix the compensation of Directors. The Directors may be paid their
expenses, if any, of attendance at meetings of the Board, which may be a fixed
sum for attendance at each meeting of the Board or a stated salary as Director.
No such payment shall preclude any Director from serving the Company in any
other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending committee
meetings.
h. Removal of Directors. Unless otherwise restricted by law, any
--------------------
Director or the entire Board of Directors may be removed, with or without cause,
at any time by the Member, and, subject to Section 10, any vacancy caused by
any such removal may be filled by action of the Member.
i. Directors as Agents. To the extent of their powers set forth in
-------------------
this Agreement and subject to Section 9j, the Directors are agents of the
Company for the purpose of the Company's business, and the actions of the
Directors taken in accordance with such powers set forth in this Agreement shall
bind the Company.
j. Limitations on the Company's Activities.
---------------------------------------
(i) This Section 9j is being adopted in order to comply with
certain provisions required in order to qualify the Company as a "special
purpose entity" for the purpose of the Indebtedness.
(ii) The Member shall not, so long as any Indebtedness is
outstanding, amend, alter, change or repeal the definition of "Independent
Director" or Sections 7, 8, 9, 10, 20, 21, 22, 23, 24, 26 or 31 or Schedule A of
----------
this Agreement without the unanimous written consent of the Board (including the
Independent Director). Subject to this Section 9j, the Member reserves the right
to amend, alter, change or repeal any provisions contained in this Agreement in
accordance with Section 31.
(iii) Notwithstanding any other provision of this Agreement and
any provision of law that otherwise so empowers the Company, the Member or the
Board, neither the Member nor the Board shall be authorized or empowered, nor
shall they permit the Company, without the prior unanimous written consent of
the Member and the Board (including the Independent Director), to take any
Material Action; provided, however, that the foregoing is subject in all cases
-------- -------
to Section 843(e) of the Statute.
(iv) Unless otherwise provided in the Note Issuance Documents, so
long as any Indebtedness is outstanding, the Board and the Member shall cause
the
-5-
<PAGE>
Company to do or cause to be done all things necessary to preserve and keep in
full force and effect its existence, rights (charter and statutory) and
franchises; provided, however, that the Company shall not be required to
-------- -------
preserve any such right or franchise if: (A) the Board shall determine that the
preservation thereof is no longer desirable for the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
holders of the Indebtedness and the Company shall deliver to the Note Trustee an
Officer's Certificate to that effect and (B) the Rating Agency Condition is
satisfied. The Board also shall cause the Company to:
(1) maintain its own separate books and records and bank
accounts;
(2) at all times hold itself out to the public as a legal
entity separate from the Member and any other Person;
(3) have a Board composed differently from that of the
Member and any other Person;
(4) file its own tax returns, if any, as may be required
under applicable law, to the extent (a) not part of a
consolidated group filing a consolidated return or
returns or (b) not treated as a division for tax
purposes of another taxpayer, and pay any taxes so
required to be paid under applicable law;
(5) not commingle its assets with assets of any other
Person (except as contemplated by the Basic Documents);
(6) conduct its business in its own name;
(7) maintain separate financial statements;
(8) pay its own liabilities only out of its own funds;
(9) maintain an arm's length relationship with its
Affiliates and its Member;
(10) pay the salaries of its own employees, if any;
(11) not hold out its credit as being available to satisfy
the obligations of others;
-6-
<PAGE>
(12) allocate fairly and reasonably any overhead for shared
office space;
(13) use separate stationery, invoices and checks;
(14) not pledge its assets for the benefit of any other
Person;
(15) correct any known misunderstanding regarding its
separate identity;
(16) maintain adequate capital in light of its contemplated
business purposes;
(17) cause its Board of Directors to meet at least annually
or act pursuant to written consent and keep minutes of
such meetings and actions and observe all other
Delaware limited liability company formalities; and
(18) not acquire any obligations or securities of a Member.
(v) So long as any Indebtedness is outstanding, the Board shall
not cause or permit the Company to:
(1) guarantee any obligation of any Person, including any
Affiliate;
(2) engage, directly or indirectly, in any business other
than that arising out of the issuance of the
Indebtedness or the actions required or permitted to be
performed under Section 7, the Note Issuance Documents
or this Section 9j;
(3) incur, create or assume any indebtedness other than the
Indebtedness or as otherwise expressly permitted under
the Note Issuance Documents;
(4) make or permit to remain outstanding any loan or
advance to, or own or acquire any stock or securities
of, any Person other than the instruments constituting
part of the Collateral, except that the Company may
invest in those investments permitted under the Note
Issuance Documents and may make any advance required or
expressly permitted to be made pursuant
-7-
<PAGE>
to any provisions of the Note Issuance Documents and
permit the same to remain outstanding in accordance
with such provisions;
(5) to the fullest extent permitted by law, engage in any
dissolution, liquidation, consolidation, merger, asset
sale or transfer of ownership interests other than such
activities as are expressly permitted pursuant to any
provision of the Note Issuance Documents; or
(6) form, acquire or hold any subsidiary (whether
corporate, partnership, limited liability company or
other).
10. Independent Director.
--------------------
As long as any Indebtedness is outstanding, the Member shall cause the
Company at all times to have at least one Independent Director who will be
appointed by the Member. To the fullest extent permitted by Section 18-1101(c)
of the Act, the Independent Director shall consider only the interests of the
Company, including its respective creditors, in acting or otherwise voting on
the matters referred to in Section 9j(iii). No resignation or removal of an
Independent Director, and no appointment of a successor Independent Director,
shall be effective until the successor Independent Director shall have accepted
his or her appointment by a written instrument, which may be a counterpart
signature page to the Management Agreement. All right, power and authority of
the Independent Directors shall be limited to the extent necessary to exercise
those rights and perform those duties specifically set forth in this Agreement.
Except as provided in the second sentence of this Section 10, in exercising
their rights and performing their duties under this Agreement, the Independent
Directors shall have a fiduciary duty of loyalty and care similar to that of a
director of a business corporation organized under the General Corporation Law
of the State of Delaware.
11. Officers.
--------
a. Officers. The Officers of the Company shall be chosen by the
--------
Board and shall consist of at least a President, a Secretary and a Treasurer.
The Board of Directors may also choose one or more Vice Presidents, Assistant
Secretaries and Assistant Treasurers. Any number of offices may be held by the
same person. The Board shall choose a President, a Secretary and a Treasurer.
The Board may appoint such other Officers and agents as it shall deem necessary
or advisable who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board. The salaries of all Officers and agents of the Company shall be fixed by
or in the manner prescribed by the Board. The Officers of the Company shall
hold office until their successors are chosen and qualified. Any Officer
elected or
-8-
<PAGE>
appointed by the Board may be removed at any time, with or without cause, by the
affirmative vote of a majority of the Board. Any vacancy occurring in any office
of the Company shall be filled by the Board.
b. President. The President shall be the chief executive officer of
---------
the Company, shall preside at all meetings of the Members, if any, and the
Board, shall be responsible for the general and active management of the
business of the Company and shall see that all orders and resolutions of the
Board are carried into effect. The President shall execute all bonds, mortgages
and other contracts, except: (i) where required or permitted by law or this
Agreement to be otherwise signed and executed, including Section 7b; (ii) where
signing and execution thereof shall be expressly delegated by the Board to some
other Officer or agent of the Company; and (iii) as otherwise permitted in
Section 11c.
c. Vice President. In the absence of the President or in the event
--------------
of the President's inability to act, the Vice President, if any (or in the event
there be more than one Vice President, the Vice Presidents in the order
designated by the Directors, or in the absence of any designation, then in the
order of their election), shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. The Vice Presidents, if any, shall perform such other duties and
have such other powers as the Board may from time to time prescribe.
d. Secretary and Assistant Secretary. The Secretary shall be
---------------------------------
responsible for filing legal documents and maintaining records for the Company.
The Secretary shall attend all meetings of the Board and all meetings of the
Members, if any, and record all the proceedings of the meetings of the Company
and of the Board in a book to be kept for that purpose and shall perform like
duties for the standing committees when required. The Secretary shall give, or
cause to be given, notice of all meetings of the Members, if any, and special
meetings of the Board, and shall perform such other duties as may be prescribed
by the Board or the President, under whose supervision the Secretary shall
serve. The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board (or if there be no such
determination, then in order of their election), shall, in the absence of the
Secretary or in the event of the Secretary's inability to act, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board may from time to time prescribe.
e. Treasurer and Assistant Treasurer. The Treasurer shall have the
---------------------------------
custody of the Company funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Company and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Company in such depositories as may be designated by the Board.
The Treasurer shall disburse the funds of the Company as may be ordered by the
Board, taking proper vouchers for such disbursements, and shall render to the
President and to the Board, at its regular meetings or when the Board so
requires, an account of all of the Treasurer's transactions and of the
-9-
<PAGE>
financial condition of the Company. The Assistant Treasurer, or if there shall
be more than one, the Assistant Treasurers in the order determined by the Board
(or if there be no such determination, then in the order of their election),
shall, in the absence of the Treasurer or in the event of the Treasurer's
inability to act, perform the duties and exercise the powers of the Treasurer
and shall perform such other duties and have such other powers as the Board may
from time to time prescribe.
f. Officers as Agents. The Officers, to the extent of their powers
------------------
set forth in this Agreement or otherwise vested in them by action of the Board
not inconsistent with this Agreement, are agents of the Company for the purpose
of the Company's business, and, subject to Section 9j, the actions of the
Officers taken in accordance with such powers shall bind the Company.
g. Duties of Board and Officers. Except to the extent otherwise
----------------------------
provided herein, each Director and Officer shall have a fiduciary duty of
loyalty and care similar to that of directors and officers of business
corporations organized under the General Corporation Law of the State of
Delaware.
12. Limited Liability.
-----------------
Except as otherwise expressly provided by the Act, the debts,
obligations and liabilities of the Company, whether arising in contract, tort or
otherwise, shall be the debts, obligations and liabilities solely of the
Company, and neither any Member nor any Director shall be obligated personally
for any such debt, obligation or liability of the Company solely by reason of
being a Member or Director of the Company.
13. Capital Contributions.
---------------------
The Initial Member was deemed admitted as the Member of the Company
upon the execution and delivery of the Initial LLC Agreement. The Initial
Member has contributed the amount of cash to the Company listed on Schedule B
----------
attached hereto.
14. Additional Contributions.
------------------------
The Initial Member is not required to make any additional capital
contribution to the Company. However, a Member may make additional capital
contributions to the Company at any time upon the written consent of such
Member. To the extent that the Member makes an additional capital contribution
to the Company, the Member shall revise Schedule B of this Agreement. The
----------
provisions of this Agreement, including this Section 14, are intended solely to
benefit the Member and, to the fullest extent permitted by law, shall not be
construed as conferring any benefit upon any creditor of the Company (and no
such creditor of the Company shall be a third-party beneficiary of this
Agreement) and no Member shall have any duty or obligation to any creditor of
the
-10-
<PAGE>
Company to make any contribution to the Company or to issue any call for capital
pursuant to this Agreement.
15. Allocation of Profits and Losses.
--------------------------------
The Company's profits and losses shall be allocated to the Member.
16. Distributions.
-------------
Distributions shall be made to the Member at the times and in the
aggregate amounts determined by the Board. Notwithstanding any provision to the
contrary contained in this Agreement, the Company shall not be required to make
a distribution to any Member on account of its interest in the Company if such
distribution would violate Section 18-607 of the Act or any other applicable law
or the Basic Documents.
17. Books and Records.
-----------------
The Board shall keep or cause to be kept complete and accurate books
of account and records with respect to the Company's business. The books of the
Company shall at all times be maintained by the Board. Each Member and its duly
authorized representatives shall have the right to examine the Company books,
records and documents during normal business hours. The Company, and the Board
on behalf of the Company, shall not have the right to keep confidential from the
Member any information that the Board would otherwise be permitted to keep
confidential from the Member pursuant to Section 18-305(c) of the Act. The
Company's books of account shall be kept using the method of accounting
determined by the Member. The Company's independent auditor shall be an
independent public accounting firm selected by the Member.
18. Reports.
-------
a. Within 60 days after the end of each fiscal quarter, the Board
shall cause to be prepared an unaudited report setting forth as of the end of
such fiscal quarter:
(i) unless such quarter is the last fiscal quarter, a balance
sheet of the Company; and
(ii) unless such quarter is the last fiscal quarter, an income
statement of the Company for such fiscal quarter.
b. The Board shall use diligent efforts to cause to be prepared and
mailed to the Members, within 90 days after the end of each fiscal year, an
audited or unaudited report setting forth as of the end of such fiscal year:
(i) a balance sheet of the Company;
-11-
<PAGE>
(ii) an income statement of the Company for such fiscal year; and
(iii) a statement of such Member's capital account.
c. The Board shall, after the end of each fiscal year, use reasonable
efforts to cause the Company's independent accountants to prepare and transmit
to each Member as promptly as such tax information as may be reasonably
necessary to enable such Member to prepare its federal, state and local income
tax returns relating to such fiscal year.
19. Other Business.
--------------
The Member and any Affiliate of the Member may engage in or possess an
interest in other business ventures (unconnected with the Company) of every kind
and description, independently or with others. The Company shall not have any
rights in or to such independent ventures or the income or profits therefrom by
virtue of this Agreement.
20. Exculpation and Indemnification.
-------------------------------
a. No Member, Officer, Director, employee or agent of the Company and
no employee, representative, agent or Affiliate of the Member (collectively, the
"Covered Persons") shall be liable to the Company or any other Person who has an
interest in or claim against the Company for any loss, damage or claim incurred
by reason of any act or omission performed or omitted by such Covered Person in
good faith on behalf of the Company and in a manner reasonably believed to be
within the scope of the authority conferred on such Covered Person by this
Agreement, except that a Covered Person shall be liable for any such loss,
damage or claim incurred by reason of such Covered Person's gross negligence or
willful misconduct.
b. To the fullest extent permitted by applicable law, a Covered
Person shall be entitled to indemnification from the Company for any loss,
damage or claim incurred by such Covered Person by reason of any act or omission
performed or omitted by such Covered Person in good faith on behalf of the
Company and in a manner reasonably believed to be within the scope of the
authority conferred on such Covered Person by this Agreement, except that no
Covered Person shall be entitled to be indemnified in respect of any loss,
damage or claim incurred by such Covered Person by reason of such Covered
Person's gross negligence or willful misconduct with respect to such acts or
omissions; provided, however, that any indemnity under this Section 20 shall be
-------- -------
provided out of and to the extent of Company assets only, and no Member shall
have personal liability on account thereof; and provided further, that so long
as any Indebtedness is outstanding no indemnity payment from funds of the
Company (as directed from funds from other sources, such as insurance) of any
indemnity under this Section 20 shall be payable except out of funds available
for payment of Company expenses as provided in the Indenture.
-12-
<PAGE>
c. To the fullest extent permitted by applicable law, expenses
(including legal fees) incurred by a Covered Person defending any claim, demand,
action, suit or proceeding shall, from time to time, be advanced by the Company
prior to the final disposition of such claim, demand, action, suit or proceeding
upon receipt by the Company of an undertaking by or on behalf of the Covered
Person to repay such amount if it shall be determined that the Covered Person is
not entitled to be indemnified as authorized in this Section 20.
d. A Covered Person shall be fully protected in relying in good
faith upon the records of the Company and upon such information, opinions,
reports or statements presented to the Company by any Person as to matters the
Covered Person reasonably believes are within such other Person's professional
or expert competence and who has been selected with reasonable care by or on
behalf of the Company, including information, opinions, reports or statements as
to the value and amount of the assets, liabilities, or any other facts pertinent
to the existence and amount of assets from which distributions to the Member
might properly be paid.
e. To the extent that, at law or in equity, a Covered Person has
duties (including fiduciary duties) and liabilities relating thereto to the
Company or to any other Covered Person, a Covered Person acting under this
Agreement shall not be liable to the Company or to any other Covered Person for
its good faith reliance on the provisions of this Agreement or any approval or
authorization granted by the Company or any other Covered Person. The
provisions of this Agreement, to the extent that they restrict the duties and
liabilities of a Covered Person otherwise existing at law or in equity, are
agreed by the Member to replace such other duties and liabilities of such
Covered Person.
f. The foregoing provisions of this Section 20 shall survive any
termination of this Agreement.
21. Assignments.
-----------
Subject to Section 23, the Member may assign in whole or in part its
limited liability company interest in the Company. If the Member transfers all
of its limited liability company interest in the Company pursuant to this
Section 21, the transferee shall be admitted to the Company as a member of the
Company upon its execution of an instrument signifying its agreement to be bound
by the terms and conditions of this Agreement, which instrument may be a
counterpart signature page to this Agreement. Such admission shall be deemed
effective immediately prior to the transfer, and, immediately following such
admission, the transferor Member shall cease to be a member of the Company.
Notwithstanding anything in this Agreement to the contrary, any successor to a
Member by merger or consolidation in compliance with the Basic Documents shall,
without further act, be a Member hereunder, and such merger or consolidation
shall not constitute an assignment for purposes of this Agreement.
-13-
<PAGE>
22. Resignation.
-----------
So long as any Indebtedness is outstanding, the Initial Member may not
resign unless the Rating Agency Condition is satisfied. A Member (other than
the Initial Member) may resign from the Company with the written consent of the
Initial Member. If a Member is permitted to resign pursuant to this Section
22, an additional member of the Company shall be admitted to the Company,
subject to Section 23, upon its execution of an instrument signifying its
agreement to be bound by the terms and conditions of this Agreement, which
instrument may be a counterpart signature page to this Agreement. Such
admission shall be deemed effective immediately prior to the resignation, and,
immediately following such admission, the resigning Member shall cease to be a
member of the Company.
23. Admission of Additional Members.
-------------------------------
One or more additional members of the Company may be admitted to the
Company with the written consent of the Member; provided that, notwithstanding
--------
the foregoing, so long as any Indebtedness remains outstanding, no additional
Members may be admitted to the Company unless the Initial Member retains a
majority interest in the Company and the Rating Agency Condition is satisfied.
24. Dissolution.
-----------
a. Subject to Section 9j, the Company shall be dissolved, and its
affairs shall be wound up upon the first to occur of the following: (i) the
retirement, resignation or dissolution of the Member or the occurrence of any
other event which terminates the continued membership of the Member in the
Company unless the business of the Company is continued in a manner permitted by
the Act or (ii) the entry of a decree of judicial dissolution under Section 18-
802 of the Act.
b. The bankruptcy (as defined in Section 18-101(1) of the Act) of the
Member shall not cause the Member to cease to be a member of the Company and
upon the occurrence of such an event, the business of the Company shall continue
without dissolution.
c. In the event of dissolution, the Company shall conduct only such
activities as are necessary to wind up its affairs (including the sale of the
assets of the Company in an orderly manner), and the assets of the Company shall
be applied in the manner, and in the order of priority, set forth in Section 18-
804 of the Act.
25. Waiver of Partition; Nature of Interest.
---------------------------------------
Except as otherwise expressly provided in this Agreement, to the
fullest extent permitted by law, each Member hereby irrevocably waives any right
or power that
-14-
<PAGE>
such Member might have to cause the Company or any of its assets to be
partitioned, to cause the appointment of a receiver for all or any portion of
the assets of the Company, to compel any sale of all or any portion of the
assets of the Company pursuant to any applicable law or to file a complaint or
to institute any proceeding at law or in equity to cause the dissolution,
liquidation, winding up or termination of the Company. No Member shall have any
interest in any specific assets of the Company, and no Member shall have the
status of a creditor with respect to any distribution pursuant to Section 16
hereof. The interest of the Members in the Company is personal property.
26. Benefits of Agreement; No Third-Party Rights.
--------------------------------------------
None of the provisions of this Agreement shall be for the benefit of
or enforceable by any creditor of the Company or by any creditor of any Member.
Nothing in this Agreement shall be deemed to create any right in any Person
(other than Covered Persons) not a party hereto, and this Agreement shall not be
construed in any respect to be a contract in whole or in part for the benefit of
any third Person.
27. Severability of Provisions.
--------------------------
Each provision of this Agreement shall be considered severable and if
for any reason any provision or provisions herein are determined to be invalid,
unenforceable or illegal under any existing or future law, such invalidity,
unenforceability or illegality shall not impair the operation of or affect those
portions of this Agreement which are valid, enforceable and legal.
28. Entire Agreement.
----------------
This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof.
29. Binding Agreement.
-----------------
Notwithstanding any other provision of this Agreement, the Member
agrees that this Agreement, including, without limitation, Sections 7, 8, 9, 10,
20, 21, 22, 23, 24, 26 and 31, constitutes a legal, valid and binding agreement
of the Member, and is enforceable against the Member by the Independent
Director, in accordance with its terms.
30. Governing Law.
-------------
This Agreement shall be governed by and construed under the laws of
the State of Delaware (without regard to conflict of laws principles), all
rights and remedies being governed by said laws.
-15-
<PAGE>
31. Amendments.
----------
Subject to Section 9j, this Agreement may not be modified, altered,
supplemented or amended except pursuant to a written agreement executed and
delivered by the Member. Notwithstanding anything to the contrary in this
Agreement, so long as any Indebtedness is outstanding, this Agreement may not be
modified, altered, supplemented or amended unless the Rating Agency Condition is
satisfied, except: (i) to cure any ambiguity or (ii) to correct or supplement
any provision in a manner consistent with the intent of this Agreement.
32. Counterparts.
------------
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original of this Agreement and all of which together
shall constitute one and the same instrument.
33. Notices.
-------
Any notices required to be delivered hereunder shall be in writing and
personally delivered, mailed or sent by telecopy or other similar form of rapid
transmission, and shall be deemed to have been duly given upon receipt (a) in
the case of the Company, to the Company at its address in Section 2, (b) in the
case of a Member, to such Member at its address as listed on Schedule B attached
----------
hereto and (c) in the case of either of the foregoing, at such other address as
may be designated by written notice to the other party.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, has duly executed this Agreement as of the 6th day of November, 1997.
MEMBER:
SOUTHERN CALIFORNIA EDISON
COMPANY
By:/s/ Theodore F. Craver, Jr.
________________________________
Theodore F. Craver, Jr.
Vice President & Treasurer
-16-
<PAGE>
SCHEDULE A
Definitions
-----------
A. Definitions
-----------
When used in this Agreement, the following terms not otherwise defined
herein have the following meanings:
"Act" has the meaning set forth in the preamble to this Agreement.
---
"Administrative Services Agreement" means the Administrative Services
---------------------------------
Agreement to be entered into between the Company and the Initial Member, as
administrator.
"Affiliate" means, with respect to any Person, any other Person
---------
directly or indirectly Controlling or Controlled by or under direct or indirect
common Control with such Person.
"Agreement" means this Amended and Restated Limited Liability Company
---------
Agreement, together with the schedules attached hereto, as amended, restated or
supplemented from time to time.
"Basic Documents" means the Indenture, the Trust Agreement, the Sale
---------------
Agreement, any Subsequent Sale Agreement, the Servicing Agreement, the
Underwriting Agreement, the Administrative Services Agreement, the Note Purchase
Agreement, the DTC Agreement, the Fee and Indemnity Agreement and all other
documents and certificates delivered in connection therewith.
"Board" or "Board of Directors" means the Board of Directors of the
----- ------------------
Company.
"Certificate of Formation" means the Certificate of Formation of the
------------------------
Company filed with the Secretary of State of the State of Delaware on June 27,
1997, as amended or amended and restated from time to time.
"Certificates" means the rate reduction certificates to be issued by
------------
California Infrastructure and Economic Development Bank Special Purpose Trust -
SCE-1.
"Certificate Trustee" means the institution serving as certificate
-------------------
trustee under the Trust Agreement.
"Class" means, with respect to any Series of Notes, any one of the
-----
classes of Notes of that Series.
A-1
<PAGE>
"Collateral" means all of the Company's right, title and interest in
----------
and to (a) the Transition Property transferred by the Initial Member to the
Company pursuant to the Sale Agreement and all proceeds thereof, (b) any
Subsequent Transition Property transferred by the Initial Member to the Company
pursuant to each Subsequent Sale Agreement and all proceeds thereof, (c) the
Sale Agreement and each Subsequent Sale Agreement, (d) the Servicing Agreement,
(e) the Collection Account (including all subaccounts thereof) and all amounts
or investment property on deposit therein or credited thereto from time to time,
(f) all other property of whatever kind owned from time to time by the Company,
(g) all present and future claims, demands, causes and choses in action in
respect of any or all of the foregoing and all payments on or under and all
proceeds of every kind and nature whatsoever in respect of any or all of the
foregoing, including all proceeds of the conversion, voluntary or involuntary,
into cash or other liquid property, all cash proceeds, accounts, accounts
receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts,
insurance proceeds, condemnation awards, rights to payment of any and every
kind, and other forms of obligations and receivables, instruments and other
property which at any time constitute all or part of or are included in proceeds
of any of the foregoing and (h) all proceeds of the foregoing.
"Collection Account" means the segregated trust account to be
------------------
established in the name of the Note Trustee into which will be deposited the
payments received in respect of the non-bypassable, usage-based, per-kilowatt-
hour FTA charges permitted to be levied on customers pursuant to the Financing
Order.
"Company" means SCE Funding LLC, a Delaware limited liability company.
-------
"Control" means the possession, directly or indirectly, or the power
-------
to direct or cause the direction of the management or policies of a Person,
whether through the ownership of voting securities or general partnership or
managing member interests, by contract or otherwise. "Controlling" and
"Controlled" shall have correlative meanings. Without limiting the generality
of the foregoing, a Person shall be deemed to Control any other Person in which
it owns, directly or indirectly, a majority of the ownership interests.
"Covered Persons" has the meaning set forth in Section 20.
---------------
"Delaware Trustee" means the institution serving as Delaware trustee
----------------
under the Trust Agreement.
"Directors" means the directors elected to the Board of Directors from
---------
time to time by the Member, including the Independent Director. A Director is
hereby designated as a "manager" of the Company within the meaning of Section
18-101(10) of the Act.
"DTC Agreement" means the agreement to be entered into between
-------------
California Infrastructure and Economic Development Bank Special Purpose Trust -
SCE-1,
A-2
<PAGE>
the Certificate Trustee and The Depository Trust Company, relating to the
Certificates, as the same may be amended and supplemented from time to time.
"Fee and Indemnity Agreement" means the Fee and Indemnity Agreement to
---------------------------
be entered into among the Company, the Note Trustee, the Certificate Trustee,
the Delaware Trustee and the California Infrastructure and Economic Development
Bank, as originator.
"Financing Order" means the orders of the CPUC, Decision 97-09-054,
---------------
issued as of September 3, 1997 and Decision 97-09-056, issued as of September 3,
1997, which became effective on October 9, 1997.
"Indebtedness" means the obligations of the Company arising under all
------------
Series of Notes.
"Indenture" means the Indenture to be entered into between the
---------
Company, as issuer, and the Note Trustee, as trustee, including the Series
supplements thereto relating to the Notes, as the same may be amended,
supplemented or otherwise modified from time to time.
"Independent Director" means a natural person who, for the five-year
--------------------
period prior to his or her appointment as Independent Director has not been, and
during the continuation of his or her service as Independent Director is not:
(i) an employee, director, stockholder, partner or officer of the Company or any
of its Affiliates (other than his or her service as an Independent Director of
the Company); (ii) a customer or supplier that derives more than ten percent of
its revenues from the Company or any of its Affiliates; or (iii) any member of
the immediate family of a person described in (i) or (ii).
"Initial LLC Agreement" has the meaning set forth in the preamble to
---------------------
this Agreement.
"Initial Member" means Southern California Edison Company, a
--------------
California corporation, as the sole member of the Company.
"Management Agreement" means the agreement of the Directors in the
--------------------
form attached hereto as Schedule C.
----------
"Material Action" means to consolidate or merge the Company with or
---------------
into any Person, or sell all or substantially all of the assets of the Company,
or to institute proceedings to have the Company be adjudicated bankrupt or
insolvent, or consent to the institution of bankruptcy or insolvency proceedings
against the Company or file a petition seeking, or consent to, reorganization or
relief with respect to the Company under any applicable federal or state law
relating to bankruptcy, or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Company or a
substantial part of its property, or make any assignment for the benefit of
creditors of the Company, or admit in writing the Company's inability to pay its
debts
A-3
<PAGE>
generally as they become due, or, to the fullest extent permitted by law, take
action in furtherance of any such action, or dissolve or liquidate the Company.
"Member" means the Initial Member and includes any Person admitted as
------
an additional member of the Company or a substitute member of the Company
pursuant to the provisions of this Agreement.
"Note Issuance Documents" means the collective reference to the
-----------------------
Indenture and the other governing documents relating to the Indebtedness, as the
same may be amended, supplemented or otherwise modified from time to time.
"Note Purchase Agreement" means the Note Purchase Agreement to be
-----------------------
entered into between the Company and Bankers Trust Company, as certificate
trustee.
"Notes" means the SCE Funding LLC Notes at any time issued pursuant to
-----
the Indenture or any indenture supplemental thereto.
"Note Trustee" means the institution serving as note trustee under the
------------
Indenture.
"Officer" means an officer of the Company described in Section 11.
-------
"Officer's Certificate" means a certificate signed by any Officer of
---------------------
the Company who is authorized to act for the Company in matters relating to the
Company.
"Person" means any individual, corporation, partnership, joint
------
venture, limited liability company, limited liability partnership, association,
joint-stock company, trust, unincorporated organization, or other organization,
whether or not a legal entity, and any governmental authority.
"PU Code" means the California Public Utilities Code, as amended from
-------
time to time.
"Rating Agency" means Moody's Investors Service Inc., Standard &
-------------
Poor's Rating Services, Fitch Investors Service, L.P., and Duff & Phelps Credit
Rating Company, or their respective successors or such nationally recognized
statistical rating organizations designated by the Company with notice to the
Note Trustee, the Certificate Trustee and the Initial Member in its role as
servicer under the Servicing Agreement.
A-4
<PAGE>
"Rating Agency Condition" means, with respect to any action, that each
-----------------------
Rating Agency shall have been given ten days prior notice thereof and that each
of the Rating Agencies shall have notified the Company in writing that such
action will not result in a reduction or withdrawal of the then current rating
by such Rating Agency of any Series or Class of the Notes.
"Sale Agreement" means the Transition Property Purchase and Sale
--------------
Agreement to be entered into between the Company and the Initial Member, as
seller.
"Sale Documents" means the collective reference to the Sale Agreement,
--------------
any Subsequent Sale Agreements and the agreements, instruments and documents
contemplated thereby, as the same may be amended, supplemented or otherwise
modified from time to time.
"Series" means each series of Notes issued and authenticated pursuant
------
to the Indenture.
"Servicing Agreement" means the Transition Property Servicing
-------------------
Agreement to be entered into between the Company and the Initial Member, as
servicer, as the same may be amended, supplemented or otherwise modified from
time to time.
"Statute" means Assembly Bill 1890, Chapter 854, California Statutes
-------
of 1996, as amended by Senate Bill 477, Chapter 275, California Statutes of
1997, and as further amended from time to time.
"Subsequent Sale Agreement" means any sale agreement substantially
-------------------------
similar to the Sale Agreement, and entered into subsequently thereto, pursuant
to which the Initial Member will sell Subsequent Transition Property to the
Company.
"Subsequent Transition Property" means any transition property as
------------------------------
defined in Section 840 of the PU Code, created by the PU Code and the Financing
Order and specifically described in an issuance advice letter filed with the
CPUC pursuant to the Financing Order, and sold to the Company by the Initial
Member pursuant to a Subsequent Sale Agreement.
"Transition Property" means the "Transition Property" contemplated by
-------------------
the Financing Order and to be specifically described in the issuance advice
letter filed with the CPUC pursuant to the Financing Order.
"Trust Agreement" means the Amended and Restated Declaration and
---------------
Agreement of Trust to be entered into among the California Infrastructure and
Economic Development Bank, the Certificate Trustee and the Delaware Trustee,
including the Series supplements thereto relating to the Notes, as the same may
be further amended and supplemented from time to time.
"Underwriting Agreement" means the Underwriting Agreement to be
----------------------
entered into among the Member, the Company, the California Infrastructure and
Economic Development Bank Special Purpose Trust - SCE-1 and the underwriters
named therein.
A-5
<PAGE>
B. Rules of Construction
---------------------
Definitions in this Agreement apply equally to both the singular and plural
forms of the defined terms. The words "include" and "including" shall be deemed
to be followed by the phrase "without limitation." The terms "herein," "hereof"
and "hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular Section, paragraph or subdivision. The Section
titles appear as a matter of convenience only and shall not affect the
interpretation of this Agreement. All Section, paragraph, clause, Exhibit or
Schedule references not attributed to a particular document shall be references
to such parts of this Agreement.
A-6
<PAGE>
SCHEDULE B
Members
-------
<TABLE>
<CAPTION>
Agreed Value of Percentage
Name Mailing Address Capital Contribution Interest
- ---- --------------- -------------------- --------
<S> <C> <C> <C>
Southern California 2244 Walnut Grove Avenue $925,000.00 100%
Edison Company Rosemead, CA 91770
</TABLE>
B-1
<PAGE>
SCHEDULE C
Management Agreement
--------------------
November 6, 1997
SCE Funding LLC
2244 Walnut Grove Avenue, Room 180
Rosemead, CA 91770
Re: Management Agreement
SCE Funding LLC
---------------
Ladies and Gentlemen:
For good and valuable consideration, each of the undersigned persons,
who have been designated as managers of SCE Funding LLC, a Delaware limited
liability company (the "Company"), in accordance with the Amended and Restated
Limited Liability Company Agreement of the Company, dated as of November 6,
1997, as it may be amended or restated from time to time (the "LLC Agreement"),
hereby agree as follows:
1. Each of the undersigned accepts such person's rights and authority as
a Director (as defined in the LLC Agreement) under the LLC Agreement and agrees
to perform and discharge such person's duties and obligations as a Director
under the LLC Agreement, and further agrees that such rights, authorities,
duties and obligations under the LLC Agreement shall continue until such
person's successor as a Director is designated or until such person's
resignation or removal as a Director in accordance with the LLC Agreement. Each
of the undersigned agrees and acknowledges that it has been designated as a
"manager" of the Company within the meaning of the Delaware Limited Liability
Company Act.
2. So long as any Indebtedness (as defined in the LLC Agreement) is
outstanding, each of the undersigned agrees, solely in its capacity as a
creditor of the Company on account of any indemnification or other payment owing
to the undersigned by the Company, not to acquiesce, petition or otherwise
invoke or cause the Company to invoke the process of any court or governmental
authority for the purpose of commencing or sustaining a case against the Company
under any federal or state bankruptcy, insolvency or similar law or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Company or any substantial part of the property of the
Company, or ordering the winding up or liquidation of the affairs of the
Company.
3. THIS MANAGEMENT AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AND ALL RIGHTS AND REMEDIES
SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS.
C-1
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Management
Agreement as of the day and year first above written.
/s/ Theodore F. Craver, Jr.
__________________________________
Theodore F. Craver, Jr.
/s/ Mary C. Simpson
__________________________________
Mary C. Simpson
/s/ Anand Maniktala
__________________________________
Anand Maniktala
C-2
<PAGE>
EXHIBIT 4.1
[FORM OF NOTE INDENTURE]
________________________________________________________________________________
________________________________________________________________________________
[NAME OF SPE],
Note Issuer
and
BANKERS TRUST COMPANY,
Note Trustee
______________________________
INDENTURE
Dated as of [ ] , 1997
______________________________
Issuable in Series
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
INDENTURE dated as of [_], 1997, between [NAME OF SPE],
a Delaware limited liability company (the "Note Issuer"), and
Bankers Trust Company, a New York banking corporation, as trustee
(the "Note Trustee").
The Note Issuer has duly authorized the execution and delivery of this
Indenture to provide for one or more Series of Notes, issuable as provided in
this Indenture. Each such Series of Notes will be issued only under a separate
Series Supplement to this Indenture duly executed and delivered by the Note
Issuer and the Note Trustee. The Note Issuer is entering into this Indenture,
and the Note Trustee is accepting the trusts created hereby, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged.
GRANTING CLAUSE
The Note Issuer hereby Grants to the Note Trustee at the Closing Date,
as Note Trustee for the benefit of the Holders of the Notes from time to time
issued and outstanding, all of the Note Issuer's right, title and interest in
and to (a) the Transition Property transferred by the Seller to the Note Issuer
pursuant to the Sale Agreement and all proceeds thereof, (b) any Subsequent
Transition Property transferred by the Seller to the Note Issuer pursuant to
each Subsequent Sale Agreement and all proceeds thereof, (c) the Sale Agreement
and each Subsequent Sale Agreement, (d) the Servicing Agreement, (e) the
Collection Account (including all subaccounts thereof) and all amounts or
investment property on deposit therein or credited thereto from time to time,
(f) all other property of whatever kind owned from time to time by the Note
Issuer, (g) all present and future claims, demands, causes and choses in action
in respect of any or all of the foregoing and all payments on or under and all
proceeds of every kind and nature whatsoever in respect of any or all of the
foregoing, including all proceeds of the conversion, voluntary or involuntary,
into cash or other liquid property, all cash proceeds, accounts, accounts
receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts,
insurance proceeds, condemnation awards, rights to payment of any and every
kind, and other forms of obligations and receivables, instruments and other
property which at any time constitute all or part of or are included in the
proceeds of any of the foregoing and (h) all proceeds
<PAGE>
2
of the foregoing (collectively, the "Collateral"; it being understood that the
following do not constitute Collateral: (i) the cash contributed to the Note
Issuer by the Seller which is not held in the Capital Subaccount, including cash
that has been released to the Note Issuer pursuant to Section 8.02(d) following
retirement of a Series of Notes, (ii) net investment earnings which have been
released to the Note Issuer pursuant to Section 8.02(d) and (iii) the
Overcollateralization Amount with respect to a Series of Notes that has been
released to the Note Issuer pursuant to Section 8.02(d) following retirement of
such Series of Notes).
The foregoing Grant is made in trust to secure the payment of
principal of and premium, if any, and interest on, and any other amounts owing
in respect of, the Notes equally and ratably without prejudice, priority or
distinction, except as expressly provided in this Indenture, and to secure
compliance with the provisions of this Indenture with respect to the Notes, all
as provided in this Indenture.
The Note Trustee, as trustee on behalf of the Holders of the Notes,
acknowledges such grant, accepts the trusts hereunder in accordance with the
provisions hereof and agrees to perform its duties herein required.
ARTICLE I
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. (a) Definitions. Except as other wise specified
------------
herein or as the context may otherwise require, the following terms have the
respective meanings set forth below for all purposes of this Indenture.
"Act" has the meaning specified in Sec tion 11.03(a).
---
"Actual FTA Collections" means, with respect to any Collection Period,
----------------------
actual FTA Collections received with respect to such Collection Period.
Administration Agreement" means the Administration Agreement dated as
------------------------
of [_], 1997, as the same may be amended and supplemented from time to time,
between the Administrator and the Note Issuer.
"Administrator" means [Name of Utility], or any successor
-------------
Administrator under the Administration Agreement.
<PAGE>
3
"Affiliate" means, with respect to any specified Person, any other
---------
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect
to any specified Person means the power to direct the management and policies of
such 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.
"Authorized Officer" means, with respect to the Note Issuer, any
------------------
officer of the Note Issuer who is authorized to act for the Note Issuer in
matters relating to the Note Issuer and who is identified on the list of
Authorized Officers delivered by the Note Issuer to the Note Trustee on the
Closing Date (as such list may be modified or supplemented from time to time
thereafter).
"Basic Documents" means this Indenture, the Trust Agreement, the Sale
---------------
Agreement, any Subsequent Sale Agreement, the Servicing Agreement, the
Administration Agreement, the Note Purchase Agreement, the DTC Agreement, the
Fee and Indemnity Agreement and all other documents and certificates delivered
in connection therewith.
"Business Day" means any day other than a Saturday, a Sunday or a day
------------
on which banking institutions or trust companies in New York, New York or [_],
California are authorized or obligated by law, regulation or executive order
to remain closed.
"Capital Subaccount" has the meaning set forth in Section 8.02(a).
------------------
"Certificate Trustee" means the Person acting as certificate trustee
-------------------
under the Trust Agreement.
"Certificates" has the meaning set forth in the Trust Agreement.
------------
"Class" means, with respect to any Series, any one of the classes of
-----
Notes of that Series.
"Closing Date" means [_], 1997.
------------
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time, and Treasury Regulations promulgated thereunder.
"Collateral" has the meaning specified in the Granting Clause of this
----------
Indenture.
<PAGE>
4
"Collection Account" has the meaning specified in Section 8.02(a).
------------------
"Collection Period" means each [calendar month] [Statistical Month]
-----------------
immediately preceding the respective Remittance Date.
"Commission" means the Securities and Exchange Commission.
----------
"Corporate Trust Office" means the principal office of the Note
----------------------
Trustee at which at any particular time its corporate trust business shall be
administered, which office at the date of the execution of this Agreement is
located at Four Albany Street, New York, NY 10006, Attention: Structured
Finance Group, or at such other address as the Note Trustee may designate from
time to time by notice to the Noteholders and the Note Issuer, or the principal
corporate trust office of any successor Note Trustee (the address of which the
successor Note Trustee will notify the Noteholders and the Note Issuer).
"Covenant Defeasance Option" has the meaning specified in Section
--------------------------
4.01(b).
"Default" means any occurrence that is, or with notice or the lapse of
-------
time or both would become, an Event of Default.
"Delaware Trustee" means the Person acting as Delaware trustee under
----------------
the Trust Agreement.
"DTC Agreement" has the meaning set forth in the Trust Agreement.
-------------
"Duff & Phelps" means Duff & Phelps Credit Rating Company or its
-------------
successor.
"Eligible Deposit Account" means either (a) a segregated account with
------------------------
an Eligible Institution or (b) a segregated trust account with the corporate
trust department of a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as any
of the securities of such depository institution shall have a credit rating from
each Rating Agency in one of its generic rating categories which signifies
investment grade.
"Eligible Institution" means (a) the corporate trust department of the
--------------------
Note Trustee or (b) a depository
<PAGE>
5
institution organized under the laws of the United States of America or any
State (or any domestic branch of a foreign bank), which (i) has either (A) a
long-term unsecured debt rating of A by Standard & Poor's and Moody's or (B) a
certificate of deposit rating of A-1+ by Standard & Poor's and P-1 by Moody's,
or any other long-term, short-term or certificate of deposit rating acceptable
to the Rating Agencies and (ii) whose deposits are insured by the FDIC. If so
qualified, the Note Trustee may be considered an Eligible Institution for the
purposes of clause (b) of this definition.
"Eligible Investments" mean instruments or investment property which
--------------------
evidence:
(a) direct obligations of, and obligations fully and
unconditionally guaranteed as to timely payment by, the United States
of America;
(b) demand deposits, time deposits or certificates of deposit of
any depository institution or trust company incorporated under the
laws of the United States of America or any State (or any domestic
branch of a foreign bank) and subject to supervision and examination
by Federal or State banking or depository institution authorities;
provided, however, that at the time of the investment or contractual
-------- -------
commitment to invest therein, the commercial paper or other short-term
unsecured debt obligations (other than such obligations the rating of
which is based on the credit of the Person other than such depository
institution or trust company) thereof shall have a credit rating from
each of the Rating Agencies in the highest investment category granted
thereby;
(c) commercial paper having, at the time of the investment or
contractual commitment to invest therein, a rating from each of the
Rating Agencies in the highest investment category granted thereby;
(d) investments in money market funds having a rating from each
of the Rating Agencies in the highest investment category granted
thereby (including funds for which the Note Trustee or any of its
Affiliates is investment manager or advisor);
<PAGE>
6
(e) demand deposits, time deposits and certificates of deposit
which are fully insured by the FDIC;
(f) bankers' acceptances issued by any depository institution or
trust company referred to in clause (b) above;
(g) repurchase obligations with respect to any security that is
a direct obligation of, or fully guaranteed by, the United States of
America or any agency or instrumentality thereof the obligations of
which are backed by the full faith and credit of the United States of
America, in either case entered into with (i) a depository institution
or trust company (acting as principal) described in clause (b) or (ii)
a depository institution or trust company the deposits of which are
insured by FDIC; and
(h) any other investment permitted by each of the Rating
Agencies.
"Estimated FTA Collections" means the amount of FTA Payments the
-------------------------
Servicer is required to remit to the Collection Account on or before the
twentieth day of each calendar month (or, if such twentieth day is not a
Business Day, the Business Day immediately following such twentieth day)
pursuant to Section 7(e) of Annex I to the Servicing Agreement.
"Event of Default" has the meaning specified in Section 5.01.
----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"FDIC" means the Federal Deposit Insurance Corporation or any
----
successor.
"Fee and Indemnity Agreement" has the meaning set forth in the Trust
---------------------------
Agreement.
"Final Maturity Date" means, with respect to any Series or Class of
-------------------
Notes, the Final Maturity Date therefor, as specified in the related Series
Supplement.
"Fitch" means Fitch Investors Service, L.P. or its successor.
-----
"FTA Collections" means FTA Payments received by the Servicer which
---------------
are remitted to the Collection Account.
<PAGE>
7
"FTA Payments" means the payments made by Customers based on the FTA
------------
Charges.
"General Subaccount" has the meaning set forth in Section 8.02(a).
------------------
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate,
-----
remise, release, convey, assign, transfer, create, and grant a lien upon and a
security interest in and right of set-off against, deposit, set over and
confirm pursuant to this Indenture. A Grant of the Collateral or of any other
agreement or instrument shall include all rights, powers and options (but none
of the obligations) of the Granting party thereunder, including the immediate
and continuing right to claim for, collect, receive and give receipt for
payments in respect of the Collateral and all other moneys payable thereunder,
to give and receive notices and other communications, to make waivers or other
agreements, to exercise all rights and options, to bring Proceedings in the name
of the Granting party or otherwise and generally to do and receive anything that
the Granting party is or may be entitled to do or receive thereunder or with
respect thereto.
"Holder" or Noteholder" means the Person in whose name a Note is
------ ----------
registered on the Note Register.
"Indenture" or "this Indenture" means this instrument as originally
--------- --------------
executed and, as from time to time supplemented or amended by one or more
indentures supplemental hereto entered into pursuant to the applicable
provisions hereof, as so supplemented or amended, or both, and shall include the
forms and terms of the Notes established hereunder.
"Independent" means, when used with respect to any specified Person,
-----------
that the Person (a) is in fact independent of the Note Issuer, any other obligor
upon the Notes, the Seller, the Servicer and any Affiliate of any of the fore-
going Persons, (b) does not have any direct financial interest or any material
indirect financial interest in the Note Issuer, any such other obligor, the
Seller, the Servicer or any Affiliate of any of the foregoing Persons and (c) is
not connected with the Note Issuer, any such other obligor, the Seller, the
Servicer or any Affiliate of any of the foregoing Persons as an officer,
employee, promoter, underwriter, trustee, partner, director or person performing
similar functions.
"Independent Certificate" means a certificate or opinion to be
-----------------------
delivered to the Note Trustee under the circumstances described in, and
otherwise complying with,
<PAGE>
8
the applicable requirements of Section 11.01, made by an Independent appraiser
or other expert appointed by an Issuer Order and consented to by the Note
Trustee, and such opinion or certificate shall state that the signer has read
the definition of "Independent" in this Indenture and that the signer is
Independent within the meaning thereof.
"Infrastructure Bank" means the California Infrastructure and Economic
-------------------
Development Bank or any successor in interest.
"Issuer Order" and "Issuer Request" means a written order or request
------------ --------------
signed in the name of the Note Issuer by any one of its Authorized Officers and
delivered to the Note Trustee.
"Legal Defeasance Option" has the meaning specified in Section
-----------------------
4.01(b).
"Minimum Denomination" means, with respect to any Note, the minimum
--------------------
denomination therefor specified in the applicable Series Supplement, which
minimum denomination shall be not less than $1,000.
"Moody's" means Moody's Investors Service Inc. or its successor.
-------
"Note Interest Rate" means, with respect to any Series or Class, the
------------------
rate at which interest accrues on the Notes of such Series or Class, as
specified in the related Series Supplement.
"Note Issuer" means the party named as such in this Indenture until a
-----------
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the Notes.
"Note Purchase Agreement" has the meaning set forth in the Trust
-----------------------
Agreement.
"Note Register" and "Note Registrar" have the respective meanings
------------- --------------
specified in Section 2.05.
"Note Trustee" means Bankers Trust Company, a New York banking
------------
corporation, as Note Trustee under this Indenture, or any successor Note Trustee
under this Indenture.
"Notes" has the meaning specified in Section 2.02.
-----
<PAGE>
9
"Officer's Certificate" means a certificate signed by any Authorized
---------------------
Officer of the Note Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.01, and delivered to
the Note Trustee. Unless otherwise specified, any reference in this Indenture
to an Officer's Certificate shall be to an Officer's Certificate of any
Authorized Officer of the Note Issuer.
"Operating Expenses" means all fees, costs and expenses of the Note
------------------
Issuer, including all amounts owed by the Note Issuer to the Note Trustee, the
Certificate Trustee, the Delaware Trustee [and the Infrastructure Bank], the
Servicing Fee, the Quarterly Administration Fee, any fees, costs and expenses
payable or reimbursable by the Note Issuer to the Administrator and legal and
accounting fees, costs and expenses of the Note Issuer and the Trust.
"Opinion of Counsel" means one or more written opinions of counsel who
------------------
may, except as otherwise expressly provided in this Indenture, be employees of
or counsel to the Note Issuer and who shall be satisfactory to the Note Trustee,
and which opinion or opinions shall be addressed to the Note Trustee as trustee,
shall comply with any applicable requirements of Section 11.01, and shall be in
form and substance satisfactory to the Note Trustee.
"Outstanding" means, as of the date of determination, all Notes
-----------
theretofore authenticated and delivered under this Indenture except:
(i) Notes theretofore canceled by the Note Registrar or delivered
to the Note Registrar for cancelation;
(ii) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited with the Note Trustee or
any Paying Agent in trust for the Holders of such Notes (provided, however,
-------- -------
that if such Notes are to be redeemed, notice of such redemption has been
duly given pursuant to this Indenture or provision therefor, satisfactory
to the Note Trustee, made); and
(iii) Notes in exchange for or in lieu of other Notes which have been
authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Note Trustee is presented that any such Notes are held
by a bona fide purchaser;
provided that in determining whether the Holders of the requisite Outstanding
- --------
Amount of the Notes or any Series or
<PAGE>
10
Class thereof have given any request, demand, authorization, direction, notice,
consent or waiver hereunder or under any Basic Document, Notes owned by the Note
Issuer, any other obligor upon the Notes, the Seller or any Affiliate of any of
the foregoing Persons shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Note Trustee shall be protected in
relying upon any such request, demand, authorization, direction, notice, consent
or waiver, only Notes that the Note Trustee knows to be so owned shall be so
disregarded. Notes so owned that have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Note Trustee the pledgee's right so to act with respect to such Notes and that
the pledgee is not the Note Issuer, any other obligor upon the Notes, the Seller
or any Affiliate of any of the foregoing Persons.
"Outstanding Amount" means the aggregate principal amount of all Notes
------------------
or, if the context requires, all Notes of a Series or Class, Outstanding at the
date of determination.
"Overcollateralization Subaccount" has the meaning specified in
--------------------------------
Section 8.02(a).
"Paying Agent" means the Note Trustee or any other Person that meets
------------
the eligibility standards for the Note Trustee specified in Section 6.11 and is
authorized by the Note Issuer to make payments to and distributions from the
Collection Account including payment of principal of or premium, if any, or
interest on the Notes on behalf of the Note Issuer.
"Payment Date" means, with respect to any Series or Class, the March
------------
25, June 25, September 25 and December 26 of each year, provided that if any
such date is not a Business Day, the Payment Date shall be the Business Day
immediately succeeding such date.
"Person" means any individual, corporation, limited liability company,
------
estate, partnership, joint venture, association, joint stock company, trust
(including any beneficiary thereof), unincorporated organization or government
or any agency or political subdivision thereof.
"Predecessor Note" means, with respect to any particular Note, every
----------------
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.06 in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to
<PAGE>
11
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"Proceeding" means any suit in equity, action at law or other judicial
----------
or administrative proceeding.
"Quarterly Administration Fee" shall mean $[_] per calendar quarter.
----------------------------
"Quarterly Interest" means, with respect to any Payment Date and any
------------------
Series of Notes, the quarterly interest for such Payment Date and Series as
specified in the related Series Supplement.
"Quarterly Overcollateralization Collection" means the portion of FTA
------------------------------------------
Collections relating to the Overcollateralization Amount received with respect
to any Payment Date as specified in each Issuance Advice Letter.
"Quarterly Principal" means, with respect to any Payment Date and any
-------------------
Series of Notes, the excess, if any, of the Outstanding Amount of such Series of
Notes over the outstanding principal balance specified for such Payment Date on
the applicable Expected Amortization Schedule.
"Rating Agency" means Moody's, Standard & Poor's and Fitch [Duff &
-------------
Phelps]. If no such organization or successor is any longer in existence,
"Rating Agency" shall be a nationally recognized statistical rating organization
or other comparable Person designated by the Note Issuer, notice of which
designation shall be given to the Note Trustee, the Certificate Trustee and the
Servicer.
"Rating Agency Condition" means, with respect to any action, that each
-----------------------
Rating Agency shall have been given ten days prior notice thereof and that each
of the Rating Agencies shall have notified the Servicer, the Note Issuer and the
Note Trustee in writing that such action will not result in a reduction or
withdrawal of the then current rating by such Rating Agency of either any Series
or Class of the Notes or any Series or Class of the Certificates.
"Record Date" means, with respect to a Payment Date or Redemption
-----------
Date, the close of business on the last day of the calendar month preceding the
calendar month in which such Payment Date or Redemption Date occurs.
"Redemption Date" means, with respect to any Series, the Payment Date
---------------
specified by the Note Issuer for the redemption of the Notes of such Series
pursuant to Section 10.01.
<PAGE>
12
"Redemption Price" has the meaning specified in Section 10.01.
----------------
"Registered Holder" means the Person in whose name a Note is
-----------------
registered on the Note Register on the applicable Record Date.
"Remittance Date" means the twentieth day of each calendar month or,
---------------
if such day is not a Business Day, the next succeeding Business Day.
"Required Capital Level" means, as of any Payment Date, the amount of
----------------------
capital contributed by the Seller to the Note Issuer as set forth in a Series
Supplement, and for each Payment Date will be equal to the sum of 0.50% of the
initial principal amount of each then-outstanding Series of Notes issued
pursuant to this Indenture prior to that Payment Date, less $100,000 in the
aggregate for all Series of Notes.
"Reserve Subaccount" has the meaning specified in Section 8.02(a).
------------------
"Responsible Officer" means any officer within the Corporate Trust
-------------------
Office, including any Vice President, Managing Director, Assistant Vice
President, Secretary, Assistant Secretary or Assistant Treasurer or any other
officer of the Note Trustee customarily performing functions similar to those
performed by any of the above designated offices and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge and familiarity with the particular subject.
"Sale Agreement" means the Transition Property Purchase and Sale
--------------
Agreement dated as of [_], 1997, between the Note Issuer and the Seller, in the
form of Exhibit A-1, as amended and supplemented from time to time.
"Scheduled Maturity Date" means, with respect to any Series or Class
-----------------------
of Notes, the Scheduled Maturity Date therefor, as specified in the related
Series Supplement.
"Series" means each series of Notes issued and authenticated pursuant
------
to this Indenture and a related Series Supplement.
"Series Issuance Date" means, with respect to any Series, the date on
--------------------
which the Notes of such Series are to be originally issued in accordance with
Section 2.10 and the related Series Supplement.
<PAGE>
13
"Series Supplement" means an indenture supplemental to this Indenture
-----------------
that authorizes a particular Series of Notes.
["Servicer Business Day" means any Busienss Day on which the
---------------------
Servicer's offices in the State of California are open for business.]
"Servicing Agreement" means the Transition Property Servicing
-------------------
Agreement dated as of [_], 1997, between the Note Issuer and the Servicer, in
the form of Exhibit A-2, as amended and supplemented from time to time.
"Standard & Poor's" means Standard & Poor's Rating Services, a
-----------------
division of The McGraw-Hill Companies, Inc. or its successor.
"State" means any one of the 50 states of the United States of America
-----
or the District of Columbia.
["Statistical Month" means each of the periods created by dividing the
-----------------
calendar year into twelve consecutive periods of 21 Servicer Business Days
each.]
"Successor Servicer" has the meaning specified in Section 3.07(e).
------------------
"Trust" has the meaning set forth in the Trust Agreement.
-----
"Trust Agreement" means the Amended and Restated Declaration and
---------------
Agreement of Trust dated as of [_], 1997, among the Infrastructure Bank, the
Delaware Trustee and the Certificate Trustee, as the same may be further amended
and supplemented from time to time.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
------------------- ---
as in force on the date hereof, unless otherwise specifically provided.
"UCC" means, unless the context otherwise requires, the Uniform
---
Commercial Code, as in effect in the relevant jurisdiction, as amended from time
to time.
"U.S. Government Obligations" means direct obligations (or
---------------------------
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the Note Issuer's option.
<PAGE>
14
(b) Except as otherwise specified herein or as the context may
otherwise require, the following terms have the respective meanings set forth in
the Servicing Agreement as in effect on the Closing Date for all purposes of
this Indenture, and the definitions of such terms are equally applicable both to
the singular and plural forms of such terms:
<TABLE>
<CAPTION>
Section of
Term Servicing Agreement
---- -------------------
<S> <C>
Advice Letters..................................... Section 1.01
Annual Adjustment Date............................. Section 1.01
CPUC............................................... Section 1.01
Excess Remittance.................................. Section 1.01
Expected Amortization Schedule .................... Section 1.01
Financing Order.................................... Section 1.01
FTA Charges........................................ Section 1.01
Monthly Administrative Date........................ Section 1.01
Non-Routine True-Up Adjustment..................... Section 1.01
Overcollateralization Amount....................... Section 1.01
Principal Balance.................................. Section 1.01
Projected Principal Balance........................ Section 1.01
PU Code............................................ Section 1.01
Quarterly Administrative Date...................... Section 1.01
Remittance Shortfall............................... Section 1.01
Seller............................................. Section 1.01
Servicer........................................... Section 1.01
Servicer Default................................... Section 1.01
Servicing Fee...................................... Section 1.01
Subsequent Sale Agreement.......................... Section 1.01
Subsequent Sale Date............................... Section 1.01
Subsequent Transition Property..................... Section 1.01
Transition Property................................ Section 1.01
</TABLE>
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
--------------------------------------------------
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
<PAGE>
15
"indenture trustee" or "institutional trustee" means the Note Trustee.
"obligor" on the indenture securities means the Note Issuer and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meanings assigned to them by such definitions.
SECTION 1.03. Rules of Construction. Unless the context otherwise
----------------------
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the plural
include the singular; and
(vi) the words "herein", "hereof", "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
ARTICLE II
The Notes
---------
SECTION 2.01. Form. The Notes and the Note Trustee's certificate of
-----
authentication shall be in substantially the forms set forth in Exhibit B, with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture or by the related Series Supplement
and may have such letters, numbers or other marks of identification and such
legends or endorsements placed thereon as may, consistently herewith, be
determined by the officers executing such Notes, as evidenced by their execution
of such Notes. Any portion of the text of any Note may be set forth on the
reverse
<PAGE>
16
thereof, with an appropriate reference thereto on the face of the Note.
The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the officers executing such Notes, as evidenced
by their execution of such Notes.
Each Note shall be dated the date of its authentication. The terms
of the Notes set forth in Exhibit B are part of the terms of this Indenture.
SECTION 2.02. Denominations; Notes Issuable in Series. The Notes
----------------------------------------
shall be issuable as registered Notes in the Minimum Denomination specified in
the applicable Series Supplement and, except as otherwise provided in such
Series Supplement, in integral multiples thereof.
The Notes may, at the election of and as authorized by an Authorized
Officer of the Note Issuer, be issued in one or more Series (each comprised of
one or more Classes), and shall be designated generally as the "Notes" of the
Note Issuer, with such further particular designations added or incorporated in
such title for the Notes of any particular Series or Class as an Authorized
Officer of the Note Issuer may determine. Each Note shall bear upon its face
the designation so selected for the Series or Class to which it belongs. All
Notes of the same Series shall be identical in all respects except for the
denominations thereof, unless such Series is comprised of one or more Classes,
in which case all Notes of the same Class shall be identical in all respects
except for the denominations thereof. All Notes of a particular Series or, if
such Series is comprised of one or more Classes, all Notes of a particular Class
thereof, in each case issued under this Indenture, shall be in all respects
equally and ratably entitled to the benefits hereof without preference,
priority, or distinction on account of the actual time or times of
authentication and delivery, all in accordance with the terms and provisions of
this Indenture.
Each Series of Notes shall be created by a Series Supplement
authorized by an Authorized Officer of the Note Issuer and establishing the
terms and provisions of such Series. The several Series and Classes thereof may
differ as between Series and Classes, in respect of any of the following
matters:
(1) designation of the Series and, if applicable, the Classes thereof;
<PAGE>
17
(2) its principal amount;
(3) its Note Interest Rate;
(4) its Payment Dates;
(5) its Scheduled Maturity Date;
(6) its Final Maturity Date;
(7) its Series Issuance Date;
(8) the place or places for the payment of interest, principal and
premium, if any;
(9) the Minimum Denominations;
(10) the provisions for optional redemption by the Note Issuer;
(11) its Expected Amortization Schedule;
(12) the terms, if any, on which it is subordinated to other Series or
Classes thereof;
(13) provisions with respect to the definitions set forth in Article
One hereof; and
(14) any other provisions expressing or referring to the terms and
conditions upon which the Notes of the applicable Series or Class are to be
issued under this Indenture that are not in conflict with the provisions of
this Indenture and as to which the Rating Agency Condition is satisfied.
SECTION 2.03. Execution, Authentication and Delivery. The Notes
---------------------------------------
shall be executed on behalf of the Note Issuer by any of its Authorized
Officers. The signature of any such Authorized Officer on the Notes may be
manual or facsimile.
Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Note Issuer shall bind the Note
Issuer, notwithstanding that such individuals or any of them have ceased to hold
such offices prior to the authentication and delivery of such Notes or did not
hold such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Note Issuer may deliver Notes executed by the Note Issuer to
the Note
<PAGE>
18
Trustee pursuant to an Issuer Order for authentication; and the Note Trustee
shall authenticate and deliver such Notes as in this Indenture provided and not
otherwise.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Note Trustee by the manual signature of one of its authorized
signatories, and such certificate upon any Note shall be conclusive evidence,
and the only evidence, that such Note has been duly authenticated and delivered
hereunder.
SECTION 2.04. Temporary Notes. Pending the preparation of definitive
----------------
Notes, the Note Issuer may execute, and upon receipt of an Issuer Order the Note
Trustee shall authenticate and deliver, temporary Notes which are printed,
lithographed, typewritten, mimeographed or otherwise produced, of the tenor of
the definitive Notes in lieu of which they are issued and with such variations
not inconsistent with the terms of this Indenture as the officers executing such
Notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Note Issuer will cause definitive
Notes to be prepared without unreasonable delay. After the preparation of
definitive Notes, the temporary Notes shall be exchangeable for definitive Notes
upon surrender of the temporary Notes at the office or agency of the Note Issuer
to be maintained as provided in Section 3.02, without charge to the Holder.
Upon surrender for cancelation of any one or more temporary Notes, the Note
Issuer shall execute and the Note Trustee shall authenticate and deliver in
exchange therefor a like principal amount of definitive Notes of Minimum
Denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 2.05. Registration; Registration of Transfer and Exchange.
----------------------------------------------------
The Note Issuer shall cause to be kept a register (the "Note Register") in
which, subject to such reasonable regulations as it may prescribe, the Note
Issuer shall provide for the registration of Notes and the registration of
transfers of Notes. The Note Trustee shall be "Note Registrar" for the purpose
of registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Note Issuer shall promptly
<PAGE>
19
appoint a successor or, if it elects not to make such an appointment, assume the
duties of Note Registrar.
If a Person other than the Note Trustee is appointed by the Note
Issuer as Note Registrar, the Note Issuer will give the Note Trustee prompt
written notice of the appointment of such Note Registrar and of the location,
and any change in the location, of the Note Register, and the Note Trustee shall
have the right to inspect the Note Register at all reasonable times and to
obtain copies thereof, and the Note Trustee shall have the right to rely upon a
certificate executed on behalf of the Note Registrar by a Responsible Officer
thereof as to the names and addresses of the Holders of the Notes and the
principal amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the office
or agency of the Note Issuer to be maintained as provided in Section 3.02, the
Note Issuer shall execute, and the Note Trustee shall authenticate and the
Noteholder shall obtain from the Note Trustee, in the name of the designated
transferee or transferees, one or more new Notes in any Minimum Denominations,
of a like Series (and, if applicable, Class) and aggregate principal amount.
At the option of the Holder, Notes may be ex changed for other Notes
in any Minimum Denominations, of a like Series (and, if applicable, Class) and
aggregate principal amount, upon surrender of the Notes to be exchanged at such
office or agency. Whenever any Notes are so surrendered for exchange, the Note
Issuer shall execute, and the Note Trustee shall authenticate and the Noteholder
shall obtain from the Note Trustee, the Notes which the Noteholder making the
exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Note Issuer, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by (a) a written
instrument of transfer in form satisfactory to the Note Trustee duly executed
by, the Holder thereof or such Holder's attorney duly authorized in writing,
with such signature guaranteed by an institution which is a member of one of the
following recognized Signature Guaranty Programs: (i) The Securities Transfer
Agent Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion
Program (MSP); (iii) The Stock Exchange
<PAGE>
20
Medallion Program (SEMP); or (iv) in such other guarantee program acceptable to
the Note Trustee, and (b) such other documents as the Note Trustee may require.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Note Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.04 or 9.06 not involving any transfer.
The preceding provisions of this Section notwithstanding, the Note
Issuer shall not be required to make and the Note Registrar need not register
transfers or exchanges of Notes selected for redemption or of any Note for a
period of 15 days preceding the due date for any payment with respect to the
Note.
SECTION 2.06. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
-------------------------------------------
mutilated Note is surrendered to the Note Trustee, or the Note Trustee receives
evidence to its satisfaction of the destruction, loss or theft of any Note, and
(ii) there is delivered to the Note Trustee such security or indemnity as may be
required by it to hold the Note Issuer and the Note Trustee harmless, then, in
the absence of notice to the Note Issuer, the Note Registrar or the Note Trustee
that such Note has been acquired by a bona fide purchaser, the Note Issuer shall
execute and, upon its request, the Note Trustee shall authenticate and deliver,
in exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Note, a replacement Note of like Series (and, if applicable, Class), tenor and
principal amount, bearing a number not contemporaneously outstanding; provided,
--------
however, that if any such destroyed, lost or stolen Note, but not a mutilated
- -------
Note, shall have become or within seven days shall be due and payable, or shall
have been called for redemption, instead of issuing a replacement Note, the Note
Issuer may pay such destroyed, lost or stolen Note when so due or payable or
upon the Redemption Date without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or stolen Note pursuant to
the proviso to the preceding sentence, a bona fide purchaser of the original
Note in lieu of which such replacement Note was issued presents for payment such
original Note, the Note Issuer and the Note Trustee shall be entitled to recover
such replacement Note (or such payment) from the Person to whom it was delivered
or any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any
<PAGE>
21
loss, damage, cost or expense incurred by the Note Issuer or the Note Trustee in
connection therewith.
Upon the issuance of any replacement Note under this Section, the Note
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Note Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Note Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.07. Persons Deemed Owner. Prior to due presentment for
---------------------
registration of transfer of any Note, the Note Issuer, the Note Trustee and any
agent of the Note Issuer or the Note Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of and premium, if any,
and interest on such Note and for all other purposes whatsoever, whether or not
such Note be overdue, and neither the Note Issuer, the Note Trustee nor any
agent of the Note Issuer or the Note Trustee shall be affected by notice to the
contrary.
SECTION 2.08. Payment of Principal, Premium, if any, and Interest;
----------------------------------------------------
Interest on Overdue Principal and Premium, if any; Principal, Premium and
- -------------------------------------------------------------------------
Interest Rights Preserved. (a) The Notes shall accrue interest as provided in
- --------------------------
the form of the Note attached to the related Series Supplement which shall be
substantially in the form of a Note set forth in Exhibit B hereto, at the
applicable Note Interest Rate specified therein, and such interest shall be
payable on each Payment Date as specified therein. Any installment of interest,
principal or premium, if any, payable on any Note which is punctually paid or
duly provided for by the Note Issuer on the applicable Payment Date shall be
paid to the Person in whose name such Note (or one or more Predecessor Notes) is
registered on the Record Date for such Payment Date, by check mailed first-
class, postage prepaid to such Person's address as it appears on
<PAGE>
22
the Note Register on such Record Date or in such other manner as may be provided
in the related Series Supplement, except that with respect to Notes registered
on the Record Date in the name of the Certificate Trustee payments will be made
by wire transfer in immediately available funds to the account designated by the
Certificate Trustee and except for the final installment of principal and
premium, if any, payable with respect to such Note on a Payment Date which shall
be payable as provided below. The funds represented by any such checks returned
undelivered shall be held in accordance with Section 3.03 hereof.
(b) The principal of each Note of each Series (and, if applicable,
Class) shall be payable in installments on each Payment Date specified in the
form of a Note attached to the related Series Supplement in the form of a Note
set forth in Exhibit B hereto. Notwithstanding the foregoing, the entire unpaid
principal amount of the Notes of a Series shall be due and payable, if not
previously paid, on the date on which an Event of Default shall have occurred
and be continuing with respect to such Series, if the Note Trustee or the
Holders of the Notes representing not less than a majority of the Outstanding
Amount of the Notes of all Series have declared the Notes to be immediately due
and payable in the manner provided in Section 5.02. All payments of principal
and premium, if any, on the Notes of any Series shall be made pro rata to the
Noteholders entitled thereto. The Note Trustee shall notify the Person in whose
name a Note is registered at the close of business on the Record Date preceding
the Payment Date on which the Note Issuer expects that the final installment of
principal of and premium, if any, and interest on such Note will be paid. Such
notice shall be mailed no later than five days prior to such final Payment Date
and shall specify that such final installment will be payable only upon
presentation and surrender of such Note and shall specify the place where such
Note may be presented and surrendered for payment of such installment. Notices
in connection with redemptions of Notes shall be mailed to Noteholders as
provided in Section 10.02.
(c) If the Note Issuer defaults in a payment of interest on the Notes
of any Series when due, the Note Issuer shall pay such defaulted interest (plus
interest on such defaulted interest at the applicable Note Interest Rate to the
extent lawful). The Note Issuer may pay such defaulted interest (plus interest
on such defaulted interest) to the Persons who are Noteholders on a subsequent
special record date, which date shall be at least five Business Days prior to
the payment date. The Note Issuer shall fix or cause to be fixed any such
special record date and payment date, and, at least 20 days before any such
<PAGE>
23
special record date, the Note Issuer shall mail to each affected Noteholder a
notice that states the special record date, the payment date and the amount of
defaulted interest (plus interest on such defaulted interest) to be paid.
SECTION 2.09. Cancelation. All Notes surrendered for payment,
------------
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Note Trustee, be delivered to the Note Trustee and shall
be promptly canceled by the Note Trustee. The Note Issuer may at any time
deliver to the Note Trustee for cancelation any Notes previously authenticated
and delivered hereunder which the Note Issuer may have acquired in any manner
whatsoever, and all Notes so delivered shall be promptly canceled by the Note
Trustee. No Notes shall be authenticated in lieu of or in exchange for any
Notes canceled as provided in this Section, except as expressly permitted by
this Indenture. All canceled Notes may be held or disposed of by the Note
Trustee in accordance with its standard retention or disposal policy as in
effect at the time unless the Note Issuer shall direct by an Issuer Order that
they be destroyed or returned to it; provided that such Issuer Order is timely
--------
and the Notes have not been previously disposed of by the Note Trustee.
SECTION 2.10. Amount Unlimited; Authentication and Delivery of Notes.
-------------------------------------------------------
The aggregate principal amount of Notes that may be authenticated and delivered
under this Indenture is unlimited.
Notes of a new Series may from time to time be executed by the Note
Issuer and delivered to the Note Trustee for authentication and thereupon the
same shall be authenticated and delivered by the Note Trustee upon Issuer
Request and upon delivery by the Note Issuer to the Note Trustee, and receipt by
the Note Trustee, or the causing to occur by the Note Issuer, of the following;
provided, however, that compliance with such conditions and delivery of such
- -------- -------
documents shall only be required in connection with the original issuance of a
Note or Notes of such Series:
(1) Company Action. An Issuer Order authorizing and directing the
---------------
execution, authentication and delivery of the Notes by the Note Trustee and
specifying the principal amount of Notes to be authenticated.
(2) Authorizations. (a) Either (i) a certificate of authentication
---------------
or other official document evidencing the due authorization, approval or
consent or any governmental body or bodies at the time having jurisdiction
in the premises, together with an
<PAGE>
24
Opinion of Counsel that the Note Trustee is entitled to conclusively rely
thereon and that the authorization, approval, or consent of no other
governmental body is required for the valid issuance, authentication and
delivery of such Notes, or (ii) an Opinion of Counsel that no such
authorization, approval, or consent of any governmental body is required,
except for such registrations as are required under the Blue Sky and
securities laws of any State.
(b) Either (i) a certificate or other official document evidencing
the due authorization, approval or consent of any governmental body or
bodies at the time having jurisdiction in the premises, together with an
Opinion of Counsel that the Note Trustee is entitled to conclusively rely
thereon and that the authorization, approval, or consent of no other
governmental body is required for the valid execution and delivery by the
Note Issuer of each of the Basic Documents to which the Note Issuer is a
party, or (ii) an Opinion of Counsel that no such authorization, approval
or consent of any governmental body is required.
(3) Authorizing Certificate. A certificate of an Authorized Officer
------------------------
of the Note Issuer certifying that (i) the Note Issuer has duly authorized
the execution and delivery of this Indenture and the related Series
Supplement and the execution, authentication and delivery of the Notes of
such Series and (ii) that the Series Supplement for such Series of Notes
shall be in the form attached thereto, which Series Supplement shall
specify the terms and provisions of such Series (and, if applicable, each
Class thereof), including the Scheduled Maturity Date, the Final Maturity
Date, the principal amount and the Note Interest Rate of such Notes to be
authenticated and delivered.
(4) The Collateral. The Note Issuer shall have caused all Collateral
---------------
to have been Granted to the Note Trustee or, if requested by the Note
Trustee, its nominee and will have caused all related filings with the CPUC
pursuant to the PU Code and other filings in connection with such Grant to
have been duly made.
(5) Certificates of the Note Issuer and the Seller. (a) An Officer's
-----------------------------------------------
Certificate from the Note Issuer, dated as of the Series Issuance Date:
(i) to the effect that the Note Issuer is not in Default under
this Indenture and that the issuance of the Notes applied for will not
result in any Default or in any breach of any of the
<PAGE>
25
terms, conditions or provisions of or constitute a default under any
indenture, mortgage, deed of trust or other agreement or instrument to
which the Note Issuer is a party or by which it or its property is
bound or any order of any court or administrative agency entered in
any Proceeding to which the Note Issuer is a party or by which it or
its property may be bound or to which it or its property may be
subject; and that all conditions precedent provided in this Indenture
relating to the authentication and delivery of the Notes applied for
have been complied with;
(ii) to the effect that the Note Issuer has not assigned any
interest or participation in the Collateral except for the lien of
this Indenture; the Note Issuer has the power and right to Grant the
Collateral to the Note Trustee as security hereunder; and the Note
Issuer, subject to the terms of this Indenture, has Granted to the
Note Trustee all of its right, title and interest in and to such
Collateral free and clear of any lien, mortgage, pledge, charge,
security interest, adverse claim or other encumbrance arising as a
result of actions of the Note Issuer or through the Note Issuer,
except the lien of this Indenture;
(iii) to the effect that the Note Issuer has appointed the firm
of Independent certified public accountants as contemplated in Section
8.06 hereof;
(iv) to the effect that attached thereto are duly executed, true
and complete copies of the Sale Agreement or Subsequent Sale
Agreement, as applicable, and the Servicing Agreement; and
(v) stating that all filings with the CPUC pursuant to the PU
Code and all UCC financing statements with respect to the Collateral
which are required to be filed by the terms of the Sale Agreement or
Subsequent Sale Agreement, as applicable, the Servicing Agreement or
this Indenture have been filed as required.
(b) An officer's certificate from the Seller, dated as of the Series
Issuance Date, to the effect that, in the case of the Transition Property
immediately prior to the conveyance thereof to the Note Issuer pursuant to
the Sale Agreement:
<PAGE>
26
(i) the Seller was the owner of such Transition Property, free
and clear of any lien, mortgage, pledge, charge, security interest,
adverse claim or other encumbrance; the Seller had not assigned any
interest or participation in such Transition Property and the proceeds
thereof other than to the Note Issuer pursuant to the Sale Agreement
(or, if assigned, it has been released); the Seller has the power and
right to convey such Transition Property and the proceeds thereof to
the Note Issuer; and the Seller, subject to the terms of the Sale
Agreement, has validly conveyed to the Note Issuer all of its right,
title and interest in and to such Transition Property and the proceeds
thereof, free and clear of any lien, mortgage, pledge, charge,
security interest, adverse claim or other encumbrance; and
(ii) the attached copies of the Financing Order and Issuance
Advice Letter creating such Transition Property are true and correct.
(6) Opinion of Counsel. Unless otherwise specified in a Series
-------------------
Supplement, an Opinion of Counsel, portions of which may be delivered by
counsel for the Note Issuer, portions of which may be delivered by counsel
for the Seller and the Servicer, and portions of which may be delivered by
counsel for the Trust, dated the Series Issuance Date, to the collective
effect that:
(a) the Indenture has been duly qualified under the Trust
Indenture Act and either the Series Supplement has been duly qualified
under the Trust Indenture Act or no such qualification of the Series
Supplement is necessary;
(b) all instruments furnished to the Note Trustee conform to the
requirements of this Indenture and constitute all the documents
required to be delivered hereunder for the Note Trustee to
authenticate and deliver the Notes applied for, and all conditions
precedent provided for in this Indenture relating to the
authentication and delivery of the Notes have been complied with;
(c) the Note Issuer has the power and authority to execute and
deliver the Series Supplement and this Indenture and to issue the
Notes, and each of the Series Supplement and this Indenture, and the
Notes have been duly authorized
<PAGE>
27
and the Note Issuer is duly organized and in good standing under the
laws of the jurisdiction of its organization;
(d) the Series Supplement and the Indenture have been duly
authorized, executed and delivered by the Note Issuer;
(e) the Notes applied for have been duly authorized and executed
and, when authenticated in accordance with the provisions of the
Indenture and delivered, will constitute valid and binding obligations
of the Note Issuer entitled to the benefits of the Indenture and the
related Series Supplement;
(f) this Indenture, the Sale Agreement or the Subsequent Sale
Agreement, as applicable, the Servicing Agreement and the related
Series Supplement are valid and binding agreements of the Note Issuer,
enforceable in accordance with their respective terms, except as such
enforceability may be subject to bankruptcy, insolvency,
reorganization and other similar laws affecting the rights of
creditors generally and general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or
at law);
(g) to the extent that the provisions of Section 843 of the PU
Code apply to the grant of a security interest by the Note Issuer in
the Collateral pursuant to this Indenture, this Indenture creates in
favor of the Note Trustee a security interest in the rights of the
Note Issuer in the Collateral, and such security interest is
enforceable against the Note Issuer and third parties [(subject to the
rights of third parties holding security interests in such Collateral
perfected in the manner described in Section 843(a) of the PU Code)],
and has attached. Such security interest created by this Indenture in
the Collateral is perfected, and such perfected security interest is
of first priority (subject to Section 843(g) of the PU Code). To the
extent that the provisions of Section 843 of the PU Code do not apply
to the grant of a security interest by the Note Issuer in the
Collateral pursuant to this Indenture, this Indenture creates in favor
of the Note Trustee a security interest in the rights of the Note
Issuer in the Collateral, and such security interest is enforceable
against the Note
<PAGE>
28
Issuer and third parties with respect to such Collateral. Such
security interest is perfected, and this perfected security interest
is of first priority [(subject to Section 843(g) of the PU Code)] [ADD
LANGUAGE RE: LIEN SEARCH CONDUCTED AND NO OTHER LIENS EXIST IN FAVOR
OF THIRD PARTIES];
(h) either (A) the Registration Statement covering the Notes and
the Certificates is effective under the Securities Act of 1933 and, to
the best of such counsel's knowledge and information, no stop order
suspending the effectiveness of such Registration Statement has been
issued under the Securities Act of 1933 nor have proceedings therefor
been instituted or threatened by the Commission or (B) the Notes or
the Certificates are exempt from the registration requirements under
the Securities Act of 1933;
(i) the Note Issuer is not now and, assuming that the Note
Issuer uses the proceeds of the sale of the Notes for the purpose of
acquiring Transition Property in accordance with the terms of the Sale
Agreement, following the sale of the Notes to the Trust and the
Certificates to the underwriter, underwriters, placement agent or
agents or similar Person, neither the Note Issuer nor the Trust will
be required to be registered under the Investment Company Act of 1940;
(j) the Sale Agreement is a valid and binding agreement of the
Seller enforceable against the Seller in accordance with its terms
except as such enforceability may be subject to bankruptcy,
insolvency, reorganization and other similar laws affecting the rights
of creditors generally and general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at
law);
(k) the Servicing Agreement is a valid and binding agreement of
the Servicer enforceable against the Servicer in accordance with its
terms except as such enforceability may be subject to bankruptcy,
insolvency, reorganization and other similar laws affecting the rights
of creditors generally and general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at
law);
(l) the transfer of the Transition Property by the Seller to the
Note Issuer pursuant to the
<PAGE>
29
Sale Agreement conveys the Seller's right, title and interest in the
Transition Property to the Note Issuer and will be treated as an
absolute transfer of all of the Seller's right, title, and interest in
the Transition Property, other than for federal and state income and
franchise tax purposes. Such transfer of the Transition Property is
perfected and is of first priority; and
(m) such other matters as the Note Trustee may reasonably
require.
(7) Accountant's Certificate or Opinion. Unless otherwise specified
------------------------------------
in a Series Supplement, a certificate or opinion, addressed to the Note
Issuer and the Note Trustee complying with the requirements of Section
11.01(a) hereof, of a firm of Independent certified public accountants of
recognized national reputation to the effect that (a) such accountants are
Independent with respect to the Note Issuer within the meaning of the
Indenture, and are independent public accountants within the meaning of the
standards of The American Institute of Certified Public Accountants, and
(b) with respect to the Collateral, they have made such calculations as
they deemed necessary for the purpose and determined that, based on the
assumptions used in calculating the initial FTA Charges or, if applicable,
the most recent revised FTA Charges, as of the Series Issuance Date for
such Series (after giving effect to the issuance of such Series and the
application of the proceeds therefrom) such FTA Charges are sufficient to
pay (a) Operating Expenses when incurred, plus (b) the
Overcollateralization Amount, plus (c) interest on each Series of Notes at
their respective Note Interest Rates when due, plus (d) principal of each
Series of Notes in accordance with the Expected Amortization Schedule.
(8) Rating Agency Condition. The Note Trustee shall receive evidence
------------------------
reasonably satisfactory to it that the Rating Agency Condition will be
satisfied with respect to the issuance of such new Series.
(9) Requirements of Series Supplement. Such other funds, accounts,
----------------------------------
documents certificates, agreements, instruments or opinions as may be
required by the terms of the Series Supplement creating such Series.
(10) Other Requirements. Such other documents, certificates,
------------------
agreements, instruments or opinions as the Note Trustee may reasonably
require.
<PAGE>
30
SECTION 2.11. Release of Collateral. Subject to Section 11.01, the
----------------------
Note Trustee shall release property from the lien of this Indenture only upon
receipt of an Issuer Request accompanied by an Officer's Certificate, an Opinion
of Counsel and Independent Certificates in accordance with TIA (S)(S)314(c) and
314(d)(l) or an Opinion of Counsel in lieu of such Independent Certificates to
the effect that the TIA does not require any such Independent Certificates.
ARTICLE III
Covenants
---------
SECTION 3.01. Payment of Principal, Premium, if any, and Interest.
----------------------------------------------------
The Note Issuer will duly and punctually pay the principal of and premium, if
any, and interest on the Notes in accordance with the terms of the Notes and
this Indenture. Amounts properly withheld under the Code by any Person from a
payment to any Noteholder of interest or principal or premium, if any, shall be
considered as having been paid by the Note Issuer to such Noteholder for all
purposes of this Indenture.
SECTION 3.02. Maintenance of Office or Agency. The Note Issuer will
--------------------------------
maintain in the Borough of Manhattan, The City of New York, an office or agency
where Notes may be surrendered for registration of transfer or exchange, and
where notices and demands to or upon the Note Issuer in respect of the Notes and
this Indenture may be served. The Note Issuer hereby initially appoints
____________ to serve as its agent for the foregoing purposes. The Note Issuer
will give prompt written notice to ____________ of the location, and of any
change in the location, of any such office or agency. If at any time the Note
Issuer shall fail to maintain any such office or agency or shall fail to furnish
____________ with the address thereof, such surrenders, notices and demands may
be made or served at the Corporate Trust Office, and the Note Issuer hereby
appoints ____________ as its agent to receive all such surrenders, notices and
demands.
SECTION 3.03. Money for Payments To Be Held in Trust. As provided in
---------------------------------------
Section 8.02(a), all payments of amounts due and payable with respect to any
Notes that are to be made from amounts withdrawn from the Collection Account
pursuant to Section 8.02(d) shall be made on behalf of the Note Issuer by the
Note Trustee or by another Paying Agent, and no amounts so withdrawn from the
Collection Account for payments of Notes shall be paid over to the Note Issuer
except as provided in this Section and Section 8.02.
<PAGE>
31
On or before each Remittance Date, the Note Issuer shall deposit or
cause to be deposited in the Collection Account Estimated FTA Collections with
respect to the preceding Collection Period, increased by the Remittance
Shortfall or decreased by the Excess Remittance calculated at the Monthly
Administrative Date immediately preceding such Remittance Date, as applicable,
as provided in the Servicing Agreement, such sum to be held in trust for the
benefit of the Persons entitled thereto and (unless the Paying Agent is the Note
Trustee) shall promptly notify the Note Trustee of its action or failure so to
act.
The Note Issuer will cause each Paying Agent other than the Note
Trustee to execute and deliver to the Note Trustee an instrument in which such
Paying Agent shall agree with the Note Trustee (and if the Note Trustee acts as
Paying Agent, it hereby so agrees), subject to the provisions of this Section,
that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and pay such sums to such Persons as herein provided;
(ii) give the Note Trustee notice of any default by the Note Issuer
of which it has actual knowledge (or any other obligor upon the Notes) in
the making of any payment required to be made with respect to the Notes;
(iii) at any time during the continuance of any such default, upon the
written request of the Note Trustee, forthwith pay to the Note Trustee all
sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to the
Note Trustee all sums held by it in trust for the payment of Notes if at
any time it ceases to meet the standards required to be met by a Paying
Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith.
The Note Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Note Trustee all sums held in
<PAGE>
32
trust by such Paying Agent, such sums to be held by the Note Trustee upon the
same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Note Trustee, such Paying Agent
shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Note Trustee or any Paying Agent in trust for the payment of any
amount due with respect to any Note and remaining unclaimed for two years after
such amount has become due and payable shall be discharged from such trust and
be paid to the Note Issuer on Issuer Request; and, subject to Section 11.18, the
Holder of such Note shall thereafter, as an unsecured general creditor, look
only to the Note Issuer for payment thereof (but only to the extent of the
amounts so paid to the Note Issuer), and all liability of the Note Trustee or
such Paying Agent with respect to such trust money shall thereupon cease;
provided, however, that the Note Trustee or such Paying Agent, before being
- -------- -------
required to make any such repayment, may at the expense of the Note Issuer cause
to be published once, in a newspaper published in the English language,
customarily published on each Business Day and of general circulation in The
City of New York, notice that such money remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days from the date of
such publication, any unclaimed balance of such money then remaining will be
repaid to the Note Issuer. The Note Trustee may also adopt and employ, at the
expense of the Note Issuer, any other reasonable means of notification of such
repayment (including mailing notice of such repayment to Holders whose Notes
have been called but have not been surrendered for redemption or whose right to
or interest in moneys due and payable but not claimed is determinable from the
records of the Note Trustee or of any Paying Agent, at the last address of
record for each such Holder).
SECTION 3.04. Existence. The Note Issuer will keep in full effect
----------
its existence, rights and franchises as a limited liability company under the
laws of the State of Delaware (unless it becomes, or any successor Note Issuer
hereunder is or becomes, organized under the laws of any other State or of the
United States of America, in which case the Note Issuer will keep in full effect
its existence, rights and franchises under the laws of such other jurisdiction)
and will obtain and preserve its qualification to do business in each
jurisdiction in which such qualification is or shall be necessary to protect the
validity and enforceability of this Indenture, the Notes,
<PAGE>
33
the Collateral and each other instrument or agreement included in the
Collateral.
SECTION 3.05. Protection of Collateral. The Note Issuer will from
-------------------------
time to time execute and deliver all such supplements and amendments hereto and
all such filings with the CPUC pursuant to the PU Code, financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) maintain or preserve the lien and security interest (and the
priority thereof) of this Indenture or carry out more effectively the
purposes hereof;
(ii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture;
(iii) enforce any of the Collateral;
(iv) preserve and defend title to the Collateral and the rights of
the Note Trustee and the Noteholders in such Collateral against the claims
of all Persons and parties [, including the challenge by any party to the
validity or enforceability of the Financing Order, any Advice Letter or the
Transition Property or any proceeding relating thereto and institute any
action or proceeding necessary to compel performance by the CPUC or the
State of California of any of its obligations or duties under the PU Code,
the Financing Order or any Advice Letter]; or
(v) pay any and all taxes levied or assessed upon all or any part of
the Collateral.
The Note Issuer hereby designates the Note Trustee its agent and attorney-in-
fact to execute any filings with the CPUC, financing statement, continuation
statement or other instrument required by the Note Trustee pursuant to this
Section, it being understood that the Note Trustee shall have no such
obligation.
SECTION 3.06. Opinions as to Collateral. (a) On the Series Issuance
--------------------------
Date for each Series, the Note Issuer shall furnish to the Note Trustee an
Opinion of Counsel either stating that, in the opinion of such counsel, such
action has been taken with respect to the recording and filing of this
Indenture, any indentures supplemental hereto, and any other requisite
documents, and with respect to the execution and filing of any filings with the
CPUC pursuant to the PU Code, financing statements and
<PAGE>
34
continuation statements, as are necessary to perfect and make effective the lien
and security interest of this Indenture and reciting the details of such action,
or stating that, in the opinion of such counsel, no such action is necessary to
make such lien and security interest effective.
(b) On or before [_] in each calendar year, while any Series is
outstanding, beginning at least three months after the issuance of the first
Series of the Notes, the Note Issuer shall furnish to the Note Trustee an
Opinion of Counsel either stating that, in the opinion of such counsel, such
action has been taken with respect to the recording, filing, re-recording and
refiling of this Inden ture, any indentures supplemental hereto and any other
requisite documents and with respect to the execution and filing of any filings
with the CPUC pursuant to the PU Code, financing statements and continuation
statements as is necessary to maintain the lien and security interest created by
this Indenture and reciting the details of such action or stating that in the
opinion of such counsel no such action is necessary to maintain such lien and
security interest. Such Opinion of Counsel shall also describe the recording,
filing, re-recording and refiling of this Indenture, any indentures supplemental
hereto and any other requisite documents and the execution and filing of any
filings with the CPUC, financing statements and continuation statements that
will, in the opinion of such counsel, be required to maintain the lien and
security interest of this Indenture until [_] in the following calendar year.
(c) Prior to the effectiveness of any Subsequent Sale Agreement or
any amendment to the Sale Agreement, the Note Issuer shall furnish to the Note
Trustee an Opinion of Counsel either (A) stating that, in the opinion of such
counsel, all filings, including filings with the CPUC pursuant to the PU Code,
have been executed and filed that are necessary fully to preserve and protect
the interest of the Note Issuer and the Note Trustee in the Transition Property
and the proceeds thereof, and reciting the details of such filings or referring
to prior Opinions of Counsel in which such details are given, or (B) stating
that, in the opinion of such counsel, no such action shall be necessary to
preserve and protect such interest.
SECTION 3.07. Performance of Obligations; Servicing; Commission
-------------------------------------------------
Filings. (a) The Note Issuer (i) will diligently pursue any and all actions to
- --------
enforce its rights under each instrument or agreement included in the Collateral
and (ii) will not take any action and will use its best efforts not to permit
any action to be taken by others that would release any Person from any of such
<PAGE>
35
Person's covenants or obligations under any such instrument or agreement or that
would result in the amendment, hypothecation, subordination, termination or
discharge of, or impair the validity or effectiveness of, any such instrument or
agreement, except, in each case, as expressly provided in this Indenture, the
Sale Agreement, the Servicing Agreement or such other instrument or agreement.
(b) The Note Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Note Trustee in an Officer's Certificate of the
Note Issuer shall be deemed to be action taken by the Note Issuer. Initially,
the Note Issuer has contracted with the Servicer to assist the Note Issuer in
performing its duties under this Indenture.
(c) The Note Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Basic Documents and
in the instruments and agreements included in the Collateral, including filing
or causing to be filed all filings with the CPUC pursuant to the PU Code, UCC
financing statements and continuation statements required to be filed by it by
the terms of this Indenture, the Sale Agreement and the Servicing Agreement in
accordance with and within the time periods provided for herein and therein.
Except as otherwise expressly provided therein, the Note Issuer shall not waive,
amend, modify, supplement or terminate any Basic Document or any provision
thereof without the written consent of the Note Trustee or the Holders of at
least a majority of the Outstanding Amount of Notes of all Series.
(d) If the Note Issuer shall have knowledge of the occurrence of a
Servicer Default under the Servicing Agreement, the Note Issuer shall promptly
notify the Note Trustee, the Infrastructure Bank, the Rating Agencies thereof,
and shall specify in such notice the action, if any, the Note Issuer is taking
with respect of such default. If a Servicer Default shall arise from the
failure of the Servicer to perform any of its duties or obligations under the
Servicing Agreement with respect to the Transition Property or the FTA Charge,
the Note Issuer shall take all reasonable steps available to it to remedy such
failure.
(e) As promptly as possible after the giving of notice of termination
to the Servicer of the Servicer's rights and powers pursuant to Section 7.01 of
the Servicing Agreement, the Note Issuer shall appoint a successor servicer (the
"Successor Servicer"), and such Successor Servicer shall accept its appointment
by a written assumption in a form acceptable to the Note Trustee. Any
<PAGE>
36
Successor Servicer shall (i) [satisfy the following criteria: [NEED TO DEVELOP
CRITERIA], (ii) be approved in writing by the Rating Agencies and (iii) enter
into a servicing agreement with the Note Issuer having substantially the same
provisions as the provisions of the Servicing Agreement applicable to the
Servicer. If within 30 days after the delivery of the notice referred to above,
the Note Issuer shall not have obtained such a new servicer, the Note Trustee
may petition the CPUC or a court of competent jurisdiction to appoint a
Successor Servicer. In connection with any such appointment, the Note Issuer
may make such arrangements for the compensation of such successor as it and such
successor shall agree, subject to the limitations set forth below and in the
Servicing Agreement, and in accordance with Section 5.02 of the Servicing
Agreement, the Note Issuer shall enter into an agreement with such successor for
the servicing of the Transition Property (such agreement to be in form and
substance satisfactory to the Note Trustee).
(f) Upon any termination of the Servicer's rights and powers pursuant
to the Servicing Agreement, the Note Trustee shall promptly notify the Note
Issuer, the Noteholders and the Rating Agencies. As soon as a Successor
Servicer is appointed, the Note Issuer shall notify the Note Trustee, the
Noteholders and the Rating Agencies of such appointment, specifying in such
notice the name and address of such Successor Servicer.
(g) Without derogating from the absolute nature of the assignment
granted to the Note Trustee under this Indenture or the rights of the Note
Trustee hereunder, the Note Issuer agrees that it will not, without the prior
written consent of the Note Trustee or the Holders of at least a majority in
Outstanding Amount of the Notes of all Series, amend, modify, waive, supplement,
terminate or surrender, or agree to any amendment, modification, supplement,
termination, waiver or surrender of, the terms of any Collateral or the Basic
Documents, or waive timely performance or observance by the Seller or the
Servicer under the Sale Agreement or the Servicing Agreement, respectively. If
any such amendment, modification, supplement or waiver shall be so consented to
by the Note Trustee or such Holders, the Note Issuer agrees to execute and
deliver, in its own name and at its own expense, such agreements, instruments,
consents and other documents as shall be necessary or appropriate in the
circumstances. The Note Issuer agrees that no such amendment, modification,
supplement or waiver shall adversely affect the rights of the Holders of the
Notes outstanding at the time of any such amendment, modification, supplement or
waiver.
<PAGE>
37
(h) The Note Issuer shall file with the Commission such periodic
reports, if any, as are required from time to time under Section 13 of the
Securities Exchange Act of 1934.
(i) The Note Issuer shall make all filings required under the Statute
relating to the transfer of the ownership or security interest in the Transition
Property other than those required to be made by the Seller pursuant to the
Basic Documents.
SECTION 3.08. Negative Covenants. So long as any Notes are
-------------------
Outstanding, the Note Issuer shall not:
(i) except as expressly permitted by this Indenture, sell, transfer,
exchange or otherwise dispose of any of the properties or assets of the
Note Issuer, including those included in the Collateral, unless directed to
do so by the Note Trustee in accordance with Article V;
(ii) claim any credit on, or make any deduction from the principal or
premium, if any, or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code) or assert any
claim against any present or former Noteholder by reason of the payment of
the taxes levied or assessed upon any part of the Collateral;
(iii) terminate its existence or dissolve or liquidate in whole or in
part; or
(iv) (A) permit the validity or effectiveness of this Indenture to be
impaired, or permit the lien of this Indenture to be amended, hypothecated,
subordinated, terminated or discharged, or permit any Person to be released
from any covenants or obligations with respect to the Notes under this
Indenture except as may be expressly permitted hereby, (B) permit any lien,
charge, excise, claim, security interest, mortgage or other encumbrance
(other than the lien of this Indenture and any statutory lien under Section
843(g) of the PU Code) to be created on or extend to or otherwise arise
upon or burden the Collateral or any part thereof or any interest therein
or the proceeds thereof or (C) subject to any statutory lien under Section
843(g) of the PU Code, permit the lien of this Indenture not to constitute
a valid first priority security interest in the Collateral.
SECTION 3.09. Annual Statement as to Compliance. The Note Issuer
----------------------------------
will deliver to the Note Trustee, the
<PAGE>
38
Certificate Trustee and the Rating Agencies within 120 days after the end of
each fiscal year of the Note Issuer (commencing with the fiscal year 1998), an
Officer's Certificate stating, as to the Authorized Officer signing such
Officer's Certificate, that
(i) a review of the activities of the Note Issuer during such year
and of performance under this Indenture has been made under such Authorized
Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based on
such review, the Note Issuer has complied with all conditions and covenants
under this Indenture throughout such year, or, if there has been a default
in the compliance of any such condition or covenant, specifying each such
default known to such Authorized Officer and the nature and status thereof.
SECTION 3.10. Note Issuer May Consolidate, etc., Only on Certain
--------------------------------------------------
Terms. (a) The Note Issuer shall not consolidate or merge with or into any
- ------
other Person, unless
(i) the Person (if other than the Note Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any State and
shall expressly assume, by an indenture supplemental hereto, executed and
delivered to the Note Trustee, in form and substance satisfactory to the
Note Trustee, the due and punctual payment of the principal of and premium,
if any, and interest on all Notes and the performance or observance of
every agreement and covenant of this Indenture on the part of the Note
Issuer to be performed or observed, all as provided herein and in the
applicable Series Supplement or Series Supplements;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Note Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Note Trustee) to the effect that
such transaction will not have any material adverse tax consequence to the
Note Issuer, the Trust, any Noteholder or any Certificateholder;
<PAGE>
39
(v) any action as is necessary to maintain the lien and security
interest created by this Indenture shall have been taken; and
(vi) the Note Issuer shall have delivered to the Note Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
consolidation or merger and such supplemental indenture comply with this
Section 3.10 and that all conditions precedent herein provided for relating
to such transaction have been complied with (including any filing required
by the Exchange Act).
(b) Except as specifically provided herein, the Note Issuer shall not
convey or transfer any of its properties or assets, including those included in
the Collateral, to any Person, unless
(i) the Person that acquires by conveyance or transfer the properties
and assets of the Note Issuer the conveyance or transfer of which is hereby
restricted shall (A) be a United States citizen or a Person organized and
existing under the laws of the United States of America or any State, (B)
expressly assumes, by an indenture supplemental hereto, executed and
delivered to the Note Trustee, in form and substance satisfactory to the
Note Trustee, the due and punctual payment of the principal of and premium,
if any, and interest on all Notes and the performance or observance of
every agreement and covenant of this Indenture on the part of the Note
Issuer to be performed or observed, all as provided herein and in the
applicable Series Supplement or Series Supplements, (C) expressly agrees by
means of such supplemental indenture that all right, title and interest so
conveyed or transferred shall be subject and subordinate to the rights of
Holders of the Notes, (D) unless otherwise provided in the supplemental
indenture referred to in clause (B) above, expressly agrees to indemnify,
defend and hold harmless the Note Issuer against and from any loss,
liability or expense arising under or related to this Indenture and the
Notes and (E) expressly agrees by means of such supplemental indenture that
such Person (or if a group of Persons, then one specified Person) shall
make all filings with the Commission (and any other appropriate Person)
required by the Exchange Act in connection with the Notes;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
<PAGE>
40
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Note Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Note Trustee) to the effect that
such transaction will not have any material adverse tax consequence to the
Note Issuer, the Trust, any Noteholder or any Certificateholder;
(v) any action as is necessary to maintain the lien and security
interest created by this Indenture shall have been taken; and
(vi) the Note Issuer shall have delivered to the Note Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
conveyance or transfer and such supplemental indenture comply with this
Section 3.10 and that all conditions precedent herein provided for relating
to such transaction have been complied with (including any filing required
by the Exchange Act).
SECTION 3.11. Successor or Transferee. (a) Upon any consolidation
------------------------
or merger of the Note Issuer in accordance with Section 3.10(a), the Person
formed by or surviving such consolidation or merger (if other than the Note
Issuer) shall succeed to, and be substituted for, and may exercise every right
and power of, the Note Issuer under this Indenture with the same effect as if
such Person had been named as the Note Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Note Issuer pursuant to Section 3.10(b), [_] Funding LLC will be released
from every covenant and agreement of this Indenture to be observed or performed
on the part of the Note Issuer with respect to the Notes immediately upon the
delivery of written notice to the Note Trustee stating that [_] Funding LLC is
to be so released.
SECTION 3.12. No Other Business. The Note Issuer shall not engage in
------------------
any business other than financing, purchasing, owning and managing the
Transition Property in the manner contemplated by this Indenture and the Basic
Documents and activities incidental thereto.
SECTION 3.13. No Borrowing. The Note Issuer shall not issue, incur,
-------------
assume, guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
<PAGE>
41
SECTION 3.14. Servicer's Obligations. The Note Issuer shall enforce
-----------------------
the Servicer's compliance with all of the Servicer's material obligations under
the Servicing Agreement.
SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities.
--------------------------------------------------
Except as provided in Section 3.22 and except as otherwise contemplated by the
Sale Agreement, the Servicing Agreement or this Indenture, the Note Issuer shall
not make any loan or advance or credit to, or guarantee (directly or indirectly
or by an instrument having the effect of assuring another's payment or
performance on any obligation or capability of so doing or otherwise), endorse
or otherwise become contingently liable, directly or indirectly, in connection
with the obligations, stocks or dividends of, or own, purchase, repurchase or
acquire (or agree contingently to do so) any stock, obligations, assets or
securities of, or any other interest in, or make any capital contribution to,
any other Person.
SECTION 3.16. Capital Expenditures. Other than expenditures in an
---------------------
aggregate amount not to exceed $25,000 in any calendar year, the Note Issuer
shall not make any expenditure (by long-term or operating lease or otherwise)
for capital assets (either realty or personalty).
SECTION 3.17. Non-Routine True-Up Adjustment. The Note Issuer agrees
-------------------------------
that it shall not consent to a Non-Routine True-Up Adjustment pursuant to
Section 4.01(c) of the Servicing Agreement unless the Rating Agency Condition
shall have been satisfied.
SECTION 3.18. Restricted Payments. The Note Issuer shall not,
--------------------
directly or indirectly, (i) pay any dividend or make any distribution (by
reduction of capital or otherwise), whether in cash, property, securities or a
combination thereof, to any owner of a beneficial interest in the Note Issuer or
otherwise with respect to any ownership or equity interest or security in or of
the Note Issuer, (ii) redeem, purchase, retire or otherwise acquire for value
any such ownership or equity interest or security or (iii) set aside or
otherwise segregate any amounts for any such purpose; provided, however, that,
-------- -------
if no Event of Default shall have occurred and be continuing, the Note Issuer
may make, or cause to be made, any such distributions to any owner of a
beneficial interest in the Note Issuer or otherwise with respect to any
ownership or equity interest or security in or of the Note Issuer using funds
distributed to the Note Issuer pursuant to Section 8.02(d) to the extent that
such distributions would not cause the book value of the Note Issuer to decline
below 0.5 percent of the original principal amount of all Series of Notes which
remain
<PAGE>
42
outstanding. The Note Issuer will not, directly or indirectly, make payments to
or distributions from the Collection Account except in accordance with this
Indenture and the Basic Documents.
SECTION 3.19. Notice of Events of Default. The Note Issuer agrees to
----------------------------
give the Note Trustee and the Rating Agencies prompt written notice of each
Event of Default hereunder and each default on the part of the Seller or the
Servicer of its obligations under the Sale Agreement or the Servicing Agreement,
respectively.
SECTION 3.20. Further Instruments and Acts. Upon request of the Note
-----------------------------
Trustee, the Note Issuer will execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 3.21. Purchase of Subsequent Transition Property. (a) The
-------------------------------------------
Note Issuer may from time to time purchase Subsequent Transition Property from
the Seller pursuant to a Subsequent Sale Agreement, subject to the conditions
specified in paragraph (b) below.
(b) The Note Issuer shall be permitted to purchase from the Seller
Subsequent Transition Property and the proceeds thereof only upon the
satisfaction of each of the following conditions on or prior to the related
Subsequent Sale Date:
(i) the Seller shall have provided the Note Issuer, the Note Trustee
and the Rating Agencies with written notice, which shall be given not later
than 10 days prior to the related Subsequent Sale Date, specifying the
Subsequent Sale Date for such Subsequent Transition Property and the
aggregate amount of the FTA Charges related to such Subsequent Transition
Property, and shall have provided any information reasonably requested by
any of the foregoing Persons with respect to the Subsequent Transition
Property then being conveyed to the Note Issuer;
(ii) the Seller and the Note Issuer shall have delivered to the Note
Trustee a duly executed Subsequent Sale Agreement in substantially the form
of the Sale Agreement;
(iii) as of such Subsequent Sale Date, the Seller was not insolvent
and will not have been made insolvent by such transfer and the Seller is
not aware of any pending insolvency with respect to itself;
<PAGE>
43
(iv) the Rating Agency Condition shall have been satisfied with
respect to such conveyance;
(v) such conveyance will not result in an adverse tax consequence
to the Note Issuer, the Trust, the Noteholders or the Certificateholders;
(vi) as of such Subsequent Sale Date, no breach by the Seller of its
representations, warranties or covenants in the Sale Agreement and no
Servicer Default shall exist;
(vii) as of such Subsequent Sale Date, the Note Issuer shall have
sufficient funds available to pay the purchase price for the Subsequent
Transition Property to be conveyed on such date and all conditions to the
issuance of one or more Series of Notes intended to provide such funds set
forth in Section 2.10 of this Indenture shall have been satisfied;
(viii) the Note Issuer shall have delivered to the Note Trustee an
Officer's Certificate confirming the satisfaction of each condition
precedent specified in this paragraph (b);
(ix) (A) the Note Issuer shall have delivered to the Rating Agencies
any Opinions of Counsel requested by the Rating Agencies and (B) the Note
Issuer shall have delivered to the Note Trustee the Opinion of Counsel
required by Section 3.06(c) of this Indenture; and
(x) subject to any statutory lien under Section 843(g) of the PU
Code, the Seller and the Note Issuer shall have taken any action required
to maintain the first perfected ownership interest of the Note Issuer in
the Transition Property and the proceeds thereof, and the Note Issuer shall
have taken any action required to maintain first perfected security
interest of the Note Trustee in the Transition Property and the proceeds
thereof.
ARTICLE IV
Satisfaction and Discharge; Defeasance
--------------------------------------
SECTION 4.01. (a) Satisfaction and Discharge of Indenture;
----------------------------------------
Defeasance. This Indenture shall cease to be of further effect with respect to
- -----------
the Notes of any Series and the Note Trustee, on reasonable demand of and at the
expense of the Note Issuer, shall execute proper instruments
<PAGE>
44
acknowledging satisfaction and discharge of this Indenture with respect to the
Notes of such Series, when
(A) either
(1) all Notes of such Series theretofore authenticated and
delivered (other than (i) Notes that have been destroyed, lost or
stolen and that have been replaced or paid as provided in Section 2.06
and (ii) Notes for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Note Issuer and
thereafter repaid to the Note Issuer or discharged from such trust, as
provided in Section 3.03) have been delivered to the Note Trustee for
cancelation; or
(2) the Scheduled Maturity Date has occurred with respect to all
Notes of such Series not theretofore delivered to the Note Trustee for
cancelation, and the Note Issuer has irrevocably deposited or caused
to be irrevocably deposited with the Note Trustee cash, in trust for
such purpose, in an amount sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered to the Note
Trustee for cancelation on the Scheduled Maturity Date therefor;
(B) the Note Issuer has paid or caused to be paid all other sums
payable hereunder by the Note Issuer with respect to such Series; and
(C) the Note Issuer has delivered to the Note Trustee an Officer's
Certificate, an Opinion of Counsel and (if required by the TIA or the Note
Trustee) an Independent Certificate from a firm of certified public
accountants, each meeting the applicable requirements of Section 11.01(a)
and each stating that all conditions precedent herein provided for relating
to the satisfaction and discharge of this Indenture with respect to Notes
of such Series have been complied with.
(b) Subject to Sections 4.01(c) and 4.02, the Note Issuer at any time
may terminate (i) all its obligations under this Indenture with respect to the
Notes of any Series ("Legal Defeasance Option") or (ii) its obligations under
Sections [3.04, 3.05, 3.06, 3.07, 3.08, 3.09, 3.10, 3.12, 3.13, 3.14, 3.15,
3.16, 3.17 and 3.18] and the operation of Section 5.01(iv) ("Covenant Defeasance
Option") with respect to any Series of Notes. The Note
<PAGE>
45
Issuer may exercise the Legal Defeasance Option with respect to any Series of
Notes notwithstanding its prior exercise of the Covenant Defeasance Option with
respect to such Series.
If the Note Issuer exercises the Legal Defeasance Option with respect
to any Series, the maturity of the Notes of such Series may not be accelerated
because of an Event of Default. If the Note Issuer exercises the Covenant
Defeasance Option with respect to any Series, the maturity of the Notes of such
Series may not be accelerated because of an Event of Default specified in
Section 5.01(iv).
Upon satisfaction of the conditions set forth herein to the exercise
of the Legal Defeasance Option or the Covenant Defeasance Option with respect to
any Series of Notes the Note Trustee, on reasonable demand of and at the expense
of the Note Issuer, shall execute proper instruments acknowledging satisfaction
and discharge of the obligations that are terminated pursuant to such exercise.
(c) Notwithstanding Sections 4.01(a) and 4.01(b) above, (i) rights of
registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal, premium, if any, and interest, (iv) Sections 4.03 and 4.04, (v)
the rights, obligations and immunities of the Note Trustee hereunder (including
the rights of the Note Trustee under Section 6.07 and the obligations of the
Note Trustee under Section 4.03) and (vi) the rights of Noteholders as
beneficiaries hereof with respect to the property deposited with the Note
Trustee payable to all or any of them, shall survive until the Notes of the
Series as to which this Indenture or certain obligations hereunder have be
satisfied and discharged pursuant to Section 4.01(a) or 4.01(b) have been paid
in full. Thereafter, the obligations in Sections 6.07 and 4.04 with respect to
such Series shall survive.
SECTION 4.02. Conditions to Defeasance. The Note Issuer may exercise
------------------------
the Legal Defeasance Option or the Covenant Defeasance Option with respect to
any Series of Notes only if:
(a) the Note Issuer irrevocably deposits or causes to be deposited in
trust with the Note Trustee cash or U.S. Government Obligations for the
payment of principal of and premium, if any, and interest on such Notes to
the Scheduled Maturity Dates or Redemption Date therefor, as applicable;
(b) the Note Issuer delivers to the Note Trustee a certificate from a
nationally recognized firm of
<PAGE>
46
Independent accountants expressing its opinion that the payments of
principal and interest when due and without reinvestment on the deposited
U.S. Government Obligations plus any deposited cash without investment will
provide cash at such times and in such amounts (but, in the case of the
Legal Defeasance Option only, not more than such amounts) as will be
sufficient to pay in respect of the Notes of such Series (i) subject to
clause (ii), principal in accordance with the Expected Amortization
Schedule therefor, (ii) if such Series is to be redeemed, the Redemption
Price therefor on the Redemption Date therefor and (iii) interest when due;
(c) in the case of the Legal Defeasance Option, 91 days pass after
the deposit is made and during the 91-day period no Default specified in
Section 5.01(v) or (vi) occurs which is continuing at the end of the
period;
(d) no Default has occurred and is continuing on the day of such
deposit and after giving effect thereto;
(e) in the case of an exercise of the Legal Defeasance Option, the
Note Issuer shall have delivered to the Note Trustee an Opinion of Counsel
stating that (i) the Note Issuer has received from, or there has been
published by, the Internal Revenue Service a ruling, or (ii) since the date
of execution of this Indenture, there has been a change in the applicable
Federal income tax law, in either case to the effect that, and based
thereon such opinion shall confirm that, the Holders of the Notes of such
Series will not recognize income, gain or loss for Federal income tax
purposes as a result of such legal defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such legal defeasance had not
occurred;
(f) in the case of an exercise of the Covenant Defeasance Option, the
Note Issuer shall have delivered to the Note Trustee an Opinion of Counsel
to the effect that the Holders of the Notes of such Series will not
recognize income, gain or loss for Federal income tax purposes as a result
of such covenant defeasance and will be subject to Federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such covenant defeasance had not occurred; and
<PAGE>
47
(g) the Note Issuer delivers to the Note Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the satisfaction and discharge of the Notes of such Series to
the extent contemplated by this Article IV have been complied with.
Before or after a deposit pursuant to this Section 4.02 with respect
to any Series of Notes, the Note Issuer may make arrangements satisfactory to
the Note Trustee for the redemption of such Notes at a future date in accordance
with Article X.
SECTION 4.03. Application of Trust Money. All moneys or U.S.
--------------------------
Government Obligations deposited with the Note Trustee pursuant to Section 4.01
or 4.02 hereof shall be held in trust and applied by it, in accordance with the
provisions of the Notes and this Indenture, to the payment, either directly or
through any Paying Agent, as the Note Trustee may determine, to the Holders of
the particular Notes for the payment or redemption of which such moneys have
been deposited with the Note Trustee, of all sums due and to become due thereon
for principal, premium, if any, and interest; but such moneys need not be
segregated from other funds except to the extent required herein or in the
Servicing Agreement or required by law.
SECTION 4.04. Repayment of Moneys Held by Paying Agent. In
----------------------------------------
connection with the satisfaction and discharge of this Indenture or the Covenant
Defeasance Option or Legal Defeasance Option with respect to the Notes of any
Series, all moneys then held by any Paying Agent other than the Note Trustee
under the provisions of this Indenture with respect to such Notes shall, upon
demand of the Note Issuer, be paid to the Note Trustee to be held and applied
according to Section 3.03 and thereupon such Paying Agent shall be released
from all further liability with respect to such moneys.
ARTICLE V
Remedies
--------
SECTION 5.01. Events of Default. "Event of Default" with respect to
------------------
any Series, wherever used herein, means any one of the following events
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursu-
<PAGE>
48
ant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or govern mental body):
(i) default in the payment of any interest on any Note when the same
becomes due and payable, and such default shall continue for a period of
five days; or
(ii) default in the payment of the then unpaid principal of any Note
of any Series on the Final Maturity Date for such Series; or
(iii) default in the payment of the Redemption Price for any Note on
the Redemption Date therefor;
(iv) default in the observance or performance of any covenant or
agreement of the Note Issuer made in this Indenture (other than a covenant
or agreement, a default in the observance or performance of which is
elsewhere in this Section specifically dealt with), or any representation
or warranty of the Note Issuer made in this Indenture or in any certificate
or other writing delivered pursuant hereto or in connection herewith
proving to have been incorrect in any material respect as of the time when
the same shall have been made, and such default shall continue or not be
cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been eliminated
or otherwise cured, for a period of 30 days after there shall have been
given, by registered or certified mail, to the Note Issuer by the Note
Trustee or to the Note Issuer and the Note Trustee by the Holders of at
least 25 percent of the Outstanding Amount of the Notes of such Series, a
written notice specifying such default or incorrect representation or
warranty and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder; or
(v) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Note Issuer or any
substantial part of the Collateral in an involuntary case under any
applicable Federal or state bankruptcy, insolvency or other similar law now
or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Note Issuer or
for any substantial part of the Collateral, or ordering the winding-up or
liquidation of the Note Issuer's affairs, and such decree or order shall
remain unstayed and in effect for a period of 60 consecutive days; or
<PAGE>
49
(vi) the commencement by the Note Issuer of a voluntary case under
any applicable Federal or state bankruptcy, insolvency or other similar law
now or hereafter in effect, or the consent by the Note Issuer to the entry
of an order for relief in an involuntary case under any such law, or the
consent by the Note Issuer to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Note Issuer or for any substantial part of the Collateral,
or the making by the Note Issuer of any general assignment for the benefit
of creditors, or the failure by the Note Issuer generally to pay its debts
as such debts become due, or the taking of action by the Note Issuer in
furtherance of any of the foregoing.
The Note Issuer shall deliver to a Responsible Officer of the Note
Trustee, within five days after an Authorized Officer has knowledge of the
occurrence thereof, written notice in the form of an Officer's Certificate of
any event which with the giving of notice and the lapse of time would become an
Event of Default under clause (iv), its status and what action the Note Issuer
is taking or proposes to take with respect thereto.
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default should occur and be continuing with respect to any
Series, then and in every such case the Note Trustee or the Holders of Notes
representing not less than a majority of the Outstanding Amount of the Notes of
all Series may declare all the Notes to be immediately due and payable, by a
notice in writing to the Note Issuer (and to the Note Trustee if given by Note
holders), and upon any such declaration the unpaid principal amount of the Notes
of all Series, together with accrued and unpaid interest thereon through the
date of acceleration, shall become immediately due and payable.
At any time after such declaration of acceleration of maturity has
been made and before a judgment or decree for payment of the money due has been
obtained by the Note Trustee as hereinafter in this Article V provided, the
Holders of Notes representing a majority of the Outstanding
<PAGE>
50
Amount of the Notes of all Series, by written notice to the Note Issuer and the
Note Trustee, may rescind and annul such declaration and its consequences if:
(i) the Note Issuer has paid or deposited with the Note Trustee a sum
sufficient to pay
(A) all payments of principal of and premium, if any, and
interest on all Notes of all Series and all other amounts that would
then be due hereunder or upon such Notes if the Event of Default
giving rise to such acceleration had not occurred; and
(B) all sums paid or advanced by the Note Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances of
the Note Trustee and its agents and counsel; and
(ii) all Events of Default with respect to all Series, other than the
nonpayment of the principal of the Notes of all Series that has become due
solely by such acceleration, have been cured or waived as provided in
Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Note Trustee. (a) The Note Issuer covenants that if (i) default is made in the
- ------------
payment of any interest on any Note of a Series when the same becomes due and
payable, and such default continues for a period of five days, (ii) default is
made in the payment of the then unpaid principal of any Note of any Series on
the Final Maturity Date for such Note or (iii) default is made in the payment of
the Redemption Price for any Note on the Redemption Date therefor, the Note
Issuer will, upon demand of the Note Trustee, pay to it, for the benefit of the
Holders of the Notes of such Series, the whole amount then due and payable on
such Notes for principal, premium, if any, and interest, with interest upon the
overdue principal and premium, if any, and, to the extent payment at such rate
of interest shall be legally enforceable, upon overdue installments of interest,
at the respective rate borne by the Notes of such Series or the applicable Class
of such Series and in addition thereto such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Note
Trustee and its agents and counsel.
<PAGE>
51
(b) Subject to Section 11.18, in case the Note Issuer shall fail
forthwith to pay such amounts upon such demand, the Note Trustee, in its own
name and as trustee of an express trust, may institute a Proceeding for the
collection of the sums so due and unpaid, and may prosecute such Proceeding to
judgment or final decree, and may enforce the same against the Note Issuer or
other obligor upon such Notes and collect in the manner provided by law out of
the property of the Note Issuer or other obligor upon such Notes, wherever
situated, the moneys adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing with respect to
any Series, the Note Trustee may, as more particularly provided in Section 5.04,
in its discretion, proceed to protect and enforce its rights and the rights of
the Noteholders of such Series, by such appropriate Proceedings as the Note
Trustee shall deem most effective to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy or legal or equitable right vested in the Note Trustee
by this Indenture or by law.
(d) In case there shall be pending, relative to the Note Issuer or
any other obligor upon the Notes or any Person having or claiming an ownership
interest in the Collateral, Proceedings under Title 11 of the United States Code
or any other applicable Federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Note Issuer or its property or such other obligor or
Person, or in case of any other comparable judicial Proceedings relative to the
Note Issuer or other obligor upon the Notes of any Series, or to the creditors
or property of the Note Issuer or such other obligor, the Note Trustee,
irrespective of whether the principal of any Notes of any Series shall then be
due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Note Trustee shall have made any demand pursuant to
the provisions of this Section, shall be entitled and empowered, by intervention
in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount of
principal, premium, if any, and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Note Trustee (including any
claim for reasonable
<PAGE>
52
compensation to the Note Trustee and each predecessor Note Trustee, and
their respective agents, attorneys and counsel, and for reimbursement of
all expenses and liabilities incurred, and all advances made, by the Note
Trustee and each predecessor Note Trustee, except as a result of negligence
or bad faith) and of the Noteholders allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote on
behalf of the Holders of Notes in any election of a trustee, a standby
trustee or Person performing similar functions in any such Proceedings;
and
(iii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute all amounts received with
respect to the claims of the Noteholders and of the Note Trustee on their
behalf;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Note Trustee, and, in the event that the Note Trustee shall
consent to the making of payments directly to such Noteholders, to pay to the
Note Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Note Trustee, each predecessor Note Trustee and their
respective agents, attorneys and counsel, and all other expenses and liabilities
incurred, and all advances made, by the Note Trustee and each predecessor Note
Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the Note
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Note Trustee to vote in respect of the claim of any Noteholder in
any such proceeding except, as aforesaid, to vote for the election of a trustee
in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this
Indenture, or under any of the Notes of any Series, may be enforced by the Note
Trustee without the possession of any of the Notes of such Series or the
production thereof in any trial or other Proceedings relative thereto, and any
such action or proceedings instituted by the Note Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment,
subject to the payment of the expenses, disburse-
<PAGE>
53
ments and compensation of the Note Trustee, each predecessor Note Trustee and
their respective agents and attorneys, shall be for the ratable benefit of the
Holders of the Notes of such Series.
(g) In any Proceedings brought by the Note Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Note Trustee shall be a party), the Note Trustee shall be held to
represent all the Holders of the Notes, and it shall not be necessary to make
any Noteholder a party to any such Proceedings.
SECTION 5.04. Remedies; Priorities. If an Event of Default shall
--------------------
have occurred and be continuing with respect to a Series, the Note Trustee may
do one or more of the following (subject to Section 5.05):
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the Notes
of such Series or under this Indenture with respect thereto, whether by
declaration or otherwise, enforce any judgment obtained, and collect from
the Note Issuer and any other obligor upon such Notes moneys adjudged due;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Collateral;
(iii) exercise any remedies of a secured party under the UCC or the PU
Code and take any other appropriate action to protect and enforce the
rights and remedies of the Note Trustee and the Holders of the Notes of
such Series; and
(iv) sell the Collateral or any portion thereof or rights or interest
therein, at one or more public or private sales called and conducted in any
manner permitted by law;
provided, however, that the Note Trustee may not sell or otherwise liquidate any
- -------- -------
portion of the Collateral following an Event of Default, other than an Event of
Default described in Section 5.01(i), (ii) or (iii), with respect to any Series
unless (A) the Holders of 100 percent of the Outstanding Amount of the Notes of
all Series consent thereto, (B) the proceeds of such sale or liquidation
distributable to the Noteholders of all Series are sufficient to discharge in
full all amounts then due and unpaid upon such Notes for principal, premium, if
any, and interest or (C) the Note Trustee determines that the
<PAGE>
54
Collateral will not continue to provide sufficient funds for all payments on the
Notes of all Series as they would have become due if the Notes had not been
declared due and payable, and the Note Trustee obtains the consent of Holders of
66-2/3 percent of the Outstanding Amount of the Notes of all Series. In
determining such sufficiency or insufficiency with respect to clause (B) and
(C), the Note Trustee may, but need not, obtain and conclusively rely upon an
opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Collateral for such purpose.
SECTION 5.05. Optional Preservation of the Collateral. If the Notes
---------------------------------------
of all Series have been declared to be due and payable under Section 5.02
following an Event of Default and such declaration and its consequences have not
been rescinded and annulled, the Note Trustee may, but need not, elect to
maintain possession of the Collateral. It is the desire of the parties hereto
and the Noteholders that there be at all times sufficient funds for the payment
of principal of and premium, if any, and interest on the Notes, and the Note
Trustee shall take such desire into account when determining whether or not to
maintain possession of the Collateral. In determining whether to maintain
possession of the Collateral, the Note Trustee may, but need not, obtain and
conclusively rely upon an opinion of an Independent investment banking or
accounting firm of national reputation as to the feasibility of such proposed
action and as to the sufficiency of the Collateral for such purpose.
SECTION 5.06. Limitation of Suits. No Holder of any Note of any
-------------------
Series shall have any right to institute any Proceeding, judicial or otherwise,
with respect to this Indenture, or for the appointment of a receiver or trustee,
or for any other remedy hereunder, unless:
(i) such Holder previously has given written notice to the Note
Trustee of a continuing Event of Default with respect to such Series;
(ii) the Holders of not less than 25 percent of the Outstanding
Amount of the Notes of all Series have made written request to the Note
Trustee to institute such Proceeding in respect of such Event of Default in
its own name as Note Trustee hereunder;
(iii) such Holder or Holders have offered to the Note Trustee
indemnity satisfactory to it against the costs, expenses and liabilities to
be incurred in complying with such request;
<PAGE>
55
(iv) the Note Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute such Proceedings;
and
(v) no direction inconsistent with such written request has been
given to the Note Trustee during such 60-day period by the Holders of a
majority of the Outstanding Amount of the Notes of all Series;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
In the event the Note Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Outstanding Amount of the Notes of
all Series, the Note Trustee in its sole discretion may determine what action,
if any, shall be taken, notwithstanding any other provisions of this Indenture.
SECTION 5.07. Unconditional Rights of Noteholders To Receive
----------------------------------------------
Principal, Premium, if any, and Interest. Notwithstanding any other provisions
- -----------------------------------------
in this Indenture, the Holder of any Note shall have the right, which is
absolute and unconditional, (a) to receive payment of (i) the interest, if any,
on such Note on or after the due dates thereof expressed in such Note or in this
Indenture, (ii) the unpaid principal, if any, of such Notes on or after the
Final Maturity Date therefor or (iii) in the case of redemption, receive payment
of the unpaid principal, if any, of and premium, if any, and interest, if any,
on such Note on or after the Redemption Date therefor and (b) to institute suit
for the enforcement of any such payment, and such right shall not be impaired
without the consent of such Holder.
SECTION 5.08. Restoration of Rights and Remedies. If the Note Trustee
-----------------------------------
or any Noteholder has instituted any Proceeding to enforce any right or remedy
under this Indenture and such Proceeding has been discontinued or abandoned for
any reason or has been determined adversely to the Note Trustee or to such
Noteholder, then and in every such case the Note Issuer, the Note Trustee and
the Noteholders shall, subject to any determination in such Proceeding, be
restored severally and respectively to their former positions hereunder, and
thereafter all rights and
<PAGE>
56
remedies of the Note Trustee and the Noteholders shall continue as though no
such Proceeding had been instituted.
SECTION 5.09. Rights and Remedies Cumulative. No right or remedy
-------------------------------
herein conferred upon or reserved to the Note Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.10. Delay or Omission Not a Waiver. No delay or omission
-------------------------------
of the Note Trustee or any Noteholder to exercise any right or remedy accruing
upon any Default or Event of Default shall impair any such right or remedy or
constitute a waiver of any such Default or Event of Default or an acquiescence
therein. Every right and remedy given by this Article V or by law to the Note
Trustee or to the Noteholders may be exercised from time to time, and as often
as may be deemed expedient, by the Note Trustee or by the Noteholders, as the
case may be.
SECTION 5.11. Control by Noteholders. The Holders of a majority of
-----------------------
the Outstanding Amount of the Notes of all Series (or, if less than all Series
or Classes are affected, the affected Series or Class or Classes) shall have the
right to direct the time, method and place of conducting any Proceeding for any
remedy available to the Note Trustee with respect to the Notes of such Series or
Class or Classes or exercising any trust or power conferred on the Note Trustee
with respect to such Series or Class or Classes; provided that
--------
(i) such direction shall not be in conflict with any rule of law or
with this Indenture;
(ii) subject to the express terms of Section 5.04, any direction to
the Note Trustee to sell or liquidate the Collateral shall be by the
Holders of Notes representing not less than 100 percent of the Outstanding
Amount of the Notes of all Series;
(iii) if the conditions set forth in Section 5.05 have been satisfied
and the Note Trustee elects to retain the Collateral pursuant to such
Section, then any direction to the Note Trustee by Holders of Notes
representing less than 100 percent of the Outstanding
<PAGE>
57
Amount of the Notes of all Series to sell or liquidate the Collateral shall
be of no force and effect; and
(iv) the Note Trustee may take any other action deemed proper by the
Note Trustee that is not inconsistent with such direction;
provided, however, that, subject to Section 6.01, the Note Trustee need not take
- -------- -------
any action that it determines might involve it in liability or might materially
adversely affect the rights of any Noteholders not consenting to such action.
SECTION 5.12. Waiver of Past Defaults. Prior to the declaration of
------------------------
the acceleration of the maturity of the Notes of all Series as provided in
Section 5.02, the Holders of Notes of not less than a majority of the
Outstanding Amount of the Notes of all Series may waive any past Default or
Event of Default and its consequences except a Default (a) in payment of
principal of or premium, if any, or interest on any of the Notes or (b) in
respect of a covenant or provision hereof which cannot be modified or amended
without the consent of the Holder of each Note of all Series or Classes
affected. In the case of any such waiver, the Note Issuer, the Note Trustee and
the Holders of the Notes shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
SECTION 5.13. Undertaking for Costs. All parties to this Indenture
----------------------
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Note Trustee for any action taken, suffered or omitted by it as Note
Trustee, the filing by any party litigant in such suit of an undertaking to pay
the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to (a) any suit instituted by the Note Trustee, (b) any
suit instituted by any
<PAGE>
58
Noteholder, or group of Noteholders, in each case holding in the aggregate more
than 10 percent of the Outstanding Amount of the Notes of a Series or (c) any
suit instituted by any Noteholder for the enforcement of the payment of (i)
interest on any Note on or after the due dates expressed in such Note and in
this Indenture, (ii) the unpaid principal, if any, of any Note on or after the
Final Maturity Date therefor or (iii) in the case of redemption, the unpaid
principal of and premium, if any, and interest on any Note on or after the
Redemption Date therefor.
SECTION 5.14. Waiver of Stay or Extension Laws. The Note Issuer
---------------------------------
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead or in any manner whatsoever, claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, that may affect the covenants or the performance of
this Indenture; and the Note Issuer (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Note Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
SECTION 5.15. Action on Notes. The Note Trustee's right to seek and
----------------
recover judgment on the Notes or under this Indenture shall not be affected by
the seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Note Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Note Trustee against the Note Issuer or by the
levy of any execution under such judgment upon any portion of the Collateral or
upon any of the assets of the Note Issuer.
SECTION 5.16. Performance and Enforcement of Certain Obligations.
---------------------------------------------------
(a) Promptly following a request from the Note Trustee to do so and at the Note
Issuer's expense, the Note Issuer agrees to take all such lawful action as the
Note Trustee may request to compel or secure the performance and observance by
the Seller and the Servicer, as applicable, of each of their obligations to the
Note Issuer under or in connection with the Sale Agreement and the Servicing
Agreement, respectively, in accordance with the terms thereof, and to exercise
any and all rights, remedies, powers and privileges lawfully available to the
Note Issuer under or in connection with the Sale Agreement and the Servicing
Agreement, respectively, to the extent and in the manner directed by the Note
Trustee, including the transmission of notices of default on the part of the
Seller
<PAGE>
59
or the Servicer thereunder and the institution of legal or administrative
actions or proceedings to compel or secure performance by the Seller or the
Servicer of each of their obligations under the Sale Agreement and the Servicing
Agreement, respectively.
(b) If an Event of Default has occurred, the Note Trustee may, and,
at the direction (which direction shall be in writing or by telephone (confirmed
in writing promptly thereafter)) of the Holders of 66-2/3 percent of the
Outstanding Amount of the Notes of all Series shall, subject to Article VI,
exercise all rights, remedies, powers, privileges and claims of the Note Issuer
against the Seller or the Servicer under or in connection with the Sale
Agreement and the Servicing Agreement, respectively, including the right or
power to take any action to compel or secure performance or observance by the
Seller or the Servicer of each of their obligations to the Note Issuer
thereunder and to give any consent, request, notice, direction, approval,
extension or waiver under the Sale Agreement or the Servicing Agreement,
respectively, and any right of the Note Issuer to take such action shall be
suspended.
ARTICLE VI
The Note Trustee
----------------
SECTION 6.01. Duties of Note Trustee. (a) If an Event of Default
-----------------------
has occurred and is continuing, the Note Trustee shall exercise the rights and
powers vested in it by this Indenture and use the same degree of care and skill
in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Note Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the Note
Trustee; and
(ii) in the absence of bad faith on its part, the Note Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Note Trustee and conforming to the requirements of this Indenture;
however, the Note
<PAGE>
60
Trustee shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture.
(c) The Note Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Note Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer unless it is proved that the
Note Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Note Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 5.11.
(d) Every provision of this Indenture that in any way relates to the
Note Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Note Trustee shall not be liable for interest on any money
received by it except as the Note Trustee may agree in writing with the Note
Issuer.
(f) Money held in trust by the Note Trustee need not be segregated
from other funds except to the extent required by law or the terms of this
Indenture, the Sale Agreement and the Servicing Agreement.
(g) No provision of this Indenture shall require the Note Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayments
of such funds or indemnity satisfactory to it against such risk or liability is
not reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Note Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
(i) In the event that the Trustee is also acting as Paying Agent or
Note Registrar hereunder, this Article VI shall also be afforded to such Paying
Agent or Note Registrar.
<PAGE>
61
SECTION 6.02. Rights of Note Trustee. (a) The Note Trustee may
-----------------------
conclusively rely and shall be fully protected in relying on any document
believed by it to be genuine and to have been signed or presented by the proper
person. The Note Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Note Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Note Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on the Officer's Certificate or Opinion of Counsel.
(c) The Note Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Note Trustee shall not be
responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Note Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Note Trustee's conduct does not
--------- -------
constitute wilful misconduct, negligence or bad faith.
(e) The Note Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
SECTION 6.03. Individual Rights of Note Trustee. The Note Trustee in
----------------------------------
its individual or any other capacity may become the owner or pledgee of Notes
and may otherwise deal with the Note Issuer or its affiliates with the same
rights it would have if it were not Note Trustee. Any Paying Agent, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Note Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.04. Note Trustee's Disclaimer. The Note Trustee shall not
--------------------------
be responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Notes, it shall not be accountable for the Note Issuer's
use of the proceeds from the Notes, and it shall not be responsible for any
statement of the Note Issuer in the Indenture or in any document issued in
<PAGE>
62
connection with the sale of the Notes or in the Notes other than the Note
Trustee's certificate of authentication.
SECTION 6.05. Notice of Defaults. If a Default occurs and is
-------------------
continuing with respect to any Series and if it is actually known to a
Responsible Officer of the Note Trustee, the Note Trustee shall mail to each
Holder of Notes of all Series notice of the Default within 90 days after it
occurs. Except in the case of a Default in payment of principal of or premium,
if any, or interest on any Note, the Note Trustee may withhold the notice if and
so long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of Noteholders.
SECTION 6.06. Reports by Note Trustee to Holders.
-----------------------------------
(a) So long as the Note Trustee is the Note Registrar and Paying
Agent, it shall deliver to each Noteholder such information in its possession as
may be required to enable such holder to prepare its Federal and state income
tax returns.
(b) With respect to each Series of Notes, on or prior to each
Payment Date therefor, the Note Trustee will prepare and deliver to each Holder
of Notes on such Payment Date a statement as provided and prepared by the
Servicer which will include (to the extent applicable) the following information
(and any other information so specified in the applicable Series Supplement) as
to the Notes of such Series with respect to such Payment Date or the period
since the previous Payment Date, as applicable:
(i) the amount of the distribution to Noteholders allocable to
principal;
(ii) the amount of the distribution to Noteholders allocable to
interest;
(iii) the aggregate outstanding principal balance of the Notes, after
giving effect to payments allocated to principal reported under (i) above;
(iv) the Principal Balance and the Projected Principal Balance as of
such Payment Date, after giving effect to distributions to be made on such
Payment Date; and
(v) the aggregate FTA Charges authorized pursuant to the most
recent Advice Letter and the aggregate sum of payments received in respect
of FTA Charges to date,
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63
in each case as of the most recent Quarterly Administrative Date.
(c) The Note Trustee shall send a copy of each of the Certificate of
Compliance delivered to it pursuant to Section 3.03 of the Servicing Agreement
and the Annual Accountant's Report delivered to it pursuant to Section 3.04 of
the Servicing Agreement to the Rating Agencies. A copy of such certificate and
report may be obtained by any Noteholder by a request in writing to the Note
Trustee.
SECTION 6.07. Compensation and Indemnity. The Note Issuer shall pay
---------------------------
to the Note Trustee from time to time reasonable compensation for its services.
The Note Trustee's compensation shall not be limited by any law on compensation
of a trustee of an express trust. The Note Issuer shall reimburse the Note
Trustee for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, in addition to the compensation for its services.
Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Note Trustee's agents, counsel, accountants
and experts. The Note Issuer shall indemnify the Note Trustee and its officers,
directors, employees and agents against any and all loss, liability or expense
(including attorneys' fees and expenses) incurred by it in connection with the
administration of this trust and the performance of its duties hereunder. The
Note Trustee shall notify the Note Issuer as soon as is reasonably practicable
of any claim for which it may seek indemnity. Failure by the Note Trustee to so
notify the Note Issuer shall not relieve the Note Issuer of its obligations
hereunder. The Note Issuer shall defend the claim and the Note Trustee may have
separate counsel and the Note Issuer shall pay the fees and expenses of such
counsel. The Note Issuer need not reimburse any expense or indemnify against
any loss, liability or expense incurred by the Note Trustee through the Note
Trustee's own wilful misconduct, negligence or bad faith.
The Note Issuer's payment obligations to the Note Trustee pursuant to
this Section shall survive the discharge of this Indenture or the earlier
resignation or removal of the Note Trustee. When the Note Trustee incurs
expenses after the occurrence of a Default specified in Section 5.01(v) or (vi)
with respect to the Note Issuer, the expenses are intended to constitute
expenses of administration under Title 11 of the United States Code or any other
applicable Federal or state bankruptcy, insolvency or similar law.
SECTION 6.08. Replacement of Note Trustee. The Note Trustee may
----------------------------
resign at any time by so notifying the Note
<PAGE>
64
Issuer, provided that no such resignation shall be effective until either (a)
the Collateral has been completely liquidated and the proceeds of the
liquidation distributed to the Noteholders or (b) a successor trustee having the
qualifications set forth in Section 6.11 has been designated and has accepted
such trusteeship. The Holders of a majority in Outstanding Amount of the Notes
of all Series may remove the Note Trustee by so notifying the Note Trustee and
may appoint a successor Note Trustee. The Note Issuer shall remove the Note
Trustee if:
(i) the Note Trustee fails to comply with Section 6.11;
(ii) the Note Trustee is adjudged a bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the Note
Trustee or its property; or
(iv) the Note Trustee otherwise becomes incapable of acting.
If the Note Trustee resigns or is removed or if a vacancy exists in
the office of Note Trustee for any reason (the Note Trustee in such event being
referred to herein as the retiring Note Trustee), the Note Issuer shall promptly
appoint a successor Note Trustee.
A successor Note Trustee shall deliver a written acceptance of its
appointment to the retiring Note Trustee and to the Note Issuer. Thereupon the
resignation or removal of the retiring Note Trustee shall become effective, and
the successor Note Trustee shall have all the rights, powers and duties of the
Note Trustee under this Indenture. The successor Note Trustee shall mail a
notice of its succession to Noteholders. The retiring Note Trustee shall
promptly transfer all property held by it as Note Trustee to the successor Note
Trustee.
If a successor Note Trustee does not take office within 60 days after
the retiring Note Trustee resigns or is removed, the retiring Note Trustee, the
Note Issuer or the Holders of a majority in Outstanding Amount of the Notes of
all Series may petition any court of competent jurisdiction for the appointment
of a successor Note Trustee.
If the Note Trustee fails to comply with Section 6.11, any Noteholder
may petition any court of competent jurisdiction for the removal of the Note
Trustee and the appointment of a successor Note Trustee.
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65
Notwithstanding the replacement of the Note Trustee pursuant to this
Section, the Note Issuer's obligations under Section 6.07 shall continue for the
benefit of the retiring Note Trustee.
SECTION 6.09. Successor Note Trustee by Merger. If the Note Trustee
---------------------------------
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Note Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Note Trustee shall succeed to the trusts created by this
Indenture any of the Notes shall have been authenticated but not delivered, any
such successor to the Note Trustee may adopt the certificate of authentication
of any predecessor trustee, and deliver such Notes so authenticated; and in case
at that time any of the Notes shall not have been authenticated, any successor
to the Note Trustee may authenticate such Notes either in the name of any
predecessor hereunder or in the name of the successor to the Note Trustee; and
in all such cases such certificates shall have the full force which it is
anywhere in the Notes or in this Indenture provided that the certificate of the
Note Trustee shall have.
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee. (a)
----------------------------------------------
Notwithstanding any other provisions of this Indenture, at any time, for the
purpose of meeting any legal requirement of any jurisdiction in which any part
of the Trust may at the time be located, the Note Trustee shall have the power
and may execute and deliver all instruments to appoint one or more Persons to
act as a co-trustee or co-trustees, or separate trustee or separate trustees, of
all or any part of the Trust, and to vest in such Person or Persons, in such
capacity and for the benefit of the Noteholders, such title to the Trust, or any
part hereof, and, subject to the other provisions of this Section, such powers,
duties, obligations, rights and trusts as the Note Trustee may consider
necessary or desirable. No co-trustee or separate trustee hereunder shall be
required to meet the terms of eligibility as a successor trustee under Section
6.11 and no notice to Noteholders of the appointment of any co-trustee or
separate trustee shall be required under Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
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66
(i) all rights, powers, duties and obligations conferred or imposed
upon the Note Trustee shall be conferred or imposed upon and exercised or
performed by the Note Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee is
not authorized to act separately without the Note Trustee joining in such
act), except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed the Note Trustee shall be
incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of title to
the Collateral or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee, but
solely at the direction of the Note Trustee;
(ii) no trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder; and
(iii) the Note Trustee may at any time accept the resignation of or
remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Note Trustee
shall be deemed to have been given to each of the then separate trustees and co-
trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Indenture and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Note Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Note Trustee. Every such instrument shall be filed with the
Note Trustee.
(d) Any separate trustee or co-trustee may at any time constitute
the Note Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Indenture on its behalf and in its name. If any separate trustee or co-
trustee shall die, become incapable of acting, resign or be removed, all of its
estates, properties, rights, remedies and trusts shall vest in and be exercised
by the Note Trustee, to the extent permitted by law, without the appointment of
a new or successor trustee.
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67
SECTION 6.11. Eligibility; Disqualification. The Note Trustee shall
------------------------------
at all times satisfy the requirements of TIA (S) 310(a) and Section 26(a)(i) of
the Investment Company Act of 1940. The Note Trustee shall have a combined
capital and surplus of at least $50,000,000 as set forth in its most recent
published annual report of condition and it shall have a long term debt rating
of Baa3 or better by Moody's. The Note Trustee shall comply with TIA (S)
310(b), including the optional provision permitted by the second sentence of TIA
(S) 310(b)(9); provided, however, that there shall be excluded from the
-------- -------
operation of TIA (S) 310(b)(1) any indenture or indentures under which other
securities of the Note Issuer are outstanding if the requirements for such
exclusion set forth in TIA (S) 310(b)(1) are met.
SECTION 6.12. Preferential Collection of Claims Against Note Issuer.
------------------------------------------------------
The Note Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Note Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated.
ARTICLE VII
Noteholders' Lists and Reports
------------------------------
SECTION 7.01. Note Issuer To Furnish Note Trustee Names and Addresses
-------------------------------------------------------
of Noteholders. The Note Issuer will furnish or cause to be furnished to the
- ---------------
Note Trustee (a) not more than five days after the earlier of (i) each Record
Date with respect to each Series and (ii) three months after the last Record
Date with respect to each Series, a list, in such form as the Note Trustee may
reasonably require, of the names and addresses of the Holders of Notes of such
Series as of such Record Date, (b) at such other times as the Note Trustee may
request in writing, within 30 days after receipt by the Note Issuer of any such
request, a list of similar form and content as of a date not more than 10 days
prior to the time such list is furnished; provided, however, that so long as the
-------- -------
Note Trustee is the Note Registrar, no such list shall be required to be
furnished.
SECTION 7.02. Preservation of Information; Communications to
----------------------------------------------
Noteholders. (a) The Note Trustee shall preserve, in as current a form as is
- ------------
reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Note Trustee as provided in
Section 7.01 and the names and addresses of Holders of Notes received by the
Note Trustee in its capacity as Note Registrar. The Note Trustee may destroy
any list furnished to it as provided in such Section 7.01 upon receipt of a new
list so furnished.
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68
(b) Noteholders may communicate pursuant to TIA (S) 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Note Issuer, the Note Trustee and the Note Registrar shall
have the protection of TIA (S) 312(c).
SECTION 7.03. Reports by Note Issuer. (a) The Note Issuer shall:
-----------------------
(i) so long as the Note Issuer is required to file such documents
with the Commission, file with the Note Trustee, within 15 days after the
Note Issuer is required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Note Issuer may
be required to file with the Commission pursuant to Section 13 or 15(d) of
the Exchange Act;
(ii) file with the Note Trustee and the Commission in accordance with
rules and regulations prescribed from time to time by the Commission such
additional information, documents and reports with respect to compliance by
the Note Issuer with the conditions and covenants of this Indenture as may
be required from time to time by such rules and regulations; and
(iii) supply to the Note Trustee (and the Note Trustee shall transmit
by mail to all Noteholders described in TIA (S) 313(c)) such summaries of
any information, documents and reports required to be filed by the Note
Issuer pursuant to clauses (i) and (ii) of this Section 7.03(a) as may be
required by rules and regulations prescribed from time to time by the
Commission.
(b) Unless the Note Issuer otherwise determines, the fiscal year of
the Note Issuer shall end on December 31 of each year.
SECTION 7.04. Reports by Note Trustee. If required by TIA (S)
------------------------
313(a), within 60 days after [_] of each year, commencing with the year after
the issuance of the Notes of any Series, the Note Trustee shall mail to each
Holder of Notes of such Series as required by TIA (S) 313(c) a brief report
dated as of such date that complies with TIA (S) 313(a). The Note Trustee also
shall comply with TIA (S) 313(b); provided, however, that the initial report so
-------- -------
issued shall be delivered not more than 12 months after the initial issuance of
each Series.
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69
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Note Trustee with the Commission and each stock exchange, if
any, on which the Notes are listed. The Note Issuer shall notify the Note
Trustee if and when the Notes are listed on any stock exchange.
ARTICLE VIII
Accounts, Disbursements and Releases
------------------------------------
SECTION 8.01. Collection of Money. Except as otherwise expressly
--------------------
provided herein, the Note Trustee may demand payment or delivery of, and shall
receive and collect, directly and without intervention or assistance of any
fiscal agent or other intermediary, all money and other property payable to or
receivable by the Note Trustee pursuant to this Indenture. The Note Trustee
shall apply all such money received by it as provided in this Indenture. Except
as otherwise expressly provided in this Indenture, if any default occurs in the
making of any payment or performance under any agreement or instrument that is
part of the Collateral, the Note Trustee may take such action as may be
appropriate to enforce such payment or performance, subject to Article VI,
including the institution and prosecution of appropriate Proceedings. Any such
action shall be without prejudice to any right to claim a Default or Event of
Default under this Indenture and any right to proceed thereafter as provided in
Article V.
SECTION 8.02. Collection Account. (a) Prior to the Series Issuance
-------------------
Date for the first Series issued hereunder, the Note Issuer shall open, at the
Note Trustee's Corporate Trust Office, or at another Eligible Institution, one
or more segregated trust accounts in the Note Trustee's name for the deposit of
Estimated FTA Collections (collectively, the "Collection Account"). The
Collection Account will consist of four subaccounts: a general subaccount (the
"General Subaccount"), a reserve subaccount (the "Reserve Subaccount"), a
subaccount for the Overcollateralization Amount (the "Overcollaterization
Subaccount") and a capital subaccount (the "Capital Subaccount"). All amounts
in the Collection Account not allocated to any other subaccount shall be
allocated to the General Subaccount. All references to the Collection Account
shall be deemed to include reference to all subaccounts contained therein.
Withdrawals from and deposits to each of the foregoing subaccounts of the
Collection Account shall be made as set forth in Section 8.02(d) and (e). The
Collection Account shall at all times be maintained with an Eligible Institution
and the
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70
Note Trustee or another Paying Agent, acting as the Note Issuer's agent, shall
have access to the Collection Account for the purpose of making deposits in and
withdrawals from the Collection Account in accordance with this Indenture.
Funds in the Collection Account shall not be commingled with any other moneys.
All moneys deposited from time to time in the Collection Account, all deposits
therein pursuant to this Indenture, and all investments made in Eligible
Investments with such moneys, including all income or other gain from such
investments, shall be held by the Note Trustee in the Collection Account as part
of the Collateral as herein provided.
(b) [Intentionally Omitted]
(c) Estimated FTA Collections shall be deposited in the Collection
Account as provided in Section 7 of Annex I to the Servicing Agreement.
(d) On each Payment Date for any Series of Notes, the Note Trustee
shall by 11:00 a.m. (New York City time) apply all amounts on deposit in the
Collection Account, including all net earnings thereon, to pay the following
amounts in the following priority:
(i) all amounts owed by the Note Issuer to the Note Trustee
(including legal fees and expenses) shall be paid to the Note Trustee and
all amounts owed to the Certificate Trustee and the Delaware Trustee under
the Trust Agreement shall be paid to the Certificate Trustee and Delaware
Trustee, as appropriat e;
(ii) the Servicing Fee and all unpaid Servicing Fees for prior
Payment Dates shall be paid to the Servicer;
(iii) the Quarterly Administration Fee and all unpaid Quarterly
Administration Fees from prior Payment Dates shall be paid to the
Administrator;
(iv) so long as no Default or Event of Default shall have occurred
and be continuing or would result from such payment, all other Operating
Expenses shall be paid to the Persons entitled thereto;
(v) any Excess Remittance shall be paid to the Servicer to the
extent that the Servicer has not previously withheld or been paid such
excess;
(vi) Quarterly Interest and any overdue Quarterly Interest (together
with, to the extent lawful, interest on such overdue Quarterly Interest at
the applicable
<PAGE>
71
Note Interest Rate) with respect to each Series of Notes shall be paid to
the Noteholders of such Series of Notes;
(vii) any principal due and payable on the Notes of any Series after
an Event of Default has occurred or on the Final Maturity Date of the Notes
of any Seri es shall be paid to the Noteholders of such Series of Notes;
(viii) funds necessary to pay Quarterly Principal with respect to each
Series of Notes shall be paid to the Noteholders of such Series of Notes;
(ix) unpaid Operating Expenses shall be paid to the Persons entitled
thereto;
(x) an amount up to the sum of the Quarterly Overcollateralization
Collection and any unfunded Quarterly Overcollateralization Collections
from prior Payment Dates shall be allocated to the Overcollateralization
Subaccount;
(xi) an amount up to the excess of the Required Capital Level with
respect to all Outstanding Series of Notes over the amount in the Capital
Subaccount as of such Payment Date shall be allocated to the Capital
Subaccount;
(xii) funds up to the amount of net earnings on amounts in the
Collection Account for the prior quarter without cumulation shall be paid
to the Note Issuer, free from the lien of this Indenture;
(xiii) the balance, if any, shall be allocated to the Reserve
Subaccount for distribution on subsequent Payment Dates;
(xiv) if any Series of Notes has been retired as of such Payment
Date, the excess of the amount in the Overcollateralization Subaccount over
the aggregate Overcollateralization Amount with respect to all Series of
Notes remaining outstanding shall be paid to the Note Issuer, free from the
lien of this Indenture;
(xv) if any Series of Notes has been retired as of such Payment
Date, the excess of the amount in the Capital Subaccount over the aggregate
Required Capital Level with respect to all Series of Notes remaining
outstanding shall be paid to the Note Issuer, free from the lien of this
Indenture; and
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72
(xvi) after principal of and premium, if any, and interest on all
Notes of all Series, and all of the other foregoing amounts, have been paid
in full, the balance, if any, shall be paid to the Note Issuer, free from
the lien of this Indenture.
All payments to the Noteholders of a Series pursuant to clauses (vi), (vii) and
(viii) above shall be made to such holders pro rata based on the respective
principal amounts of Notes of such Series held by such Holders, unless, in the
case of a Series comprised of two or more Classes, the Series Supplement for
such Series provides otherwise. Payments in respect of principal of and
premium, if any, and interest on any Class of Notes will be made on a pro rata
basis among all the Noteholders of such Class.
(e) If on any Payment Date funds on deposit in the General Subaccount
are insufficient to make the payments contemplated by clauses (i) through (vii)
of Section 8.02(d) above, the Note Trustee shall (i) first, draw from amounts on
-----
deposit in the Reserve Subaccount, (ii) second, draw from amounts on deposit in
------
the Overcollateralization Subaccount and (iii) third, draw from amounts on
-----
deposit in the Capital Subaccount, in each case, up to the amount of such
shortfall in order to make the payments contemplated by clauses (i) through
(vii) of Section 8.02(d).
SECTION 8.03. General Provisions Regarding the Collection Account.
----------------------------------------------------
(a) So long as no Default or Event of Default shall have occurred and be
continuing, all or a portion of the funds in the Collection Account shall be
invested in Eligible Investments and reinvested by the Note Trustee upon Issuer
Order; provided, however, that such Eligible Investments shall not mature later
-------- -------
than the Business Day prior to the next Payment Date for the related Series of
Notes. All income or other gain from investments of moneys deposited in the
Collection Account shall be deposited by the Note Trustee in the Collection
Account, and any loss resulting from such investments shall be charged to the
Collection Account. The Note Issuer will not direct the Note Trustee to make
any investment of any funds or to sell any investment held in the Collection
Account unless the security interest Granted and perfected in such account will
continue to be perfected in such investment or the proceeds of such sale, in
either case without any further action by any Person, and, in connection with
any direction to the Note Trustee to make any such investment or sale, if
requested by the Note Trustee, the Note Issuer shall deliver to the Note Trustee
an Opinion of Counsel, acceptable to the Note Trustee, to such effect. In no
event shall the Note Trustee be liable for the selection of Eligible Investments
or for investment losses incurred thereon. The Note Trustee
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73
shall have no liability in respect of losses incurred as a result of the
liquidation of any Eligible Investment prior to its stated maturity or the
failure of the Note Issuer to provide timely written investment direction. The
Note Trustee shall have no obligation to invest or reinvest any amounts held
hereunder in the absence of written investment direction pursuant to an Issuer
Order.
(b) Subject to Section 6.01(c), the Note Trustee shall not in any way
be held liable by reason of any insufficiency in the Collection Account
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Note Trustee's failure to make payments on such
Eligible Investments issued by the Note Trustee, in its commercial capacity as
principal obligor and not as trustee, in accordance with their terms.
(c) If (i) the Note Issuer shall have failed to give written
investment directions for any funds on deposit in the Collection Account to the
Note Trustee by 11:00 a.m. Eastern Time (or such other time as may be agreed by
the Note Issuer and Note Trustee) on any Business Day; or (ii) a Default or
Event of Default shall have occurred and be continuing with respect to the Notes
of any Series but the Notes of such Series shall not have been declared due and
payable pursuant to Section 5.02; then the Note Trustee shall, to the fullest
extent practicable, invest and rein vest funds in the Collection Account in one
or more Eligible Investments.
SECTION 8.04. Release of Collateral. (a) The Note Trustee may, and
----------------------
when required by the provisions of this Indenture shall, execute instruments to
release property from the lien of this Indenture, or convey the Note Trustee's
interest in the same, in a manner and under circumstances that are not
inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Note Trustee as provided in this Article VIII shall
be bound to ascertain the Note Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(b) The Note Trustee shall, at such time as there are no Notes
Outstanding, release any remaining portion of the Collateral that secured the
Notes from the lien of this Indenture and release to the Note Issuer or any
other Person entitled thereto any funds then on deposit in the Collection
Account. The Note Trustee shall release property from the lien of this
Indenture pursuant to this Section 8.04(b) only upon receipt of an Issuer
Request accompanied by an Officer's Certificate, an Opinion of Counsel and (if
re quired by the TIA) Independent Certificates in accordance
<PAGE>
74
with TIA (S)(S) 314(c) and 314(d)(1) meeting the applicable requirements of
Section 11.01.
SECTION 8.05. Opinion of Counsel. The Note Trustee shall receive at
-------------------
least seven days' notice when requested by the Note Issuer to take any action
pursuant to Section 8.04(a), accompanied by copies of any instruments involved,
and the Note Trustee shall also require, as a condition to such action, an
Opinion of Counsel, in form and substance satisfactory to the Note Trustee,
stating the legal effect of any such action, outlining the steps required to
complete the same, and concluding that all conditions precedent to the taking of
such action have been complied with and such action will not materially and
adversely impair the security for the Notes or the rights of the Noteholders in
contravention of the provisions of this Indenture; provided, however, that such
-------- -------
Opinion of Counsel shall not be required to express an opinion as to the fair
value of the Collateral. Counsel rendering any such opinion may rely, without
independent investigation, on the accuracy and validity of any certificate or
other instrument delivered to the Note Trustee in connection with any such
action.
SECTION 8.06. Reports by Independent Accountants. As of the Closing
-----------------------------------
Date, the Note Issuer shall appoint a firm of Independent certified public
accountants of recognized national reputation for purposes of preparing and
delivering the reports or certificates of such accountants required by this
Indenture and the related Series Supplements. In the event such firm requires
the Note Trustee to agree to the procedures performed by such firm, the Note
Issuer shall direct the Note Trustee in writing to so agree; it being understood
and agreed that the Note Trustee will deliver such letter of agreement in
conclusive reliance upon the direction of the Note Issuer, and the Note Trustee
makes no independent inquiry or investigation to, and shall have no obligation
or liability in respect of, the sufficiency, validity or correctness of such
procedures. Upon any resignation by such firm the Note Issuer shall provide
written notice thereof to the Note Trustee and shall promptly appoint a
successor thereto that shall also be a firm of Independent certified public
accountants of recognized national reputation. If the Note Issuer shall fail to
appoint a successor to a firm of Independent certified public accountants that
has resigned within 15 days after such resignation, the Note Trustee shall
promptly notify the Note Issuer of such failure in writing. If the Note Issuer
shall not have appointed a successor within 10 days thereafter the Note Trustee
shall promptly appoint a successor firm of Independent certified public
accountants of recognized national reputation. The fees of
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75
such Independent certified public accountants and its successor shall be payable
by the Note Issuer.
ARTICLE IX
Supplemental Indentures
-----------------------
SECTION 9.01. Supplemental Indentures Without Consent of Noteholders.
------------------------------------------------------
(a) Without the consent of the Holders of any Notes but with prior notice to
the Rating Agencies, the Note Issuer and the Note Trustee, when authorized by an
Issuer Order, at any time and from time to time, may enter into one or more
indentures supplemental hereto (which shall conform to the provisions of the
Trust Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Note Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at any
time subject to the lien of this Indenture, or better to assure, convey and
confirm unto the Note Trustee any property subject or required to be
subjected to the lien of this Indenture, or to subject to the lien of this
Indenture additional property;
(ii) to evidence the succession, in compliance with the applicable
provisions hereof, of another person to the Note Issuer, and the assumption
by any such successor of the covenants of the Note Issuer herein and in the
Notes contained;
(iii) to add to the covenants of the Note Issuer, for the benefit of
the Holders of the Notes, or to surrender any right or power herein
conferred upon the Note Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property to
or with the Note Trustee;
(v) to cure any ambiguity, to correct or supplement any provision
herein or in any supplemental indenture which may be inconsistent with any
other provision herein or in any supplemental indenture or to make any
other provisions with respect to matters or questions arising under this
Indenture or in any supplemental indenture; provided that such action shall
--------
not adversely affect the interests of the Holders of the Notes or holders
of the Certificates;
(vi) to evidence and provide for the acceptance of the appointment
hereunder by a successor trustee with
<PAGE>
76
respect to the Notes and to add to or change any of the provisions of this
Indenture as shall be necessary to facilitate the administration of the
trusts hereunder by more than one trustee, pursuant to the requirements of
Article VI;
(vii) to modify, eliminate or add to the provisions of this Indenture
to such extent as shall be necessary to effect the qualification of this
Indenture under the TIA or under any similar Federal statute hereafter
enacted and to add to this Indenture such other provisions as may be
expressly required by the TIA; or
(viii) to set forth the terms of any Series that has not theretofore
been authorized by a Series Supplement.
The Note Trustee is hereby authorized to join in the execution of any
such supplemental indenture and to make any further appropriate agreements and
stipulations that may be therein contained.
(b) The Note Issuer and the Note Trustee, when authorized by an
Issuer Order, may, also without the consent of any of the Holders of the Notes,
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that (i) such
-------- -------
action shall not, as evidenced by an Opinion of Counsel, adversely affect in any
material respect the interests of any Noteholder or any holder of Certificates
and (ii) the Rating Agency Condition shall have been satisfied with respect
thereto.
SECTION 9.02. Supplemental Indentures with Consent of Noteholders.
----------------------------------------------------
The Note Issuer and the Note Trustee, when authorized by an Issuer Order, also
may, with prior notice to the Rating Agencies and with the consent of the
Holders of not less than a majority of the Outstanding Amount of the Notes of
each Series or Class to be affected, by Act of such Holders delivered to the
Note Issuer and the Note Trustee, enter into an indenture or indentures
supple mental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that no such supplemental indenture shall, without
-------- -------
the consent of the Holder of each Outstanding Note of each Series or Class
affected thereby:
(i) change the date of payment of any installment of principal of
or premium, if any, or interest on any
<PAGE>
77
Note, or reduce the principal amount thereof, the interest rate thereon or
the premium, if any, with respect thereto, change the provisions of this
Indenture and the related applicable Series Supplement relating to the
application of collections on, or the proceeds of the sale of, the
Collateral to payment of principal of or premium, if any, or interest on
the Notes, or change any place of payment where, or the coin or currency in
which, any Note or the interest thereon is payable, or impair the right to
institute suit for the enforcement of the provisions of this Indenture
requiring the application of funds available therefor, as provided in
Article V, to the payment of any such amount due on the Notes on or after
the respective due dates thereof (or, in the case of redemption, on or
after the Redemption Date);
(ii) reduce the percentage of the Outstanding Amount of the Notes or
of a Series or Class thereof, the consent of the Holders of which is
required for any such supplemental indenture, or the consent of the Holders
of which is required for any waiver of compliance with certain provisions
of this Indenture or certain defaults hereunder and their consequences
provided for in this Indenture;
(iii) modify or alter the provisions of the proviso to the definition
of the term "Outstanding";
(iv) reduce the percentage of the Outstanding Amount of the Notes
required to direct the Note Trustee to direct the Note Issuer to sell or
liquidate the Collateral pursuant to Section 5.04;
(v) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional
provisions of this Indenture or the Basic Documents cannot be modified or
waived without the consent of the Holder of each Outstanding Note affected
thereby;
(vi) modify any of the provisions of this Indenture in such manner as
to affect the calculation of the amount of any payment of interest,
principal or premium, if any, due on any Note on any Payment Date
(including the calculation of any of the individual components of such
calculation) or to affect the rights of the Holders of Notes to the benefit
of any provisions for the mandatory redemption of the Notes contained
herein; or
<PAGE>
78
(vii) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Collateral
or, except as otherwise permitted or contemplated herein, terminate the
lien of this Indenture on any property at any time subject hereto or
deprive the Holder of any Note of the security provided by the lien of this
Indenture.
The Note Trustee may in its discretion determine whether or not any
Notes or Certificates of a Series or Class would be affected by any supplemental
indenture and any such determination shall be conclusive upon the Holders of all
Notes and holders of all Certificates of such Series or Class, whether
theretofore or thereafter authenticated and delivered hereunder. The Note
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Note Issuer and the Note Trustee
of any supplemental indenture pursuant to this Section, the Note Trustee shall
mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Note Trustee to mail such notice, or
any defect therein, shall not, however, in any way impair or affect the validity
of any such supplemental indenture.
SECTION 9.03. Execution of Supplemental Indentures. In executing,
-------------------------------------
or permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modifications thereby of the trusts created
by this Indenture, the Note Trustee shall be entitled to receive, and subject to
Sections 6.01 and 6.02, shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture. The Note Trustee may, but shall not be
obligated to, enter into any such supplemental indenture that affects the Note
Trustee's own rights, duties, liabilities or immunities under this Indenture or
otherwise.
SECTION 9.04. Effect of Supplemental Indenture. Upon the execution of
---------------------------------
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and be deemed to be modified and amended in accordance therewith with
respect to each Series or Class of Notes affected thereby, and the respective
rights, limitations of rights,
<PAGE>
79
obligations, duties, liabilities and immunities under this Indenture of the Note
Trustee, the Note Issuer and the Holders of the Notes shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 9.05. Conformity with Trust Indenture Act. Every amendment
------------------------------------
of this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
SECTION 9.06. Reference in Notes to Supplemental Indentures. Notes
----------------------------------------------
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Note Trustee shall, bear
a notation in form approved by the Note Trustee as to any matter provided for in
such supplemental indenture. If the Note Issuer or the Note Trustee shall so
determine, new Notes so modified as to conform, in the opinion of the Note
Trustee and the Note Issuer, to any such supplemental indenture may be prepared
and executed by the Note Issuer and authenticated and delivered by the Note
Trustee in exchange for Outstanding Notes.
ARTICLE X
Redemption of Notes
-------------------
SECTION 10.01. Optional Redemption by Note Issuer. The Note Issuer
-----------------------------------
may, at its option, redeem all, but not less than all, of the Notes of a Series
if the Outstanding Amount of any such Series of Notes has been reduced to less
than five percent of the initial principal balance thereof on any Redemption
Date at a price specified in such Series Supplement (such price being called the
"Redemption Price"). If the Note Issuer shall elect to redeem the Notes of a
Series pursuant to this Section 10.01, it shall furnish written notice (which
notice shall state all items listed in Section 10.02) of such election to the
Note Trustee not later than 25 days prior to the Redemption Date and shall
deposit with the Note Trustee the Redemption Price of the Notes to be redeemed
whereupon all such Notes shall be due and payable on the Redemption Date upon
the furnishing of a notice complying with Section 10.02 hereof to each Holder of
the Notes of such Series pursuant to this Section 10.01.
<PAGE>
80
SECTION 10.02. Form of Optional Redemption Notice. Unless otherwise
-----------------------------------
specified in the Series Supplement relating to a Series of Notes, notice of
redemption under Section 10.01 hereof shall be given by the Note Trustee by
first-class mail, postage prepaid, mailed not less than five days nor more than
25 days prior to the applicable Redemption Date to each Holder of Notes to be
redeemed, as of the close of business on the Record Date preceding the
applicable Redemption Date at such Holder's address appearing in the Note
Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price; and
(3) the place where such Notes are to be surrendered for payment of
the Redemption Price (which shall be the office or agency of the Note
Issuer to be maintained as provided in Section 3.02 hereof).
Notice of redemption of the Notes to be redeemed shall be given by the
Note Trustee in the name and at the expense of the Note Issuer. Failure to give
notice of redemption, or any defect therein, to any Holder of any Note selected
for redemption shall not impair or affect the validity of the redemption of any
other Note.
SECTION 10.03. Notes Payable on Redemption Date or Payment Date.
-------------------------------------------------
Notice of redemption having been given as provided in Section 10.02 hereof, the
Notes to be redeemed shall on the Redemption Date become due and payable at the
Redemption Price and (unless the Note Issuer shall default in the payment of the
Redemption Price) no interest shall accrue on the Redemption Price for any
period after the date to which accrued interest is calculated for purposes of
calculating the Redemption Price.
ARTICLE XI
Miscellaneous
-------------
SECTION 11.01. Compliance Certificates and Opinions, etc. (a) Upon
------------------------------------------
any application or request by the Note Issuer to the Note Trustee to take any
action under any provision of this Indenture, the Note Issuer shall furnish to
the Note Trustee (i) an Officer's Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with, (ii) an Opinion of Counsel stating that in the
opinion
<PAGE>
81
of such counsel all such conditions precedent, if any, have been complied with
and (iii) (if required by the TIA) an Independent Certificate from a firm of
certified public accountants meeting the applicable requirements of this
Section, except that, in the case of any such application or request as to which
the furnishing of such documents is specifically required by any provision of
this Indenture, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or opinion
has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(iii) a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is necessary to
enable such signatory to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Note Trustee that is to be made the basis for the release of
any property or securities subject to the lien of this Indenture, the Note
Issuer shall, in addition to any obligation imposed in Section 11.01(a) or
elsewhere in this Indenture, furnish to the Note Trustee an Officer's
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within 90 days of such deposit) to the Note
Issuer of the Collateral or other property or securities to be so deposited.
(ii) Whenever the Note Issuer is required to furnish to the Note
Trustee an Officer's Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (i) above, the Note Issuer shall
also deliver to the Note Trustee an Independent Certificate as to the same
matters, if the fair value to the Note Issuer of the securities to be so
deposited and of all
<PAGE>
82
other such securities made the basis of any such withdrawal or release since the
commencement of the then-current fiscal year of the Note Issuer, as set forth in
the certificates delivered pursuant to clause (i) above and this clause (ii), is
ten percent or more of the Outstanding Amount of the Notes of all Series, but
such a certificate need not be furnished with respect to any securities so
deposited, if the fair value thereof to the Note Issuer as set forth in the
related Officer's Certificate is less than $25,000 or less than one percent of
the Outstanding Amount of the Notes of all Series.
(iii) Whenever any property or securities are to be released from the
lien of this Indenture other than pursuant to Section 8.02(d), the Note Issuer
shall also furnish to the Note Trustee an Officer's Certificate certifying or
stating the opinion of each person signing such certificate as to the fair value
(within 90 days of such release) of the property or securities proposed to be
released and stating that in the opinion of such person the proposed release
will not impair the security under this Indenture in contravention of the
provisions hereof.
(iv) Whenever the Note Issuer is required to furnish to the Note
Trustee an Officer's Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (iii) above, the Note Issuer shall
also furnish to the Note Trustee an Independent Certificate as to the same
matters if the fair value of the property or securities and of all other
property with respect to such Series, or securities released from the lien of
this Indenture (other than pursuant to Section 8.02(d) hereof) since the
commencement of the then-current calendar year, as set forth in the certificates
required by clause (iii) above and this clause (iv), equals 10 percent or more
of the Outstanding Amount of the Notes of all Series, but such certificate need
not be furnished in the case of any release of property or securities if the
fair value thereof as set forth in the related Officer's Certificate is less
than $25,000 or less than one percent of the then Outstanding Amount of the
Notes of all Series.
(v) Notwithstanding Section 2.11 or any other provision of this
Section, the Note Issuer may (A) collect, liquidate, sell or otherwise dispose
of the Transition Property and the FTA Charges as and to the extent permitted or
required by the Basic Documents and (B) make cash payments out of the Collection
Account as and to the extent permitted or required by the Basic Documents.
SECTION 11.02. Form of Documents Delivered to Note Trustee. In any
--------------------------------------------
case where several matters are
<PAGE>
83
required to be certified by, or covered by an opinion of, any specified Person,
it is not necessary that all such matters be certified by, or covered by the
opinion of, only one such Person, or that they be so certified or covered by
only one document, but one such Person may certify or give an opinion with
respect to some matters and one or more other such Persons as to other matters,
and any such Person may certify or give an opinion as to such matters in one or
several documents.
Any certificate or opinion of an Authorized Officer of the Note Issuer
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his or her certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer
or Opinion of Counsel may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or officers
of the Servicer, the Seller, the Note Issuer or the Administrator, stating that
the information with respect to such factual matters is in the possession of the
Servicer, the Seller, the Note Issuer or the Administrator, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Whenever in this Indenture, in connection with any application or
certificate or report to the Note Trustee, it is provided that the Note Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Note Issuer's compliance with any term hereof, it is
intended that the truth and accuracy, at the time of the granting of such
application or at the effective date of such certificate or report (as the case
may be), of the facts and opinions stated in such document shall in such case be
conditions precedent to the right of the Note Issuer to have such application
granted or to the sufficiency of such certificate or report. The foregoing
shall not, however, be construed to affect the Note Trustee's right to rely upon
the truth and accuracy of any statement or opinion contained in any such
document as provided in Article VI.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
<PAGE>
84
SECTION 11.03. Acts of Noteholders. (a) Any request, demand,
--------------------
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evi denced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise ex pressly provided such action shall become effective when
such instrument or instruments are delivered to the Note Trustee, and, where it
is hereby expressly required, to the Note Issuer. Such instrument or instruments
(and the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Noteholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01) conclusive in favor of the Note Trustee and the
Note Issuer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Note Trustee deems
sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the Note
Trustee or the Note Issuer in reliance thereon, whether or not notation of such
action is made upon such Note.
SECTION 11.04. Notices, etc., to Note Trustee, Note Issuer,
--------------------------------------------
Infrastructure Bank and Rating Agencies. (a) Any request, demand,
- ----------------------------------------
authorization, direction, notice, consent, waiver or Act of Noteholders or other
documents provided or permitted by this Indenture to be made upon, given or
furnished to or filed with:
(i) the Note Trustee by any Noteholder or by the Note Issuer shall be
sufficient for every purpose hereunder if made, given, furnished or filed
in writing by facsimile transmission, first-class mail or overnight
delivery service to or with the Note Trustee at its Corporate Trust Office,
or
(ii) the Note Issuer by the Note Trustee or by any Noteholder shall be
sufficient for every purpose here-
<PAGE>
85
under if in writing and mailed, first-class, postage prepaid, to the Note
Issuer addressed to: [_], [_], Attention: [_] or at any other address
previously furnished in writing to the Note Trustee by the Note Issuer. The
Note Issuer shall promptly transmit any notice received by it from the
Noteholders to the Note Trustee.
(b) Notices required to be given to the Rating Agencies or the
Infrastructure Bank by the Note Issuer or the Note Trustee shall be in writing,
personally delivered or mailed by certified mail, return receipt requested to
(i) in the case of Moody's, to: Moody's Investors Service, Inc., ABS Monitoring
Department, 99 Church Street, New York, New York 10007, (ii) in the case of
Standard & Poor's, to: Standard & Poor's Corporation, 26 Broadway (15th Floor),
New York, New York 10004, Attention of Asset Backed Surveillance Department and
(iii) in the case of Fitch, to Fitch Investors Service, L.P., One State Street
Plaza, New York, NY 10004, Attention of [_], [(iv) in the case of Duff & Phelps,
to Duff & Phelps Credit Rating Company, 55 East Monroe Street, Suite 3500,
Chicago, IL 60603, Attention of [_]_] and (iv) in the case of the Infrastructure
Bank, to California Infrastructure and Economic Development Bank, c/o California
Trade and Commerce Agency, 801 K Street, Suite 1700, Sacramento, CA 95814,
Attention: Executive Director.
SECTION 11.05. Notices to Noteholders; Waiver. Where this Indenture
-------------------------------
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at such Noteholder's address as it appears on the Note Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. In any case where notice to Noteholders is given
by mail, neither the failure to mail such notice nor any defect in any notice so
mailed to any particular Noteholder shall affect the sufficiency of such notice
with respect to other Noteholders, and any notice that is mailed in the manner
herein provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Note Trustee
but such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
<PAGE>
86
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event of Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Note Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
[SECTION 11.06. Alternate Payment and Notice Provisions.
----------------------------------------
Notwithstanding any provision of this Indenture or any of the Notes to the
contrary, the Note Issuer may enter into any agreement with any Holder of a Note
providing for a method of payment, or notice by the Note Trustee or any Paying
Agent to such Holder, that is different from the methods provided for in this
Indenture for such payments or notices. The Note Issuer will furnish to the
Note Trustee a copy of each such agreement and the Note Trustee will cause
payments to be made and notices to be given in accordance with such agreements.]
[Should we delete this Section?]
SECTION 11.07. Conflict with Trust Indenture Act. If any provision
----------------------------------
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Inden ture Act, such required provision shall control.
The provisions of TIA (S)(S) 310 through 317 that impose duties on any
person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.08. Effect of Headings and Table of Contents. The Article
-----------------------------------------
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
SECTION 11.09. Successors and Assigns. All covenants and agreements
-----------------------
in this Indenture and the Notes by the Note Issuer shall bind its successors and
assigns, whether so expressed or not.
All agreements of the Note Trustee in this Indenture shall bind its
successors.
<PAGE>
87
SECTION 11.10. Separability. In case any provi sion in this
-------------
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality, and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 11.11. Benefits of Indenture. Nothing in this Indenture or
----------------------
in the Notes, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder, and the Noteholders, and any
other party secured hereunder, and any other Person with an ownership interest
in any part of the Collateral, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 11.12. Legal Holidays. In any case where the date on which
---------------
any payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.13. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
--------------
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, EXCEPT THAT
THE RIGHTS, IMMUNITIES AND STANDARD OF CARE OF THE NOTE TRUSTEE WILL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 11.14. Counterparts. This Indenture may be executed in any
-------------
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.15. Recording of Indenture. If this Indenture is subject
-----------------------
to recording in any appropriate public recording offices, such recording is to
be effected by the Note Issuer and at its expense accompanied by an Opinion of
Counsel (which may be counsel to the Note Trustee or any other counsel
reasonably acceptable to the Note Trustee) to the effect that such recording is
necessary either for the protection of the Noteholders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Note Trustee under this Indenture.
SECTION 11.16. Trust Obligation. No recourse may be taken, directly
-----------------
or indirectly, with respect to the
<PAGE>
88
obligations of the Note Issuer or the Note Trustee on the Notes or under this
Indenture or any certificate or other writing delivered in connection herewith
or therewith, against (i) the Note Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Note Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Note Trustee in
its individual capacity, any holder of a beneficial interest in the Note Issuer
or the Note Trustee or of any successor or assign of the Note Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Note Trustee has no such obligations in its individual
capacity) and except that any such partner, owner or beneficiary shall be fully
liable, to the extent provided by applicable law, for any unpaid consideration
for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity.
SECTION 11.17. No Petition. The Note Trustee, by entering into this
------------
Indenture, and each Noteholder, by accepting a Note, hereby covenant and agree
that they will not at any time institute against the Trust or the Note Issuer,
or join in any institution against the Trust or the Note Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States Federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents. Notwithstanding any provision of this
Indenture or any Series Supplement to the contrary, this provision shall survive
the termination of this Indenture.
SECTION 11.18. No Recourse to Note Issuer. Notwithstanding any
---------------------------
provision of this Indenture or any Series Supplement to the contrary,
Noteholders shall have no recourse against the Note Issuer, but shall look only
to the Collateral, with respect to any amounts due to the Noteholders hereunder.
SECTION 11.19. Inspection. The Note Issuer agrees that, on
-----------
reasonable prior notice, it will permit any representative of the Note Trustee,
during the Note Issuer's normal business hours, to examine all the books of
account, records, reports, and other papers of the Note Issuer, to make copies
and extracts therefrom, to cause such books to be audited by Independent
certified public accountants, and
<PAGE>
89
to discuss the Note Issuer's affairs, finances and accounts with the Note
Issuer's officers, employees, and Independent certified public accountants, all
at such reasonable times and as often as may be reasonably requested. The Note
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Note Trustee may reasonably determine that such disclosure
is consistent with its obligations hereunder. Notwithstanding anything herein
to the contrary, the foregoing shall not be construed to prohibit (i) disclosure
of any and all information that is or becomes publicly known, or information
obtained by the Note Trustee from sources other than the Note Issuer, (ii)
disclosure of any and all information (A) if required to do so by any applicable
statute, law, rule or regulation, (B) to any government agency or regulatory
body having or claiming authority to regulate or oversee any respects of the
Note Trustee's business or that of its affiliates, (C) pursuant to any subpoena,
civil investigative demand or similar demand or request of any court, regulatory
authority, arbitrator or arbitration to which the Note Trustee or an affiliate
or an officer, director, employee or shareholder thereof is a party, (D) in any
preliminary or final offering circular, registration statement or contract or
other document pertaining to the transactions contemplated by this Indenture or
the Basic Documents approved in advance by the Note Issuer or (E) to any
affiliate, independent or internal auditor, agent, employee or attorney of the
Note Trustee having a need to know the same, provided that the Note Trustee
advises such recipient of the confidential nature of the information being
disclosed, or (iii) any other disclosure authorized by the Note Issuer.
<PAGE>
90
IN WITNESS WHEREOF, the Note Issuer and the Note Trustee have caused
this Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.
[NAME OF SPE],
by
____________________________
Name:
Title:
BANKERS TRUST COMPANY, not in its individual
capacity but solely as Note Trustee,
by
____________________________
Name:
Title:
<PAGE>
STATE OF CALIFORNIA, )
) ss.:
COUNTY OF [ ], )
On the ____ day of ____, 1997, before me, __________ a Notary Public in and
for said county and state, personally appeared ,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person and officer whose name is subscribed to the within instrument
and acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument __________, a Delaware limited liability
company and the entity upon which the person acted, executed this instrument.
WITNESS my hand and official seal.
____________________________
Notary Public
My commission expires:
<PAGE>
STATE OF CALIFORNIA, )
) ss.:
COUNTY OF [ ], )
On the ____ day of ____, 1997, before me, __________ a Notary Public in and
for said county and state, personally appeared ,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person and officer whose name is subscribed to the within instrument
and acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument Bankers Trust Company, a New York
banking corporation and the entity upon which the person acted, executed this
instrument.
WITNESS my hand and official seal.
____________________________
Notary Public
My commission expires:
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE I Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions................................................ 2
SECTION 1.02. Incorporation by Reference of Trust
Indenture Act............................................ 16
SECTION 1.03. Rules of Construction...................................... 17
ARTICLE II The Notes
---------
SECTION 2.01. Form....................................................... 17
SECTION 2.02. Denominations; Notes Issuable in Series.................... 18
SECTION 2.03. Execution, Authentication and Delivery..................... 19
SECTION 2.04. Temporary Notes............................................ 20
SECTION 2.05. Registration; Registration of Transfer
and Exchange............................................. 20
SECTION 2.06. Mutilated, Destroyed, Lost or Stolen
Notes.................................................... 22
SECTION 2.07. Persons Deemed Owner....................................... 23
SECTION 2.08. Payment of Principal, Premium, if any,
and Interest; Interest on Overdue
Principal and Premium, if any;
Principal, Premium and Interest Rights Preserved........ 24
SECTION 2.09. Cancelation................................................ 25
SECTION 2.10. Amount Unlimited; Authentication and
Delivery of Notes........................................ 26
SECTION 2.11. Release of Collateral...................................... 33
ARTICLE III Covenants
---------
SECTION 3.01. Payment of Principal, Premium, if any,
and Interest............................................. 33
SECTION 3.02. Maintenance of Office or Agency............................ 34
SECTION 3.03. Money for Payments To Be Held in Trust..................... 34
SECTION 3.04. Existence.................................................. 36
SECTION 3.05. Protection of Collateral................................... 36
SECTION 3.06. Opinions as to Collateral.................................. 37
SECTION 3.07. Performance of Obligations; Servicing;
Commission Filings....................................... 38
SECTION 3.08. Negative Covenants......................................... 41
</TABLE>
<PAGE>
Contents, pg. ii
<TABLE>
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<S> <C>
SECTION 3.09. Annual Statement as to Compliance.......................... 42
SECTION 3.10. Note Issuer May Consolidate, etc.
Only on Certain Terms.................................... 42
SECTION 3.11. Successor or Transferee.................................... 44
SECTION 3.12. No Other Business.......................................... 45
SECTION 3.13. No Borrowing............................................... 45
SECTION 3.14. Servicer's Obligations..................................... 45
SECTION 3.15. Guarantees, Loans, Advances and Other
Liabilities.............................................. 45
SECTION 3.16. Capital Expenditures....................................... 45
SECTION 3.17. Non-Routine True-Up Adjustment............................. 46
SECTION 3.18. Restricted Payments........................................ 46
SECTION 3.19. Notice of Events of Default................................ 46
SECTION 3.20. Further Instruments and Acts............................... 46
SECTION 3.21. Purchase of Subsequent Transition
Property................................................. 47
ARTICLE IV Satisfaction and Discharge; Defeasance
--------------------------------------
SECTION 4.01. Satisfaction and Discharge of Indenture;
Defeasance............................................... 49
SECTION 4.02. Conditions to Defeasance................................... 51
SECTION 4.03. Application of Trust Money................................. 52
SECTION 4.04. Repayment of Moneys Held by Paying Agent................... 53
ARTICLE V Remedies
--------
SECTION 5.01. Events of Default.......................................... 53
SECTION 5.02. Acceleration of Maturity; Rescission
and Annulment............................................ 55
SECTION 5.03. Collection of Indebtedness and Suits
for Enforcement by Note Trustee.......................... 56
SECTION 5.04. Remedies; Priorities....................................... 59
SECTION 5.05. Optional Preservation of the Collateral.................... 60
SECTION 5.06. Limitation of Suits........................................ 60
SECTION 5.07. Unconditional Rights of Noteholders To
Receive Principal, Premium, if any,
and Interest............................................. 61
SECTION 5.08. Restoration of Rights and Remedies......................... 62
SECTION 5.09. Rights and Remedies Cumulative............................. 62
SECTION 5.10. Delay or Omission Not a Waiver............................. 62
SECTION 5.11. Control by Noteholders..................................... 62
SECTION 5.12. Waiver of Past Defaults.................................... 63
SECTION 5.13. Undertaking for Costs...................................... 64
SECTION 5.14. Waiver of Stay or Extension Laws........................... 64
SECTION 5.15. Action on Notes............................................ 65
</TABLE>
<PAGE>
Contents, pg.iii
<TABLE>
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SECTION 5.16. Performance and Enforcement of Certain
Obligations.............................................. 65
ARTICLE VI The Note Trustee
----------------
SECTION 6.01. Duties of Note Trustee..................................... 66
SECTION 6.02. Rights of Note Trustee..................................... 67
SECTION 6.03. Individual Rights of Note Trustee.......................... 68
SECTION 6.04. Note Trustee's Disclaimer.................................. 68
SECTION 6.05. Notice of Defaults......................................... 68
SECTION 6.06. Reports by Note Trustee to Holders......................... 69
SECTION 6.07. Compensation and Indemnity................................. 70
SECTION 6.08. Replacement of Note Trustee................................ 70
SECTION 6.09. Successor Note Trustee by Merger........................... 72
SECTION 6.10. Appointment of Co-Trustee or Separate
Trustee.................................................. 72
SECTION 6.11. Eligibility; Disqualification.............................. 74
SECTION 6.12. Preferential Collection of Claims
Against Note Issuer...................................... 74
ARTICLE VII Noteholders' Lists and Reports
------------------------------
SECTION 7.01. Note Issuer To Furnish Note Trustee
Names and Addresses of Noteholders....................... 74
SECTION 7.02. Preservation of Information;
Communications to Noteholders............................ 75
SECTION 7.03. Reports by Note Issuer..................................... 75
SECTION 7.04. Reports by Note Trustee.................................... 76
ARTICLE VIII Accounts, Disbursements and Releases
------------------------------------
SECTION 8.01. Collection of Money........................................ 76
SECTION 8.02. Collection Account......................................... 77
SECTION 8.03. General Provisions Regarding the
Collection Account....................................... 80
SECTION 8.04. Release of Collateral...................................... 81
SECTION 8.05. Opinion of Counsel......................................... 81
SECTION 8.06. Reports by Independent Accountants......................... 82
ARTICLE IX Supplemental Indentures
-----------------------
SECTION 9.01. Supplemental Indentures Without Consent
</TABLE>
<PAGE>
Contents, pg. iv
<TABLE>
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<S> <C>
of Noteholders........................................... 83
SECTION 9.02. Supplemental Indentures with Consent
of Noteholders........................................... 84
SECTION 9.03. Execution of Supplemental Indentures....................... 86
SECTION 9.04. Effect of Supplemental Indenture........................... 87
SECTION 9.05. Conformity with Trust Indenture Act........................ 87
SECTION 9.06. Reference in Notes to Supplemental
Indentures............................................... 87
ARTICLE X Redemption of Notes
-------------------
SECTION 10.01. Optional Redemption by Note Issuer........................ 88
SECTION 10.02. Form of Optional Redemption Notice........................ 88
SECTION 10.03. Notes Payable on Redemption Date or
Payment Date............................................ 89
ARTICLE XI Miscellaneous
-------------
SECTION 11.01. Compliance Certificates and Opinions,
etc..................................................... 89
SECTION 11.02. Form of Documents Delivered to Note
Trustee................................................. 91
SECTION 11.03. Acts of Noteholders....................................... 92
SECTION 11.04. Notices, etc to Note Trustee, Note Issuer
and Rating Agencies..................................... 93
SECTION 11.05. Notices to Noteholders; Waiver............................ 94
SECTION 11.06. Alternate Payment and Notice Provisions................... 95
SECTION 11.07. Conflict with Trust Indenture Act......................... 95
SECTION 11.08. Effect of Headings and Table
of Contents............................................. 95
SECTION 11.09. Successors and Assigns.................................... 95
SECTION 11.10. Separability.............................................. 96
SECTION 11.11. Benefits of Indenture..................................... 96
SECTION 11.12. Legal Holidays............................................ 96
SECTION 11.13. GOVERNING LAW............................................. 96
SECTION 11.14. Counterparts.............................................. 96
SECTION 11.15. Recording of Indenture.................................... 96
SECTION 11.16. Trust Obligation.......................................... 97
SECTION 11.17. No Petition............................................... 97
SECTION 11.18. No Recourse to Note Issuer................................ 97
SECTION 11.19. Inspection................................................ 97
</TABLE>
EXHIBIT A-1 -- Form of Sale Agreement
EXHIBIT A-2 -- Form of Servicing Agreement
EXHIBIT B -- Form of Notes
EXHIBIT C -- Form of Series Supplement
<PAGE>
EXHIBIT 4.2
[FORM OF TRUST AGREEMENT]
================================================================================
AMENDED AND RESTATED DECLARATION AND AGREEMENT OF TRUST
by and among
California Infrastructure and Economic Development Bank,
as Originator,
Bankers Trust (Delaware),
as Delaware Trustee,
and
Bankers Trust Company,
as Certificate Trustee
Dated as of __________, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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ARTICLE I
DEFINITIONS
<S> <C>
Section 1.01. Definitions.......................................... 1
Section 1.02. Compliance Certificates and Opinions................. 10
Section 1.03. Form of Documents Delivered to Certificate Trustee 11
Section 1.04. Acts of Certificateholders........................... 11
ARTICLE II
ORGANIZATION; ACQUISITION OF NOTES;
ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.01. Name; Declaration and Statement of Intent; Office;
Operations........................................... 13
Section 2.02. Trust Property....................................... 13
Section 2.03. Tax Treatment; Construction.......................... 14
Section 2.04. Purpose and Powers................................... 14
Section 2.05. Acquisition and Acceptance of Notes by Certificate
Trustee.............................................. 14
Section 2.06. Issuance of Certificates............................. 14
Section 2.07. Representations and Warranties of the Originator..... 16
Section 3.01. Form, Denomination and Execution of Certificates..... 17
Section 3.02. Authentication of Certificates....................... 18
Section 3.03. Temporary Certificates............................... 18
Section 3.04. Registration of Transfer and Exchange of Certificates 18
Section 3.05. Certificateholders' Lists and Reports by Certificate
Trustee.............................................. 19
Section 3.06. Mutilated, Destroyed, Lost or Stolen Certificates.... 20
Section 3.07. Persons Deemed Owners................................ 20
Section 3.08. Cancellation......................................... 21
Section 3.09. Limitation of Liability for Payments................. 21
Section 3.10. Book-Entry and Definitive Certificates............... 21
ARTICLE IV
DISTRIBUTIONS; STATEMENTS TO CERTIFICATEHOLDERS
Section 4.01. Certificate Accounts................................. 23
</TABLE>
i
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<S> <C>
Section 4.02. Distributions from Certificate Accounts................ 23
Section 4.03. Statements to Certificateholders....................... 25
Section 4.04. Investment of Special Payment Moneys................... 26
Section 4.05. Reduction in Principal................................. 26
ARTICLE V
DEFAULT
Section 5.01. Events of Default....................................... 27
Section 5.02. Incidents of Sale of Notes.............................. 28
Section 5.03. Judicial Proceedings Instituted by Certificate Trustee;
Certificate Trustee May Bring Suit...................... 28
Section 5.04. Control by Certificateholders........................... 29
Section 5.05. Waiver of Past Defaults................................. 29
Section 5.06. Right of Certificateholders To Receive Payments Not To
Be Impaired............................................. 30
Section 5.07. Certificateholders May Not Bring Suit Except Under
Certain Conditions...................................... 30
Section 5.08. Remedies Cumulative..................................... 31
ARTICLE VI
THE CERTIFICATE TRUSTEE
Section 6.01. Notice of Defaults...................................... 31
Section 6.02. Certain Rights of Certificate Trustee................... 31
Section 6.03. Not Responsible for Recitals or Issuance of Certificates 33
Section 6.04. May Hold Certificates................................... 33
Section 6.05. Money Held in Trust..................................... 33
Section 6.06. Compensation and Reimbursement.......................... 34
Section 6.07. Corporate Certificate Trustee Required; Eligibility..... 34
Section 6.08. Resignation and Removal; Appointment of Successor....... 34
Section 6.09. Acceptance of Appointment by Successor.................. 37
Section 6.10. Merger, Conversion, Consolidation or Succession to
Business................................................ 37
Section 6.11. Maintenance of Agencies................................. 37
Section 6.12. Money for Certificate Payments To Be Held in Trust...... 39
Section 6.13. Registration of Notes in Certificate Trustee's Name..... 39
Section 6.14. Representations and Warranties of Certificate Trustee... 39
Section 6.15. Withholding Taxes; Information Reporting................ 40
</TABLE>
ii
<PAGE>
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<S> <C>
Section 6.16. Certificate Trustee's Liens............................. 40
ARTICLE VII
THE DELAWARE TRUSTEE
Section 7.01. Appointment............................................. 40
Section 7.02. Duties and Responsibilities 40
Section 7.03. Acceptance of the Trusts................................ 40
Section 7.04. Limitation of Liability................................. 41
Section 7.05. Other Protections....................................... 42
Section 7.06. Indemnification......................................... 42
Section 7.07. Fees and Expenses....................................... 42
Section 7.08. Resignation............................................. 42
ARTICLE VIII
SUPPLEMENTAL TRUST AGREEMENTS
Section 8.01. Supplemental Trust Agreements Without Consent of
Certificateholders...................................... 43
Section 8.02. Supplemental Trust Agreements with Consent of
Certificateholders...................................... 43
Section 8.03. Documents Affecting Immunity or Indemnity............... 44
Section 8.04. Execution of Supplemental Trust Agreements.............. 45
Section 8.05. Effect of Supplemental Trust Agreements................. 45
Section 8.06. Conformity with Trust Indenture Act..................... 45
Section 8.07. Reference in Certificates to Supplemental Trust
Agreements.............................................. 45
ARTICLE IX
AMENDMENTS AND SUPPLEMENTS TO NOTES, NOTE INDENTURE
AND OTHER BASIC DOCUMENTS
Section 9.01. Amendments and Supplements to Notes, Note Indenture
and Other Basic Documents............................... 45
</TABLE>
iii
<PAGE>
<TABLE>
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----
ARTICLE X
TERMINATION OF TRUST
<S> <C>
Section 10.01. Termination of the Trust............................... 46
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01. Pledge of State of California; Certificates and Notes Not
Obligation of State of California, Originator, or Seller.. 47
Section 11.02. Limitation on Rights of Certificateholders................ 47
Section 11.03. No Petition............................................... 48
Section 11.04. Certificates Nonassessable and Fully Paid................. 48
Section 11.05. Notices................................................... 48
Section 11.06. Governing Law............................................. 50
Section 11.07. Severability of Provisions................................ 51
Section 11.08. Trust Indenture Act Controls.............................. 51
Section 11.09. Effect of Headings and Table of Contents.................. 51
Section 11.10. Successors and Assigns; Delegation........................ 51
Section 11.11. Benefits of Trust Agreement............................... 51
Section 11.12. Legal Holidays............................................ 51
Section 11.13. Counterparts.............................................. 51
Exhibit A--Form of Certificate.......................................... A-1
</TABLE>
iv
<PAGE>
Reconciliation and tie between Trust Agreement dated as of __________, 1997, and
the Trust Indenture Act of 1939 as amended. This reconciliation does not
constitute part of the Trust Agreement.
<TABLE>
<CAPTION>
Trust Indenture Act Pass Through Trust
of 1939 Section Agreement Section
- -------------------- ------------------
<S> <C>
310 (a) (1) ........................................ 6.07
(a) (2) ........................................ 6.07
312 (a) ........................................ 3.05
313 (a) ........................................ 3.05
314 (a) ........................................ 3.05
(b) ........................................ 3.05
(c) (1) ........................................ 1.02
(c) (2) ........................................ 1.02
(e) ........................................ 1.02
315 (b) ........................................ 6.01
316 (a) (1) (A) ........................................ 5.04
(a) (1) (B) ........................................ 5.05
(b) ........................................ 5.06
(c) ........................................ 1.04
317 (a) (1) ........................................ 5.03
(b) ........................................ 6.12
318 (a) ........................................ 11.08
</TABLE>
v
<PAGE>
AMENDED AND RESTATED DECLARATION AND AGREEMENT OF TRUST, dated as of ______
1, 1997, by and among Bankers Trust (Delaware), as Delaware Trustee, and Bankers
Trust Company, as Certificate Trustee, and the California Infrastructure and
Economic Development Bank, as Originator.
WHEREAS, the Delaware Trustee and the Originator entered into a Declaration
and Agreement of Trust, dated as of ________, 1997 (the "Declaration and
Agreement of Trust"), creating the California Infrastructure and Economic
Development Bank Special Purpose Trust [Acronym of Utility-1], a not-for-profit
business trust organized under the laws of the State of Delaware (the "Trust");
and
WHEREAS, pursuant to Section 1(b) of the Declaration and Agreement of
Trust, the Delaware Trustee filed a certificate of trust with the Secretary of
State on ________, 1997; and
WHEREAS, pursuant to Section 1(c) of the Declaration and Agreement of
Trust, the Delaware Trustee, the Originator and the Certificate Trustee desire
to enter into this Amended and Restated Declaration and Agreement of Trust in
order to provide for the operation of the Trust; and
WHEREAS, the Note Issuer (as herein defined) intends to issue notes (the
"Notes") of one or more series or classes from time to time pursuant to the Note
Indenture (as herein defined); and
WHEREAS, it is contemplated that the Trust shall purchase the Notes of each
series pursuant to the Note Purchase Agreement (as herein defined) or a
Subsequent Note Purchase Agreement (as herein defined) relating to such Notes;
and
WHEREAS, in order to finance the purchase of the Notes of one or more
series or classes from the Note Issuer, the Trust shall issue pursuant to this
Trust Agreement rate reduction certificates (the "Certificates"), each of which
shall represent an undivided interest in a corresponding series or class of
Notes;
NOW THEREFORE, in consideration of the mutual agreements herein contained,
and of other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. (a) For all purposes of this Trust Agreement,
-----------
except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms used herein that are defined in this Article have the
meanings assigned to them in this Article, and include the plural as well
as the singular;
<PAGE>
(2) all other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all references in this Trust Agreement to designated "Articles",
"Sections" and other subdivisions are to the designated Articles, Sections
and other subdivisions of this Trust Agreement;
(4) the words "include", "including" and similar terms shall be
construed as if followed by the phrase "without limitation"; and
(5) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Act", when used with respect to any Certificateholder, has the meaning
specified in Section 1.04.
"Authentication Agent" means the authentication agent appointed pursuant to
Section 6.11(b).
"Authorized Agent" means any Paying Agent or Registrar.
"Authorized Officer" means, with respect to any entity, any officer of such
entity who is authorized to act for such entity in matters relating to such
entity and who is identified on the list of Authorized Officers delivered by
such entity to the Certificate Trustee on the Closing Date (as such list may be
modified or supplemented from time to time thereafter).
"Basic Documents" means the Note Indenture, the Sale Agreement, the
Servicing Agreement, the Administration Agreement, the Note Purchase Agreement,
the DTC Agreement, the Fee and Indemnity Agreement and all other documents and
certificates delivered in connection therewith.
"Book-Entry Certificates" means, with respect to any Certificate, a
beneficial interest in such Certificate, ownership and transfers of which shall
be made through book entries by a Clearing Agency as described in Section 3.10.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions or trust companies in New York, New York or [San
Francisco] [Los Angeles] [San Diego], California are authorized or obligated by
law, regulation or executive order to remain closed.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code, (S) 3801 et seq., as the same may be amended from time to
time and any successor statute.
"Certificates" has the meaning set forth in the preamble to this Trust
Agreement.
2
<PAGE>
"Certificate Account" means, with respect to any Series or Class of
Certificates, the account or accounts created and maintained with respect to
such Series or Class of Certificates pursuant to Section 4.01(a).
"Certificateholder" or "Holder" means the Person in whose name a
Certificate is registered on the Register.
"Certificate Owner" means the Person who owns a Book-Entry Certificate.
"Certificate Trustee" means the institution executing this Trust Agreement
as Certificate Trustee, or its successor in interest, and any successor trustee
appointed as provided herein.
"Class" means, with respect to any Series of Certificates, any one of the
classes of Certificates of that Series; and, with respect to any Series of
Notes, any one of the classes of Notes of that Series.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book entry transfers and pledges of securities deposited with the Clearing
Agency.
"Corporate Trust Office" means the principal office of the Certificate
Trustee or the Delaware Trustee, as the case may be, at which at any particular
time its corporate trust business shall be administered which office of the
Certificate Trustee at the date of the execution of the Trust Agreement is
located at Four Albany Street, New York, New York 10006, Attention: Corporate
Trust and Agency Group and which office of the Delaware Trustee at the date of
the execution of the Trust Agreement is located at E.A. Delle Donne Corporate
Center, Montgomery Building, 1011 Centre Road, Suite 200, Wilmington, Delaware
19805-1266, or at any other time at such other address as the Certificate
Trustee or the Delaware Trustee may designate from time to time by notice to the
Noteholders.
"Delaware Trustee" means the institution executing the Trust Agreement as
Delaware Trustee, or its successor in interest, and any successor trustee
appointed as provided herein.
"DTC Agreement" means the agreement between the Trust and The Depository
Trust Company, as the initial Clearing Agency, dated as of the Closing Date,
relating to the Certificates, as the same may be amended and supplemented from
time to time.
"Eligible Institution" means a depository institution organized under the
laws of the United States of America or any State (or any domestic branch of a
foreign bank), which (i) has either (a) a long-term unsecured debt rating of A
by Standard & Poor's and Moody's or (b) a certificate of deposit rating of A-1+
by Standard & Poor's and P-1 by Moody's, or any other long-term, short-term or
certificate of deposit rating acceptable to the Rating Agencies and
3
<PAGE>
(ii) whose deposits are insured by the FDIC. If so qualified, the Certificate
Trustee or the Note Trustee may be considered an Eligible Institution for the
purposes of this definition.
"Eligible Investments" means book-entry securities, negotiable instruments
or securities represented by instruments in bearer or registered form which
evidence:
(a) direct obligations of, and obligations fully and unconditionally
guaranteed as to timely payment by, the United States of America;
(b) demand deposits, time deposits or certificates of deposit of any
depository institution or trust company incorporated under the laws of the
United States of America or any State (or any domestic branch of a foreign
bank) and subject to supervision and examination by Federal or State
banking or depository institution authorities; provided, however, that at
-------- -------
the time of the investment or contractual commitment to invest therein, the
commercial paper or other short-term unsecured debt obligations (other than
such obligations the rating of which is based on the credit of the Person
other than such depository institution or trust company) thereof shall have
a credit rating from each of the Rating Agencies in the highest investment
category granted thereby;
(c) commercial paper having, at the time of the investment or
contractual commitment to invest therein, a rating from each of the Rating
Agencies in the highest investment category granted thereby;
(d) investments in money market funds having a rating from each of
the Rating Agencies in the highest investment category granted thereby
(including funds for which the Certificate Trustee or any of its Affiliates
is investment manager or advisor);
(e) demand deposits, time deposits and certificates of deposit which
are fully insured by the FDIC;
(f) bankers' acceptances issued by any depository institution or
trust company referred to in clause (b) above;
(g) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States of America
or any agency or instrumentality thereof the obligations of which are
backed by the full faith and credit of the United States of America, in
either case entered into with (i) a depository institution or trust company
(acting as principal) described in clause (b) or (ii) a depository
institution or trust company the deposits of which are insured by the FDIC;
and
(h) any other investment permitted by each of the Rating Agencies.
"Event of Default" means, with respect to any Series or Class of
Certificates, (i) a Note Event of Default with respect to the corresponding
Series or Class of Notes, or (ii) a breach by the State of California of the
State Pledge described in Section 11.01(a).
4
<PAGE>
"Fee and Indemnity Agreement" means the fee and indemnity agreement dated
as of __________, 1997, among the Note Issuer, the Note Trustee, the Originator,
the Delaware Trustee and the Certificate Trustee.
"Initial Closing Date" means __________, 1997.
"Note Event of Default" means, with respect to any Series or Class of
Notes, any Event of Default (as such term is defined in the Note Indenture) with
respect to such Series or Class of Notes.
"Note Indenture" means the Indenture dated as of __________, 1997, between
the Note Issuer and the Note Trustee, as amended and supplemented from time to
time, including by any Series Supplement.
"Note Issuer" means ____________________, a Delaware limited liability
company, and its successors in interest.
"Note Purchase Agreement" means the Note Purchase Agreement dated as of
__________, 1997, between the Note Issuer and the Certificate Trustee.
"Note Trustee" means the institution acting as Note Trustee under the Note
Indenture.
"Notes" has the meaning set forth in the preamble to this Trust Agreement.
"Officer's Certificate" means a certificate signed by any Authorized
Officer of the Originator, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 1.02, and delivered to
the Certificate Trustee.
"Opinion of Counsel" means one or more written opinions of counsel who may,
except as otherwise expressly provided in this Trust Agreement, be employees of
or counsel to the Originator and who shall be satisfactory to the Certificate
Trustee and the Delaware Trustee, if applicable, and which opinion or opinions
shall be addressed to the Certificate Trustee, as trustee, and the Delaware
Trustee, as trustee, if applicable, shall comply with any applicable
requirements of Section 1.02, and shall be in form and substance satisfactory to
the Certificate Trustee.
"Original Principal Amount" means, with respect to any Certificate, the
amount set forth on the face of such Certificate on the date of its issuance.
"Originator" means the California Infrastructure and Economic Development
Bank, a public body established within the state government of the State of
California.
5
<PAGE>
"Outstanding" means, as of the date of determination, all Certificates
theretofore authenticated and delivered under this Trust Agreement except:
(i) Certificates theretofore canceled by the Registrar or delivered
to the Registrar for cancellation;
(ii) Certificates or portions thereof the payment for which money in
the necessary amount has been theretofore deposited with the Certificate
Trustee or any Paying Agent in trust for the Holders of such Certificates
(provided, however, that if such Certificates are to be redeemed, notice of
-------- -------
such redemption has been duly given pursuant to this Trust Agreement or
provision therefor, satisfactory to the Certificate Trustee, has been
made); and
(iii) Certificates in exchange for or in lieu of other Certificates
which have been authenticated and delivered pursuant to this Trust
Agreement unless proof satisfactory to the Certificate Trustee is presented
that any such Certificates are held by a bona fide purchaser;
provided that in determining whether the Holders of the requisite Outstanding
- --------
Amount of the Certificates or any Series or Class thereof have given any
request, demand, authorization, direction, notice, consent or waiver hereunder
or under any Basic Document, Certificates owned by the Note Issuer, any other
obligor upon the Certificates, the Originator, the Seller or any Affiliate of
any of the foregoing Persons shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Certificate Trustee shall
be fully protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Certificates that a Responsible
Officer of the Certificate Trustee actually knows to be so owned shall be so
disregarded. Certificates so owned that have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Certificate Trustee the pledgee's right so to act with respect to such
Certificates and that the pledgee is not the Note Issuer, any other obligor upon
the Certificates, the Originator, the Seller or any Affiliate of any of the
foregoing Persons.
"Outstanding Amount" means the aggregate principal amount of all
Certificates, or, if the context requires, all Certificates of a Series or
Class, Outstanding at the date of determination.
"Paying Agent" means the Certificate Trustee or any other Person that meets
the eligibility standards for the Certificate Trustee specified in Section
6.07(a) and is authorized by the Originator (with the prior written approval of
the Note Issuer) to make payments to and distributions from the Certificate
Account, including payment of principal of or premium, if any, or interest on
the Certificates.
"Payment" means, with respect to any Series or Class of Notes, any payment
(other than a Special Payment but including any Redemption Payment) of principal
of or premium, if any, or interest thereon.
6
<PAGE>
"Payment Date" means, with respect to any Series or Class of Notes, the
date or dates specified as Payment Dates therefor in the applicable Series
Supplement.
"Record Date" means, with respect to any Payment Date, the close of
business on the [last] day of the calendar month preceding the calendar month in
which such Payment Date occurs.
"Redemption Payment" means, with respect to any Series or Class of Notes,
any payment of principal of and premium, if any, and interest on the Notes of
such Series or Class due from the Note Issuer upon the early redemption of such
Series or Class of Notes, other than any such payment due by reason of the
occurrence of a Note Event of Default with respect to such Series or Class of
Notes.
"Register" has the meaning set forth in Section 3.04.
"Registrar" means the registrar appointed pursuant to Section 6.11(b).
"Request" means a written request by the Originator setting forth the
subject matter of the request accompanied by an Officer's Certificate and an
Opinion of Counsel as provided in Section 1.02 of this Trust Agreement.
"Responsible Officer" means, when used with respect to the Certificate
Trustee or the Delaware Trustee (as the case may be), any officer within the
Corporate Trust Office of the Certificate Trustee or the Delaware Trustee (as
the case may be) including any Vice President, Managing Director, Assistant Vice
President, Secretary, Assistant Secretary or Assistant Treasurer or any other
officer of the Certificate Trustee or the Delaware Trustee (as the case may be),
or any agent acting under a power of attorney, customarily performing functions
similar to those performed by any of the above designated officers and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Sale Agreement" means the Transition Property Purchase and Sale Agreement
dated as of __________, 1997, between the Seller and the Note Issuer, as amended
and supplemented from time to time.
"Securities Act" means the Securities Act of 1933, as amended.
"Secretary of State" shall mean the Secretary of State of the State of
Delaware.
"Seller" means [Name of Utility], in its capacity as seller under the Sale
Agreement, including its successors in interest.
"Series," when referring to Certificates, means each series of Certificates
issued and authenticated pursuant to this Trust Agreement and a related Trust
Supplement, and, when referring to Notes, means each series of Notes issued and
authenticated pursuant to the Note Indenture and a related Series Supplement.
7
<PAGE>
"Servicer" means [Name of Utility], in its capacity as servicer under the
Servicing Agreement, including its successors in interest, until a successor
Person shall have become the servicer pursuant to that agreement, and thereafter
"Servicer" shall mean such successor Person.
"Servicing Agreement" means the Transition Property Servicing Agreement
dated as of __________, 1997, between the Servicer and the Note Issuer, as
amended and supplemented from time to time.
"Special Payment" means, with respect to any Series or Class of Notes, (i)
any payment of principal of or premium, if any, or interest (including any
interest accruing upon default) on, or any other amount in respect of, the Notes
of such Series or Class (including a payment under any Swap) that is not
actually paid within five days of the Payment Date applicable thereto, (ii) any
payment representing a redemption price of the Notes of such Series or Class or
(iii) any proceeds from the sale of such Notes by the Certificate Trustee
pursuant to Article V hereof or the repurchase of the Notes by the Seller
pursuant to Article ____ of the Sale Agreement.
"Special Payment Date" means, with respect to the distribution of any
Special Payment with respect to any Series or Class of Notes, the later of (i)
the date receipt of such Special Payment is confirmed by the Certificate Trustee
and (ii) the date that is the earlier of (x) if the Certificate Trustee shall
have received such Special Payment without prior notice thereof, 20 days after
such receipt is confirmed or (y) unless such Special Payment represents the
proceeds of a sale of such Notes by the Certificate Trustee (in which event the
Special Payment Date for such proceeds shall be the earliest date for which it
is practicable for the Certificate Trustee to give the 20-day notice required by
Section 4.02(b)), the date that is 20 days after the Certificate Trustee
receives notice from the Note Issuer of the anticipated payment of such Special
Payment.
"Special Record Date" means, with respect to any Special Payment Date, the
close of business on the 15th day (whether or not a Business Day) preceding such
Special Payment Date.
"Subsequent Note Purchase Agreement" means any agreement substantially
similar to the Note Purchase Agreement executed in connection with the purchase
of a Series or Class of Notes on a Subsequent Closing Date.
"Subsequent Closing Date" means any date (other than the Initial Closing
Date) specified in a Trust Supplement on which Certificates of any Series or
Class are issued.
"Swap" means an interest rate swap, cap, floor, collar or other hedging
transaction which may be entered into by the Trust, at the direction of the
Originator, with the approval of the Note Issuer, for the purpose of managing
interest rate risk with respect to a specified Series or Class of Certificates
which are being issued concurrently with the execution of the Swap.
"Swap Counterparty" means the entity which is a party to a Swap with the
Trust, which entity must, at the time of execution of the Swap, have a long term
debt rating of ____ or better from Moody's and ____ or better from Standard &
Poor's.
8
<PAGE>
"Swap Payment" means the payments made by the Trust to the Swap
Counterparty pursuant to any Swap, subject to any netting of payments provided
in the applicable Swap.
"Swap Revenues" means the payments paid by a Swap Counterparty to the Trust
pursuant to any Swap, subject to any netting of payments provided in the
applicable Swap.
"Trust" means the trust created by this Trust Agreement, the estate of
which consists of the Trust Property.
"Trust Indenture Act", except as otherwise provided in Section 8.06, means
the Trust Indenture Act of 1939 as in force at the date as of which this
instrument was executed.
"Trust Property" means, with respect to any Series or Class of
Certificates, (i) the Series or Class of Notes corresponding to such Series or
Class of Certificates held as the property of the Trust and all monies at any
time paid thereon and all monies due and to become due thereunder, all rights of
the Certificate Trustee or the Trust, as holder of such Series or Class of
Notes, in and to the Collateral and any proceeds thereof, funds from time to
time deposited in the Certificate Account for such Series or Class of
Certificates and any proceeds from the sale by the Certificate Trustee pursuant
to Article V hereof of Notes of such Series or Class and (ii) any Swap executed
in connection with any Series or Class of Certificates together with any Swap
Revenues payable to the Trust in respect thereto.
"Trust Supplement" means a supplement to this Trust Agreement that provides
for a particular Series of Certificates.
"Trustee" means the Certificate Trustee and/or the Delaware Trustee, as
appropriate.
"Underwriters" means the underwriters who purchase Certificates of any
Series or Class from the Trust and sell such Certificates in a public offering.
(b) Except as otherwise specified herein or as the context may otherwise
require, the following terms have the respective meanings set forth in the Note
Indenture as in effect on the Closing Date for all purposes of this Trust
Agreement, and the definitions of such terms are equally applicable both to the
singular and plural forms of such terms.
<TABLE>
<CAPTION>
Section of
Term Note Indenture
---- --------------
<S> <C>
Administration Agreement.............................. 1.01(a)
Administrator......................................... 1.01(a)
Advice Letters........................................ 1.01(b)
Affiliate............................................. 1.01(a)
Collateral............................................ 1.01(a)
Commission............................................ 1.01(a)
Exchange Act.......................................... 1.01(a)
Expected Amortization Schedule........................ 1.01(a)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section of
Term Note Indenture
---- --------------
<S> <C>
FDIC.................................................. 1.01(a)
Final Maturity Date................................... 1.01(a)
Financing Order....................................... 1.01(b)
FTA Charge............................................ 1.01(b)
Moody's............................................... 1.01(a)
Person................................................ 1.01(a)
PU Code............................................... 1.01(b)
Rating Agency......................................... 1.01(a)
Series Issuance Date.................................. 1.01(a)
Series Supplement..................................... 1.01(a)
Standard & Poor's..................................... 1.01(a)
State................................................. 1.01(a)
Transition Property................................... 1.01(b)
</TABLE>
(c) When reference is made herein to the Certificates of any Series or
Class, such reference shall mean the Certificates of such Series if there exists
only one Series, or the Certificates of any Class within a Series, if such
Series of Certificates contains more than one Class.
Section 1.02. Compliance Certificates and Opinions. Upon any application
------------------------------------
or request by the Originator to the Certificate Trustee to take any action under
any provision of this Trust Agreement, the Originator shall furnish to the
Certificate Trustee an Officer's Certificate stating that, in the opinion of the
signers thereof, all conditions precedent, if any, provided for in this Trust
Agreement relating to the proposed action have been complied with and an Opinion
of Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with, except that in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Trust Agreement relating to such
particular application or request, no additional certificate or opinion need be
furnished. Any such application or request by the Originator to the Certificate
Trustee shall also be accompanied by evidence reasonably satisfactory to the
Certificate Trustee that the Note Issuer has given its prior written approval of
such application or request.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Trust Agreement shall include:
(1) a statement that each signatory of such certificate or opinion
has read or caused to be read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
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<PAGE>
(3) a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is necessary to
enable such signatory to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such signatory,
such condition or covenant has been complied with.
Section 1.03. Form of Documents Delivered to Certificate Trustee. In any
--------------------------------------------------
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Originator may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer
or Opinion of Counsel may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or officers
of the Servicer, the Seller, the Note Issuer or the Administrator, stating that
the information with respect to such factual matters is in the possession of the
Servicer, the Seller, the Note Issuer or the Administrator, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Whenever in this Trust Agreement, in connection with any application or
certificate or report to the Certificate Trustee, it is provided that the
Originator shall deliver any document as a condition of the granting of such
application, or as evidence of the Originator's compliance with any term hereof,
it is intended that the truth and accuracy, at the time of the granting of such
application or at the effective date of such certificate or report (as the case
may be), of the facts and opinions stated in such document shall in such case be
conditions precedent to the right of the Originator to have such application
granted or to the sufficiency of such certificate or report. The foregoing
shall not, however, be construed to affect the Originator's right to rely upon
the truth and accuracy of any statement or opinion contained in any such
document as provided in Article VI.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Trust Agreement, they may, but need not, be consolidated
and form one instrument.
Section 1.04. Acts of Certificateholders. (a) Any request, demand,
--------------------------
authorization, direction, notice, consent, waiver or other action provided by
this Trust Agreement to be given or taken by Certificateholders may be embodied
in and evidenced by one or more instruments
11
<PAGE>
of substantially similar tenor signed by such Certificateholders in person or by
agents duly appointed in writing; and except as herein otherwise expressly
provided such action shall become effective when such instrument or instruments
are delivered to the Certificate Trustee, and, where it is hereby expressly
required, to the Originator and the Note Trustee. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Certificateholders signing such
instrument or instruments. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose of this
Trust Agreement and (subject to Article VI) conclusive in favor of the
Certificate Trustee, the Originator and the Note Trustee, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner that the Certificate Trustee
deems sufficient.
(c) The ownership of Certificates shall be proved by the Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Certificates shall bind the Holder of every
Certificate issued upon the registration thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to be done by the
Certificate Trustee, the Originator or the Note Trustee in reliance thereon,
whether or not notation of such action is made upon such Certificate.
(e) The Originator may at its option by delivery of an Officer's
Certificate to the Certificate Trustee set a record date to determine the
Holders of any Series or Class of Certificates entitled to give any consent,
request, demand, authorization, direction, notice, waiver or other Act.
Notwithstanding Section 316(c) of the Trust Indenture Act, such record date
shall be the record date specified in such Officer's Certificate, which shall be
the date not more than 30 days prior to the first solicitation of
Certificateholders in connection therewith. If such a record date is fixed,
such consent, request, demand, authorization, direction, notice, waiver or other
Act may be given before or after such record date, but only the Holders of
record of Certificates of the applicable Series or Class at the close of
business on such record date shall be deemed to be Certificateholders of such
Series or Class for the purposes of determining whether Holders of the requisite
aggregate Outstanding Amount of Certificates of such Series or Class have
authorized or agreed or consented to such consent, request, demand,
authorization, direction, notice, waiver or other Act, and for that purpose the
aggregate Outstanding Amount of Certificates of such Series or Class shall be
computed as of such record date; provided that no such consent, request, demand,
--------
authorization, direction, notice, waiver or other Act by the Holders of
Certificates of such Series or Class on such record date shall be deemed
effective unless it shall become effective pursuant to the provisions of this
Trust Agreement not later than one year after the record date.
(f) Except as otherwise provided in the definition of Outstanding,
Certificates of any Series or Class owned by or pledged to any Person shall have
an equal and proportional benefit under the provisions of this Trust Agreement,
without preference, priority or distinction as among all of the Certificates of
that Series or Class.
12
<PAGE>
ARTICLE II
ORGANIZATION; ACQUISITION OF NOTES;
ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.01. Name; Declaration and Statement of Intent; Office;
--------------------------------------------------
Operations. (a) The Trust created hereby shall be known as the "California
- ----------
Infrastructure and Economic Development Bank Special Purpose Trust - [Acronym of
Utility-1]," in which name the Delaware Trustee and the Certificate Trustee may
engage in the transactions contemplated hereby. It is the intention of the
parties hereto that the Trust constitute a not-for-profit business trust under
the Business Trust Statute and that this Agreement constitute the governing
instrument of such business trust. Effective as of the date hereof, the
Delaware Trustee and the Certificate Trustee declare themselves co-trustees for
the Trust. The Delaware Trustee and the Certificate Trustee shall have all
rights, powers and duties set forth herein and, to the extent consistent
herewith, in the Business Trust Statute with respect to accomplishing the
purposes of the Trust, it being understood that the rights, powers, duties and
liabilities of the Delaware Trustee are expressly limited to those set forth in
Article VII hereof.
(b) The office of the Trust shall be in care of the Delaware Trustee at
its principal Corporate Trust Office or at such other address in Delaware as the
Delaware Trustee may designate by written notice to the Originator, the
Certificate Trustee, the Note Issuer and the Certificateholders, and the Trust
shall conduct its business in such office separate and apart from that of the
Originator and its affiliates.
Section 2.02. Trust Property. (a) All bank accounts and other Trust
--------------
Property shall be established by the Certificate Trustee and held and maintained
by the Certificate Trustee on behalf of the Trust at its Corporate Trust Office.
The Trust shall use separate stationery and other business forms and shall
maintain separate records and books of account from those of the Originator.
Such stationery and forms shall be prepared by the Certificate Trustee. The
Trust's assets shall not be commingled with those of the Originator, and the
Trust shall act solely in its own name through its duly authorized agents in the
conduct of its business.
(b) The Trust and the Originator each covenant and agree to hold itself
out to the public under its own name as a separate and distinct entity and will
each conduct its business so as not to mislead others as to its identity. The
Trust shall cause the preparation of its financial documents separate and apart
from those of the Originator.
(c) The Trust will not engage in any business transactions with the
Originator.
(d) The Certificate Trustee hereby declares that it shall hold the Trust
Property in trust upon and subject to the conditions set forth herein for the
use and benefit of the Certificate holders. The Certificate Trustee hereby
acknowledges that it has deposited the sum of $1 in the Distribution Account on
the date hereof, such sum constituting the initial Trust Property contributed by
the Originator.
13
<PAGE>
Section 2.03. Tax Treatment; Construction. (a) It is the intention of
---------------------------
the parties hereto that the Trust shall be treated as a "grantor trust" for
Federal income tax purposes and all transactions contemplated by this Agreement
will be reported consistent with such treatment.
(b) The provisions of this Agreement shall be construed, and the affairs
of the Trust shall be conducted, so as to achieve treatment of the Trust as a
"grantor trust" for Federal income tax purposes.
Section 2.04. Purpose and Powers. The Trust is constituted solely for the
------------------
purpose of making the investment in the Notes and issuing the Certificates, and
applying the proceeds of the Notes to the payment of the Certificates, and,
except as set forth herein, neither the Certificate Trustee nor the Delaware
Trustee is authorized or empowered to acquire any other investments or engage in
any other activities on behalf of the Trust (although the Trust may enter into a
Swap with respect to a Series or Class of Certificates as authorized by any
Trust Supplement) and, in particular, neither the Certificate Trustee nor the
Delaware Trustee is authorized or empowered to do anything that would cause the
Trust to fail to qualify as a "grantor trust" for Federal income tax purposes.
Section 2.05. Acquisition and Acceptance of Notes by Certificate Trustee.
----------------------------------------------------------
The Certificate Trustee, upon the execution and delivery of this Trust
Agreement, hereby acknowledges its acceptance of all right, title, and interest
in and to the Notes acquired from time to time pursuant to the Note Purchase
Agreement and any Subsequent Note Purchase Agreement and hereby declares that it
will hold such right, title and interest in each Series or Class of Notes,
together with all other property constituting the Trust Property relating to
each such Series or Class of Notes, for the benefit of all present and future
holders of the corresponding Series or Class of Certificates.
Section 2.06. Issuance of Certificates. On the Initial Closing Date and
------------------------
on each Subsequent Closing Date, the Trust, subject to the provisions of any
Trust Supplement relating to the Series or Class of Certificates to be issued
and to the provisions of the Note Purchase Agreement or any Subsequent Note
Purchase Agreement, as the case may be, shall issue, and the Certificate Trustee
shall execute on behalf of the Trust and authenticate and deliver, in fully
registered form only, the Certificates of the Series or Class corresponding to
the Series or Class of Notes issued on such Initial Closing Date or Subsequent
Closing Date, as the case may be, all in accordance with the Note Purchase
Agreement or Subsequent Note Purchase Agreement, as the case may be. Each
Certificate represents a fractional undivided interest in the corresponding
Series or Class of Notes. Prior to the execution and authentication of the
Certificates of any Series or Class, the Certificate Trustee shall have received
the following:
(a) The Series or Class of Notes, duly executed by the Note Issuer and
authenticated by the Note Trustee, corresponding to the Series or Class of
Certificates to be issued;
(b) A certificate of an Authorized Officer of the Note Issuer to the
effect that all conditions required to be satisfied under Section 2.10 of the
Note Indenture for the issuance of such Series or Class of Notes and all
conditions required to be satisfied under the Note Purchase Agreement or any
Subsequent Note Purchase Agreement (as the case may be) for the purchase
14
<PAGE>
of the Notes by the Trust have been satisfied, together with executed copies of
all documents, certificates, opinions, orders or approvals establishing
satisfaction of such conditions;
(c) An order of an Authorized Officer of the Originator (i) directing the
Delaware Trustee and the Certificate Trustee to execute any Trust Supplement to
be executed in connection with such Series or Class of Certificates, and the
Series or Class of Certificates to be issued hereunder or thereunder, (ii)
directing the Delaware Trustee to issue the Certificates, (iii) directing the
Certificate Trustee on behalf of the Trust to execute the Note Purchase
Agreement and (iv) directing the Certificate Trustee to execute on behalf of the
Trust and authenticate, as Authentication Agent, and deliver such Series or
Class of such Certificates to the Underwriters named in said order for the
purchase price specified therein and directing the application of the proceeds
thereof;
(d) A certificate of an Authorized Officer of the Note Issuer to the
effect that no Note Event of Default, or any event or condition, which with the
passage of time or the serving of notice, would become a Note Event of Default,
has occurred or is occurring under the Note Indenture;
(e) An Opinion of Counsel, portions of which may be delivered by counsel
to the Originator and portions of which may be delivered by counsel to the
Delaware Trustee, the Certificate Trustee or the Trust, to the effect that:
(i) the Trust is a duly organized and validly existing business
trust under the Business Trust Statute and is in good standing;
(ii) this Trust Agreement and any Trust Supplement to be executed in
connection with such Series or Class of Certificates has been duly
qualified under the Trust Indenture Act or no such qualification is
necessary;
(iii) all instruments furnished to the Delaware Trustee or the
Certificate Trustee conform to the requirements of this Trust Agreement and
constitute all documents required to be delivered hereunder or any Trust
Supplement to authorize the Delaware Trustee to execute and the Certificate
Trustee to authenticate and deliver the Series or Class of Certificates to
be issued;
(iv) the Trust has the power and authority to execute and deliver the
Trust Agreement and any Trust Supplement and to issue the Certificates;
(v) this Trust Agreement and any Trust Supplement have been duly
authorized, executed and delivered by the parties hereto;
(vi) the Certificates to be issued have been duly authorized and
executed and, when authenticated in accordance with the provisions of this
Trust Agreement and any Trust Supplement and delivered, will be validly
issued by the Trust entitled to the benefits of this Trust Agreement and
any Trust Supplement;
15
<PAGE>
(vii) this Trust Agreement and any Trust Supplement are valid and
binding agreements of the parties hereto, enforceable in accordance with
their respective terms except as such enforceability may be subject to
bankruptcy, insolvency, reorganization and other similar laws affecting the
rights of creditors generally, general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at
law) and applicable public policy regarding rights of indemnification;
(viii) the Trust constitutes a "special purpose trust" under Section
63010 of the California Government Code and a "financing entity" under
Section 840 of the PU Code, and the Certificates constitute "rate reduction
bonds" under Section 840 of the PU Code and the Holders of the Certificates
are entitled to the rights and benefits thereunder; and
(ix) such other matters as the Certificate Trustee or the Delaware
Trustee may reasonably require.
(f) If any Swap is to be executed in connection with the issuance of any
Series or Class of Certificates (i) a Trust Supplement providing the following:
(A) the form of the Swap to be executed by the Trust, together
with a direction to the Certificate Trustee to execute and deliver the
Swap on behalf of the Trust upon the satisfaction of any conditions
set forth in such Trust Supplement;
(B) a description of the manner by which interest will be
calculated on the Series or Class of Certificates to which the Swap
relates, together with the form of such Series or Class of
Certificates;
(C) such other matters as the Originator may reasonably deem
appropriate, or the Certificate Trustee or Delaware Trustee may
reasonably request, and which are not inconsistent with the provisions
hereof; and
(ii) the Originator shall provide evidence satisfactory to the Certificate
Trustee that the Rating Agency Condition will be satisfied with respect to the
issuance of such Series or Class of Certificates.
Section 2.07. Representations and Warranties of the Originator. The
------------------------------------------------
Originator will represent and warrant, as of each Series Issuance Date, the
following:
(a) the Originator has full power and authority, and has taken all
action necessary, to execute and deliver this Trust Agreement and any Trust
Supplement and to fulfill its obligations under, and to consummate the
transactions contemplated by, this Trust Agreement and any Trust
Supplement;
(b) the making and performance by the Originator of this Trust
Agreement and any Trust Supplement and all documents required to be
executed and delivered by it hereunder do not and will not violate any law
or regulation of the jurisdiction of its
16
<PAGE>
organization or any other law or regulation applicable to it or violate any
provision of, or constitute, with or without notice or lapse of time, a
default under, or result in the creation or imposition of any lien on any
properties included in the Trust Property pursuant to any mortgage,
indenture, contract, agreement or other undertaking to which it is a party;
(c) this Trust Agreement and any Trust Supplement has been duly
executed and delivered by the Originator and constitutes its legal, valid
and binding obligation, enforceable in accordance with its terms;
(d) all consents, licenses, approvals, authorizations, exemptions,
registrations, filings, opinions and declarations from or with any agency,
department, administrative authority, statutory corporation or judicial
entity necessary for the validity or enforceability of its obligations
under this Trust Agreement and any Trust Supplement have been obtained, and
no governmental authorizations other than any already obtained are required
in connection with the execution, delivery and performance of this Trust
Agreement and any Trust Supplement; and
(e) the representations and warranties in Section 11.01 are true and
correct.
ARTICLE III
THE CERTIFICATES
Section 3.01. Form, Denomination and Execution of Certificates. The
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Certificates of each Series shall be issued in registered form without coupons
and shall be substantially in the form attached hereto as Exhibit A, with the
following filled in: (i) the designation of such Series and, if applicable, the
Classes thereof, which shall be the same designation as the related Series or
Class or Classes of Notes, (ii) the Certificate number or numbers thereof, (iii)
the date of authentication thereof, which shall be the same as the Series
Issuance Date of the related Series or Class or Classes of Notes, and (iv) the
Original Principal Amount thereof, which shall equal, in the aggregate, the
principal amount of the related Series of Notes; and with such omissions,
variations and insertions as are permitted by this Trust Agreement or any Trust
Supplement, and may have such letters, numbers or other marks of identification
and such legends or endorsements printed, lithographed or engraved thereon as
may be required to comply with the rules of any securities exchange on which any
Class or Classes of the Certificates of such Series may be listed or to conform
to any usage in respect thereof, or as may, consistently herewith, be prescribed
by the Certificate Trustee or by the Originator (with the prior written approval
of the Note Issuer), and as evidenced by the execution and authentication of
such Certificates.
Except as provided in Section 3.10, the definitive Certificates of each
Series or Class shall be printed, lithographed or engraved or produced by any
combination of these methods or may be produced in any other manner permitted by
the rules of any securities exchange on which the Certificates of such Series or
Class may be listed, as evidenced by such officer's execution of such
Certificates.
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The Certificates of each Series or Class shall be issued in minimum
denominations of $[1,000] Original Principal Amount or integral multiples
thereof.
The Certificates shall be executed on behalf of the Trust by the
Certificate Trustee by manual or facsimile signature of a Responsible Officer of
the Certificate Trustee. Certificates bearing the manual or facsimile signature
of an individual who was, at the time when such signature was affixed,
authorized to sign on behalf of the Trust shall be validly issued by the Trust,
notwithstanding that such individual has ceased to be so authorized prior to the
authentication and delivery of such Certificates or did not hold such office at
the date of such Certificates. No Certificate shall be entitled to any benefit
under this Trust Agreement, or be valid for any purpose, unless there appears on
such Certificate a certificate of authentication substantially in the form set
forth in Exhibit A hereto, executed by the Certificate Trustee (as
Authentication Agent) by manual signature, and such certificate of
authentication upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their authentication.
Section 3.02. Authentication of Certificates. The Certificate Trustee
------------------------------
shall duly authenticate and deliver Certificates of each Series or Class in
authorized denominations equaling in the aggregate for each Series or Class of
Certificates the aggregate Original Principal Amount of the Notes of such Series
or Class as provided in Section 2.06.
Section 3.03. Temporary Certificates. Pending the preparation of
----------------------
definitive Certificates of any Series or Class, the Certificate Trustee on
behalf of the Trust may execute, and the Certificate Trustee upon written order
shall authenticate (as Authentication Agent) and deliver, temporary Certificates
of such Series or Class which are printed, lithographed, typewritten or
otherwise produced, in any denomination, containing substantially the same terms
and provisions as set forth in Exhibit A, except for such appropriate
insertions, omissions, substitutions and other variations relating to their
temporary nature as the Trust may determine, as evidenced by such officer's
execution on behalf of the Trust of such temporary Certificates.
If temporary Certificates of any Series or Class are issued, the Trust will
cause definitive Certificates of such Series or Class to be prepared without
unreasonable delay. After the preparation of definitive Certificates of such
Series or Class, the temporary Certificates shall be exchangeable for definitive
Certificates of such Series or Class upon surrender of the temporary
Certificates at the Corporate Trust Office of the Certificate Trustee, or at the
office or agency of the Certificate Trustee maintained in accordance with
Section 6.11, without charge to the Holder. Upon surrender for cancellation of
any one or more temporary Certificates, the Certificate Trustee, on behalf of
the Trust, shall execute, and the Certificate Trustee shall authenticate and
deliver in exchange therefor definitive Certificates (of the same Series or
Class as the temporary Certificates surrendered) of authorized denominations of
a like aggregate Original Principal Amount. Until so exchanged, such temporary
Certificates shall in all respects be entitled to the same benefits under this
Trust Agreement as definitive Certificates of the same Series or Class.
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Section 3.04. Registration of Transfer and Exchange of Certificates. The
-----------------------------------------------------
Certificate Trustee shall cause to be kept at the office or agency to be
maintained by it in accordance with the provisions of Section 6.11 a register
(the "Register") in which, subject to such reasonable regulations as it may
prescribe, the Certificate Trustee shall provide for the registration of
Certificates and of transfers and exchanges of Certificates as herein provided.
The Certificate Trustee shall initially be the registrar (the "Registrar") for
the purpose of registering Certificates and transfers and exchanges of
Certificates as herein provided.
Subject to this Section 3.04, upon surrender for registration of transfer
of any Certificate at the Corporate Trust Office or such other office or agency
maintained by the Certificate Trustee in accordance with Section 6.11, the
Certificate Trustee, on behalf of the Trust, shall execute, and the Certificate
Trustee shall authenticate and deliver, in the name of the designated
transferee, one or more new Certificates (of the same Series or Class as the
Certificates surrendered for registration of transfer) in authorized
denominations of a like aggregate Original Principal Amount.
At the option of a Certificateholder, Certificates may be exchanged for
other Certificates (of the same Series or Class as the Certificates surrendered
for registration of exchange) of authorized denominations of a like aggregate
Original Principal Amount, upon surrender of the Certificates to be exchanged at
any such office or agency. Whenever any Certificates are so surrendered for
exchange, the Certificate Trustee, on behalf of the Trust, shall execute, and
the Certificate Trustee shall authenticate and deliver the Certificates that the
Certificateholder making the exchange is entitled to receive.
Every Certificate presented or surrendered for registration of transfer or
exchange shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Certificate Trustee and the Registrar duly
executed by the Certificateholder thereof or its attorney duly authorized in
writing.
No service charge shall be made to a Certificateholder for any registration
of transfer or exchange of Certificates, but the Certificate Trustee shall
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.
All Certificates surrendered for registration of transfer or exchange shall
be canceled and subsequently destroyed by the Certificate Trustee in accordance
with its customary practices.
Section 3.05. Certificateholders' Lists and Reports by Certificate
----------------------------------------------------
Trustee.
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(a) The Trust To Furnish Certificate Trustee with Names and Addresses of
--------------------------------------------------------------------
Certificateholders. The Trust will furnish to the Certificate Trustee within 15
- -------------------
days after each Record Date with respect to distribution of a Payment, and at
such other times as the Certificate Trustee may request in writing, within 30
days after receipt by the Trust of any such request, a list, in such form as the
Certificate Trustee may reasonably require, of all information in the possession
or control of the Trust as to the names and addresses of the Certificateholders,
in each case as of a date not more than 15 days prior to the time such list is
furnished; provided,
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however, that so long as the Certificate Trustee is the sole Registrar, no such
list need be furnished; and provided further, however, that no such list need be
furnished for so long as a copy of the Register is being furnished to the
Certificate Trustee pursuant to Section 6.11.
(b) Preservation of Information. The Certificate Trustee shall preserve,
----------------------------
in as current a form as is reasonably practicable, the names and addresses of
Certificateholders contained in the most recent list furnished to the
Certificate Trustee as provided in Section 6.11 or Section 3.05(a), as the case
may be, and the names and addresses of Certificateholders received by the
Certificate Trustee in its capacity as Registrar, if so acting. The Certificate
Trustee may destroy any list furnished to it as provided in Section 6.11 or
Section 3.05(a), as the case may be, upon receipt of a new list so furnished.
(c) Reports by Certificate Trustee. Within 60 days after [_] of each
-------------------------------
year, commencing with the year 1998, the Certificate Trustee shall transmit to
the Certificateholders, as provided in Section 313(c) of the Trust Indenture
Act, a brief report dated as of such [_], if required by Section 313(a) of
the Trust Indenture Act.
(d) Reports by the Trust. The Trust shall furnish to the Certificate
---------------------
Trustee, not less often than annually, a certificate from an Authorized Officer
of the Certificate Trustee on behalf of the Trust as to his or her knowledge of
the Trust's compliance with all conditions and covenants under this Trust
Agreement. For purposes of this Section 3.05(d) such compliance shall be
determined without regard to any period of grace or requirement of notice
provided under this Trust Agreement.
Section 3.06. Mutilated, Destroyed, Lost or Stolen Certificates. If (a)
-------------------------------------------------
any mutilated Certificate is surrendered to the Registrar, or the Registrar
receives evidence to its satisfaction of the destruction, loss or theft of any
Certificate, and (b) there is delivered to the Registrar and the Certificate
Trustee such security, indemnity or bond as may be required by them to save each
of them harmless, then, in the absence of notice, in the manner provided by
Section 11.04, to the Registrar or the Certificate Trustee that such Certificate
has been acquired by a bona fide purchaser, the Certificate Trustee, on behalf
of the Trust, shall execute, and the Certificate Trustee shall authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Certificate, a new Certificate (of the same Series or Class as the
Certificate so mutilated, destroyed, lost or stolen) of like Original Principal
Amount. In connection with the issuance of any new Certificate under this
Section 3.06, the Certificate Trustee shall require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Delaware Trustee, the Certificate Trustee and the Registrar) connected
therewith. Any duplicate Certificate issued pursuant to this Section 3.05 shall
constitute conclusive evidence of the same interest in the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
Section 3.07. Persons Deemed Owners. Prior to due presentation of a
---------------------
Certificate for registration of transfer, the Certificate Trustee, the Registrar
and any Paying Agent of the Certificate Trustee may treat the Person in whose
name any Certificate is registered as the owner of such Certificate for the
purpose of receiving distributions pursuant to Section 4.02 and for
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all other purposes whatsoever, and neither the Certificate Trustee or the
Registrar nor any Paying Agent of the Certificate Trustee shall be affected by
any notice to the contrary.
Section 3.08. Cancellation. All Certificates surrendered for payment or
------------
transfer or exchange shall, if surrendered to any Person party hereto other than
the Registrar, be delivered to the Registrar for cancellation. No Certificates
shall be authenticated in lieu of or in exchange for any Certificates canceled
as provided in this Section, except as expressly permitted by this Trust
Agreement. All canceled Certificates held by the Registrar shall be delivered
to the Certificate Trustee and, in accordance with Section 3.04, destroyed.
Section 3.09. Limitation of Liability for Payments. All payments or
------------------------------------
distributions made to Holders of Certificates under this Trust Agreement shall
be made only from the Trust Property with respect to that Series or Class of
Certificates and only to the extent that the Certificate Trustee shall have
sufficient income or proceeds from such Trust Property to make such payments in
accordance with the terms of Article IV of this Trust Agreement. Each Holder of
a Certificate of any Series or Class, by its acceptance of a Certificate of that
Series or Class, agrees that it will look solely to the income and proceeds from
the Trust Property with respect to that Series or Class to the extent available
for distribution to the Holder thereof as provided in this Trust Agreement. It
is expressly understood and agreed by the parties hereto that (a) this Trust
Agreement is executed and delivered by Bankers Trust Company, not individually
or personally but solely as Trustee of the Trust, in the exercise of the powers
and authority conferred and vested in it, and (b) under no circumstances shall
Bankers Trust Company be personally liable for the payment of any indebtedness
or expenses of the Trust or be liable for the breach or failure of any
obligation, representation, warranty or covenant made or undertaken by the Trust
under this Trust Agreement.
Section 3.10. Book-Entry and Definitive Certificates. (a) The
--------------------------------------
Certificates of any Series or Class may be issued in the form of one or more
typewritten Certificates representing the Book Entry Certificates of that Series
or Class, to be delivered to The Depository Trust Company, the initial Clearing
Agency, by, or on behalf of, the Originator. In such case, the Certificates of
such Series or Class delivered to The Depository Trust Company shall initially
be registered on the Register in the name of Cede & Co., the nominee of the
initial Clearing Agency, and no Certificate Owner will receive a definitive
Certificate representing such Certificate Owner's interest in the Certificate of
such Series or Class, except as provided in Section 3.10(c) below. Unless and
until definitive, fully registered Certificates ("Definitive Certificates") of
such Series or Class have been issued pursuant to Section 3.10(c) below:
(i) the provisions of this Section 3.10 shall be in full force and
effect with respect to the Certificates of such Series or Class;
(ii) the Originator, the Paying Agent, the Registrar and the
Certificate Trustee may deal with the Clearing Agency for all purposes
(including the making of distributions on the Certificates of such Series
or Class) as the authorized representative of the Certificate Owners of
Certificates of such Series or Class;
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(iii) to the extent that the provisions of this Section 3.10
conflict with any other provisions of this Trust Agreement, the provisions
of this Section 3.10 shall control;
(iv) the rights of Certificate Owners of Certificates of such Series
or Class shall be exercised only through the Clearing Agency and shall be
limited to those established by law and agreements between such Certificate
Owners and the Clearing Agency Participants; and until Definitive
Certificates of such Series or Class are issued pursuant to Section 3.10(c)
below, the Clearing Agency will make book-entry transfers among the
Clearing Agency Participants and receive and transmit distributions of
principal of and premium, if any, and interest on the Certificates of such
Series or Class to such Clearing Agency Participants; and
(v) whenever this Trust Agreement requires or permits actions to be
taken based upon instructions or directions of Certificateholders holding
Certificates of such Series or Class representing a specified percentage of
the aggregate Outstanding Amount of Certificates of such Series or Class,
the Clearing Agency shall be deemed to represent such percentage only to
the extent that it has received instructions to such effect from
Certificate Owners or Clearing Agency Participants owning or representing,
respectively, Certificates representing such percentage of the aggregate
Outstanding Amount of Certificates of such Series or Class, and has
delivered such instructions to the Certificate Trustee. The Certificate
Trustee shall have no obligation to determine whether the Clearing Agency
has in fact received any such instructions.
(b) Whenever notice or other communication to the Holders of Certificates
of any Series or Class issued in the form of Certificates representing Book-
Entry Certificates is required under this Trust Agreement, unless and until
Definitive Certificates of such Series or Class shall have been issued pursuant
to Section 3.10(c) below, the Certificate Trustee shall give all such notices
and communications specified herein to be given to Holders of Certificates of
such Series or Class to the Clearing Agency.
(c) If (i) the Clearing Agency advises the Certificate Trustee in writing
that the Clearing Agency is no longer willing or able to properly discharge its
responsibilities with respect to the Certificates, and the Certificate Trustee
or the Originator is unable to locate a qualified successor, (ii) the Originator
(with the prior written approval of the Note Issuer) at its option advises the
Certificate Trustee in writing that it elects to terminate the book-entry system
through the Clearing Agency with respect to the Certificates or (iii) after the
occurrence of a Note Event of Default with respect to any Series or Class of
Certificates, Certificate Owners representing beneficial interests aggregating
at least a majority of the Outstanding Amount of the Certificates of all Series
advise the Clearing Agency and the Certificate Trustee in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interests of the Certificate Owners, then the Clearing Agency shall
notify all Certificate Owners and the Certificate Trustee of the occurrence of
any such event and of the availability of Definitive Certificates to Certificate
Owners requesting the same. Upon surrender to the Certificate Trustee of the
typewritten Certificate or Certificates representing the Book-Entry Certificates
by the Clearing Agency, accompanied by registration instructions, and upon
written direction by the Note Issuer, the Certificate Trustee shall execute on
behalf of the Trust and the
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Certificate Trustee shall authenticate the Definitive Certificates in accordance
with the instructions of the Clearing Agency. None of the Originator, the
Registrar, the Delaware Trustee or the Certificate Trustee shall be liable for
any delay in delivery of such instructions and may conclusively rely on, and
shall be fully protected in relying on, such instructions. Upon the issuance of
Definitive Certificates, the Certificate Trustee shall recognize the Holders of
the Definitive Certificates as Certificateholders.
ARTICLE IV
DISTRIBUTIONS; STATEMENTS TO CERTIFICATEHOLDERS
Section 4.01. Certificate Accounts. (a) The Trust shall establish and
--------------------
maintain with the Certificate Trustee on behalf of the Holders of Certificates
of each Series or Class a Certificate Account with respect to such Series or
Class as one or more accounts, which shall be non-interest bearing except as
provided in Section 4.04, in the corporate trust department of an Eligible
Institution, in the name of the Certificate Trustee for the benefit of such
Certificateholders. The Certificate Trustee shall hold each Certificate Account
in trust for the benefit of the Holders of Certificates of the corresponding
Series or Class, and shall make or permit withdrawals therefrom only as provided
in this Trust Agreement. On each day when a Payment or Special Payment (other
than a Special Payment that represents the proceeds of any sale pursuant to
Article V hereof by the Certificate Trustee of any Note) is made to the
Certificate Trustee, as holder of Notes of any Series or Class, the Certificate
Trustee upon receipt shall immediately deposit the aggregate amount of such
Payment or Special Payment in the Certificate Account for the corresponding
Series or Class of Certificates. If a Swap has been executed with respect to
any Series or Class of Certificates, the proceeds of such Payment or Special
Payment in any Certificate Account shall be applied to satisfy any Swap Payment,
or if a payment is due to the Trust under the Swap, any Swap Revenue shall be
credited to such Certificate Account. Upon the sale of any Note by the
Certificate Trustee pursuant to Article V hereof and the realization of any
proceeds thereof, the Certificate Trustee shall deposit the aggregate amount of
such proceeds as a Special Payment in the Certificate Account for the Series or
Class of Certificates corresponding to the Series or Class of the Note so sold.
(b) The Certificate Trustee shall present to the Note Trustee for payment
each Note on its Final Maturity Date, or, in the case of any redemption or
repayment of such Note in full prior to its Final Maturity Date, on the
applicable Payment Date therefor.
Section 4.02. Distributions from Certificate Accounts. (a) On any date
---------------------------------------
on which the Certificate Trustee receives a Payment with respect to any Series
or Class of Notes, the Certificate Trustee shall distribute out of the
Certificate Account for the corresponding Series or Class of Certificates, in
the manner described in Section 4.02(e), the entire amount of such Payment (as
reduced by any Swap Payment or increased by any Swap Revenues) deposited therein
pursuant to Section 4.01(a); provided, however, that in the event receipt of any
-------- -------
such Payment is not confirmed by the Certificate Trustee by 1:00 p.m. (New York
City time) on such Payment Date, distribution thereof shall be made on the day
receipt thereof is confirmed by the Certificate Trustee by 1:00 p.m. (New York
City time) or, if receipt thereof is confirmed by the
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Certificate Trustee after 1:00 p.m. (New York City time), on the following
Business Day. There shall be so distributed to each Holder of record of such
Series or Class of Certificates on the Record Date with respect to such Payment
Date (other than as provided in Section 10.01 with respect to a final
distribution) such Certificateholder's pro rata share (based on the aggregate
Outstanding Amount of Certificates of such Series or Class held by such
Certificateholder) of the aggregate amount in the related Certificate Account.
The foregoing notwithstanding, if a Payment (or Swap Revenue) is not received by
the Certificate Trustee by the day that is five days after the related Payment
Date, it will be treated as a Special Payment pursuant to Section 4.02(b).
The final distribution with respect to any Certificate, however, will be
made only upon presentation and surrender of such Certificate at the office or
agency of the Certificate Trustee specified in the notice given by the
Certificate Trustee with respect to such final payment.
(b) On each Special Payment Date with respect to the distribution of any
Special Payment with respect to any Series or Class of Notes, the Certificate
Trustee shall distribute out of the Certificate Account for the corresponding
Series or Class of Certificates, in the manner described in Section 4.02(e), the
entire amount of such Special Payment (as reduced by any Swap Payment or
increased by any Swap Revenues) deposited therein pursuant to Section 4.01(a)
and any income and earnings received from the investment of such Special Payment
pursuant to Section 4.04; provided, however, that in the event receipt of any
-------- -------
such Special Payment is not confirmed by the Certificate Trustee by 1:00 p.m.
(New York City time) on such Special Payment Date, distribution thereof shall be
made on the day receipt thereof is confirmed by the Certificate Trustee by 1:00
p.m. (New York City time) or, if receipt thereof is confirmed by the Certificate
Trustee after 1:00 p.m. (New York City time), on the following Business Day.
There shall be so distributed to each Holder of record of such Series or Class
of Certificates on the Special Record Date with respect to such Special Payment
Date (other than as provided in Section 10.01 with respect to a final
distribution) such Certificateholder's pro rata share (based on the aggregate
Outstanding Amount of Certificates of such Series or Class held by such
Certificateholder) of the aggregate amount of such Special Payment (as reduced
by any Swap Payment or increased by any Swap Revenues) and any income and
earnings received from the investment of such Special Payment pursuant to
Section 4.04.
(c) The Certificate Trustee shall allocate amounts distributed to Holders
of Certificates of any Series or Class on any Payment Date or Special Payment
Date as follows: (i) to the extent such amounts represent payments of principal
of the corresponding Series or Class of Notes (including prepayments), or the
proceeds of the sale of any such Note by the Certificate Trustee pursuant to
Article V hereof, such amounts shall be allocated to principal of such
Certificates; (ii) to the extent such amounts represent payments of premium on
the corresponding Series or Class of Notes, such amounts shall be allocated to
premium in respect of such Certificates; and (iii) all other such amounts shall
be allocated to interest on such Certificates. The Certificate Trustee may
conclusively rely on the payment statement received by it from the Note Trustee
pursuant to Section 6.06 of the Note Indenture with any payment in respect of
any Series or Class of Notes as to whether the amount so paid in respect of such
Notes is in respect of principal of, premium, if any, or interest, on such
Notes, provided that any Swap Payment or Swap Revenues shall be attributable to
--------
interest. If no statement is
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received, such payments received with respect to any Series or Class of Notes
shall first be allocable to interest to the extent of any interest accrued and
payable on such Series or Class of Notes, and then to principal.
(d) The Certificate Trustee shall cause notice of each Special Payment
with respect to any Series or Class of Notes to be mailed to each Holder of
Certificates of the corresponding Series or Class at its address as it appears
in the Register. In the event of redemption of the Notes of any Series or Class,
such notice shall be mailed not less than five days nor more than 25 days prior
to the Payment Date on which any such Redemption Payment is scheduled to be
distributed. In the case of any other Special Payment, such notice shall be
mailed not less than 20 days prior to the Special Payment Date on which any
Special Payment is scheduled to be distributed in respect of Certificates of
such Series or Class stating such anticipated Special Payment Date. Any such
notice mailed by the Certificate Trustee shall set forth:
(i) the Special Payment Date or the Payment Date, as applicable, and
the Special Record Date or Record Date therefor, as applicable (except as
otherwise provided in Section 10.01);
(ii) the amount of the Special Payment for each $1,000 Original
Principal Amount of Certificates of the applicable Series or Class and the
amount thereof constituting principal, premium, if any, and interest;
(iii) the reason for the Special Payment; and
(iv) the total amount to be received on such date for each $1,000
Original Principal Amount of Certificates of the applicable Series or Class
but only, in the case of a Special Payment, if the related Special Payment
Date is also a Payment Date.
(e) Distributions to Holders of Certificates shall be by check sent by
first-class mail to the address of such Holder appearing on the Register at the
relevant Record Date or Special Record Date or, upon written application of a
Holder of Certificates of any Series or Class in the Original Principal Amount
of $1,000,000 or more to the Certificate Trustee made at any time not later than
such Record Date or Special Record Date or continuing in effect from a prior
request, by wire transfer in immediately available funds to the account of such
Holder at such bank located in [New York, New York] having wire transfer
capability as may be designated by such Holder; provided, however, that the
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final distribution in respect of any Certificate shall be made only as provided
in Section 10.01. The foregoing notwithstanding, any distributions made to Cede
& Co., as the nominee of the initial Clearing Agency, shall be made by wire
transfer of immediately available funds.
Section 4.03. Statements to Certificateholders. (a) On each Payment
--------------------------------
Date, Special Payment Date or any other date specified herein for distribution
of any payments with respect to any Series or Class of Certificates, or as soon
as practicable following such Payment Date, if the Certificate Trustee and the
Note Trustee are different entities, the Certificate Trustee will include with
each distribution to Holders of Certificates of such Series or Class a statement
with
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respect to such distribution to be made on such Payment Date, Special Payment
Date or other date, as the case may be, setting forth the following information:
(i) the amount of such distribution to Holders of Certificates
allocable to (a) principal, (b) premium, if any, and (c) interest, in each
case per $1,000 Original Principal Amount of each Series or Class of
Certificates;
(ii) the amount of any Swap Payment or Swap Revenues with respect to
any Series or Class of Certificates;
(iii) the aggregate outstanding principal balance of the
Certificates, after giving effect to payments allocated to principal
reported under (i) above; and
(iv) the difference, if any, between the amount specified in (iii)
above and the principal amount scheduled to be outstanding on such date
according to the Expected Amortization Schedule.
On each date on which the Certificate Trustee distributes any such report to the
Holders of the Certificates of any Series or Class, the Certificate Trustee
shall also distribute such report to each Rating Agency to the Certificate
Trustee in writing.
(b) Within a reasonable period of time after the end of each calendar year
but not later than the latest date permitted by law, the Certificate Trustee
shall furnish to each Person who at any time during such calendar year was a
Holder of record of any Series or Class of Certificates a statement containing
the sum of the amounts determined pursuant to clause (a)(i) above with respect
to such Series or Class of Certificates for such calendar year, or, in the event
such Person was a Holder of record of such Series or Class of Certificates
during a portion of such calendar year, for the applicable portion of such year,
and such other items as are readily available to the Certificate Trustee and
which a Certificateholder shall reasonably request as necessary for the purpose
of such Certificateholder's preparation of its Federal income tax returns.
Section 4.04. Investment of Special Payment Moneys. Any money received by
------------------------------------
the Certificate Trustee pursuant to Section 4.01(a) representing a Special
Payment (or Swap Revenue) which is not to be promptly distributed, to the extent
practicable, shall be invested in Eligible Investments by the Certificate
Trustee pending distribution of such Special Payment pursuant to Section 4.02.
Any investment made pursuant to this Section 4.04 shall be in such Eligible
Investments maturing in not more than 60 days or such lesser time as is required
for the distribution of any such funds on a Special Payment Date pending the
distribution of such funds to Certificateholders as described herein. The
Certificate Trustee shall hold any such Eligible Investments until maturity.
The Certificate Trustee shall have no liability with respect to any investment
made pursuant to this Section 4.04 (including any losses on such investments),
other than by reason of the willful misconduct or negligence of the Certificate
Trustee. All income and earnings from such investments shall be distributed on
such Special Payment Date as part of such Special Payment and shall be treated
as payments of interest on the Certificates.
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Section 4.05. Reduction in Principal. Any reduction in the principal
----------------------
amount of any Certificate effected by any distribution in respect of principal
thereof shall be binding upon all Holders of such Certificate and of any
Certificate issued upon the registration or transfer thereof or in lieu thereof,
whether or not noted thereon.
ARTICLE V
DEFAULT
Section 5.01. Events of Default. (a) If any Note Event of Default shall
-----------------
occur and be continuing with respect to any Series or Class of Certificates,
then, and in each and every case, the Certificate Trustee may, and, upon the
written direction of Holders representing not less than a majority of the
Outstanding Amount of the Certificates of all Series then Outstanding, shall
vote all the Notes of all Series in favor of declaring the unpaid principal
amount of all the Notes of all Series then outstanding and accrued interest
thereon to be due and payable in accordance with the provisions thereof. In
addition, if a Note Event of Default shall have occurred and be continuing with
respect to any Series or Class of Certificates, the Certificate Trustee may,
and, upon the written direction of Holders representing not less than a majority
of the Outstanding Amount of the Certificates of all Series then Outstanding,
shall vote all the Notes of all Series in favor of directing the Note Trustee as
to the time, method and place of conducting any proceeding for any remedy
available to the Note Trustee or of exercising any trust or power conferred on
the Note Trustee under the Note Indenture.
(b) In addition, after a Note Event of Default shall have occurred and be
continuing with respect to the Certificates of any Series or Class, subject to
Section 5.01(c), the Certificate Trustee may, and upon the written direction of
Holders of Certificates representing not less than a majority of the Outstanding
Amount of Certificates of such Series or Class, by such officer or agent as it
may appoint, shall sell, convey, transfer and deliver any Note or Notes, without
recourse to or warranty by the Certificate Trustee or any Certificateholder, to
any Person, all upon such terms and conditions as the Certificateholders may
reasonably deem advisable and at such prices as it may reasonably deem
advisable, for cash. If the Certificate Trustee so decides or is required to
sell or otherwise dispose of the Notes pursuant to this Section, the Certificate
Trustee shall take such of the actions described above as it may reasonably deem
most effectual to complete the sale or other disposition of the Notes, so as to
provide for the payment in full of all amounts due on the Certificates of all
Series. Notwithstanding the foregoing, (i) any action taken by the Certificate
Trustee under this Section shall not, in the reasonable judgment of the
Certificate Trustee, be adverse to the best interests of the Holders of the
Certificates and (ii) the Certificate Trustee may, but shall not be obligated
to, in its sole discretion, refrain from disposing of the Notes in accordance
with this Section 5.01(b) if (A) the Certificate Trustee determines that amounts
receivable from the Collateral with respect to each Series or Class of Notes
will be sufficient to pay (1) all principal of and interest on that Series or
Class of Notes in accordance with their terms without regard to any declaration
of acceleration thereof and (2) all sums due the Certificate Trustee and any
other administrative expenses specified in this Trust Agreement and (B) Holders
of Certificates representing not less than a majority of the
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Outstanding Amount of the Certificates of all Series have not directed the
Certificate Trustee to dispose of any Note or Notes.
(c) The foregoing provisions of Section 5.01(b) notwithstanding, the
Certificate Trustee shall not sell any Notes following the occurrence of any
Event of Default, other than a Note Event of Default described in Section
5.01(i), (ii) or (iii) of the Note Indenture, with respect to any Series or
Class of Certificates unless (i) the Certificate Trustee determines that the
amounts receivable from the Collateral with respect to each Series or Class of
Notes are not sufficient to pay in full the principal of and accrued interest on
the Notes of each such Series or Class and to pay an allocable share of all sums
due to the Certificate Trustee and any other administrative expenses specified
in this Trust Agreement and the Certificate Trustee obtains the written consent
of Holders of Certificates of each such Series or Class representing 66 percent
of the aggregate Outstanding Amount of the Certificates of each such Series or
Class, or (ii) the Certificate Trustee obtains the written consent of Holders of
Certificates representing 100 percent of the aggregate Outstanding Amount of the
Certificates of each such Series or Class.
Section 5.02. Incidents of Sale of Notes. Upon any sale of the Notes made
--------------------------
either under the power of sale given under this Trust Agreement or otherwise for
the enforcement of this Trust Agreement, the following shall be applicable:
(1) Certificateholders and Certificate Trustee May Purchase Notes.
-------------------------------------------------------------
Any Certificateholder, the Certificate Trustee in its individual or any
other capacity or any other Person (other than the Seller) may bid for and
purchase any of the Notes, and upon compliance with the terms of sale, may
hold, retain, possess and dispose of such Notes in their own absolute right
without further accountability.
(2) Receipt of Certificate Trustee Shall Discharge Purchaser. The
--------------------------------------------------------
receipt of the Certificate Trustee, on behalf of the Trust, shall be a
sufficient discharge to any purchaser for its purchase money, and, after
paying such purchase money and receiving such receipt, such purchaser or
its personal representative or assigns shall not be obliged to see to the
application of such purchase money, or be in any way answerable for any
loss, misapplication or nonapplication thereof.
(3) Application of Moneys Received upon Sale. Any moneys collected by
----------------------------------------
the Trust upon any sale made either under the power of sale given by this
Trust Agreement or otherwise for the enforcement of this Trust Agreement,
shall be applied as provided in Section 4.02.
Section 5.03. Judicial Proceedings Instituted by Certificate Trustee;
-------------------------------------------------------
Certificate Trustee May Bring Suit. (a) If there shall be a failure to make
- ----------------------------------
payment of the principal of or premium, if any, or interest on any Note, then
the Certificate Trustee, in its own name, and as trustee of an express trust, as
holder of such Note, if directed by the Holders of a majority of the Outstanding
Amount of the Certificates of all Series but subject to the provisions of
Section 6.02 hereof, shall be, to the extent permitted by and in accordance with
the terms of the Notes, entitled and empowered to institute any suits, actions
or proceedings at law, in equity or otherwise, including the power to make a
demand on the Note Trustee to take action under the
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Note Indenture to enforce the Notes, for the collection of the sums so due and
unpaid on such Note and may prosecute any such claim or proceeding to judgment
or final decree with respect to the whole amount of any such sums so due and
unpaid.
(b) If there shall be a breach of the State Pledge (as described in
Section 11.01(a)) by the State of California, then the Certificate Trustee, in
its own name and as trustee of an express trust, as holder of the Notes, if
directed by the Holders of a majority of the Outstanding Amount of the
Certificates of all Series but subject to the provisions of Section 6.02 hereof,
shall be, to the extent permitted by State and Federal law, entitled and
empowered to institute any suits, actions or proceedings at law, in equity or
otherwise, to enforce the State Pledge and to collect any monetary damages as a
result of a breach thereof, and may prosecute any such suit, action or
proceeding to judgment or final decree.
Section 5.04. Control by Certificateholders. Subject to Section 2.03, the
-----------------------------
Holders of a majority of the Outstanding Amount of the Certificates of all
Series (or, if less than all Series or Classes are affected, the affected Series
or Class or Classes) shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Certificate
Trustee, or exercising any trust or power conferred on the Certificate Trustee
under this Trust Agreement, including any right of the Certificate Trustee as
holder of the Notes of the corresponding Series or Class or Classes, in each
case unless a different percentage is specified herein; provided that:
--------
(1) such direction shall not be in conflict with any rule of law or
with this Trust Agreement and would not involve the Certificate Trustee in
personal liability or expense;
(2) the Certificate Trustee shall not determine that the action so
directed would be unjustly prejudicial to the Holders of Certificates of
such Series or Class or Classes not taking part in such direction;
(3) the Certificate Trustee may take any other action deemed proper
by the Certificate Trustee which is not inconsistent with such direction;
and
(4) if a Note Event of Default with respect to such Series or Class
of Notes shall have occurred and be continuing, such direction shall not
obligate the Certificate Trustee to vote more than a corresponding majority
of the related Notes held by the Trust in favor of declaring the unpaid
principal amount of the Notes of all Series and accrued interest thereon to
be due and payable or directing any action by the Note Trustee with respect
to such Note Event of Default.
Section 5.05. Waiver of Past Defaults. Prior to the declaration of the
-----------------------
acceleration of the maturity of the Notes of all Series as provided in Section
5.01, the Holders of Certificates of not less than a majority of the Outstanding
Amount of the Certificates of all Series may waive any past default or Note
Event of Default and its consequences except a default (a) in payment of
principal of or premium, if any, or interest on any of the Notes, (b) in respect
of a covenant or provision hereof which cannot be modified or amended without
the consent of the Holder of
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each Certificate of all Series or Classes affected or (c) in the deposit or
distribution of any Payment or Special Payment under Section 4.01 with respect
to any Series or Class of Certificates or in the distribution of any payment
under Section 4.02 on any Series or Class of Certificates. Upon any such
direction, the Certificate Trustee shall vote such percentage of the Notes of
the corresponding Series or Class held by the Certificate Trustee as corresponds
to the percentage of the aggregate Outstanding Amount of the Certificates of
such Series or Class held by Holders who directed the Certificate Trustee to
waive such default or Note Event of Default hereunder.
Upon any waiver that is effective under the terms of such Series or Class
of Notes to waive such default or Note Event of Default, such default or Note
Event of Default shall cease to exist with respect to this Trust Agreement, and,
in the case of a default, any Note Event of Default arising therefrom shall be
deemed to have been cured for every purpose of this Trust Agreement and any
written direction given by the Certificate Trustee on behalf of such
Certificateholders to the Note Trustee or in respect of any Notes shall be
annulled with respect thereto; but no such waiver shall extend to any subsequent
or other default or Note Event of Default or impair any right consequent
thereon.
Section 5.06. Right of Certificateholders To Receive Payments Not To Be
---------------------------------------------------------
Impaired. Anything in this Trust Agreement to the contrary notwithstanding,
- --------
including Section 5.07 hereof, the right of any Certificateholder to receive
distributions of payments required pursuant to Section 4.02 hereof on the
Certificates when due, or to institute suit for the enforcement of any such
payment on or after the applicable Payment Date, Special Payment Date or other
date specified herein for the making of such payment, shall not be impaired or
affected without the consent of such Certificateholder.
Section 5.07. Certificateholders May Not Bring Suit Except Under Certain
----------------------------------------------------------
Conditions. A Certificateholder shall not have the right to institute any suit,
- ----------
action or proceeding at law or in equity or otherwise with respect to this Trust
Agreement, for the appointment of a receiver or for the enforcement of any other
remedy under this Trust Agreement, unless:
(i) such Certificateholder has previously given written notice to
the Certificate Trustee of a continuing Note Event of Default with respect
to the Series or Class of Certificates held by such Holder;
(ii) the Holders of not less than 25 percent of the Outstanding
Amount of the Certificates of all Series have made written request to the
Certificate Trustee to institute such action, suit or proceeding in respect
of such Note Event of Default in its own name as Certificate Trustee
hereunder;
(iii) such Certificateholder or Certificateholders have offered to
the Certificate Trustee indemnity satisfactory to it against the costs,
expenses (including legal fees and expenses) and liabilities to be incurred
in complying with such request;
(iv) the Certificate Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute such action,
suit or proceedings; and
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(v) no direction inconsistent with such written request has been given
to the Certificate Trustee during such 60-day period by the Holders of a
majority of the Outstanding Amount of the Certificates of all Series;
it being understood and intended that no one or more Holders of Certificates
shall have any right in any manner whatever by virtue of, or by availing of, any
provision of this Trust Agreement to affect, disturb or prejudice the rights of
any other Holders of Certificates or to obtain or to seek to obtain priority or
preference over any other Certificateholders or to enforce any right under this
Trust Agreement, except in the manner herein provided. The provisions of this
Section 5.07 shall be deemed to modify, to the fullest extent permitted by law,
the rights of the Certificateholders under Section 3816 of the Business Trust
Statute.
In the event the Certificate Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of
Certificates, each representing less than a majority of the Outstanding Amount
of the Certificates of all Series, the Certificate Trustee in its sole
discretion may determine what action, if any, shall be taken, notwithstanding
any other provisions of this Trust Agreement.
Section 5.08. Remedies Cumulative. Every remedy given hereunder to the
-------------------
Certificate Trustee or to any of the Certificateholders shall not be exclusive
of any other remedy or remedies, and every such remedy shall be cumulative and
in addition to every other remedy given hereunder or now or hereafter given by
statute, law, equity or otherwise.
ARTICLE VI
THE CERTIFICATE TRUSTEE
Section 6.01. Notice of Defaults. As promptly as practicable after, and
------------------
in any event within 30 days after, the occurrence of any default (as such term
is defined below) hereunder with respect to any Series or Class of Certificates,
the Certificate Trustee shall transmit by mail to the Originator, the Note
Trustee and the Holders of Certificates of all Series in accordance with Section
313(c) of the Trust Indenture Act, notice of such default hereunder actually
known to a Responsible Officer of the Certificate Trustee, unless such default
shall have been cured or waived; provided, however, that, except in the case of
-------- -------
a default in the payment of the principal of or premium, if any, or interest on
any Note of the corresponding Series or Class, the Certificate Trustee shall be
fully protected in withholding such notice if and so long as a trust committee
of Responsible Officers of the Certificate Trustee in good faith determines that
the withholding of such notice is in the interests of the Holders of the
Certificates. For the purpose of this Section, the term "default" means, with
respect to any Series or Class of Certificates, any event that is, or after
notice or lapse of time or both would become, a Note Event of Default with
respect to such Series or Class of Certificates.
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Section 6.02. Certain Rights of Certificate Trustee. Subject to the
-------------------------------------
provisions of Section 315 of the Trust Indenture Act:
(a) the Certificate Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting in reliance upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(b) any request or direction of the Originator mentioned herein shall
be sufficiently evidenced by a Request, accompanied by evidence reasonably
satisfactory to the Certificate Trustee that the Note Issuer has given its
prior written approval of such request or direction;
(c) whenever in the administration of this Trust Agreement the
Certificate Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action hereunder,
the Certificate Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, conclusively rely
upon an Officers' Certificate of the Originator;
(d) the Certificate Trustee may consult with counsel and the advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Certificate Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Trust Agreement at the
request or direction of any of the Certificateholders pursuant to this
Trust Agreement, unless such Certificateholders shall have offered to the
Certificate Trustee reasonable security or indemnity satisfactory to it
against the cost, expenses (including legal fees and expenses) and
liabilities which might be incurred by it in compliance with such request
or direction;
(f) the Certificate Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture or other paper or document;
(g) the Certificate Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents, attorneys, custodians or nominees and the Certificate Trustee shall
not be responsible, for any misconduct or negligence on the part of, or for
the supervision of, any agent, attorney, custodian or nominee appointed
with due care by it hereunder;
(h) the Certificate Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of Certificates relating to the time, method
and place of conducting any proceeding for
32
<PAGE>
any remedy available to the Certificate Trustee, or exercising any trust or
power conferred upon the Certificate Trustee, under this Trust Agreement;
(i) the Certificate Trustee shall not be required to expend or risk
its own funds in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or indemnity
satisfactory to it against such risk is not reasonably assured to it;
(j) the Certificate Trustee shall not be personally liable for any
action taken or suffered or omitted to be taken by it in good faith and
reasonably believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Trust Agreement; provided,
--------
however, that the Certificate Trustee's conduct does not constitute willful
-------
misconduct, gross negligence or bad faith;
(k) in the event that the Certificate Trustee is also acting as
Paying Agent, Authenticating Agent or Registrar hereunder, the rights and
protections afforded to the Certificate Trustee pursuant to this Article VI
shall also be afforded to such Paying Agent, Authenticating Agent or
Registrar;
(l) the Certificate Trustee shall not be charged with knowledge of an
Event of Default unless a Responsible Officer obtains actual knowledge of
such event or the Certificate Trustee receives written notice of such event
from the Originator, the Note Trustee, the Servicer or a majority of the
Holders of Certificates of the Series or Class or Classes so affected; and
(m) without limiting its rights under bankruptcy law, when the
Certificate Trustee incurs expenses or renders services in connection with
the insolvency or bankruptcy of any party hereto or with the Basic
Documents to which it is a party, such expenses (including the fees and
expenses of its counsel) and the compensation for such services are
intended to constitute expenses of administration under any bankruptcy or
insolvency law.
Section 6.03. Not Responsible for Recitals or Issuance of Certificates.
--------------------------------------------------------
The recitals contained herein and in the Certificates, except the certificates
of authentication, shall not be taken as the statements of the Certificate
Trustee, and the Certificate Trustee assumes no responsibility for their
correctness. Subject to Section 6.14, the Certificate Trustee makes no
representations as to the validity or sufficiency of this Trust Agreement, the
Notes, any Basic Document or the Certificates.
Section 6.04. May Hold Certificates. The Certificate Trustee, any Paying
---------------------
Agent, any Registrar or any of their Affiliates or any other agent, in their
respective individual or any other capacity, may become the owner or pledgee of
Certificates and subject to Sections 310(b) and 311 of the Trust Indenture Act
may otherwise deal with the Originator, the Note Issuer or the Note Trustee with
the same rights it would have if it were not Certificate Trustee, Paying Agent,
Registrar or such other agent.
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Section 6.05. Money Held in Trust. Money held by the Certificate Trustee
-------------------
or the Paying Agent in trust hereunder need not be segregated from other funds
except to the extent required herein or by law and neither the Certificate
Trustee nor the Paying Agent shall have any liability for interest upon any such
moneys except as provided for herein.
Section 6.06. Compensation and Reimbursement. Pursuant to the Fee and
------------------------------
Indemnity Agreement, the Note Issuer has agreed to pay, or cause to be paid, to
the Certificate Trustee from time to time reasonable compensation for its
services and to reimburse it for its reasonable expenses, and the Certificate
Trustee shall have no recourse against the Originator or the Trust Property for
payment of such amounts.
In addition, the Certificate Trustee shall be entitled to reimbursement,
but solely from amounts payable under the Fee and Indemnity Agreement, for any
tax incurred without negligence, bad faith or willful misconduct, on its part,
arising out of or in connection with the acceptance or administration of this
Trust (other than any tax attributable to the Certificate Trustee's compensation
for serving as such), including any costs and expenses incurred in contesting
the imposition of any such tax.
Section 6.07. Corporate Certificate Trustee Required; Eligibility. (a)
---------------------------------------------------
This Trust Agreement shall at all times have a certificate trustee that shall be
eligible to act as a trustee under Section 310(a) of the Trust Indenture Act,
shall have a combined capital and surplus of at least $50,000,000 and shall have
a long-term debt rating of Baa3 or better by Moody's. If such entity publishes
reports of conditions at least annually, pursuant to law or to the requirements
of Federal, state, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section 6.07, the combined capital and
surplus of such entity shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. The Certificate
Trustee shall meet the requirements of Section 26(a)(1) of the Investment
Company Act of 1940, as amended, shall not be an affiliate (as that term is
defined in Rule 405 under the Securities Act of 1933, as amended) with the Trust
or with any Person involved in the organization or operation of the Trust, shall
not provide credit or credit enhancement to the Trust and is subject to Section
310(b) of the Trust Indenture Act.
(b) In determining whether the Certificate Trustee has a conflicting
interest with respect to any Series or Class of Certificates under Section
310(b) of the Trust Indenture Act and this Section, each other Series or Class
of Certificates will be treated as having been issued under an indenture other
than this Trust Agreement.
(c) In case at any time the Certificate Trustee shall cease to be eligible
in accordance with the provisions of this Section 6.07, the Certificate Trustee
shall resign immediately in the manner and with the effect specified in Section
6.08.
Section 6.08. Resignation and Removal; Appointment of Successor. (a) No
-------------------------------------------------
resignation or removal of the Certificate Trustee and no appointment of a
successor Certificate Trustee pursuant to this Article shall become effective
(i) until the acceptance of appointment by the successor Certificate Trustee
under Section 6.09 and (ii) other than in the case of paragraph (b) below,
unless a successor Certificate Trustee has been appointed and has accepted such
34
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appointment and the Delaware Trustee, the Note Issuer and the Originator has
received written confirmation from each of the Rating Agencies that no lowering
or withdrawal of the then current Ratings of any Series or Class of Certificates
will result from such appointment.
(b) The Certificate Trustee may resign at any time in the case of a
conflicting interest as determined in accordance with Section 6.07(b), with
respect to one or more Series or Classes of Certificates, by giving written
notice thereof to the Originator, the Authorized Agents, the Note Issuer and the
Note Trustee. If an instrument of acceptance by a successor Certificate Trustee
with respect to such Series or Class or Classes of Certificates shall not have
been delivered to the Originator and the Certificate Trustee within 30 days
after the giving of such notice of resignation, the resigning Certificate
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Certificate Trustee with respect to such Series or Class or Series
or Classes of Certificates.
(c) The Certificate Trustee may be removed at any time in the case of a
conflicting interest as determined in accordance with Section 6.07(b), with
respect to any Series or Class of Certificates, by Act of Certificateholders
holding Certificates of such Series or Class representing not less than 51% of
the Outstanding Amount of the Certificates of that Series or Class delivered to
the Certificate Trustee and to the Originator, the Note Issuer and the Note
Trustee.
(d) Upon 30 days' written notice, the Certificate Trustee (i) may resign
with respect to the Certificates as a whole by giving such written notice to the
Originator, the Delaware Trustee, the Authorized Agents, the Note Issuer and the
Note Trustee or (ii) may be removed with respect to the Certificates as a whole
by Act of Certificateholders holding Certificates representing not less than a
majority of the Outstanding Amount of Certificates of all the Series delivered
to the Delaware Trustee, the Originator, the Note Issuer and the Note Trustee.
If an instrument of acceptance by a successor Certificate Trustee with respect
to the Certificates as a whole shall not have been delivered to the Originator,
the Delaware Trustee, the Note Issuer and the Note Trustee within 90 days after
the giving of such notice of resignation or Act by the Certificateholders as a
whole for removal of the Certificate Trustee, the Delaware Trustee or the
Originator may petition any court of competent jurisdiction for the appointment
of a successor Certificate Trustee with respect to the Certificates as a whole.
(e) If at any time:
(1) the Certificate Trustee shall fail to comply with Section 310 of
the Trust Indenture Act after written request therefor by the Originator or
by any Holder of Certificates of any Series or Class affected thereby who
has been a bona fide Holder of Certificates of such Series or Class for at
least six months; or
(2) the Certificate Trustee shall cease to be eligible under Section
6.07 and shall fail to resign after written request therefor by the
Originator or by any Certificateholder; or
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(3) the Certificate Trustee shall become incapable of acting or shall
be adjudged a bankrupt or insolvent or a receiver of the Certificate
Trustee or of its property shall be appointed or any public officer shall
take charge or control of the Certificate Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation;
then, in any case, (i) the Originator may remove the Certificate Trustee with
respect to any Series or Class of Certificates affected thereby or (ii) any
Holder of Certificates of any Series or Class affected thereby who has been a
bona fide Holder of Certificates of such Series or Class for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Certificate Trustee with
respect to such Series or Class of Certificates and the appointment of a
successor Certificate Trustee with respect to such Series or Class.
(f) If a Responsible Officer of the Certificate Trustee shall have
received written notice of an Avoidable Tax (as hereinafter defined) which has
been or is likely to be asserted, the Certificate Trustee shall promptly notify
the Originator and the Note Issuer thereof and shall, within 30 days of such
notification, resign hereunder unless within such 30-day period the Certificate
Trustee shall have received notice that either the Originator or the Note Issuer
has agreed to pay such tax. In such event, the Originator (with the prior
written approval of the Note Issuer) shall promptly appoint a successor
Certificate Trustee in a jurisdiction where there are no Avoidable Taxes. As
used herein, an "Avoidable Tax" means a state or local tax: (i) upon (w) the
Trust, (x) the Trust Property, (y) the Certificateholders or (z) the Certificate
Trustee for which the Certificate Trustee is entitled to seek reimbursement from
the Trust Property, and (ii) which would be avoided if the Certificate Trustee
were located in another state, or jurisdiction within a state, within the United
States. A tax shall not be an Avoidable Tax if either the Originator or the Note
Issuer shall agree to pay, and shall pay, such tax.
(g) With respect to any Series or Class of Certificates, if the
Certificate Trustee shall resign, be removed or become incapable of acting, or
if a vacancy shall occur in the office of the Certificate Trustee for any cause,
the Originator (with the prior written approval of the Note Issuer) shall
promptly appoint a successor Certificate Trustee. If, within one year after such
resignation, removal or incapability, or the occurrence of such vacancy with
respect to any Series or Class of Certificates, a successor Certificate Trustee
shall be appointed by Act of the Certificateholders holding Certificates of such
Series or Class representing not less than a majority of the Outstanding Amount
of the Certificates of such Series or Class delivered to the Originator, the
Note Trustee and the retiring Certificate Trustee, the successor Certificate
Trustee so appointed shall, forthwith upon its acceptance of such appointment,
become the successor Certificate Trustee with respect to such Series or Class
and supersede the successor Certificate Trustee appointed as provided above. If
no successor Certificate Trustee shall have been so appointed as provided above
and accepted appointment in the manner hereinafter provided, any Holder of
Certificates of any affected Series or Class who has been a bona fide Holder of
Certificates of such Series or Class for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Certificate Trustee with respect
to the affected Series or Class of Certificates.
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(h) The successor Certificate Trustee shall give notice of the resignation
and removal of the Certificate Trustee and appointment of the successor
Certificate Trustee, in each case with respect to any Series or Class of
Certificates, by mailing written notice of such event by first-class mail,
postage prepaid, to the Holders of the affected Series or Class as their names
and addresses appear in the Register and to each Rating Agency. Each notice
shall include the name of such successor Certificate Trustee and the address of
the corporate trust office of such successor Certificate Trustee.
(i) The Originator shall notify the Rating Agencies of any resignation and
removal of the Certificate Trustee and appointment of a successor Certificate
Trustee under this Section 6.08.
Section 6.09. Acceptance of Appointment by Successor. Every successor
--------------------------------------
Certificate Trustee appointed hereunder shall execute, acknowledge and deliver
to the Originator and to the retiring Certificate Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Certificate Trustee shall become effective and such successor
Certificate Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring
Certificate Trustee with respect to any Series or Class of Certificates as to
which the retiring Certificate Trustee is retiring; but, on request of the
Originator or the successor Certificate Trustee, such retiring Certificate
Trustee shall execute and deliver an instrument transferring to such successor
Certificate Trustee all the rights, powers and trusts of the retiring
Certificate Trustee with respect to such Series or Class of Certificates and
shall duly assign, transfer and deliver to such successor Certificate Trustee
all property and money held by such retiring Certificate Trustee hereunder with
respect to such Series or Class of Certificates, subject nevertheless to its
lien, if any, provided for in Section 6.06. Upon request of any such successor
Certificate Trustee, the Originator, the retiring Certificate Trustee and such
successor Certificate Trustee shall execute and deliver any and all instruments
containing such provisions as shall be necessary or desirable to transfer and
confirm to, and for more fully and certainly vesting in, such successor
Certificate Trustee all such rights, powers and trusts. No Certificate Trustee
hereunder shall be liable for the acts or omissions of any successor Certificate
Trustee.
No successor Certificate Trustee shall accept its appointment unless at the
time of such acceptance such successor Certificate Trustee shall be qualified
and eligible under this Article and any and all amounts due and payable to the
predecessor trustee have been paid.
Section 6.10. Merger, Conversion, Consolidation or Succession to Business.
-----------------------------------------------------------
Any corporation into which the Certificate Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Certificate Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Certificate Trustee, shall be the successor of
the Certificate Trustee hereunder, provided such corporation shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto. In case
any Certificates shall have been authenticated, but not delivered, by the
Certificate Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Certificate Trustee may adopt such
authentication and deliver
37
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the Certificates so authenticated with the same effect as if such successor
Certificate Trustee had itself authenticated such Certificates.
Section 6.11. Maintenance of Agencies. (a) There shall at all times be
-----------------------
maintained in the Borough of Manhattan, The City of New York, an office or
agency where Certificates may be presented or surrendered for registration of
transfer or for exchange, and for payment thereof and where notices and demands
to or upon the Certificate Trustee in respect of the Certificates or of this
Trust Agreement may be served. At no time shall there be any other such office
or agency outside the United States. Such office or agency shall be initially
at ____________________. Written notice of any change of location thereof shall
be given by the Certificate Trustee to the Originator, the Note Trustee, the
Note Issuer, the Certificateholders and the Rating Agencies. In the event that
no such office or agency shall be maintained or no such notice of location or of
change of location shall be given, presentations and demands may be made and
notices may be served at the Corporate Trust Office of the Certificate Trustee.
(b) There shall at all times be a Registrar, an Authentication Agent and a
Paying Agent hereunder. Each such Authorized Agent shall be a bank or trust
company, shall be a corporation organized and doing business under the laws of
the United States or any state, with a combined capital and surplus of at least
$50,000,000, shall have a long-term debt rating of A or better by Moody's and
Standard & Poor's and shall be authorized under such laws to exercise corporate
trust powers, subject to supervision by Federal or state authorities. The
Certificate Trustee shall initially be the Paying Agent, Authentication Agent,
and, as provided in Section 3.04, Registrar hereunder. Each Registrar, if other
than the Certificate Trustee, shall furnish to the Certificate Trustee, at
stated intervals of not more than six months, and at such other times as the
Certificate Trustee may request in writing, a copy of the Register.
(c) Any corporation into which any Authorized Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any Authorized Agent
shall be a party, or any corporation succeeding to the corporate trust business
of any Authorized Agent, shall be the successor of such Authorized Agent
hereunder, if such successor corporation is otherwise eligible under this
Section, without the execution or filing of any paper or any further act on the
part of the parties hereto or such Authorized Agent or such successor
corporation.
(d) Any Authorized Agent may at any time resign by giving written notice
of resignation to the Certificate Trustee, the Originator and the Note Trustee.
The Originator (with the prior written approval of the Note Issuer) may, and at
the request of the Certificate Trustee shall, at any time terminate the agency
of any Authorized Agent by giving written notice of termination to such
Authorized Agent, the Note Trustee and to the Certificate Trustee. Upon the
resignation or termination of an Authorized Agent or in case at any time any
such Authorized Agent shall cease to be eligible under this Section (when, in
either case, no other Authorized Agent performing the functions of such
Authorized Agent shall have been appointed by the Certificate Trustee), the
Originator (with the prior written approval of the Note Issuer) shall promptly
appoint one or more qualified successor Authorized Agents, reasonably
satisfactory to the Certificate Trustee, to perform the functions of the
Authorized Agent which has resigned or whose agency has been terminated or who
shall have ceased to be eligible under this Section.
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The Originator shall give written notice of any such appointment made by it to
the Certificate Trustee and the Note Trustee; and in each case the Certificate
Trustee shall mail notice of such appointment to all Certificateholders as their
names and addresses appear on the Register.
(e) Pursuant to the Fee and Indemnity Agreement, the Note Issuer has
agreed to pay, or cause to be paid, from time to time to each Authorized Agent
reasonable compensation for its services and to reimburse it for its reasonable
expenses, and no Authorized Agent shall have any recourse against the Originator
or the Trust Property for payment of such amounts.
Section 6.12. Money for Certificate Payments To Be Held in Trust. All
--------------------------------------------------
moneys deposited with any Paying Agent for the purpose of any payment on
Certificates shall be deposited and held in trust for the benefit of the
Certificateholders entitled to such payment, subject to the provisions of this
Section. Moneys so deposited and held in trust shall constitute a separate
trust fund for the benefit of the Certificateholders with respect to which such
money was deposited.
The Certificate Trustee may at any time, for the purpose of obtaining the
satisfaction and discharge of this Trust Agreement or for any other purpose,
direct any Paying Agent to pay to the Certificate Trustee all sums held in trust
by such Paying Agent, such sums to be held by the Certificate Trustee upon the
same trusts as those upon which such sums were held by such Paying Agent; and,
upon such payment by any Paying Agent to the Certificate Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Section 6.13. Registration of Notes in Certificate Trustee's Name. The
---------------------------------------------------
Certificate Trustee agrees that all Notes and Eligible Investments, if any,
shall be issued in the name of the Certificate Trustee or its nominee, on behalf
of the Trust, and held by the Certificate Trustee, or, if not so held, the
Certificate Trustee or its nominee, on behalf of the Trust, shall be reflected
as the owner of such Notes or Eligible Investments, as the case may be, in the
register of the issuer of such Notes or Eligible Investments. In no event shall
the Certificate Trustee invest in, or hold, Notes or Eligible Investments in a
manner that would cause the Certificate Trustee not to have the ownership
interest in such Notes or Eligible Investments under the applicable provisions
of the Uniform Commercial Code in effect where the Certificate Trustee holds
such Notes or Eligible Investments or other applicable law then in effect.
Section 6.14. Representations and Warranties of Certificate Trustee. The
-----------------------------------------------------
Certificate Trustee hereby represents and warrants that:
(i) the Certificate Trustee is a corporation duly organized, validly
existing, and in good standing under the laws of the State of New York;
(ii) the Certificate Trustee has full power, authority and legal
right to execute, deliver and perform this Trust Agreement and the Basic
Documents to which the Certificate Trustee is a party and has taken all
necessary action to authorize the execution, delivery, and performance by
it of this Trust Agreement and such Basic Documents;
39
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(iii) the execution, delivery and performance by the Certificate
Trustee of tis Trust Areement and the Basic Documents to which the
Certificate Trustee is a party will not violate any provision of the
organizational documents or by-laws of the Certificate Trustee.
Section 6.15. Withholding Taxes; Information Reporting. The Certificate
----------------------------------------
Trustee, as trustee of a grantor trust, shall exclude and withhold from each
distribution of principal, premium, if any, and interest and other amounts due
hereunder or under the Certificates any and all withholding taxes applicable
thereto as required by law. The Certificate Trustee agrees that it will act as
such withholding agent and, in connection therewith, whenever any present or
future taxes or similar charges are required to be withheld with respect to any
amounts payable in respect of the Certificates, to withhold such amounts and
timely pay the same to the appropriate authority in the name of and on behalf of
the Certificateholders, that it will file any necessary withholding tax returns
or statements when due, and that, as promptly as possible after the payment
thereof, it will deliver to each Certificateholder appropriate documentation
showing the payment thereof, together with such additional documentary evidence
as such Certificate holders may reasonably request from time to time. The
Certificate Trustee agrees to file any other information reports as it may be
required to file with respect to taxes. For purposes of reporting on Internal
Revenue Service Form 1041 (and any statement attached thereto) or any successor
form thereto, the Certificate Trustee will separately set forth information
reported with respect to each Series or Class of Certificates.
Section 6.16. Certificate Trustee's Liens. The Certificate Trustee in its
---------------------------
individual capacity agrees that it will at its own cost and expense promptly
take any action as may be necessary to duly discharge and satisfy in full any
mortgage, pledge, lien, charge, encumbrance, security interest or claim on or
with respect to the Trust Property which is either (i) solely attributable to
the Certificate Trustee in its individual capacity and which is unrelated to the
transactions contemplated by this Trust Agreement or the Basic Documents, or
(ii) which is attributable to the Certificate Trustee as trustee hereunder or in
its individual capacity and which arises out of acts or omissions which would be
a violation of this Trust Agreement.
ARTICLE VII
THE DELAWARE TRUSTEE
Section 7.01. Appointment. For valuable consideration received, it is
-----------
mutually covenanted and agreed in accordance with the terms of Section 2.01 of
this Trust Agreement that the Delaware Trustee has been and by this document is,
appointed to serve as the trustee of the Trust in the State of Delaware pursuant
to Section 3807 of the Business Trust Statute.
Section 7.02. Duties and Responsibilities. It is understood and agreed
---------------------------
that the duties and responsibilities of the Delaware Trustee shall be limited to
(a) accepting legal process served on the Trust in the State of Delaware and (b)
the execution and delivery of all certificates required to be filed with the
Secretary of State in order to form and maintain the existence of the Trust
under the Business Trust Statute.
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Section 7.03. Acceptance of the Trusts. By the execution hereof, the
------------------------
Delaware Trustee accepts the trusts created hereinabove and in Section 2.01.
Except as otherwise expressly required by Section 7.02, the Delaware Trustee
shall not have any duty or liability with respect to the administration of the
Trust, the investment of the Trust's property or the payment of dividends or
other distributions of income or principal to the Certificateholders.
Section 7.04. Limitation of Liability. The Delaware Trustee shall not be
-----------------------
liable for the acts or omissions of the Certificate Trustee, nor shall the
Delaware Trustee be liable for supervising or monitoring the performance of the
duties and obligations of the Certificate Trustee or the Trust under this Trust
Agreement or any related document. The Delaware Trustee shall not be personally
liable under any circumstances, except for its own willful misconduct or gross
negligence. In particular, but not by way of limitation:
(a) the Delaware Trustee shall not be personally liable for any error
of judgment made in good faith by a responsible officer of the Delaware
Trustee;
(b) no provision of this Trust Agreement shall require the Delaware
Trustee to expend or risk its personal funds or otherwise incur any
financial liability in the performance of its rights or powers hereunder,
if the Delaware Trustee shall have reasonable grounds for believing that
repayment of such funds or indemnity satisfactory to it against such risk
or liability is not reasonably assured or provided to it;
(c) it is expressly understood and agreed by the parties hereto that
(i) this Trust Agreement is executed and delivered by Bankers Trust
(Delaware), not individually or personally but solely as Delaware Trustee
of the Trust, in the exercise of the powers and authority conferred and
vested in it, (ii) the representations, undertakings and agreements herein
made on the part of the Trust are made and intended not as personal
representations, undertakings and agreements by Bankers Trust (Delaware),
but are made and intended for the purpose of binding only the Trust, (iii)
nothing herein contained shall be construed as creating any liability on
Bankers Trust (Delaware), individually or personally, to perform any
covenant either expressed or implied contained herein, all such liability,
if any, being expressly waived by the parties who are signatories to this
Trust Agreement and by any Person claiming by, through or under such
parties and (iv) under no circumstances shall Bankers Trust (Delaware), be
personally liable for the payment of any indebtedness or expenses of the
Trust or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Trust under
this Trust Agreement;
(d) the Delaware Trustee shall not be personally responsible for or in
respect of the validity or sufficiency of this Trust Agreement or for the
due execution hereof by the Originator or the Certificate Trustee;
(e) the Delaware Trustee shall incur no liability to anyone in acting
upon any signature, instrument, notice, resolution, request, consent,
order, certificate, report, opinion, bond or other document or paper
believed by it to be genuine and believed by it to be signed by the proper
party or parties. The Delaware Trustee may accept a
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certified copy of a resolution of the board of directors or other governing
body of any corporate party as conclusive evidence that such resolution has
been duly adopted by such body and that the same is in full force and
effect;
(f) in the exercise or administration of the trusts hereunder, the
Delaware Trustee (i) may act directly or through agents, attorneys,
custodians or nominees pursuant to agreements entered into with any of
them, and the Delaware Trustee shall not be liable for the default or
misconduct or supervision of such agents, attorneys, custodians or nominees
if such agents, attorneys, custodians or nominees shall have been selected
by the Delaware Trustee in good faith and (ii) may consult with counsel,
accountants and other skilled persons to be selected in good faith and
employed by it, and it shall not be liable for anything done, suffered or
omitted in good faith by it in accordance with the advice or opinion of any
such counsel, accountants or other skilled persons; and
(g) except as expressly provided in this Section 7.04, in accepting
and performing the trusts hereby created the Delaware Trustee acts solely
as trustee for the Trust and not in its individual capacity, and all
persons having any claim against the Delaware Trustee by reason of the
transactions contemplated by this Trust Agreement shall look only to the
Trust's property for payment or satisfaction thereof.
Section 7.05. Other Protections. The Delaware Trustee shall be entitled
-----------------
to all of the other benefits and protections provided to the Certificate Trustee
in this Trust Agreement.
Section 7.06. Indemnification. The Originator, but solely from amounts
---------------
payable under the Fee and Indemnity Agreement, shall indemnify, defend and hold
harmless the Delaware Trustee and any of the affiliates, officers, directors,
employees and agents of the Delaware Trustee (the "Indemnified Persons") from
and against any and all losses, claims, taxes, damages, expenses and liabilities
(including liabilities under state or federal securities laws) of any kind and
nature whatsoever (collectively, "Expenses"), to the extent that such Expenses
arise out of or are imposed upon or asserted against such Indemnified Persons
with respect to the creation, operation or termination of the Trust, the
execution, delivery or performance of this Trust Agreement or the transactions
contemplated hereby; provided, however, that the Originator shall not be
-------- -------
required to indemnify any Indemnified Person for any Expenses that result from
the willful misconduct or gross negligence of such Indemnified Person. The
obligations of the Originator to indemnify the Indemnified Persons in the Trust
Agreement shall survive the termination of this Trust Agreement and the
resignation or removal of the Indemnified Persons.
Section 7.07. Fees and Expenses. Pursuant to the Fee and Indemnity
-----------------
Agreement, the Note Issuer has agreed to pay, or cause to be paid, to the
Delaware Trustee from time to time compensation for its services and to
reimburse it for its reasonable expenses, and the Delaware Trustee shall have no
recourse against the Originator or the Trust Property for payment of such
amounts.
Section 7.08. Resignation. The Delaware Trustee may resign upon 30 days'
-----------
prior written notice to the Certificate Trustee, the Originator and the Note
Issuer; provided, however,
-------- -------
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that a successor Delaware Trustee satisfactory to the Certificate Trustee shall
have been appointed and agreed to serve. If a successor Delaware Trustee shall
not have been appointed within such 30-day period, the Delaware Trustee may
apply to the Court of Chancery of the State of Delaware for the appointment of a
successor Delaware Trustee. Any successor Delaware Trustee must satisfy the
requirement of Section 3807(a) of the Business Trust Statute.
ARTICLE VIII
SUPPLEMENTAL TRUST AGREEMENTS
Section 8.01. Supplemental Trust Agreements Without Consent of
------------------------------------------------
Certificateholders. Without the consent of Certificateholders, the Originator
- ------------------
(with the prior written approval of the Note Issuer) may, and the Certificate
Trustee and the Delaware Trustee (subject to Section 8.03) shall, at any time
and from time to time enter into one or more agreements supplemental hereto, in
form satisfactory to the Certificate Trustee and the Delaware Trustee, for any
of the following purposes:
(1) to add to the covenants of the Originator for the benefit of the
Certificate holders, or to surrender any right or power herein conferred
upon the Originator;
(2) to correct or supplement any provision herein or in any
supplemental agreement which may be defective or inconsistent with any
other provision herein or in any supplemental agreement or to make any
other provisions with respect to matters or questions arising under this
Trust Agreement; provided that any such action shall not adversely affect
--------
the interests of the Certificateholders;
(3) to cure any ambiguity or correct any mistake;
(4) to qualify, if necessary, this Trust Agreement (including any
supplemental agreement) under the Trust Indenture Act, or under any similar
Federal statute hereafter enacted, and to add to this Trust Agreement such
other provisions as may be expressly permitted by the Trust Indenture Act,
excluding, however, the provisions referred to in Section 316(a)(2) of the
Trust Indenture Act as in effect at the date as of which this instrument
was executed or any corresponding provision in any similar Federal statute
hereafter enacted; or
(5) to provide for the issuance of the Certificates of any Class or
Series, or to provide for the execution and delivery of any Swap in
connection with such an issuance.
Section 8.02. Supplemental Trust Agreements with Consent of
---------------------------------------------
Certificateholders. With the consent of the Certificateholders holding
- ------------------
Certificates representing not less than a majority of the aggregate Outstanding
Amount of Certificates of each Series or Class affected thereby, by Act of said
Certificateholders delivered to the Originator, the Note Trustee, the Delaware
Trustee and the Certificate Trustee, the Originator (with the prior written
approval of the Note
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Issuer) may, and the Certificate Trustee and the Delaware Trustee (subject to
Section 8.03) shall, enter into an agreement or agreements supplemental hereto
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Trust Agreement or of modifying in any
manner the rights and obligations of the Holders of Certificates of each such
Series or Class under this Trust Agreement; provided, however, that no such
--------- -------
supplemental agreement shall, without the consent of the Certificateholder of
each Outstanding Certificate affected thereby:
(1) reduce in any manner the amount of, or delay the timing of, any
receipt by the Certificate Trustee of payments on the Notes or
distributions that are required to be made herein on any Certificate, or
change any date of payment on any Certificate, or change the place of
payment where, or the coin or currency in which, any Certificate is
payable, or impair the right to institute suit for the enforcement of any
such payment or distribution on or after the Payment Date, Special Payment
Date or other date specified herein applicable thereto;
(2) permit the disposition of any Note in the Trust Property except as
permitted by this Trust Agreement, or otherwise deprive any Holder of
Certificates of any Series or Class of the benefit of the ownership of the
Notes of the corresponding Series or Class in the Trust;
(3) reduce the percentage of the aggregate Outstanding Amount of the
Certificates of any Series or Class which is required for any such
supplemental agreement, or reduce such percentage required for any waiver
(of compliance with certain provisions of this Trust Agreement or certain
defaults hereunder and their consequences) provided for in this Trust
Agreement;
(4) modify any of the provisions of this Section, except to increase
any percentage set forth herein or to provide that certain other provisions
of this Trust Agreement cannot be modified or waived without the consent of
the Holder of each Certificate affected thereby; or
(5) adversely affect the status of the Trust as a grantor trust for
Federal income tax purposes.
It shall not be necessary for any Act of Certificateholders under this
Section to approve the particular form of any proposed supplemental agreement,
but it shall be sufficient if such Act shall approve the substance thereof. The
Certificate Trustee shall give each Rating Agency five days prior written notice
of any such proposed supplemental agreement. Promptly after the execution by
the Originator, the Delaware Trustee and the Certificate Trustee of any
supplemental agreement pursuant to this Section, the Certificate Trustee shall
mail to the Holders of the Certificates to which such agreement relates a notice
setting forth in general terms the substance of such agreement. Any failure of
the Certificate Trustee to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such agreement.
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Section 8.03. Documents Affecting Immunity or Indemnity. If in the
-----------------------------------------
opinion of the Certificate Trustee or the Delaware Trustee any document required
to be executed by it pursuant to the terms of Section 8.01 or 8.02 affects any
interest, right, duty, immunity or indemnity in favor of such entity under this
Trust Agreement, the Certificate Trustee or the Delaware Trustee may in its
discretion decline to execute such document.
Section 8.04. Execution of Supplemental Trust Agreements. In executing,
------------------------------------------
or accepting the additional trusts created by, any supplemental agreement
permitted by this Article or the modifications thereby of the trusts created by
this Trust Agreement, the Certificate Trustee and the Delaware Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of such supplemental agreement is authorized
or permitted by this Trust Agreement.
Section 8.05. Effect of Supplemental Trust Agreements. Upon the execution
---------------------------------------
of any supplemental agreement under this Article, this Trust Agreement shall be
modified in accordance therewith, and such supplemental agreement shall form a
part of this Trust Agreement for all purposes; and every Holder of any
Certificate theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 8.06. Conformity with Trust Indenture Act. Every supplemental
-----------------------------------
agreement executed pursuant to this Article shall conform to the requirements of
the Trust Indenture Act as then in effect.
Section 8.07. Reference in Certificates to Supplemental Trust Agreements.
----------------------------------------------------------
Certificates authenticated and delivered after the execution of any supplemental
agreement pursuant to this Article may bear a notation in form approved by the
Certificate Trustee as to any matter provided for in such supplemental
agreement; and, in such case, suitable notation may be made upon Outstanding
Certificates after proper presentation and demand.
ARTICLE IX
AMENDMENTS AND SUPPLEMENTS TO NOTES, NOTE INDENTURE
AND OTHER BASIC DOCUMENTS
Section 9.01. Amendments and Supplements to Notes, Note Indenture and
-------------------------------------------------------
Other Basic Documents. In the event that the Certificate Trustee, as holder of
- ---------------------
the Notes of any Series or Class in trust for the benefit of the Holders of
Certificates of the corresponding Series or Class, receives a request for a
consent to any amendment, modification, waiver or supplement under such Notes,
the Note Indenture or any other Basic Document to which the Certificate Trustee
is a party, the Certificate Trustee shall forthwith send a notice of such
proposed amendment, modification, waiver or supplement, to each Holder of
Certificates of such Series or Class registered on the Register as of such date.
The Certificate Trustee shall request from such Certificateholders directions as
to (i) whether or not the Certificate Trustee should take or refrain from taking
any action which a holder of such Note has the option to direct, (ii) whether or
not to give or execute any waivers, consents, amendments, modifications or
supplements as a holder
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of such Note and (iii) how to vote such Note if a vote has been called for with
respect thereto; provided however, in the case of any change to the terms of, or
-------- -------
modification to, the Notes, the Certificateholders may not direct any such
action to be taken or direct whether or not to give or execute any such waiver,
consent, amendment, modification or supplement which is not pursuant to the
original terms of the Notes, unless the Certificate Trustee obtains an opinion
at the expense of the Trust of independent tax counsel to the effect that after
any such action, waiver, consent, amendment, modification or supplement the
Trust will continue to be treated as a "grantor trust" for Federal income tax
purposes. Provided such a request for Certificateholder direction shall have
been made, in directing any action or casting any vote or giving any consent as
the holder of the Notes, the Certificate Trustee shall vote or consent with
respect to such Notes in the same proportion as the Certificates of the
corresponding Series or Class were actually voted by Acts of the Holders thereof
delivered to the Certificate Trustee prior to two Business Days before the
Certificate Trustee takes such action or casts such vote or gives such consent.
ARTICLE X
TERMINATION OF TRUST
Section 10.01. Termination of the Trust. The respective obligations and
------------------------
responsibilities of the Originator, the Certificate Trustee, the Delaware
Trustee and the Trust created hereby shall terminate with respect to any Series
or Class of Certificates upon the distribution to all Holders of Certificates of
such Series or Class and the Certificate Trustee of all amounts required to be
distributed to them pursuant to this Trust Agreement and the disposition of all
property held as part of the Trust Property with respect to such Series or
Class. Upon the termination of all Series of Certificates and the election of
the Originator, the Trust shall dissolve. The Originator shall pay or provide
for the payment of all remaining liabilities of the Trust, the Certificate
Trustee and the Delaware Trustee and shall file a certificate of cancellation
under the Business Trust Statute and the Trust shall terminate.
Notice of any termination, specifying the Payment Date or Special Payment
Date, as the case may be, upon which the Holders of Certificates of any Series
or Class may surrender their Certificates to the Certificate Trustee for payment
of the final distribution and cancellation, shall be mailed promptly by the
Certificate Trustee to Holders of Certificates of such Series or Class not
earlier than the 60th day and not later than the 20th day next preceding such
final distribution specifying (A) the Payment Date or Special Payment Date, as
the case may be, upon which the proposed final payment of the Certificates of
such Series or Class will be made upon presentation and surrender of such
Certificates at the office or agency of the Certificate Trustee therein
specified, (B) the amount of any such proposed final payment and (C) that the
Record Date otherwise applicable to such Payment Date or the Special Record Date
otherwise applicable to such Special Payment Date, as the case may be, is not
applicable, payments being made only upon presentation and surrender of the
Certificates of such Series or Class at the office or agency of the Certificate
Trustee therein specified. The Certificate Trustee shall give such notice to
the Registrar at the time such notice is given to Holders of Certificates of
such Series or Class. Upon presentation and surrender of such Certificates, the
Certificate Trustee shall
46
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cause to be distributed to the Holders thereof amounts distributable thereon on
such Payment Date or Special Payment Date, as the case may be, pursuant to
Section 4.02.
In the event that all of the Holders of Certificates of such Series or
Class shall not surrender their Certificates for cancellation within six months
after the date specified in the above mentioned written notice, the Certificate
Trustee shall give a second written notice to the remaining Holders of such
Certificates to surrender their Certificates for cancellation and receive the
final distribution with respect thereto. In the event that any money held by
the Certificate Trustee for the payment of distributions on the Certificates of
any Series or Class shall remain unclaimed for two years (or such lesser time as
the Certificate Trustee shall be satisfied, after 60 days' notice from the
Originator (with the prior written approval of the Note Issuer), is one month
prior to the escheat period provided under applicable law) after the final
distribution date with respect thereto, the Certificate Trustee shall pay such
money to the Note Trustee for deposit into the Collection Account and shall give
written notice thereof to the Note Trustee, the Note Issuer and the Originator.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01. Pledge of State of California; Certificates and Notes Not
---------------------------------------------------------
Obligation of State of California, Originator, or Seller. (a) The Originator
- --------------------------------------------------------
hereby finds and determines, and hereby represents and warrants, that the Trust
constitutes a "special purpose trust" under Section 63010 of the California
Government Code and a "financing entity" under Section 840 of the PU Code, and
that the Certificates constitute "rate reduction bonds" under Section 840 of the
PU Code and that the Holders of the Certificates are entitled to the rights and
benefits thereunder. Pursuant to Section 841(c) of the PU Code, the Originator,
on behalf of the State of California, does hereby pledge and agree with the
Trust and the Holders of the Certificates that the State of California shall
neither limit nor alter the FTA Charges, the Transition Property, or the
Financing Order or Advice Letters relating thereto, and all rights thereunder,
until the Certificates, together with the interest thereon, are fully met and
discharged, provided nothing contained in this Section shall preclude such
limitation or alteration if and when adequate provision shall be made by law for
the protection of the Holders (the "State Pledge"). The Originator hereby
further agrees to treat the Notes as debt of the Note Issuer secured by, among
other things, the Transition Property and the equity of the Note Issuer for all
purposes.
(b) Each Certificate represents a fractional undivided interest in a
corresponding Series or Class of Notes as set forth herein. The Certificates do
not represent an interest in or obligation of the State of California, the
Originator, any other governmental agency or instrumentality or the Seller or
any of its affiliates. None of the Certificates, the Notes or the underlying
Transition Property will be guaranteed or insured by the State of California,
the Originator, the Trust or any other governmental agency or instrumentality or
by the Seller or its affiliates.
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Neither the full faith and credit nor the taxing power of the State of
California, the Originator or any other governmental agency or instrumentality
is pledged to the payment of the principal of, premium, if any, purchase price
of, or interest on, the Certificates or the Notes, or to the payments in respect
of the Transition Property, nor is the State of California, the Originator or
any other governmental agency or instrumentality in any manner obligated to make
any appropriation for the payment thereof.
Section 11.02. Limitation on Rights of Certificateholders. The death or
------------------------------------------
incapacity of any Certificateholder shall not operate to terminate this Trust
Agreement or the Trust, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust,
nor otherwise affect the rights, obligations, and liabilities of the parties
hereto or any of them.
[Section 11.03. No Petition. Each of the Certificate Trustee and the
-----------
Delaware Trustee, by entering into this Trust Agreement, and each
Certificateholder, by accepting a Certificate, hereby covenants and agrees that
they will not at any time institute against the Note Issuer or the Trust, or
join in any institution against the Note Issuer or the Trust of, any bankruptcy
proceedings under any United States federal or state bankruptcy or similar law
in connection with any obligations relating to the Certificates, the Notes, this
Trust Agreement or any of the other Basic Documents.]
Section 11.04. Certificates Nonassessable and Fully Paid.
-----------------------------------------
Certificateholders shall not be personally liable for obligations of the Trust,
the interests in the Trust represented by the Certificates shall be
nonassessable for any losses or expenses of the Trust or for any reason
whatsoever, and Certificates upon authentication thereof by the Certificate
Trustee pursuant to Section 3.02 are and shall be deemed fully paid and non-
assessable. No Certificateholder shall have any right (except as expressly
provided herein) to vote or in any manner otherwise control the operation and
management of the Trust Property, the Trust established hereunder, or the
obligations of the parties hereto, nor shall anything set forth herein, or
contained in the terms of the Certificates, be construed so as to constitute the
Certificateholders from time to time as partners or members of an association.
Section 11.05. Notices. (a) Unless otherwise specifically provided
-------
herein, all notices, directions, consents and waivers required under the terms
and provisions of this Agreement shall be in English and in writing, and any
such notice, direction, consent or waiver may be given by United States mail,
courier service, telegram, telex, telemessage, telecopy, telefax, cable or
facsimile (confirmed by telephone or in writing in the case of notice by
telegram, telex, telemessage, telecopy, telefax, cable or facsimile) or any
other customary means of communication,
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and any such notice, direction, consent or waiver shall be effective when
delivered, or if mailed, three days after deposit in the United States mail with
proper postage for ordinary mail prepaid,
if to the Originator, to:
California Infrastructure and Economic Development Bank
c/o California Trade and Commerce Agency
801 K Street, Suite 1700
Sacramento, California 95814
Attention: Executive Director
Facsimile: 916-323-2887
Telephone: 916-324-9775
if to the Delaware Trustee, to:
Bankers Trust (Delaware)
E.A. Delle Donne Corporate Center
Montgomery Building
1011 Centre Road, Suite 200
Wilmington, Delaware 19805-1266
Attention: M. Lisa Wilkins
Facsimile: (302) 636-3222
Telephone: (302) 636-3305
(with a copy to the Certificate Trustee)
if to the Certificate Trustee, to:
Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Structured Finance Group
Facsimile: ____________________
Telephone: ____________________
if to the Note Issuer, to:
____________________
Attention: ____________________
Facsimile: ____________________
Telephone: ____________________
49
<PAGE>
if to the Note Trustee, to:
Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Structured Finance Group
Facsimile: ____________________
Telephone: ____________________,
if to the Rating Agencies, to:
Standard & Poor's Ratings Group
25 Broadway (15th Floor)
New York, New York 10004
Attention: Asset-Backed Surveillance Department
Facsimile: ____________________
Telephone: ____________________
Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Attention: ABS Monitoring Department
Facsimile: 212-553-0573
Telephone: 212-553-3686,
Fitch Investors Service, L.P.
One State Street Plaza
New York, New York 10004
Attn: __________________________
Facsimile: ____________________
Telephone: ____________________, and
Duff & Phelps Credit Rating Co.
17 State Street, 12th Floor
New York, New York 10004
Attn: __________________________
Facsimile: ____________________
Telephone: ____________________.
(b) The Originator, the Delaware Trustee, the Certificate Trustee, the
Note Issuer or the Note Trustee, by notice to the others, may designate
additional or different addresses for subsequent notices or communications.
(c) Any notice or communication to Certificateholders shall be mailed by
first-class mail to the addresses for each Certificateholder shown on the
Register kept by the Registrar.
50
<PAGE>
Failure so to mail a notice or communication or any defect in such notice or
communication shall not affect its sufficiency with respect to other
Certificateholders.
(d) If a notice or communication is mailed in the manner provided above
within the time prescribed, it is conclusively presumed to have been duly given,
whether or not the addressee receives it.
(e) If the Originator mails a notice or communication to the
Certificateholders, it shall mail a copy to the Certificate Trustee, to each
Paying Agent and to the Note Issuer at the same time.
(f) Notwithstanding the foregoing, all communications or notices to the
Certificate Trustee shall be deemed to be given only when received by a
Responsible Officer of the Certificate Trustee.
Section 11.06. Governing Law. THIS TRUST AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAW OF THE STATE OF DELAWARE, AND
THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAW; PROVIDED, HOWEVER, THAT MATTERS
-------- -------
REGARDING THE AUTHORITY OF THE ORIGINATOR AND THE VALIDITY OF ACTIONS TAKEN BY
THE ORIGINATOR HEREUNDER AND OTHER MATTERS REFERENCED IN SECTION 11.01 ABOVE
SHALL BE GOVERNED BY THE DOMESTIC LAW OF THE STATE OF CALIFORNIA.
Section 11.07. Severability of Provisions. If any one or more of the
--------------------------
covenants, agreements, provisions or terms of this Trust Agreement shall be for
any reason whatsoever held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Trust Agreement and shall in no way affect the
validity or enforceability of the other provisions of this Trust Agreement or
the Trust, or of the Certificates or the rights of the Certificateholders
thereof.
Section 11.08. Trust Indenture Act Controls. This Trust Agreement is
----------------------------
subject to the provisions of the Trust Indenture Act and shall, to the extent
possible, be governed by such provisions.
Section 11.09. Effect of Headings and Table of Contents. The Article and
----------------------------------------
Section headings herein and in the Table of Contents are for convenience only
and shall not affect the construction hereof.
Section 11.10. Successors and Assigns; Delegation. (a) All covenants,
----------------------------------
agreements, representations and warranties in this Trust Agreement by the
Certificate Trustee, the Delaware Trustee and the Originator shall bind and, to
the extent permitted hereby, shall inure to the benefit of and be enforceable by
their respective successors and assigns, whether so expressed or not.
51
<PAGE>
(b) No party to this Agreement shall assign or delegate this Agreement or
all or any part of its rights or obligations hereunder to any Person without the
prior written consent of the other parties.
Section 11.11. Benefits of Trust Agreement. Nothing in this Trust
---------------------------
Agreement or in the Certificates, express or implied, shall give to any Person,
other than the parties hereto and their successors hereunder, the
Certificateholders and, to the extent provided herein, the Note Issuer, any
benefit or any legal or equitable right, remedy or claim under this Trust
Agreement.
Section 11.12. Legal Holidays. In any case where any date for any
--------------
distribution in respect of any Certificate shall not be a Business Day, then
(notwithstanding any other provision of this Trust Agreement) payment need not
be made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on such first date, and no interest shall
accrue during the intervening period.
Section 11.13. Counterparts. For the purpose of facilitating the
------------
execution of this Trust Agreement and for other purposes, this Trust Agreement
may be executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and all of which counterparts
shall constitute but one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
52
<PAGE>
IN WITNESS WHEREOF, the Originator, the Delaware Trustee and the
Certificate Trustee have caused this Trust Agreement to be duly executed by duly
authorized officers, all as of the day and year first above written.
CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK,
as Originator
By:________________________________________
Name:
Title:
BANKERS TRUST (DELAWARE),
as Delaware Trustee
By:________________________________________
Name:
Title:
BANKERS TRUST COMPANY,
as Certificate Trustee
By:________________________________________
Name:
Title:
S-1
<PAGE>
EXHIBIT A
FORM OF CERTIFICATE
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Trust or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch the registered owner hereof,
Cede & Co., has an interest herein.
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST [ACRONYM OF UTILITY-1]
[Series] [Class] [Floating] [Fixed] Rate
Reduction Certificate
This Certificate evidences a fractional undivided interest in the note
[or notes] of a corresponding class or series of notes issued by
[_______________] and held by a trust, which note [or notes] are secured by the
property right created under the California Public Utilities Code (the "PU
Code") and a Financing Order and Advice Letters of the California Public
Utilities Commission (the "CPUC") (as described herein) representing the
irrevocable right of [Name of Utility] (the "Seller") or its assignee to receive
certain nonbypassable charges, as adjusted from time to time, on residential and
small commercial customers within the Seller's service territory, together with
certain related collateral, all as more fully described in the Indenture, dated
as of __________ by and among ____________________ and ____________________ (the
"Note Indenture") pursuant to which the Notes are issued.
The Certificates do not represent an interest in or obligation of the State
of California, the Originator, any other governmental agency or instrumentality
or the Seller or any of its affiliates. None of the Certificates, the Notes or
the underlying Transition Property (as defined in the Trust Agreement
hereinafter mentioned) will be guaranteed or insured by the State of California,
the Originator, the Trust or any other governmental agency or instrumentality or
by the Seller or its affiliates.
Neither the full faith and credit nor the taxing power of the State of
California, the Originator or any other governmental agency or instrumentality
is pledged to the payment of the principal of, premium, if any, purchase price
of, or interest on, the Certificates or the Notes, or to the payments in respect
of the Transition Property, nor is the State of California, the
A-1
<PAGE>
Originator or any other governmental agency or instrumentality in any manner
obligated to make any appropriation for the payment thereof.
THIS CERTIFIES THAT CEDE & CO., as nominee for The Depository Trust
Company, for value received, is the registered owner of a $__________
(____________________ dollars) fractional undivided interest in certain property
held by the California Infrastructure and Economic Development Bank Special
Purpose Trust [Acronym of Utility-1] (the "Trust") created pursuant to an
Amended and Restated Declaration and Agreement of Trust dated as of __________,
1997 (the "Trust Agreement"), by and among ____________________, not in its
individual capacity but solely as co-trustee (the "Delaware Trustee"),
___________________, as co-trustee (the "Certificate Trustee") and California
Infrastructure and Economic Development Bank, a public body established within
the state government of the State of California (the "Originator"), a summary of
certain of the pertinent provisions of which is set forth below. To the extent
not otherwise defined herein, the capitalized terms used herein have the
meanings assigned to them in the Trust Agreement. This Certificate is one of
the duly authorized Certificates designated as "California Infrastructure and
Economic Development Bank Special Purpose Trust [Acronym of Utility-1] [Series]
[Class] [Floating] [Fixed Rate] Rate Reduction Certificates" (herein called the
"Certificates"). This Certificate is issued under and is subject to the terms,
provisions, and conditions of the Trust Agreement, to which Trust Agreement the
Certificateholder of this Certificate by virtue of the acceptance hereof assents
and by which such Certificateholder is bound. This Certificate represents a
fractional undivided interest in a corresponding [Series] [Class] of Notes held
under the Trust Agreement, together with all payments made thereunder, the
"__________ Trust Property"). The __________ Notes are secured by a security
interest in the property right created under the PU Code, pursuant to Financing
Order __ issued by the CPUC on __________, and Advice Letters issued pursuant
thereto, representing the irrevocable right of [Acronym of Utility-1] or its
assignee to receive certain nonbypassable charges (as adjusted from time to
time) on residential and small commercial customers within the Seller's service
territory, together with certain related collateral, all as more fully described
in the Note Indenture.
Subject to and in accordance with the terms of the Trust Agreement, from
funds then available to the Certificate Trustee, there will be distributed on
each Payment Date to the Person in whose name this __________ Certificate is
registered on the Record Date preceding the Payment Date, an amount in respect
of the Payments on the __________ Notes due on such Payment Date, the receipt of
which has been confirmed by the Certificate Trustee, equal to the product of the
percentage interest in the __________ Trust Property evidenced by this
__________ Certificate and an amount equal to the sum of such Payments. Subject
to and in accordance with the terms of the Trust Agreement, in the event that a
Special Payment on the __________ Notes is received by the Certificate Trustee,
from funds then available to the Certificate Trustee, there shall be distributed
on the applicable Special Payment Date, to the Person in whose name this
__________ Certificate is registered on the Record Date preceding the Special
Payment Date, as applicable, an amount in respect of such Special Payment on the
__________ Notes, the receipt of which has been confirmed by the Certificate
Trustee, equal to the product of the percentage interest in the __________ Trust
Property evidenced by this __________ Certificate and an amount equal to the sum
of such Special Payment so received. The Special Payment Date shall be
determined as provided in the Trust Agreement. The
A-2
<PAGE>
Certificate Trustee shall mail notice of each Special Payment and the related
Special Payment Date to the Certificateholder of this __________ Certificate as
provided in the Trust Agreement.
Distributions on this __________ Certificate will be made by the
Certificate Trustee by check mailed to the Person entitled thereto, without the
presentation or surrender of this __________ Certificate or the making of any
notation hereon; provided, however, that if this __________ Certificate is
-------- -------
registered in the name of Cede & Co. or such other name as is requested by
authorized representatives of DTC, distributions on this __________ Certificate
will be made by the Certificate Trustee by wire transfer of immediately
available funds. Except as otherwise provided in the Trust Agreement and
notwithstanding the above, the final distribution on this __________ Certificate
will be made after notice mailed by the Certificate Trustee of the pendency of
such distribution and only upon presentation and surrender of this __________
Certificate at the office or agency of the Certificate Trustee specified in such
notice.
This __________ Certificate shall be governed by and construed in
accordance with the domestic law of the State of Delaware; provided, however,
-------- -------
that matters regarding the authority of the Originator and the validity of
actions taken by the Originator shall be governed by the domestic law of the
State of California.
Subject to and in accordance with the terms of the Trust Agreement, the
Originator has represented and warranted under the Trust Agreement that the
Trust constitutes a "special purpose trust" under Section 63010 of the
California Government Code and a "financing entity" under Section 840 of the PU
Code, and that the Certificates constitute "rate reduction bonds" under Section
840 of the PU Code and that the Holders of the Certificates are entitled to the
rights and benefits thereunder. Pursuant to Section 841(c) of the PU Code, the
Originator, on behalf of the State of California, has additionally pledged and
agreed with the Trust and the Certificateholders that the State of California
will neither limit nor alter the FTA Charges (as defined in the Trust
Agreement), the Transition Property, or the Financing Order or Advice Letters
relating thereto, and all rights thereunder, until the Certificates, together
with the interest thereon, are fully met and discharged, provided that nothing
in the pledge and agreement will preclude such limitation or alteration if and
when adequate provision is made by law for the protection of the Holders.
Unless the certificate of authentication hereon has been executed by the
Certificate Trustee, by manual signature, this __________ Certificate shall not
be entitled to any benefit under the Trust Agreement or be valid for any
purpose.
Reference is hereby made to the further provisions of this __________
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
A-3
<PAGE>
IN WITNESS WHEREOF, the Certificate Trustee has on behalf of the Trust
caused this Certificate to be duly executed.
By:____________________, not in its
individual capacity but solely as
Certificate Trustee
By:__________________________________
Name:
Title:
A-4
<PAGE>
CERTIFICATE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: __________, 199_
This is one of the __________ Certificates referred to in the within-
mentioned Trust Agreement.
____________________, not in its individual
capacity but solely as Certificate Trustee
By:________________________________________
Authorized Officer
A-5
<PAGE>
[FORM OF REVERSE OF CERTIFICATE]
The _________ Certificates are limited in right of payment, all as more
specifically set forth on the face hereof and in the Trust Agreement. All
payments or distributions made to _________ Certificateholders under the Trust
Agreement shall be made only from the __________ Trust Property and only to the
extent that the Certificate Trustee shall have sufficient income or proceeds
from the __________ Trust Property to make such payments in accordance with the
terms of the Trust Agreement. Each Certificateholder of this __________
Certificate, by its acceptance hereof, agrees that it will look solely to the
income and proceeds from the __________ Trust Property to the extent available
for distribution to such Certificateholder as provided in the Trust Agreement.
This __________ Certificate does not purport to summarize the Trust Agreement
and reference is made to the Trust Agreement for information with respect to the
interests, rights, benefits, obligations, proceeds, and duties evidenced hereby.
A copy of the Trust Agreement may be examined during normal business hours at
the principal office of the Certificate Trustee, and at such other places, if
any, designated by the Certificate Trustee, by any __________ Certificateholder
upon request.
The Trust Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights of the
Certificateholders under the Trust Agreement at any time by the Originator (with
the prior written approval of the Note Issuer) and the Certificate Trustee with
the consent of the Certificateholders holding Certificates evidencing fractional
undivided interests aggregating not less than a majority in interest in each
affected Series or Class of Certificates issued by the Trust. Any such consent
by the Certificateholder of this __________ Certificate shall be conclusive and
binding on such Certificateholder and upon all future Certificateholders of this
__________ Certificate and of any __________ Certificate issued upon the
transfer hereof or in exchange hereof or in lieu hereof whether or not notation
of such consent is made upon this __________ Certificate. The Trust Agreement
also permits the amendment thereof, in certain limited circumstances, without
the consent of the Certificateholders of any of the Certificates.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this __________ Certificate is registerable
in the Register upon surrender of this __________ Certificate for registration
of transfer at the offices or agencies maintained by the Certificate Trustee in
its capacity as Registrar, or by any successor Registrar, in the Borough of
Manhattan, the City of New York, duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Certificate Trustee and the
Registrar duly executed by the Certificateholder hereof or such
Certificateholder's attorney duly authorized in writing, and thereupon one or
more new __________ Certificates of authorized denominations evidencing the same
aggregate Fractional Undivided Interest in the __________ Trust Property will be
issued to the designated transferee or transferees.
The __________ Certificates are issuable only as registered __________
Certificates without coupons in minimum denominations of [$1,000] Original
Principal Amount or integral multiples thereof. As provided in the Trust
Agreement and subject to certain limitations therein set forth, __________
Certificates are exchangeable for new __________ Certificates of
A-6
<PAGE>
authorized denominations evidencing the same aggregate Fractional Undivided
Interest in the __________ Trust Property, as requested by the Certificateholder
surrendering the same.
THE CERTIFICATEHOLDER OF THIS __________ CERTIFICATE, BY PURCHASE OF THIS
__________ CERTIFICATE, WILL BE DEEMED TO REPRESENT THAT SUCH PURCHASE WILL NOT
RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, OR THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED, AND, IN EACH CASE, THE RULES AND REGULATIONS THEREUNDER.
No service charge will be made for any such registration of transfer or
exchange, but the Certificate Trustee shall require payment of a sum sufficient
to cover any tax or governmental charge payable in connection therewith.
The Certificate Trustee, the Registrar, and any agent of the Certificate
Trustee or the Registrar may treat the person in whose name this __________
Certificate is registered as the owner hereof for all purposes, and neither the
Certificate Trustee, the Registrar, nor any such agent shall be affected by any
notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and the
Trust created thereby shall terminate with respect to the __________
Certificates upon the distribution to the __________ Certificateholders of all
amounts required to be distributed to them pursuant to the Trust Agreement and
the disposition of all property held as part of the __________ Trust Property,
except certain indemnity obligations of the Originator to the Certificate
Trustee and the Delaware Trustee.
A-7
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF AMENDMENT
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF TRUST
Pursuant to Title 12, Section 3810(b) of the Delaware General Corporation Law,
the undersigned corporation executed the following Certificate of Amendment:
1. Name of Business Trust: California Infrastructure and Economic
---------------------------------------------------
Development Bank Special Purpose Trust [Acronym
---------------------------------------------------------------------------
of Utility-1]
---------------------------------------------------------------------------
2. The Certificate of Amendment to the Certificate of Trust is hereby amended
as follows:
___________________________________________________________________________
___________________________________________________________________________
__________________________________________________________________________.
[set forth amendment(s)]
3. This Certificate of Amendments shall be effective on _____________________.
IN WITNESS WHEREOF, the undersigned have executed this Certificate on the
_________________ day of __________________, 19___.
________________________________________
Trustee
________________________________________
Execution
B-1
<PAGE>
EXHIBIT 4.3
[FORM OF NOTE]
REGISTERED $____________
No. ______
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO. ________
THE PRINCIPAL OF THIS SERIES 199[ ] - [ ] NOTE IS PAYABLE IN
INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT
OF THIS SERIES 199[ ] - [ ] NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT
SHOWN ON THE FACE HEREOF.
[NAME OF SPE]
[ ] NOTES SERIES 199[ ] - [ ]
[Name of SPE], a limited liability company organized and existing
under the laws of the State of Delaware (herein referred to as the "Note
Issuer"), for value received, hereby promises to pay to [ ], or
registered assigns, the principal sum of [ ] DOLLARS in quarterly
installments on the Payment Dates and in the amounts specified on the reverse
hereof or, if less, the amounts determined pursuant to Section 8.02 of the
Indenture, in each year, commencing on the date determined as provided on the
reverse hereof and ending on or before [insert Series Termination Date] (the
"Series Termination Date") and to pay interest, at the rate of [ ]% per annum,
on each March 25, June 25, September 25 and December 26 or if any such day is
not a Business Day, the next succeeding Business Day, commencing on [ ] and
continuing until the earlier of the payment of the principal hereof and the
Series Termination Date (each a "Payment Date"), on the principal amount of this
Series 199[ ] - [ ] Note until the outstanding principal balance on the
preceding Payment Date (after giving effect to all payments of principal, if
any, made on the preceding Payment Date) has been reduced to the principal
balance specified in the applicable Expected Amortization Schedule attached to
the related Series Supplement for such Payment Date. Interest on this Series
199[ ] - [ ] Note will accrue for each Payment Date from the most recent
Payment Date on which interest has been paid to but excluding such Payment Date
or, if no interest has yet been paid, from [ ]. Interest will be
computed on the basis of a [specify method of computation]. Such
<PAGE>
2
principal of and interest on this Series 199[ ] - [ ] Note shall be paid in
the manner specified on the reverse hereof.
The principal of and interest on this Series 199[ ] - [ ] Note are
payable in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts. All
payments made by the Note Issuer with respect to this Series 199[ ] - [ ]
Note shall be applied first to interest due and payable on this Series 199[ ] -
[ ] Note as provided above and then to the unpaid principal of and premium,
if any, on this Series 199[ ]-[ ] Note, all in the manner set forth in Section
8.02 of the Indenture.
Reference is made to the further provisions of this Series 199[ ] -
[ ] Note set forth on the reverse hereof, which shall have the same effect as
though fully set forth on the face of this Series 199[ ] - [ ] Note.
Unless the certificate of authentication hereon has been executed by
the Note Trustee whose name appears below by manual signature, this Series
199[ ] - [ ] Note shall not be entitled to any benefit under the Indenture
referred to on the reverse hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Note Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Date:
[NAME OF SPE],
by _______________________
Name:
Title:
<PAGE>
3
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Series 199[ ] - [ ] Notes designated above and
referred to in the within-mentioned Indenture.
BANKERS TRUST COMPANY,
not in its individual capacity but solely as
Note Trustee,
by __________________________
Authorized Signatory
<PAGE>
4
[REVERSE OF NOTE]/1/
This Series 199[ ] - [ ] Note is one of a duly authorized issue of
Notes of the Note Issuer, designated as its Notes (herein called the "Notes"),
issued and to be issued in one or more Series, and this Series 199[ ] -[ ]
Note is one of the Notes designated as the Note Issuer's [ ]% Notes, Series
199[ ] - [ ] (herein called the "Series 199[ ] - [ ] Notes"), all issued and
to be issued under an indenture dated as of [ ], 1997, and a Series
Supplement thereto (such indenture, as supplemented or amended, is herein called
the "Indenture"), both between the Note Issuer and Bankers Trust Company, as
Note trustee (the "Note Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights and
obligations thereunder of the Note Issuer, the Note Trustee and the Holders of
the Notes. All terms used in this Series 199[ ] - [ ] Note that are defined
in the Indenture, as supplemented or amended, shall have the meanings assigned
to them in or pursuant to the Indenture, as so supplemented or amended.
The Series 199[ ] - [ ] Notes and any other Series of Notes issued
by the Note Issuer are and will be equally and ratably secured by the collateral
pledged as security therefor as provided in the Indenture.
The principal of this Series 199[ ] - [ ] Note shall be payable on
each Payment Date only to the extent that amounts in the Collection Account are
available therefor, and only until the outstanding principal balance thereof on
the preceding Payment Date (after giving effect to all payments of principal, if
any, made on the preceding Payment Date) has been reduced to the principal
balance specified in the Expected Amortization Schedule which is attached to the
related Series Supplement as Schedule A, unless payable earlier either because
(x) an Event of Default shall have occurred and be continuing and the Note
Trustee or the Holders of Notes representing not less than a majority of the
Outstanding Amount of the Notes of all Series have declared the Notes of all
Series to be immediately due and payable in accordance with Section 5.02
- -------------------
/1/ The form of the reverse of a Note is substantially as follows, unless
otherwise specified in the related Series Supplement.
<PAGE>
5
of the Indenture, (y) the Note Issuer shall have called for the redemption of
the Series 199[ ] - [ ] Notes pursuant to Section 10.01 of the Indenture or
(z) the Note Issuer shall have called for the redemption of the Series 199[ ]-
[ ] Notes pursuant to Section [ ] of the Indenture upon the occurrence of
a repurchase of the Transition Property pursuant to Section 5.01(b) of the Sale
Agreement. However, actual principal payments may be made in lesser than
expected amounts and at later than expected times as determined pursuant to
Section 8.02 of the Indenture. The entire unpaid principal amount of this Series
199[ ] -[ ] Note shall be due and payable on the earlier of the Series
Termination Date hereof, the Redemption Date, if any, and the Repurchase Date,
if any, herefor. Notwithstanding the foregoing, the entire unpaid principal
amount of the Notes shall be due and payable, if not then previously paid, on
the date on which an Event of Default shall have occurred and be continuing and
the Note Trustee or the Holders of the Notes representing not less than a
majority of the Outstanding Amount of the Notes of all Series have declared the
Notes of all Series to be immediately due and payable in the manner provided in
Section 5.02 of the Indenture. All principal payments on the Series 199[ ] -
[ ] Notes shall be made pro rata to the Series 199[ ] - [ ] Noteholders
entitled thereto based on the respective principal amounts of the Series
199[ ] - [ ] Notes held by them.
Payments of interest on this Series 199[ ] -[ ] Note due and
payable on each Payment Date, together with the installment of principal or
premium, if any, shall be made by check mailed first-class, postage prepaid, to
the Person whose name appears as the Registered Holder of this Series 199[ ] -
[ ] Note (or one or more Predecessor Notes) on the Note Register as of the
close of business on the Record Date or in such other manner as may be provided
in the related Series Supplement, except that with respect to Notes registered
on the Record Date in the name of the Certificate Trustee, payments will be made
by wire transfer in immediately available funds to the account designated by the
Certificate Trustee and except for the final installment of principal and
premium, if any, payable with respect to this Series 199[ ]-[ ] Note on a
Payment Date which shall be payable as provided below. Such checks shall be
mailed to the Person entitled thereto at the address of such Person as it
appears on the Note Register as of the applicable Record Date without requiring
that this Series 199[ ] - [ ] Note be submitted for notation of payment. Any
reduction in the principal amount of this Series 199[ ] - [ ] Note (or any
one or more Predecessor Notes) effected by any payments made on any Payment Date
shall be binding upon all future Holders of this Series 199[ ] - [ ] Note
and of any Note issued upon
<PAGE>
6
the registration of transfer hereof or in exchange hereof or in lieu hereof,
whether or not noted hereon. If funds are expected to be available, as provided
in the Indenture, for payment in full of the then remaining unpaid principal
amount of this Series 199[ ] - [ ] Note on a Payment Date, then the Note
Trustee, in the name of and on behalf of the Note Issuer, will notify the Person
who was the Registered Holder hereof as of the Record Date preceding such
Payment Date by notice mailed no later than five days prior to such final
Payment Date and shall specify that such final installment will be payable only
upon presentation and surrender of this Series 199[ ] - [ ] Note and shall
specify the place where this Series 199[ ] - [ ] Note may be presented and
surrendered for payment of such installment.
The Note Issuer shall pay interest on overdue installments of interest
at the Note Interest Rate to the extent lawful.
As provided in the Indenture, the Series 199[ ] -[ ] Notes may be
redeemed, in whole but not in part, at the option of the Note Issuer on any
Payment Date at the Redemption Price if, after giving effect to payments that
would otherwise be made on such date, the Outstanding Amount of the Series
199[ ] - [ ] Notes has been reduced to less than five percent of the initial
principal balance thereof.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Series 199[ ] - [ ] Note may be
registered on the Note Register upon surrender of this Series 199[ ] - [ ]
Note for registration of transfer at the office or agency designated by the Note
Issuer pursuant to the Indenture, duly endorsed by, or accompanied by (a) a
written instrument of transfer in form satisfactory to the Note Trustee duly
executed by, the Holder hereof or his attorney duly authorized in writing, with
such signature guaranteed by an institution which is a member of one of the
following recognized Signature Guaranty Programs: (i) The Securities Transfer
Agent Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion
Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) in
such other guarantee program acceptable to the Note Trustee, and (b) such other
documents as the Note Trustee may require, and thereupon one or more new Series
199[ ] - [ ] Notes of Minimum Denominations and in the same aggregate
principal amount will be issued to the designated transferee or transferees. No
service charge will be charged for any registration of transfer or exchange of
this Series 199[ ] -[ ] Note, but the transferor may be required to pay a sum
sufficient to cover any tax or other governmental charge
<PAGE>
7
that may be imposed in connection with any such registration of transfer or
exchange, other than exchanges pursuant to Section 2.04 or 9.06 of the Indenture
not involving any transfer.
Each Noteholder, by acceptance of a Note covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Note Issuer or the Note Trustee on the Notes or under the Indenture or
any certificate or other writing delivered in connection therewith, against (i)
the Note Trustee in its individual capacity, (ii) any owner of a beneficial
interest in the Note Issuer or (iii) any partner, owner, beneficiary, agent,
officer, director or employee of the Note Trustee in its individual capacity,
any holder of a beneficial interest in the Note Issuer or the Note Trustee or of
any successor or assign of the Note Trustee in its individual capacity, except
as any such Person may have expressly agreed (it being understood that the Note
Trustee has no such obligations in its individual capacity).
Prior to the due presentment for registration of transfer of this
Series 199[ ] - [ ] Note, the Note Issuer, the Note Trustee and any agent of
the Note Issuer or the Note Trustee may treat the Person in whose name this
Series 199[ ] - [ ] Note is registered (as of the day of determination) as
the owner hereof for the purpose of receiving payments of principal of and
premium, if any, and interest on this Series 199[ ] - [ ] Note and for all
other purposes whatsoever, whether or not this Series 199[ ] - [ ] Note be
overdue, and neither the Note Issuer, the Note Trustee nor any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Note Issuer and the rights of the Holders of the Notes under the Indenture at
any time by the Note Issuer with the consent of the Holders of Notes
representing a majority of the Outstanding Amount of all Notes at the time
Outstanding of each Series or Class to be affected. The Indenture also contains
provisions permitting the Holders of Notes representing specified percentages of
the Outstanding Amount of the Notes of all Series, on behalf of the Holders of
all the Notes, to waive compliance by the Note Issuer with certain provisions of
the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Series 199[ ] -
[ ] Note (or any one of more Predecessor Notes) shall be conclusive and
binding upon such Holder and upon all future Holders of this Series
<PAGE>
8
199[ ] - [ ] Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent or waiver is made upon this Series 199[ ] - [ ] Note. The Indenture
also permits the Note Trustee to amend or waive certain terms and conditions set
forth in the Indenture without the consent of Holders of the Notes issued
thereunder.
The term "Note Issuer" as used in this Series 199[ ] - [ ] Note
includes any successor to the Note Issuer under the Indenture.
The Note Issuer is permitted by the Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Note
Trustee and the Holders of Notes under the Indenture.
The Series 199[ ] - [ ] Notes are issuable only in registered form
in denominations as provided in the Indenture and the related Series Supplement,
subject to certain limitations therein set forth.
This Series 199[ ] - [ ] Note, the Indenture and the related Series
Supplement shall be construed in accordance with the laws of the State of
California, without reference to its conflict of law provisions, and the
obligations, rights and remedies of the parties hereunder and thereunder shall
be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Series
199[ ] - [ ] Note or of the Indenture shall alter or impair the obligation of
the Note Issuer, which is absolute and unconditional, to pay the principal of
and interest on this Series 199[ ] - [ ] Note at the times, place, and rate,
and in the coin or currency herein prescribed.
The Holder of this Series 199[ ] - [ ] Note by the acceptance
hereof agrees that, notwithstanding any provision of the Indenture or the
related Series Supplement to the contrary, the Holder shall have no recourse
against the Note Issuer, but shall look only to the Collateral, with respect to
any amounts due to the Holder under this Series 199[ ] - [ ] Note.
<PAGE>
9
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
___________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto__________________________________________________________________
________________________________________________________________________________
(name and address of assignee)
the within Series 199[ ] - [ ] Note and all rights thereunder, and hereby
irrevocably constitutes and appoints _________________________________________,
attorney, to transfer said Series 199[ ] - [ ] Note on the books kept for
registration thereof, with full power of substitution in the premises.
Dated: _________________ _________________________________/*/
Signature Guaranteed:
_______________________
/*/ NOTE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within Series 199[ ] -
[ ] Note in every particular, without alteration, enlargement or any change
whatsoever.
<PAGE>
EXHIBIT 4.4
[FORM OF RATE REDUCTION CERTIFICATE]
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Trust or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch the registered owner hereof,
Cede & Co., has an interest herein.
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST [ACRONYM OF UTILITY-1]
[Series] [Class] [Floating] [Fixed] Rate
Reduction Certificate
This Certificate evidences a fractional undivided interest in the note
[or notes] of a corresponding class or series of notes issued by
[_______________] and held by a trust, which note [or notes] are secured by the
property right created under the California Public Utilities Code (the "PU
Code") and a Financing Order and Advice Letters of the California Public
Utilities Commission (the "CPUC") (as described herein) representing the
irrevocable right of [Name of Utility] (the "Seller") or its assignee to receive
certain nonbypassable charges, as adjusted from time to time, on residential and
small commercial customers within the Seller's service territory, together with
certain related collateral, all as more fully described in the Indenture, dated
as of __________ by and among ____________________ and ____________________ (the
"Note Indenture") pursuant to which the Notes are issued.
The Certificates do not represent an interest in or obligation of the State
of California, the Originator, any other governmental agency or instrumentality
or the Seller or any of its affiliates. None of the Certificates, the Notes or
the underlying Transition Property (as defined in the Trust Agreement
hereinafter mentioned) will be guaranteed or insured by the State of California,
the Originator, the Trust or any other governmental agency or instrumentality or
by the Seller or its affiliates.
Neither the full faith and credit nor the taxing power of the State of
California, the Originator or any other governmental agency or instrumentality
is pledged to the payment of the principal of, premium, if any, purchase price
of, or interest on, the Certificates or the Notes, or to the payments in respect
of the Transition Property, nor is the State of California, the
1
<PAGE>
Originator or any other governmental agency or instrumentality in any manner
obligated to make any appropriation for the payment thereof.
THIS CERTIFIES THAT CEDE & CO., as nominee for The Depository Trust
Company, for value received, is the registered owner of a $__________
(____________________ dollars) fractional undivided interest in certain property
held by the California Infrastructure and Economic Development Bank Special
Purpose Trust [Acronym of Utility-1] (the "Trust") created pursuant to an
Amended and Restated Declaration and Agreement of Trust dated as of __________,
1997 (the "Trust Agreement"), by and among ____________________, not in its
individual capacity but solely as co-trustee (the "Delaware Trustee"),
___________________, as co-trustee (the "Certificate Trustee") and California
Infrastructure and Economic Development Bank, a public body established within
the state government of the State of California (the "Originator"), a summary of
certain of the pertinent provisions of which is set forth below. To the extent
not otherwise defined herein, the capitalized terms used herein have the
meanings assigned to them in the Trust Agreement. This Certificate is one of
the duly authorized Certificates designated as "California Infrastructure and
Economic Development Bank Special Purpose Trust [Acronym of Utility-1] [Series]
[Class] [Floating] [Fixed Rate] Rate Reduction Certificates" (herein called the
"Certificates"). This Certificate is issued under and is subject to the terms,
provisions, and conditions of the Trust Agreement, to which Trust Agreement the
Certificateholder of this Certificate by virtue of the acceptance hereof assents
and by which such Certificateholder is bound. This Certificate represents a
fractional undivided interest in a corresponding [Series] [Class] of Notes held
under the Trust Agreement, together with all payments made thereunder, the
"__________ Trust Property"). The __________ Notes are secured by a security
interest in the property right created under the PU Code, pursuant to Financing
Order __ issued by the CPUC on __________, and Advice Letters issued pursuant
thereto, representing the irrevocable right of [Acronym of Utility-1] or its
assignee to receive certain nonbypassable charges (as adjusted from time to
time) on residential and small commercial customers within the Seller's service
territory, together with certain related collateral, all as more fully described
in the Note Indenture.
Subject to and in accordance with the terms of the Trust Agreement, from
funds then available to the Certificate Trustee, there will be distributed on
each Payment Date to the Person in whose name this __________ Certificate is
registered on the Record Date preceding the Payment Date, an amount in respect
of the Payments on the __________ Notes due on such Payment Date, the receipt of
which has been confirmed by the Certificate Trustee, equal to the product of the
percentage interest in the __________ Trust Property evidenced by this
__________ Certificate and an amount equal to the sum of such Payments. Subject
to and in accordance with the terms of the Trust Agreement, in the event that a
Special Payment on the __________ Notes is received by the Certificate Trustee,
from funds then available to the Certificate Trustee, there shall be distributed
on the applicable Special Payment Date, to the Person in whose name this
__________ Certificate is registered on the Record Date preceding the Special
Payment Date, as applicable, an amount in respect of such Special Payment on the
__________ Notes, the receipt of which has been confirmed by the Certificate
Trustee, equal to the product of the percentage interest in the __________ Trust
Property evidenced by this __________ Certificate and an amount equal to the sum
of such Special Payment so received. The Special Payment Date shall be
determined as provided in the Trust Agreement. The
2
<PAGE>
Certificate Trustee shall mail notice of each Special Payment and the related
Special Payment Date to the Certificateholder of this __________ Certificate as
provided in the Trust Agreement.
Distributions on this __________ Certificate will be made by the
Certificate Trustee by check mailed to the Person entitled thereto, without the
presentation or surrender of this __________ Certificate or the making of any
notation hereon; provided, however, that if this __________ Certificate is
-------- -------
registered in the name of Cede & Co. or such other name as is requested by
authorized representatives of DTC, distributions on this __________ Certificate
will be made by the Certificate Trustee by wire transfer of immediately
available funds. Except as otherwise provided in the Trust Agreement and
notwithstanding the above, the final distribution on this __________ Certificate
will be made after notice mailed by the Certificate Trustee of the pendency of
such distribution and only upon presentation and surrender of this __________
Certificate at the office or agency of the Certificate Trustee specified in such
notice.
This __________ Certificate shall be governed by and construed in
accordance with the domestic law of the State of Delaware; provided, however,
-------- -------
that matters regarding the authority of the Originator and the validity of
actions taken by the Originator shall be governed by the domestic law of the
State of California.
Subject to and in accordance with the terms of the Trust Agreement, the
Originator has represented and warranted under the Trust Agreement that the
Trust constitutes a "special purpose trust" under Section 63010 of the
California Government Code and a "financing entity" under Section 840 of the PU
Code, and that the Certificates constitute "rate reduction bonds" under Section
840 of the PU Code and that the Holders of the Certificates are entitled to the
rights and benefits thereunder. Pursuant to Section 841(c) of the PU Code, the
Originator, on behalf of the State of California, has additionally pledged and
agreed with the Trust and the Certificateholders that the State of California
will neither limit nor alter the FTA Charges (as defined in the Trust
Agreement), the Transition Property, or the Financing Order or Advice Letters
relating thereto, and all rights thereunder, until the Certificates, together
with the interest thereon, are fully met and discharged, provided that nothing
in the pledge and agreement will preclude such limitation or alteration if and
when adequate provision is made by law for the protection of the Holders.
Unless the certificate of authentication hereon has been executed by the
Certificate Trustee, by manual signature, this __________ Certificate shall not
be entitled to any benefit under the Trust Agreement or be valid for any
purpose.
Reference is hereby made to the further provisions of this __________
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
3
<PAGE>
IN WITNESS WHEREOF, the Certificate Trustee has on behalf of the Trust
caused this Certificate to be duly executed.
By:____________________, not in its
individual capacity but solely as
Certificate Trustee
By:__________________________________
Name:
Title:
4
<PAGE>
CERTIFICATE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: __________, 199_
This is one of the __________ Certificates referred to in the within-
mentioned Trust Agreement.
____________________, not in its individual
capacity but solely as Certificate Trustee
By:________________________________________
Authorized Officer
5
<PAGE>
[FORM OF REVERSE OF CERTIFICATE]
The _________ Certificates are limited in right of payment, all as more
specifically set forth on the face hereof and in the Trust Agreement. All
payments or distributions made to _________ Certificateholders under the Trust
Agreement shall be made only from the __________ Trust Property and only to the
extent that the Certificate Trustee shall have sufficient income or proceeds
from the __________ Trust Property to make such payments in accordance with the
terms of the Trust Agreement. Each Certificateholder of this __________
Certificate, by its acceptance hereof, agrees that it will look solely to the
income and proceeds from the __________ Trust Property to the extent available
for distribution to such Certificateholder as provided in the Trust Agreement.
This __________ Certificate does not purport to summarize the Trust Agreement
and reference is made to the Trust Agreement for information with respect to the
interests, rights, benefits, obligations, proceeds, and duties evidenced hereby.
A copy of the Trust Agreement may be examined during normal business hours at
the principal office of the Certificate Trustee, and at such other places, if
any, designated by the Certificate Trustee, by any __________ Certificateholder
upon request.
The Trust Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights of the
Certificateholders under the Trust Agreement at any time by the Originator (with
the prior written approval of the Note Issuer) and the Certificate Trustee with
the consent of the Certificateholders holding Certificates evidencing fractional
undivided interests aggregating not less than a majority in interest in each
affected Series or Class of Certificates issued by the Trust. Any such consent
by the Certificateholder of this __________ Certificate shall be conclusive and
binding on such Certificateholder and upon all future Certificateholders of this
__________ Certificate and of any __________ Certificate issued upon the
transfer hereof or in exchange hereof or in lieu hereof whether or not notation
of such consent is made upon this __________ Certificate. The Trust Agreement
also permits the amendment thereof, in certain limited circumstances, without
the consent of the Certificateholders of any of the Certificates.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this __________ Certificate is registerable
in the Register upon surrender of this __________ Certificate for registration
of transfer at the offices or agencies maintained by the Certificate Trustee in
its capacity as Registrar, or by any successor Registrar, in the Borough of
Manhattan, the City of New York, duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Certificate Trustee and the
Registrar duly executed by the Certificateholder hereof or such
Certificateholder's attorney duly authorized in writing, and thereupon one or
more new __________ Certificates of authorized denominations evidencing the same
aggregate Fractional Undivided Interest in the __________ Trust Property will be
issued to the designated transferee or transferees.
The __________ Certificates are issuable only as registered __________
Certificates without coupons in minimum denominations of [$1,000] Original
Principal Amount or integral multiples thereof. As provided in the Trust
Agreement and subject to certain limitations therein set forth, __________
Certificates are exchangeable for new __________ Certificates of
6
<PAGE>
authorized denominations evidencing the same aggregate Fractional Undivided
Interest in the __________ Trust Property, as requested by the Certificateholder
surrendering the same.
THE CERTIFICATEHOLDER OF THIS __________ CERTIFICATE, BY PURCHASE OF THIS
__________ CERTIFICATE, WILL BE DEEMED TO REPRESENT THAT SUCH PURCHASE WILL NOT
RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, OR THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED, AND, IN EACH CASE, THE RULES AND REGULATIONS THEREUNDER.
No service charge will be made for any such registration of transfer or
exchange, but the Certificate Trustee shall require payment of a sum sufficient
to cover any tax or governmental charge payable in connection therewith.
The Certificate Trustee, the Registrar, and any agent of the Certificate
Trustee or the Registrar may treat the person in whose name this __________
Certificate is registered as the owner hereof for all purposes, and neither the
Certificate Trustee, the Registrar, nor any such agent shall be affected by any
notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and the
Trust created thereby shall terminate with respect to the __________
Certificates upon the distribution to the __________ Certificateholders of all
amounts required to be distributed to them pursuant to the Trust Agreement and
the disposition of all property held as part of the __________ Trust Property,
except certain indemnity obligations of the Originator to the Certificate
Trustee and the Delaware Trustee.
7
<PAGE>
EXHIBIT 5.1
[Letterhead of Latham & Watkins]
November 10, 1997
SCE Funding LLC
2244 Walnut Grove Avenue
Room 180
Rosemead, California 91770
Re: Registration Statement No. 333-30785; $3,000,000,000
Aggregate Principal Amount of SCE Funding LLC Notes
---------------------------------------------------
Ladies and Gentlemen:
In connection with the registration of Rate Reduction Certificates to
be issued by the California Infrastructure and Economic Development Bank SCE-1
(the "Trust") and $3,000,000,000 aggregate principal amount of Notes (the
"Notes") to be issued by SCE Funding LLC, a Delaware limited liability company
(the "Note Issuer" or the "Registrant"), under the Securities Act of 1933, as
amended (the "Act"), you have requested our opinion with respect to the matters
set forth below. The Notes will be registered on Form S-3 filed with the
Securities and Exchange Commission (the "Commission") on July 3, 1997 (File No.
333-30785), as amended by Amendment No. 1 filed with the Commission on September
17, 1997, as amended by Amendment No. 2 filed with the Commission on October 22,
1997 and as amended by Amendment No. 3 filed with Commission on November 7,
1997 (collectively, the "Registration Statement"). The Notes will be issuable
in series (each, a "Series") under an Indenture (the "Indenture") to be entered
into by and between the Note Issuer and the trustee named therein (the "Note
Trustee"). The Certificates and the Notes of each Series are to be sold as
described in the Registration Statement, including the prospectus and prospectus
supplement contained therein.
In our capacity as your special counsel in connection with such
registration, we are familiar with the proceedings taken by the Note Issuer in
connection with the authorization and issuance of the Notes. In addition, we
have made such legal and factual examinations and inquiries, including an
examination of originals or copies certified or otherwise identified to our
satisfaction of such documents, corporate records and instruments, as we have
deemed necessary or appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
<PAGE>
SCE Funding LLC
November 10, 1997
Page 2
We are opining herein as to the effect on the subject transaction only
of the internal laws of the State of California, and we express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of any
other jurisdiction or as to any matters of municipal law or the laws of any
other local agencies within the state.
Capitalized terms used herein without definition have the meanings
ascribed to them in the Registration Statement.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that when the Indenture has been duly authorized by appropriate
action and validly executed and delivered by the Note Issuer and the Note
Trustee, and when the Notes have been duly authorized, executed, authenticated
and delivered in accordance with the provisions of the Indenture against payment
of the purchase price therefor, the Notes will constitute legally valid and
binding obligations of the Note Issuer, enforceable against the Note Issuer in
accordance with their terms.
The opinions rendered above relating to the enforceability of the
Notes are subject to the following exceptions, limitations and qualifications:
(i) the effect of bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to or affecting the rights and
remedies of creditors; and (ii) the effect of general principles of equity,
including, without limitation, concepts of materiality, reasonableness, good
faith and fair dealing and the possible unavailability of specific performance
or injunctive relief regardless of whether considered in a proceeding in equity
or at law.
To the extent that the obligations of the Note Issuer under the
Indenture may be dependent upon such matters, we assume for purposes of this
opinion that the Note Trustee is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization; that the Note
Trustee is duly qualified to engage in the activities contemplated by the
Indenture; that the Indenture has been duly authorized, executed and delivered
by the Note Trustee and constitutes the legally valid, binding and enforceable
obligation of the Trustee enforceable against the Note Trustee in accordance
with its terms; that the Note Trustee is in compliance, generally and with
respect to acting as a trustee under the Indenture, with all applicable laws and
regulations; and that the Note Trustee has the requisite organizational and
legal power and authority to perform its obligations under the Indenture.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained wherever it
appears in the Registration Statement and the prospectus and prospectus
supplement contained therein.
Very truly yours,
/s/ Latham & Watkins
<PAGE>
Page 1
EXHIBIT 5.2
[LETTERHEAD OF RICHARDS, LAYTON & FINGER]
November 10, 1997
California Infrastructure and
Economic Development Bank
Special Purpose Trust SCE-1
c/o California Trade and Commerce Agency
801 K Street, Suite 1700
Sacramento, CA 95814
Re: Rate Reduction Certificates
---------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel for California
Infrastructure and Economic Development Bank Special Purpose Trust SCE-1, a
Delaware business trust (the "Trust"), in connection with the matters set forth
herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, dated as of November 1, 1997
(the "Certificate"), as filed in the office of the Secretary of State
of the State of Delaware (the "Secretary of State") on November 7,
1997;
(b) The Declaration and Agreement of Trust of the Trust, dated as of
November 1, 1997, among California Infrastructure and Economic
Development Bank, a public body established within the state
<PAGE>
Page 2
government of the State of California (the "Bank"), as originator, and
the trustees of the Trust named therein (collectively, the
"Trustees");
(c) The Registration Statement (the "Registration Statement") on Form S-3,
including a prospectus (the "Prospectus"), relating to, among
other things, the Rate Reduction Certificates of the Trust
representing fractional undivided beneficial interests in the
corresponding series or class of Notes, all monies due and to become
due under such corresponding series or class of Notes and payments
pursuant to any related Swap Agreement (each a "Security" and
collectively the "Securities"), filed by SCE Funding LLC, a Delaware
limited liability company, with the Securities and Exchange Commission
on July 3, 1997;
(d) A form of Amended and Restated Declaration and Agreement of Trust of
the Trust, to be entered into among the Bank and the trustees of the
Trust named therein (the "Declaration"), attached as an exhibit to the
Registration Statement; and
(e) A Certificate of Good Standing for the Trust, dated November 7, 1997,
obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are
used as defined in the Declaration.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed above, and we have assumed that there exists no
provision in any document that we have not reviewed that bears upon or is
inconsistent with the opinions stated herein. We have conducted no independent
factual investigation of our own but rather have relied solely upon the
foregoing documents, the statements and information set forth therein and the
additional matters recited or assumed herein, all of which we have assumed to be
true, complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Declaration
constitutes the entire agreement among the parties thereto with respect to the
subject matter
<PAGE>
Page 3
thereof, including with respect to the creation, operation and
termination of the Trust, and that the Declaration and the Certificate are in
full force and effect and have not been amended, (ii) except to the extent
provided in paragraph 1 below, the due creation or due organization or due
formation, as the case may be, and valid existence in good standing of each
party to the documents examined by us under the laws of the jurisdiction
governing its creation, organization or formation, (iii) the legal capacity of
natural persons who are parties to the documents examined by us, (iv) that each
of the parties to the documents examined by us has the power and authority to
execute and deliver, and to perform its obligations under, such documents, (v)
the due authorization, execution and delivery by all parties thereto of all
documents examined by us, (vi) the receipt by each Person to whom a Security is
to be issued by the Trust (collectively, the "Security Holders") of a
certificate for such Security and the payment for the Security acquired by it,
in accordance with the Declaration and the Prospectus, and (vii) that the
Securities are issued and sold to the Security Holders in accordance with the
Declaration and the Prospectus. We have not participated in the preparation of
the Prospectus and assume no responsibility for its contents.
This opinion is limited to the laws of the State of Delaware
(excluding the securities laws of the State of Delaware), and we have not
considered and express no opinion on the laws of any other jurisdiction,
including federal laws and rules and regulations relating thereto. Our opinions
are rendered only with respect to Delaware laws and rules, regulations and
orders thereunder which are currently in effect.
Based upon the foregoing, and upon our examination of such questions
of law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act.
2. When issued and sold, the Securities will represent valid, fully
paid and nonassessable undivided beneficial interests in the assets of the
Trust. We note that the Security Holders may be obligated, pursuant to the
Declaration (i) to provide indemnity and/or security in connection with and pay
taxes or governmental charges arising from transfers or exchanges of Securities
certificates and the issuance of replacement Securities certificates, and (ii)
to provide security or indemnity in connection with requests of or directions to
the Trustees to exercise their rights and powers under the Declaration.
<PAGE>
Page 4
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. In giving the
foregoing consent, we do not thereby admit that we come within the category of
Persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder. Except as stated above, without our prior written
consent, this opinion may not be furnished or quoted to, or relied upon by, any
other Person for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger
-----------------------------
<PAGE>
Page 1
EXHIBIT 5.3
[LETTERHEAD OF RICHARDS, LAYTON & FINGER]
November 10, 1997
SCE Funding LLC
2244 Walnut Grove Avenue, Room 180
Rosemead, CA 91770
Re: SCE Funding LLC -- Legality of Notes
------------------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel for Southern California
Edison Company, a California corporation ("Edison"), and SCE Funding LLC, a
Delaware limited liability company (the "Company"), in connection with the
matters set forth herein. At your request, this opinion is being furnished to
you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of executed or
conformed counterparts, or copies otherwise proved to our satisfaction, of the
following:
(a) The Certificate of Formation of the Company, dated as of June 27,
1997 (the "LLC Certificate"), as filed in the office of the Secretary of State
of the State of Delaware (the "Secretary of State") on June 27, 1997;
(b) The Limited Liability Company Agreement of the Company, dated as
of June 27, 1997, executed by Edison, as the sole member of the Company (the
"Member");
(c) The Amended and Restated Limited Liability Company
<PAGE>
Page 2
Agreement of the Company (the "LLC Agreement"), dated as of November 6, 1997,
executed by the Member;
(d) The form of Letter Agreement, to be executed by each member of the
Board of Directors of the Company, including the Independent Director (as
defined in the LLC Agreement);
(e) Amendment No. 3, to the Registration Statement (the "Registration
Statement") on Form S-3, including a related prospectus (the "Prospectus"), to
be filed by the Company with the Securities and Exchange Commission on November
10, 1997;
(f) The form of Indenture, to be executed by the Company and the Note
Trustee to be named therein, attached as an exhibit to the Registration
Statement pursuant to which the Notes are to be issued;
(g) The form of Note Purchase Agreement, to be executed by the Company
and Bankers Trust Company, certificate trustee; and
(h) A Certificate of Good Standing for the Company, dated November 6,
1997, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are
used as defined in the LLC Agreement. The documents listed in paragraphs (f)
and (g) above are hereinafter referred to each as a "Transaction Document" and
collectively as the "Transaction Documents."
For purposes of this opinion, we have not reviewed any documents other
than the documents listed in paragraphs (a) through (h) above. In particular,
we have not reviewed any document (other than the documents listed in paragraphs
(a) through (h) above) that is referred to in or incorporated by reference into
any document reviewed by us. We have assumed that there exists no provision in
any document that we have not reviewed that is inconsistent with the opinions
stated herein. We have conducted no independent factual investigation of our
own but rather have relied solely upon the foregoing documents, the statements
and information set forth therein and the additional matters recited or assumed
herein, all of which we have assumed to be true, complete and accurate in all
material respects.
With respect to all documents examined by us, we have assumed that (i)
all signatures on documents examined by us are genuine, (ii) all documents
submitted to us as originals are authentic, and (iii) all documents submitted to
us as copies conform with the original copies of those documents.
For purposes of this opinion, we have assumed (i) except to the extent
provided in paragraph 1 below, the due organization or due formation, as the
case may be, and valid existence in good standing of each party to the documents
examined by us under the laws of the jurisdiction governing its organization or
<PAGE>
Page 3
formation and the legal capacity of natural persons who are signatories to the
documents examined by us, (ii) except to the extent provided in paragraph 2
below, that each of the parties to the documents examined by us has the power
and authority to execute and deliver, and to perform its obligations under, such
documents, and (iii) except to the extent provided in paragraph 3 below, the due
authorization, execution and delivery by all parties thereto of all documents
examined by us. We have not participated in the preparation of the Registration
Statement and assume no responsibility for its contents.
This opinion is limited to the laws of the State of Delaware
(excluding the securities laws of the State of Delaware), and we have not
considered and express no opinion on the laws of any other jurisdiction,
including federal laws and rules and regulations relating thereto. Our opinions
are rendered only with respect to Delaware laws and rules, regulations and
orders thereunder which are currently in effect.
Based upon the foregoing, and upon our examination of such questions
of law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Company has been duly formed and is validly existing in good
standing as a limited liability company under the laws of the State of Delaware.
2. Under the Delaware Limited Liability Company Act, 6 Del. C.
-------
Section 18-101, et seq. (the "LLC Act") and the LLC Agreement, the Company has
-- ---
all necessary limited liability company power and authority to execute and
deliver the Transaction Documents and issue the Notes, and to perform its
obligations under the Transaction Documents.
3. Under the LLC Act and the LLC Agreement, the execution and delivery
by the Company of the Transaction Documents and the Notes, and the performance
by the Company of its obligations under the Transaction Documents, has been duly
authorized by all necessary limited liability company action on the part of the
Company.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. In giving the
foregoing consent, we do not thereby admit that we come within the category of
Persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder. Except as stated above, without our prior written
consent, this opinion may not be furnished or quoted to, or relied upon by, any
other Person for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger, P.A.
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF BROWN & WOOD LLP]
November 10, 1997
Duff & Phelps Credit Rating Co.
17 State Street, 12th Floor
New York, New York 10004
Fitch Investors Service, L.P.
One State Street Plaza
New York, New York 10004
Moody's Investors Service
99 Church Street
New York, New York 10007
Standard & Poor's Ratings Services
26 Broadway, 20th Floor
New York, New York 10004
Re: California Infrastructure and Economic Development Bank
Special Purpose Trust SCE-1
Registration Statement on Form S-3 (File No. 333-30785)
-------------------------------------------------------
Ladies and Gentlemen:
We have acted as special federal income tax counsel to California
Infrastructure and Economic Development Bank Special Purpose Trust SCE-1 (the
"Trust"), a business trust established under Delaware law, in connection with
the preparation of the Registration Statement on Form S-3 (File No. 333-30785)
relating to the issuance from time to time in one or more series (each, a
"Series") of up to $3,000,000,000 aggregate principal amount of Rate Reduction
Certificates (the "Securities"). The Registration Statement has been filed with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "1933 Act"). As set forth in the Registration
Statement, each Series of Securities will be issued pursuant to an Amended and
Restated Declaration and Agreement of Trust or supplement thereto (each, a
"Trust Agreement") among the California Infrastructure and Economic Development
Bank (the "Bank"), and the Certificate Trustee and Delaware Trustee named
therein (each, a "Trustee"), which Trust Agreement will be identified in the
prospectus supplement for such Series of Securities.
<PAGE>
We have examined the prospectus and the form of prospectus supplement
contained in the Registration Statement (collectively, the "Prospectus") and
such other documents, records and instruments as we have deemed necessary for
the purposes of this opinion.
In arriving at the opinion expressed below, we have assumed that each Trust
Agreement will be duly authorized by all necessary corporate action on the part
of the Bank and each other party thereto for the related Series of Securities
and will be duly executed and delivered by the Bank and each other party thereto
substantially in the applicable form filed or incorporated by reference as an
exhibit to the Registration Statement, that the Securities of each Series will
be duly executed and delivered in substantially the forms set forth in the
related Trust Agreement filed or incorporated by reference as an exhibit to the
Registration Statement, and that Securities will be sold as described in the
Registration Statement.
As counsel to the Trust, we have advised the Trust with respect to
certain federal income tax aspects of the proposed issuance of each Series of
Securities pursuant to the related Trust Agreement. Such advice has formed the
basis for the description of selected federal income tax consequences for
holders of such Securities that appear under the heading "Certain Federal Income
Tax Consequences" in each Prospectus forming a part of the Registration
Statement. Such description does not purport to discuss all possible federal
income tax ramifications of the proposed issuance of the Securities, but with
respect to those federal income tax consequences which are discussed, in our
opinion, the description is accurate in all material respects.
This opinion is based on the facts and circumstances set forth in the
Registration Statement and in the other documents reviewed by us. Our opinion as
to the matters set forth herein could change with respect to a particular Series
of Securities as a result of changes in fact or circumstances, changes in the
terms of the documents reviewed by us, or changes in the law subsequent to the
date hereof. Because Series of Securities with different characteristics may be
issued, you should be aware that the particular characteristics of each Series
of Securities must be considered in determining the applicability of this
opinion to such Series of Securities.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Certain Federal Income Tax Consequences" in each Prospectus forming a part of
the Registration Statement, without admitting that we are "experts" within the
meaning of the 1933 Act or the Rules and Regulations of the Commission issued
thereunder, with respect to any part of the Registration Statement, including
this exhibit.
<PAGE>
This opinion is solely for your benefit and may not be relied upon or used
by, circulated, quoted or referred to, nor may copies hereof be delivered to any
other person without our prior written approval. We disclaim any obligation to
update this opinion letter for events occurring or coming to our attention after
the date hereof.
Respectfully submitted,
/s/ Brown & Wood LLP
<PAGE>
EXHIBIT 10.1
[FORM OF TRANSITION PROPERTY PURCHASE AND SALE AGREEMENT]
________________________________________________________________________________
TRANSITION PROPERTY PURCHASE AND SALE AGREEMENT
between
[NAME OF SPE]
Note Issuer
and
[NAME OF UTILITY]
Seller
Dated as of [ ], 1997
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions
-----------
SECTION 1.01. Definitions............................................. 1
SECTION 1.02. Other Definitional Provisions........................... 6
ARTICLE II
Conveyance of Transition Property
---------------------------------
SECTION 2.01. Conveyance of Transition Property....................... 7
ARTICLE III
Representations and Warranties of Seller
----------------------------------------
SECTION 3.01. Organization and Good Standing.......................... 8
SECTION 3.02. Qualification........................................... 9
SECTION 3.03. Power and Authority..................................... 9
SECTION 3.04. Binding Obligation...................................... 9
SECTION 3.05. No Violation............................................ 10
SECTION 3.06. No Proceedings.......................................... 11
SECTION 3.07. Approvals............................................... 11
SECTION 3.08. The Transition Property................................. 12
SECTION 3.09. Outstanding Indenture................................... 16
ARTICLE IV
Covenants of the Seller
-----------------------
SECTION 4.01. Corporate Existence..................................... 16
SECTION 4.02. No Liens................................................ 17
SECTION 4.03. Delivery of Collections................................. 17
SECTION 4.04. Notice of Liens......................................... 17
SECTION 4.05. Compliance With Law..................................... 17
SECTION 4.06. Covenants Related to the
Transition Property................................... 18
SECTION 4.07. Protection of Title..................................... 19
SECTION 4.08. Nonpetition Covenants................................... 20
SECTION 4.09. Taxes................................................... 21
</TABLE>
<PAGE>
Contents, p.ii
<TABLE>
<CAPTION>
ARTICLE V
The Seller
----------
<S> <C>
SECTION 5.01. Liability of Seller; Indemnities........................ 21
SECTION 5.02. Merger or Consolidation of, or Assumption
of the Obligations of, Seller........................... 24
SECTION 5.03. Limitation on Liability of Seller and
Others.................................................. 25
ARTICLE VI
Miscellaneous Provisions
------------------------
SECTION 6.01. Amendment............................................... 26
SECTION 6.02. Notices................................................. 27
SECTION 6.03. Assignment.............................................. 28
SECTION 6.04. Limitations on Rights of Others......................... 29
SECTION 6.05. Severability............................................ 29
SECTION 6.06. Separate Counterparts................................... 29
SECTION 6.07. Headings................................................ 30
SECTION 6.08. Governing Law........................................... 30
SECTION 6.09. Assignment to Note Trustee.............................. 30
SECTION 6.10. Limitation of Liability................................. 31
</TABLE>
<PAGE>
TRANSITION PROPERTY PURCHASE AND SALE
AGREEMENT dated as of [_], 1997,between [NAME OF SPE], a Delaware
limited liability company (the "Note Issuer"), and [NAME OF
UTILITY], a California corporation ("Name of Utility"), as Seller
(the "Seller").
WHEREAS the Note Issuer desires to purchase the Transition Property
created pursuant to the PU Code, the Financing Order and the Issuance Advice
Letter; and
WHEREAS the Seller is willing to sell such Transition Property to the
Note Issuer.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Definitions. Whenever used in this Agreement, the
------------
following words and phrases shall have the following meanings:
"Agreement" means this Transition Property Purchase and Sale
Agreement, as the same may be amended and supplemented from time to time.
<PAGE>
2
"Certificates" means the Series of Certificates issued under the Trust
Agreement whose Series Issuance Date is the date of this Agreement.
"Certificate Trustee" means the Person acting as certificate trustee
under the Trust Agreement.
"CPUC" means the California Public Utilities Commission or any
successor in interest.
"CPUC Regulations" has the meaning assigned to that term in the
Servicing Agreement.
"Customers" means existing and future Residential Customers and Small
Commercial Customers.
"Delaware Trustee" means the Person acting as Delaware trustee under
the Trust Agreement.
"Financing Order" means the order of the CPUC, Decision 97-09-[056]
[Edison], issued as of as of [September 3] [Edison], 1997, which became
effective on [October 9] [Edison], 1997.
"FTA Charges" means the non-bypassable, usage-based, per kilowatt hour
charges permitted to be levied upon the Customers by the Financing Order.
"Indenture" means the Indenture dated as of [_], 1997, between the
Note Issuer and the Note Trustee, as the same may be amended and supplemented
from time to time.
"Infrastructure Bank" means the California Infrastructure and Economic
Development Bank or any successor in interest.
<PAGE>
3
"Insolvency Event" means, with respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable Federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or ordering the
winding-up or liquidation of such Person's affairs, and such decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; or (b)
the commencement by such Person of a voluntary case under any applicable Federal
or state bankruptcy, insolvency or other similar law now or hereafter in effect,
or the consent by such Person to the entry of an order for relief in an
involuntary case under any such law, or the consent by such Person to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or the making by such Person of any general
assignment for the benefit of creditors, or the failure by such Person generally
to pay its debts as such debts become due, or the taking of action by such
Person in furtherance of any of the foregoing.
"Issuance Advice Letter" means Advice [______]-E (U39E), dated
[________], 1997, filed with the CPUC by the Seller pursuant to the Financing
Order.
<PAGE>
4
"Lien" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind.
"Losses" has the meaning assigned to that term in Section 5.01(d).
"Note Issuer" has the meaning set forth in the heading of this
Agreement.
"Notes" means the Series of Notes issued under the Indenture whose
Series Issuance Date is the date of this Agreement.
"Note Trustee" means the Person acting as trustee under the Indenture.
"Officer's Certificate" means a certificate signed by the chairman of
the board, the president, the vice chairman of the board, any vice president,
the treasurer, any assistant treasurer, the secretary or any assistant
secretary of the Seller.
"Opinion of Counsel" means one or more written opinions of counsel who
may be an employee of or counsel to the party providing such opinion of counsel,
which counsel shall be acceptable to the party receiving such opinion of
counsel.
<PAGE>
5
"PU Code" means the California Public Utilities Code, as amended from
time to time.
"Residential Customers" means the existing and future residential
consumers of electricity, as identified in the Financing Order, located in the
service territory in which the Seller provided electricity services as of
December 20, 1995.
"Seller" means [Name of Utility] and its successors in interest to the
extent permitted hereunder.
"Servicer Default" means an event specified in Section 7.01 of the
Servicing Agreement.
"Servicing Agreement" means that certain Transition Property Servicing
Agreement dated as of the date hereof between [Name of Utility], as Servicer,
and the Note Issuer.
"Small Commercial Customers" means the existing and future small
commercial consumers of electricity, as identified in the Financing Order,
located in the service territory in which the Seller provided electricity
services as of December 20, 1995.
"Statute" means Assembly Bill 1890, Chapter 854, California Statutes
of 1996, signed into law by the Governor of California on September 23, 1996, as
amended by Senate Bill 477, Chapter 275, California Statutes of 1997, signed
into law by the Governor of California on [_], 1997, and as further amended from
time to time.
"Transition Costs" has the meaning assigned to that term in Section
840(f) of the PU Code.
<PAGE>
6
"Transition Property" means the "Transition Property" contemplated by
the Financing Order and specifically described in the Issuance Advice Letter.
"Trust Agreement" means the Amended and Restated Declaration and
Agreement of Trust dated as of [_], 1997, among the Infrastructure Bank, the
Delaware Trustee and the Certificate Trustee, as the same may be further amended
and supplemented from time to time.
SECTION 1.02. Other Definitional Provisions.
------------------------------
(a) Capitalized terms used herein and not otherwise defined herein
have the meanings assigned to them in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) The words "hereof", "herein", "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section, Schedule and Exhibit
references contained in this Agreement are references to Sections, Schedules and
Exhibits in or to this Agreement unless otherwise specified; and the term
"including" shall mean "including without limitation".
(d) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
<PAGE>
7
ARTICLE II
Conveyance of Transition Property
---------------------------------
SECTION 2.01. Conveyance of Transition Property. In consideration of
----------------------------------
the Note Issuer's delivery to or upon the order of the Seller of $[_], the
Seller does hereby sell, transfer, assign, set over and otherwise convey to the
Note Issuer, without recourse (subject to the obligations herein), all right,
title and interest of the Seller in and to the Transition Property (such sale,
transfer, assignment, set over and conveyance of the Transition Property
includes, to the fullest extent permitted by the Statute, the assignment of all
revenues, collections, claims, rights, payments, money or proceeds of or arising
from the FTA Charges pursuant to the Financing Order and the Issuance Advice
Letter). Such sale, transfer, assignment, set over and conveyance is hereby
expressly stated to be a sale and, pursuant to Section 844(a) of the PU Code,
shall be treated as an absolute transfer of all of the Seller's right, title and
interest (as in a true sale), and not as a pledge or other financing, of the
Transition Property, other than for federal and state income and franchise tax
purposes. [If such sale, transfer, assignment, set over and conveyance is held
not to be a true sale as contemplated by Section 844(a) of the PU Code, then
such sale, transfer, assignment, set over and conveyance shall be treated as a
pledge of the Transition Property and the Seller shall be deemed to have granted
a security
<PAGE>
8
interest to the Note Issuer in the Transition Property.] [Discuss need of back-
up security interest]
ARTICLE III
Representations and Warranties of Seller
----------------------------------------
The Seller makes the following representations and warranties, as of
the Closing Date and as of such other dates as expressly provided in this
Article III, on which the Note Issuer has relied in acquiring the Transition
Property. The representations and warranties shall survive the sale of the
Transition Property to the Note Issuer and the pledge thereof to the Note
Trustee pursuant to the Indenture.
SECTION 3.01. Organization and Good Standing. The Seller is duly
-------------------------------
organized and validly existing as a corporation in good standing under the laws
of the State of California, with the power and authority to own its properties
and to conduct its business as such properties are currently owned and such
business is presently conducted, and had at all relevant times, and has, the
requisite power, authority and legal right to own the Transition Property.
SECTION 3.02. Due Qualification. The Seller is duly qualified to do
------------------
business as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals, in all jurisdictions in which the ownership or
lease of property or the conduct of its business shall require such
qualifications, licenses or approvals (except where the failure to so qualify
would not be reasonably likely to have a material adverse effect on the Seller's
<PAGE>
9
business, operations, assets, revenues, properties or prospects).
SECTION 3.03. Power and Authority. The Seller has the requisite
--------------------
power and authority to execute and deliver this Agreement and to carry out its
terms; the Seller has full power and authority to sell and assign the Transition
Property to be sold and assigned to the Note Issuer and the Seller has duly
authorized such sale and assignment to the Note Issuer by all necessary
corporate action; and the execution, delivery and performance of this Agreement
has been duly authorized by the Seller by all necessary corporate action.
SECTION 3.04. Binding Obligation. This Agreement constitutes a
-------------------
legal, valid and binding obligation of the Seller enforceable in accordance with
its terms, subject to applicable insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws relating to or affecting creditors'
rights generally from time to time in effect and to general principles of equity
(including, without limitation, concepts of materiality, reasonableness, good
faith and fair dealing), regardless of whether considered in a proceeding in
equity or at law.
SECTION 3.05. No Violation. After giving effect to the release of
-------------
the lien of the [specify outstanding Indenture] on the Transition Property, the
consummation of the transactions contemplated by this Agreement and the
fulfillment of the terms hereof do not conflict with, result in any breach of
any of the terms and provisions of, nor
<PAGE>
10
constitute (with or without notice or lapse of time) a default under, the
articles of incorporation or bylaws of the Seller, or any indenture, agreement
or other instrument to which the Seller is a party or by which it shall be
bound; nor result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such indenture, agreement or other
instrument; nor violate any law or any order, rule or regulation applicable to
the Seller of any court or of any Federal or state regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Seller or its properties.
SECTION 3.06. No Proceedings. Except as set forth on Schedule 3.06,
---------------
there are no proceedings or investigations pending or, to the Seller's
knowledge, threatened, before any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Seller or its properties involving or relating to the Seller or the
Note Issuer or, to the Seller's knowledge, any other Person: (i) asserting the
invalidity of this Agreement, the Indenture, the Trust Agreement or any of the
other Basic Documents or the Notes or the Certificates, (ii) seeking to prevent
the issuance of the Notes or the Certificates or the consummation of any of the
transactions contemplated by this Agreement, the Indenture, the Trust Agreement
or any of the other Basic Documents, (iii) seeking any determination or ruling
that might materially and adversely affect the
<PAGE>
11
performance by the Seller of its obligations under, or the validity or
enforceability of, this Agreement, the Indenture, the Trust Agreement, any of
the other Basic Documents or the Notes or the Certificates or (iv) which might
adversely affect the Federal or state income tax attributes of the Notes or the
Certificates.
SECTION 3.07. Approvals. No approval, authorization, consent, order
----------
or other action of, or filing with, any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality is required in
connection with the execution and delivery by the Seller of this Agreement, the
performance by the Seller of the transactions contemplated hereby or the
fulfillment by the Seller of the terms hereof, except those that have been
obtained or made and those that the Seller, in its capacity as Servicer under
the Servicing Agreement, is required to make in the future pursuant to Article
IV of the Servicing Agreement.
SECTION 3.08. The Transition Property.
------------------------
(a) Information. At the Closing Date, all information provided by
------------
the Seller to the Note Issuer with respect to the Transition Property (including
the Expected Amortization Schedule, the Financing Order and the Issuance Advice
Letter) is correct in all material respects.
(b) Title. It is the intention of the parties hereto that the
------
transfer and assignment herein contemplated constitute a sale of the Transition
Property from the Seller to the Note Issuer and that the beneficial interest in
and
<PAGE>
12
title to the Transition Property not be part of the debtor's estate in the event
of the filing of a bankruptcy petition by or against the Seller under any
bankruptcy law. No portion of the Transition Property has been sold,
transferred, assigned or pledged by the Seller to any Person other than the Note
Issuer. At the Closing Date immediately prior to the sale hereunder and after
giving effect to the release of the lien of the [describe Indenture], the Seller
owns the Transition Property, free and clear of all Liens and rights of others,
no offsets, defenses or counterclaims exist or have been asserted with respect
thereto and [Name of Utility], in its capacity as Seller or Servicer, will not
at any time assert any Lien against or with respect to any of the Transition
Property.
(c) Transfer Filings. At the Closing Date, the Transition Property
-----------------
has been validly transferred and sold to the Note Issuer, the Note Issuer shall
own all such Transition Property, free and clear of all Liens and rights of
others, except for any statutory lien under Section 843(g) of the PU Code; and
all filings to be made by the Seller (including filings with the CPUC under the
PU Code) necessary in any jurisdiction to give the Note Issuer a first priority
perfected ownership or security interest in the Transition Property have been
made (subject to any statutory lien under Section 843(g) of the PU Code). No
further action, other than any filings required by Sections 9-403(2)-(3), 9-306,
9-402(7) and 9-103 of the Uniform Commercial Code and Sections 843 and 844 of
the PU
<PAGE>
13
Code, is required to maintain such first priority perfected ownership or
security interest (subject to any statutory lien under Section 843(g) of the PU
Code).
(d) Financing Order and Issuance Advice Letters; Other Approvals. At
-------------------------------------------------------------
the Closing Date, (i) the Financing Order and the Issuance Advice Letter have
been duly authorized and adopted by the CPUC and are in full force and effect;
(ii) as of the issuance of the Certificates, the Certificates are entitled to
the protections provided in the first sentences of Sections 841(c) and 842(d) of
the PU Code and, accordingly, the Financing Order and the Issuance Advice Letter
are not revocable by the State of California, the CPUC or the Seller; (iii) none
of the State of California, the CPUC or the Infrastructure Bank may revoke,
limit, alter or modify the FTA Charges, the Transition Property or the Financing
Order or the Advice Letters relating thereto, and all rights thereunder until
the Certificates, together with interest thereon, are fully met and discharged,
unless adequate provision shall be made by law for the protection of the
Certificateholders; (iv) the process by which the Financing Order and the
Infrastructure Bank Resolution were adopted and approved and the Issuance Advice
Letter was filed, and the Financing Order, the Issuance Advice Letter and the
Infrastructure Bank Resolution themselves, comply with all applicable laws,
rules and regulations, and there is no basis on which any Person could
successfully cause a court or other administrative body to order the revocation,
alteration,
<PAGE>
14
limitation or other impairment of the Financing Order, the Issuance Advice
Letter, the Infrastructure Bank Resolution, the Transition Property or the FTA
Charges or any rights arising under any of them or to cause any such court or
administrative body to enjoin the performance of any obligations thereunder; and
(v) no other approval, authorization, consent, order or other action of, or
filing with, any court, Federal or state regulatory body, administrative agency
or other governmental instrumentality is required in connection with the
creation of the Transition Property, except those that have been obtained or
made.
(e) Assumptions. At the Closing Date, the assumptions used in
------------
calculating the FTA Charges related to the Transition Property are reasonable
and made in good faith.
(f) Creation of Transition Property. Upon the effectiveness of the
--------------------------------
Issuance Advice Letter: (i) all of the Transition Property constitutes a current
property right; (ii) the Transition Property includes, without limitation, (A)
the right, title and interest in and to the FTA Charges, as adjusted from time
to time, (B) the right to be paid the total amounts set forth in the Issuance
Advice Letter, (C) the right, title and interest in and to all revenues,
collections, claims, payments, money, or proceeds of or arising from the FTA
Charges set forth in the Issuance Advice Letter, and (D) all rights to obtain
adjustments to the FTA Charges pursuant to the Financing Order; and (iii)
<PAGE>
15
the holders of the Transition Property are entitled to recover the Transition
Costs described in the Financing Order or the Issuance Advice Letter in the
aggregate amount equal to the principal amount of the Notes and the
Certificates, all interest thereon, the Overcollateralization Amount (as such
term is defined in the Servicing Agreement) relating to the Notes and all
related fees, costs and expenses in respect of the Notes and the Certificates
until they have been paid in full.
SECTION 3.09. Outstanding Indenture. On or prior to the Closing
----------------------
Date, the Lien of the [specify outstanding indenture] on the Transition Property
shall have been released.
ARTICLE IV
Covenants of the Seller
-----------------------
SECTION 4.01. Corporate Existence. So long as any of the Notes are
--------------------
outstanding, the Seller (a) will keep in full force and effect its existence,
rights and franchises as a corporation under the laws of the jurisdiction of its
incorporation and (b) will obtain and preserve its qualification to do business,
in each case to the extent that in each such jurisdiction such existence or
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the Basic Documents to which the Seller is a
party and each other instrument or agreement necessary or appropriate to the
proper administration of this Agreement and the transactions contemplated
hereby.
<PAGE>
16
SECTION 4.02. No Liens. Except for the conveyances hereunder or any
---------
statutory lien under Section 843(g) of the PU Code, the Seller will not sell,
pledge, assign or transfer to any other Person, or grant, create, incur, assume
or suffer to exist any Lien on, any of the Transition Property, or any interest
therein, and the Seller shall defend the right, title and interest of the Note
Issuer and the Note Trustee in, to and under the Transition Property, against
all claims of third parties claiming through or under the Seller.
SECTION 4.03. Delivery of Collections. If the Seller receives
------------------------
collections in respect of the FTA Charges or the proceeds thereof, the Seller
agrees to pay the Servicer all payments received by the Seller in respect
thereof as soon as practicable after receipt thereof by the Seller, but in no
event later than two Business Days after such receipt.
SECTION 4.04. Notice of Liens. The Seller shall notify the Note
----------------
Issuer and the Note Trustee promptly after becoming aware of any Lien on any of
the Transition Property other than the conveyances hereunder or under the
Indenture or any statutory lien under Section 843(g) of the PU Code.
SECTION 4.05. Compliance with Law. The Seller hereby agrees to
--------------------
comply with its organizational or governing documents and all laws, treaties,
rules, regulations and determinations of any governmental instrumentality
applicable to the Seller, except to the extent that failure to so comply would
not adversely affect the Note Issuer's or the Note Trustee's interests in the
Transition Property or
<PAGE>
17
under any of the Basic Documents or the Seller's performance of its obligations
hereunder or under any of the other Basic Documents to which it is party.
SECTION 4.06. Covenants Related to Transition Property.
-----------------------------------------
(a) So long as any of the Notes are outstanding, the Seller shall
treat the Notes as debt for all purposes to the extent consistent with generally
accepted accounting practices.
(b) So long as any of the Notes are outstanding, the Seller shall
indicate in its financial statements that it is not the owner of the Transition
Property.
(c) The Seller agrees that upon the sale by the Seller of the
Transition Property to the Note Issuer pursuant to this Agreement, (i) to the
fullest extent permitted by law, including applicable CPUC Regulations, the Note
Issuer shall have all of the rights originally held by the Seller with respect
to such Transition Property, including the right to exercise any and all rights
and remedies to collect any amounts payable by any Customer in respect of such
Transition Property, notwithstanding any objection or direction to the contrary
by the Seller and (ii) any payment by any Customer to the Note Issuer shall
discharge such Customer's obligations in respect of such Transition Property to
the extent of such payment, notwithstanding any objection or direction to the
contrary by the Seller.
<PAGE>
18
(d) So long as any of the Notes are outstanding, other than for
federal and state income and franchise tax purposes, (i) the Seller shall not
make any statement or reference in respect of the Transition Property that is
inconsistent with the ownership interest of the Note Issuer, and (ii) the Seller
shall not take any action in respect of the Transition Property except solely in
its capacity as the Servicer thereof pursuant to the Servicing Agreement or as
otherwise contemplated by the Basic Documents.
SECTION 4.07. Protection of Title. The Seller shall execute and file
--------------------
such filings, including filings with the CPUC pursuant to the PU Code, and cause
to be executed and filed such filings, all in such manner and in such places as
may be required by law fully to preserve, maintain, and protect the interests of
the Note Issuer in the Transition Property, including all filings required under
the Statute relating to the transfer of the ownership or security interest in
the Transition Property by the Seller to the Note Issuer. The Seller shall
deliver (or cause to be delivered) to the Note Issuer file-stamped copies of, or
filing receipts for, any document filed as provided above, as soon as available
following such filing. [The Seller shall institute any action or proceeding
necessary to compel performance by the CPUC or the State of California of any of
their obligations or duties under the PU Code, the Financing Order or the
Issuance Advice Letter.]
SECTION 4.08. Nonpetition Covenants. Notwithstanding any prior
----------------------
termination of this Agreement or the
<PAGE>
19
Indenture, but subject to the CPUC's right to order the sequestration and
payment of revenues arising with respect to the Transition Property
notwithstanding any bankruptcy, reorganization or other insolvency proceedings
with respect to the debtor, pledgor or transferor of the Transition Property
pursuant to Section 843(e) and (g) of the PU Code, the Seller shall not, prior
to the date which is one year and one day after the termination of the
Indenture, acquiesce, petition or otherwise invoke or cause the Note Issuer or
the Trust to invoke the process of any court or government authority for the
purpose of commencing or sustaining a case against the Note Issuer or the Trust
under any Federal or state bankruptcy, insolvency or similar law or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Note Issuer or the Trust or any substantial part of the
property of the Note Issuer or the Trust, or ordering the winding up or
liquidation of the affairs of the Note Issuer or the Trust.
SECTION 4.09. Taxes. So long as any of the Notes are outstanding,
------
the Seller shall, and shall cause each of its subsidiaries to, pay all material
taxes, assessments and governmental charges imposed upon it or any of its
properties or assets or with respect to any of its franchises, business, income
or property before any penalty accrues thereon; provided that no such tax need
be paid if the Seller or one of its subsidiaries is contesting the same in good
faith by appropriate proceedings promptly instituted
<PAGE>
20
and diligently conducted and if the Seller or such subsidiary has established
appropriate reserves as shall be required in conformity with generally accepted
accounting principles.
ARTICLE V
The Seller
----------
SECTION 5.01. Liability of Seller; Indemnities.
---------------------------------
(a) The Seller shall be liable in accordance herewith only to the
extent of the obligations specifically undertaken by the Seller under the
Agreement.
(b) In the event of a breach by the Seller of the representations and
warranties specified in Sections 3.08(d) and 3.08(f) [others?], the Seller shall
repurchase the Transition Property from the Note Issuer at a purchase price
equal to the then outstanding principal amount of the Notes and all accrued and
unpaid interest thereon as of the repurchase date.
(c) The Seller shall indemnify the Note Issuer, the Trust, the Note
Trustee, the Certificate Trustee, the Delaware Trustee, the Infrastructure Bank,
the Noteholders and the Certificateholders and each of their respective
officers, directors and agents for, and defend and hold harmless each such
Person from and against, any and all taxes (other than any taxes imposed on
Noteholders or Certificateholders solely as a result of their ownership of Notes
or Certificates, respectively) that may at any time be imposed on or asserted
against any such Person as a result of the sale of the Transition Property to
the Note Issuer,
<PAGE>
21
including any sales, gross receipts, general corporation, tangible personal
property, privilege or license taxes.
(d) The Seller shall indemnify the Note Issuer, the Trust, the Note
Trustee, the Certificate Trustee, the Delaware Trustee, the Infrastructure Bank,
the Noteholders and the Certificateholders and each of their respective
officers, directors and agents for, and defend and hold harmless each such
Person from and against, any and all taxes (other than any taxes imposed on
Noteholders or Certificateholders solely as a result of their ownership of Notes
or Certificates, respectively) that may be imposed on or asserted against any
such Person under existing law as of the Closing Date as a result of the
issuance and sale by the Note Issuer of the Notes, the issuance and sale by the
Trust of the Certificates or the other transactions contemplated herein,
including any sales, gross receipts, general corporation, tangible personal
property, privilege or license taxes.
(e) The Seller shall indemnify the Note Issuer, the Trust, the Note
Trustee, the Certificate Trustee, the Delaware Trustee, the Infrastructure Bank,
the Noteholders and the Certificateholders and each of their respective
officers, directors, and agents for, and defend and hold harmless each such
Person from and against, any and all liabilities, obligations, losses, damages,
payments, costs or expenses of any kind whatsoever (collectively, "Losses") that
may be imposed on, incurred by or asserted against any such Person as a result
of (i) the Seller's willful
<PAGE>
22
misconduct, bad faith or negligence in the performance of its duties or
observance of its covenants under this Agreement, or the Seller's reckless
disregard of its obligations and duties under this Agreement or (ii) the
Seller's breach of any of its representations or warranties contained in this
Agreement.
(f) The Seller shall pay any and all taxes levied or assessed upon
all or any part of the Trust Estate based on existing law as of the Closing
Date.
(g) Indemnification under Sections 5.01(c) through 5.01(f) shall
survive the resignation or removal of the Note Trustee, the Certificate Trustee
or the Delaware Trustee and the termination of this Agreement and shall include
reasonable fees and expenses of investigation and litigation (including
attorneys fees and expenses).
SECTION 5.02. Merger or Consolidation of, or Assumption of the
------------------------------------------------
Obligations of, Seller. Any Person (a) into which the Seller may be merged or
- -----------------------
consolidated, (b) which may result from any merger or consolidation to which the
Seller shall be a party or (c) which may succeed to the properties and assets of
the Seller substantially as a whole, which Person in any of the foregoing cases
executes an agreement of assumption to perform every obligation of the Seller
hereunder, shall be the successor to the Seller under this Agreement without
further act on the part of any of the parties to this Agreement; provided,
--------
however, that (i) immediately after giving effect to such transaction, no
- -------
representation or warranty made pursuant to Article III
<PAGE>
23
shall have been breached and (if the Seller is the Servicer) no Servicer
Default, and no event which, after notice or lapse of time, or both, would
become a Servicer Default shall have occurred and be continuing, (ii) the Seller
shall have delivered to the Note Issuer and the Note Trustee an Officers'
Certificate and an Opinion of Counsel each stating that such consolidation,
merger or succession and such agreement of assumption comply with this Section
and that all conditions precedent, if any, provided for in this Agreement
relating to such transaction have been complied with and (iii) the Seller shall
have delivered to the Note Issuer and the Note Trustee an Opinion of Counsel
either (A) stating that, in the opinion of such counsel, all filings to be made
by the Seller, including filings with the CPUC pursuant to the PU Code, have
been executed and filed that are necessary fully to preserve and protect the
interest of the Note Issuer in the Transition Property and reciting the details
of such filings, or (B) stating that, in the opinion of such counsel, no such
action shall be necessary to preserve and protect such interests.
Notwithstanding anything herein to the contrary, the execution of the foregoing
agreement of assumption and compliance with clauses (i), (ii) and (iii) above
shall be conditions to the consummation of any transaction referred to in
clauses (a), (b) or (c) above.
SECTION 5.03. Limitation on Liability of Seller and Others. The
--------------------------------- -----------
Seller and any director or officer or employee or agent of the Seller may rely
in good faith on
<PAGE>
24
the advice of counsel or on any document of any kind, prima facie properly
executed and submitted by any Person, respecting any matters arising hereunder.
The Seller shall not be under any obligation to appear in, prosecute or defend
any legal action that shall not be incidental to its obligations under this
Agreement, and that in its opinion may involve it in any expense or liability.
ARTICLE VI
Miscellaneous Provisions
------------------------
SECTION 6.01. Amendment. The Agreement may be amended by the Seller
----------
and the Note Issuer, with the consent of the Note Trustee, but without the
consent of any of the Noteholders or Certificateholders, to cure any ambiguity,
to correct or supplement any provisions in this Agreement or for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions in this Agreement or of modifying in any manner the rights of the
Noteholders or the Certificateholders; provided, however, that such action
-------- -------
shall not, as evidenced by an Officer's Certificate delivered to the Note Issuer
and the Note Trustee, adversely affect in any material respect the interests of
any Noteholder or Certificateholder.
This Agreement may also be amended from time to time by the Seller and
the Note Issuer, with the consent of the Note Trustee and the consent of the
Holders of Notes evidencing not less than a majority of the Outstanding Amount
of the Notes [of all Series], for the purpose of adding any provisions to or
changing in any manner or
<PAGE>
25
eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of the Noteholders or the Certificateholders; provided,
--------
however, that no such amendment shall (a) increase or reduce in any manner the
- -------
amount of, or accelerate or delay the timing of, FTA Collections or (b) reduce
the aforesaid percentage of the Outstanding Amount of the Notes, the Holders of
which are required to consent to any such amendment, without the consent of the
Holders of all the outstanding Notes.
Promptly after the execution of any such amendment or consent, the
Note Issuer shall furnish written notification of the substance of such
amendment or consent to the Note Trustee and each of the Rating Agencies.
It shall not be necessary for the consent of Noteholders pursuant to
this Section to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof.
Prior to the execution of any amendment to this Agreement, the Note
Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating
that the execution of such amendment is authorized or permitted by this
Agreement. The Note Trustee may, but shall not be obligated to, enter into any
such amendment which affects the Note Trustee's own rights, duties or immunities
under this Agreement or otherwise.
SECTION 6.02. Notices. All demands, notices and communications upon
--------
or to the Seller, the Note Issuer, the
<PAGE>
26
Note Trustee or the Rating Agencies under this Agreement shall be in writing,
personally delivered, mailed or sent by telecopy or other similar form of rapid
transmission, and shall be deemed to have been duly given upon receipt (a) in
the case of the Seller, to [Name of Utility], [_], Attention of [_] ([_]), (b)
in the case of the Note Issuer, to [Name of SPE], [_], Attention of [_], (c) in
the case of the Note Trustee, at the Corporate Trust Office, (d) in the case of
the Infrastructure Bank, to [_], [_], Attention of [_], (e) in the case of the
Certificate Trustee, to [_], [_], Attention of [_], (f) in the case of Moody's,
to Moody's Investors Service, Inc., ABS Monitoring Department, 99 Church Street,
New York, New York 10007, (g) in the case of Standard & Poor's, to Standard &
Poor's Corporation, 26 Broadway (15th Floor), New York, New York 10004,
Attention of Asset Backed Surveillance Department, (h) in the case of Fitch, to
Fitch Investors Service, L.P., One State Street Plaza, New York, NY 10004,
Attention of [_], [(i) in the case of Duff & Phelps, to Duff & Phelps Credit
Rating Company, 55 East Monroe Street, Suite 3500, Chicago, IL 60603, Attention
of [_]_] or (i) as to each of the foregoing, at such other address as shall be
designated by written notice to the other parties.
SECTION 6.03. Assignment. Notwithstanding anything to the contrary
-----------
contained herein, except as pro-
<PAGE>
27
vided in Section 5.02, this Agreement may not be assigned by the Seller.
SECTION 6.04. Limitations on Rights of Others. The provisions of
--------------------------------
this Agreement are solely for the benefit of the Seller, the Note Issuer, the
Note Trustee, the Trust, the Certificate Trustee, the Delaware Trustee, the
Infrastructure Bank, the Noteholders and the Certificateholders and nothing in
this Agreement, whether express or implied, shall be construed to give to any
other Person any legal or equitable right, remedy or claim in the Transition
Property or under or in respect of this Agreement or any covenants, conditions
or provisions contained herein.
SECTION 6.05. Severability. Any provision of this Agreement that is
-------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 6.06. Separate Counterparts. This Agreement may be executed
----------------------
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 6.07. Headings. The headings of the various Articles and
---------
Sections herein are for convenience of
<PAGE>
28
reference only and shall not define or limit any of the terms or provisions
hereof.
SECTION 6.08. Governing Law. This Agreement shall be construed in
--------------
accordance with the laws of the State of California, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 6.09. Assignment to Note Trustee. The Seller hereby
---------------------------
acknowledges and consents to any mortgage, pledge, assignment and grant of a
security interest by the Note Issuer to the Note Trustee pursuant to the
Indenture for the benefit of the Noteholders of all right, title and interest of
the Note Issuer in, to and under the Transition Property and the proceeds
thereof and the assignment of any or all of the Note Issuer's rights and
obligations hereunder to the Note Trustee.
<PAGE>
29
SECTION 6.10. Limitation of Liability. It is expressly understood
------------------------
and agreed by the parties hereto that (a) this Agreement is executed and
delivered by Bankers Trust Company, not individually or personally but solely as
Note Trustee of the Trust, in the exercise of the powers and authority conferred
and vested in it, (b) the representations, undertakings and agreements herein
made on the part of the Trust are made and intended not as personal
representations, undertakings and agreements by Bankers Trust Company, but are
made and intended for the purpose of binding only the Trust, (c) nothing herein
contained shall be construed as creating any liability on Bankers Trust Company,
individually or personally, to perform any covenant either expressed or implied
contained herein, all such liability, if any, being expressly waived by the
parties who are signatories to this Agreement and by any Person claiming by,
through or under such parties and (d) under no circumstances shall Bankers Trust
Company, be personally liable for the payment of any indebtedness or expenses of
the Trust or be liable for the breach or failure of any
<PAGE>
30
obligation, representation, warranty or covenant made or undertaken by the Trust
under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers as of the day and year first above
written.
[NAME OF SPE], Note Issuer,
by
___________________________________
Title:
[NAME OF UTILITY], Seller,
by
___________________________________
Title:
Acknowledged and Accepted:
BANKERS TRUST COMPANY, not
in its individual capacity
but solely as Note Trustee,
by
____________________
<PAGE>
EXHIBIT 10.2
[FORM OF TRANSITION PROPERTY SERVICING AGREEMENT]
________________________________________________________________________________
TRANSITION PROPERTY SERVICING AGREEMENT
between
[NAME OF SPE]
Note Issuer
and
[NAME OF UTILITY]
Servicer
Dated as of [ ], 1997
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions
-----------
SECTION 1.01. Definitions............................................... 2
SECTION 1.02. Other Definitional Provisions............................. 17
ARTICLE II
Appointment and Authorization
-----------------------------
SECTION 2.01. Appointment of Servicer; Acceptance of Appointment........ 18
SECTION 2.02. Authorization............................................. 19
SECTION 2.03. Dominion and Control Over the Transition Property......... 19
ARTICLE III
Billing Services
----------------
SECTION 3.01. Duties of Servicer........................................ 20
SECTION 3.02. Servicing and Maintenance Standards....................... 23
SECTION 3.03. Certificate of Compliance................................. 24
SECTION 3.04. Annual Report by Independent Public Accountants........... 25
ARTICLE IV
Services Related to True-Up Adjustments
---------------------------------------
SECTION 4.01. Periodic True-Up Adjustments.............................. 26
SECTION 4.02. Limitation of Liability................................... 36
ARTICLE V
The Transition Property
-----------------------
SECTION 5.01. Custody of Transition Property Records.................... 38
SECTION 5.02. Duties of Servicer as Custodian........................... 39
SECTION 5.03. Instructions; Authority to Act............................ 41
SECTION 5.04. Custodian's Indemnification............................... 41
SECTION 5.05. Effective Period and Termination.......................... 42
ARTICLE VI
The Servicer
------------
SECTION 6.01. Representations and Warranties of Servicer................ 43
SECTION 6.02. Indemnities of Servicer; Release of
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Contents, p. ii
<S> <C>
Claims................................................. 48
SECTION 6.03. Merger or Consolidation of, or Assumption of the
Obligations of, Servicer.............................. 49
SECTION 6.04. Limitation on Liability of Servicer and Others............ 51
SECTION 6.05. [Name of Utility] Not To Resign as Servicer............... 52
SECTION 6.06. Servicing Compensation.................................... 53
SECTION 6.07. Compliance with Applicable Law............................ 54
SECTION 6.08. Access to Certain Records and Information Regarding
Transition Property.................................... 54
[SECTION 6.09. Appointments.............................................. 55
ARTICLE VII
Default
-------
SECTION 7.01. Servicer Default.......................................... 56
SECTION 7.02. Appointment of Successor.................................. 59
SECTION 7.03. Waiver of Past Defaults................................... 60
SECTION 7.04. Notice of Servicer Default................................ 61
ARTICLE VIII
Miscellaneous Provisions
------------------------
SECTION 8.01. Amendment................................................. 61
SECTION 8.02. Protection of Title to Trust.............................. 63
SECTION 8.03. Notices................................................... 64
SECTION 8.04. Assignment................................................ 65
SECTION 8.05. Limitations on Rights of Others........................... 65
SECTION 8.06. Severability.............................................. 65
SECTION 8.07. Separate Counterparts..................................... 66
SECTION 8.08. Headings.................................................. 66
SECTION 8.09. Governing Law............................................. 66
SECTION 8.10. Assignment to Note Trustee................................ 66
SECTION 8.11. Nonpetition Covenants..................................... 66
SECTION 8.12. Limitation of Liability of Note Trustee................... 67
</TABLE>
Exhibits and Schedules
----------------------
Exhibit A Form of Monthly Servicer's Certificate
Exhibit B Form of Certificate of Compliance
Exhibit C Form of Routine Annual True-Up Mechanism Advice Letter
Exhibit D Form of Anniversary True-Up Mechanism Advice Letter
Exhibit E Form of Routine Quarterly True-Up Mechanism Advice Letter
Exhibit F Form of Quarterly Servicer's Certificate
Schedule 4.01(a) Expected Amortization Schedule
<PAGE>
Contents, p.iii
Annex I
-------
Schedule 4 Servicer's Current Billing Practices
Schedule 6 Calculation of Aggregate Remittance Amount
<PAGE>
TRANSITION PROPERTY SERVICING AGREEMENT dated as of [_],
1997, between [Name of SPE], a Delaware limited liability company
(the "Note Issuer"), and [Name of Utility], a California
corporation, as Servicer (the "Servicer").
RECITALS
A. Pursuant to the Statute and the Financing Order, the Seller and
the Note Issuer are concurrently entering into the Sale Agreement pursuant to
which the Seller is selling to the Note Issuer the Transition Property created
pursuant to the PU Code, the Financing Order and the Issuance Advice Letter
described in such agreement, and the Seller may sell other Transition Property
to the Note Issuer pursuant to Subsequent Sale Agreements.
B. In connection with its ownership of the Transition Property and
in order to collect the associated FTA Charges, the Note Issuer desires to
engage the Servicer to carry out the functions described herein. The Servicer
currently performs similar functions for itself with respect to its own charges
to its customers [and for others]. In addition, the Note Issuer desires to
engage the Servicer to act on its behalf in obtaining True-Up Adjustments from
the CPUC. The Servicer desires to perform all of these activities on behalf of
the Note Issuer.
<PAGE>
2
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Definitions. Whenever used in this Agreement, the
------------
following words and phrases shall have the following meanings:
"Actual FTA Payments" means the actual FTA Payments received by the
Servicer attributable to a particular Billing Period.
"Adjusted Principal Balance" means, as of any Payment Date, the
Principal Balance, plus the difference between the balance in the
Overcollateralization Subaccount and the Projected Overcollateralization
Subaccount Balance, plus the difference between the balance in the Capital
Subaccount and the Required Capital Level, less the difference between the
balance in the Reserve Subaccount and the Projected Reserve Subaccount Balance,
as of the next succeeding Payment Date, after giving effect to all payments made
on or expected to be made on such Payment Date.
"Advice Letter" means any filing made to the CPUC by the Servicer on
behalf of the Note Issuer with respect to the FTA Charges or any True-Up
Adjustment in the form of an advice letter, including an Issuance Advice Letter,
a Routine Annual True-Up Mechanism Advice Letter, an Anniversary True-Up
Mechanism Advice Letter, a Routine
<PAGE>
3
Quarterly True-Up Mechanism Advice Letter or a Non-Routine True-Up Mechanism
Advice Letter.
"Agreement" means this Transition Property Servicing Agreement,
together with all Exhibits, Schedules and Annexes hereto, as the same may be
amended and supplemented from time to time.
"Anniversary True-Up Mechanism Advice Letter" means an Advice Letter
filed with the CPUC at least fifteen days prior to the Financing Order
Anniversary Date in respect of a True-Up Adjustment, substantially in the form
of Exhibit D hereto. Any True-Up Adjustment required as a result of the
---------
Anniversary True-Up Mechanism Advice Letter will become effective on [the first
calendar day of the next Quarter following] [or before 90 days after] the
Financing Order Anniversary Date.
"Annual Accountant's Report" has the meaning set forth in Section
3.04.
"Annual Adjustment Date" means each [December 15], from and including
[December 15, 1998] to and including the last [December 15] preceding the
Retirement of the Notes; provided, however, that if any such day is not a
-------- -------
Business Day, "Annual Adjustment Date" shall mean the Business Day immediately
preceding such day.
"Applicable ESP" means, with respect to each Customer, the ESP, if
any, providing "direct access" service to that Customer.
"Billing Period" means a [calendar month] [Statistical Month].
<PAGE>
4
"Bills" means each of the regular monthly bills, the summary bills,
the opening bills and the closing bills issued to Customers or ESPs by [Name of
Utility] on its own behalf and in its capacity as Servicer.
"Certificate of Compliance" has the meaning set forth in Section 3.03.
"Certificate Trustee" means the Person acting as certificate trustee
under the Trust Agreement.
"Collection Period" means the [calendar month] [Statistical Month]
immediately preceding the respective Remittance Date.
"Collections Curves" means the [Daily Collections Curve together with
the] Monthly Collections Curve.
"Consolidated ESP Billing" has the meaning set forth in Section 1 of
Annex I hereto.
"CPUC" means the California Public Utilities Commission or any
successor governmental agency that has regulatory authority over the True-Up
Adjustments contemplated by the Statute.
"CPUC Regulations" means all regulations, rules, tariffs and laws
applicable to public utilities or ESPs, as the case may be, and promulgated by,
enforced by or otherwise within the jurisdiction of the CPUC.
"Customers" means existing and future Residential Customers and Small
Commercial Customers of electricity located in the service territory in which
the Seller provided electricity services as of December 20, 1995.
<PAGE>
5
["Daily Collections Curve" has the meaning set forth on Schedule 6 to
----------
Annex I hereto.]
"Delaware Trustee" means the Person acting as Delaware trustee under
the Trust Agreement.
"ESP" means an alternative energy service provider who has entered
into an ESP Service Agreement with the Seller.
"ESP Service Agreement" means an agreement between an ESP and the
Seller for the provision of "direct access" service to customers in accordance
with CPUC Order [______].
"Estimated FTA Payments" means the sum of the amounts remitted with
respect to a Billing Period during the six months following such Billing Period
based on the Collections Curves.
"Excess Remittance" means the amount, if any, by which Estimated FTA
Payments previously remitted to the Collection Account with respect to a Billing
Period exceed Actual FTA Payments received by the Servicer attributable to such
Billing Period, calculated on or before the Monthly Administrative Date in the
seventh calendar month following the applicable Billing Period.
"Expected Amortization Schedule" means Schedule 4.01(a) hereto, as the
----------------
same may be amended from time to time pursuant to Section 4.01(a).
"Financing Order" means the order of the CPUC, Decision 97-09-[056]
[Edison], issued as of [September 3] [Edison], 1997, which became effective on
[October 9] [Edison], 1997.
<PAGE>
6
"Financing Order Anniversary Date" means [September 3] of each year.
"FTA Charges" means the non-bypassable, usage-based, per kilowatt hour
charges permitted to be levied upon the Customers by the Financing Order.
"FTA Collections" means FTA Payments received by the Servicer which
are remitted to the Collection Account.
"FTA Effective Date" means the date on which the initial FTA Charges
go into effect pursuant to the terms of the Financing Order and the first
Issuance Advice Letter.
"FTA End Date" means, depending on the context in which used, either:
(i) the date on which specific FTA Charges end because such FTA Charges have
been replaced with revised FTA Charges; or (ii) the FTA Termination Date.
"FTA Payments" means the payments made by Customers based on the FTA
Charges.
"FTA Start Date" means, depending on the context in which used,
either: (i) the FTA Effective Date; or (ii) the date on which specific revised
FTA Charges go into effect to replace previously existing FTA Charges.
"FTA Termination Date" means the date on which the FTA Charges will
cease to be billed pursuant to the terms of the Financing Order, provided that
the Notes and the Certificates shall have been paid in full.
"Infrastructure Bank" means the California Infrastructure and Economic
Development Bank or any successor in interest.
<PAGE>
7
"Indenture" means the Indenture dated as of [_], 1997, between the
Note Issuer and the Note Trustee, as the same may be amended and supplemented
from time to time.
"Initial Transition Property" means the Transition Property described
in the Sale Agreement.
"Insolvency Event" means, with respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable Federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or ordering the
winding-up or liquidation of such Person's affairs, and such decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; or (b)
the commencement by such Person of a voluntary case under any applicable Federal
or state bankruptcy, insolvency or other similar law now or hereafter in effect,
or the consent by such Person to the entry of an order for relief in an
involuntary case under any such law, or the consent by such Person to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or the making by such Person of any general
assignment for the benefit of creditors, or
<PAGE>
8
the failure by such Person generally to pay its debts as such debts become due,
or the taking of action by such Person in furtherance of any of the foregoing.
"Issuance Advice Letter" means an Advice Letter submitted to the CPUC
in connection with and immediately prior to the issuance of a Series of Notes,
which Advice Letter becomes effective five Business Days after filing pursuant
to the terms of the Financing Order. The first Issuance Advice Letter will
establish the initial FTA Charges, and subsequent Issuance Advice Letters will
modify the FTA Charges to support the issuance of additional Series of Notes.
"Lien" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind.
"Losses" has the meaning assigned to that term in Section 5.04.
"Monthly Administrative Date" means the tenth day of each calendar
month; provided, however, that if any such day is not a Servicer Business Day,
-------- -------
"Monthly Administrative Date" shall mean the Servicer Business Day immediately
preceding such day.
"Monthly Collections Curve" has the meaning set forth on Schedule 6 to
----------
Annex I hereto.
"Monthly Servicer's Certificate" means a certificate, substantially in
the form of Exhibit A hereto, completed and executed by a Responsible Officer of
---------
the Servicer pursuant to Section 3.01(b)(i).
<PAGE>
9
"Non-Routine True-Up Mechanism Advice Letter" means an Advice Letter
filed with the CPUC in accordance with the Financing Order with respect to any
Non-Routine True-Up Adjustment, pursuant to which the related Non-Routine True-
Up Adjustment generally will become effective at the beginning of the first
Quarter that is at least 90 days after filing.
"Non-Routine True-Up Adjustment" has the meaning set forth in Section
4.01(c)(i).
"Note Trustee" means the Person acting as trustee under the Indenture,
its successors in interest and any successor trustee under the Indenture.
"Officer's Certificate" means a certificate signed by a Responsible
Officer.
"Opinion of Counsel" means one or more written opinions of counsel who
may be an employee of or counsel to the party providing such opinion of counsel,
which counsel shall be acceptable to the party receiving such opinion of
counsel.
"Overcollateralization Amount" means, with respect to any Series of
Notes, the amount specified in the related Issuance Advice Letter.
"Payment Date" means, with respect to any Series or Class, each March
25, June 25, September 25 and December 26 of each year, provided that if any
such date is not a Business Day, the Payment Date shall be the Business Day
immediately succeeding such date.
<PAGE>
10
"Principal Balance" means, as of any Payment Date, the sum of the
outstanding principal amount of each Series of Notes.
"Projected Overcollateralization Subaccount Balance" means, as of any
Payment Date, the sum of the projected Overcollateralization Amount for each
Series of Notes for such Payment Date set forth in a Series Supplement.
"Projected Principal Balance" means, as of any Payment Date, the sum
of the projected outstanding principal amount of each Series of Notes for such
Payment Date set forth in the Expected Amortization Schedule.
"Projected Reserve Subaccount Balance" means, as of any Payment Date,
the amount of reserve set forth in a Series Supplement, and will equal zero
($0.00) for each Payment Date.
"Pu Code" means the California Public Utilities Code, as amended from
time to time.
"Quarter" means each calendar quarter, specifically:
January 1 to and including March 31;
April 1 to and including June 30;
July 1 to and including September 30; and
October 1 to and including December 31.
"Quarterly Adjustment Filing Date" means each March 15, June 15, and
September 15 prior to the FTA Termination Date; provided, however, that if any
-------- -------
such day is
<PAGE>
11
not a Business Day, "Quarterly Adjustment Filing Date" shall mean the Business
Day immediately preceding such day.
"Quarterly Administrative Date" means each March 10, June 10 and
September 10 of each year, from and including 1998, to and including the last
such date preceding the Retirement of the Notes; provided, however, that if any
-------- -------
such day is not a Servicer Business Day, "Quarterly Administrative Date" shall
mean the Servicer Business Day immediately preceding such day.
"Quarterly Comparison" has the meaning set forth in Section
4.01(b)(ii)(1).
"Quarterly Servicer's Certificate" means a certificate, substantially
in the form of Exhibit F hereto, completed and executed by a Responsible Officer
---------
of the Servicer pursuant to Section 4.01(d)(ii).
"Regulatory Year" means (i) the period from the Closing Date through
and including December 31, 1998 (the "Initial Regulatory Year"), and (ii) for
each period following the Initial Regulatory Year until the FTA Termination
Date, the period from and including January 1 of each year through and including
December 31 of the same year (or, if sooner, through and including the FTA
Termination Date).
"Remittance Date" means the twentieth day of each calendar month or,
if such day is not a Business Day, the next succeeding Business Day.
"Remittance Shortfall" means the amount, if any, by which Actual FTA
Payments received by the Servicer
<PAGE>
12
attributable to a Billing Period exceed the Estimated FTA Payments previously
remitted to the Collection Account with respect to such Billing Period,
calculated on or before the Monthly Administrative Date in the seventh calendar
month following the applicable Billing Period.
"Required Capital Level" means, as of any Payment Date, the amount of
capital contribution by the Seller as set forth in a Series Supplement, and for
each Payment Date will be equal to the sum of 0.5 percent of the initial
principal amount of each then-outstanding Series of Notes issued pursuant to the
Indenture prior to that Payment Date, less $100,000 in the aggregate for all
Series of Notes.
"Residential Customers" means the existing and future residential
consumers of electricity, as identified in the Financing Order, located in the
service territory in which the Seller provided electricity services as of
December 20, 1995.
"Responsible Officer" means the chairman of the board, the chief
executive officer, the president, the vice chairman of the board, any vice
president, the treasurer, any assistant treasurer, the secretary, any assistant
secretary or the controller of the Servicer.
"Retirement of the Notes" means the day on which the final
distribution is made to the Note Trustee in respect of the last outstanding
Note.
"Routine Annual True-Up Mechanism Advice Letter" means an Advice
Letter filed with the CPUC at least fifteen days prior to the end of each
calendar year in respect of an
<PAGE>
13
annual True-Up Adjustment, substantially in the form of Exhibit C hereto. The
---------
Routine Annual True-Up Mechanism Advice Letter will become effective on the
first calendar day of the next calendar year.
"Routine Quarterly True-Up Mechanism Advice Letter" means an Advice
Letter filed with the CPUC at least fifteen days prior to the end of each of the
first three Quarters of each calendar year in respect of a quarterly True-Up
Adjustment where such adjustment is triggered by the True-Up Adjustment
Mechanism, substantially in the form of Exhibit E hereto. The Routine Quarterly
---------
True-Up Mechanism Advice Letter will become effective on the first calendar day
of the next Quarter.
"Sale Agreement" means the Transition Property Purchase and Sale
Agreement dated as of the date hereof between [Name of Utility], as Seller, and
the Note Issuer.
"SEC" means the Securities and Exchange Commission or any successor
thereto.
"Seller" means [Name of Utility] and its successors in interest to the
extent permitted under the Sale Agreement.
"Servicer" means [Name of Utility], as the servicer of the Transition
Property, and each successor to [Name of Utility] (in the same capacity)
pursuant to Section 6.03 or 7.02.
"Servicer Business Day" means any Business Day on which the Servicer's
offices in the State of California are open for business.
<PAGE>
14
"Servicer Default" means an event specified in Section 7.01.
"Servicing Fee" means the fee payable on each Payment Date to the
Servicer for services rendered during the period from, but not including, the
preceding Payment Date to and including such Payment Date, determined pursuant
to Section 6.06.
"Small Commercial Customers" means the existing and future small
commercial consumers of electricity, as identified in the Financing Order,
located in the service territory in which the Seller provided electricity
services as of December 20, 1995.
["Statistical Month" means each of the periods created by dividing the
calendar year into twelve consecutive periods of 21 Servicer Business Days
each.]
"Statute" means Assembly Bill 1890, Chapter 854, California Statutes
of 1996, signed into law by the Governor of California on September 23, 1996, as
amended by Senate Bill 477, Chapter 275, California Statutes of 1997, signed
into law by the Governor of California on [_], 1997, and as further amended from
time to time.
"Subsequent Sale Agreement" has the meaning assigned to that term in
the definition of Subsequent Transition Property.
"Subsequent Sale Date" means any date on which Subsequent Transition
Property is to be sold to the Note Issuer pursuant to a Subsequent Sale
Agreement.
<PAGE>
15
"Subsequent Transition Property" means any transition property as
defined in Section 840 of the PU Code sold to the Note Issuer by the Seller
pursuant to an agreement substantially similar to the Sale Agreement (a
"Subsequent Sale Agreement") created under the PU Code and the Financing Order
and specifically described in the related Issuance Advice Letter.
"Termination Notice" has the meaning assigned to that term in Section
7.01.
"Transition Costs" has the meaning assigned to that term in Section
840(f) of the PU Code.
"Transition Property" means the Initial Transition Property and, from
and after the applicable Subsequent Sale Date therefor, any Subsequent
Transition Property.
"Transition Property Records" has the meaning assigned to that term in
Section 5.01.
"True-Up Adjustment" means each revision to the FTA Charges made in
accordance with Section 4.01 or in connection with the conveyance to the Note
Issuer of Subsequent Transition Property.
"Trust Agreement" means the Amended and Restated Declaration and
Agreement of Trust dated as of [_], 1997, among the Infrastructure Bank, the
Delaware Trustee and the Certificate Trustee, as the same may be further amended
and supplemented from time to time.
"Trust Officer" means any officer assigned to the Corporate Trust
Office, including any managing director, vice president, assistant vice
president, assistant
<PAGE>
16
treasurer, assistant secretary or any other officer of the Note Trustee
customarily performing functions similar to those performed by any of the above
designated officers and having direct responsibility for the administration of
this Agreement, and also, with respect to a particular matter, any other
officer, to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject.
"Variance" means the occurrence on any Quarterly Administrative Date
or Annual Adjustment Date of a discrepancy whereby the Adjusted Principal
Balance as of the next succeeding Payment Date will be greater or lower than the
Projected Principal Balance as of such succeeding Payment Date, after giving
effect to all payments expected to be made on such next succeeding Payment Date.
SECTION 1.02. Other Definitional Provisions. (a) Capitalized
------------------------------
terms used herein and not otherwise defined herein have the meanings assigned to
them in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) The words "hereof", "herein", "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section, Schedule, Exhibit
and Annex references contained in this Agreement are references
<PAGE>
17
to Sections, Schedules, Exhibits and Annexes in or to this Agreement unless
otherwise specified; and the term "including" shall mean "including without
limitation".
(d) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
ARTICLE II
Appointment and Authorization
-----------------------------
SECTION 2.01. Appointment of Servicer; Acceptance of Appointment.
---------------------------------------------------
Subject to Section 6.05 and Article 7, the Note Issuer hereby appoints the
Servicer, and the Servicer hereby accepts such appointment, to perform the
Servicer's obligations pursuant to this Agreement on behalf of and for the
benefit of the Note Issuer in accordance with the terms of this Agreement and
applicable law. This appointment and the Servicer's acceptance thereof may not
be revoked except in accordance with the express terms of this Agreement.
SECTION 2.02. Authorization. With respect to all or any portion of
--------------
the Transition Property, the Servicer shall be, and hereby is, authorized and
empowered by the Note Issuer to (a) execute and deliver, on behalf of itself
and/or the Note Issuer, as the case may be, any and all instruments, documents
or notices, and (b) on behalf of itself and/or the Note Issuer, as the case may
be, make any filing and participate in proceedings of any kind with any
governmental authorities, including with the CPUC. The Note Issuer shall
furnish the Servicer with such documents as
<PAGE>
18
have been prepared by the Servicer for execution by the Note Issuer, and with
such other documents as may be in the Note Issuer's possession, as necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties hereunder. Upon the written request of the Servicer, the Note Issuer
shall furnish the Servicer with any powers of attorney or other documents
necessary or appropriate to enable the Servicer to carry out its duties
hereunder.
SECTION 2.03. Dominion and Control Over the Transition Property.
--------------------------------------------------
Notwithstanding any other provision herein, the Servicer and the Note Issuer
agree that the Note Issuer shall have dominion and control over the Transition
Property, and the Servicer, in accordance with the terms hereof, is acting
solely as the servicing agent and custodian for the Note Issuer with respect to
the Transition Property and the Transition Property Records. The Servicer
hereby agrees that it shall not take any action that is not authorized by this
Agreement, that is not consistent with its customary procedures and practices,
or that shall impair the rights of the Note Issuer in the Transition Property,
in each case unless such action is required by law or court or regulatory order.
<PAGE>
19
ARTICLE III
Billing Services
----------------
SECTION 3.01. Duties of Servicer. The Servicer, as agent for the Note
-------------------
Issuer, shall have the following duties:
(a) Duties of Servicer Generally. The Servicer's duties in general
-----------------------------
shall include management, servicing and administration of the Transition
Property; obtaining meter reads, calculating usage, billing, collections
and posting of all payments in respect of the Transition Property;
responding to inquiries by Customers, the CPUC, or any federal, local or
other state governmental authorities with respect to the Transition
Property; delivering Bills to Customers, investigating delinquencies,
accounting for collections and making periodic remittances; furnishing
periodic reports to the Note Issuer, the Note Trustee, the Certificate
Trustee and the Infrastructure Bank; and taking action in connection with
True-Up Adjustments as set forth herein. Anything to the contrary
notwithstanding, the duties of the Servicer set forth in this Agreement
shall be qualified in their entirety by any regulations of the CPUC now
existing or hereafter promulgated. Without limiting the generality of this
Section 3.01(a), in furtherance of the foregoing, the Servicer hereby
agrees that it shall also have, and shall comply with, the duties and
responsibilities relating to data acquisition, usage
<PAGE>
20
and bill calculation, billing, customer service functions, collections,
payment processing and remittance set forth in Annex I hereto.
(b) Reporting Functions.
--------------------
(i) Monthly Servicer's Certificate. On or before each Remittance
-------------------------------
Date, the Servicer shall prepare and deliver to the Note Issuer, the
Note Trustee, the Certificate Trustee and the Infrastructure Bank a
written report substantially in the form of Exhibit A hereto (a
---------
"Monthly Servicer's Certificate") setting forth certain information
relating to FTA Payments received by the Servicer during the
Collection Period preceding such Monthly Remittance Date.
(ii) Notification of Laws and Regulations. The Servicer shall
-------------------------------------
immediately notify the Note Issuer, the Note Trustee, the Certificate
Trustee and the Infrastructure Bank in writing of any laws or CPUC
Regulations hereafter promulgated that have a material adverse effect
on the Servicer's ability to perform its duties under this Agreement.
(iii) Other Information. Upon the reasonable request of the Note
------------------
Issuer, the Note Trustee, the Certificate Trustee or the
Infrastructure Bank, the Servicer shall provide to such Note Issuer,
Note Trustee, Certificate Trustee or Infrastructure Bank, as the case
may be, any
<PAGE>
21
public financial information in respect of the Servicer, or any
material information regarding the Transition Property to the extent
it is reasonably available to the Servicer, as may be reasonably
necessary and permitted by law for the Note Issuer, the Note Trustee,
the Certificate Trustee or the Infrastructure Bank to monitor the
performance by the Servicer hereunder.
(iv) Preparation of Reports to be Filed with the SEC. The
------------------------------------------------
Servicer shall prepare any reports required to be filed by the Note
Issuer under the securities laws, including a copy of each Monthly
Servicer's Certificate described in Section 3.01(b)(i), the annual
Certificate of Compliance described in Section 3.03, and the Annual
Accountant's Report described in Section 3.04.
SECTION 3.02. Servicing and Maintenance Standards. On behalf of the
------------------------------------
Note Issuer, the Servicer shall (a) manage, service, administer and make
collections in respect of the Transition Property with reasonable care and in
accordance with applicable law, including all applicable CPUC Regulations and
guidelines, using the same degree of care and diligence that the Servicer
exercises with respect to similar assets for its own account and, if applicable,
for others; (b) follow customary standards, policies and procedures for the
industry in performing its duties as Servicer; (c) use all reasonable efforts,
consistent with
<PAGE>
22
its customary servicing procedures, to enforce, and maintain rights in respect
of, the Transition Property; and (d) comply with all laws and regulations
applicable to and binding on it relating to the Transition Property. The
Servicer shall follow such customary and usual practices and procedures as it
shall deem necessary or advisable in its servicing of all or any portion of the
Transition Property, which, in the Servicer's judgment, may include the taking
of legal action.
SECTION 3.03. Certificate of Compliance. The Servicer shall deliver
--------------------------
to the Note Issuer, the Note Trustee, the Certificate Trustee and the
Infrastructure Bank on or before August 31 of each year, commencing August 31,
1998 to and including the August 31 succeeding the Retirement of the Notes, an
Officer's Certificate substantially in the form of Exhibit B hereto (a
"Certificate of Compliance"), stating that: (i) a review of the activities of
the Servicer during the twelve months (or, in the case of the Certificate of
Compliance to be delivered on or before August 31, 1998, the period of time from
the date of this Agreement until June 30, 1998) ended the preceding June 30 and
of its performance under this Agreement has been made under such officer's
supervision, and (ii) to the best of such officer's knowledge, based on such
review, the Servicer has fulfilled all of its obligations in all material
respects under this Agreement throughout such twelve months (or, in the case of
the Certificate of Compliance to be delivered on or before August 31, 1998, the
period of time from the date
<PAGE>
23
of this Agreement until June 30, 1998), or, if there has been a default in the
fulfillment of any such material obligation, specifying each such material
default known to such officer and the nature and status thereof.
SECTION 3.04. Annual Report by Independent Public Accountants. (a)
------------------------------------------------
The Servicer shall cause a firm of independent certified public accountants
(which may provide other services to the Servicer or the Seller) to prepare, and
the Servicer shall deliver to the Note Issuer, the Note Trustee, the Certificate
Trustee and the Infrastructure Bank, a report addressed to the Servicer (the
"Annual Accountant's Report"), which may be included as part of the Servicer's
customary auditing activities, for the information and use of the Note Issuer,
the Note Trustee, the Certificate Trustee and the Infrastructure Bank on or
before August 31 of each year, beginning August 31, 1998 to and including the
August 31, succeeding the Retirement of the Notes, to the effect that such firm
has performed certain procedures in connection with the Servicer's compliance
with its obligations under this Agreement during the preceding twelve months
(or, in the case of the Annual Accountants Report to be delivered on or before
August 31, 1998, the period of time from the date of this Agreement until June
30, 1998) ended June 30, identifying the results of such procedures and
including any exceptions noted.
(b) The Annual Accountant's Report shall also indicate that the
accounting firm providing such report is independent of the Servicer within the
meaning of the Code
<PAGE>
24
of Professional Ethics of the American Institute of Certified Public
Accountants.
ARTICLE IV
Services Related to True-Up Adjustments
---------------------------------------
SECTION 4.01. Periodic True-Up Adjustments. From time to time, until
-----------------------------
the Retirement of the Notes, the Servicer shall identify the need for True-Up
Adjustments and shall take all reasonable action to obtain and implement such
True-Up Adjustments, all in accordance with the following:
(a) Expected Amortization Schedule. The initial Expected Amortization
-------------------------------
Schedule is attached hereto as Schedule 4.01(a). In connection with the
----------------
issuance by the Note Issuer of any additional Series of Notes after the
Closing Date, the Servicer, on or prior to the Series Issuance Date
therefor, shall prepare an amended Expected Amortization Schedule which
shall set forth, as of each Payment Date through the scheduled Retirement
of the Notes, the sum of the aggregate principal amount of Notes of all
Series, including such additional Series, expected to be outstanding on
such Payment Date, as set forth on the Expected Amortization Schedule
therefor.
(b) Routine True-Up Adjustments.
----------------------------
(i) Routine Annual True-Up Adjustments.
-----------------------------------
(1) On or before each Annual Adjustment Date, the Servicer
shall: (A) calculate the Variance, if any, between the Adjusted
<PAGE>
25
Principal Balance and the Projected Principal Balance as of the
next succeeding Payment Date; (B) estimate collections through
the December 31 immediately following such Annual Adjustment Date
and through December 31 of the year following the year of such
Annual Adjustment Date; (C) update the assumptions underlying the
FTA Charges, including energy usage volume, the rate of
delinquencies and write-offs, estimated expenses, and fees of the
Note Issuer, the Trust and the Infrastructure Bank to the extent
not fixed, and the Collections Curves; (D) determine the revised
FTA Charges that would restore: (1) the Principal Balance to the
Projected Principal Balance (2) the Overcollateralization Amount
to the Projected Overcollateralization Subaccount Balance, (3)
the Capital Subaccount Balance to the Required Capital Level, and
(4) the Reserve Subaccount Balance to the Projected Reserve
Subaccount Balance, in each case within twelve months after such
revised FTA Charges go into effect (and with respect to any True-
Up Adjustments occurring after the Scheduled Maturity Date,
determine the revised FTA Charges that would be sufficient to
retire the unpaid Principal Balance within the
<PAGE>
26
earlier of (x) the date which is twelve months after the
Scheduled Maturity Date and (y) the Final Maturity Date); (E)
file a Routine Annual True-Up Mechanism Advice Letter with the
CPUC, substantially in the form attached hereto as Exhibit C, to
notify the CPUC of the FTA Charges for the coming year; and (F)
take all reasonable actions and make all reasonable efforts to
secure such True-Up Adjustment and to enforce the provisions of
the Statute which obligate the CPUC to approve rates at levels
sufficient to recover the FTA Payments in accordance with the
Expected Amortization Schedule.
(2) Each year on the date that is fifteen days before the
Financing Order Anniversary Date (or if such date is not a
Business Day, on the Business Day immediately preceding such
date), the Servicer shall: [Alternative 1: (A) calculate the
Variance, if any, between the Adjusted Principal Balance and the
Projected Principal Balance as of the next succeeding Payment
Date; (B) estimate collections through the end of the Quarter in
which the Financing Order Anniversary Date occurs; (C) update the
assumptions underlying the FTA Charges, including energy usage
volume, the rate of
<PAGE>
27
delinquencies and write-offs, and estimated expenses and fees of
the Note Issuer, the Trust and the Infrastructure Bank to the
extent not fixed; (D) determine the revised FTA Charges that
would restore: (1) the Principal Balance to the Projected
Principal Balance (2) the Overcollateralization Amount to the
Projected Overcollateralization Subaccount Balance, (3) the
Capital Subaccount Balance to the Required Capital Level, and (4)
the Reserve Subaccount Balance to the Projected Subaccount
Balance, in each case within twelve months after such revised FTA
Charges go into effect (and with respect to any True-Up
Adjustments occurring after the Scheduled Maturity Date,
determine the revised FTA Charges that would be sufficient to
retire the unpaid Principal Balance within the earlier of (x) the
date which is twelve months after the Scheduled Maturity Date and
(y) the Final Maturity Date); (E) file an Anniversary True-Up
Mechanism Advice Letter with the CPUC, substantially in the form
attached hereto as Exhibit D; and (F) take all reasonable actions
---------
and make all reasonable efforts to secure such True-Up Adjustment
and to enforce the provisions of the Statute which obligate the
CPUC to
<PAGE>
28
approve rates at levels sufficient to recover the FTA Payments in
accordance with the Expected Amortization Schedule] [Alternative
2: file an Anniversary True-Up Mechanism Advice Letter with the
CPUC, substantially in the form attached hereto as Exhibit D,
---------
stating that no adjustment to the FTA Charges is necessary
because either (A) the FTA Charges were adjusted during the most
recent calendar quarter or (B) there is no Variance between the
Adjusted Principal Balance and the Projected Principal Balance].
(3) In the case of a True-Up Adjustment pursuant to a
Routine Annual True-Up Mechanism Advice Letter, the Servicer
shall implement the revised FTA Charges, if any, as of the first
day of the following year.
(4) In the case of a True-Up Adjustment pursuant to an
Anniversary True-Up Mechanism Advice Letter, the Servicer shall
implement the revised FTA Charges, if any, on [the first calendar
day of the next Quarter following] [or before 90 days after] the
Financing Order Anniversary Date.
<PAGE>
29
(ii) Routine Quarterly True-Up Adjustments.
--------------------------------------
(1) On or before each Quarterly Administrative Date, the
Servicer shall calculate the Variance between the Adjusted
Principal Balance and the Projected Principal Balance as of the
next succeeding Payment Date (each such calculation, a "Quarterly
Comparison").
(2) If the Quarterly Comparison reveals a Variance greater
than ___percent, the Servicer shall: (A) estimate collections
through the last day of the Quarter in which such Quarterly
Administrative Date occurs and through the last day of the twelve
month period following the date revised FTA Charges would go into
effect; (B) if necessary, update the assumptions underlying the
FTA Charges, including energy usage volume, the rate of
delinquencies and write-offs, and estimated expenses and fees of
the Note Issuer, the Trust and the Infrastructure Bank to the
extent not fixed; (C) determine the revised FTA Charges that
would restore: (1) the Principal Balance to the Projected
Principal Balance, (2) the Overcollateralization Amount to the
Projected Overcollateralization Subaccount Balance, (3) the
Capital Subaccount Balance to the
<PAGE>
30
Required Capital Level and (4) the Reserve Subaccount Balance to
the Projected Reserve Subaccount Balance, in each case within
twelve months after such revised FTA Charges go into effect (and
with respect to any True-Up Adjustments occurring after the
Scheduled Maturity Date, determine the revised FTA Charges that
would be sufficient to retire the unpaid Principal Balance within
the earlier of (x) the date which is twelve months after the
Scheduled Maturity Date and (y) the Final Maturity Date); (D)
apply for a True-Up Adjustment by filing on or before the next
Quarterly Adjustment Filing Date following the Quarterly
Administrative Date a Routine Quarterly True-Up Mechanism Advice
Letter with the CPUC, substantially in the form attached hereto
as Exhibit E, to notify the CPUC of the revised FTA Charges and
---------
(E) take all reasonable actions and make all reasonable efforts
to secure the respective True-Up Adjustment and to enforce the
provisions of the Statute which obligate the CPUC to approve
rates at levels sufficient to recover the FTA Payments in
accordance with the Expected Amortization Schedule. If there is
no Variance, the Servicer shall not file a
<PAGE>
31
Routine Quarterly True-Up Mechanism Advice Letter with the CPUC.
(3) The Servicer shall implement each revised FTA Charge
as of the first day of the Quarter following the Quarter in which
such Routine Quarterly True-Up Mechanism Advice Letter is filed.
(c) Non-Routine True-Up Adjustments.
--------------------------------
(i) Whenever the Servicer determines that the existing
model for calculating the FTA Charges should be amended or
revised, subject to the consent of the Note Issuer under the
conditions set forth in Section 3.17 of the Indenture, the
Servicer shall file a Non-Routine True-Up Mechanism Advice Letter
with the CPUC designating the adjustments to the model and any
corresponding adjustments to the FTA Charges (collectively, a
"Non-Routine True-Up Adjustment").
(ii) The Servicer shall take all reasonable actions and
make all reasonable efforts to secure the Non-Routine True-Up
Adjustments .
(iii) The Servicer shall implement any resulting adjustments
to the model and any resulting revised FTA Charges as of the
first day of the Quarter which begins at least
<PAGE>
32
90 days after the Non-Routine True-Up Mechanism Advice Letter is
filed.
(d) Reports.
--------
(i) Notification of Advice Letter Filings and True-Up
-------------------------------------------------
Adjustments. Whenever the Servicer files an Advice Letter with the
------------
CPUC, the Servicer shall send a copy of such filing (together with a
copy of all notices and documents which, in the Servicer's reasonable
judgment, are material to the adjustments effected by such Advice
Letter) to the Note Issuer, the Note Trustee, the Certificate Trustee
and the Infrastructure Bank concurrently therewith. If any True-Up
Adjustment requested in any such Advice Letter filing does not become
effective on the applicable date as provided by the Financing Order,
the Servicer shall notify the Note Issuer, the Note Trustee, the
Certificate Trustee and the Infrastructure Bank by the end of the
second Servicer Business Day after the applicable date.
(ii) Quarterly Servicer's Certificate. Not later than the
---------------------------------
Remittance Date immediately prior to each Payment Date, the Servicer
shall deliver a written report substantially in the form of Exhibit F
---------
hereto (the "Quarterly Servicer's Certificate") to the Note Issuer,
the Note Trustee, the Certificate Trustee and the Infrastructure Bank.
<PAGE>
33
(iii) Reports to Customers. (A) After each revised FTA Charge
---------------------
has gone into effect pursuant to a True-Up Adjustment, the Servicer
shall, to the extent and in the manner and timeframe required by CPUC
Regulations, cause to be prepared and delivered to Customers a notice
announcing such revised FTA Charges.
(B) In addition, at least once each year, to the extent
permitted by CPUC Regulations, the Servicer shall cause to be prepared
and delivered to Customers a notice stating, in effect, that the
Transition Property and the FTA Charges are owned by the Note Issuer
and not the Seller. Such notice shall be included either as an insert
to or on the back of the Bills delivered to such Customers or shall be
delivered to Customers by electronic means or such other means as the
Servicer or the Applicable ESP may from time to time use to
communicate with their respective customers.
(C) Except to the extent that applicable CPUC Regulations make
the Applicable ESP responsible for such costs, the Servicer shall pay
from its own funds all costs of preparation and delivery incurred in
connection with clauses (A) and (B) above, including but not limited
to printing and postage costs as the same may increase or decrease
from time to time.
<PAGE>
34
SECTION 4.02. Limitation of Liability. (a) The Note Issuer and the
------------------------
Servicer expressly agree and acknowledge that:
(i) In connection with any True-Up Adjustment, the Servicer is
acting solely in its capacity as the servicing agent hereunder.
(ii) Neither the Servicer nor the Note Issuer is responsible in any
manner for, and shall have no liability whatsoever as a result of any
action, decision, ruling or other determination made or not made, or any
delay (other than any delay resulting from the Servicer's failure to file
the applications required by Section 4.01 in a timely manner or other
breach by the Servicer of its duties under this Agreement), by the CPUC in
any way related to the Transition Property or in connection with any True-
Up Adjustment, the subject of any filings under Section 3.02, any proposed
True-Up Adjustment, or the approval of any revised FTA Charges and the
scheduled adjustments thereto.
(iii) The Servicer shall have no liability whatsoever relating to the
calculation of any revised FTA Charges and the scheduled adjustments
thereto, including as a result of any inaccuracy of any of the assumptions
made in such calculation regarding expected energy usage volume and the
rate of delinquencies and write-offs, so long as the Servicer has acted in
good faith and has not acted negligently in connection
<PAGE>
35
therewith, nor shall the Servicer have any liability whatsoever as a result
of any Person, including the Noteholders or the Certificateholders, not
receiving any payment, amount or return anticipated or expected or in
respect of any Note or Certificate generally, except only to the extent
that the same is caused by the Servicer's negligence, willful misconduct or
bad faith.
(b) Notwithstanding the foregoing, the Servicer hereby acknowledges
that the terms of this Section 4.02 are not intended to, and shall not, relieve
the Servicer of liability for any misrepresentation by the Servicer under
Section 6.01 or for any breach by the Servicer of its other obligations under
this Agreement.
ARTICLE V
The Transition Property
-----------------------
SECTION 5.01. Custody of Transition Property Records. To assure
---------------------------------------
uniform quality in servicing the Transition Property and to reduce
administrative costs, the Note Issuer hereby revocably appoints the Servicer,
and the Servicer hereby accepts such appointment, to act as the agent of the
Note Issuer and the Note Trustee as custodian of any and all documents and
records that the Seller shall keep on file, in accordance with its customary
procedures, relating to the Transition Property, including copies of the
Financing Order and Advice Letters relating thereto and all documents filed with
the CPUC in connection with any True-Up Adjustment (collectively, the
"Transition Property
<PAGE>
36
Records"), which are hereby constructively delivered to the Note Trustee, as
pledgee of the Note Issuer (or, in the case of the Subsequent Transition
Property, will as of the applicable Subsequent Sale Date be constructively
delivered to the Note Trustee, as pledgee of the Note Issuer) with respect to
all Transition Property.
SECTION 5.02. Duties of Servicer as Custodian. (a) Safekeeping.
-------------------------------- ------------
The Servicer shall hold the Transition Property Records on behalf of the Note
Issuer and maintain such accurate and complete accounts, records and computer
systems pertaining to the Transition Property Records as shall enable the Note
Issuer to comply with this Agreement and the Indenture. In performing its duties
as custodian the Servicer shall act with reasonable care, using that degree of
care and diligence that the Servicer exercises with respect to comparable assets
that the Servicer services for itself or, if applicable, others. The Servicer
shall promptly report to the Note Issuer and the Note Trustee any failure on its
part to hold the Transition Property Records and maintain its accounts, records
and computer systems as herein provided and promptly take appropriate action to
remedy any such failure. Nothing herein shall be deemed to require an initial
review or any periodic review by the Note Issuer or the Note Trustee of the
Transition Property Records. The Servicer's duties to hold the Transition
Property Records on behalf of the Note Issuer set forth in this Section 5.02, to
the extent such Transition Property Records have not been previously transferred
to a successor
<PAGE>
37
Servicer pursuant to Article VII, shall terminate three years after the earlier
of the date on which (i) the Servicer is succeeded by a successor Servicer in
accordance with Article VII hereof and (ii) no Notes of any Series are
outstanding.
(b) Maintenance of and Access to Records. The Servicer shall
-------------------------------------
maintain the Transition Property Records at [specify designated office] or at
such other office as shall be specified to the Note Issuer and the Note Trustee
by written notice at least 30 days prior to any change in location. The
Servicer shall make available for inspection to the Note Issuer and the Note
Trustee or their respective duly authorized representatives, attorneys or
auditors the Transition Property Records at such times during normal business
hours as the Note Issuer or the Note Trustee shall reasonably request and which
do not unreasonably interfere with the Servicer's normal operations. Nothing in
this Section 5.02(b) shall affect the obligation of the Servicer to observe any
applicable law (including any CPUC Regulations) prohibiting disclosure of
information regarding the Customers, and the failure of the Servicer to provide
access to such information as a result of such obligation shall not constitute a
breach of this Section 5.02(b).
(c) Release of Documents. Upon instruction from the Note Trustee,
---------------------
the Servicer shall release any Transition Property Records to the Note Trustee,
the Note Trustee's agent or the Note Trustee's designee, as the case may be, at
such place or places as the Note Trustee may designate, as
<PAGE>
38
soon as practicable.
[(d) Defending Transition Property Against Claims. The Servicer
---------------------------------------------
shall institute any action or proceeding necessary to compel performance by the
CPUC or the State of California of any of their obligations or duties under the
PU Code, the Financing Order or any Advice Letter.]
SECTION 5.03. Instructions; Authority to Act. For so long as any
-------------------------------
Notes remain outstanding, the Servicer shall be deemed to have received proper
instructions with respect to the Transition Property Records upon its receipt of
written instructions signed by a Trust Officer of the Note Trustee.
SECTION 5.04. Custodian's Indemnification. The Servicer as custodian
----------------------------
shall indemnify the Note Issuer, the Trust, the Certificate Trustee, the
Delaware Trustee, the Note Trustee, the Infrastructure Bank, the Noteholders and
the Certificateholders and each of their respective officers, directors,
employees and agents for, and defend and hold harmless each such Person from and
against, any and all liabilities, obligations, losses, damages, payments, costs
or expenses of any kind whatsoever (collectively, "Losses") that may be imposed
on, incurred by or asserted against any such Person as the result of any
improper act or improper omission in any way relating to the maintenance and
custody by the Servicer, as custodian, of the Transition Property Records;
provided, however, that the Servicer shall not be liable for any portion of any
- -------- -------
such amount resulting
<PAGE>
39
from the willful misconduct, bad faith or negligence of the Note Issuer, the
Trust, the Certificate Trustee, the Delaware Trustee, the Note Trustee, the
Infrastructure Bank, the Noteholders or the Certificateholders, as the case may
be.
Indemnification under this Section shall survive resignation or
removal of the Note Trustee, the Delaware Trustee or the Certificate Trustee and
shall include reasonable fees and expenses of investigation and litigation.
SECTION 5.05. Effective Period and Termination. The Servicer's
---------------------------------
appointment as custodian shall become effective as of the Closing Date and shall
continue in full force and effect until terminated pursuant to this Section. If
any Servicer shall resign as Servicer in accordance with the provisions of this
Agreement or if all of the rights and obligations of any Servicer shall have
been terminated under Section 7.01, the appointment of such Servicer as
custodian shall be terminated by the Note Trustee or by the Holders of Notes
evidencing not less than 25 percent of the Outstanding Amount of the Notes of
all Series in the same manner as the Note Trustee or such Holders may terminate
the rights and obligations of the Servicer under Section 7.01.
ARTICLE VI
The Servicer
------------
SECTION 6.01. Representations and Warranties of Servicer. The
-------------------------------------------
Servicer makes the following representations and warranties, as of the Closing
Date, as of each
<PAGE>
40
Subsequent Sale Date relating to the sale of Subsequent Transition Property
pursuant to a Subsequent Sale Agreement, and as of such other dates as expressly
provided in this Section 6.01, on which the Note Issuer and the Note Trustee is
deemed to have relied in entering into this Agreement relating to the servicing
of the Transition Property. The representations and warranties shall survive the
execution and delivery of this Agreement and the pledge thereof to the Note
Trustee pursuant to the Indenture.
(a) Organization and Good Standing. The Servicer is duly organized
-------------------------------
and validly existing as a corporation in good standing under the laws of
the state of its incorporation, with the power and authority to own its
properties and to conduct its business as such properties are currently
owned and such business is presently conducted, and had at all relevant
times, and has, the requisite power, authority and legal right to service
the Transition Property and to hold the Transition Property Records as
custodian.
(b) Due Qualification. The Servicer is duly qualified to do business
------------------
as a foreign corporation in good standing, and has obtained all necessary
licenses and approvals in, all jurisdictions in which the ownership or
lease of property or the conduct of its business (including the servicing
of the Transition Property as required by this Agreement) shall require
such qualifications, licenses or approvals (except where the failure to so
qualify would not be reasonably
<PAGE>
41
likely to have a material adverse effect on the Servicer's business,
operations, assets, revenues, properties or prospects or adversely affect
the servicing of the Transition Property).
(c) Power and Authority. The Servicer has the requisite power and
--------------------
authority to execute and deliver this Agreement and to carry out its terms;
and the execution, delivery and performance of this Agreement have been
duly authorized by the Servicer by all necessary corporate action.
(d) Binding Obligation. This Agreement constitutes a legal, valid
-------------------
and binding obligation of the Servicer enforceable in accordance with its
terms, subject to applicable insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws relating to or affecting
creditors' rights generally from time to time in effect and to general
principles of equity (including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing), regardless of
whether considered in a proceeding in equity or at law.
(e) No Violation. After giving effect to the release of the lien of
-------------
the [specify outstanding Indenture], the consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof
shall not conflict with, result in any breach of any of the terms and
provisions of, nor constitute (with or without notice or lapse of time) a
<PAGE>
42
default under, the articles of incorporation or bylaws of the Servicer, or
any indenture, agreement or other instrument to which the Servicer is a
party or by which it shall be bound; nor result in the creation or
imposition of any Lien upon any of its properties pursuant to the terms of
any such indenture, agreement or other instrument; nor violate any law or
any order, rule or regulation applicable to the Servicer of any court or of
any Federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Servicer or its
properties.
(f) No Proceedings. Except as set forth on Schedule 6.01(f), there
---------------
are no proceedings or investigations pending or, to the Servicer's best
knowledge, threatened before any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Servicer or its properties involving or relating to
the Servicer or the Note Issuer or, to the Servicer's knowledge, any other
Person: (i) asserting (A) the invalidity of this Agreement, or (B) the
invalidity of the Indenture, the Trust Agreement, any of the other Basic
Documents or the Notes or the Certificates, (ii) seeking to prevent the
issuance of the Notes or the Certificates or the consummation of any of the
transactions contemplated by this Agreement, the Indenture, the Trust
Agreement or any of the other
<PAGE>
43
Basic Documents, (iii) seeking any determination or ruling that might
materially and adversely affect the performance by the Servicer of its
obligations under, or the validity or enforceability of, this Agreement,
the Indenture, the Trust Agreement, any of the other Basic Documents or the
Notes or the Certificates or (iv) relating to the Servicer and which might
adversely affect the Federal or state income tax attributes of the Notes or
the Certificates.
(g) Approvals. No approval, authorization, consent, order or other
----------
action of, or filing with, any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality is required in
connection with the execution and delivery by the Servicer of this
Agreement, the performance by the Servicer of the transactions contemplated
hereby or the fulfillment by the Servicer of the terms hereof, except those
that have been obtained or made and those that the Servicer is required to
make in the future pursuant to Article IV hereof.
(h) Collections Curves. Each Collections Curve used in connection
-------------------
with Schedule 6 to Annex I hereto is accurate in all material respects, and
----------
the future delivery of each revised Collections Curve shall constitute a
representation and warranty that each such revised Collections Curve is
accurate in all material respects.
(i) Assumptions. The assumptions set forth in
------------
<PAGE>
44
Schedule 6 to Annex I hereto are reasonable based upon historical
----------
performance and will be reasonable as they change from time to time.
(j) Reports and Certificates. Each report and certificate delivered
-------------------------
in connection with an Advice Letter will constitute a representation and
warranty by the Servicer that each such report or certificate, as the case
may be, is true and correct; provided, however, that to the extent any such
-------- -------
report or certificate is based in part upon or contains assumptions,
forecasts or other predictions of future events, the representation and
warranty of the Servicer with respect thereto will be limited to such
assumptions, forecasts or other predictions of future events being
reasonable based upon historical performance.
SECTION 6.02. Indemnities of Servicer; Release of Claims.
-------------------------------------------
(a) The Servicer shall be liable in accordance herewith only to the
extent of the obligations specifically undertaken by the Servicer under this
Agreement.
(b) The Servicer shall indemnify the Note Issuer, the Trust, the Note
Trustee, the Certificate Trustee, the Delaware Trustee, the Infrastructure Bank,
the Seller, the Noteholders and the Certificateholders and each of their
respective officers, directors, employees and agents for, and defend and hold
harmless each such Person from and against, any and all Losses that may be
imposed on, incurred by or asserted against any such Person as a result of
<PAGE>
45
(i) the Servicer's willful misconduct, bad faith or negligence in the
performance of its duties or observance of its covenants under this Agreement or
the Servicer's reckless disregard of its obligations and duties under this
Agreement or (ii) the Servicer's breach of any of its representations or
warranties in this Agreement.
(c) For purposes of Section 6.02(b), in the event of the termination
of the rights and obligations of [Name of Utility] (or any successor thereto
pursuant to Section 6.03) as Servicer pursuant to Section 7.01, or a resignation
by such Servicer pursuant to this Agreement, such Servicer shall be deemed to be
the Servicer pending appointment of a successor Servicer pursuant to Section
7.02.
(d) Indemnification under Sections 6.02(b) and 6.02(c) shall survive
the resignation or removal of the Note Trustee, the Delaware Trustee or the
Certificate Trustee or the termination of this Agreement and shall include
reasonable fees and expenses of investigation and litigation (including
reasonable attorneys fees and expenses).
(e) Except to the extent expressly provided for in this Agreement or
the other Basic Documents (including, without limitation, the Servicer's claims
with respect to the Servicing Fee and the payment of the purchase price of
Transition Property), the Servicer hereby releases and discharges the Note
Issuer, the Trust, the Note Trustee, the Certificate Trustee, the Delaware
Trustee, the Infrastructure Bank, the Noteholders and the Certificateholders and
each of their respective officers,
<PAGE>
46
directors and agents (collectively, the "Released Parties") from any and all
actions, claims and demands whatsoever, whenever arising, which the Servicer, in
its capacity as Servicer or Seller, shall or may have against any such Person
relating to the Transition Property or the Servicer's activities with respect
thereto other than any actions, claims and demands arising out of the willful
misconduct or bad faith of the Released Parties. [add California release
language]
SECTION 6.03. Merger or Consolidation of, or Assumption of the
------------------------------------------------
Obligations of, Servicer. Any Person (a) into which the Servicer may be merged
- -------------------------
or consolidated, (b) which may result from any merger or consolidation to which
the Servicer shall be a party or (c) which may succeed to the properties and
assets of the Servicer substantially as a whole, which Person in any of the
foregoing cases executes an agreement of assumption to perform every obligation
of the Servicer hereunder, shall be the successor to the Servicer under this
Agreement without further act on the part of any of the parties to this
Agreement; provided, however, that (i) immediately after giving effect to such
-------- -------
transaction, no Servicer Default and no event which, after notice or lapse of
time, or both, would become a Servicer Default shall have occurred and be
continuing, (ii) the Servicer shall have delivered to the Note Issuer and the
Note Trustee an Officers' Certificate and an Opinion of Counsel each stating
that such consolidation, merger or succession and such agreement of assumption
comply with this
<PAGE>
47
Section and that all conditions precedent provided for in this Agreement
relating to such transaction have been complied with and (iii) the Servicer
shall have delivered to the Note Issuer and the Note Trustee an Opinion of
Counsel either (A) stating that, in the opinion of such counsel, all filings to
be made by the Servicer, including filings with the CPUC pursuant to the PU
Code, have been executed and filed that are necessary fully to preserve and
protect the interest of the Note Issuer in the Transition Property and reciting
the details of such filings or (B) stating that, in the opinion of such counsel,
no such action shall be necessary to preserve and protect such interests.
Notwithstanding anything herein to the contrary, the execution of the foregoing
agreement of assumption and compliance with clauses (i), (ii) and (iii) above
shall be conditions to the consummation of the transactions referred to in
clauses (a), (b) or (c) above.
SECTION 6.04. Limitation on Liability of Servicer and Others.
-----------------------------------------------
Neither the Servicer nor any of the directors or officers or employees or agents
of the Servicer shall be liable to the Note Issuer, the Noteholders, the Trust,
the Certificateholders or any other Person, except as provided under this
Agreement, for any action taken or for refraining from the taking of any action
pursuant to this Agreement or for errors in judgment; provided, however, that
-------- -------
this provision shall not protect the Servicer or any such person against any
liability that would otherwise be imposed by reason of willful misconduct, bad
faith or negligence in the
<PAGE>
48
performance of duties or by reason of reckless disregard of obligations and
duties under this Agreement. The Servicer and any director or officer or
employee or agent of the Servicer may rely in good faith on the advice of
counsel reasonably acceptable to the Note Trustee or on any document of any
kind, prima facie properly executed and submitted by any Person, respecting any
matters arising under this Agreement.
Except as provided in this Agreement, the Servicer shall not be under
any obligation to appear in, prosecute or defend any legal action that shall not
be related to or incidental to its duties to service the Transition Property in
accordance with this Agreement, and that in its opinion may involve it in any
expense or liability.
SECTION 6.05. [Name of Utility] Not to Resign as Servicer. Subject
--------------------------------------------
to the provisions of Section 6.03, [Name of Utility] shall not resign from the
obligations and duties hereby imposed on it as Servicer under this Agreement
except upon either (a) a determination that the performance of its duties under
this Agreement shall no longer be permissible under applicable law or (b)
satisfaction of the following: (i) the Rating Agency Condition shall have been
satisfied, (ii) there shall have been no increase in the Servicing Fee as a
result of such resignation, (iii) the CPUC has approved such resignation and
(iv) notice of such resignation shall have been given to the Infrastructure
Bank. Notice of any such determination permitting the resignation of [Name of
Utility] shall be communicated to the Note Issuer, the Note
<PAGE>
49
Trustee and the Infrastructure Bank at the earliest practicable time (and, if
such communication is not in writing, shall be confirmed in writing at the
earliest practicable time) and any such determination shall be evidenced by an
Opinion of Counsel to such effect delivered to the Note Issuer and the Note
Trustee concurrently with or promptly after such notice. No such resignation
shall become effective until a successor Servicer shall have assumed the
responsibilities and obligations of [Name of Utility] in accordance with Section
7.02.
SECTION 6.06. Servicing Compensation. (a) In consideration for its
-----------------------
services hereunder, until the Retirement of the Notes, the Servicer shall
receive an annual Servicing Fee in an amount equal to the sum of __ percent of
the then outstanding principal amount of each Series of the Notes. The Servicer
also shall be entitled to retain as additional compensation (i) any interest
earnings on FTA Payments received by the Servicer and invested by the Servicer
pursuant to Section 6(d) of Annex I hereto during each Collection Period prior
to remittance to the Collection Account and (ii) all late payment charges, if
any, collected from Customers or ESPs. The Servicer shall set forth the amount
of each component of its compensation in the Quarterly Servicer's Certificate
with respect to the period covered by such certificate.
(b) The Servicing Fee set forth in Section 6.06(a) above shall be
paid to the Servicer by the Note Trustee in four separate installments each
year, on
<PAGE>
50
each Payment Date, by wire transfer of immediately available funds from the
Collection Account to an account designated by the Servicer in accordance with
the priorities set forth in Section 8.02(d) of the Indenture. Any portion of the
Servicing Fee not paid on such date shall be added to the Servicing Fee payable
on the subsequent Payment Date.
(c) The Servicer shall be required to pay from its own account all
expenses incurred by it in connection with its activities hereunder (including
any fees to and disbursements by accountants, counsel, or any other Person, any
taxes imposed on the Servicer and any expenses incurred in connection with
reports to Noteholders and Certificateholders) out of the compensation retained
by or paid to it pursuant to this Section 6.06, and shall not be entitled to any
extra payment or reimbursement therefor.
SECTION 6.07. Compliance with Applicable Law. The Servicer covenants
-------------------------------
and agrees, in servicing the Transition Property, to comply with all laws
applicable to, and binding upon, the Servicer and relating to such Transition
Property the noncompliance with which would have a material adverse effect on
the value of the Transition Property; provided, however, that the foregoing is
-------- -------
not intended to, and shall not, impose any liability on the Servicer for
noncompliance with any law that the Servicer is contesting in good faith in
accordance with its customary standards and procedures.
SECTION 6.08. Access to Certain Records and Information Regarding
---------------------------------------------------
Transition Property. The Servicer
- --------------------
<PAGE>
51
shall provide to the Noteholders, the Note Trustee, the Certificate Trustee and
the Infrastructure Bank access to the Transition Property Records in such cases
where the Noteholders, the Note Trustee, the Certificate Trustee and the
Infrastructure Bank shall be required by applicable law to be provided access to
such records. Access shall be afforded without charge, but only upon reasonable
request and during normal business hours at the respective offices of the
Servicer. Nothing in this Section shall affect the obligation of the Servicer to
observe any applicable law (including any CPUC Regulations) prohibiting
disclosure of information regarding the Customers, and the failure of the
Servicer to provide access to such information as a result of such obligation
shall not constitute a breach of this Section.
SECTION 6.09. Appointments. The Servicer may at any time appoint any
-------------
Person to perform all or any portion of its obligations as Servicer hereunder;
provided, however, that the Rating Agency Condition shall have been satisfied in
- -------- -------
connection therewith; provided further that the Servicer shall remain obligated
-------- -------
and be liable to the Note Issuer, the Note Trustee and the Noteholders for the
servicing and administering of the Transition Property in accordance with the
provisions hereof without diminution of such obligation and liability by virtue
of the appointment of such Person and to the same extent and under the same
terms and conditions as if the Servicer alone were servicing and administering
the Transition Property. The fees and expenses of
<PAGE>
52
such Person shall be as agreed between the Servicer and such Person from time to
time and none of the Note Issuer, the Note Trustee, the Noteholders or any other
Person shall have any responsibility therefor or right or claim thereto. Any
such appointment shall not constitute a Servicer resignation under Section 6.05.
ARTICLE VII
Default
-------
SECTION 7.01. Servicer Default. If any one of the following events
-----------------
(a "Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to deposit in the Collection Account
on behalf of the Note Issuer any required remittance that shall continue
unremedied for a period of three Business Days after written notice of such
failure is received by the Servicer from the Note Issuer or the Note
Trustee or after discovery of such failure by an officer of the Servicer;
or
(b) any failure on the part of the Servicer or the Seller, as the
case may be, duly to observe or to perform in any material respect any
other covenants or agreements of the Servicer or the Seller (as the case
may be) set forth in this Agreement or any other Basic Document to which it
is a party, which failure shall (i) materially and adversely affect the
rights of Noteholders or Certificateholders and (ii) continue unremedied
for a period of 60 days after the date on which written notice of such
failure, requiring the
<PAGE>
53
same to be remedied, shall have been given (A) to the Servicer or the
Seller (as the case may be) by the Note Issuer or (B) to the Servicer or
the Seller (as the case may be) by the Note Trustee or by the Holders of
Notes evidencing not less than 25 percent of the Outstanding Amount of the
Notes of all Series; or
(c) any representation or warranty made by the Servicer in this
Agreement shall prove to have been incorrect when made, which has a
material adverse effect on the Note Issuer or the Certificateholders and
which material adverse effect continues unremedied for a period of 60 days
after the date on which written notice thereof, requiring the same to be
remedied, shall have been delivered to the Servicer by the Note Issuer or
the Note Trustee; or
(d) an Insolvency Event occurs with respect to the Servicer or the
Seller;
then, and in each and every case, so long as the Servicer Default shall not have
been remedied, either the Note Trustee, or the Holders of Notes evidencing not
less than 25 percent of the Outstanding Amount of the Notes of all Series, by
notice then given in writing to the Servicer (and to the Note Trustee if given
by the Noteholders) (a "Termination Notice") may terminate all the rights and
obligations (other than the obligations set forth in Section 6.02 hereof) of the
Servicer under this Agreement. In addition, upon a Servicer Default described
in Section 7.01(a), each of the following shall be entitled to
<PAGE>
54
apply to the CPUC for sequestration and payment of revenues arising with respect
to the Transition Property: (1) the Certificateholders and the Certificate
Trustee as beneficiary of any statutory lien permitted by the PU Code; (2) the
Note Issuer or its assignees; or (3) pledgees or transferees, including
transferees under Section 844 of the PU Code, of the Transition Property. On or
after the receipt by the Servicer of a Termination Notice, all authority and
power of the Servicer under this Agreement, whether with respect to the Notes,
the Transition Property, the FTA Charges or otherwise, shall, without further
action, pass to and be vested in such successor Servicer as may be appointed
under Section 7.02; and, without limitation, the Note Trustee is hereby
authorized and empowered to execute and deliver, on behalf of the predecessor
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such Termination Notice, whether to
complete the transfer of the Transition Property Records and related documents,
or otherwise. The predecessor Servicer shall cooperate with the successor
Servicer, the Note Issuer and the Note Trustee in effecting the termination of
the responsibilities and rights of the predecessor Servicer under this
Agreement, including the transfer to the successor Servicer for administration
by it of all cash amounts that shall at the time be held by the predecessor
Servicer for remittance, or shall thereafter be received by it with respect to
the
<PAGE>
55
Transition Property or the FTA Charges. All reasonable costs and expenses
(including attorneys fees and expenses) incurred in connection with transferring
the Transition Property Records to the successor Servicer and amending this
Agreement to reflect such succession as Servicer pursuant to this Section shall
be paid by the predecessor Servicer upon presentation of reasonable
documentation of such costs and expenses.
SECTION 7.02. Appointment of Successor. (a) Upon the Servicer's
-------------------------
receipt of a Termination Notice pursuant to Section 7.01 or the Servicer's
resignation or removal in accordance with the terms of this Agreement, the
predecessor Servicer shall continue to perform its functions as Servicer under
this Agreement until a successor Servicer shall have assumed in writing the
obligations of the Servicer hereunder as described below. In the event of the
Servicer's termination hereunder, the Note Trustee shall appoint a successor
Servicer, and the successor Servicer shall accept its appointment by a written
assumption in form acceptable to the Note Issuer and the Note Trustee. In the
event of the Servicer's termination hereunder, the Note Trustee may petition a
court of competent jurisdiction to appoint any Person (a) satisfying the
following criteria: [NEED TO DEVELOP CRITERIA] and (b) approved in writing by
the Rating Agencies, as the successor to the Servicer under this Agreement.
(b) Upon appointment, the successor Servicer shall be the successor
in all respects to the predecessor
<PAGE>
56
Servicer and shall be subject to all the responsibilities, duties and
liabilities arising thereafter relating thereto placed on the predecessor
Servicer and shall be entitled to the Servicing Fee and all the rights granted
to the prede cessor Servicer by the terms and provisions of this Agreement.
SECTION 7.03. Waiver of Past Defaults. The Holders of Notes
------------------------
evidencing not less than a majority of the Outstanding Amount of the Notes of
all Series may, on behalf of all Noteholders, waive in writing any default by
the Servicer in the performance of its obligations hereunder and its
consequences, except a default in making any required deposits to the Collection
Account in accordance with this Agreement. Upon any such waiver of a past
default, such default shall cease to exist, and any Servicer Default arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereto.
SECTION 7.04. Notice of Servicer Default. The Servicer shall deliver
---------------------------
to the Note Issuer, the Note Trustee, the Infrastructure Bank and the Rating
Agencies, promptly after having obtained knowledge thereof, but in no event
later than five Business Days thereafter, written notice in an Officers'
Certificate of any event which with the giving
<PAGE>
57
of notice or lapse of time, or both, would become a Servicer Default under
Section 7.01(a) or (b).
ARTICLE VIII
Miscellaneous Provisions
------------------------
SECTION 8.01. Amendment. This Agreement may be amended in writing by
----------
the Servicer and the Note Issuer with the prior written consent of the Note
Trustee, but without the consent of any of the Noteholders or
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions in this Agreement or for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions in this Agreement or
of modifying in any manner the rights of the Noteholders or the
Certificateholders; provided, however, that such action shall not, as evidenced
-------- -------
by an Officer's Certificate delivered to the Note Issuer and the Note Trustee,
adversely affect in any material respect the interests of any Noteholder or
Certificateholder.
This Agreement may also be amended in writing from time to time by the
Servicer and the Note Issuer with the prior written consent of the Note Trustee
and the prior written consent of the Holders of Notes evidencing not less than a
majority of the Outstanding Amount of the Notes of all Series, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Noteholders or the Certificateholders; provided,
--------
<PAGE>
58
however, that no such amendment shall (a) increase or reduce in any manner the
- -------
amount of, or accelerate or delay the timing of, FTA Collections or (b) reduce
the aforesaid percentage of the Outstanding Amount of the Notes, the Holders of
which are required to consent to any such amendment, without the consent of the
Holders of all the outstanding Notes.
Promptly after the execution of any such amendment and the requisite
consents, the Note Issuer shall furnish written notification of the substance of
such amendment to the Note Trustee and each of the Rating Agencies.
It shall not be necessary for the consent of Noteholders pursuant to
this Section to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof.
Prior to its consent to any amendment to this Agreement, the Note
Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating
that such amendment is authorized or permitted by this Agreement. The Note
Trustee may, but shall not be obligated to, enter into any such amendment which
affects the Note Trustee's own rights, duties or immunities under this Agreement
or otherwise.
SECTION 8.02. Protection of Title to Trust. (a) The Servicer shall
-----------------------------
maintain accounts and records as to the Transition Property accurately and in
accordance with its standard accounting procedures and in sufficient detail to
permit reconciliation between FTA Payments received by
<PAGE>
59
the Servicer and FTA Collections from time to time deposited in the Collection
Account.
(b) The Servicer shall permit the Note Trustee and its agents at any
time during normal business hours, upon reasonable notice to the Servicer and to
the extent it does not unreasonably interfere with the Servicer's normal
operations, to inspect, audit and make copies of and abstracts from the
Servicer's records regarding the Transition Property and the FTA Charges.
Nothing in this Section 8.02(b) shall affect the obligation of the Servicer to
observe any applicable law (including any CPUC Regulations) prohibiting
disclosure of information regarding the Customers, and the failure of the
Servicer to provide access to such information as a result of such obligation
shall not constitute a breach of this Section 8.02(b).
SECTION 8.03. Notices. All demands, notices and communications upon
--------
or to the Servicer, the Note Issuer, the Note Trustee, the Infrastructure Bank,
the Certificate Trustee or the Rating Agencies under this Agreement shall be in
writing, personally delivered or mailed or sent by telecopy or other similar
form of rapid transmission, and shall be deemed to have been duly given upon
receipt (a) in the case of the Servicer, to [Name of Utility], [_], [_],
Attention of [_] ([_]), (b) in the case of the Note Issuer, to [Name of SPE],
[_], Attention of [_], (c) in the case of the Note Trustee, at the Corporate
Trust Office, (d) in the case of the Infrastructure Bank, to [_],
<PAGE>
60
[_], Attention of [_], (e) in the case of the Certificate Trustee, to [_], [_],
Attention of [_], (f) in the case of Moody's, to Moody's Investors Service,
Inc., ABS Monitoring Department, 99 Church Street, New York, New York 10007, (g)
in the case of Standard & Poor's, to Standard & Poor's Corporation, 26 Broadway
(15th Floor), New York, New York 10004, Attention of Asset Backed Surveillance
Department, (h) in the case of Fitch, to Fitch Investors Service, L.P., One
State Street Plaza, New York, NY 10004, Attention of [_], [(i) in the case of
Duff & Phelps, to Duff & Phelps Credit Rating Company, 55 East Monroe Street,
Suite 3500, Chicago, IL 60603, Attention of [_]_], or (i) [(j)] as to each of
the foregoing, at such other address as shall be designated by written notice to
the other parties.
SECTION 8.04. Assignment. Notwithstanding anything to the contrary
-----------
contained herein, except as provided in Section 6.03 and as provided in the
provisions of this Agreement concerning the resignation of the Servicer, this
Agreement may not be assigned by the Servicer.
SECTION 8.05. Limitations on Rights of Others. The provisions of
--------------------------------
this Agreement are solely for the benefit of the Servicer and the Note Issuer
and, to the extent provided herein or in the Basic Documents, the Trust, the
Note Trustee, the Certificate Trustee, the Noteholders, the Certificateholders
and the Infrastructure Bank, and nothing in this Agreement, whether express or
implied, shall be construed to give to any other Person any legal or equitable
<PAGE>
61
right, remedy or claim in the Transition Property or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
SECTION 8.06. Severability. Any provision of this Agreement that is
-------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 8.07. Separate Counterparts. This Agreement may be executed
----------------------
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 8.08. Headings. The headings of the various Articles and
---------
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 8.09. Governing Law. This Agreement shall be construed in
--------------
accordance with the laws of the State of California, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 8.10. Assignment to Note Trustee. The Servicer hereby
---------------------------
acknowledges and consents to the collateral
<PAGE>
62
assignment of any or all of the Note Issuer's rights and obligations hereunder
to the Note Trustee and to the further assignment of the Note Trustee's rights
and obligations under the Indenture to the Certificate Trustee.
SECTION 8.11. Nonpetition Covenants. Notwithstanding any prior
----------------------
termination of this Agreement or the Indenture, but subject to the CPUC's right
to order the sequestration and payment of revenues arising with respect to the
Transition Property notwithstanding any bankruptcy, reorganization or other
insolvency proceedings with respect to the debtor, pledgor or transferor of the
Transition Property pursuant to Section 843(e) and (g) of the PU Code, the
Servicer shall not, prior to the date which is one year and one day after the
termination of the Indenture with respect to the Note Issuer, acquiesce,
petition or otherwise invoke or cause the Note Issuer or the Trust to invoke the
process of any court or governmental authority for the purpose of commencing or
sustaining a case against the Note Issuer or the Trust under any Federal or
state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Note Issuer or the Trust or any substantial part of the property of the
Note Issuer or the Trust, or ordering the winding up or liquidation of the
affairs of the Note Issuer or the Trust.
SECTION 8.12. Limitation of Liability. It is expressly understood
------------------------
and agreed by the parties hereto that (a) this Agreement is executed and
delivered by Bankers
<PAGE>
63
Trust Company, not individually or personally but solely as Note Trustee of the
Trust, in the exercise of the powers and authority conferred and vested in it,
(b) the representations, undertakings and agreements herein made on the part of
the Trust are made and intended not as personal representations, undertakings
and agreements by Bankers Trust Company, but are made and intended for the
purpose of binding only the Trust, (c) nothing herein contained shall be
construed as creating any liability on Bankers Trust Company, individually or
personally, to perform any covenant either expressed or implied contained
herein, all such liability, if any, being expressly waived by the parties who
are signatories to this Agreement and by any Person claiming by, through or
under such parties and (d) under no circumstances shall Bankers Trust Company,
be personally liable for the payment of any indebtedness or expenses of the
Trust or be liable for the breach or failure of any obligation, representation,
warranty or covenant made or undertaken by the Trust under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers as of the day and year first above
written.
[NAME OF SPE],
by
_______________________________
Title:
<PAGE>
64
[NAME OF UTILITY],
by
_______________________________
Title:
Acknowledged and Accepted:
BANKERS TRUST COMPANY, not
in its individual capacity
but solely as Note Trustee,
by
________________________
<PAGE>
EXHIBIT 10.3
[FORM OF
NOTE PURCHASE AGREEMENT]
This Note Purchase Agreement (the "Agreement"), dated as of
---------
[_______________], 1997, is made by and between [Acronym of Utility] Funding
LLC, a Delaware limited liability company (the "Note Issuer"), and
-----------
[_______________], a [_______________], as certificate trustee (in such
capacity, the "Certificate Trustee") for the California Infrastructure and
-------------------
Economic Development Bank Special Purpose Trust [Acronym of Utility-1], a not-
for-profit business trust organized under the laws of the State of Delaware (the
"Trust"), pursuant to that certain Amended and Restated Declaration and
Agreement of Trust (the "Trust Agreement"), dated as of [_____________], 1997
----- ---------------
among [_____________], as Delaware Trustee, the Certificate Trustee and the
California Infrastructure and Economic Development Bank, as Originator.
RECITALS
A. Capitalized terms used herein without definition shall have the
meanings ascribed to them in that certain Indenture (the "Note Indenture"),
--------------
dated as of [_____________], 1997, between Note Issuer and [_____________], a
[______________], as trustee (the "Note Trustee"), which is incorporated herein
------------
by this reference.
B. On the Closing Date, and on the terms set forth herein, the Note
Issuer has agreed to sell to the Certificate Trustee and the Certificate Trustee
has agreed to purchase from the Note Issuer [$__________] in principal amount of
[Acronym of Utility] Funding LLC Notes, Series 1997-1 (the "Notes"), issued
-----
pursuant to the Note Indenture.
AGREEMENT
NOW, THEREFORE, on the terms and conditions set forth below and for
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Note Issuer and the Certificate Trustee agree as follows:
1. SALE OF NOTES
a. Authorization of Notes.
----------------------
On or before the Closing Date, the Note Issuer shall have caused to be
authorized pursuant to the Note Indenture the issuance of a series of Notes in
such classes and principal amounts as set forth in Schedule 1(a) attached hereto
and incorporated herein by this reference.
b. Issuance and Purchase.
---------------------
On the basis of the representations, warranties and covenants
contained in this Agreement and in the Note Indenture (collectively, the "Note
----
Purchase Documents"), and subject to the terms and conditions of the Note
- ------------------
Purchase Documents, the Note Issuer agrees to issue and sell to the Certificate
Trustee, and the Certificate Trustee agrees to purchase from the Note Issuer,
the Notes
<PAGE>
set forth in Schedule 1(a) hereto. The purchase price of each class of Notes is
set forth in Schedule 1(a) attached hereto, and the aggregate purchase price of
the Notes shall be an amount equal to the excess of (i) the aggregate proceeds
of the Certificates over (ii) the sum of (A) all underwriting discounts given in
connection with the Certificates and (B) all fees and other expenses associated
with the issuance of the Certificates.
c. Delivery.
--------
Delivery of, and payment of the purchase price for the Notes shall be
made at [______ a.m. (P.S.T.)] on the Closing Date at the offices of
[_______________________] or such other location as may be mutually acceptable
to the Note Issuer and the Certificate Trustee.
2. CONDITIONS PRECEDENT
The obligations of the Certificate Trustee to purchase the Notes under
this Agreement are subject to the satisfaction of each of the following
conditions:
a. All the representations and warranties of the Note Issuer contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
b. Neither the Notes nor the Certificates shall have received a lower
rating by any Rating Agency than that on which the Notes or the Certificates,
respectively, were marketed.
c. The Certificate Trustee shall have received on the Closing Date an
Officer's Certificate dated the Closing Date confirming the matters set forth in
Sections 2(a) and 2(b).
d. The Certificate Trustee shall have received a copy of the executed
Note Indenture (certified by an Authorized Officer of the Note Issuer) which
shall have been entered into by the Note Issuer and the Note Trustee.
e. The Note Issuer shall not have failed at or prior to the Closing Date
to perform or comply in any material respect with any of the agreements herein
contained and required to be performed or complied with by the Note Issuer at or
prior to the Closing Date.
3. REPRESENTATIONS AND WARRANTIES
To induce the Certificate Trustee to enter into this Agreement and to
purchase the Notes, the Note Issuer represents and warrants to the Certificate
Trustee on the date of this Agreement that the following statements are true,
correct and complete:
a. The Note Issuer has been duly organized, is validly existing as a
limited liability company in good standing under the laws of the State of
Delaware and has the organizational power and authority to carry on its business
as described in the Registration Statement covering the Notes (the "Registration
------------
Statement") and to own, lease and operate its properties, and is duly registered
- ---------
[and is in good standing] as a foreign limited liability company authorized to
do business in the State of California.
2
<PAGE>
b. This Agreement has been duly authorized, executed and delivered by the
Note Issuer.
c. The Note Indenture has been duly authorized by the Note Issuer and, on
the Closing Date, will have been validly executed and delivered by the Note
Issuer. When the Note Indenture has been duly executed and delivered by the Note
Issuer, the Note Indenture will be a valid and binding agreement of the Note
Issuer, enforceable against the Note Issuer in accordance with its terms except
as (i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. On the Closing Date, the Note
Indenture will conform in all material respects to the requirements of the Trust
Indenture Act, and the rules and regulations of the Commission applicable to an
indenture which is qualified thereunder.
d. The Notes have been duly authorized and, on the Closing Date, will
have been validly executed and delivered by the Note Issuer. When the Notes have
been issued, executed and authenticated in accordance with the provisions of the
Note Indenture and delivered to and paid for by the Certificate Trustee in
accordance with the terms of this Agreement, the Notes will be entitled to the
benefits of the Note Indenture and will be valid and binding obligations of the
Note Issuer, enforceable in accordance with their terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
e. No Default or Event of Default under the Note Indenture has occurred,
is occurring or would reasonably occur as a result of the sale of the Notes
pursuant to the terms hereof.
f. The execution, delivery and performance of this Agreement and the
other Basic Documents by the Note Issuer, compliance by the Note Issuer with all
provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the California
Government Code, the PU Code, the Securities Act of 1933, as amended (the
"Securities Act"), or the securities or Blue Sky laws of the various states),
--------------
(ii) conflict with or constitute a breach of any of the terms or provisions of,
or a default under, the limited liability company agreement of the Note Issuer,
(iii) violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency having
jurisdiction over the Note Issuer or its property[, except ______________], (iv)
result in the imposition or creation of (or the obligation to create or impose)
a lien under, any agreement or instrument to which the Note Issuer is a party or
by which the Note Issuer or its respective property is bound, except under the
Basic Documents and any statutory lien under Section 843(g) of the PU Code.
g. To the best knowledge of the Note Issuer, there are no legal or
governmental proceedings pending or threatened to which the Note Issuer is or
reasonably could be a party or to which any of its property is or reasonably
could be subject, which might result, singly or in the aggregate, in a material
adverse effect on the value of the Notes[, except ___________________].
3
<PAGE>
h. The Note Issuer is not and, after giving effect to the offering and
sale of the Notes and the application of the net proceeds thereof as described
in the Registration Statement, will not be, an "investment company," as such
term is defined in the Investment Company Act of 1940, as amended.
i. The Note Issuer is not and, after giving effect to the offering and
sale of the Notes and the application of the net proceeds thereof as described
in the Registration Statement, will not be, a "holding company," as such term is
defined in the Public Utilities Holding Company Act of 1935, as amended.
j. The Note Issuer has not taken any action that might cause this
Agreement or the issuance or sale of the Notes to violate Regulation G (12
C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R.
Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the
Federal Reserve System.
k. Since the date as of which information is given in the Registration
Statement other than as set forth in the Registration Statement (exclusive of
any amendments or supplements thereto subsequent to the date of this Agreement),
(i) there has not occurred any material adverse change or any development
involving a prospective material adverse change in the condition, financial or
otherwise, or the earnings, business, management or operations of the Note
Issuer and (ii) the Note Issuer has not incurred any material liability or
obligation, direct or contingent.
l. No Rating Agency has indicated to the Note Issuer that it has assigned
(or is considering assigning) a lower rating to the Notes or the Certificates
than that on which the Notes or the Certificates, respectively, were marketed.
m. Each certificate signed by any officer of the Note Issuer and
delivered to the Certificate Trustee or counsel for the Certificate Trustee
shall be deemed to be a representation and warranty by the Note Issuer to the
Certificate Trustee as to the matters covered thereby.
4. COVENANTS
The Note Issuer covenants and agrees that, until payment in full of
the Notes, unless the Certificate Trustee shall otherwise give prior written
consent, the Note Issuer shall perform all covenants in this Section 4.
a. To advise the Certificate Trustee promptly and, if requested by the
Certificate Trustee, confirm such advice in writing, of the issuance by the
Commission or any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Note for offering or sale
in any jurisdiction designated by the Certificate Trustee in Schedule 4(a)
attached hereto and made a part hereof, or the initiation of any proceeding by
the Commission, any state securities commission or any other federal or state
regulatory authority for such purpose. The Note Issuer shall use its best
efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption of any Note under the Securities Act, or any state
securities or Blue Sky laws and, if at any time the Commission or any state
securities commission or other federal or state regulatory authority shall issue
an order suspending the qualification or exemption of any Note under the
Securities Act, or any state
4
<PAGE>
securities or Blue Sky laws, the Note Issuer shall use its best efforts to
obtain the withdrawal or lifting of such order at the earliest possible time.
b. Not to claim voluntarily the benefit of any usury laws against the
holders of any Notes. To resist actively any attempts to claim the benefit of
any usury laws against the holders of any Notes.
c. To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by it prior to the
Closing Date and to satisfy all conditions precedent to the delivery of the
Notes.
d. At the written request of the Certificate Trustee or the
Infrastructure Bank, to provide, or cause to be provided, to the Certificate
Trustee or the Infrastructure Bank, as applicable, a copy of any requested
certificate, notice, opinion or other document delivered to the Note Trustee
pursuant to the terms of the Note Indenture.
5. MISCELLANEOUS
a. Fees
----
If for any reason the Notes are not delivered by or on behalf of the
Note Issuer as provided herein (other than as a result of any termination of
this Agreement pursuant to the terms hereof), the Note Issuer agrees to
reimburse the Certificate Trustee for all out-of-pocket expenses (including the
reasonable fees and disbursements of counsel) reasonably incurred by it. The
Note Issuer also agrees to reimburse the Certificate Trustee[, the Delaware
Trustee and the Infrastructure Bank] and [their respective] officers, directors
and each person, if any, who controls the Certificate Trustee[, the Delaware
Trustee or the Infrastructure Bank] within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act for any and all fees and
expenses (including without limitation the reasonable fees and expenses of
counsel) reasonably incurred by them in connection with enforcing their rights
under this Agreement (including without limitation its rights under this Section
5(a)).
b. Effective Date of Agreement
---------------------------
This Agreement shall become effective upon the execution and delivery
of this Agreement by the parties hereto.
c. Survival of Representations and Agreements
------------------------------------------
All agreements, representations and warranties made herein shall
survive the execution and delivery of this Agreement and the purchase of the
Notes hereunder. Notwithstanding anything in this Agreement or implied by law to
the contrary, the agreements of the Note Issuer set forth in Section 5(a) shall
survive the payment of the Notes and the termination of this Agreement.
d. Notice
------
Unless otherwise specifically provided herein, all notices,
directions, consents and waivers required under the terms and provisions of this
Agreement shall be in English and in writing,
5
<PAGE>
and any such notice, direction, consent or waiver may be given by United States
mail, courier service, telegram, telex, telemessage, telecopy, telefax, cable or
facsimile (confirmed by telephone or in writing in the case of notice by
telegram, telex, telemessage, telecopy, telefax, cable or facsimile) or any
other customary means of communication, and any such notice, direction, consent
or waiver shall be effective when delivered, or if mailed, three days after
deposit in the United States mail with proper postage for ordinary mail prepaid,
if to the Note Issuer, to:
[Acronym of Utility] Funding LLC
_____________________________________
_____________________________________
Attention:___________________________
Facsimile:___________________________
Telephone:___________________________
if to the Certificate Trustee, to:
_____________________________________
_____________________________________
Attention:___________________________
Facsimile:___________________________
Telephone:___________________________
[if to the Delaware Trustee, to:
_____________________________________
_____________________________________
Attention:___________________________
Facsimile:___________________________
Telephone:___________________________]
[if to the Infrastructure Bank, to:
_____________________________________
_____________________________________
Attention:__________________________
Facsimile:__________________________
Telephone:__________________________]
e. Parties
-------
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Note Issuer, the
Certificate Trustee[, the Delaware Trustee, the Infrastructure Bank], the
directors and officers of the Certificate Trustee[, the Delaware Trustee, the
Infrastructure Bank], any controlling persons referred to herein, the directors,
officers and independent manager of the Note Issuer (not in their individual
capacities but in their respective capacities as
6
<PAGE>
directors, officers or independent manager of the Note Issuer) and their
respective successors and assigns, all as and to the extent provided in this
Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement, except as contemplated by the Trust Agreement and the
other Basic Documents. The term "successors and assigns" shall not include a
purchaser of any of the Notes from the Certificate Trustee merely because of
such purchase.
f. Governing Law
-------------
This Agreement shall be governed by, and shall be construed and
enforced in accordance with, the internal laws of the State of California,
without regard to conflicts of laws OR principles.
g. Severability
------------
If any provision of this Agreement shall be prohibited or invalid
under applicable law, the Agreement shall be ineffective only to such extent,
without invalidating the remainder of the Agreement.
h. Further Assurances
------------------
The Note Issuer agrees to execute and deliver such instruments and
take such actions as the Certificate Trustee may, from time to time, reasonably
request in order to effectuate the purpose and to carry out the terms of this
Agreement.
i. Headings
--------
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
j. Counterparts
------------
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, the Note Issuer and the Certificate Trustee have
caused this Note Purchase Agreement to be duly executed by their respective
officers, thereunto duly authorized and duly attested, all as of the day and
year first above written.
[Acronym of Utility] FUNDING LLC,
a Delaware limited liability company
By:___________________________________
Name:_________________________________
Title:________________________________
[CERTIFICATE TRUSTEE]
By:___________________________________
Name:_________________________________
Title:________________________________
8
<PAGE>
SCHEDULE 1(A)
NOTES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
CLASS OF NOTE PRINCIPAL AMOUNT PURCHASE PRICE
------------- ---------------- --------------
<S> <C> <C>
_________________________________________________________________________________________________
_________________________________________________________________________________________________
_________________________________________________________________________________________________
- -------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
SCHEDULE 4(A)
BLUE SKY JURISDICTIONS
10
<PAGE>
EXHIBIT 10.4
[FORM OF
FEE AND INDEMNITY AGREEMENT]
This Fee and Indemnity Agreement (the "Fee and Indemnity Agreement"), dated
as of __________, 1997, is among Bankers Trust (Delaware), as Delaware Trustee
under the Amended and Restated Declaration and Agreement of Trust (the "Trust
Agreement") of even date herewith (the "Delaware Trustee"); Bankers Trust
Company, as Certificate Trustee under the Trust Agreement (the "Certificate
Trustee") and as Note Trustee under the Note Indenture hereinafter mentioned
(the "Note Trustee"); ____________________, as Note Issuer under the Note
Indenture (the "Note Issuer"); and California Infrastructure and Economic
Development Bank, as Originator under the Trust Agreement (the "Originator").
All capitalized terms used herein and not otherwise defined herein shall
have the meanings attributed to them in the Trust Agreement.
Section 1. Payment of Fees and Expenses of Certificate Trustee; Authorized
---------------------------------------------------------------
Agents. (a) The Note Issuer hereby covenants and agrees to pay to the
- ------
Certificate Trustee (or any successor trustee) from time to time reasonable
compensation for its services under the Trust Agreement and to reimburse it for
its reasonable expenses (including legal fees and expenses), it being understood
that the Certificate Trustee shall have no recourse against the Originator or
the Trust Property for payment of such amounts.
(b) In addition, the Note Issuer covenants and agrees to reimburse the
Certificate Trustee for any tax incurred without negligence, bad faith or
willful misconduct, on its part, arising out of or in connection with the
acceptance or administration of the Trust under the Trust Agreement (other than
any tax attributable to the Certificate Trustee's compensation for serving as
such), including any costs and expenses incurred in contesting the imposition of
any such tax.
(c) The Note Issuer further covenants and agrees to pay, or cause to be
paid, from time to time to each Authorized Agent reasonable compensation for its
services and to reimburse it for its reasonable expenses, and no Authorized
Agent shall have any recourse against the Originator or the Trust Property for
payment of such amounts. The appointment of any Authorized Agent shall be
subject to the approval of the Originator.
Section 2. Payment of Fees and Expenses of Delaware Trustee. The Note
------------------------------------------------
Issuer covenants and agrees to pay to the Delaware Trustee (or any successor
trustee) from time to
<PAGE>
time reasonable compensation for its services under the Trust Agreement and to
reimburse it for its reasonable expenses (including legal fees and expenses), it
being understood that the Delaware Trustee shall have no recourse against the
Originator or the Trust Property for payment of such amounts.
Section 3. Indemnity. The Note Issuer hereby covenants and agrees to
---------
indemnify, defend and hold harmless the Delaware Trustee, the Certificate
Trustee and the Originator and any of their respective affiliates, officers,
directors, employees and agents (the "Indemnified Persons") from and against any
and all losses, claims, taxes, damages, expenses (including legal fees and
expenses) and liabilities (including liabilities under state or federal
securities laws) of any kind and nature whatsoever (collectively, "Expenses"),
to the extent that such Expenses arise out of or are imposed upon or asserted
against such Indemnified Persons with respect to the creation, operation or
termination of the Trust, the execution, delivery or performance of the Trust
Agreement or the transactions contemplated thereby, or the failure of the Note
Issuer to perform its obligations hereunder; provided, however, that the Note
-------- -------
Issuer is not required to indemnify any Indemnified Person for any Expenses that
result from the willful misconduct or gross negligence of such Indemnified
Person. The obligations of the Note Issuer to indemnify the Indemnified Persons
as provided herein and in the Trust Agreement shall survive the termination of
the Trust Agreement or the resignation or removal of the Delaware Trustee or the
Certificate Trustee.
Section 4. Payment. All amounts owed by the Note Issuer to the
-------
Certificate Trustee, the Delaware Trustee and the Originator under the Trust
Agreement shall be paid to the Certificate Trustee, the Delaware Trustee and the
Originator, as appropriate, upon written demand, unless a fee agreement or fee
schedule has been provided to the Note Issuer in which event payment shall be
made in accordance with said agreement or schedule until the Note Issuer is
otherwise notified by the Certificate Trustee, the Delaware Trustee or the
Originator. As security for payment of such amounts, the Note Issuer hereby
irrevocably directs the Note Trustee to pay such amounts from monies on deposit
in the Collection Account as provided pursuant to Section 8.02 (d) of the Note
Indenture upon receipt of such written demand from the Certificate Trustee, the
Delaware Trustee and the Originator, as the case may be.
Section 5. Notices. Unless otherwise specifically provided herein, all
-------
notices, directions, consents and waivers required under the terms and
provisions of this Fee and Indemnity Agreement shall be in English and in
writing, and any such notice, direction, consent or waiver may be given by
United States mail, courier service, telegram, telex, telemessage, telecopy,
telefax, cable or facsimile (confirmed by telephone or in writing in the case of
notice by telegram, telex, telemessage, telecopy, telefax, cable or facsimile)
or any other customary means of communication, and any such notice, direction,
consent or waiver
2
<PAGE>
shall be effective when delivered, or if mailed, three days after deposit in the
United States mail with proper postage for ordinary mail prepaid,
if to the Originator, to:
California Infrastructure and Economic Development Bank
c/o California Trade and Commerce Agency
801 K Street, Suite 1700
Sacramento, California 95814
Attention: Executive Director
Facsimile: 916-323-2887
Telephone: 916-324-9775
if to the Delaware Trustee, to:
Bankers Trust (Delaware)
E.A. Delle Donne Corporate Center
Montgomery Building
1011 Centre Road, Suite 200
Wilmington, Delaware 19805-1266
Attention: M. Lisa Wilkins
Facsimile: (302) 636-3222
Telephone: (302) 636-3305
if to the Certificate Trustee, to:
Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Structured Finance Group
Facsimile: ____________________
Telephone: ____________________
if to the Note Issuer, to:
____________________
Attention: ____________________
Facsimile: ____________________
Telephone: ____________________
3
<PAGE>
if to the Note Trustee, to:
Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Structured Finance Group
Facsimile: ____________________
Telephone: ____________________
Section 6. Survival of Agreements. This Fee and Indemnity Agreement shall
----------------------
terminate upon the termination of the Trust and the payment and discharge of all
Certificates, provided, however, the agreements of the Note Issuer set forth in
-------- -------
Section 3 herein shall survive the termination of this Fee and Indemnity
Agreement or the resignation or removal of the Delaware Trustee or the
Certificate Trustee.
Section 7. Counterparts. This Fee and Indemnity Agreement may be executed
------------
in one or more counterparts, each of which shall be an original and all of which
taken together shall constitute one and the same agreement.
Section 8. Governing Law. This Fee and Indemnity Agreement shall be
-------------
governed by and construed in accordance with the laws of the laws of the State
of California except that the rights, duties, obligations, immunities and
standard of care of the Delaware Trustee or the Certificate Trustee shall be
governed by the laws of the State of New York.
[SIGNATURE PAGE FOLLOWS]
4
<PAGE>
IN WITNESS WHEREOF, the Originator, the Delaware Trustee, the
Certificate Trustee, the Note Issuer and the Note Trustee have caused this Fee
and Indemnity Agreement to be duly executed by duly authorized officers, all as
of the day and year first above written.
CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK,
as Originator
By:_______________________________________
Name:__________________________________
Title:_________________________________
BANKERS TRUST (DELAWARE),
as Delaware Trustee
By:_______________________________________
Name:__________________________________
Title:_________________________________
BANKERS TRUST COMPANY,
as Certificate Trustee
By:_______________________________________
Name:__________________________________
Title:_________________________________
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
5
<PAGE>
[NOTE ISSUER],
as Note Issuer
By:_______________________________________
Name:__________________________________
Title:_________________________________
BANKERS TRUST COMPANY,
as Note Trustee
By:_______________________________________
Name:__________________________________
Title:_________________________________
6
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
Registration Statement No. 333-30785.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
November 7, 1997
<PAGE>
EXHIBIT 23.5
[CALIFORNIA TRADE AND COMMERCE AGENCY LETTERHEAD]
November 8, 1997
California Infrastructure and Economic
Development Bank
C/O California Trade and Commerce Agency
801 K Street, Suite 1700
Sacramento, California 95814
Re: California Infrastructure and Economic Development Bank
Special Purpose Trust SCE-1
Rate Reduction Certificates
Ladies and Gentlemen:
I serve as general counsel to the California Infrastructure and Economic
Development Bank.
I consent to the filing of my form of opinion with the Securities and
Exchange Commission as exhibit 99.9 to Amendment No. 3 to the Registration
Statement (Registration No. 333-30785).
Sincerely,
/s/ Brooke Bassett, Esq.
Brooke Bassett
General Counsel
(415) 975-0794
(415) 975-0795
<PAGE>
EXHIBIT 25.2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
Statement of eligibility under the Trust
Indenture Act of 1939 of a corporation
designated to act as trustee
__X__ Check if an application to determine eligibility
of a trustee pursuant to section 305(b)(2)
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
(Exact name of trustee as specified in its charter)
300 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071 13-3347003
(Address of principal (I.R.S. Employer
executive offices) Identification No.)
CALIFORNIA INFRASTRUCTURE
AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST
SCE FUNDING LLC
(Depositor of the Trust)
(Exact name of obligor as specified in its charter)
DELAWARE (TO BE DETERMINED)
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
c/o Bankers Trust Company of California, N.A.
3 Park Plaza, 16th floor
Irvine, CA 92614
(Address of principal executive offices)
<PAGE>
RATE REDUCTION CERTIFICATES
(Title of the indenture securities)
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
NAME ADDRESS
Office of the Comptroller 1114 Avenue of the
of the Currency Americas, Suite 3900
New York, New York 10036
(b) Whether it is authorized to exercise corporate trust
powers.
Yes.
Item 2. Affiliations with Obligor
If the obligor is an affiliate of the trustee, describe each
such affiliation.
None.
Item 16. List of Exhibits
Exhibit 1 - Articles of Association as amended on July 29, 1994,
incorporated herein by reference to Amendment 1 to Delta Funding
Corp.'s Registration Statement on Form S-3 filed with the
Securities and Exchange Commission under Commission File Number
333-3418, dated August 5, 1996.
Exhibit 2 - Certificate of the Comptroller of the Currency dated April 14,
1997, incorporated herein by reference to Amendment 1 to Delta
Funding Corp.'s Registration Statement on Form S-3 filed with
the Securities and Exchange Commission under Commission File
Number 333-3418, dated August 5, 1996.
-2-
<PAGE>
Exhibit 3 - Certification of Fiduciary Powers dated April 14, 1997,
incorporated herein by reference to Amendment 1 to Delta Funding
Corp.'s Registration Statement on Form S-3 filed with the
Securities and Exchange Commission under Commission File Number
333-3418, dated August 5, 1996.
Exhibit 4 - Existing By-Laws of Bankers Trust Company of California, N.A.
as amended dated April 22, 1997.
Exhibit 5 - Not Applicable.
Exhibit 6 - Consent of Bankers Trust Company of California, N.A. required
by Section 321(b) of the Act.
Exhibit 7 - Reports of Condition of Bankers Trust Company of California,
N.A., incorporated by reference to Exhibit 2 filed with Form T-1
Statement, Registration No. 333-32935 dated as of June 30, 1997.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of
1939 the trustee, Bankers Trust Company of California, N.A., a
national banking association, organized and existing under the
laws of the United States, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the city of Irvine, and State
of California, on the 7th day of November, 1997.
Bankers Trust Company of California, N.A.
By: /s/ Linda Rakolta
-------------
Linda Rakolta
Vice President
-4-
<PAGE>
Exhibit 4
BANKERS TRUST COMPANY OF CALIFORNIA, NATIONAL ASSOCIATION
BY-LAWS
ARTICLE I
Meetings of Shareholders
Section 1.1. Annual Meeting. The regular annual meeting
of the shareholders for the election of directors and the
transaction of whatever other business may properly come before
the meeting, shall be held at the Main Office of the Association,
400 South Hope Street, Los Angeles, California or such other
places as the Board of Directors may designate, at 11 a.m. on the
third Wednesday of March of each year. Notice of such meeting
shall be mailed, postage prepaid, at least ten days prior to the
date thereof, addressed to each shareholder at his address
appearing on the books of the Association. If, for any cause, an
election of directors is not made on the said day, the Board of
Directors shall order the election to be held on some subsequent
day, as soon thereafter as practicable, according to the
provisions of law; and notice thereof shall be given in the
manner herein provided for the annual meeting.
Section 1.2. Special Meetings. Except as otherwise
specifically provided by statue, special meetings of the
shareholders may be called for any purpose at any time by the
Board of Directors or by any one or more shareholders owning, in
the aggregate, not less than twenty five percent (25%) of the
stock of the Association. Every such special meeting, unless
otherwise provided by law, shall be called by mailing, postage
prepaid, not less than ten days prior to the date fixed for such
meeting, to each shareholder at his address appearing on the
books of the Association a notice stating the purpose of the
meeting.
Section 1.3. Nominations for Director. Nominations for
election to the Board of Directors may be made by the Board of
Directors or by any stockholder of any outstanding class of
capital stock of the Association entitled to vote for the
election of directors. Nominations, other than those made by or
on behalf of the existing management of the Association, shall
be made in writing and shall be delivered or mailed to the
President of the Bank and to the Comptroller of the Currency,
Washington, D.C., not less than 14 days nor more than 50 days
prior to any meeting of shareholders called for the election of
directors, provided however, that if less than 21 days' notice
<PAGE>
of the meeting is given to shareholders, such nomination shall be
mailed or delivered to the President of the Bank and to the
Comptroller of the Currency not later than the close of business
on the seventh day following the day on which the notice of
meeting was mailed. Such notification shall contain the
following information to the extent known to the notifying
shareholder: (a) the name and address of each proposed nominee;
(b) the principal occupation of each proposed nominee; (c) the
total number of shares of capital stock of the Bank that will be
voted for each proposed nominee; (d) the name and residence
address of the notifying shareholder; and (e) the number of
shares of capital stock of the Bank owned by the notifying
shareholder. Nominations not made in accordance herewith may, in
his/her discretion, be disregarded by the Chairperson of the
meeting, and upon his/ her instructions, the vote tellers may
disregard all votes cast for each such nominee.
Section 1.4. Proxies. Shareholders may vote at any meeting
of the shareholders by proxies duly authorized in writing, but no
officer or employee of this Association shall act as proxy.
Proxies shall be valid only for one meeting, to be specified
therein, and any adjournments of such meeting. Proxies shall be
dated and shall be filed with the records of the meeting.
Section 1.5 Quorum. A majority of the outstanding capital
stock, represented in person or by proxy, shall constitute a
quorum at any meeting of shareholders, unless otherwise provided
by law; and less than a quorum may adjourn any meeting, from time
to time, and the meeting may be held, as adjourned, without
further notice. A majority of the votes cast shall decide every
question or matter submitted to the shareholders at any meeting,
unless otherwise provided by law or by the Articles of
Association.
ARTICLE II
Directors
Section 2.1. Board of Directors. The board of directors
(hereinafter referred to as the "Board"), shall have power to
manage and administer the business and affairs of the Association.
Except as expressly limited by law, all corporate powers of the
Association shall be vested in and may be exercised by said Board.
Section 2.2. Number. The Board shall consist of not less
than five nor more than twenty-five shareholders, the exact number
within such minimum and maximum limits to be fixed and determined
from time to time by resolution of the shareholders at any meeting
thereof; provided, however, that a majority of the full Board of
Directors may not increase the number of directors to a number
2
<PAGE>
which; (i) exceeds by more than two the number of directors last
elected by shareholders where such number was fifteen or less; and
(ii) to a number which exceeds by more than four the number of
directors last elected by shareholders where such number was
sixteen or more, but in no event shall the number of directors
exceed twenty-five.
Section 2.3 Organization Meeting. The Secretary, upon
receiving the certificate of the judges, of the result of any
election, shall notify the directors-elect of their election and
of the time at which they are required to meet at the Main Office
of the Association for the purpose of organizing the new Board and
electing and appointing officers of the Association for the
succeeding year. Such meeting shall be held on the day of the
election or as soon thereafter as practicable, and, in any event,
within thirty days thereof. If, at any time fixed for such
meeting, there shall not be a quorum present, the directors
present may adjourn the meeting, from time to time, until a
quorum is obtained.
Section 2.4. Regular Meetings. Regular Meetings of the
Board of Directors shall be held from time to time, at such time
as may be designated from time to time by the Board of Directors
and communicated to all directors. Such meetings shall be held
in the Main Office of the Association, subject to the provisions
of Section 2.6 below, and at least one such meeting shall be held
during any two consecutive calendar months.
Section 2.5 Special Meetings. Special meetings of the Board
of Directors may be called by the Chairperson or President of the
Association, or at the request of two or more directors. Each
member of the Board of Directors shall be given notice stating the
time and place, by telegram, letter, or in person, of each such
special meeting.
Section 2.6 Quorum. A majority of the directors shall
constitute a quorum at any meeting, except when otherwise provided
by law; but a less number may adjourn any meeting, from time to
time , and the meeting may be held, as adjourned, without further
notice. Any one or more directors may participate in a meeting of
the Board by means of a conference telephone or similar
communications equipment which allows all persons participating in
the meeting to hear each other at the same time. Participation by
such means shall constitute presence in person at such a meeting.
The vote of a majority of the directors present at the time of the
vote, if a quorum is present at such time, shall be the act of the
Board except as may be otherwise provided by statute or the
3
<PAGE>
By-Laws.
Section 2.7. Vacancies. When any vacancy occurs among the
directors, the remaining members of the Board, in accordance with
the laws of the United States, may appoint a director to fill such
vacancy at any regular meeting of the Board, or at a special
meeting called for the purpose.
ARTICLE III
Committees of the Board
Section 3.1. Examining Committee. There shall be an
Examining Committee appointed annually by the Board which shall
consist of two directors, who are not also officers of the
Association, one of whom shall be designated by the Board as
the Chairperson thereof. Such Committee shall conduct the
annual directors' examination of the Association as required by
the Comptroller of the Currency; shall review the reports of all
examinations made of the Association by public authorities and
report thereon to the Board; and shall report to the Board such
other matters as it deems advisable with respect to the
Association, its various departments and the conduct of its
operations.
In the performance of its duties, the Examining Committee
may employ or retain, from time to time, expert assistants,
independent of the officers or personnel of the Association, to
make such studies of the Association's assets and liabilities as
the Committee may request and to make an examination of the
accounting and auditing methods of the Association and its system
of internal protective controls to the extent considered necessary
or advisable in order to determine that the operations of the
Association, including its fiduciary department, are being audited
by the Auditor in such a manner as to provide prudent and adequate
protection. The Committee also may direct the Auditor to make
such investigation as it deems necessary or advisable with respect
to the Association, its various departments and the conduct of its
operations. The Committee shall hold regular quarterly meetings
and during the intervals thereof shall meet at other times on call
of the Chairperson.
Section 3.2. Investment Committee. There shall be an
investment committee composed of two directors, appointed by the
board annually or more often. The investment committee shall have
the power to insure adherence to the investment policy, to
recommend amendments thereto, to purchase and sell securities, to
4
<PAGE>
exercise authority regarding investment and to exercise, when the
board is not In session, all other powers of the Board regarding
investment securities that may be lawfully delegated. The
investment committee shall keep minutes of its meetings, and such
minutes shall be submitted at the next regular meeting of the
Board of Directors at which a quorum is present, and any action
taken by the board with respect thereto shall be entered in the
minutes of the Board.
Section 3.3. Other Committees. The Board of Directors may
appoint, from time to time, from its own members, other committees
of one or more persons, for such purposes and with such powers as
the Board may determine.
ARTICLE IV
Officers and Employees
Section 4.1. Chairperson of the Board. The Board of Directors
shall appoint one of its members to be Chairperson of the Board to
serve at the pleasure of the Board. Such person shall preside at
all meetings of the Board of Directors. The Chairperson of the
Board shall supervise the carrying out of the policies adopted or
approved by the Board; shall have general executive powers, as well
as the specific powers conferred by these By-Laws; shall also have
and may exercise such further powers and duties as from time to
time may be conferred upon, or assigned by the Board of Directors.
Section 4.2. President. The Board of Directors shall
appoint one of its members to be President of the Association. In
the absence of the Chairperson, the President shall preside at any
meeting of the Board. The President shall have general executive
powers, and shall have and may exercise any and all other powers
and duties pertaining by law, regulation, or practice, to the
Office of the President, or imposed by these By-Laws. The
President shall also have and may exercise such further powers and
duties as from time to time may be conferred, or assigned by the
Board of Directors.
Section 4.3. Vice President. The Board of Directors shall
appoint one or more Vice Presidents. Each Vice President shall
have such powers and duties as may be assigned by the Board of
Directors. One Vice President shall be designated by the Board
of Directors, in the absence of the President, to perform all the
duties of the President.
Section 4.4. Secretary. The Board of Directors shall
appoint a Secretary or other designated officer who shall be
5
<PAGE>
Secretary of the Board and of the Association, and shall keep
accurate minutes of all meetings. The Secretary shall attend to
the giving of all notices required by these By-Laws to be given;
shall be custodian of the corporate seal, records, documents and
papers of the Association; shall provide for the keeping of proper
records of all transactions of the Association; shall have and may
exercise any and all other powers and duties pertaining by law,
regulation or practice, to the office of the Secretary, or imposed
by these By-Laws; and shall also perform such other duties as may
be assigned from time to time, by the Board of Directors.
Section 4.5. Other Officers. The Board of Directors may
appoint one or more assistant vice presidents, one or more trust
officers, one or more assistant trust officers, one or more
assistant secretaries, one or more assistant treasurers, and such
other officers and attorneys-in-fact as from time to time may
appear to the Board of Directors to be required or desirable to
transact the business of the Association. Such officers shall
respectively exercise such powers and perform such duties as
pertain to their several offices, or as may be conferred upon, or
assigned to, them by the Board of Directors, the Chairperson of
the Board, or the President.
Section 4.6. Tenure of Office. The President and all other
officers shall hold office for the current year for which the
Board was elected, unless they shall resign, become disqualified,
or be removed; and any vacancy occurring in the office of
President shall be filled promptly by the Board of Directors.
ARTICLE V
Trust Department
Section 5.1. Trust Department. There shall be a department
of the Association known as the trust department which shall
perform the fiduciary responsibilities of the Association.
Section 5.2. Trust Officer. There shall be a trust officer
of this Association whose duties shall be to manage, supervise
and direct all the activities of the trust department. Such
person shall do or cause to be done all things necessary or
proper in carrying on the business of the trust department
according to provisions of law and applicable regulations; and
shall act pursuant to opinion of counsel where such opinion is
deemed necessary. Opinions of counsel shall be retained on file
in connection with all important matters pertaining to fiduciary
activities. The trust officer shall be responsible for all
6
<PAGE>
assets and documents held by the Association in connection with
fiduciary matters. The Board of Directors may appoint other
officers of the trust department as it may deem necessary, with
such duties as may be assigned.
Section 5.3. Trust Investment Committee. There shall be a
trust investment committee of this Association composed of two
members, who shall be capable and experienced officers and
directors of the Association. All investments of funds held in
a fiduciary capacity shall be made, retained or disposed of only
with the approval of the trust investment committee; and the
committee shall keep minutes of all its meetings, showing the
disposition of all matters considered and passed upon by it.
The committee shall, promptly after the acceptance of an account
for which the bank has investment responsibilities, review the
assets thereof, to determine the advisability of retaining or
disposing of such assets. The committee shall conduct a similar
review at least once during each calendar year thereafter and
within 15 months of the last review. A report of all such
reviews, together with the action taken as a result thereof,
shall be noted in the minutes of the committee.
Section 5.4. Trust Audit Committee. The Board of
Directors shall appoint a committee of two Directors, exclusive
of any active officer of the Association, which shall, at least
once during each calendar year within fifteen months of the last
such audit make suitable audits of the Trust Department or cause
suitable audits to be made by auditors responsible only to the
Board of Directors, and at such time shall ascertain whether the
department has been administered in accordance with law, 12 Code
of Federal Regulations, Section 9, and sound fiduciary principles.
Section 5.5. Trust Department Files. There shall be
maintained in the Trust Department files containing all fiduciary
records necessary to assure that its fiduciary responsibilities
have been properly undertaken and discharged.
Section 5.6. Trust Investments. Funds held in a fiduciary
capacity shall be invested in accordance with the instrument
establishing the fiduciary relationship and appropriate local law.
Where such instrument does not specify the character and class of
investments to be made and does not vest in the bank a discretion
in the matter, funds held pursuant to such instrument shall be
invested in investments in which corporate fiduciaries may invest
under appropriate local law.
7
<PAGE>
ARTICLE VI
Stock and Stock Certificate
Section 6.1. Transfers. Shares of stock shall be
transferable on the books of the Association, and a transfer book
shall be kept in which all transfers of stock shall be recorded.
Every person becoming a shareholder by such transfer shall, in
proportion to his shares, succeed to all rights of the prior
holder of such shares.
Section 6.2. Stock Certificates. Certificates of stock shall
bear the signature of the President (which may be engraved,
printed or impressed), and shall be signed manually or by
facsimile process by the Secretary, Assistant Secretary, Cashier,
Assistant Cashier, or any other officer appointed by the Board of
Directors for that purpose, to be known as an Authorized Officer,
and the seal of the Association shall be engraved thereon. Each
certificate shall recite on its face that the stock represented
thereby is transferable only upon the books of the Association
properly endorsed.
ARTICLE VII
Corporate Seal
The President, the Cashier, the Secretary or any Assistant Cashier
or Assistant Secretary, or other officer thereunto designated by
the Board of Directors, shall have authority to affix the
corporate seal to any document requiring such seal, and to attest
the same. Such seal shall be substantially in the following form:
(Impression)
( of )
( Seal )
ARTICLE VIII
Miscellaneous Provisions
Section 8.1. Fiscal Year. The Fiscal Year of the
Association shall be the calendar year.
Section 8.2. Execution of Instruments. All agreements,
indentures, mortgages, deeds, conveyances, transfers,
certificates, declarations, receipts, discharges, releases,
satisfactions, settlements, petitions, schedules, accounts,
8
<PAGE>
affidavits, bonds, undertakings, proxies and other instruments or
documents may be signed, executed, acknowledged, verified,
delivered or accepted in behalf of the Association by the
Chairperson of the Board, or the President, or any Vice President,
or the Secretary, or the Cashier, or, if in connection with
exercise of fiduciary powers of the Association, by any of said
officers or by any Trust Officer. Any such instruments may also
be executed, acknowledged, verified, delivered or accepted in
behalf of the Association in such other manner and by such other
officers as the Board of Directors may from time to time direct.
The provisions of this Section 8.2. are supplementary to any other
provision of these By-Laws.
Section 8.3. Records. The Articles of Association, the
By-Laws and the proceedings of all meetings of the shareholders,
the Board of Directors, and standing committees of the Board,
shall be recorded in appropriate minute books provided for the
purpose. The minutes of each meeting shall be signed by the
Secretary, or other officer appointed to act as Secretary of the
meeting.
ARTICLE IX
By-Laws
Section 9.1. Inspection. A copy of the By-Laws, with all
amendments thereto, shall at all times be kept in a convenient
place at the Main Office of the Association, and shall be open
for inspection to all shareholders, during banking hours.
Section 9.2. Amendments. The By-Laws may be amended,
altered or repealed, at any regular meeting of the Board of
Directors, by a vote of a majority of the total number of the
Directors.
9
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939 in connection with the proposed issue by
California Infrastructure and Economic Development Bank
Special Purpose Trust, SCE Funding LLC Rate Reduction
Certificates, we hereby consent that reports of examination by
Federal, State, Territorial or District authorities may be furnished
by such authorities to the Securities and Exchange Commission
upon request therefor.
Dated: November 7, 1997 Bankers Trust Company
of California, N.A.
By:Linda Rakolta
-------------
Linda Rakolta
Vice President
<PAGE>
EXHIBIT 25.3
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
Statement of eligibility under the Trust
Indenture Act of 1939 of a corporation
designated to act as trustee
[X] Check if an application to determine eligibility
of a trustee pursuant to section 305(b)(2)
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
(Exact name of trustee as specified in its charter)
300 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071 13-3347003
(Address of principal (I.R.S. Employer
executive offices) Identification No.)
SCE FUNDING LLC
(Depositor of the Trust)
(Exact name of obligor as specified in its charter)
DELAWARE (TO BE DETERMINED)
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
2244 Walnut Grove Avenue, Room 180
Rosemead, California 91770
(Address of principal executive offices)
<PAGE>
NOTES
(Title of the indenture securities)
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
NAME ADDRESS
Office of the Comptroller 1114 Avenue of the
of the Currency Americas, Suite 3900
New York, New York 10036
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
Item 16. List of Exhibits
Exhibit 1 - Articles of Association as amended on July 29, 1994, incorporated
herein by reference to Amendment 1 to Delta Funding Corp.'s
Registration Statement on Form S-3 filed with the Securities and
Exchange Commission under Commission File Number 333-3418, dated
August 5, 1996.
Exhibit 2 - Certificate of the Comptroller of the Currency dated April 14,
1997, incorporated herein by reference to Amendment 1 to Delta
Funding Corp.'s Registration Statement on Form S-3 filed with the
Securities and Exchange Commission under Commission File Number
333-3418, dated August 5, 1996.
-2-
<PAGE>
Exhibit 3 - Certification of Fiduciary Powers dated April 14, 1997,
incorporated herein by reference to Amendment 1 to Delta Funding
Corp.'s Registration Statement on Form S-3 filed with the
Securities and Exchange Commission under Commission File Number
333-3418, dated August 5, 1996.
Exhibit 4 - Existing By-Laws of Bankers Trust Company of California, N.A. as
amended dated April 22, 1997.
Exhibit 5 - Not Applicable.
Exhibit 6 - Consent of Bankers Trust Company of California, N.A. required by
Section 321(b) of the Act.
Exhibit 7 - Reports of Condition of Bankers Trust Company of California, N.A.,
dated as of December 31, 1996.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
trustee, Bankers Trust Company of California, N.A., a national banking
association, organized and existing under the laws of the United States, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the city of Irvine, and State of
California, on the 7th day of November, 1997.
Bankers Trust Company of California, N.A.
By: /s/ Linda Rakolta
--------------------------------------
Linda Rakolta
Vice President
-4-
<PAGE>
Exhibit 4
BANKERS TRUST COMPANY OF CALIFORNIA, NATIONAL ASSOCIATION
BY-LAWS
ARTICLE I
Meetings of Shareholders
Section 1.1. Annual Meeting. The regular annual meeting
of the shareholders for the election of directors and the
transaction of whatever other business may properly come before
the meeting, shall be held at the Main Office of the Association,
400 South Hope Street, Los Angeles, California or such other
places as the Board of Directors may designate, at 11 a.m. on the
third Wednesday of March of each year. Notice of such meeting
shall be mailed, postage prepaid, at least ten days prior to the
date thereof, addressed to each shareholder at his address
appearing on the books of the Association. If, for any cause, an
election of directors is not made on the said day, the Board of
Directors shall order the election to be held on some subsequent
day, as soon thereafter as practicable, according to the
provisions of law; and notice thereof shall be given in the
manner herein provided for the annual meeting.
Section 1.2. Special Meetings. Except as otherwise
specifically provided by statue, special meetings of the
shareholders may be called for any purpose at any time by the
Board of Directors or by any one or more shareholders owning, in
the aggregate, not less than twenty five percent (25%) of the
stock of the Association. Every such special meeting, unless
otherwise provided by law, shall be called by mailing, postage
prepaid, not less than ten days prior to the date fixed for such
meeting, to each shareholder at his address appearing on the
books of the Association a notice stating the purpose of the
meeting.
Section 1.3. Nominations for Director. Nominations for
election to the Board of Directors may be made by the Board of
Directors or by any stockholder of any outstanding class of
capital stock of the Association entitled to vote for the
election of directors. Nominations, other than those made by or
on behalf of the existing management of the Association, shall
be made in writing and shall be delivered or mailed to the
President of the Bank and to the Comptroller of the Currency,
Washington, D.C., not less than 14 days nor more than 50 days
prior to any meeting of shareholders called for the election of
directors, provided however, that if less than 21 days' notice
<PAGE>
of the meeting is given to shareholders, such nomination shall be
mailed or delivered to the President of the Bank and to the
Comptroller of the Currency not later than the close of business
on the seventh day following the day on which the notice of
meeting was mailed. Such notification shall contain the
following information to the extent known to the notifying
shareholder: (a) the name and address of each proposed nominee;
(b) the principal occupation of each proposed nominee; (c) the
total number of shares of capital stock of the Bank that will be
voted for each proposed nominee; (d) the name and residence
address of the notifying shareholder; and (e) the number of
shares of capital stock of the Bank owned by the notifying
shareholder. Nominations not made in accordance herewith may, in
his/her discretion, be disregarded by the Chairperson of the
meeting, and upon his/ her instructions, the vote tellers may
disregard all votes cast for each such nominee.
Section 1.4. Proxies. Shareholders may vote at any meeting
of the shareholders by proxies duly authorized in writing, but no
officer or employee of this Association shall act as proxy.
Proxies shall be valid only for one meeting, to be specified
therein, and any adjournments of such meeting. Proxies shall be
dated and shall be filed with the records of the meeting.
Section 1.5 Quorum. A majority of the outstanding capital
stock, represented in person or by proxy, shall constitute a
quorum at any meeting of shareholders, unless otherwise provided
by law; and less than a quorum may adjourn any meeting, from time
to time, and the meeting may be held, as adjourned, without
further notice. A majority of the votes cast shall decide every
question or matter submitted to the shareholders at any meeting,
unless otherwise provided by law or by the Articles of
Association.
ARTICLE II
Directors
Section 2.1. Board of Directors. The board of directors
(hereinafter referred to as the "Board"), shall have power to
manage and administer the business and affairs of the Association.
Except as expressly limited by law, all corporate powers of the
Association shall be vested in and may be exercised by said Board.
Section 2.2. Number. The Board shall consist of not less
than five nor more than twenty-five shareholders, the exact number
within such minimum and maximum limits to be fixed and determined
from time to time by resolution of the shareholders at any meeting
thereof; provided, however, that a majority of the full Board of
Directors may not increase the number of directors to a number
2
<PAGE>
which; (i) exceeds by more than two the number of directors last
elected by shareholders where such number was fifteen or less; and
(ii) to a number which exceeds by more than four the number of
directors last elected by shareholders where such number was
sixteen or more, but in no event shall the number of directors
exceed twenty-five.
Section 2.3 Organization Meeting. The Secretary, upon
receiving the certificate of the judges, of the result of any
election, shall notify the directors-elect of their election and
of the time at which they are required to meet at the Main Office
of the Association for the purpose of organizing the new Board and
electing and appointing officers of the Association for the
succeeding year. Such meeting shall be held on the day of the
election or as soon thereafter as practicable, and, in any event,
within thirty days thereof. If, at any time fixed for such
meeting, there shall not be a quorum present, the directors
present may adjourn the meeting, from time to time, until a
quorum is obtained.
Section 2.4. Regular Meetings. Regular Meetings of the
Board of Directors shall be held from time to time, at such time
as may be designated from time to time by the Board of Directors
and communicated to all directors. Such meetings shall be held
in the Main Office of the Association, subject to the provisions
of Section 2.6 below, and at least one such meeting shall be held
during any two consecutive calendar months.
Section 2.5 Special Meetings. Special meetings of the Board
of Directors may be called by the Chairperson or President of the
Association, or at the request of two or more directors. Each
member of the Board of Directors shall be given notice stating the
time and place, by telegram, letter, or in person, of each such
special meeting.
Section 2.6 Quorum. A majority of the directors shall
constitute a quorum at any meeting, except when otherwise provided
by law; but a less number may adjourn any meeting, from time to
time , and the meeting may be held, as adjourned, without further
notice. Any one or more directors may participate in a meeting of
the Board by means of a conference telephone or similar
communications equipment which allows all persons participating in
the meeting to hear each other at the same time. Participation by
such means shall constitute presence in person at such a meeting.
The vote of a majority of the directors present at the time of the
vote, if a quorum is present at such time, shall be the act of the
Board except as may be otherwise provided by statute or the
3
<PAGE>
By-Laws.
Section 2.7. Vacancies. When any vacancy occurs among the
directors, the remaining members of the Board, in accordance with
the laws of the United States, may appoint a director to fill such
vacancy at any regular meeting of the Board, or at a special
meeting called for the purpose.
ARTICLE III
Committees of the Board
Section 3.1. Examining Committee. There shall be an
Examining Committee appointed annually by the Board which shall
consist of two directors, who are not also officers of the
Association, one of whom shall be designated by the Board as
the Chairperson thereof. Such Committee shall conduct the
annual directors' examination of the Association as required by
the Comptroller of the Currency; shall review the reports of all
examinations made of the Association by public authorities and
report thereon to the Board; and shall report to the Board such
other matters as it deems advisable with respect to the
Association, its various departments and the conduct of its
operations.
In the performance of its duties, the Examining Committee
may employ or retain, from time to time, expert assistants,
independent of the officers or personnel of the Association, to
make such studies of the Association's assets and liabilities as
the Committee may request and to make an examination of the
accounting and auditing methods of the Association and its system
of internal protective controls to the extent considered necessary
or advisable in order to determine that the operations of the
Association, including its fiduciary department, are being audited
by the Auditor in such a manner as to provide prudent and adequate
protection. The Committee also may direct the Auditor to make
such investigation as it deems necessary or advisable with respect
to the Association, its various departments and the conduct of its
operations. The Committee shall hold regular quarterly meetings
and during the intervals thereof shall meet at other times on call
of the Chairperson.
Section 3.2. Investment Committee. There shall be an
investment committee composed of two directors, appointed by the
board annually or more often. The investment committee shall have
the power to insure adherence to the investment policy, to
recommend amendments thereto, to purchase and sell securities, to
4
<PAGE>
exercise authority regarding investment and to exercise, when the
board is not In session, all other powers of the Board regarding
investment securities that may be lawfully delegated. The
investment committee shall keep minutes of its meetings, and such
minutes shall be submitted at the next regular meeting of the
Board of Directors at which a quorum is present, and any action
taken by the board with respect thereto shall be entered in the
minutes of the Board.
Section 3.3. Other Committees. The Board of Directors may
appoint, from time to time, from its own members, other committees
of one or more persons, for such purposes and with such powers as
the Board may determine.
ARTICLE IV
Officers and Employees
Section 4.1. Chairperson of the Board. The Board of Directors
shall appoint one of its members to be Chairperson of the Board to
serve at the pleasure of the Board. Such person shall preside at
all meetings of the Board of Directors. The Chairperson of the
Board shall supervise the carrying out of the policies adopted or
approved by the Board; shall have general executive powers, as well
as the specific powers conferred by these By-Laws; shall also have
and may exercise such further powers and duties as from time to
time may be conferred upon, or assigned by the Board of Directors.
Section 4.2. President. The Board of Directors shall
appoint one of its members to be President of the Association. In
the absence of the Chairperson, the President shall preside at any
meeting of the Board. The President shall have general executive
powers, and shall have and may exercise any and all other powers
and duties pertaining by law, regulation, or practice, to the
Office of the President, or imposed by these By-Laws. The
President shall also have and may exercise such further powers and
duties as from time to time may be conferred, or assigned by the
Board of Directors.
Section 4.3. Vice President. The Board of Directors shall
appoint one or more Vice Presidents. Each Vice President shall
have such powers and duties as may be assigned by the Board of
Directors. One Vice President shall be designated by the Board
of Directors, in the absence of the President, to perform all the
duties of the President.
Section 4.4. Secretary. The Board of Directors shall
appoint a Secretary or other designated officer who shall be
5
<PAGE>
Secretary of the Board and of the Association, and shall keep
accurate minutes of all meetings. The Secretary shall attend to
the giving of all notices required by these By-Laws to be given;
shall be custodian of the corporate seal, records, documents and
papers of the Association; shall provide for the keeping of proper
records of all transactions of the Association; shall have and may
exercise any and all other powers and duties pertaining by law,
regulation or practice, to the office of the Secretary, or imposed
by these By-Laws; and shall also perform such other duties as may
be assigned from time to time, by the Board of Directors.
Section 4.5. Other Officers. The Board of Directors may
appoint one or more assistant vice presidents, one or more trust
officers, one or more assistant trust officers, one or more
assistant secretaries, one or more assistant treasurers, and such
other officers and attorneys-in-fact as from time to time may
appear to the Board of Directors to be required or desirable to
transact the business of the Association. Such officers shall
respectively exercise such powers and perform such duties as
pertain to their several offices, or as may be conferred upon, or
assigned to, them by the Board of Directors, the Chairperson of
the Board, or the President.
Section 4.6. Tenure of Office. The President and all other
officers shall hold office for the current year for which the
Board was elected, unless they shall resign, become disqualified,
or be removed; and any vacancy occurring in the office of
President shall be filled promptly by the Board of Directors.
ARTICLE V
Trust Department
Section 5.1. Trust Department. There shall be a department
of the Association known as the trust department which shall
perform the fiduciary responsibilities of the Association.
Section 5.2. Trust Officer. There shall be a trust officer
of this Association whose duties shall be to manage, supervise
and direct all the activities of the trust department. Such
person shall do or cause to be done all things necessary or
proper in carrying on the business of the trust department
according to provisions of law and applicable regulations; and
shall act pursuant to opinion of counsel where such opinion is
deemed necessary. Opinions of counsel shall be retained on file
in connection with all important matters pertaining to fiduciary
activities. The trust officer shall be responsible for all
6
<PAGE>
assets and documents held by the Association in connection with
fiduciary matters. The Board of Directors may appoint other
officers of the trust department as it may deem necessary, with
such duties as may be assigned.
Section 5.3. Trust Investment Committee. There shall be a
trust investment committee of this Association composed of two
members, who shall be capable and experienced officers and
directors of the Association. All investments of funds held in
a fiduciary capacity shall be made, retained or disposed of only
with the approval of the trust investment committee; and the
committee shall keep minutes of all its meetings, showing the
disposition of all matters considered and passed upon by it.
The committee shall, promptly after the acceptance of an account
for which the bank has investment responsibilities, review the
assets thereof, to determine the advisability of retaining or
disposing of such assets. The committee shall conduct a similar
review at least once during each calendar year thereafter and
within 15 months of the last review. A report of all such
reviews, together with the action taken as a result thereof,
shall be noted in the minutes of the committee.
Section 5.4. Trust Audit Committee. The Board of
Directors shall appoint a committee of two Directors, exclusive
of any active officer of the Association, which shall, at least
once during each calendar year within fifteen months of the last
such audit make suitable audits of the Trust Department or cause
suitable audits to be made by auditors responsible only to the
Board of Directors, and at such time shall ascertain whether the
department has been administered in accordance with law, 12 Code
of Federal Regulations, Section 9, and sound fiduciary principles.
Section 5.5. Trust Department Files. There shall be
maintained in the Trust Department files containing all fiduciary
records necessary to assure that its fiduciary responsibilities
have been properly undertaken and discharged.
Section 5.6. Trust Investments. Funds held in a fiduciary
capacity shall be invested in accordance with the instrument
establishing the fiduciary relationship and appropriate local law.
Where such instrument does not specify the character and class of
investments to be made and does not vest in the bank a discretion
in the matter, funds held pursuant to such instrument shall be
invested in investments in which corporate fiduciaries may invest
under appropriate local law.
7
<PAGE>
ARTICLE VI
Stock and Stock Certificate
Section 6.1. Transfers. Shares of stock shall be
transferable on the books of the Association, and a transfer book
shall be kept in which all transfers of stock shall be recorded.
Every person becoming a shareholder by such transfer shall, in
proportion to his shares, succeed to all rights of the prior
holder of such shares.
Section 6.2. Stock Certificates. Certificates of stock shall
bear the signature of the President (which may be engraved,
printed or impressed), and shall be signed manually or by
facsimile process by the Secretary, Assistant Secretary, Cashier,
Assistant Cashier, or any other officer appointed by the Board of
Directors for that purpose, to be known as an Authorized Officer,
and the seal of the Association shall be engraved thereon. Each
certificate shall recite on its face that the stock represented
thereby is transferable only upon the books of the Association
properly endorsed.
ARTICLE VII
Corporate Seal
The President, the Cashier, the Secretary or any Assistant Cashier
or Assistant Secretary, or other officer thereunto designated by
the Board of Directors, shall have authority to affix the
corporate seal to any document requiring such seal, and to attest
the same. Such seal shall be substantially in the following form:
(Impression)
( of )
( Seal )
ARTICLE VIII
Miscellaneous Provisions
Section 8.1. Fiscal Year. The Fiscal Year of the
Association shall be the calendar year.
Section 8.2. Execution of Instruments. All agreements,
indentures, mortgages, deeds, conveyances, transfers,
certificates, declarations, receipts, discharges, releases,
satisfactions, settlements, petitions, schedules, accounts,
8
<PAGE>
affidavits, bonds, undertakings, proxies and other instruments or
documents may be signed, executed, acknowledged, verified,
delivered or accepted in behalf of the Association by the
Chairperson of the Board, or the President, or any Vice President,
or the Secretary, or the Cashier, or, if in connection with
exercise of fiduciary powers of the Association, by any of said
officers or by any Trust Officer. Any such instruments may also
be executed, acknowledged, verified, delivered or accepted in
behalf of the Association in such other manner and by such other
officers as the Board of Directors may from time to time direct.
The provisions of this Section 8.2. are supplementary to any other
provision of these By-Laws.
Section 8.3. Records. The Articles of Association, the
By-Laws and the proceedings of all meetings of the shareholders,
the Board of Directors, and standing committees of the Board,
shall be recorded in appropriate minute books provided for the
purpose. The minutes of each meeting shall be signed by the
Secretary, or other officer appointed to act as Secretary of the
meeting.
ARTICLE IX
By-Laws
Section 9.1. Inspection. A copy of the By-Laws, with all
amendments thereto, shall at all times be kept in a convenient
place at the Main Office of the Association, and shall be open
for inspection to all shareholders, during banking hours.
Section 9.2. Amendments. The By-Laws may be amended,
altered or repealed, at any regular meeting of the Board of
Directors, by a vote of a majority of the total number of the
Directors.
9
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939 in connection with the proposed issue by
California Infrastructure and Economic Development Bank
Special Purpose Trust, SCE Funding LLC Rate Reduction
Certificates, we hereby consent that reports of examination by
Federal, State, Territorial or District authorities may be furnished
by such authorities to the Securities and Exchange Commission
upon request therefor.
Dated: November 7, 1997 Bankers Trust Company
of California, N.A.
By:Linda Rakolta
-------------
Linda Rakolta
Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 0
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 3
<TOTAL-DEFERRED-CHARGES> 2,143
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,146
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 5
<RETAINED-EARNINGS> (2)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3
0
0
<LONG-TERM-DEBT-NET> 0
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,143
<TOT-CAPITALIZATION-AND-LIAB> 2,146
<GROSS-OPERATING-REVENUE> 0
<INCOME-TAX-EXPENSE> 0
<OTHER-OPERATING-EXPENSES> 2
<TOTAL-OPERATING-EXPENSES> 2
<OPERATING-INCOME-LOSS> (2)
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> (2)
<TOTAL-INTEREST-EXPENSE> 0
<NET-INCOME> (2)
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.4
May 6, 1997
Mr. Luis P. Buhler
Executive Director
California Infrastructure and Economic Development Bank
c/o California Trade and Commerce Agency
801 K Street, Suite 1700
Sacramento, CA 95814
RE: Application for Issuance of Rate Reduction Bonds
------------------------------------------------
Dear Mr. Buhler:
Pursuant to the provisions of AB 1890 (chapter 854, Statutes of 1996),
Southern California Edison Company ("Edison") hereby makes application to
the California Infrastructure and Economic Development Bank ("Bank") for
issuance of Rate Reduction Bonds ("RRBs") by the Bank or a special purpose
trust to be established by the Bank.
Attached to this Application is all the information requested by the Bank
in Part One of the Application for Issuance of RRBs.
Accompanying this Application is the required initial application fee of
$50,000 payable to the Bank. We acknowledge that the Bank's costs of
issuance, including administrative, legal and financial advisory expenses,
will be paid from the proceeds of the RRBs upon closing. In addition, the
Bank's annual ongoing administrative, legal and financial advisory expenses
related solely to the RRB issuance will be provided for as an ongoing
expense of the transaction to be recovered from fixed transition amount
charges paid by residential and small commercial customers in Edison's
service territory.
Sincerely,
/s/ Theodore F. Craver, Jr.
Enclosures
cc: Brooke Bassett, Esq.
Blake Fowler (w/o enclosures)
Wes Hough
Douglas Long (w/o enclosures)
Lai Louie
Ramesh Ramchandani (w/o enclosures)
Glenn Stober (w/o enclosures)
1
<PAGE>
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
APPLICATION OF SOUTHERN CALIFORNIA EDISON COMPANY FOR ISSUANCE OF RATE REDUCTION
BONDS
PART 1--FORM A
I. GENERAL INFORMATION
DATE OF APPLICATION: May 6, 1997
IDENTIFICATION OF APPLICANT: Southern California Edison Company
ADDRESS OF APPLICANT: 2244 Walnut Grove Avenue
Rosemead, California 91770
CONTACT PERSON: Mary C. Simpson
PHONE CONTACT: (818) 302-4481
FACSIMILE CONTACT: (818) 302-1472
E-MAIL ADDRESS: [email protected]
LONG-TERM AND SHORT-TERM SENIOR UNSECURED DEBT RATINGS OF EDISON:
Long-Term Short-Term
--------- ----------
S&P: A A-1
Moody's: A3 P-1
1
<PAGE>
II. INFORMATION ON APPLICATION FOR FINANCING ORDER
DATE OF APPLICATION TO THE CALIFORNIA PUBLIC UTILITIES COMMISSION ("CPUC")
FOR A FINANCING ORDER:
May 6, 1997
PLEASE ATTACH A COPY OF THE APPLICATION FOR THE FINANCING ORDER INCLUDING
ALL ATTACHMENTS AND EXHIBITS. IF THE APPLICATION FOR FINANCING ORDER HAS
NOT BEEN MADE, PLEASE PROVIDE THE BANK WITH A COPY OF THE APPLICATION AS
SOON AS IT HAS BEEN FILED.
Please see Exhibit A attached hereto (Edison's Application to the CPUC).
PLEASE KEEP BANK INFORMED OF ANY WRITTEN COMMUNICATION WITH THE
CPUC REGARDING THE FINANCING ORDER. SEND TWO COPIES OF ALL COMMUNICATION
TO AND FROM THE CPUC TO GLENN STOBER, CALIFORNIA TRADE AND COMMERCE AGENCY,
801 K STREET, SUITE 1700, SACRAMENTO, CA 95814.
Two copies each of the following documents are enclosed:
1. March 4, 1997 announcement of CPUC workshops
2. March 14, 1997 joint workshop comments filed by utilities
3. April 8, 1997 ORA data request
4. Administrative Law Judge ruling dated April 23, 1997 with respect
to RRB procedural matters.
5. April 24, 1997 summary of CPUC workshops
6. Edison's response to ORA data request dated April 29, 1997.
Edison further acknowledges that it will continue to keep the Bank informed
of all written communication with the CPUC regarding the Financing Order.
<PAGE>
III. INFORMATION REGARDING RATE REDUCTION BONDS
1. PAR AMOUNT (OR MAXIMUM AMOUNT) OF RATE REDUCTION BONDS EXPECTED TO BE APPLIED
FOR IN PART TWO.
Edison expects to apply for RRBs in the aggregate principal amount of up to
$3.0 billion, with such RRBs to be issued in one or more series or classes.
2. IDENTIFY PROPOSED FINANCING ENTITY ((I) THE BANK; (II) A SPECIAL PURPOSE
TRUST ESTABLISHED BY THE BANK OR (III) ANOTHER ENTITY). IF PROPOSED
FINANCING ENTITY IS A SPECIAL PURPOSE TRUST, DESCRIBE THE INTENDED LEGAL
STRUCTURE FOR THE SPECIAL PURPOSE TRUST.
Edison expects that the financing entity will constitute a special purpose
trust established by the Bank. The proposed special purpose trust will
likely be a grantor trust formed by the Bank and/or the SPE, and a trustee
which will then issue trust certificates rather than debt as the form of the
RRBs. We note that a variety of issues relating to the structure of the
special purpose trust will need to be discussed with the Bank and its
counsel.
3. IS ADDITIONAL LEGISLATIVE ACTION REQUIRED IN ORDER TO PROCEED WITH THE
ISSUANCE OF THE RRBS?
Yes, the adoption of SB 477 will be required to proceed with the issuance of
the RRBs with the transaction structure presently envisioned. (See response
to Question 6.)
4. PROVIDE A FINANCING SCHEDULE SHOWING ALL ACTIVITIES LEADING TO THE ISSUANCE
OF EACH SERIES OF RRBS SUBJECT TO THIS APPLICATION.
Please see Exhibit B attached hereto.
5. IDENTIFY THE PROPOSED FINANCING TEAM MEMBERS INCLUDING UTILITY COUNSEL,
SENIOR MANAGING UNDERWRITER, ANY CO-MANAGERS, UNDERWRITERS' COUNSEL AND
TRUSTEE. IF ONE OR MORE OF THESE PARTICIPANTS HAS NOT BEEN IDENTIFIED,
PLEASE DESCRIBE THE PROCESS TO BE FOLLOWED TO COME UP WITH A PROPOSED FIRM.
Utility Counsel:
Latham & Watkins
Richards, Layton & Finger (special Delaware counsel)
Munger, Tolles & Olson LLP
Senior Managing Underwriter:
3
<PAGE>
Salomon Brothers Inc
Co-Managers:
The Co-Managers have not yet been identified. As Agent for
Sale, the State Treasurer will select Co-Managers pursuant to the
procedures and guidelines of the State Treasurer's office.
Underwriters' Counsel:
The Underwriters' Counsel has not yet been identified. As Agent
for Sale, the State Treasurer will approve the Underwriters' Counsel
recommended by the Senior Managing Underwriter pursuant to the procedures
and guidelines of the State Treasurer's office.
Trustee:
The Trustee has not yet been identified. The Bank will approve the Trustee
pursuant to the procedures and guidelines of the Bank.
6. LIST ANY REMAINING "OPEN ITEMS" YET TO BE RESOLVED BY THE APPLICANT INCLUDING
TAX AND ACCOUNTING TREATMENT AND REGULATORY APPROVALS, THE ANTICIPATED DATE
OF RESOLUTION, THE INTENDED RESOLUTION AND THE IMPACT ON THE PROPOSED
FINANCING IF THE INTENDED RESOLUTION IS NOT OBTAINED.
A. Tax Treatment
i. Federal Tax Ruling Request
(a) Open Item: As discussed in the CPUC Financing Application, the
issuance of the RRBs in the form proposed in such Application is
premised on receiving a favorable ruling by the IRS.
(b) Anticipated Date of Resolution: While this is not within Edison's
control, it is hoped that a ruling will be forthcoming in the third
quarter of 1997.
(c) Intended Resolution: Issuance of the requested federal tax ruling
by the IRS.
(d) Impact on Proposed Financing Without Resolution: If a favorable
ruling is not forthcoming, Edison would have to reassess the
transaction and if possible, modify it to eliminate the risk of
current taxation of RRB proceeds.
4
<PAGE>
ii. State Tax Treatment
(a) Open Item: It is unclear for state tax purposes whether the
transfer of the Transition Property by Edison to the SPE will be
treated as a currently taxable transaction.
(b) Anticipated Date of Resolution: While this is not within Edison's
control, it is hoped that a ruling will be forthcoming by the
fourth quarter 1997.
(c) Intended Resolution: No current taxation.
(d) Impact on Proposed Financing Without Resolution: If a favorable
ruling is not forthcoming, the economic benefits of the transaction
to customers would be reduced. Edison would have to reassess the
transaction and if possible, modify it to eliminate the risk of
current taxation.
B. Regulatory Approvals
i. Open Issue: As discussed in the CPUC Financing Application, the
approvals of the Bank, the CPUC and the State Treasurer's Office must
be obtained with respect to the RRB issuance.
ii. Anticipated Date of Resolution: See answer to item III.4.
iii. Intended Resolution: Obtain the required approvals.
iv. Impact on Proposed Financing Without Resolution: The proposed issuance
of RRBs cannot be completed without such approvals.
C. Legislative Action
i. Open Issue: As noted above, the passage of SB 477 is required for the
issuance of the RRBs in the form described in the CPUC Financing
Application.
ii. Anticipated Date of Resolution: August - September 1997.
iii. Intended Resolution: Passage of SB 477.
iv. Impact on Proposed Financing Without Resolution: Without passage of SB
477, the RRBs cannot be issued in the form and manner described in the
CPUC Financing Application. There may be greater difficulty obtaining
the bankruptcy opinion required for the AAA credit rating, potentially
resulting in higher costs to customers. Additionally, the utilities
and the Bank would have to reassess whether issuance of the RRBs
through a special purpose trust authorized by the Bank is feasible and
provides the lowest cost means of financing.
5
<PAGE>
D. Corporate Securities Items
i. Investment Company Act of 1940
(a) Open Issue: There is some uncertainty as to whether the special
purpose entity ("SPE") will be exempt from the requirements of the
Investment Company Act of 1940.
(b) Anticipated Date of Resolution: August 15, 1997.
(c) Intended Resolution: Obtain SEC confirmation that the SPE will be
exempt from the requirements of the Investment Company Act of 1940.
(d) Impact on Proposed Financing Without Resolution: An adverse
determination of this issue would likely result in the issuance of
the RRBs through private offerings, although it is possible that
Edison could decide to seek an exemptive order from the SEC. Such
determination could delay the timing of the issuance of RRBs, and
adversely impact the pricing of the RRBs.
ii. Registrant on Shelf Registration Statement
(a) Open Issue: Whether the issuer will be required to be a registrant
on the Shelf Registration Statement.
(b) Anticipated Date of Resolution: August 15, 1997.
(c) Intended Resolution: Obtain SEC confirmation that the issuer will
not be required to be a registrant.
(d) Impact on Proposed Financing Without Resolution: An adverse
determination of this issue could require modifications to the
structure of the proposed transaction and may delay the timing of RRB
issuance.
E. Bankruptcy Items
i. Open Issue: Whether appropriate bankruptcy opinions can be issued is
subject to the resolution of the ultimate structure of the
transaction.
ii. Anticipated Date of Resolution: Uncertain.
iii. Intended Date of Resolution: Uncertain.
iv. Impact on Proposed Financing Without Resolution: If appropriate
bankruptcy opinions cannot be issued, the rating of the RRBs will be
adversely affected.
6
<PAGE>
EXHIBIT B
FINANCING SCHEDULE
Subject to market conditions and unforeseen contingencies that could affect the
timing of the activities listed below, Edison proposes the following schedule
with respect to the first series or class of RRBs:
A. PROPOSED SCHEDULE RELATING TO THIS APPLICATION
<TABLE>
<CAPTION>
ACTION PROPOSED TIMING
- -----------------------------------------------------------------------------------
<S> <C>
Part One to Application Filed May 6, 1997
- -----------------------------------------------------------------------------------
Part Two to Application Filed September
- -----------------------------------------------------------------------------------
IED Bank Approval of Issuance Resolution October
- -----------------------------------------------------------------------------------
Bond Document Execution October
- -----------------------------------------------------------------------------------
Bond Pricing October - December
- -----------------------------------------------------------------------------------
</TABLE>
B. PROPOSED SCHEDULE RELATING TO THE CPUC
<TABLE>
<CAPTION>
ACTION PROPOSED TIMING
- ----------------------------------------------------------------------------------
<S> <C>
Application Filed May 6, 1997
- ----------------------------------------------------------------------------------
Response or Protest To Applications May 20
- ----------------------------------------------------------------------------------
Pre-hearing Conference May 27
- ----------------------------------------------------------------------------------
Hearings, if needed May 28 - June 3
- ----------------------------------------------------------------------------------
Opening Briefs June 13
- ----------------------------------------------------------------------------------
Reply Briefs June 25
- ----------------------------------------------------------------------------------
Draft or ALJ Proposed Decision August 4
- ----------------------------------------------------------------------------------
Comments on PD August 25
- ----------------------------------------------------------------------------------
Reply Comments on PD September 2
- ----------------------------------------------------------------------------------
Commission Financing Order September 3
- ----------------------------------------------------------------------------------
Rate Reduction Bonds Issued/FTA Charges October - December 1997
Implemented
- ----------------------------------------------------------------------------------
</TABLE>
<PAGE>
C. PROPOSED SCHEDULE RELATING TO THE SEC\1\
<TABLE>
<CAPTION>
ACTION PROPOSED TIMING
- ------------------------------------------------------------------------------------------------
<S> <C>
Filing of Shelf Registration Statement June 1997
- ------------------------------------------------------------------------------------------------
Comments from the SEC July
- ------------------------------------------------------------------------------------------------
Response to Comments from the SEC July
- ------------------------------------------------------------------------------------------------
Filing of Amendment No. 1 to the Shelf July
Registration Statement
- ------------------------------------------------------------------------------------------------
Comments from the SEC August
- ------------------------------------------------------------------------------------------------
Response to comments from the SEC August
- ------------------------------------------------------------------------------------------------
Filing of Amendment No. 2 to the Shelf August
Registration Statement\2\
- ------------------------------------------------------------------------------------------------
Comments from the SEC September
- ------------------------------------------------------------------------------------------------
Response to comments from the SEC September
- ------------------------------------------------------------------------------------------------
Filing of Amendment No. 3 to the Shelf September
Registration Statement
- ------------------------------------------------------------------------------------------------
Registration Statement declared effective September
- ------------------------------------------------------------------------------------------------
Bond offering and pricing October - December
- ------------------------------------------------------------------------------------------------
</TABLE>
D. PROPOSED SCHEDULE RELATING TO THE RATING OF THE RRBS
<TABLE>
<CAPTION>
ACTION PROPOSED TIMING
<S> <C>
- ------------------------------------------------------------------------------------------------
Submission of Draft Transaction Documents to June 1997
Rating Agencies
- ------------------------------------------------------------------------------------------------
Comments from the Rating Agencies July
- ------------------------------------------------------------------------------------------------
Meetings with the Rating Agencies July
- ------------------------------------------------------------------------------------------------
Revision of Transaction Documents August
- ------------------------------------------------------------------------------------------------
Rating of Rate Reduction Bonds October
- ------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------
\1\ It is possible that the issuance of the rate reduction bonds will be made
pursuant to private offering. See Item III.6.D.i in the response to Open
Issues. Accordingly, the above proposed schedule relating to the SEC will be
modified and Edison will notify the Bank of any such modifications. In any
event, Edison expects that the initial issuance of RRBs will occur not later
than 12/31/97.
\2\ Edison anticipates that there will be approximately three amendments to the
Shelf Registration Statement prior to the effectiveness thereof. There may
be more or fewer amendments required depending on various factors, including
the nature and quantity of comments received from the SEC.
<PAGE>
E. PROPOSED SCHEDULE RELATING TO THE IRS
<TABLE>
<CAPTION>
ACTION PROPOSED TIMING
<S> <C>
- ------------------------------------------------------------------------------------------------
Additional comments, if any, from the IRS \3\
- ------------------------------------------------------------------------------------------------
Response to additional comments from the IRS,
if any \3\
- ------------------------------------------------------------------------------------------------
Issuance of Tax Ruling by the IRS Third Quarter 1997
- ------------------------------------------------------------------------------------------------
</TABLE>
F. PROPOSED SCHEDULE RELATING TO THE CALIFORNIA FRANCHISE TAX BOARD
<TABLE>
<CAPTION>
ACTION PROPOSED TIMING
<S> <C>
- ------------------------------------------------------------------------------------------------
Filing of Request for Ruling Third Quarter 1997
- ------------------------------------------------------------------------------------------------
Issuance of Tax Ruling by the Franchise Tax Fourth 1997
Board
- ------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------
\3\ Edison has responded to all inquiries received to date from the IRS. It is
unknown whether any additional requests for information will be forthcoming.
Responses would be made as quickly as possible to any future data requests.
<PAGE>
[LETTERHEAD OF SOUTHERN CALIFORNIA EDISON]
October 27, 1997
Mr. Luis P. Buhler
Executive Director
California Infrastructure and Economic Development Bank
c/o California Trade and Commerce Agency
801 K Street, Suite 1700
Sacramento, CA 95814
RE: Part Two of Application for Issuance of Rate Reduction Bonds
------------------------------------------------------------
Dear Mr. Buhler:
Pursuant to the provisions of AB 1890 (chapter 854, Statutes of 1996),
Southern California Edison Company ("Edison") hereby makes application to
the California Infrastructure and Economic Development Bank ("Bank") for
issuance of Rate Reduction Bonds ("RRBs") by a special purpose trust to be
established by the Bank.
Attached to this Application is all the information requested by the Bank
in Part Two of the Application for Issuance of RRBs.
If you have any questions, please do not hesitate to call either Mary
Simpson at (626) 302-4481 or me.
Sincerely,
/s/ Theodore F. Craver, Jr.
Enclosures
cc: Brooke Bassett, Esq.
Blake Fowler (w/o documents)
Wes Hough
Douglas Long (w/o documents)
Lai Louie
Ramesh Ramchandani (w/o documents)
Eric Tashman (w/o documents)
<PAGE>
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
APPLICATION OF SOUTHERN CALIFORNIA EDISON COMPANY FOR ISSUANCE OF RATE REDUCTION
BONDS
FORM A - PART TWO
I. GENERAL INFORMATION
DATE OF APPLICATION: Part One: May 6, 1997
Part Two: October 27, 1997
IDENTIFICATION OF APPLICANT: Southern California Edison Company
ADDRESS OF APPLICANT: 2244 Walnut Grove Avenue
Rosemead, California 91770
CONTACT PERSON: Mary C. Simpson
PHONE CONTACT: (626) 302-4481
FACSIMILE CONTACT: (626) 302-1472
E-MAIL ADDRESS: [email protected]
LONG-TERM AND SHORT-TERM SENIOR UNSECURED DEBT RATINGS OF EDISON:
Long-Term Short-Term
----------- ----------
S&P: A A-1
Moody's: A2 P-1
1
<PAGE>
II. INFORMATION ON APPLICATION FOR FINANCING ORDER
DATE OF APPLICATION TO THE CALIFORNIA PUBLIC UTILITIES COMMISSION ("CPUC")
FOR A FINANCING ORDER:
May 6, 1997
PLEASE ATTACH A COPY OF THE APPLICATION FOR THE FINANCING ORDER INCLUDING
ALL ATTACHMENTS AND EXHIBITS. IF THE APPLICATION FOR FINANCING ORDER HAS
NOT BEEN MADE, PLEASE PROVIDE THE BANK WITH A COPY OF THE APPLICATION AS
SOON AS IT HAS BEEN FILED.
A copy of Edison's application to the CPUC was provided to the Bank with
Part One of this Application.
PLEASE KEEP BANK INFORMED OF ANY WRITTEN COMMUNICATION WITH THE CPUC
REGARDING THE FINANCING ORDER. SEND TWO COPIES OF ALL COMMUNICATION TO AND
FROM THE CPUC TO GLENN STOBER, CALIFORNIA TRADE AND COMMERCE AGENCY, 801 K
STREET, SUITE 1700, SACRAMENTO, CA 95814.
Edison acknowledges that it will continue to keep the Bank informed of all
written communication with the CPUC regarding the Financing Order and will
send two copies of all such communication to the Bank at the address set
forth above.
2
<PAGE>
III. APPLICATION FORM A - PART TWO
(All capitalized terms used herein and not otherwise defined shall have the
meaning specified in the Form S-3 Registration Statement.)
1. PAR AMOUNT (OR MAXIMUM AMOUNT) OF RRBS PROPOSED TO BE ISSUED.
In Decision 97-09-056, the CPUC authorized the issuance of an aggregate
principal amount of up to $3.0 billion of RRBs. The exact amount of the
issuance will be determined when the RRBs are priced using the sizing model
approved by the CPUC.
2. ATTACH COPIES OF THE OFFERING DOCUMENTS AND LEGAL AGREEMENTS (CURRENT DRAFTS
ARE ACCEPTABLE).
Please see Exhibits A through L attached hereto for the current drafts of the
following offering documents and legal agreements. These documents are
currently being negotiated and are subject to revision. Edison will provide
or cause the appropriate legal counsel to provide updated documents to the
Bank as they become available.
.
Document Exhibit
-------- -------
Administrative Services Agreement A
Amended and Restated Declaration and Agreement of Trust B
Amended and Restated Limited Liability Company Agreement C
Amendment No. 2 to Form S-3 Registration Statement D
Declaration and Agreement of Trust E
Fee and Indemnity Agreement F
Note Indenture G
Note Purchase Agreement H
Notification Registration I
Transition Property Purchase and Sale Agreement J
Transition Property Servicing Agreement K
Underwriting Agreement L
3. PROVIDE AN UPDATED LISTING OF TRANSACTION PARTICIPANTS.
Please see Exhibit M attached hereto.
4. PROVIDE A REVISED FINANCING SCHEDULE SHOWING ALL ACTIVITIES LEADING TO THE
ISSUANCE OF EACH SERIES OF RRBS SUBJECT TO THIS APPLICATION.
Please see Exhibit N attached hereto.
3
<PAGE>
5. PROVIDE UPDATED BOND SIZING AND CASH FLOW SCHEDULES FOR THE PROPOSED
ISSUANCE(S) DETAILING THE STRUCTURE OF EACH SERIES OF RRBS. INCLUDE
PROJECTIONS OF THE FIXED TRANSITION AMOUNTS TO BE COLLECTED AND THE PROJECTED
DEBT SERVICE ON THE RRBS.
Based on market conditions as of October 8, 1997, the weighted average coupon
for the RRBs is projected to be 6.43%. Based on this assumption, the size of
the issuance necessary to support the 10 percent rate reduction for small
customers is approximately $2.46 billion. Please note that the weighted
average coupon and size of the offering will change based on market
conditions when the RRBs are priced. Please see the response to Question #8
below for detailed pricing assumptions.
Please see Exhibits O and P attached hereto for the bond sizing model and
cash flow schedules, respectively.
6. PROVIDE A DESCRIPTION OF THE PROPOSED STRUCTURE FOR THE RRBS, E.G., WILL
THERE BE DIFFERENT CLASSES OF SECURITIES, OR WILL A "PASS-THROUGH" OR SOME
OTHER STRUCTURE BE UTILIZED?
The RRBs will consist of Classes of Certificates issued by "[NAME] Special
Purpose Trust SCE-1" (the "Trust"). It is currently expected that there will
be five such Classes, although the number of Classes, and the size and
expected final maturity date of each, may depend upon market conditions.
Each Class of Certificates will correspond to a Class of Notes issued by the
Note Issuer, and will represent undivided interests in the related Class of
Notes. The Notes are secured by the Transition Property and certain other
assets of the Note Issuer (including the Collection Account).
All payments in respect of the Notes will be "passed through" to
Certificateholders. All collections in respect of the Transition Property and
other assets of the Note Issuer with respect to any Payment Date in excess of
amounts payable as (a) expenses of the Note Issuer and the Trust, (b)
payments of quarterly principal of and interest on the Notes, (c) allocations
to the Overcollateralization Subaccount and (d) allocations to the Capital
Subaccount, will be allocated to the Reserve Subaccount, and will be
available to cover any shortfalls in collections on any subsequent Payment
Date. The maximum principal payment on the Notes on any quarterly Payment
Date ("Quarterly Principal") shall equal the excess, if any, of the then
outstanding principal balance of the Notes over the outstanding principal
balance specified for such Payment Date on the applicable Expected
Amortization Schedule.
The Notes will bear a fixed rate of interest, whereas the interest rate on
the corresponding Certificates may be fixed or floating. If the State
Treasurers Office in its capacity as agent for sale determines that a portion
of the Certificates should bear a floating rate, the Trust will enter into a
swap agreement with a swap counterparty
4
<PAGE>
whereby the Trust will make fixed rate payments to, and receive floating rate
payments from, the swap counterparty. The Trust in turn will make floating
rate payments to floating rate Certificateholders.
7. PROVIDE THE TARGET CREDIT RATINGS FOR EACH SERIES OF RRBS FROM EACH RATING
AGENCY FROM WHICH A RATING IS EXPECTED TO BE REQUESTED. DISCUSS THE CREDIT
STRUCTURE PROPOSED FOR THE FINANCING AND THE TYPES AND AMOUNTS OF INTERNAL
AND EXTERNAL "CREDIT ENHANCEMENT" TO BE PROVIDED THAT SUPPORT THAT RATING.
DESCRIBE HOW THE RECOMMENDED LEVELS OF "CREDIT ENHANCEMENT" WERE DETERMINED.
Target Credit Ratings:
---------------------
Duff & Phelps AAA
Fitch AAA
Moody's Aaa
Standard & Poors AAA
Credit Enhancement:
------------------
There are two primary forms of credit enhancement: the "True-Up Mechanism"
and certain amounts available in the Collection Account. The final form and
amounts of credit enhancement are subject to rating agency confirmation. The
recommended levels of credit enhancement were determined (a) based upon the
collective judgment of the underwriters and (b) in a manner consistent with
the other aspects of the transaction (e.g., requirement to achieve the
necessary characterization of the transaction for tax purposes).
True-Up Mechanism
The Servicing Agreement requires the Servicer to seek, and the Statute and
the Financing Order require the CPUC to approve, periodic adjustments to the
FTA Charges based on actual FTA Collections and updated assumptions by the
Servicer as to projected future usage of electricity by Customers, future
expenses relating to the Transition Property, the Notes and the Certificates,
and expected delinquencies and charge-offs. The adjustments to the FTA
Charges will continue until all interest on and principal of all Series of
Notes and corresponding Series of Certificates have been paid or distributed
in full.
Collection Account
Upon issuance of the Notes, the Note Issuer will establish the Collection
Account, which will be held by the Note Trustee for the benefit of the
Noteholders. The Collection Account will consist of four subaccounts, two of
which (the "Overcollateralization Subaccount" and the "Capital Subaccount")
provide credit
5
<PAGE>
enhancement for the Notes, and the funds on deposit therein may be used to
make payments on the Notes in the event of a shortfall in FTA Collections (as
further specified in the Indenture).
. Overcollateralization Subaccount
The Financing Order permits the Servicer to set the FTA Charges at levels
that are expected to produce FTA Collections in amounts that exceed the
amounts expected to be required to make all payments on the Notes and
distributions on the Certificates in turn in a timely manner and to pay all
related fees and expenses. The aggregate required amount of such excess
shall equal 0.50% of the initial principal amount of the Notes. Such amount
shall accrue approximately ratably over 40 quarters.
. Capital Subaccount
Upon the issuance of each Series of Notes, the Seller will contribute
capital to the Note Issuer in an amount specified in each Prospectus
Supplement, which will equal 0.50% of the initial principal amount of each
such Series of Notes. Such amount, less $100,000 in the aggregate for all
Series of Notes, will be deposited in the Capital Subaccount.
8. INDICATE THE DATE FOR WHICH INTEREST RATES IN THE BOND SIZING SCHEDULES
APPLY AND THE DETAILED PRICING ASSUMPTIONS BEHIND EACH MATURITY, E.G., THE
APPROPRIATE U.S. TREASURY INDEX MATURITY AND SPREAD ASSUMPTIONS.
Like other debt securities, the RRBs will be priced relative to a benchmark
security. Fixed-rate Certificates will be priced relative to a comparable
term U.S. Treasury security, while floating rate Certificates will be priced
relative to a floating rate index known as LIBOR (the London Interbank
Offering Rate). The appropriate term for the benchmark generally is based on
the expected average life of the Certificates, i.e., the expected average
principal repayment date, not the expected final maturity date.
Following are detailed pricing assumptions based on Treasury yields and
indicative credit spreads as of October 8, 1997. This information is
provided for indicative purposes only. Final pricing and structure will be
determined by the State Treasurers Office and the underwriters based on
market conditions at the time the Certificates are priced.
6
<PAGE>
<TABLE>
<CAPTION>
BENCHMARK CURRENT QUARTERLY EXPECTED
CLASS TREASURY CREDIT SPREAD COUPON AVERAGE LIFE
<S> <C> <C> <C> <C>
A-1 5.63% 0.45% 6.03% 1.2 years
A-2 5.85% 0.40% 6.20% 3.2 years
A-3 5.95% 0.45% 6.35% 5.2 years
A-4 6.06% 0.50% 6.51% 7.2 years
A-5 6.07% 0.55% 6.57% 9.2 years
Total 5.95% 0.53% 6.43% 5.2 years
</TABLE>
9. PROVIDE A SCHEDULE OF SOURCES AND USES OF FUNDS FOR EACH SERIES OF RRBS
SHOWING PAR (LESS ANY DISCOUNT) PLUS ACCRUED INTEREST, IF ANY AS SOURCES AND
ACQUISITION OF TRANSITION PROPERTY, UNDERWRITING FEES AND COSTS OF ISSUANCE
AS USES. PROVIDE A DETAILED BREAKDOWN OF PROPOSED COSTS OF ISSUANCE AND
UNDERWRITING FEES AND EXPENSES.
Following is a schedule detailing sources and uses of funds. In Decision 97-
09-056, the CPUC authorized issuance costs up to a maximum of $21.5 million.
<TABLE>
<CAPTION>
<S> <C>
Sources:
Rate Reduction Certificates, Series 1997 (1) $2,461,000,000
Uses:
Purchase of transition property, including (1): $2,461,000,000
Underwriting fees (2)
Underwriting expenses (2)
Company counsel 2,500,000
Underwriters counsel (2)
Bond counsel (2)
Accounting 200,000
Advisor 70,000
Rating agencies (2)
SEC registration 790,000
Infrastructure Bank (2)
State Treasurer as Agent for Sale (2)
Printing (2)
Trustee and Trustee Counsel (2)
SPE Set-up fees, SPE counsel, etc. 25,000
</TABLE>
Notes:
(1) Subject to change. This value is based on interest rates as of October
8, 1997 and current estimates of issuance expenses.
(2) Subject to approval by State Treasurer's Office and/or Infrastructure
Bank
7
<PAGE>
10. DESCRIBE THE STATUS OF LEGAL OPINIONS REGARDING BANKRUPTCY "TRUE SALE"
AND THE IRS RULING ON DEBT FOR TAX TREATMENT AND IDENTIFY WHETHER ANY OPEN
ISSUES REMAIN.
A draft of the true sale opinion has been submitted to the rating agencies
for their comments.
There are no open issues remaining regarding the IRS rulings issued on
September 8, 1997 assuming no material changes to the structure previously
discussed with the IRS.
11. WHAT ENTITY WILL SERVE AS COLLECTION AGENT OR SERVICER FOR THE FIXED
TRANSITION AMOUNTS AND WHAT FEES WILL BE ASSESSED, IF ANY, FOR THIS
FUNCTION?
Edison initially will serve as servicer pursuant to the terms of the
Transition Property Servicing Agreement to be entered into between Edison,
as servicer, and SCE Funding LLC, as Note Issuer. Under the agreement,
servicing fees will be established at a level sufficient to attract a
replacement servicer.
8
<PAGE>
EXHIBITS A-L
(PROVIDED TO INFRASTRUCTURE BANK ONLY)
Document Exhibit
- -------- -------
Administrative Services Agreement A
Amended and Restated Declaration and Agreement of Trust B
Amended and Restated Limited Liability Company Agreement C
Amendment No. 2 to Form S-3 Registration Statement D
Declaration and Agreement of Trust E
Fee and Indemnity Agreement F
Note Indenture G
Note Purchase Agreement H
Notification Registration I
Transition Property Purchase and Sale Agreement J
Transition Property Servicing Agreement K
Underwriting Agreement L
List of Transaction Participants M
Financing Schedule N
Bond Sizing Model O
Cash Flow Schedules P
<PAGE>
EXHIBIT A
Administrative Services Agreement
<PAGE>
=================================================================
ADMINISTRATIVE SERVICES AGREEMENT
between
[NAME OF SPE]
Note Issuer
and
[NAME OF UTILITY]
Administrator
Dated as of _________, 1997
=================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
<S> <C> <C>
Duties of Administrator......................................................... 3
-----------------------
SECTION 1.01. Appointment of Administrator; Acceptance
of Appointment.................................................................. 3
SECTION 1.02. Duties with Respect to the Related
Agreements...................................................................... 3
SECTION 1.03. Additional Duties............................................................... 9
SECTION 1.04. Non-Ministerial Matters......................................................... 11
ARTICLE II
Records............................................................ 12
-------
SECTION 2.01. Records......................................................................... 12
ARTICLE III
Compensation and Reimbursement of Expense........................................... 13
-----------------------------------------
SECTION 3.01. Compensation.................................................................... 13
SECTION 3.02. Reimbursement of Expense........................................................ 13
ARTICLE IV
Additional Information................................................... 13
----------------------
SECTION 4.01. Additional Information To Be Furnished to Note Issuer........................... 13
ARTICLE V
Miscellaneous Provisions.................................................. 13
------------------------
SECTION 5.01. Independence of Administrator................................................... 13
SECTION 5.02. No Joint Venture................................................................ 14
SECTION 5.03. Other Activities of Administrator............................................... 14
SECTION 5.04. Term of Agreement; Resignation and
Removal of Administrator........................................................ 14
SECTION 5.05. Action upon Termination, Resignation or
Removal......................................................................... 17
SECTION 5.06. Notices......................................................................... 18
SECTION 5.07. Amendments...................................................................... 19
SECTION 5.08. Successors and Assigns.......................................................... 20
SECTION 5.09. Limitations on Rights of Others................................................. 21
SECTION 5.10. GOVERNING LAW................................................................... 21
SECTION 5.11. Headings........................................................................ 21
SECTION 5.12. Counterparts.................................................................... 22
SECTION 5.13. Severability.................................................................... 22
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 5.14. Nonpetition Covenants............................................................. 22
SECTION 5.15. Limitation of Liability of Note Trustee........................................... 23
</TABLE>
EXHIBIT A - Form of Power of Attorney
ii
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT dated as of
____________, 1997, between [NAME OF SPE], a Delaware
limited liability company (the "Note Issuer"), and [NAME OF
UTILITY], a California corporation, as administrator (the
"Administrator").
RECITALS
A. WHEREAS, the Note Issuer is issuing the Notes pursuant to the
Indenture dated as of ____________, 1997 (as amended, modified or supplemented
from time to time in accordance with the provisions thereof, the "Indenture";
capitalized terms used herein and not defined herein shall have the meanings
assigned such terms in the Indenture), between the Note Issuer and
[_______________], as Note Trustee (in such capacity, the "Note Trustee").
B. WHEREAS, the Note Issuer has entered into certain agreements in
connection with the issuance of the Notes, including (i) a Transition Property
Purchase and Sale Agreement dated as of ____________, 1997 (the "Sale
Agreement"), between the Note Issuer and [NAME OF UTILITY], as Seller (in such
capacity, the "Seller"), (ii) a Transition Property Servicing Agreement dated as
of ________________ 1997 (the "Servicing Agreement"), between the Note Issuer
and [NAME OF UTILITY], as Servicer (in such capacity, the "Servicer"), (iii) the
Indenture,
1
<PAGE>
(iv) the Note Purchase Agreement dated as of __________, 1997 (the "Note
Agreement") between Note Issuer and __________, as certificate trustee and (v)
the Fee and Indemnity Agreement dated _________, 1997 (the "Fee Agreement")
between __________ and __________ (the Sale Agreement, the Servicing Agreement,
the Indenture, the Note Agreement and the Fee Agreement hereinafter referred to
collectively as the "Related Agreements");
C. WHEREAS, pursuant to the Related Agreements, the Note Issuer is
required to perform certain duties in connection with the Notes and the
collateral therefor pledged pursuant to the Indenture (the "Collateral");
D. WHEREAS, the Note Issuer desires to have the Administrator
perform certain of the duties of the Note Issuer referred to in the preceding
clause, and to provide such additional services consistent with the terms of
this Agreement and the Related Agreements as the Note Issuer may from time to
time request; and
E. WHEREAS, the Administrator has the capacity to provide the
services required hereby and is willing to perform such services for the Note
Issuer on the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable
2
<PAGE>
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
ARTICLE I
Duties of Administrator
-----------------------
SECTION 1.01. Appointment of Administrator; Acceptance of
-------------------------------------------
Appointment. The Note Issuer hereby appoints the Administrator, and the
- -----------
Administrator hereby accepts such appointment, to perform the Administrator's
obligations pursuant to this Agreement on behalf of and for the benefit of the
Note Issuer in accordance with the terms of this Agreement and applicable law.
SECTION 1.02. Duties with Respect to the Related Agreements. (a)
---------------------------------------------
The Administrator agrees to perform all its duties as Administrator hereunder.
In addition, the Administrator shall consult with the Note Issuer regarding its
duties under the Related Agreements. The Administrator shall advise the Note
Trustee when action is necessary to comply with the Note Issuer's duties under
the Related Agreements. The Administrator shall prepare for execution by the
Note Issuer, or shall cause the preparation by other appropriate persons of all
such documents, reports, filings, instruments, certificates and opinions as it
shall be the duty of the Note Issuer to prepare, file or deliver pursuant to any
Related Agreement. In furtherance of the foregoing, the Administrator shall
take all appropriate action that it is the duty of the Note Issuer to take
3
<PAGE>
pursuant to the Indenture including, without limitation, such of the foregoing
as are required with respect to the following matters under the Indenture
(references are to sections of the Indenture):
(1) the preparation of or obtaining of the documents and
instruments required for authentication of the Notes, if any, and delivery
of the same to the Note Trustee (Section 2.03);
(2) the duty to cause the Note Register to be kept and to give
the Note Trustee notice of any appointment of a new Note Registrar and the
location, or change in location, of the Note Register (Section 2.05);
(3) the fixing or causing to be fixed of any specified record
date and the notification of each affected Noteholder with respect to
special record dates, payment dates, and the amount of defaulted interest
(plus interest on such defaulted interest) to be paid, if any (Section
2.08(c));
(4) the preparation, obtaining or filing of the instruments,
opinions and certificates and other documents required for the release of
collateral (Section 2.11);
4
<PAGE>
(5) the duty to cause newly appointed Paying Agents, if any, to
deliver to the Note Trustee the instrument specified in the Indenture
regarding funds held in trust (Section 3.03);
(6) the direction to Paying Agents to pay to the Note Trustee all
sums held in trust by such Paying Agents (Section 3.03);
(7) the obtaining and preservation of the Note Issuer's
qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of the Indenture, the Notes, the Collateral and each other
instrument or agreement included in the Collateral (Section 3.04);
(8) the preparation of all supplements, amendments, filings with
the CPUC pursuant to the PU Code, financing statements, continuation
statements, instruments of further assurance and other instruments, in
accordance with Section 3.05 of the Indenture, necessary to protect the
Collateral (Section 3.05);
(9) the obtaining of the Opinions of Counsel and the delivery of
such Opinions of Counsel, in accordance with Section 3.06 of the Indenture,
as to the Collateral, and the annual delivery of the Officer's Certificate
and certain
5
<PAGE>
other statements, in accordance with Section 3.09 of the Indenture, as to
compliance with the Indenture (Sections 3.06 and 3.09);
(10) the identification to the Note Trustee in an Officer's
Certificate of any Person with whom the Note Issuer has contracted to
perform its duties under the Indenture (Section 3.07(b));
(11) the preparation and filing of all documents required under
the Statute relating to the transfer of the ownership or security interest
in the Transition Property (Section 3.07(i));
(12) the preparation and obtaining of documents and instruments
required for the release of the Note Issuer from its obligations under the
Indenture (Section 3.11(b));
(13) the delivery of notice to the Note Trustee and the Rating
Agencies of each Event of Default and each default by the Servicer or
Seller of its obligations under the Servicing Agreement or the Sale
Agreement, respectively (Sections 3.07(d) and 3.19);
(14) the preparation of an Officer's Certificate and the
obtaining of the Opinion of Counsel and the Independent Certificate
relating to (i) the satisfaction and
6
<PAGE>
discharge of the Indenture under Section 4.01 of the Indenture or (ii) the
exercise of the Legal Defeasance Option or the Covenant Defeasance Option
under Section 4.02 of the Indenture (Sections 4.01 and 4.02);
(15) the furnishing to the Note Trustee with (i) each Record Date
with respect to each Series and (ii) the names and addresses of Noteholders
during any period when the Note Trustee is not the Note Registrar (Section
7.01);
(16) the preparation and, after execution by the Note Issuer, the
filing with the Commission and the Note Trustee of the annual reports and
of the information, documents and other reports required to be filed on a
periodic basis with, and summaries thereof as may be required by rules and
regulations prescribed by, the Commission and the transmission of such
summaries, as necessary, to the Noteholders (Sections 3.07(h) and 7.03);
(17) the notification of the Note Trustee if and when the Notes
are listed on any stock exchange (Section 7.04);
(18) the opening of one or more segregated trust accounts in the
Note Trustee's name, the preparation of Issuer Orders, and the obtaining of
Opinions of Counsel and the taking of all other actions necessary with
respect to
7
<PAGE>
investment and reinvestment of funds in the Collection Account (Sections
8.02 and 8.03);
(19) the preparation of Issuer Request and Officer's Certificate
and the obtaining of an Opinion of Counsel and Independent Certificates, if
necessary, for the release of the Collateral as defined in the Indenture
(Sections 8.04 and 8.05);
(20) the preparation of Issuer Orders and the obtaining of
Opinions of Counsel with respect to the execution of supplemental
indentures (Sections 9.01 and 9.02);
(21) the preparation of new Notes conforming to any supplemental
indenture (Section 9.06);
(22) the notification of the Note Trustee of any redemption of
the Notes (Section 10.01);
(23) the preparation of all Officer's Certificates and the
obtaining of Opinions of Counsel and Independent Certificates with respect
to any requests by the Note Issuer to the Note Trustee to take any action
under the Indenture (Section 11.01(a));
8
<PAGE>
(24) the preparation and delivery of Officer's Certificates for
the release of property from the lien of the Indenture (Section 11.01(b));
(25) the notification of the Note Trustee of any notice received
by it from the Noteholders (Section 11.04);
(26) the preparation and delivery to Noteholders and the Note
Trustee of any agreements with respect to alternate payment and notice
provisions (Section 11.06); and
(27) the recording of the Indenture, if applicable, and the
obtaining of an Opinion of Counsel in connection therewith (Section 11.15).
(b) The Administrator will:
(1) pay the Note Trustee from time to time reasonable
compensation for all services rendered by the Note Trustee in accordance
with the Indenture; and
(2) reimburse the Note Trustee upon its request for all
reasonable out-of-pocket expenses incurred or made by the Note Trustee in
accordance with the Indenture.
SECTION 1.03. Additional Duties. (a) In addition to the duties of
-----------------
the Administrator set forth above, the
9
<PAGE>
Administrator shall perform such calculations and shall prepare for execution by
the Note Issuer or shall cause the preparation by other appropriate persons of
all such documents, reports, filings, instruments, certificates and opinions as
it shall be the duty of the Note Issuer to prepare, file or deliver pursuant to
the Related Agreements, and at the request of the Note Issuer shall take all
appropriate action that it is the duty of the Note Issuer to take pursuant to
the Related Agreements. Subject to Section 5.01 of this Agreement, and in
accordance with the directions of the Note Issuer, the Administrator shall
administer, perform or supervise the performance of such other activities in
connection with the Collateral (including the Related Agreements) as are not
covered by any of the foregoing provisions and as are expressly requested by the
Note Issuer and are reasonably within the capability of the Administrator.
(b) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Administrator may enter into transactions
with or otherwise deal with any of its Affiliates; provided, however, that the
-------- -------
terms of any such transactions or dealings shall be in accordance with any
directions received from the Note Issuer and shall be, in the Administrator's
reasonable opinion, no less favorable to the Note Issuer than would be available
from unaffiliated parties.
(c) It is the intention of the parties hereto that the Administrator
shall, and the Administrator hereby agrees to,
10
<PAGE>
execute on behalf of the Note Issuer all such documents, reports, filings,
instruments, certificates and opinions as it shall be the duty of the Note
Issuer to prepare, file or deliver pursuant to the Related Agreements. In
furtherance thereof, the Note Issuer shall execute and deliver to the
Administrator, and to each successor Administrator appointed pursuant to the
terms hereof, one or more powers of attorney substantially in the form of
Exhibit A hereto, appointing the Administrator the attorney-in-fact of the Note
- ---------
Issuer for the purpose of executing on behalf of the Note Issuer all such
documents, reports, filings, instruments, certificates and opinions.
SECTION 1.04. Non-Ministerial Matters. (a) With respect to matters
-----------------------
that in the reasonable judgment of the Administrator are non-ministerial, the
Administrator shall not take any action unless within a reasonable time before
the taking of such action, the Administrator shall have notified the Note Issuer
of the proposed action and the Note Issuer shall not have withheld consent or
provided an alternative direction. For the purpose of the preceding sentence,
"non-ministerial matters" shall include, without limitation:
(1) the amendment of or any supplement to the Indenture;
(2) the initiation of any claim or lawsuit by the Note Issuer and
the compromise of any action, claim or
11
<PAGE>
lawsuit brought by or against the Note Issuer (other than in connection
with the collection of the Receivables);
(3) the amendment, change or modification of the Related
Agreements;
(4) the appointment of successor Note Registrars, successor
Paying Agents and successor Note Trustees pursuant to the Indenture or the
appointment of successor Administrators or successor Servicers, or the
consent to the assignment by the Note Registrar, Paying Agent or Note
Trustee of its obligations under the Indenture; and
(5) the removal of the Note Trustee.
(b) Notwithstanding anything to the contrary in this Agreement, the
Administrator shall not be obligated to, and shall not take any action that the
Note Issuer directs the Administrator not to take on its behalf.
ARTICLE II
Records
-------
SECTION 2.01. Records. The Administrator shall maintain appropriate
-------
books of account and records relating to services performed hereunder, which
books of account and records shall be accessible for inspection by the Note
Issuer and the Note Trustee at any time during normal business hours.
12
<PAGE>
ARTICLE III
Compensation and Reimbursement of Expense
-----------------------------------------
SECTION 3.01. Compensation. As compensation for the performance of
------------
the Administrator's obligations under this Agreement, the Administrator shall be
entitled to $____________ per month.
SECTION 3.02. Reimbursement of Expense. The Note Issuer shall
------------------------
reimburse the Administrator for any of its liabilities and expenses, reasonably
incurred, related to its performance hereunder or under any Related Document
(including without limitation those expenses set forth in Section 1.02(b) of
this Agreement), provided that such liabilities and expenses are not incurred as
the result of the Administrator's negligence, bad faith, willful misconduct or
fraud.
ARTICLE IV
Additional Information
----------------------
SECTION 4.01. Additional Information To Be Furnished to Note Issuer.
-----------------------------------------------------
The Administrator shall furnish to the Note Issuer from time to time such
additional information regarding the Collateral as the Note Issuer shall
reasonably request.
ARTICLE V
Miscellaneous Provisions
------------------------
SECTION 5.01. Independence of Administrator. For all purposes of
-----------------------------
this Agreement, the Administrator shall be an
13
<PAGE>
independent contractor and shall not be subject to the supervision of the Note
Issuer with respect to the manner in which it accomplishes the performance of
its obligations hereunder. Unless expressly authorized by the Note Issuer, the
Administrator shall have no authority to act for or represent the Note Issuer in
any way and shall not otherwise be deemed an agent of the Note Issuer.
SECTION 5.02. No Joint Venture. Nothing contained in this Agreement
----------------
shall (a) constitute the Administrator and the Note Issuer as members of any
partnership, joint venture, association, syndicate, unincorporated business or
other separate entity, (b) be construed to impose any liability as such on any
of them or (c) be deemed to confer on any of them any express, implied or
apparent authority to incur any obligation or liability on behalf of the others.
SECTION 5.03. Other Activities of Administrator. Nothing herein
---------------------------------
shall prevent the Administrator or its affiliates from engaging in other
businesses or, in its sole discretion, from acting in a similar capacity as an
administrator for any other person or entity even though such person or entity
may engage in business activities similar to those of the Note Issuer.
SECTION 5.04. Term of Agreement; Resignation and Removal of
---------------------------------------------
Administrator. (a) This Agreement shall continue in
- -------------
14
<PAGE>
force until the dissolution of the Note Issuer, upon which event this Agreement
shall automatically terminate.
(b) Subject to Sections 5.04(e) and 5.04(f), the Administrator may
resign its duties hereunder by providing the Note Issuer with at least 60 days
prior written notice.
(c) Subject to Sections 5.04(e) and 5.04(f), the Note Issuer may
remove the Administrator without cause by providing the Administrator with at
least 60 days prior written notice.
(d) Subject to Sections 5.04(e) and 5.04(f), at the sole option of the
Note Issuer, the Administrator may be removed immediately upon written notice of
termination from the Note Issuer to the Administrator if any of the following
events shall occur:
(1) the Administrator shall default in the performance of any of
its duties under this Agreement and, after notice of such default, shall
not cure such default within ten days (or, if such default cannot be cured
in such time, shall not give within ten days such assurance of cure as
shall be reasonably satisfactory to the Note Issuer);
(2) a court having jurisdiction in the premises shall enter a
decree or order for relief, and
15
<PAGE>
such decree or order shall not have been vacated within 60 days, in respect
of the Administrator in any involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect or
appoint a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for the Administrator or any substantial part of its
property or order the winding-up or liquidation of its affairs; or
(3) the Administrator shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, shall consent to the entry of an order for relief in an involuntary
case under any such law, or shall consent to the appointment of a receiver,
liquidator, assignee, trustee, custodian, sequestrator or similar official
for the Administrator or any substantial part of its property, shall
consent to the taking of possession by any such official of any substantial
part of its property, shall make any general assignment for the benefit of
creditors or shall fail generally to pay its debts as they become due.
The Administrator agrees that if any of the events specified in clause
(2) or (3) of this Section shall occur, it
16
<PAGE>
shall give written notice thereof to the Note Issuer and the Note Trustee within
seven days after the happening of such event.
(e) No resignation or removal of the Administrator pursuant to this
Section 5.04 shall be effective until (1) a successor Administrator shall have
been appointed by the Note Issuer and (2) such successor Administrator shall
have agreed in writing to be bound by the terms of this Agreement in the same
manner as the Administrator is bound hereunder.
(f) The appointment of any successor Administrator shall be effective
only after satisfaction of the Rating Agency Condition with respect to the
proposed appointment.
SECTION 5.05. Action upon Termination, Resignation or Removal.
-----------------------------------------------
Promptly upon the effective date of termination of this Agreement pursuant to
Section 5.04(a) or the resignation or removal of the Administrator pursuant to
Sections 5.04(b) or 5.04(c), respectively, the Administrator shall be entitled
to be paid all fees and reimbursable expenses accruing to it to the date of such
termination, resignation or removal, to the extent permitted under Article III.
The Administrator shall forthwith upon such termination pursuant to Section
5.04(a) deliver to the Note Issuer all property and documents of or relating to
the Collateral then in the custody of the Administrator. In the event of the
resignation or removal of the Administrator pursuant to Sections 5.04(b) or
5.04(c), respectively, the Administrator
17
<PAGE>
shall cooperate with the Note Issuer and take all reasonable steps requested to
assist the Note Issuer in making an orderly transfer of the duties of the
Administrator.
SECTION 5.06. Notices. Any notice, report or other communication
-------
given hereunder shall be in writing and addressed as follows:
(a) if to the Note Issuer, to
[ACRONYM OF UTILITY]
Funding LLC
____________________
____________________
____________________
____________________
(b) if to the Administrator, to
[NAME OF UTILITY]
____________________
____________________
(c) if to the Note Trustee, to
[_________________]
____________________
____________________
or to such other address as any party shall have provided to the other parties
in writing. Any notice required to be in writing hereunder shall be deemed given
if such notice is mailed by certified mail, postage prepaid, telecopied or hand-
delivered to the address of such party as provided above, except that notices to
the Note Trustee are effective only upon receipt.
18
<PAGE>
SECTION 5.07. Amendments. This Agreement may be amended in writing
----------
by the Administrator and the Note Issuer with the written consent of the Note
Trustee, but without the consent of any of the Noteholders or
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions in this Agreement or for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions in this Agreement or
of modifying in any manner the rights of the Noteholders or the
Certificateholders; provided, however, that such action shall not, as evidenced
-------- -------
by an Officer's Certificate delivered to the Note Trustee, adversely affect in
any material respect the interests of any Noteholder or Certificateholder.
This Agreement may also be amended in writing from time to time by the
Administrator and the Note Issuer with the written consent of the Note Trustee
and the written consent of the Holders of Notes evidencing not less than a
majority of the Outstanding Amount of the Notes of all Series, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Noteholders or the Certificateholders; provided, however, that no such amendment
-------- -------
shall (a) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, FTA Collections or (b) reduce the aforesaid percentage of the
Outstanding Amount of the Notes, the Holders of which are required to consent to
any such amendment, without the consent of the Holders of all the outstanding
Notes.
19
<PAGE>
Promptly after the execution of any such amendment and the requisite
consents, the Administrator shall furnish written notification of the substance
of such amendment to the Note Trustee and each of the Rating Agencies.
It shall not be necessary for the consent of Noteholders pursuant to
this Section to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof.
Prior to its consent to any amendment to this Agreement, the Note
Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating
that such amendment is authorized or permitted by this Agreement. The Note
Trustee may, but shall not be obligated to, enter into any such amendment which
affects the Note Trustee's own rights, duties or immunities under this Agreement
or otherwise.
SECTION 5.08. Successors and Assigns. This Agreement may not be
----------------------
assigned by the Administrator unless such assignment is previously consented to
in writing by the Note Issuer and the Note Trustee and subject to the
satisfaction of the Rating Agency Condition in respect thereof. An assignment
with such consent and satisfaction, if accepted by the assignee, shall bind the
assignee hereunder in the same manner as the Administrator is bound hereunder.
Notwithstanding the foregoing, this Agreement may be assigned by the
Administrator without the consent of the Note Issuer and the Note Trustee to a
corporation or other organization that is a successor (by merger, consolidation
or
20
<PAGE>
purchase of assets) to the Administrator, provided that such successor
organization executes and delivers to the Note Issuer and the Note Trustee an
agreement in which such corporation or other organization agrees to be bound
hereunder by the terms of said assignment in the same manner as the
Administrator is bound hereunder and the Rating Agency Condition is satisfied.
Subject to the foregoing, this Agreement shall bind any successors or assigns of
the parties hereto.
SECTION 5.09. Limitations on Rights of Others. The provisions of
-------------------------------
this Agreement are solely for the benefit of the Administrator, the Note Issuer,
the Trust, the Note Trustee, the Certificate Trustee, the Noteholders and the
Certificateholders and nothing in this Agreement, whether express or implied,
shall be construed to give to any other Person any legal or equitable right,
remedy or claim in the Transition Property or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
SECTION 5.10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 5.11. Headings. The section headings hereof have been
--------
inserted for convenience of reference only and shall
21
<PAGE>
not be construed to affect the meaning, construction or effect of this
Agreement.
SECTION 5.12. Counterparts. This Agreement may be executed in
------------
counterparts, each of which when so executed shall together constitute but one
and the same agreement.
SECTION 5.13. Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 5.14. Nonpetition Covenants. Notwithstanding any prior
---------------------
termination of this Agreement or the Indenture, but subject to the CPUC's right
to order the sequestration and payment of revenues arising with respect to the
Transition Property notwithstanding any bankruptcy, reorganization or other
insolvency proceedings with respect to the debtor, pledgor or transferor of the
Transition Property pursuant to Section 843(e) and (g) of the PU Code, the
Administrator shall not, prior to the date which is one year and one day after
the termination of the Indenture with respect to the Note Issuer, acquiesce,
petition or otherwise invoke or cause the Note Issuer or the Trust to invoke the
process of any court or government authority for the purpose
22
<PAGE>
of commencing or sustaining a case against the Note Issuer or the Trust under
any Federal or state bankruptcy, insolvency or similar law or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Note Issuer or the Trust or any substantial part of the
property or the Note Issuer or the Trust, or ordering the winding up or
liquidation of the affairs of the Note Issuer or the Trust.
SECTION 5.15. Limitation of Liability of Note Trustee.
---------------------------------------
Notwithstanding anything contained herein to the contrary, this Agreement has
been accepted by [ ] not in its individual capacity but solely as
Note Trustee and in no event shall [ ] have any liability for the
representations, warranties, covenants, agreements or other obligations of the
Note Issuer hereunder or in any of the certificates, notices or agreements
delivered pursuant hereto, as to all of which recourse shall be had solely to
the assets of the Note Issuer.
23
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
[ACRONYM OF UTILITY] Funding LLC
By: _________________________
Name:
Title:
[NAME OF UTILITY], as Administrator,
By: ________________________
Name:
Title:
Acknowledged and Accepted:
[ ] not in its
individual capacity but solely as
Note Trustee,
By: __________________________
Name:
Title:
<PAGE>
EXHIBIT A
[Form of Power of Attorney]
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that [ACRONYM OF UTILITY] Funding LLC,
a Delaware limited liability company (the "Note Issuer"), does hereby make,
constitute and appoint [NAME OF UTILITY], as Administrator under the
Administrative Services Agreement (the "Administration Agreement"), and its
agents and attorneys, as Attorneys-in-Fact to execute on behalf of the Note
Issuer all such documents, reports, filings, instruments, certificates and
opinions as it shall be the duty of the Note Issuer to prepare, file or deliver
pursuant to the Related Documents (as defined in the Administration Agreement).
EXECUTED this [___] day of ____________ 1997.
[ACRONYM OF UTILITY] Funding LLC
By: _______________________
Name:
Title:
The above was subscribed and sworn to before me this ___ day of
___________________, 1997.
[Seal]
_______________________________
Notary Signature
My commission expires: _____________________________
A-1
<PAGE>
EXHIBIT E
Declaration and Agreement of Trust
<PAGE>
DECLARATION AND AGREEMENT OF TRUST
DECLARATION AND AGREEMENT OF TRUST (the "Trust Agreement"), dated as of
______________________, 1997, between California Infrastructure and Economic
Development Bank, a public body established within the state government of the
State of California (the "Originator") and Bankers Trust (Delaware), a Delaware
banking corporation, as trustee (the "Trustee"). The Originator and the Trustee
hereby agree as follows:
1. Creation of Trust.
-----------------
a. The trust created hereby shall be known as the "California
Infrastructure and Economic Development Bank Special Purpose Trust [Acronym of
Utility-1]" (the "Trust"), in which name the Trustee may conduct the business of
the Trust, make and execute contracts, and sue and be sued. The Originator
hereby finds and determines, and hereby represents and warrants, that the Trust
constitutes a "special purpose trust" under Section 63010 of the California
Government Code and a "financing entity" under Section 840 of the California
Public Utilities Code, and that the Trust is being established to issue "rate
reduction bonds" under Section 840 of the California Public Utilities Code.
b. The Originator hereby assigns, transfers, conveys and sets over
to the Trustee the sum of $1. The Trustee hereby acknowledges receipt of such
amount in trust from the Originator, which amount shall constitute the initial
trust estate. The Trustee hereby declares that it will hold the trust estate in
trust for the Originator. It is the intention of the parties hereto that the
Trust created hereby constitute a not-for-profit business trust under Chapter 38
of Title 12 of the Delaware Code, 12 Del. C. (S) 3801 et seq. and that this
document constitute the governing instrument of the Trust. The Trustee is
hereby authorized and directed to execute and file a certificate of trust with
the Delaware Secretary of State in the form attached as Exhibit A hereto.
c. The Originator and the Trustee will enter into an amended and
restated Declaration and Agreement of Trust, satisfactory to each such party, to
provide more fully for the contemplated purpose and operation of the Trust
created hereby. Prior to the execution and delivery of such amended and
restated Declaration and Agreement of Trust, (a) the Trustee shall not have any
duty or obligation hereunder or with respect to the trust estate, except as
otherwise required by applicable law, and (b) the Originator on behalf of the
Trust may execute an underwriting contract and related documents on behalf of
the Trust in order to provide for the offer and sale of the "rate reduction
bonds" to be issued by the Trust.
<PAGE>
2. Concerning the Trustee.
----------------------
a. Except as otherwise expressly required by Section 1 of this Trust
Agreement, unless specifically authorized in writing by the Originator and
consented to by the Trustee, the Trustee shall not have any duty or obligation
with respect to the administration of the Trust, the investment of the Trust's
property or the payment of dividends or other distributions of income or
principal to the Trust's beneficiaries. The Trustee shall not be liable for the
acts or omissions of the Originator or any Authorized Officer thereof (as
hereinafter defined) and shall owe no other fiduciary duties to the Trust or its
beneficiaries other than as expressly provided for in this Section 2.
b. The Trustee accepts the trusts hereby created and agrees to
perform its duties hereunder with respect to the same but only upon the terms of
this Trust Agreement. The Trustee shall not be personally liable under any
circumstances, except for its own willful misconduct or gross negligence. In
particular, but not by way of limitation:
i. The Trustee shall not be personally liable for any error
of judgment made in good faith;
ii. No provision of this Trust Agreement shall require the
Trustee to expend or risk its personal funds or otherwise incur any financial
liability in the performance of its rights or powers hereunder, if the Trustee
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured or
provided to it;
iii. Under no circumstance shall the Trustee be personally
liable for any indebtedness of the Trust; and
iv. The Trustee shall not be personally responsible for or in
respect of the validity or sufficiency of this Trust Agreement or for the due
execution hereof by the Originator.
c. The Trustee shall incur no liability to anyone in acting upon any
signature, instrument, notice, resolution, request, consent, order, certificate,
report, opinion, bond or other document or paper believed by it to be genuine
and believed by it to be signed by the proper party or parties. The Trustee may
accept a certified copy of a resolution of the board of directors or other
governing body of any corporate party as conclusive evidence that such
resolution has been duly adopted by such body and that the same is in full force
and effect. As to any fact or matter the manner of ascertainment of which is
not specifically prescribed herein, the Trustee may for all purposes hereof rely
on a certificate, signed by the Chair or the Executive Director of the
Originator (the "Authorized Officer"), as to such fact or matter, and such
certificate shall
2
<PAGE>
constitute full protection to the Trustee for any action taken or omitted to be
taken by it in good faith in reliance thereon.
d. In the exercise or administration of the trusts hereunder, the
Trustee (i) may act directly or, at the expense of the Trust, through agents or
attorneys pursuant to agreements entered into with any of them, and the Trustee
shall not be liable for the default or misconduct of such agents or attorneys if
such agents or attorneys shall have been selected by the Trustee with reasonable
care; and (ii) may, at the expense of the Trust, consult with counsel,
accountants and other skilled persons to be selected with reasonable care and
employed by it, and it shall not be liable for anything done, suffered or
omitted in good faith by it in accordance with the advice or opinion of any such
counsel, accountants or other skilled persons.
e. Except as expressly provided in this Section 2, in accepting and
performing the trusts hereby created the Trustee acts solely as trustee
hereunder and not in its individual capacity, and all persons having any claim
against the Trustee by reason of the transactions contemplated by this Trust
Agreement shall look only to the Trust's property for payment or satisfaction
thereof.
3. Indemnification. The Originator shall indemnify, defend and hold
---------------
harmless the Trust and the Trustee and any of the officers, directors, employees
and agents of the Trust and the Trustee (the "Indemnified Persons") from and
against any and all costs, expenses, disbursements (including the reasonable
fees and expenses of counsel), losses, claims, taxes, damages and liabilities of
any kind and nature whatsoever (collectively, "Expenses"), to the extent that
such Expenses arise out of or are imposed upon or asserted against such
Indemnified Persons with respect to the execution, delivery or performance of
this Trust Agreement, the creation, operation or termination of the Trust or the
transactions contemplated hereby; provided, however, that the Originator shall
not indemnify any Indemnified Person for any costs, expenses, disbursements,
losses, claims, taxes, damages or liabilities which are a result of the willful
misconduct, bad faith or gross negligence of such Indemnified Person.
4. Counterparts. This Trust Agreement may be executed in one or more
------------
counterparts.
5. Resignation. The Trustee may resign upon thirty days prior written
-----------
notice to the Originator.
6. Governing Law. This Trust Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware, without
reference to its conflict of law provisions, and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance with such
laws; provided, however, that matters regarding the authority of the Originator
and the validity of actions taken by the Originator hereunder shall be governed
by the laws of the State California.
3
<PAGE>
[SIGNATURE PAGE FOLLOWS]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to
be duly executed by their respective officers hereunto duly authorized, as of
the day and year first above written.
BANKERS TRUST (DELAWARE), as Trustee
By: ____________________________________
M. Lisa Wilkins
Assistant Secretary
CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK, as Originator
By: ____________________________________
Christopher S. Holben
Chairperson
5
<PAGE>
EXHIBIT A
[FORM OF CERTIFICATE OF TRUST]
CERTIFICATE OF TRUST OF
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST
[Acronym of Utility-1]
THIS Certificate of Trust (the "Trust"), dated ____________, 1997, is being
duly executed and filed by Bankers Trust (Delaware), a Delaware banking
corporation, as trustee, to form a not-for-profit business trust under the
Delaware Business Trust Act (12 Del. C. (S) 3801 et seq.).
1. Name. The name of the business trust formed hereby is the "California
----
Infrastructure and Economic Development Bank Special Purpose Trust [Acronym of
Utility-1]."
2. Delaware Trustee. The name and business address of the trustee of the
----------------
Trust in the State of Delaware is Bankers Trust (Delaware), E. A. Delle Donne
Corporate Center, Montgomery Building, 1011 Centre Road, Suite 200, Wilmington,
Delaware 19805-1266, Attention: Corporate Trustee Administration.
3. Effective Date. This Certificate of Trust shall be effective as of
--------------
the date filed.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the Trust,
has executed this Certificate of Trust as of the date first above written.
BANKERS TRUST (DELAWARE),
as Trustee
By: _________________________________________
M. Lisa Wilkins
Assistant Secretary
A-1
<PAGE>
EXHIBIT I
Notification Registration
<PAGE>
FILE NO.
----------------
VAL. NO.
----------------
AMT. DATE
----- ----------
FOR OFFICE USE ONLY
STATE OF FLORIDA
DEPARTMENT OF BANKING AND FINANCE
DIVISION OF SECURITIES AND INVESTOR PROTECTION
TALLAHASSEE, FLORIDA
NOTIFICATION REGISTRATION - SECTION 517.082, FLORIDA STATUTES
(Notification may be made by the issuer, by a registered dealer, by any person
on whose behalf the offering is to be made, or by a duly authorized agent of
such person.)
NOTE: The general information required on this form must be supplied by every
notifier. A fee of $1,000 shall accompany every application for registration.
Checks should be payable to: Robert F. Milligan, Comptroller.
NOTICE: THIS FORM IS TO BE USED ONLY WHERE A REGISTRATION STATEMENT COVERING
- ------
THE SECURITIES AND OFFERING DESCRIBED HEREIN HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION AND THERE IS NO PROHIBITION FROM THE REGISTRATION UNDER
SECTION 517.082(3), FLORIDA STATUTES
PART I. GENERAL INFORMATION
- ------- -------------------
Item 1. Name and Address of the issuer and principal office.
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST SCE-1
C/O SCE FUNDING LLC (AS DEPOSITOR OF THE TRUST)
2244 WALNUT GROVE AVENUE, ROOM 180
ROSEMEAD, CA 91770
Federal Employer Identification (FEID) Number: 95-4640661
-----------
Item 2. Name, Address and Telephone Number of correspondent to whom
notice and communications regarding this notification may be sent.
G. DOUGLAS JOHNSON, ESQ.
Cravath, Swaine & Moore, Worldwide Plaza, 825 8th Avenue NY, NY 10019
Item 3. Name and Address of Notifier.
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST SCE-1
C/O SCE FUNDING LLC (AS DEPOSITOR OF THE TRUST)
2244 WALNUT GROVE AVENUE, ROOM 180
ROSEMEAD, CA 94105
Item 4. Issuer organized under the laws of DELAWARE DATE June 27, 1997
-------------
Item 5. Notification Registration under Section 517.082, Florida Statutes, is
made for the securities to be effectively registered under
SEC Reg. No. _______________________
PART II. NOTIFIER SHALL FURNISH THE FOLLOWING EXHIBITS. EXHIBITS MAY NOT BE
------------------------------------------------------------------
INCORPORATED BY REFERENCE
- -------------------------
Exhibit 1. One copy of Initial Registration Statement filed with the Securities
and Exchange Commission unless effective with the SEC upon filing with the
Department.
-1-
<PAGE>
Exhibit 2. Issuer's Consent to Service of Process and Corporate Resolution to
be executed upon Division of Securities and Investor Protection forms or
appropriate Securities and Exchange Commission forms.
Exhibit 3. One copy of the Final Pricing Amendment/Prospectus.
**For renewal purposes: an issuer need not submit Exhibit 1. A copy of the
current prospectus may be submitted for Exhibit 3.
PART III. THROUGH EXECUTION OF THIS APPLICATION, NOTIFIER HEREBY AGREES THAT
------------------------------------------------------------------
IT WILL:
--------
1. Furnish any other information requested by the Department.
2. Notify the Department by telegraphic notice effective registration
with SEC within 10 business days of such registration unless
------
effective with the SEC upon filing with the Department.
3. Furnish all documents with 60 days of such registration.
4. Make all sales in Florida through the Issuer lawfully registered
with the Department as a Dealer or through any other dealer lawfully
registered with the Department.
Signed this 29th day of September, 1997
---- --------- SCE FUNDING LLC
(As Depositor of the Trust)
---------------------------
Name of Notifier
By: /s/ ^^
------------------------------------
SIGNATURE, PRINTED NAME AND
OFFICIAL CAPACITY OF PERSON
SIGNING FOR NOTIFIER
STATE OF CALIFORNIA ) George T. Tabata,
) SS. Assistant Treasurer and
COUNTY OF LOS ANGELES ) Assistant Secretary
George T. Tabata being duly sworn, deposes and says that
- ----------------------------------------
he signed the foregoing notification as * (Official Capacity) of the
------------
above-named notifier having full authority to sign such notification and has
examined the exhibits required to be submitted with such notification and that
the information contained therein is true; and that no material fact in answer
to the several questions has been omitted.
[ SEAL ]
Subscribed and Sworn to before me this
29th day of September, 1997.
- ---- ---------
*Assistant Treasurer and /s/ Araceli C. Sunio
Assistant Secretary ---------------------
NOTARY PUBLIC (Notarial Seal)
My Commission expires: 7/24/2001
---------
*___________Corporation does not
have a seal
- -------------------------------------------------------------
NOTE: THE REGISTRATION PURSUANT TO SECTION 517.082, FLORIDA STATUTES IS
SUBJECT TO RECEIPT OF ALL DOCUMENTS AS REQUIRED
ALL OFFERS AND SALES IN FLORIDA MUST BE MADE BY THE ISSUER AS A REGISTERED
FLORIDA DEALER OR OTHER REGISTERED FLORIDA DEALERS
<PAGE>
Florida Notification Registration
George T. Tabata
SCE Funding LLC
Asst. Treasurer/Asst. Secretary
[Seal]
<PAGE>
UNIFORM FORM OF
RESOLUTION
OF
SCE FUNDING, LLC
RESOLVED, that it is desirable and in the best interest of the Company
that the Securities be qualified or registered for sale in various
jurisdictions; that the officers of the Company, or any one of them, be hereby
authorized to determine the jurisdictions in which appropriate action shall be
taken to qualify or register for sale all or such part of the Securities as such
officers may deem advisable; that such officers be hereby authorized to perform
on behalf of the Company any and all such acts as they may deem necessary or
advisable in order to comply with the applicable laws of any such
jurisdictions, and in connection therewith to execute and file all requisite
papers and documents, including, but not limited to, applications, reports,
surety bonds, irrevocable consents and appointments of attorneys for service of
process; and that the execution by such officers of any such papers or documents
or the doing by them of any act in connection with the foregoing matters shall
conclusively establish their authority therefor from the Company and the
approval and ratification by the Company of the papers and documents so executed
and the action so taken.
CERTIFICATE
The undersigned herby certifies that he is the Assistant Secretary of
SCE Funding, LLC, a limited liability company organized and existing under the
laws of the State of Delaware; that the foregoing is a true and correct copy of
a resolution duly adopted by written consent of the Sole Member of the limited
liability company, as of June 27, 1997; that the passage of said resolution was
in all respects legal; and that said resolution is in full force and effect.
Dated this 29th day of September, 1997
---- ---------
/s/ George T. Tabata
-----------------------
George T. Tabata,
Assistant Secretary
<PAGE>
FORM U-2
UNIFORM CONSENT TO
SERVICE OF PROCESS
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned SCE Funding, LLC (a limited liability company
duly organized under the laws of the state of Delaware), for purposes of
complying with the laws of the States indicated hereunder relating to either the
registration or sale of securities, hereby irrevocably appoints the officers of
the States so designated hereunder and their successors in such offices its
attorney in those States so designated upon whom may be served any notice,
process or pleading in any action or proceeding against it arising out of, or in
connection with, the sale of securities or out of violation of the aforesaid
laws of the States so designated; and the undersigned does hereby consent that
any such action or proceeding against it may be commenced in any court of
competent jurisdiction and proper venue within the States so designated
hereunder by service of process upon the officers so designated with the same
effect as if the undersigned was organized or created under the laws of that
State and have been served lawfully with process in that State.
It is requested that a copy of any notice, process or pleading served hereunder
be mailed to:
Kenneth S. Stewart
SCE Funding, LLC
2244 Walnut Grove Avenue, Room 180
Rosemead, California 91770
Place an "X" before the name of all the States for which the person executing
this form is appointing the designated Officer or that State as its attorney in
that State for receipt of service of process:
<TABLE>
<CAPTION>
<S> <C>
ALABAMA Secretary of State
ALASKA Administrator of the Division of Banking and
Corporations, Department of Commerce and
Economic Development
ARIZONA The Corporation Commission
ARKANSAS The Securities Commissioner
</TABLE>
<PAGE>
<TABLE>
<S> <C>
CALIFORNIA Commissioner of Corporations
COLORADO Securities Commissioner
CONNECTICUT Banking Commissioner of Department of Banking
DELAWARE Securities Commissioner
DISTRICT OF COLUMBIA
X FLORIDA Comptroller
GEORGIA Commissioner of Securities
GUAM Administrator, Department of Finance
HAWAII Commissioner of Securities
IDAHO Director, Department of Finance
ILLINOIS Secretary of State
INDIANA Secretary of State
IOWA Commissioner of Insurance
KANSAS Secretary of State
KENTUCKY Director, Division of Securities of Department of Financial Institutions
LOUISIANA Commissioner of Securities
MAINE Administrator, Securities Division
MARYLAND Securities Commissioner
MASSACHUSETTS Security of Commonwealth
MICHIGAN Administrator, Corporation and Securities Bureau, Department of Commerce
MINNESOTA Commissioner of Commerce
MISSISSIPPI Secretary of State
MISSOURI Commissioner of Securities
MONTANA State Auditor and Commissioner of Securities
NEBRASKA Director of Banking and Finance
NEVADA Secretary of State
NEW HAMPSHIRE Secretary of State
</TABLE>
<PAGE>
<TABLE>
<S> <C>
NEW JERSEY Chief, Securities Bureau
NEW MEXICO Director, Securities Division
NEW YORK Secretary of State
NORTH CAROLINA Secretary of State
NORTH DAKOTA Securities Commissioner
OHIO Secretary of State
OKLAHOMA Securities Administrator Division
OREGON Director, Department of Insurance and Finance
PENNSYLVANIA Not required
PUERTO RICO Commissioner of Financial Institutions
RHODE ISLAND Director of Business Regulations
SOUTH CAROLINA Secretary of State
SOUTH DAKOTA Director of the Division of Securities
TENNESSEE Commissioner of Insurance
TEXAS Securities Commissioner
UTAH Director, Division of Securities
VERMONT Commissioner of Banking, Insurance and
Securities
VIRGINIA Clerk, State Corporation Commission
WASHINGTON Director of Licensing
WEST VIRGINIA Commissioner of Securities
WISCONSIN Commissioner of Securities
WYOMING Secretary of State
</TABLE>
<PAGE>
Dated this 29th day of September, 1997
---- ---------
SCE FUNDING, LLC
BY: /s/ GEORGE T. TABATA
-------------------------
George T. Tabata
Assistant Treasurer and Assistant
Secretary
ACKNOWLEDGMENT
State of California )
) ss.
County of Los Angeles )
On this 29th day of September, 1997, before me, Araceli Sunio, the
---- ---------
undersigned officer, personally appeared George T. Tabata known personally to me
to be the Assistant Treasurer and Assistant Secretary of the above named limited
liability company and acknowledged that he, as an officer, being authorized so
to do, executed the foregoing instrument for the purposes therein contained, by
signing the name of the limited liability company by himself as an officer.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
/s/ ARACELI C. SUNIO
---------------------------
Notary Public
[SEAL] My commission Expires: 7/24/2001
------------
<PAGE>
EXHIBIT M
List of Transaction Participants
<PAGE>
EXHIBIT M
LIST OF TRANSACTION PARTICIPANTS
State of California
-------------------
California Infrastructure and Economic Development Bank
801 K Street, Suite 1700
Sacramento, CA 95814
California State Treasurer
915 Capitol Mall, Room 110
Sacramento, CA 95814
Southern California Edison Company
----------------------------------
2244 Walnut Grove Avenue
Rosemead, CA 91770
(626)302-1212
Legal Counsel
-------------
Brown & Wood LLP
555 California Street, 50th Floor
San Francisco, CA 94104
(415) 772-1200
Cravath Swaine & Moore
Worldwide Plaza
825 8th Avenue
New York, NY 10019-7475
(212) 474-1000
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, CA 90071
(213) 485-1234
<PAGE>
Munger Tolles & Olson
355 S. Grand Avenue, 35th Floor
Los Angeles, CA 90071
(213) 683-9100
Richards, Layton & Finger
One Rodney Square
Wilmington, DE 19899
(302) 658-6541
Seward & Kissel
1 Battery Park Plaza, 21st Floor
New York, NY 10004
Underwriters, Co-Managers and Advisors
--------------------------------------
Salomon Brothers Inc
7 World Trade Center
New York, NY 10048
(212) 783-7000
Lehman Brothers
Three World Financial Center
200 Vesey Street
New York, NY 10285
(212) 526-7000
Chase Securities Inc.
270 Park Avenue, 7th Floor
New York, NY 10017
(212) 270-6000
Goldman Sachs & Co.
85 Broad Street
New York, NY 10004
(212) 902-1000
Painewebber Incorporated
1285 Avenue of the Americas
New York, NY 10019
Artemis Capital Group
505 Montgomery Street, Suite 820
San Francisco, CA 94111
(415) 982-5804
<PAGE>
Blaylock & Partners, L.P.
609 Fifth Avenue, 12th Floor
New York, NY 10017
(800) 586-5515
Utendahl Capital Partners, L.P.
30 Broad Street, 31st Floor
New York, NY 10004
Metropolitan West Securities
915 L Street, Suite 1105
Sacramento, CA 95814
(916) 441-6200
Public Resource Advisory Group
3550 Wilshire Blvd., Suite 1630
Los Angeles, CA 90010
(213) 380-9344
Trustee (Delaware, Certificate and Note)
----------------------------------------
Bankers Trust Company
Four Albany Street, 10th Floor
New York, NY 10006
Rating Agencies
---------------
Duff & Phelps Credit Rating Company
17 State Street, 12th Floor
New York, NY 10004
(212) 908-0200
Fitch Investor Services
One State Street Plaza
New York, NY 10004
(212) 908-0500
Moody's Investors Service
99 Church Street
New York, NY 10007
(212) 553-0300
<PAGE>
Standard & Poor's Rating Services
25 Broadway
20th Floor
New York, NY 10004
(212) 208-1723
<PAGE>
EXHIBIT N
FINANCING SCHEDULE
Subject to market conditions and unforeseen contingencies that could affect the
timing of the activities listed below, Edison expects to issue the RRBs by the
end of December 1997. The following is a list of activities leading to the
issuance of the RRBs pursuant to this schedule:
. Respond to SEC comments on Registration Statement as required
. Receive preliminary ratings
. Registration Statement declared effective
. Bank approval of issuance resolution
. Investor roadshow
. Pre-pricing
. Price transaction
. File Issuance Advice Letter with CPUC
. Receive final ratings
. Pre-closing (final documents)
. Closing
<PAGE>
EXHIBIT O
BOND SIZING MODEL
<PAGE>
PRELIMINARY - SUBJECT TO CHANGE
RATE REDUCTION BONDS -- SIZING CALCULATIONS
INPUT PAGE
($ in millions)
<TABLE>
<CAPTION>
Target revenue reduction, 1/1/1998 - 3/31/2002:
- ----------------------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue reduction for 10% rate reduction $351 $351 $351 $351 $90
Total revenue reduction $1,494
<CAPTION>
3/31/98 6/30/98 9/30/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quarterly revenue reduction $88 $88 $88 $88 $88 $88 $88 $88
Total revenue reduction $1,494
Transition Costs amortization without debt financing:
- ----------------------------------------------------
Amortization period 4 years 1 quarter(s)
Number of amortization periods 17 quarters
Pre-tax return on Transition Costs 9.86%
Franchise fees & uncollectibles 1.1217%
Transition Costs amortization with debt financing:
- -------------------------------------------------
Amortization period 10 years 0 quarters
Number of amortization periods 40 quarters
Annual Quarterly
------ ---------
Interest (percent of outstanding principal) 6.50% 1.63%
Refundable ongoing costs (percent of original
principal) 1.50% 0.38%
Nonrefundable ongoing costs $.14 $.04
Annual authorized pre-tax rate of return 13.55%
Overcollateralization Percentage 0.50%(percentage of original principal)
Overcollateralization Amount $12
Bond issuance expenses $21.5
Transition Costs Financed:
- ------------------------- Associated
Direct Tax
Transitional cost Component
---------------------------------
Transition Cost financed 1,450 - 989
---------------------------------
Total principal amount of Transition Cost financed 2,439
<CAPTION>
3/31/00 6/30/00 9/30/00 12/31/00 3/31/01 6/30/01 9/30/01 12/31/01 3/31/02
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Quarterly revenue reduction $88 $88 $88 $88 $88 $88 $88 $88 $90
Total revenue reduction
</TABLE>
<PAGE>
PRELIMINARY - SUBJECT TO CHANGE
RATE REDUCTION BONDS -- SIZING CALCULATIONS
17-QUARTER ASSET-AMORTIZATION CASE
($ in millions)
Assumptions: 17-quarter asset amortization
- -----------
9.86 % pre-tax carrying cost
<TABLE>
<CAPTION>
Transition Cost Balances 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99
- ------------------------ --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EOY Transition Cost Asset Balance 1,450 - - - 1,109 - - - 768
Annual Transition Cost Asset Depreciation - - - 341 - - - 341
Average Transition Cost Asset Balance - - - 1,279 - - - 938
Annual Pre-tax Return on Average Balance - - - 126 - - - 93
Taxes:
- ------
EOY Tax Balance 989 - - - 757 - - - 524
Annual Tax Amortization - - - 233 - - - 233
Quarterly Revenue Requirement,
- -------------------------------
17-quarter Amortization
- -----------------------
Transition Cost Asset Depreciation (ln 5 + 4) 85 85 85 85 85 85 85 85
Pre-tax Return on Average Transition Cost
Balance (ln 7 + 4) 32 32 32 32 23 23 23 23
Tax Component (ln 13 + 4) 58 58 58 58 58 58 58 58
----------------------------------------------------------------- ------
Subtotal (ln 18 + ln 19 + ln 20) 175 175 175 175 167 167 167 167
Franchise Fees & Uncollectibles 2 2 2 2 2 2 2 2
================================================================ ======
Total Revenue Requirement,
1/1/1998 - 3/31/2002 177 177 177 177 169 169 169 169
RATE REDUCTION BONDS -- SIZING CALCULATIONS
17-QUARTER ASSET-AMORTIZATION CASE
($ in millions)
Assumptions: 17-quarter asset amortization
- -----------
9.86 % pre-tax carrying cost
<CAPTION>
Transition Cost Balances 3/31/00 6/30/00 9/30/00 12/31/00 3/31/01 6/30/01 9/30/01 12/31/01 3/31/02
- ------------------------ ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EOY Transition Cost Asset Balance - - - 426 - - - 85 0
Annual Transition Cost Asset Depreciation - - - 341 - - - 341 85
Average Transition Cost Asset Balance - - - 597 - - - 256 43
Annual Pre-tax Return on Average Balance - - - 59 - - - 25 4
Taxes:
- ------
EOY Tax Balance - - - 291 - - - 58 (0)
Annual Tax Amortization - - - 233 - - - 233 58
Quarterly Revenue Requirement,
- -------------------------------
17-quarter Amortization
- -----------------------
Transition Cost Asset Depreciation (ln 5 + 4) 85 85 85 85 85 85 85 85 85
Pre-tax Return on Average Transition Cost
Balance (ln 7 + 4) 15 15 15 15 6 6 6 6 4
Tax Component (ln 13 + 4) 58 58 58 58 58 58 58 58 58
-------------------------------------------------------------------------
Subtotal (ln 18 + ln 19 + ln 20) 158 158 158 158 150 150 150 150 148
Franchise Fees & Uncollectibles 2 2 2 2 2 2 2 2 2
=========================================================================
Total Revenue Requirement,
1/1/1998 - 3/31/2002 160 160 160 160 151 151 151 151 149
=========================================================================
</TABLE>
<PAGE>
PRELIMINARY - SUBJECT TO CHANGE
RATE REDUCTION BONDS -- SIZING CALCULATIONS
BOND ISSUANCE CASE
($ in millions)
<TABLE>
<CAPTION>
Assumptions: 10-year amortization 6.5 % pre-tax carrying cost $2461 MM principal issued
12/31/97 3/31/98 6/30/98 9/30/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Debt Service
- ------------
Principal Payment 62 62 62 62 62 62 62 62
Interest Payment 40 39 38 37 36 35 34 33
Refundable Ongoing Costs Credit 9 9 9 9 8 8 8 8
Nonrefundable Ongoing Costs 0 0 0 0 0 0 0 0
Overcollateralization 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
-------------------------------------------------------------------------
Quarterly Total Debt Service 111 110 109 107 106 105 104 102
=========================================================================
Refundable Ongoing Costs Credit
- -------------------------------
Quarterly Refundable Onoing Costs Credit (9) (9) (9) (9) (8) (8) (8) (8)
Overcollateralization Refund
Financed Tax Component Carrying Cost Credit
- -------------------------------------------
EOQ Balance of Financed Tax Component 989 965 940 915 890 866 841 816 792
Financed Tax Component Amortization
(reduce per ln 4) 25 25 25 25 25 25 25 25
Average Balance of Financed Tax Component - - - 940 - - - 841
Rate of Return Applied to Financed Tax
Component - - - 9.86% - - - 9.86%
Annual Carrying Cost Credit on Financed
Tax Component - - - (93) - - - (83)
Quarterly Carrying Cost Credit on Financed
Tax Component (23) (23) - (23) (21) (21) (21) (21)
Quarterly Revenue Requirement on Rate
Reduction Bonds
- -------------------------------------
Principal Payment (ln 4) 62 62 62 62 62 62 62 62
Interest Payment (ln 5) 40 39 38 37 36 35 34 33
Total Ongoing Costs (ln 6 + ln 7) 9 9 9 9 8 8 8 8
Refundable Ongoing Costs Credit (ln 12) (9) (9) (9) (9) (8) (8) (8) (8)
Total Overcollateralization (ln 8 + ln 14) 0 0 0 0 0 0 0 0
Carrying Cost Credit on Financed Tax Component (ln 15) (23) (23) (23) (23) (21) (21) (21) (21)
-------------------------------------------------------------------------
Subtotal (sum of ln 19 through ln 23) 79 78 77 76 77 76 75 74
Franchise Fees & Uncollectibles 1 1 1 1 1 1 1 1
-------------------------------------------------------------------------
Total Revenue Requirement, 12/31/98 - 12/31/07 80 79 78 77 78 77 76 75
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
3/31/00 6/30/00 9/30/00 12/31/00 2/31/00 6/30/01 9/30/01 12/31/01
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt Service
Principal Payment 62 62 62 62 62 62 62 62
Interest Payment 32 31 30 29 28 27 26 25
Refundable Ongoing Costs Credit 7 7 7 7 6 6 6 6
Nonrefundable Ongoing Costs 0 0 0 0 0 0 0 0
Overcollateralization 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
-------------------------------------------------------------------------
Quarterly Total Debt Service 101 100 99 98 96 95 94 93
=========================================================================
Refundable Ongoing Costs Credit
- -------------------------------
Quarterly Refundable Onoing Costs Credit (7) (7) (7) (7) (6) (6) (6) (6)
Overcollateralization Refund
Financed Tax Component Carrying Cost Credit
- ------------------------------------------
EOQ Balance of Financed Tax Component 767 742 717 693 668 643 618 594
Financed Tax Component Amortization (reduce per ln 4) 25 25 25 25 25 25 25 25
Average Balance of Financed Tax Component - - - 742 - - - 643
Rate of Return Applied to Financed Tax Component - - - 9.86% - - - 9.86%
Annual Carrying Cost Credit on Financed Tax Component - - - (73) - - - (63)
Quarterly Carrying Cost Credit on Financed Tax (18) (18) (18) (18) (16) (16) (16) (16)
Component
Quarterly Revenue Requirement on Rate Reduction Bonds
- -----------------------------------------------------
Principal Payment (ln 4) 62 62 62 62 62 62 62 62
Interest Payment (ln 5) 32 31 30 29 28 27 26 25
Total Ongoing Costs (ln 6 + ln 7) 7 7 7 7 6 6 6 6
Refundable Ongoing Costs Credit (ln 12) (7) (7) (7) (7) (6) (6) (6) (6)
Total Overcollateralization (ln 8 + ln 14) 0 0 0 0 0 0 0 0
Carrying Cost Credit on Financed Tax Component (ln 15) (18) (18) (18) (16) (16) (16) (16) (14)
-------------------------------------------------------------------------
Subtotal (sum of ln 19 through ln 23) 76 75 74 73 74 73 72 71
Franchise Fees & Uncollectibles 1 1 1 1 1 1 1 1
-------------------------------------------------------------------------
Total Revenue Requirement, 12/31/98 - 12/31/07 76 75 74 73 75 74 73 72
=========================================================================
</TABLE>
<PAGE>
PRELIMINARY - SUBJECT TO CHANGE
RATE REDUCTION BONDS -- SIZING CALCULATIONS
BOND ISSUANCE CASE
($ in millions)
Assumptions: 10-year amortization 6.5 % pre-tax carrying cost $2461 MM
------------
principal issued
<TABLE>
<CAPTION>
3/31/02 6/30/02 9/30/02 21/31/02 3/31/03 6/30/03 9/30/03 12/31/03
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt Service
- ------------
Principal Payment 62 62 62 62 62 62 62 62
Interest Payment 24 20 22 21 20 19 18 17
Refundable Ongoing Costs Credit 6 5 5 5 5 4 4 4
Nonrefundable Ongoing Costs 0 0 0 0 0 0 0 0
Overcollateralization 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
------------------------------------------------------------------------
Quarterly Total Debt Service 91 90 89 88 86 85 84 83
========================================================================
Refundable Ongoing Costs Credit
- -------------------------------
Quarterly Refundable Onoing Costs Credit (6) (5) (5) (5) (5) (4) (4) (4)
Overcollateralization Refund
Financed Tax Component Carrying Cost Credit
- -------------------------------------------
EOQ Balance of Financed Tax Component 569 544 519 495 470 445 420 396
Financed Tax Component Amortization (reduce per ln 4) 25 25 25 25 25 25 25 25
Average Balance of Financed Tax Component 581 - - 532 - - - 445
Rate of Return Applied to Financed Tax Component 9.86% - - 13.55% - - - 13.55%
Annual Carrying Cost Credit on Financed Tax Component (14) - - (54) - - - (60)
Quarterly Carrying Cost Credit on Financed Tax Component (14) (18) (18) (18) (15) (15) (15) (15)
Quarterly Revenue Requirement on Rate Reduction Bonds
- -----------------------------------------------------
Principal Payment (ln 4) 62 62 62 62 62 62 62 62
Interest Payment (ln 5) 24 23 22 21 20 19 18 17
Total Ongoing Costs (ln 6 + ln 7) 6 5 5 5 5 4 4 4
Refundable Ongoing Costs Credit (ln 12) (6) (5) (5) (5) (5) (4) (4) (4)
Total Overcollateralization (ln 8 + ln 14) 0 0 0 0 0 0 0 0
Carrying Cost Credit on Financed Tax Component (ln 15) (14) (18) (18) (18) (15) (15) (15) (15)
------------------------------------------------------------------------
Sbtotal (sum of ln 19 through ln 23) 72 67 66 65 67 66 65 64
Franchise Fees & Uncollectibles 1 1 1 1 1 1 1 1
------------------------------------------------------------------------
Total Revenue Requirement, 12/31/98 - 12/31/07 72 68 67 66 68 67 66 65
========================================================================
<CAPTION>
3/31/04 6/30/04 9/30/04 21/31/04 3/31/05 6/30/05 9/30/05 12/31/05
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt Service
- ------------
Principal Payment 62 62 62 62 62 62 62 62
Interest Payment 16 15 14 13 12 11 10 9
Refundable Ongoing Costs Credit 4 3 3 3 3 3 2 2
Nonrefundable Ongoing Costs 0 0 0 0 0 0 0 0
Overcollateralization 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
------------------------------------------------------------------------
Quarterly Total Debt Service 82 80 79 78 77 75 74 73
========================================================================
Refundable Ongoing Costs Credit
- -------------------------------
Quarterly Refundable Onoing Costs Credit (4) (3) (3) (3) (3) (3) (2) (2)
Overcollateralization Refund
Financed Tax Component Carrying Cost Credit
- -------------------------------------------
EOQ Balance of Financed Tax Component 371 544 519 495 470 445 420 396
Financed Tax Component Amortization (reduce per ln 4) 25 25 25 25 25 25 25 25
Average Balance of Financed Tax Component - - - 346 - - - 247
Rate of Return Applied to Financed Tax Component - - - 13.55% - - - 13.55%
Annual Carrying Cost Credit on Financed Tax Component - - - (47) - - - (34)
Quarterly Carrying Cost Credit on Financed Tax Component (12) (12) (12) (12) (8) (8) (8) (8)
Quarterly Revenue Requirement on Rate Reduction Bonds
- -----------------------------------------------------
Principal Payment (ln 4) 62 62 62 62 62 62 62 62
Interest Payment (ln 5) 16 15 14 13 12 11 10 9
Total Ongoing Costs (ln 6 + ln 7) 4 3 3 3 3 3 2 2
Refundable Ongoing Costs Credit (ln 12) (4) (3) (3) (3) (3) (3) (2) (2)
Total Overcollateralization (ln 8 + ln 14) 0 0 0 0 0 0 0 0
Carrying Cost Credit on Financed Tax Component (ln 15) (12) (12) (12) (12) (8) (8) (8) (8)
------------------------------------------------------------------------
Subtotal (sum of ln 19 through ln 23) 66 65 64 63 65 64 63 62
Franchise Fees & Uncollectibles 1 1 1 1 1 1 1 1
------------------------------------------------------------------------
Total Revenue Requirement, 12/31/98 - 12/31/07 67 66 65 64 63 65 64 63
========================================================================
<CAPTION>
3/31/06
---------
<S> <C>
Debt Service
- ------------
Principal Payment 62
Interest Payment 8
Refundable Ongoing Costs Credit 2
Nonrefundable Ongoing Costs 0
Overcollateralization 0.3
---------
Quarterly Total Debt Service 72
=========
Refundable Ongoing Costs Credit
- -------------------------------
Quarterly Refundable Onoing Costs Credit (2)
Overcollateralization Refund
Financed Tax Component Carrying Cost Credit
- -------------------------------------------
EOQ Balance of Financed Tax Component 173
Financed Tax Component Amortization (reduce per ln 4) 25
Average Balance of Financed Tax Component -
Rate of Return Applied to Financed Tax Component -
Annual Carrying Cost Credit on Financed Tax Component -
Quarterly Carrying Cost Credit on Financed Tax Component (15)
Quarterly Revenue Requirement on Rate Reduction Bonds
- -----------------------------------------------------
Principal Payment (ln 4) 62
Interest Payment (ln 5) 8
Total Ongoing Costs (ln 6 + ln 7) 2
Refundable Ongoing Costs Credit (ln 12) (2)
Total Overcollateralization (ln 8 + ln 14) 0
Carrying Cost Credit on Financed Tax Component (ln 15) (5)
---------
Subtotal (sum of ln 19 through ln 23) 65
Franchise Fees & Uncollectibles 1
---------
Total Revenue Requirement, 12/31/98 - 12/31/07 66
=========
</TABLE>
<PAGE>
PRELIMINARY - SUBJECT TO CHANGE
RATE REDUCTION BONDS -- SIZING CALCULATIONS
BOND ISSUANCE CASE
($ in millions)
Assumptions: 10-year amortization 6.5 % pre-tax carrying cost
- ------------
<TABLE>
<CAPTION>
6/30/06 9/30/06 12/31/06 3/31/07 6/30/07 9/30/07 12/31/07
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Debt Service
- ------------
Principal Payment 62 62 63 62 62 62 62
Interest Payment 7 6 5 4 3 2 1
Refundable Ongoing Costs Credit 2 1 1 1 1 0 0
Nonrefundable Ongoing Costs 0 0 0 0 0 0 0
Overcollateralization 0.3 0.3 0.3 0.3 0.3 0.3 0.3
-------------------------------------------------------------------
Quarterly Total Debt Service 70 69 68 67 66 64 63
===================================================================
Refundable Ongoing Costs Credit
- -------------------------------
Quarterly Refundable Ongoing Costs Credit (2) (1) (1) (1) (1) (0) (0)
Overcollateralization Refund (12)
Financed Tax Component Carrying Cost Credit
- --------------------------------------------
EOQ Balance of Financed Tax Component 148 124 99 74 49 25 (0)
Financed Tax Component Amortization (reduce per to 4) 25 25 25 25 25 25 25
Average Balance of Financed Tax Component - - 148 - - - 49
Rate of Return Applied to Financed Tax Component - - 13.55% - - - 13.55%
Annual Carrying Cost Credit on Financed Tax Component - - (20) - - - (7)
Quarterly Carrying Cost Credit on Financed Tax
Component (5) (5) (5) (2) (2) (2) (2)
Quarterly Revenue Requirement on Rate Reduction Bonds
- -----------------------------------------------------
Principal Payment (ln 4) 62 62 62 62 62 62 62
Interest Payment (ln 5) 7 6 5 4 3 2 1
Total Ongoing Costs (ln 6 + ln 7) 2 1 1 1 1 0 0
Refundable Ongoing Costs Credit (ln 12) (2) (1) (1) (1) (1) (0) (0)
Total Overcollateralization (ln 8 + ln 14) 0 0 0 0 0 0 (12)
Carrying Cost Credit on Financed Tax Component (ln 15) (5) (5) (5) (2) (2) (2) (2)
-------------------------------------------------------------------
Subtotal (sum of ln 19 through ln 23) 61 63 62 64 63 62 49
Franchise Fees & Uncollectibles 1 1 1 1 1 1 1
-------------------------------------------------------------------
Total Revenue Requirement, 12/31/98 - 12/31/07 65 64 63 65 64 63 49
===================================================================
</TABLE>
<PAGE>
PRELIMINARY - SUBJECT TO CHANGE
RATE REDUCTION BONDS -- SIZING CALCULATIONS
REVENUE REQUIREMENT DIFFERENCES
($ in millions)
<TABLE>
<CAPTION>
12/31/97 3/31/98 6/30/98 9/30/98 12/31/98
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue Requirement Difference
- ------------------------------
Revenue Requirement, 17-quarter Transition Costs Amortization 177 177 177 177
Revenue Requirement, Rate Reduction Bonds (80) (79) (78) (77)
-------------------------------------
Subtotal Calculated Difference 97 98 99 100
Rate Reduction Bond Memo Account (10) (11) (12) (13)
-------------------------------------
Difference 88 88 88 88
=====================================
Sizing Calculation:
- -------------------
Total Calculated Difference, 1/1/1998 - 3/31/2002 (ln 6) 1,494
Proceeds on Bonds Issued 2,439
Bond Issuance Expense 22
------
Face Value of Bonds Issued 2,461
Customer Benefits Calculation:
- ------------------------------
NPV of Quarterly Difference, 1/1/1998 - 12/31/2007 (ln 8) 467
Annual Discount Rate 10.0%
Quarterly Discount Rate 2.5%
<CAPTION>
3/31/99 6/30/99 9/30/99 12/31/99
-------------------------------------
<S> <C> <C> <C> <C>
Revenue Requirement Difference
- ------------------------------
Revenue Requirement, 17-quarter Transition Costs Amortization 169 169 169 169
Revenue Requirement, Rate Reduction Bonds (78) (77) (76) (75)
-------------------------------------
Subtotal Calculated Difference 91 92 93 94
Rate Reduction Bond Memo Account (3) (4) (5) (6)
-------------------------------------
Difference 88 88 88 88
=====================================
<CAPTION>
3/31/00 6/30/00 9/30/00 12/31/00
-------------------------------------
<S> <C> <C> <C> <C>
Revenue Requirement Difference
- ------------------------------
Revenue Requirement, 17-quarter Transition Costs Amortization 160 160 160 160
Revenue Requirement, Rate Reduction Bonds (76) (75) (74) (73)
-------------------------------------
Subtotal Calculated Difference 84 85 86 87
Rate Reduction Bond Memo Account 4 3 2 1
-------------------------------------
Difference 88 88 88 88
=====================================
<CAPTION>
3/31/01 6/30/01
------------------
<S> <C> <C>
Revenue Requirement Difference
- ------------------------------
Revenue Requirement, 17-quarter Transition Costs Amortization 151 151
Revenue Requirement, Rate Reduction Bonds (75) (74)
-----------------
Subtotal Calculated Difference 77 78
Rate Reduction Bond Memo Account 11 10
-----------------
Difference 88 88
=================
</TABLE>
<PAGE>
PRELIMINARY - SUBJECT TO CHANGE
RATE REDUCTION BONDS -- SIZING CALCULATIONS
REVENUE REQUIREMENT DIFFERENCES
($ in millions)
<TABLE>
<CAPTION>
09/30/01 12/31/01 3/31/02 6/30/02 9/30/02 12/31/02
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue Requirement Difference 74 85 94 103 112 122
- ------------------------------
Revenue Requirement, 17-quarter Transition Costs Amortization 151 151 149 -- -- --
Revenue Requirement, Rate Reduction Bonds (73) (72) (72) (68) (67) (66)
--------------------------------------------------------------
Subtotal Calculated Difference 79 80 77 (68) (67) (66)
Rate Reduction Bond Memo Account 9 8 13 -- -- --
--------------------------------------------------------------
Difference 88 88 90 (68) (67) (66)
==============================================================
Sizing Calculation:
- ------------------
Total Calculated Difference, 1/1/1998 - 3/31/2002 (Ln 6)
Proceeds on Bonds Issued
Bond Issuance Expense
Face Value of Bonds Issued
Customer Benefits Calculation:
- -----------------------------
NPV of Quarterly Difference, 1/1/1998 - 12/31/2007 (Ln 8)
Annual Discount Rate 10.0%
Quarterly Discount Rate 2.5%
RATE REDUCTION BONDS -- SIZING CALCULATIONS
REVENUE REQUIREMENT DIFFERENCES
($ in millions)
<CAPTION>
2/30/02 6/30/03 9/30/03 12/31/03 3/31/04 6/30/04
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue Requirement Difference 74 83 92 101 111 120
- ------------------------------
Revenue Requirement, 17-quarter Transition Costs Amortization -- -- -- -- -- --
Revenue Requirement, Rate Reduction Bonds (68) (67) (66) (65) (67) (66)
-----------------------------------------------------------
Subtotal Calculated Difference (68) (67) (66) (65) (67) (66)
Rate Reduction Bond Memo Account -- -- -- -- -- --
-----------------------------------------------------------
Difference (68) (67) (66) (65) (67) (66)
===========================================================
<CAPTION>
9/30/04 12/31/04 3/31/04
--------------------------------
<S> <C> <C> <C>
Revenue Requirement Difference
- ------------------------------
Revenue Requirement, 17-quarter Transition Costs Amortization -- -- --
Revenue Requirement, Rate Reduction Bonds (65) (64) (66)
--------------------------------
Subtotal Calculated Difference (65) (64) (66)
Rate Reduction Bond Memo Account -- -- --
--------------------------------
Difference (65) (64) (66)
================================
</TABLE>
<PAGE>
EXHIBIT P
Cash Flow Schedules
<PAGE>
<TABLE>
<CAPTION>
Preliminary and subject to change
Scheduled Collections
Residential Customers
Annual Monthly FTA % % %
Sales Sales Charge Monthly Collected Collected Collected
Month (mWh) (kWh) ($ / kWh) Billings Month 1 Month 2 Month 3
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Nov-97 22,239,500 170,072,824 0.018296 $ 3,111,571 4.46% 44.61% 40.97%
Dec-97 22,239,500 1,857,204,178 0.018296 $33,978,521 44.60% 44.70% 7.40%
Jan-98 22,766,000 2,086,199,802 0.018296 $38,168,116 44.60% 44.70% 7.40%
Feb-98 22,766,000 1,807,287,832 0.018296 $33,065,275 44.60% 44.70% 7.40%
Mar-98 22,766,000 1,722,118,887 0.018296 $31,507,065 44.60% 44.70% 7.40%
Apr-98 22,766,000 1,625,739,529 0.018296 $29,743,754 44.60% 44.70% 7.40%
May-98 22,766,000 1,610,866,616 0.018296 $29,471,647 44.60% 44.70% 7.40%
Jun-98 22,766,000 1,761,073,334 0.018296 $32,219,757 44.60% 44.70% 7.40%
Jul-98 22,766,000 2,059,617,763 0.018296 $37,681,783 44.60% 44.70% 7.40%
Aug-98 22,766,000 2,234,692,482 0.018296 $40,884,867 44.60% 44.70% 7.40%
Sep-98 22,766,000 2,251,851,739 0.018296 $41,198,804 44.60% 44.70% 7.40%
Oct-98 22,766,000 1,964,388,777 0.018296 $35,939,519 44.60% 44.70% 7.40%
Nov-98 22,766,000 1,740,991,435 0.018296 $31,852,348 44.60% 44.70% 7.40%
Dec-98 22,766,000 1,901,171,803 0.018296 $34,782,932 44.60% 44.70% 7.40%
Jan-99 23,100,600 2,116,861,423 0.015583 $32,987,692 44.60% 44.70% 7.40%
Feb-99 23,100,600 1,833,850,184 0.015583 $28,577,443 44.60% 44.70% 7.40%
Mar-99 23,100,600 1,747,429,480 0.015583 $27,230,723 44.60% 44.70% 7.40%
Apr-99 23,100,600 1,649,633,602 0.015583 $25,706,740 44.60% 44.70% 7.40%
May-99 23,100,600 1,634,542,096 0.015583 $25,471,564 44.60% 44.70% 7.40%
Jun-99 23,100,600 1,786,956,455 0.015583 $27,846,683 44.60% 44.70% 7.40%
Jul-99 23,100,600 2,089,888,698 0.015583 $32,567,368 44.60% 44.70% 7.40%
Aug-99 23,100,600 2,267,536,552 0.015583 $35,335,709 44.60% 44.70% 7.40%
Sep-99 23,100,600 2,284,948,005 0.015583 $35,607,037 44.60% 44.70% 7.40%
Oct-99 23,100,600 1,993,260,098 0.015583 $31,061,576 44.60% 44.70% 7.40%
Nov-99 23,100,600 1,766,579,405 0.015583 $27,529,142 44.60% 44.70% 7.40%
Dec-99 23,100,600 1,929,114,002 0.015583 $30,061,968 44.60% 44.70% 7.40%
Jan-00 23,146,300 2,121,049,217 0.015139 $32,111,169 44.60% 44.70% 7.40%
Feb-00 23,146,300 1,837,478,097 0.015139 $27,818,105 44.60% 44.70% 7.40%
Mar-00 23,146,300 1,750,886,426 0.015139 $26,507,169 44.60% 44.70% 7.40%
Apr-00 23,146,300 1,652,897,078 0.015139 $25,023,680 44.60% 44.70% 7.40%
May-00 23,146,300 1,637,775,716 0.015139 $24,794,753 44.60% 44.70% 7.40%
Jun-00 23,146,300 1,790,491,598 0.015139 $27,106,763 44.60% 44.70% 7.40%
Jul-00 23,146,300 2,094,023,132 0.015139 $31,702,013 44.60% 44.70% 7.40%
Aug-00 23,146,300 2,272,022,428 0.015139 $34,396,795 44.60% 44.70% 7.40%
Sep-00 23,146,300 2,289,468,326 0.015139 $34,660,914 44.60% 44.70% 7.40%
Oct-00 23,146,300 1,997,203,371 0.015139 $30,236,231 44.60% 44.70% 7.40%
Nov-00 23,146,300 1,770,074,236 0.015139 $26,797,658 44.60% 44.70% 7.40%
Dec-00 23,146,300 1,932,930,375 0.015139 $29,263,184 44.60% 44.70% 7.40%
Jan-01 23,268,300 2,132,228,888 0.014271 $30,428,964 44.60% 44.70% 7.40%
Feb-01 23,268,300 1,847,163,114 0.014271 $26,360,800 44.60% 44.70% 7.40%
Mar-01 23,268,300 1,760,115,035 0.014271 $25,118,540 44.60% 44.70% 7.40%
Apr-01 23,268,300 1,661,609,202 0.014271 $23,712,767 44.60% 44.70% 7.40%
May-01 23,268,300 1,646,408,139 0.014271 $23,495,833 44.60% 44.70% 7.40%
Jun-01 23,268,300 1,799,928,958 0.014271 $25,686,723 44.60% 44.70% 7.40%
Jul-01 23,268,300 2,105,060,353 0.014271 $30,041,242 44.60% 44.70% 7.40%
Aug-01 23,268,300 2,283,997,851 0.014271 $32,594,853 44.60% 44.70% 7.40%
Sep-01 23,268,300 2,301,535,703 0.014271 $32,845,135 44.60% 44.70% 7.40%
<CAPTION>
% %
Collected Collected Charge- Monthly Quarterly
Month Month 4 Month 5 Offs Collections Collections
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nov-97 6.89% 2.57% 0.50% $ 138,776
Dec-97 2.30% 0.50% 0.50% $16,542,492
Jan-98 2.30% 0.50% 0.50% $33,486,189
Feb-98 2.30% 0.50% 0.50% $34,537,058 $ 84,704,516
Mar-98 2.30% 0.50% 0.50% $32,518,243
Apr-98 2.30% 0.50% 0.50% $30,843,962
May-98 2.30% 0.50% 0.50% $29,722,677 $ 93,084,882
Jun-98 2.30% 0.50% 0.50% $30,634,864
Jul-98 2.30% 0.50% 0.50% $34,230,850
Aug-98 2.30% 0.50% 0.50% $38,289,236 $103,154,951
Sep-98 2.30% 0.50% 0.50% $40,327,067
Oct-98 2.30% 0.50% 0.50% $38,498,151
Nov-98 2.30% 0.50% 0.50% $34,448,585 $113,273,803
Dec-98 2.30% 0.50% 0.50% $33,562,708
Jan-99 2.30% 0.50% 0.50% $33,650,158
Feb-99 2.30% 0.50% 0.50% $30,977,276 $ 98,190,143
Mar-99 2.30% 0.50% 0.50% $28,319,378
Apr-99 2.30% 0.50% 0.50% $26,684,701
May-99 2.30% 0.50% 0.50% $25,688,524 $ 80,692,602
Jun-99 2.30% 0.50% 0.50% $26,476,903
Jul-99 2.30% 0.50% 0.50% $29,584,818
Aug-99 2.30% 0.50% 0.50% $33,092,374 $ 89,154,095
Sep-99 2.30% 0.50% 0.50% $34,853,617
Oct-99 2.30% 0.50% 0.50% $33,272,933
Nov-99 2.30% 0.50% 0.50% $29,773,000 $ 97,899,550
Dec-99 2.30% 0.50% 0.50% $29,007,361
Jan-00 2.30% 0.50% 0.50% $30,688,889
Feb-00 2.30% 0.50% 0.50% $29,773,631 $ 89,469,880
Mar-00 2.30% 0.50% 0.50% $27,462,187
Apr-00 2.30% 0.50% 0.50% $25,956,672
May-00 2.30% 0.50% 0.50% $25,005,948 $ 78,424,807
Jun-00 2.30% 0.50% 0.50% $25,773,379
Jul-00 2.30% 0.50% 0.50% $28,798,713
Aug-00 2.30% 0.50% 0.50% $32,213,069 $ 86,785,160
Sep-00 2.30% 0.50% 0.50% $33,927,513
Oct-00 2.30% 0.50% 0.50% $32,388,830
Nov-00 2.30% 0.50% 0.50% $28,981,895 $ 95,298,238
Dec-00 2.30% 0.50% 0.50% $28,236,599
Jan-01 2.30% 0.50% 0.50% $29,503,726
Feb-01 2.30% 0.50% 0.50% $28,291,666 $ 86,031,991
Mar-01 2.30% 0.50% 0.50% $26,044,931
Apr-01 2.30% 0.50% 0.50% $24,600,763
May-01 2.30% 0.50% 0.50% $23,695,963 $ 74,341,657
Jun-01 2.30% 0.50% 0.50% $24,423,191
Jul-01 2.30% 0.50% 0.50% $27,290,037
Aug-01 2.30% 0.50% 0.50% $30,525,525 $ 82,238,753
Sep-01 2.30% 0.50% 0.50% $32,150,155
</TABLE>
Salomon Brothers Inc
Figures may not total due to rounding. 1
<PAGE>
<TABLE>
<CAPTION>
Preliminary and subject to change
Scheduled Collections
Residential Customers
Annual Monthly FTA % % %
Sales Sales Charge Monthly Collected Collected Collected
Month (mWh) (kWh) ($ / kWh) Billings Month 1 Month 2 Month 3
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Oct-01 23,268,300 2,007,730,272 0.014271 $28,652,248 44.60% 44.70% 7.40%
Nov-01 23,268,300 1,779,403,980 0.014271 $25,393,812 44.60% 44.70% 7.40%
Dec-01 23,268,300 1,943,118,504 0.014271 $27,730,176 44.60% 44.70% 7.40%
Jan-02 23,680,500 2,170,001,512 0.013308 $28,878,071 44.60% 44.70% 7.40%
Feb-02 23,680,500 1,879,885,773 0.013308 $25,017,252 44.60% 44.70% 7.40%
Mar-02 23,680,500 1,791,295,629 0.013308 $23,838,307 44.60% 44.70% 7.40%
Apr-02 23,680,500 1,691,044,757 0.013308 $22,504,183 44.60% 44.70% 7.40%
May-02 23,680,500 1,675,574,405 0.013308 $22,298,306 44.60% 44.70% 7.40%
Jun-02 23,680,500 1,831,814,859 0.013308 $24,377,532 44.60% 44.70% 7.40%
Jul-02 23,680,500 2,142,351,684 0.013308 $28,510,111 44.60% 44.70% 7.40%
Aug-02 23,680,500 2,324,459,076 0.013308 $30,933,571 44.60% 44.70% 7.40%
Sep-02 23,680,500 2,342,307,613 0.013308 $31,171,096 44.60% 44.70% 7.40%
Oct-02 23,680,500 2,043,297,392 0.013308 $27,191,911 44.60% 44.70% 7.40%
Nov-02 23,680,500 1,810,926,279 0.013308 $24,099,549 44.60% 44.70% 7.40%
Dec-02 23,680,500 1,977,541,021 0.013308 $26,316,835 44.60% 44.70% 7.40%
Jan-03 24,106,800 2,209,066,213 0.012351 $27,283,904 44.60% 44.70% 7.40%
Feb-03 24,106,800 1,913,727,766 0.012351 $23,636,216 44.60% 44.70% 7.40%
Mar-03 24,106,800 1,823,542,808 0.012351 $22,522,352 44.60% 44.70% 7.40%
Apr-03 24,106,800 1,721,487,204 0.012351 $21,261,876 44.60% 44.70% 7.40%
May-03 24,106,800 1,705,738,353 0.012351 $21,067,364 44.60% 44.70% 7.40%
Jun-03 24,106,800 1,864,791,472 0.012351 $23,031,809 44.60% 44.70% 7.40%
Jul-03 24,106,800 2,180,918,628 0.012351 $26,936,257 44.60% 44.70% 7.40%
Aug-03 24,106,800 2,366,304,345 0.012351 $29,225,933 44.60% 44.70% 7.40%
Sep-03 24,106,800 2,384,474,194 0.012351 $29,450,347 44.60% 44.70% 7.40%
Oct-03 24,106,800 2,080,081,146 0.012351 $25,690,826 44.60% 44.70% 7.40%
Nov-03 24,106,800 1,843,526,852 0.012351 $22,769,173 44.60% 44.70% 7.40%
Dec-03 24,106,800 2,013,141,019 0.012351 $24,864,056 44.60% 44.70% 7.40%
Jan-04 24,591,100 2,253,445,839 0.011395 $25,677,311 44.60% 44.70% 7.40%
Feb-04 24,591,100 1,952,174,111 0.011395 $22,244,414 44.60% 44.70% 7.40%
Mar-04 24,591,100 1,860,177,359 0.011395 $21,196,139 44.60% 44.70% 7.40%
Apr-04 24,591,100 1,756,071,481 0.011395 $20,009,885 44.60% 44.70% 7.40%
May-04 24,591,100 1,740,006,239 0.011395 $19,826,827 44.60% 44.70% 7.40%
Jun-04 24,591,100 1,902,254,698 0.011395 $21,675,597 44.60% 44.70% 7.40%
Jul-04 24,591,100 2,224,732,776 0.011395 $25,350,134 44.60% 44.70% 7.40%
Aug-04 24,591,100 2,413,842,849 0.011395 $27,504,984 44.60% 44.70% 7.40%
Sep-04 24,591,100 2,432,377,726 0.011395 $27,716,184 44.60% 44.70% 7.40%
Oct-04 24,591,100 2,121,869,492 0.011395 $24,178,039 44.60% 44.70% 7.40%
Nov-04 24,591,100 1,880,562,878 0.011395 $21,428,426 44.60% 44.70% 7.40%
Dec-04 24,591,100 2,053,584,553 0.011395 $23,399,954 44.60% 44.70% 7.40%
Jan-05 25,045,000 2,295,039,711 0.010482 $24,056,735 44.60% 44.70% 7.40%
Feb-05 25,045,000 1,988,207,140 0.010482 $20,840,499 44.60% 44.70% 7.40%
Mar-05 25,045,000 1,894,512,322 0.010482 $19,858,384 44.60% 44.70% 7.40%
Apr-05 25,045,000 1,788,484,868 0.010482 $18,746,999 44.60% 44.70% 7.40%
May-05 25,045,000 1,772,123,096 0.010482 $18,575,494 44.60% 44.70% 7.40%
Jun-05 25,045,000 1,937,366,320 0.010482 $20,307,582 44.60% 44.70% 7.40%
Jul-05 25,045,000 2,265,796,665 0.010482 $23,750,208 44.60% 44.70% 7.40%
Aug-05 25,045,000 2,458,397,312 0.010482 $25,769,058 44.60% 44.70% 7.40%
<CAPTION>
% %
Collected Collected Charge- Monthly Quarterly
Month Month 4 Month 5 Offs Collections Collections
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oct-01 2.30% 0.50% 0.50% $30,692,079
Nov-01 2.30% 0.50% 0.50% $27,463,623 $90,305,858
Dec-01 2.30% 0.50% 0.50% $26,757,371
Jan-02 2.30% 0.50% 0.50% $27,977,378
Feb-02 2.30% 0.50% 0.50% $26,845,544 $81,580,293
Mar-02 2.30% 0.50% 0.50% $24,716,337
Apr-02 2.30% 0.50% 0.50% $23,346,712
May-02 2.30% 0.50% 0.50% $22,488,236 $70,551,286
Jun-02 2.30% 0.50% 0.50% $23,178,399
Jul-02 2.30% 0.50% 0.50% $25,899,129
Aug-02 2.30% 0.50% 0.50% $28,969,712 $78,047,239
Sep-02 2.30% 0.50% 0.50% $30,511,538
Oct-02 2.30% 0.50% 0.50% $29,127,777
Nov-02 2.30% 0.50% 0.50% $26,063,867 $85,703,182
Dec-02 2.30% 0.50% 0.50% $25,393,611
Jan-03 2.30% 0.50% 0.50% $26,496,882
Feb-03 2.30% 0.50% 0.50% $25,375,352 $77,265,846
Mar-03 2.30% 0.50% 0.50% $23,355,151
Apr-03 2.30% 0.50% 0.50% $22,058,482
May-03 2.30% 0.50% 0.50% $21,246,810 $66,660,443
Jun-03 2.30% 0.50% 0.50% $21,898,873
Jul-03 2.30% 0.50% 0.50% $24,469,409
Aug-03 2.30% 0.50% 0.50% $27,370,486 $73,738,768
Sep-03 2.30% 0.50% 0.50% $28,827,198
Oct-03 2.30% 0.50% 0.50% $27,519,825
Nov-03 2.30% 0.50% 0.50% $24,625,054 $80,972,077
Dec-03 2.30% 0.50% 0.50% $23,991,798
Jan-04 2.30% 0.50% 0.50% $24,989,373
Feb-04 2.30% 0.50% 0.50% $23,890,852 $72,872,023
Mar-04 2.30% 0.50% 0.50% $21,982,571
Apr-04 2.30% 0.50% 0.50% $20,760,068
May-04 2.30% 0.50% 0.50% $19,995,706 $62,738,345
Jun-04 2.30% 0.50% 0.50% $20,609,373
Jul-04 2.30% 0.50% 0.50% $23,028,545
Aug-04 2.30% 0.50% 0.50% $25,758,794 $69,396,712
Sep-04 2.30% 0.50% 0.50% $27,129,729
Oct-04 2.30% 0.50% 0.50% $25,899,340
Nov-04 2.30% 0.50% 0.50% $23,175,024 $76,204,093
Dec-04 2.30% 0.50% 0.50% $22,579,058
Jan-05 2.30% 0.50% 0.50% $23,469,462
Feb-05 2.30% 0.50% 0.50% $22,393,563 $68,442,084
Mar-05 2.30% 0.50% 0.50% $20,598,082
Apr-05 2.30% 0.50% 0.50% $19,450,361
May-05 2.30% 0.50% 0.50% $18,733,714 $58,782,157
Jun-05 2.30% 0.50% 0.50% $19,308,651
Jul-05 2.30% 0.50% 0.50% $21,575,141
Aug-05 2.30% 0.50% 0.50% $24,133,075 $65,016,867
</TABLE>
Salomon Brothers Inc
Figures may not total due to rounding. 2
<PAGE>
<TABLE>
<CAPTION>
Preliminary and subject to change
Scheduled Collections
Residential Customers
Annual Monthly FTA % % %
Sales Sales Charge Monthly Collected Collected Collected
Month (mWh) (kWh) ($ / kWh) Billings Month 1 Month 2 Month 3
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sep-05 25,045,000 2,477,274,304 0.010482 $25,966,928 44.60% 44.70% 7.40%
Oct-05 25,045,000 2,161,034,741 0.010482 $22,652,087 44.60% 44.70% 7.40%
Nov-05 25,045,000 1,915,274,114 0.010482 $20,076,011 44.60% 44.70% 7.40%
Dec-05 25,045,000 2,091,489,406 0.010482 $21,923,109 44.60% 44.70% 7.40%
Jan-06 25,390,900 2,326,736,825 0.009642 $22,434,159 44.60% 44.70% 7.40%
Feb-06 25,390,900 2,015,666,547 0.009642 $19,434,851 44.60% 44.70% 7.40%
Mar-06 25,390,900 1,920,677,696 0.009642 $18,518,978 44.60% 44.70% 7.40%
Apr-06 25,390,900 1,813,185,883 0.009642 $17,482,553 44.60% 44.70% 7.40%
May-06 25,390,900 1,796,598,136 0.009642 $17,322,616 44.60% 44.70% 7.40%
Jun-06 25,390,900 1,964,123,558 0.009642 $18,937,879 44.60% 44.70% 7.40%
Jul-06 25,390,900 2,297,089,900 0.009642 $22,148,306 44.60% 44.70% 7.40%
Aug-06 25,390,900 2,492,350,582 0.009642 $24,030,990 44.60% 44.70% 7.40%
Sep-06 25,390,900 2,511,488,286 0.009642 $24,215,513 44.60% 44.70% 7.40%
Oct-06 25,390,900 2,190,881,094 0.009642 $21,124,252 44.60% 44.70% 7.40%
Nov-06 25,390,900 1,941,726,233 0.009642 $18,721,926 44.60% 44.70% 7.40%
Dec-06 25,390,900 2,120,375,259 0.009642 $20,444,442 44.60% 44.70% 7.40%
Jan-07 25,737,300 2,358,479,758 0.008820 $20,802,086 44.60% 44.70% 7.40%
Feb-07 25,737,300 2,043,165,647 0.008820 $18,020,976 44.60% 44.70% 7.40%
Mar-07 25,737,300 1,946,880,893 0.008820 $17,171,732 44.60% 44.70% 7.40%
Apr-07 25,737,300 1,837,922,604 0.008820 $16,210,707 44.60% 44.70% 7.40%
May-07 25,737,300 1,821,108,555 0.008820 $16,062,405 44.60% 44.70% 7.40%
Jun-07 25,737,300 1,990,919,473 0.008820 $17,560,158 44.60% 44.70% 7.40%
Jul-07 25,737,300 2,328,428,369 0.008820 $20,537,029 44.60% 44.70% 7.40%
Aug-07 25,737,300 2,526,352,931 0.008820 $22,282,748 44.60% 44.70% 7.40%
Sep-07 25,737,300 2,545,751,725 0.008820 $22,453,848 44.60% 44.70% 7.40%
Oct-07 25,737,300 2,220,770,591 0.008820 $19,587,474 44.60% 44.70% 7.40%
Nov-07 25,737,300 1,968,216,589 0.008820 $17,359,916 44.60% 44.70% 7.40%
Dec-07 25,737,300 2,149,302,866 0.008820 $18,957,119 44.60% 44.70% 7.40%
Jan-08 25,737,300 2,358,479,758 0.008820 $20,802,086 44.60% 44.70% 7.40%
Feb-08 25,737,300 2,043,165,647 0.008820 $18,020,976 44.60% 44.70% 7.40%
Mar-08 25,737,300 1,946,880,893 0.008820 $17,171,732 44.60% 44.70% 7.40%
Apr-08 25,737,300 1,837,922,604 0.008820 $16,210,707 44.60% 44.70% 7.40%
May-08 25,737,300 1,821,108,555 0.008820 $16,062,405 44.60% 44.70% 7.40%
Jun-08 25,737,300 1,990,919,473 0.008820 $17,560,158 44.60% 44.70% 7.40%
Jul-08 25,737,300 2,328,428,369 0.008820 $20,537,029 44.60% 44.70% 7.40%
Aug-08 25,737,300 2,526,352,931 0.008820 $22,282,748 44.60% 44.70% 7.40%
Sep-08 25,737,300 2,545,751,725 0.008820 $22,453,848 44.60% 44.70% 7.40%
Oct-08 25,737,300 2,220,770,591 0.008820 $19,587,474 44.60% 44.70% 7.40%
Nov-08 25,737,300 1,968,216,589 0.008820 $17,359,916 44.60% 44.70% 7.40%
<CAPTION>
% %
Collected Collected Charge- Monthly Quarterly
Month Month 4 Month 5 Offs Collections Collections
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sep-05 2.30% 0.50% 0.50% $25,417,486
Oct-05 2.30% 0.50% 0.50% $24,264,751
Nov-05 2.30% 0.50% 0.50% $21,712,376 $71,394,613
Dec-05 2.30% 0.50% 0.50% $21,154,022
Jan-06 2.30% 0.50% 0.50% $21,941,722
Feb-06 2.30% 0.50% 0.50% $20,893,331 $63,989,076
Mar-06 2.30% 0.50% 0.50% $19,211,582
Apr-06 2.30% 0.50% 0.50% $18,138,982
May-06 2.30% 0.50% 0.50% $17,470,165 $54,820,729
Jun-06 2.30% 0.50% 0.50% $18,006,323
Jul-06 2.30% 0.50% 0.50% $20,119,943
Aug-06 2.30% 0.50% 0.50% $22,505,350 $60,631,616
Sep-06 2.30% 0.50% 0.50% $23,703,130
Oct-06 2.30% 0.50% 0.50% $22,628,144
Nov-06 2.30% 0.50% 0.50% $20,247,922 $66,579,197
Dec-06 2.30% 0.50% 0.50% $19,727,228
Jan-07 2.30% 0.50% 0.50% $20,408,753
Feb-07 2.30% 0.50% 0.50% $19,385,002 $59,520,984
Mar-07 2.30% 0.50% 0.50% $17,817,155
Apr-07 2.30% 0.50% 0.50% $16,819,962
May-07 2.30% 0.50% 0.50% $16,199,219 $50,836,336
Jun-07 2.30% 0.50% 0.50% $16,696,372
Jul-07 2.30% 0.50% 0.50% $18,656,228
Aug-07 2.30% 0.50% 0.50% $20,868,098 $56,220,699
Sep-07 2.30% 0.50% 0.50% $21,978,740
Oct-07 2.30% 0.50% 0.50% $20,981,959
Nov-07 2.30% 0.50% 0.50% $18,774,896 $61,735,595
Dec-07 2.30% 0.50% 0.50% $18,292,083
Jan-08 2.30% 0.50% 0.50% $19,598,977
Feb-08 2.30% 0.50% 0.50% $19,235,930 $57,126,990
Mar-08 2.30% 0.50% 0.50% $17,776,136
Apr-08 2.30% 0.50% 0.50% $16,812,525
May-08 2.30% 0.50% 0.50% $16,199,219 $50,787,881
Jun-08 2.30% 0.50% 0.50% $16,696,372
Jul-08 2.30% 0.50% 0.50% $18,656,228
Aug-08 2.30% 0.50% 0.50% $20,868,098 $56,220,699
Sep-08 2.30% 0.50% 0.50% $21,978,740
Oct-08 2.30% 0.50% 0.50% $20,981,959
Nov-08 2.30% 0.50% 0.50% $18,774,896 $61,735,595
</TABLE>
Salomon Brothers Inc
Figures may not total due to rounding. 3
<PAGE>
<TABLE>
<CAPTION>
Preliminary and subject to change
Scheduled Collections
Small Commercial Customers
Annual Monthly FTA % % %
Sales Sales Charge Monthly Collected Collected Collected
Month (mWh) (kWh) ($ / kWh) Billings Month 1 Month 2 Month 3
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Nov-97 4,209,000 34,187,273 0.019347 $ 661,426 4.46% 44.61% 40.97%
Dec-97 4,209,000 334,281,019 0.019347 $6,467,387 44.60% 44.70% 7.40%
Jan-98 4,231,200 351,745,939 0.019347 $6,805,283 44.60% 44.70% 7.40%
Feb-98 4,231,200 335,640,054 0.019347 $6,493,680 44.60% 44.70% 7.40%
Mar-98 4,231,200 326,660,108 0.019347 $6,319,944 44.60% 44.70% 7.40%
Apr-98 4,321,200 320,920,440 0.019347 $6,208,697 44.60% 44.70% 7.40%
May-98 4,231,200 328,699,652 0.019347 $6,359,403 44.60% 44.70% 7.40%
Jun-98 4,231,200 350,387,540 0.019347 $6,779,002 44.60% 44.70% 7.40%
Jul-98 4,231,200 374,504,349 0.019347 $7,245,594 44.60% 44.70% 7.40%
Aug-98 4,231,200 384,538,092 0.019347 $7,439,718 44.60% 44.70% 7.40%
Sep-98 4,231,200 399,323,969 0.019347 $7,725,783 44.60% 44.70% 7.40%
Oct-98 4,231,200 379,059,796 0.019347 $7,333,729 44.60% 44.70% 7.40%
Nov-98 4,231,200 343,675,905 0.019347 $6,649,151 44.60% 44.70% 7.40%
Dec-98 4,231,200 336,044,155 0.019347 $6,501,498 44.60% 44.70% 7.40%
Jan-99 4,331,400 360,075,714 0.016479 $5,933,701 44.60% 44.70% 7.40%
Feb-99 4,331,400 343,588,422 0.016479 $5,662,006 44.60% 44.70% 7.40%
Mar-99 4,331,400 334,395,820 0.016479 $5,510,521 44.60% 44.70% 7.40%
Apr-99 4,331,400 328,520,229 0.016479 $5,413,697 44.60% 44.70% 7.40%
May-99 4,331,400 336,483,662 0.016479 $5,544,926 44.60% 44.70% 7.40%
Jun-99 4,331,400 358,685,147 0.016479 $5,910,785 44.60% 44.70% 7.40%
Jul-99 4,331,400 383,373,071 0.016479 $6,317,619 44.60% 44.70% 7.40%
Aug-99 4,331,400 393,644,425 0.016479 $6,486,881 44.60% 44.70% 7.40%
Sep-99 4,331,400 408,780,450 0.016479 $6,736,308 44.60% 44.70% 7.40%
Oct-99 4,331,400 388,036,397 0.016479 $6,394,466 44.60% 44.70% 7.40%
Nov-99 4,331,400 351,814,571 0.016479 $5,797,565 44.60% 44.70% 7.40%
Dec-99 4,331,400 344,002,092 0.016479 $5,668,823 44.60% 44.70% 7.40%
Jan-00 4,302,100 357,639,961 0.016009 $5,725,636 44.60% 44.70% 7.40%
Feb-00 4,302,100 341,264,198 0.016009 $5,463,468 44.60% 44.70% 7.40%
Mar-00 4,302,100 332,133,780 0.016009 $5,317,294 44.60% 44.70% 7.40%
Apr-00 4,302,100 326,297,936 0.016009 $5,223,865 44.60% 44.70% 7.40%
May-00 4,302,100 334,207,500 0.016009 $5,350,494 44.60% 44.70% 7.40%
Jun-00 4,302,100 356,258,801 0.016009 $5,703,524 44.60% 44.70% 7.40%
Jul-00 4,302,100 380,779,722 0.016009 $6,096,091 44.60% 44.70% 7.40%
Aug-00 4,302,100 390,981,595 0.016009 $6,259,418 44.60% 44.70% 7.40%
Sep-00 4,302,100 406,015,232 0.016009 $6,500,099 44.60% 44.70% 7.40%
Oct-00 4,302,100 385,411,502 0.016009 $6,170,244 44.60% 44.70% 7.40%
Nov-00 4,302,100 349,434,702 0.016009 $5,594,273 44.60% 44.70% 7.40%
Dec-00 4,302,100 341,675,071 0.016009 $5,470,046 44.60% 44.70% 7.40%
Jan-01 4,357,600 362,253,759 0.015091 $5,466,867 44.60% 44.70% 7.40%
Feb-01 4,357,600 345,666,737 0.015091 $5,216,548 44.60% 44.70% 7.40%
Mar-01 4,357,600 336,418,531 0.015091 $5,076,981 44.60% 44.70% 7.40%
Apr-01 4,357,600 330,507,400 0.015091 $4,987,775 44.60% 44.70% 7.40%
May-01 4,357,600 338,519,002 0.015091 $5,108,680 44.60% 44.70% 7.40%
Jun-01 4,357,600 360,854,780 0.015091 $5,445,755 44.60% 44.70% 7.40%
Jul-01 4,357,600 385,692,038 0.015091 $5,820,581 44.60% 44.70% 7.40%
Aug-01 4,357,600 396,025,522 0.015091 $5,976,526 44.60% 44.70% 7.40%
Sep-01 4,357,600 411,253,103 0.015091 $6,206,329 44.60% 44.70% 7.40%
</TABLE>
<TABLE>
<CAPTION>
% %
Collected Collected Charge- Monthly Quarterly
Month Month 4 Month 5 Offs Collections Collections
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nov-97 6.89% 2.57% 0.50% $29,500
Dec-97 2.30% 0.50% 0.50% $3,179,517
Jan-98 2.30% 0.50% 0.50% $6,197,065
Feb-98 2.30% 0.50% 0.50% $6,462,302 $15,868,383
Mar-98 2.30% 0.50% 0.50% $6,390,709
Apr-98 2.30% 0.50% 0.50% $6,263,574
May-98 2.30% 0.50% 0.50% $6,262,728 $18,917,011
Jun-98 2.30% 0.50% 0.50% $6,503,374
Jul-98 2.30% 0.50% 0.50% $6,906,749
Aug-98 2.30% 0.50% 0.50% $7,235,852 $20,645,974
Sep-98 2.30% 0.50% 0.50% $7,495,141
Oct-98 2.30% 0.50% 0.50% $7,475,351
Nov-98 2.30% 0.50% 0.50% $7,022,747 $21,993,239
Dec-98 2.30% 0.50% 0.50% $6,629,426
Jan-99 2.30% 0.50% 0.50% $6,251,942
Feb-99 2.30% 0.50% 0.50% $5,848,329 $18,729,697
Mar-99 2.30% 0.50% 0.50% $5,610,483
Apr-99 2.30% 0.50% 0.50% $5,465,683
May-99 2.30% 0.50% 0.50% $5,460,633 $16,536,798
Jun-99 2.30% 0.50% 0.50% $5,670,458
Jul-99 2.30% 0.50% 0.50% $6,022,171
Aug-99 2.30% 0.50% 0.50% $6,309,124 $18,001,753
Sep-99 2.30% 0.50% 0.50% $6,535,205
Oct-99 2.30% 0.50% 0.50% $6,517,950
Nov-99 2.30% 0.50% 0.50% $6,123,313 $19,176,468
Dec-00 2.30% 0.50% 0.50% $5,780,366
Jan-00 2.30% 0.50% 0.50% $5,697,371
Feb-00 2.30% 0.50% 0.50% $5,580,875 $17,058,613
Mar-00 2.30% 0.50% 0.50% $5,396,751
Apr-00 2.30% 0.50% 0.50% $5,271,005
May-00 2.30% 0.50% 0.50% $5,269,156 $15,936,912
Jun-00 2.30% 0.50% 0.50% $5,471,623
Jul-00 2.30% 0.50% 0.50% $5,811,004
Aug-00 2.30% 0.50% 0.50% $6,087,895 $17,370,522
Sep-00 2.30% 0.50% 0.50% $6,306,048
Oct-00 2.30% 0.50% 0.50% $6,289,398
Nov-00 2.30% 0.50% 0.50% $5,908,599 $18,504,046
Dec-00 2.30% 0.50% 0.50% $5,577,678
Jan-01 2.30% 0.50% 0.50% $5,471,726
Feb-01 2.30% 0.50% 0.50% $5,334,573 $16,383,977
Mar-01 2.30% 0.50% 0.50% $5,154,461
Apr-01 2.30% 0.50% 0.50% $5,033,071
May-01 2.30% 0.50% 0.50% $5,031,018 $15,218,550
Jun-01 2.30% 0.50% 0.50% $5,224,335
Jul-01 2.30% 0.50% 0.50% $5,548,377
Aug-01 2.30% 0.50% 0.50% $5,812,754 $16,585,467
Sep-01 2.30% 0.50% 0.50% $6,021,049
</TABLE>
Salomon Brothers Inc
Figures may not total due to rounding. 4
<PAGE>
<TABLE>
<CAPTION>
Preliminary and subject to change
Scheduled Collections
Small Commercial Customers
Annual Monthly FTA % % %
Sales Sales Charge Monthly Collected Collected Collected
Month (mWh) (kWh) ($ / kWh) Billings Month 1 Month 2 Month 3
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Oct-01 4,357,600 390,383,572 0.015091 $5,891,382 44.60% 44.70% 7.40%
Nov-01 4,357,600 353,942,646 0.015091 $5,341,442 44.60% 44.70% 7.40%
Dec-01 4,357,600 346,082,910 0.015091 $5,222,829 44.60% 44.70% 7.40%
Jan-02 4,448,900 369,843,663 0.014073 $5,204,735 44.60% 44.70% 7.40%
Feb-02 4,448,900 352,909,112 0.014073 $4,966,419 44.60% 44.70% 7.40%
Mar-02 4,448,900 343,467,138 0.014073 $4,833,544 44.60% 44.70% 7.40%
Apr-02 4,448,900 337,432,158 0.014073 $4,748,614 44.60% 44.70% 7.40%
May-02 4,448,900 345,611,619 0.014073 $4,863,722 44.60% 44.70% 7.40%
Jun-02 4,448,900 368,415,374 0.014073 $5,184,635 44.60% 44.70% 7.40%
Jul-02 4,448,900 393,773,019 0.014073 $5,541,488 44.60% 44.70% 7.40%
Aug-02 4,448,900 404,323,010 0.014073 $5,689,956 44.60% 44.70% 7.40%
Sep-02 4,448,900 419,869,637 0.014073 $5,908,740 44.60% 44.70% 7.40%
Oct-02 4,448,900 398,562,849 0.014073 $5,608,894 44.60% 44.70% 7.40%
Nov-02 4,448,900 361,358,417 0.014073 $5,085,324 44.60% 44.70% 7.40%
Dec-02 4,448,900 353,334,005 0.014073 $4,972,398 44.60% 44.70% 7.40%
Jan-03 4,548,000 378,081,994 0.013061 $4,938,057 44.60% 44.70% 7.40%
Feb-03 4,548,000 360,770,222 0.013061 $4,711,951 44.60% 44.70% 7.40%
Mar-03 4,548,000 351,117,927 0.013061 $4,585,884 44.60% 44.70% 7.40%
Apr-03 4,548,000 344,948,516 0.013061 $4,505,307 44.60% 44.70% 7.40%
May-03 4,548,000 353,310,176 0.013061 $4,614,517 44.60% 44.70% 7.40%
Jun-03 4,548,000 376,621,888 0.013061 $4,918,987 44.60% 44.70% 7.40%
Jul-03 4,548,000 402,544,379 0.013061 $5,257,555 44.60% 44.70% 7.40%
Aug-03 4,548,000 413,329,373 0.013061 $5,398,416 44.60% 44.70% 7.40%
Sep-03 4,548,000 429,222,304 0.013061 $5,605,991 44.60% 44.70% 7.40%
Oct-03 4,548,000 407,440,904 0.013061 $5,321,508 44.60% 44.70% 7.40%
Nov-03 4,548,000 369,407,737 0.013061 $4,824,764 44.60% 44.70% 7.40%
Dec-03 4,548,000 361,204,580 0.013061 $4,717,624 44.60% 44.70% 7.40%
Jan-04 4,667,600 388,024,519 0.012050 $4,675,563 44.60% 44.70% 7.40%
Feb-04 4,667,600 370,257,496 0.012050 $4,461,476 44.60% 44.70% 7.40%
Mar-04 4,667,600 360,351,371 0.012050 $4,342,111 44.60% 44.70% 7.40%
Apr-04 4,667,600 354,019,722 0.012050 $4,265,816 44.60% 44.70% 7.40%
May-04 4,667,600 362,601,270 0.012050 $4,369,221 44.60% 44.70% 7.40%
Jun-04 4,667,600 386,526,017 0.012050 $4,657,506 44.60% 44.70% 7.40%
Jul-04 4,667,600 413,130,199 0.012050 $4,978,077 44.60% 44.70% 7.40%
Aug-04 4,667,600 424,198,809 0.012050 $5,111,450 44.60% 44.70% 7.40%
Sep-04 4,667,600 440,509,680 0.012050 $5,307,991 44.60% 44.70% 7.40%
Oct-04 4,667,600 418,155,489 0.012050 $5,038,630 44.60% 44.70% 7.40%
Nov-04 4,667,600 379,122,153 0.012050 $4,568,292 44.60% 44.70% 7.40%
Dec-04 4,667,600 370,703,275 0.012050 $4,466,848 44.60% 44.70% 7.40%
Jan-05 4,775,700 397,011,033 0.011085 $4,400,696 44.60% 44.70% 7.40%
Feb-05 4,775,700 378,832,531 0.011085 $4,199,195 44.60% 44.70% 7.40%
Mar-05 4,775,700 368,696,984 0.011085 $4,086,847 44.60% 44.70% 7.40%
Apr-05 4,775,700 362,218,696 0.011085 $4,015,038 44.60% 44.70% 7.40%
May-05 4,775,700 370,998,990 0.011085 $4,112,364 44.60% 44.70% 7.40%
Jun-05 4,775,700 395,477,826 0.011085 $4,383,701 44.60% 44.70% 7.40%
Jul-05 4,775,700 422,698,151 0.011085 $4,685,426 44.60% 44.70% 7.40%
Aug-05 4,775,700 434,023,106 0.011085 $4,810,959 44.60% 44.70% 7.40%
<CAPTION>
% %
Collected Collected Charge- Monthly Quarterly
Month Month 4 Month 5 Offs Collections Collections
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oct-01 2.30% 0.50% 0.50% $ 6,005,151
Nov-01 2.30% 0.50% 0.50% $5,641,562 $17,667,761
Dec-01 2.30% 0.50% 0.50% $ 5,325,597
Jan-02 2.30% 0.50% 0.50% $ 5,217,716
Feb-02 2.30% 0.50% 0.50% $5,080,339 $15,623,652
Mar-02 2.30% 0.50% 0.50% $ 4,907,732
Apr-02 2.30% 0.50% 0.50% $ 4,791,814
May-02 2.30% 0.50% 0.50% $4,789,784 $14,489,331
Jun-02 2.30% 0.50% 0.50% $ 4,973,832
Jul-02 2.30% 0.50% 0.50% $ 5,282,337
Aug-02 2.30% 0.50% 0.50% $5,534,037 $15,790,206
Sep-02 2.30% 0.50% 0.50% $ 5,732,344
Oct-02 2.30% 0.50% 0.50% $ 5,717,208
Nov-02 2.30% 0.50% 0.50% $5,371,053 $16,820,605
Dec-02 2.30% 0.50% 0.50% $ 5,070,238
Jan-03 2.30% 0.50% 0.50% $ 4,959,897
Feb-03 2.30% 0.50% 0.50% $4,821,806 $14,851,941
Mar-03 2.30% 0.50% 0.50% $ 4,656,754
Apr-03 2.30% 0.50% 0.50% $ 4,546,379
May-03 2.30% 0.50% 0.50% $4,544,367 $13,747,500
Jun-03 2.30% 0.50% 0.50% $ 4,718,985
Jul-03 2.30% 0.50% 0.50% $ 5,011,682
Aug-03 2.30% 0.50% 0.50% $5,250,486 $14,981,153
Sep-03 2.30% 0.50% 0.50% $ 5,438,632
Oct-03 2.30% 0.50% 0.50% $ 5,424,272
Nov-03 2.30% 0.50% 0.50% $5,095,853 $15,958,757
Dec-03 2.30% 0.50% 0.50% $ 4,810,451
Jan-04 2.30% 0.50% 0.50% $ 4,701,536
Feb-04 2.30% 0.50% 0.50% $4,566,476 $14,078,463
Mar-04 2.30% 0.50% 0.50% $ 4,409,482
Apr-04 2.30% 0.50% 0.50% $ 4,304,753
May-04 2.30% 0.50% 0.50% $4,302,800 $13,017,035
Jun-04 2.30% 0.50% 0.50% $ 4,468,136
Jul-04 2.30% 0.50% 0.50% $ 4,745,274
Aug-04 2.30% 0.50% 0.50% $4,971,384 $14,184,794
Sep-04 2.30% 0.50% 0.50% $ 5,149,529
Oct-04 2.30% 0.50% 0.50% $ 5,135,932
Nov-04 2.30% 0.50% 0.50% $4,824,971 $15,110,431
Dec-04 2.30% 0.50% 0.50% $ 4,554,740
Jan-05 2.30% 0.50% 0.50% $ 4,439,873
Feb-05 2.30% 0.50% 0.50% $4,300,763 $13,295,376
Mar-05 2.30% 0.50% 0.50% $ 4,151,004
Apr-05 2.30% 0.50% 0.50% $ 4,051,818
May-05 2.30% 0.50% 0.50% $4,049,848 $12,252,670
Jun-05 2.30% 0.50% 0.50% $ 4,205,463
Jul-05 2.30% 0.50% 0.50% $ 4,466,309
Aug-05 2.30% 0.50% 0.50% $4,679,127 $13,350,899
</TABLE>
Salomon Brothers Inc
Figures may not total due to rounding. 5
<PAGE>
Preliminary and subject to change
<TABLE>
<CAPTION>
Scheduled Collections
Small Commercial Customers
Annual Monthly FTA % % %
Sales Sales Charge Monthly Collected Collected Collected
Month (mWh) (kWh) ($ / kWh) Billings Month 1 Month 2 Month 3
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sep-05 4,775,700 450,711,732 0.011085 $4,995,945 44.60% 44.70% 7.40%
Oct-05 4,775,700 427,839,825 0.011085 $4,742,420 44.60% 44.70% 7.40%
Nov-05 4,775,700 387,902,491 0.011085 $4,299,731 44.60% 44.70% 7.40%
Dec-05 4,775,700 379,288,635 0.011085 $4,204,251 44.60% 44.70% 7.40%
Jan-06 4,868,200 404,700,695 0.010196 $4,126,376 44.60% 44.70% 7.40%
Feb-06 4,868,200 386,170,096 0.010196 $3,937,436 44.60% 44.70% 7.40%
Mar-06 4,868,200 375,838,235 0.010196 $3,832,091 44.60% 44.70% 7.40%
Apr-06 4,868,200 369,234,469 0.010196 $3,764,758 44.60% 44.70% 7.40%
May-06 4,868,200 378,184,828 0.010196 $3,856,017 44.60% 44.70% 7.40%
Jun-06 4,868,200 403,137,792 0.010196 $4,110,440 44.60% 44.70% 7.40%
Jul-06 4,868,200 430,885,345 0.010196 $4,393,357 44.60% 44.70% 7.40%
Aug-06 4,868,200 442,429,651 0.010196 $4,511,065 44.60% 44.70% 7.40%
Sep-06 4,868,200 459,441,517 0.010196 $4,684,520 44.60% 44.70% 7.40%
Oct-06 4,868,200 436,126,607 0.010196 $4,446,798 44.60% 44.70% 7.40%
Nov-06 4,868,200 395,415,731 0.010196 $4,031,705 44.60% 44.70% 7.40%
Dec-06 4,868,200 386,635,034 0.010196 $3,942,176 44.60% 44.70% 7.40%
Jan-07 4,966,700 412,889,146 0.009327 $3,851,062 44.60% 44.70% 7.40%
Feb-07 4,966,700 393,983,611 0.009327 $3,674,728 44.60% 44.70% 7.40%
Mar-07 4,966,700 383,442,702 0.009327 $3,576,412 44.60% 44.70% 7.40%
Apr-07 4,966,700 376,705,320 0.009327 $3,513,571 44.60% 44.70% 7.40%
May-07 4,966,700 385,836,775 0.009327 $3,598,741 44.60% 44.70% 7.40%
Jun-07 4,966,700 411,294,620 0.009327 $3,836,189 44.60% 44.70% 7.40%
Jul-07 4,966,700 439,603,599 0.009327 $4,100,230 44.60% 44.70% 7.40%
Aug-07 4,966,700 451,381,486 0.009327 $4,210,084 44.60% 44.70% 7.40%
Sep-07 4,966,700 468,737,559 0.009327 $4,371,966 44.60% 44.70% 7.40%
Oct-07 4,966,700 444,950,910 0.009327 $4,150,105 44.60% 44.70% 7.40%
Nov-07 4,966,700 403,416,316 0.009327 $3,762,708 44.60% 44.70% 7.40%
Dec-07 4,966,700 394,457,956 0.009327 $3,679,152 44.60% 44.70% 7.40%
Jan-08 4,966,700 412,889,146 0.009327 $3,851,062 44.60% 44.70% 7.40%
Feb-08 4,966,700 393,983,611 0.009327 $3,674,728 44.60% 44.70% 7.40%
Mar-08 4,966,700 383,442,702 0.009327 $3,576,412 44.60% 44.70% 7.40%
Apr-08 4,966,700 376,705,320 0.009327 $3,513,571 44.60% 44.70% 7.40%
May-08 4,966,700 385,836,775 0.009327 $3,598,741 44.60% 44.70% 7.40%
Jun-08 4,966,700 411,294,620 0.009327 $3,836,189 44.60% 44.70% 7.40%
Jul-08 4,966,700 439,603,599 0.009327 $4,100,230 44.60% 44.70% 7.40%
Aug-08 4,966,700 451,381,486 0.009327 $4,210,084 44.60% 44.70% 7.40%
Sep-08 4,966,700 468,737,559 0.009327 $4,371,966 44.60% 44.70% 7.40%
Oct-08 4,966,700 444,950,910 0.009327 $4,150,105 44.60% 44.70% 7.40%
Nov-08 4,966,700 403,416,316 0.009327 $3,762,708 44.60% 44.70% 7.40%
<CAPTION>
Small Commercial Customers
% %
Collected Collected Charge- Monthly Quarterly
Month Month 4 Month 5 Offs Collections Collections
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sep-05 2.30% 0.50% 0.50% $4,846,798
Oct-05 2.30% 0.50% 0.50% $4,834,001
Nov-05 2.30% 0.50% 0.50% $4,541,321 $14,222,120
Dec-05 2.30% 0.50% 0.50% $4,286,976
Jan-06 2.30% 0.50% 0.50% $4,171,899
Feb-06 2.30% 0.50% 0.50% $4,034,307 $12,493,182
Mar-06 2.30% 0.50% 0.50% $3,892,694
Apr-06 2.30% 0.50% 0.50% $3,799,325
May-06 2.30% 0.50% 0.50% $3,797,398 $11,489,417
Jun-06 2.30% 0.50% 0.50% $3,943,313
Jul-06 2.30% 0.50% 0.50% $4,187,899
Aug-06 2.30% 0.50% 0.50% $4,387,450 $12,518,663
Sep-06 2.30% 0.50% 0.50% $4,544,670
Oct-06 2.30% 0.50% 0.50% $4,532,670
Nov-06 2.30% 0.50% 0.50% $4,258,235 $13,335,575
Dec-06 2.30% 0.50% 0.50% $4,019,745
Jan-07 2.30% 0.50% 0.50% $3,903,771
Feb-07 2.30% 0.50% 0.50% $3,767,037 $11,690,554
Mar-07 2.30% 0.50% 0.50% $3,633,490
Apr-07 2.30% 0.50% 0.50% $3,545,924
May-07 2.30% 0.50% 0.50% $3,544,034 $10,723,448
Jun-07 2.30% 0.50% 0.50% $3,680,213
Jul-07 2.30% 0.50% 0.50% $3,908,480
Aug-07 2.30% 0.50% 0.50% $4,094,717 $11,683,411
Sep-07 2.30% 0.50% 0.50% $4,241,447
Oct-07 2.30% 0.50% 0.50% $4,230,248
Nov-07 2.30% 0.50% 0.50% $3,974,123 $12,445,819
Dec-07 2.30% 0.50% 0.50% $3,751,546
Jan-08 2.30% 0.50% 0.50% $3,757,907
Feb-08 2.30% 0.50% 0.50% $3,739,903 $11,249,356
Mar-08 2.30% 0.50% 0.50% $3,626,096
Apr-08 2.30% 0.50% 0.50% $3,544,609
May-08 2.30% 0.50% 0.50% $3,544,034 $10,714,738
Jun-08 2.30% 0.50% 0.50% $3,680,213
Jul-08 2.30% 0.50% 0.50% $3,908,480
Aug-08 2.30% 0.50% 0.50% $4,094,717 $11,683,411
Sep-08 2.30% 0.50% 0.50% $4,241,447
Oct-08 2.30% 0.50% 0.50% $4,230,248
Nov-08 2.30% 0.50% 0.50% $3,974,123 $12,445,819
</TABLE>
Salomon Brothers Inc. Figures may not total due to rounding.
<PAGE>
<TABLE>
<CAPTION>
Scheduled Collections Preliminary and subject to change
Aggregate Debt Service
TOTAL COLLECTIONS RRB DEBT SERVICE
Beginning RRB Trustee + Servicing Interest Principal
Month Monthly Quarterly Principal Bal. Other Fees Fee Payment Payment
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Nov-97 $ 168,276 $ 0 $2,600,000,000 $ 0 $ 0 $ 0 $ 0
Dec-97 $19,722,009 $ 0 $2,600,000,000 $ 0 $ 0 $ 0 $ 0
Jan-98 $39,683,254 $ 0 $2,600,000,000 $ 0 $ 0 $ 0 $ 0
Feb-98 $40,999,360 $100,572,899 $2,600,000,000 $40,750 $9,750,000 $53,505,400 $36,951,749
Mar-98 $38,908,952 $ 0 $2,563,048,251 $ 0 $ 0 $ 0 $ 0
Apr-98 $37,107,536 $ 0 $2,563,048,251 $ 0 $ 0 $ 0 $ 0
May-98 $35,985,405 $112,001,894 $2,563,048,251 $40,750 $9,611,431 $40,600,952 $61,423,760
Jun-98 $37,138,238 $ 0 $2,501,624,491 $ 0 $ 0 $ 0 $ 0
Jul-98 $41,137,599 $ 0 $2,501,624,491 $ 0 $ 0 $ 0 $ 0
Aug-98 $45,525,088 $123,800,925 $2,501,624,491 $40,750 $9,381,092 $39,674,989 $74,379,094
Sep-98 $47,822,208 $ 0 $2,427,245,397 $ 0 $ 0 $ 0 $ 0
Oct-98 $45,973,502 $ 0 $2,427,245,397 $ 0 $ 0 $ 0 $ 0
Nov-98 $41,471,332 $135,267,042 $2,427,245,397 $40,750 $9,102,170 $38,553,724 $87,245,397
Dec-98 $40,192,135 $ 0 $2,340,000,000 $ 0 $ 0 $ 0 $ 0
Jan-99 $39,902,100 $ 0 $2,340,000,000 $ 0 $ 0 $ 0 $ 0
Feb-99 $36,825,605 $116,919,840 $2,340,000,000 $40,750 $8,775,000 $37,238,500 $70,540,590
Mar-99 $33,929,860 $ 0 $2,269,459,410 $ 0 $ 0 $ 0 $ 0
Apr-99 $32,150,384 $ 0 $2,269,459,410 $ 0 $ 0 $ 0 $ 0
May-99 $31,149,156 $ 97,229,401 $2,269,459,410 $40,750 $8,510,473 $36,175,101 $52,178,077
Jun-99 $32,147,361 $ 0 $2,217,281,333 $ 0 $ 0 $ 0 $ 0
Jul-99 $35,606,989 $ 0 $2,217,281,333 $ 0 $ 0 $ 0 $ 0
Aug-99 $39,401,498 $107,155,848 $2,217,281,333 $40,750 $8,314,805 $35,388,516 $63,086,777
Sep-99 $41,388,822 $ 0 $2,154,194,556 $ 0 $ 0 $ 0 $ 0
Oct-99 $39,790,883 $ 0 $2,154,194,556 $ 0 $ 0 $ 0 $ 0
Nov-99 $35,896,314 $117,076,019 $2,154,194,556 $40,750 $8,078,230 $34,437,483 $74,194,556
Dec-99 $34,787,727 $ 0 $2,080,000,000 $ 0 $ 0 $ 0 $ 0
Jan-00 $36,386,260 $ 0 $2,080,000,000 $ 0 $ 0 $ 0 $ 0
Feb-00 $35,354,506 $106,528,493 $2,080,000,000 $40,750 $7,800,000 $33,319,000 $65,043,743
Mar-00 $32,858,939 $ 0 $2,014,956,257 $ 0 $ 0 $ 0 $ 0
Apr-00 $31,227,677 $ 0 $2,014,956,257 $ 0 $ 0 $ 0 $ 0
May-00 $30,275,103 $ 94,361,719 $2,014,956,257 $40,750 $7,556,086 $32,310,822 $54,129,061
Jun-00 $31,245,002 $ 0 $1,960,827,196 $ 0 $ 0 $ 0 $ 0
Jul-00 $34,609,717 $ 0 $1,960,827,196 $ 0 $ 0 $ 0 $ 0
Aug-00 $38,300,963 $104,155,682 $1,960,827,196 $40,750 $7,353,102 $31,471,822 $64,965,009
Sep-00 $40,233,562 $ 0 $1,895,862,187 $ 0 $ 0 $ 0 $ 0
Oct-00 $38,678,228 $ 0 $1,895,862,187 $ 0 $ 0 $ 0 $ 0
Nov-00 $34,890,494 $113,802,284 $1,895,862,187 $40,750 $7,109,483 $30,464,864 $75,862,187
Dec-00 $33,814,277 $ 0 $1,820,000,000 $ 0 $ 0 $ 0 $ 0
Jan-01 $34,975,451 $ 0 $1,820,000,000 $ 0 $ 0 $ 0 $ 0
Feb-01 $33,626,239 $102,415,968 $1,820,000,000 $40,750 $6,825,000 $29,289,000 $65,936,218
Mar-01 $31,199,392 $ 0 $1,754,063,782 $ 0 $ 0 $ 0 $ 0
Apr-01 $29,633,833 $ 0 $1,754,063,782 $ 0 $ 0 $ 0 $ 0
May-01 $28,726,981 $ 89,560,207 $1,754,063,782 $40,750 $6,577,739 $28,266,989 $54,349,729
Jun-01 $29,647,526 $ 0 $1,699,714,053 $ 0 $ 0 $ 0 $ 0
Jul-01 $32,838,415 $ 0 $1,699,714,053 $ 0 $ 0 $ 0 $ 0
Aug-01 $36,338,280 $ 98,824,220 $1,699,714,053 $40,750 $6,373,928 $27,424,568 $64,659,975
Sep-01 $38,171,204 $ 0 $1,635,054,078 $ 0 $ 0 $ 0 $ 0
</TABLE>
<TABLE>
<CAPTION>
RRB DEBT SERVICE COLLECTION ACCOUNT (C/A)
Ending RRB
C/A Deposit Principal Beginning Ending
Month (Withdrawal) Bal. Balance Balance
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Nov-97 $ 0 $2,600,000,000 $13,000,000 $13,000,000
Dec-97 $ 0 $2,600,000,000 $13,000,000 $13,000,000
Jan-98 $ 0 $2,600,000,000 $13,000,000 $13,000,000
Feb-98 $325,000 $2,563,048,251 $13,000,000 $13,325,000
Mar-98 $ 0 $2,563,048,251 $13,325,000 $13,325,000
Apr-98 $ 0 $2,563,048,251 $13,325,000 $13,325,000
May-98 $325,000 $2,501,624,491 $13,325,000 $13,650,000
Jun-98 $ 0 $2,501,624,491 $13,650,000 $13,650,000
Jul-98 $ 0 $2,501,624,491 $13,650,000 $13,650,000
Aug-98 $325,000 $2,427,245,397 $13,650,000 $13,975,000
Sep-98 $ 0 $2,427,245,397 $13,975,000 $13,975,000
Oct-98 $ 0 $2,427,245,397 $13,975,000 $13,975,000
Nov-98 $325,000 $2,340,000,000 $13,975,000 $14,300,000
Dec-98 $ 0 $2,340,000,000 $14,300,000 $14,300,000
Jan-99 $ 0 $2,340,000,000 $14,300,000 $14,300,000
Feb-99 $325,000 $2,269,459,410 $14,300,000 $14,625,000
Mar-99 $ 0 $2,269,459,410 $14,625,000 $14,625,000
Apr-99 $ 0 $2,269,459,410 $14,625,000 $14,625,000
May-99 $325,000 $2,217,281,333 $14,625,000 $14,950,000
Jun-99 $ 0 $2,217,281,333 $14,950,000 $14,950,000
Jul-99 $ 0 $2,217,281,333 $14,950,000 $14,950,000
Aug-99 $325,000 $2,154,194,556 $14,950,000 $15,275,000
Sep-99 $ 0 $2,154,194,556 $15,275,000 $15,275,000
Oct-99 $ 0 $2,154,194,556 $15,275,000 $15,275,000
Nov-99 $325,000 $2,080,000,000 $15,275,000 $15,600,000
Dec-99 $ 0 $2,080,000,000 $15,600,000 $15,600,000
Jan-00 $ 0 $2,080,000,000 $15,600,000 $15,600,000
Feb-00 $325,000 $2,014,956,257 $15,600,000 $15,925,000
Mar-00 $ 0 $2,014,956,257 $15,925,000 $15,925,000
Apr-00 $ 0 $2,014,956,257 $15,925,000 $15,925,000
May-00 $325,000 $1,960,827,196 $15,925,000 $16,250,000
Jun-00 $ 0 $1,960,827,196 $16,250,000 $16,250,000
Jul-00 $ 0 $1,960,827,196 $16,250,000 $16,250,000
Aug-00 $325,000 $1,895,862,187 $16,250,000 $16,575,000
Sep-00 $ 0 $1,895,862,187 $16,575,000 $16,575,000
Oct-00 $ 0 $1,895,862,187 $16,575,000 $16,575,000
Nov-00 $325,000 $1,820,000,000 $16,575,000 $16,900,000
Dec-00 $ 0 $1,820,000,000 $16,900,000 $16,900,000
Jan-01 $ 0 $1,820,000,000 $16,900,000 $16,900,000
Feb-01 $325,000 $1,754,063,782 $16,900,000 $17,225,000
Mar-01 $ 0 $1,754,063,782 $17,225,000 $17,225,000
Apr-01 $ 0 $1,754,063,782 $17,225,000 $17,225,000
May-01 $325,000 $1,699,714,053 $17,225,000 $17,550,000
Jun-01 $ 0 $1,699,714,053 $17,550,000 $17,550,000
Jul-01 $ 0 $1,699,714,053 $17,550,000 $17,550,000
Aug-01 $325,000 $1,635,054,078 $17,550,000 $17,875,000
Sep-01 $ 0 $1,635,054,078 $17,875,000 $17,875,000
</TABLE>
Salomon Brothers Inc
Figures may not total due to rounding.
<PAGE>
<TABLE>
<CAPTION>
Preliminary and subject to change
Scheduled Collections
Aggregate Debt Service
Beginning RRB Trustee + Servicing Interest Principal
Month Monthly Quarterly Principal Bal. Other Fees Fee Payment Payment
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Oct-01 $36,697,230 $ 0 $1,635,054,078 $ 0 $ 0 $ 0 $ 0
Nov-01 $33,105,185 $107,973,619 $1,635,054,078 $40,750 $6,131,453 $26,422,338 $75,054,078
Dec-01 $32,082,968 $ 0 $1,560,000,000 $ 0 $ 0 $ 0 $ 0
Jan-02 $33,195,094 $ 0 $1,560,000,000 $ 0 $ 0 $ 0 $ 0
Feb-02 $31,925,883 $ 97,203,945 $1,560,000,000 $40,750 $5,850,000 $25,259,000 $65,729,195
Mar-02 $29,624,069 $ 0 $1,494,270,805 $ 0 $ 0 $ 0 $ 0
Apr-02 $28,138,526 $ 0 $1,494,270,805 $ 0 $ 0 $ 0 $ 0
May-02 $27,278,020 $ 85,040,616 $1,494,270,805 $40,750 $5,603,516 $24,215,549 $54,855,802
Jun-02 $28,152,231 $ 0 $1,439,415,003 $ 0 $ 0 $ 0 $ 0
Jul-02 $31,181,465 $ 0 $1,439,415,003 $ 0 $ 0 $ 0 $ 0
Aug-02 $34,503,749 $ 93,837,445 $1,439,415,003 $40,750 $5,397,806 $23,344,713 $64,729,176
Sep-02 $36,243,882 $ 0 $1,374,685,828 $ 0 $ 0 $ 0 $ 0
Oct-02 $34,844,985 $ 0 $1,374,685,828 $ 0 $ 0 $ 0 $ 0
Nov-02 $31,434,920 $102,523,787 $1,374,685,828 $40,750 $5,155,072 $22,317,138 $74,685,828
Dec-02 $30,463,849 $ 0 $1,300,000,000 $ 0 $ 0 $ 0 $ 0
Jan-03 $31,456,780 $ 0 $1,300,000,000 $ 0 $ 0 $ 0 $ 0
Feb-03 $30,197,158 $ 92,117,787 $1,300,000,000 $40,750 $4,875,000 $21,131,500 $65,745,537
Mar-03 $28,011,906 $ 0 $1,234,254,463 $ 0 $ 0 $ 0 $ 0
Apr-03 $26,604,861 $ 0 $1,234,254,463 $ 0 $ 0 $ 0 $ 0
May-03 $25,791,177 $ 80,407,943 $1,234,254,463 $40,750 $4,628,454 $20,087,790 $55,325,949
Jun-03 $26,617,857 $ 0 $1,178,928,513 $ 0 $ 0 $ 0 $ 0
Jul-03 $29,481,092 $ 0 $1,178,928,513 $ 0 $ 0 $ 0 $ 0
Aug-03 $32,620,972 $ 88,719,921 $1,178,928,513 $40,750 $4,420,982 $19,209,490 $64,723,699
Sep-03 $34,265,830 $ 0 $1,114,204,814 $ 0 $ 0 $ 0 $ 0
Oct-03 $32,944,097 $ 0 $1,114,204,814 $ 0 $ 0 $ 0 $ 0
Nov-03 $29,720,907 $ 96,930,834 $1,114,204,814 $40,750 $4,178,268 $18,182,001 $74,204,814
Dec-03 $28,802,249 $ 0 $1,040,000,000 $ 0 $ 0 $ 0 $ 0
Jan-04 $29,690,909 $ 0 $1,040,000,000 $ 0 $ 0 $ 0 $ 0
Feb-04 $28,457,328 $ 86,950,486 $1,040,000,000 $40,750 $3,900,000 $17,004,000 $65,680,736
Mar-04 $26,392,053 $ 0 $ 974,319,264 $ 0 $ 0 $ 0 $ 0
Apr-04 $25,064,821 $ 0 $ 974,319,264 $ 0 $ 0 $ 0 $ 0
May-04 $24,298,506 $ 75,755,381 $ 974,319,264 $40,750 $3,653,697 $15,935,046 $55,800,887
Jun-04 $25,077,509 $ 0 $ 918,518,377 $ 0 $ 0 $ 0 $ 0
Jul-04 $27,773,820 $ 0 $ 918,518,377 $ 0 $ 0 $ 0 $ 0
Aug-04 $30,730,178 $ 83,581,506 $ 918,518,377 $40,750 $3,444,444 $15,026,887 $64,744,426
Sep-04 $32,279,257 $ 0 $ 853,773,951 $ 0 $ 0 $ 0 $ 0
Oct-04 $31,035,271 $ 0 $ 853,773,951 $ 0 $ 0 $ 0 $ 0
Nov-04 $27,999,996 $ 91,314,524 $ 853,773,951 $40,750 $3,201,652 $13,973,171 $73,773,951
Dec-04 $27,133,798 $ 0 $ 780,000,000 $ 0 $ 0 $ 0 $ 0
Jan-05 $27,909,336 $ 0 $ 780,000,000 $ 0 $ 0 $ 0 $ 0
Feb-05 $26,694,326 $ 81,737,460 $ 780,000,000 $40,750 $2,925,000 $12,772,500 $65,674,210
Mar-05 $24,749,086 $ 0 $ 714,325,790 $ 0 $ 0 $ 0 $ 0
Apr-05 $23,502,179 $ 0 $ 714,325,790 $ 0 $ 0 $ 0 $ 0
May-05 $22,783,562 $ 71,034,826 $ 714,325,790 $40,750 $2,678,722 $11,703,652 $56,286,702
Jun-05 $23,514,114 $ 0 $ 658,039,088 $ 0 $ 0 $ 0 $ 0
Jul-05 $26,041,451 $ 0 $ 658,039,088 $ 0 $ 0 $ 0 $ 0
Aug-05 $28,812,202 $ 78,367,766 $ 658,039,088 $40,750 $2,467,647 $10,787,586 $64,746,784
</TABLE>
[CAPTION]
Scheduled Collections
Aggregate Debt Service
<TABLE>
<CAPTION>
C/A Deposit Ending RRB Beginning Ending
Month (Withdrawal) Principal Bal. Balance Balance
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oct-01 $ 0 $1,635,054,078 $17,875,000 $17,875,000
Nov-01 $325,000 $1,560,000,000 $17,875,000 $18,200,000
Dec-01 $ 0 $1,560,000,000 $18,200,000 $18,200,000
Jan-02 $ 0 $1,560,000,000 $18,200,000 $18,200,000
Feb-02 $325,000 $1,494,270,805 $18,200,000 $18,525,000
Mar-02 $ 0 $1,494,270,805 $18,525,000 $18,525,000
Apr-02 $ 0 $1,494,270,805 $18,525,000 $18,525,000
May-02 $325,000 $1,439,415,003 $18,525,000 $18,850,000
Jun-02 $ 0 $1,439,415,003 $18,850,000 $18,850,000
Jul-02 $ 0 $1,439,415,003 $18,850,000 $18,850,000
Aug-02 $325,000 $1,374,685,828 $18,850,000 $19,175,000
Sep-02 $ 0 $1,374,685,828 $19,175,000 $19,175,000
Oct-02 $ 0 $1,374,685,828 $19,175,000 $19,175,000
Nov-02 $325,000 $1,300,000,000 $19,175,000 $19,500,000
Dec-02 $ 0 $1,300,000,000 $19,500,000 $19,500,000
Jan-03 $ 0 $1,300,000,000 $19,500,000 $19,500,000
Feb-03 $325,000 $1,234,254,463 $19,500,000 $19,825,000
Mar-03 $ 0 $1,234,254,463 $19,825,000 $19,825,000
Apr-03 $ 0 $1,234,254,463 $19,825,000 $19,825,000
May-03 $325,000 $1,178,928,513 $19,825,000 $20,150,000
Jun-03 $ 0 $1,178,928,513 $20,150,000 $20,150,000
Jul-03 $ 0 $1,178,928,513 $20,150,000 $20,150,000
Aug-03 $325,000 $1,114,204,814 $20,150,000 $20,475,000
Sep-03 $ 0 $1,114,204,814 $20,475,000 $20,475,000
Oct-03 $ 0 $1,114,204,814 $20,475,000 $20,475,000
Nov-03 $325,000 $1,040,000,000 $20,475,000 $20,800,000
Dec-03 $ 0 $1,040,000,000 $20,800,000 $20,800,000
Jan-04 $ 0 $1,040,000,000 $20,800,000 $20,800,000
Feb-04 $325,000 $ 974,319,264 $20,800,000 $21,125,000
Mar-04 $ 0 $ 974,319,264 $21,125,000 $21,125,000
Apr-04 $ 0 $ 974,319,264 $21,125,000 $21,125,000
May-04 $325,000 $ 918,518,377 $21,125,000 $21,450,000
Jun-04 $ 0 $ 918,518,377 $21,450,000 $21,450,000
Jul-04 $ 0 $ 918,518,377 $21,450,000 $21,450,000
Aug-04 $325,000 $ 853,773,951 $21,450,000 $21,775,000
Sep-04 $ 0 $ 853,773,951 $21,775,000 $21,775,000
Oct-04 $ 0 $ 853,773,951 $21,775,000 $21,775,000
Nov-04 $325,000 $ 780,000,000 $21,775,000 $22,100,000
Dec-04 $ 0 $ 780,000,000 $22,100,000 $22,100,000
Jan-05 $ 0 $ 780,000,000 $22,100,000 $22,100,000
Feb-05 $325,000 $ 714,325,790 $22,100,000 $22,425,000
Mar-05 $ 0 $ 714,325,790 $22,425,000 $22,425,000
Apr-05 $ 0 $ 714,325,790 $22,425,000 $22,425,000
May-05 $325,000 $ 658,039,088 $22,425,000 $22,750,000
Jun-05 $ 0 $ 658,039,088 $22,750,000 $22,750,000
Jul-05 $ 0 $ 658,039,088 $22,750,000 $22,750,000
Aug-05 $325,000 $ 593,292,304 $22,750,000 $23,075,000
</TABLE>
Salomon Brothers Inc. 8
Figures may not total sut to rounding
<PAGE>
<TABLE>
<CAPTION>
Preliminary and subject to change
Scheduled Collections
Aggregate Debt Service
TOTAL COLLECTIONS RRB DEBT SERVICE
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning RRB Trustee + Servicing Interest Principal C/A Deposit
Month Monthly Quarterly Principal Bal. Other Fees Fee Payment Payment (Withdrawal)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sep-05 $30,264,285 $ 0 $593,292,304 $ 0 $ 0 $ 0 $ 0 $ 0
Oct-05 $29,098,751 $ 0 $593,292,304 $ 0 $ 0 $ 0 $ 0 $ 0
Nov-05 $26,253,697 $85,616,733 $593,292,304 $40,750 $2,224,846 $9,733,832 $73,292,304 $325,000
Dec-05 $25,440,999 $ 0 $520,000,000 $ 0 $ 0 $ 0 $ 0 $ 0
Jan-06 $26,113,621 $ 0 $520,000,000 $ 0 $ 0 $ 0 $ 0 $ 0
Feb-06 $24,927,638 $76,482,258 $520,000,000 $40,750 $1,950,000 $8,541,000 $65,625,508 $325,000
Mar-06 $23,104,276 $ 0 $454,374,492 $ 0 $ 0 $ 0 $ 0 $ 0
Apr-06 $21,938,307 $ 0 $454,374,492 $ 0 $ 0 $ 0 $ 0 $ 0
May-06 $21,267,562 $66,310,145 $454,374,492 $40,750 $1,703,904 $7,463,101 $56,777,390 $325,000
Jun-06 $21,949,636 $ 0 $397,597,102 $ 0 $ 0 $ 0 $ 0 $ 0
Jul-06 $24,307,843 $ 0 $397,597,102 $ 0 $ 0 $ 0 $ 0 $ 0
Aug-06 $26,892,801 $73,150,279 $397,597,102 $40,750 $1,490,989 $6,530,532 $64,763,008 $325,000
Sep-06 $28,247,801 $ 0 $332,834,094 $ 0 $ 0 $ 0 $ 0 $ 0
Oct-06 $27,160,815 $ 0 $332,834,094 $ 0 $ 0 $ 0 $ 0 $ 0
Nov-06 $24,506,157 $79,914,772 $332,834,094 $40,750 $1,248,128 $5,466,800 $72,834,094 $325,000
Dec-06 $23,746,973 $ 0 $260,000,000 $ 0 $ 0 $ 0 $ 0 $ 0
Jan-07 $24,312,525 $ 0 $260,000,000 $ 0 $ 0 $ 0 $ 0 $ 0
Feb-07 $23,152,039 $71,211,537 $260,000,000 $40,750 $ 975,000 $4,270,500 $65,600,287 $325,000
Mar-07 $21,450,645 $ 0 $194,399,713 $ 0 $ 0 $ 0 $ 0 $ 0
Apr-07 $20,365,886 $ 0 $194,399,713 $ 0 $ 0 $ 0 $ 0 $ 0
May-07 $19,743,253 $61,559,784 $194,399,713 $40,750 $ 728,999 $3,193,015 $57,272,020 $325,000
Jun-07 $20,376,586 $ 0 $137,127,693 $ 0 $ 0 $ 0 $ 0 $ 0
Jul-07 $22,564,709 $ 0 $137,127,693 $ 0 $ 0 $ 0 $ 0 $ 0
Aug-07 $24,962,815 $67,904,110 $137,127,693 $40,750 $ 514,229 $2,252,322 $64,771,809 $325,000
Sep-07 $26,220,188 $ 0 $ 72,355,884 $ 0 $ 0 $ 0 $ 0 $ 0
Oct-07 $25,212,207 $ 0 $ 72,355,884 $ 0 $ 0 $ 0 $ 0 $ 0
Nov-07 $22,749,020 $74,181,414 $ 72,355,884 $40,750 $ 271,335 $1,188,445 $72,355,884 $325,000
Dec-07 $22,043,628 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Jan-08 $23,356,885 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Feb-08 $22,975,833 $68,376,346 $ 0 $ 0 $ 0 $ 0 $ 0
Mar-08 $21,402,232 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Apr-08 $20,357,134 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
May-08 $19,743,253 $61,502,619 $ 0 $ 0 $ 0 $ 0 $ 0
Jun-08 $20,376,586 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Jul-08 $22,564,709 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Aug-08 $24,962,815 $67,904,110 $ 0 $ 0 $ 0 $ 0 $ 0
Sep-08 $26,220,188 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Oct-08 $25,212,207 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Nov-08 $22,749,020 $74,181,414 $ 0 $ 0 $ 0 $ 0 $ 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TOTAL COLLECTIONS COLLECTION ACCOUNT (C/A)
- ------------------------------------------------
Ending RRB
Principal Beginning Ending
Month Balance Balance Balance
- ------------------------------------------------
<S> <C> <C> <C>
Sep-05 $593,292,304 $23,075,000 $23,075,000
Oct-05 $593,292,304 $23,075,000 $23,075,000
Nov-05 $520,000,000 $23,075,000 $23,400,000
Dec-05 $520,000,000 $23,400,000 $23,400,000
Jan-06 $520,000,000 $23,400,000 $23,400,000
Feb-06 $454,374,492 $23,400,000 $23,725,000
Mar-06 $454,374,492 $23,725,000 $23,725,000
Apr-06 $454,374,492 $23,725,000 $23,725,000
May-06 $397,597,102 $23,725,000 $24,050,000
Jun-06 $397,597,102 $24,050,000 $24,050,000
Jul-06 $397,597,102 $24,050,000 $24,050,000
Aug-06 $332,834,094 $24,050,000 $24,375,000
Sep-06 $332,834,094 $24,375,000 $24,375,000
Oct-06 $332,834,094 $24,375,000 $24,375,000
Nov-06 $260,000,000 $24,375,000 $24,700,000
Dec-06 $260,000,000 $24,700,000 $24,700,000
Jan-07 $260,000,000 $24,700,000 $24,700,000
Feb-07 $194,399,713 $24,700,000 $25,025,000
Mar-07 $194,399,713 $25,025,000 $25,025,000
Apr-07 $194,399,713 $25,025,000 $25,025,000
May-07 $137,127,693 $25,025,000 $25,350,000
Jun-07 $137,127,693 $25,350,000 $25,350,000
Jul-07 $137,127,693 $25,350,000 $25,350,000
Aug-07 $ 72,355,884 $25,350,000 $25,675,000
Sep-07 $ 72,355,884 $25,675,000 $25,675,000
Oct-07 $ 72,355,884 $25,675,000 $25,675,000
Nov-07 $ 0 $25,675,000 $26,000,000
Dec-07 $ 0
Jan-08 $ 0
Feb-08 $ 0
Mar-08 $ 0
Apr-08 $ 0
May-08 $ 0
Jun-08 $ 0
Jul-08 $ 0
Aug-08 $ 0
Sep-08 $ 0
Oct-08 $ 0
Nov-08 $ 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Salomon Brothers Inc Figures may not total due to rounding. 9
<PAGE>
<TABLE>
<CAPTION>
SPE Debt Amortization Schedules
Class A1
Approximate principal $520,000,000
Current benchmark U.S. 5.63%
+ Current indicative credit spread 0.45%
----
= Current indicative yield (semi-annual 6.08%
basis)
Current coupon (quarterly 6.03%
basis)
Expected final maturity 2.0
(years) 1.2
Distribution Beginning Interest Principal Ending Aggregate
Date Principal Payment Bal. Payment Principal Bal. Debt Service
- ------------ --------- ------------ --------- -------------- ------------
<S> <C> <C> <C> <C> <C>
28-Nov-97
25-Mar-98 $520,000,000 $10,190,700 $36,951,749 $483,048,251 $47,142,449
25-Jun-98 483,048,251 7,281,952 61,423,760 421,624,491 68,705,713
25-Sep-98 421,624,491 6,355,989 74,379,094 347,245,397 80,735,083
25-Dec-98 347,245,397 5,234,724 87,245,397 260,000,000 92,480,122
25-Mar-99 260,000,000 3,919,500 70,540,590 189,459,410 74,460,090
25-Jun-99 189,459,410 2,856,101 52,178,077 137,281,333 55,034,178
25-Sep-99 137,281,333 2,069,516 63,086,777 74,194,556 65,156,293
25-Dec-99 74,194,556 1,118,483 74,194,556 0 75,313,039
25-Mar-00
25-Jun-00
25-Sep-00
25-Dec-00
25-Mar-01
25-Jun-01
25-Sep-01
25-Dec-01
25-Mar-02
25-Jun-02
25-Sep-02
25-Dec-02
25-Mar-03
25-Jun-03
25-Sep-03
25-Dec-03
25-Mar-04
25-Jun-04
25-Sep-04
25-Dec-04
25-Mar-05
25-Jun-05
25-Sep-05
25-Dec-05
25-Mar-06
25-Jun-06
25-Sep-06
25-Dec-06
25-Mar-07
25-Jun-07
25-Sep-07
25-Dec-07
</TABLE>
<TABLE>
<CAPTION>
SPE Debt Amortization Schedules
Class A2
Approximate principal $520,000,000
Current benchmark U.S. 5.85%
+ Current indicative credit spread 0.40%
-----
= Current indicative yield (semi-annual 6.25%
basis)
Current coupon (quarterly basis) 6.20%
Expected final maturity 4.0
(years)
Expected weighted average life (years) 3.2
Distribution Beginning Interest Principal Ending Aggregate
Date Principal Payment Bal. Payment Principal Bal. Debt Service
- ------------ --------- ------------ --------- -------------- ------------
<S> <C> <C> <C> <C> <C>
28-Nov-97
25-Mar-98 $520,000,000 $10,478,000 $ 0 $520,000,000 $10,478,000
25-Jun-98 520,000,000 8,060,000 0 520,000,000 8,060,000
25-Sep-98 520,000,000 8,060,000 0 520,000,000 8,060,000
25-Dec-98 520,000,000 8,060,000 0 520,000,000 8,060,000
25-Mar-99 520,000,000 8,060,000 0 520,000,000 8,060,000
25-Jun-99 520,000,000 8,060,000 0 520,000,000 8,060,000
25-Sep-99 520,000,000 8,060,000 0 520,000,000 8,060,000
25-Dec-99 520,000,000 8,060,000 0 520,000,000 8,060,000
25-Mar-00 520,000,000 8,060,000 65,043,743 454,956,257 73,103,743
25-Jun-00 454,956,257 7,051,822 54,129,061 400,827,196 61,180,883
25-Sep-00 400,827,196 6,212,822 64,965,009 335,862,187 71,177,830
25-Dec-00 335,862,187 5,205,864 75,862,187 260,000,000 81,068,051
25-Mar-01 260,000,000 4,030,000 65,936,218 194,063,782 69,966,218
25-Jun-01 194,063,782 3,007,989 54,349,729 139,714,053 57,357,718
25-Sep-01 139,714,053 2,165,568 64,659,975 75,054,078 66,825,543
25-Dec-01 75,054,078 1,163,338 75,054,078 0 76,217,416
25-Mar-02
25-Jun-02
25-Sep-02
25-Dec-02
25-Mar-03
25-Jun-03
25-Sep-03
25-Dec-03
25-Mar-04
25-Jun-04
25-Sep-04
25-Dec-04
25-Mar-05
25-Jun-05
25-Sep-05
25-Dec-05
25-Mar-06
25-Jun-06
25-Sep-06
25-Dec-06
25-Mar-07
25-Jun-07
25-Sep-07
25-Dec-07
</TABLE>
NB: Preliminary, subject to change based upon determination of definitive
pricing terms.
<PAGE>
SPE DEBT AMORTIZATION SCHEDULES
Dollars in Thousands
<TABLE>
<CAPTION>
Class A3 Class A4
<S> <C> <C> <C>
Approximate principal amount $520,000,000 Approximate principal amount $520,000,000
Current benchmark U.S. Treasury 5.95% Current benchmark U.S. Treasury 6.06%
+ Current indicative credit spread 0.45% + Current indicative credit spread 0.50%
---- ----
= Current indicative yield (semi-annual basis) 6.40% = Current indicative yield (semi-annual basis) 6.56%
Current coupon (quarterly basis) 6.35% Current coupon (quarterly basis) 6.51%
Expected final maturity (years) 6.0 Expected final maturity (years) 8.0
Expected weighted average life (years) 5.2 Expected weighted average life (years) 7.2
</TABLE>
<TABLE>
<CAPTION>
Distribution Beginning Interest Principal Ending Aggregate Beginning
Date Principal Bal. Payment Payment Principal Bal. Debt Service Principal Bal.
- -------------- ---------------- -------------- -------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
28-Nov-97
25-Mar-98 $520,000,000 $10,731,500 $0 $520,000,000 $10,731,500 $520,000,000
25-Jun-98 520,000,000 8,255,000 0 520,000,000 8,255,000 520,000,000
25-Sep-98 520,000,000 8,255,000 0 520,000,000 8,255,000 520,000,000
25-Dec-98 520,000,000 8,255,000 0 520,000,000 8,255,000 520,000,000
25-Mar-99 520,000,000 8,255,000 0 520,000,000 8,255,000 520,000,000
25-Jun-99 520,000,000 8,255,000 0 520,000,000 8,255,000 520,000,000
25-Sep-99 520,000,000 8,255,000 0 520,000,000 8,255,000 520,000,000
25-Dec-99 520,000,000 8,255,000 0 520,000,000 8,255,000 520,000,000
25-Mar-00 520,000,000 8,255,000 0 520,000,000 8,255,000 520,000,000
25-Jun-00 520,000,000 8,255,000 0 520,000,000 8,255,000 520,000,000
25-Sep-00 520,000,000 8,255,000 0 520,000,000 8,255,000 520,000,000
25-Dec-00 520,000,000 8,255,000 0 520,000,000 8,255,000 520,000,000
25-Mar-01 520,000,000 8,255,000 0 520,000,000 8,255,000 520,000,000
25-Jun-01 520,000,000 8,255,000 0 520,000,000 8,255,000 520,000,000
25-Sep-01 520,000,000 8,255,000 0 520,000,000 8,255,000 520,000,000
25-Dec-01 520,000,000 8,255,000 0 520,000,000 8,255,000 520,000,000
25-Mar-02 520,000,000 8,255,000 65,729,195 454,270,805 73,984,195 520,000,000
25-Jun-02 454,270,805 7,211,549 54,855,802 399,415,003 62,067,351 520,000,000
25-Sep-02 399,415,003 6,340,713 64,729,176 334,685,828 71,069,889 520,000,000
25-Dec-02 334,685,828 5,313,138 74,685,828 260,000,000 79,998,965 520,000,000
25-Mar-03 260,000,000 4,127,500 65,745,537 194,254,463 69,873,037 520,000,000
25-Jun-03 194,254,463 3,083,790 55,325,949 138,928,513 58,409,739 520,000,000
25-Sep-03 138,928,513 2,205,490 64,723,699 74,204,814 66,929,189 520,000,000
25-Dec-03 74,204,814 1,178,001 74,204,814 0 75,382,816 520,000,000
25-Mar-04 520,000,000
25-Jun-04 454,319,264
25-Sep-04 398,518,377
25-Dec-04 333,773,951
25-Mar-05 260,000,000
25-Jun-05 194,325,790
25-Sep-05 138,039,088
25-Dec-05 73,292,304
25-Mar-06
25-Jun-06
25-Sep-06
25-Dec-06
25-Mar-07
25-Jun-07
25-Sep-07
25-Dec-07
</TABLE>
<TABLE>
<CAPTION>
Distribution Interest Principal Ending Aggregate
Date Payment Payment Principal Bal. Debt Service
- -------------- ---------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
28-Nov-97 $11,001,900 $0 $520,000,000 $ 11,001,900
25-Jun-98 8,463,000 0 520,000,000 8,463,000
25-Sep-98 8,463,000 0 520,000,000 8,463,000
25-Dec-98 8,463,000 0 520,000,000 8,463,000
25-Mar-99 8,463,000 0 520,000,000 8,463,000
25-Jun-99 8,463,000 0 520,000,000 8,463,000
25-Sep-99 8,463,000 0 520,000,000 8,463,000
25-Dec-99 8,463,000 0 520,000,000 8,463,000
25-Mar-00 8,463,000 0 520,000,000 8,463,000
25-Jun-00 8,463,000 0 520,000,000 8,463,000
25-Sep-00 8,463,000 0 520,000,000 8,463,000
25-Dec-00 8,463,000 0 520,000,000 8,463,000
25-Mar-01 8,463,000 0 520,000,000 8,463,000
25-Jun-01 8,463,000 0 520,000,000 8,463,000
25-Sep-01 8,463,000 0 520,000,000 8,463,000
25-Dec-01 8,463,000 0 520,000,000 8,463,000
25-Mar-02 8,463,000 0 520,000,000 8,463,000
25-Jun-02 8,463,000 0 520,000,000 8,463,000
25-Sep-02 8,463,000 0 520,000,000 8,463,000
25-Dec-02 8,463,000 0 520,000,000 8,463,000
25-Mar-03 8,463,000 0 520,000,000 8,463,000
25-Jun-03 8,463,000 0 520,000,000 8,463,000
25-Sep-03 8,463,000 0 520,000,000 8,463,000
25-Dec-03 8,463,000 0 520,000,000 8,463,000
25-Mar-04 8,463,000 65,680,736 454,319,264 74,143,736
25-Jun-04 7,394,046 55,800,887 398,518,377 63,194,933
25-Sep-04 6,485,887 64,744,426 333,773,951 71,230,312
25-Dec-04 5,432,171 73,773,951 260,000,000 79,206,122
25-Mar-05 4,231,500 65,674,210 194,325,790 69,905,710
25-Jun-05 3,162,652 56,286,702 138,039,088 59,449,355
25-Sep-05 2,246,586 64,746,784 73,292,304 66,993,370
25-Dec-05 1,192,832 73,292,304 0 74,485,137
25-Mar-06
25-Jun-06
25-Sep-06
25-Dec-06
25-Mar-07
25-Jun-07
25-Sep-07
25-Dec-07
</TABLE>
NB: Preliminary, subject to change based upon determination of definitive
pricing terms
<PAGE>
<TABLE>
<CAPTION>
SPE Debt Amortization Schedules
Dollars in Thousands
Class A5
----------------------------------------------------------------
Approximate principal amount $520,000,000
Current benchmark U.S. Treasury 6.07%
+ Current indicative credit 0.55%
----
= Current indicative yield (semi-annual 6.62%
Current coupon (quarterly basis) 6.57%
Expected final maturity 10.0
Expected weighted average life (years) 9.2
----------------------------------------------------------------
Distribution Beginning Interest Principal Ending Aggregate
Date Prinicpal Bal. Payment Payment Principal Bal. Debt Service
- ------------ -------------- ----------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C>
28-Nov-97
25-Mar-98 $520,000,000 $11,103,300 $ 0 $520,000,000 $11,103,300
25-Jun-98 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Sep-98 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Dec-98 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Mar-99 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Jun-99 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Sep-99 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Dec-99 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Mar-00 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Jun-00 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Sep-00 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Dec-00 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Mar-01 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Jun-01 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Sep-01 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Dec-01 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Mar-02 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Jun-02 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Sep-02 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Dec-02 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Mar-03 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Jun-03 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Sep-03 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Dec-03 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Mar-04 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Jun-04 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Sep-04 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Dec-04 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Mar-05 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Jun-05 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Sep-05 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Dec-05 520,000,000 8,541,000 0 520,000,000 8,541,000
25-Mar-06 520,000,000 8,541,000 65,625,508 454,374,492 74,166,508
25-Jun-06 454,374,492 7,463,101 56,777,390 397,597,102 64,240,491
25-Sep-06 397,597,102 6,530,532 64,763,008 332,834,094 71,293,540
25-Dec-06 332,834,094 5,466,800 72,834,094 260,000,000 78,300,894
25-Mar-07 260,000,000 4,270,500 65,600,287 194,399,713 69,870,787
25-Jun-07 194,399,713 3,193,015 57,272,020 137,127,693 60,465,035
25-Sep-07 137,127,693 2,252,322 64,771,809 72,355,884 67,024,131
25-Dec-07 72,355,884 1,188,445 72,355,884 0 73,544,330
<CAPTION>
Series 1997-1 Total
----------------------------------------------------------------
Approximate principal amount $2,600,000,000
Current benchmark U.S. Treasury 5.95%
+ Current indicative credit 0.53%
----
= Current indicative yield (semi-annual basis) 6.48%
Current coupon (quarterly basis) 6.43%
Expected final maturity (years) 10.0
Expected weighted average life (years) 5.2
----------------------------------------------------------------
Distribution Beginning Interest Principal Ending Aggregate
Date Prinicpal Bal. Payment Payment Principal Bal. Debt Service
- ------------ -------------- ----------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C>
28-Nov-97
25-Mar-98 $2,600,000,000 $53,505,400 $36,951,749 $2,563,048,251 $ 90,457,149
25-Jun-98 2,563,048,251 40,600,952 61,423,760 2,501,624,491 102,024,713
25-Sep-98 2,501,624,491 39,674,989 74,379,094 2,427,245,397 114,054,083
25-Dec-98 2,427,245,397 38,553,724 87,245,397 2,340,000,000 125,799,122
25-Mar-99 2,340,000,000 37,238,500 70,540,590 2,269,459,410 107,779,090
25-Jun-99 2,269,459,410 36,175,101 52,178,077 2,217,281,333 88,353,178
25-Sep-99 2,217,281,333 35,388,516 63,086,777 2,154,194,556 98,475,293
25-Dec-99 2,154,194,556 34,437,483 74,194,556 2,080,000,000 108,632,039
25-Mar-00 2,080,000,000 33,319,000 65,043,743 2,014,956,257 98,362,743
25-Jun-00 2,014,956,257 32,310,822 54,129,061 1,960,827,196 86,439,883
25-Sep-00 1,960,827,196 31,471,822 64,965,009 1,895,862,187 96,436,830
25-Dec-00 1,895,862,187 30,464,864 75,862,187 1,820,000,000 106,327,051
25-Mar-01 1,820,000,000 29,289,000 65,936,218 1,754,063,782 95,225,218
25-Jun-01 1,754,063,782 28,266,989 54,349,729 1,699,714,053 82,616,718
25-Sep-01 1,699,714,053 27,424,568 64,659,975 1,635,054,078 92,084,543
25-Dec-01 1,635,054,078 26,422,338 75,054,078 1,560,000,000 101,476,416
25-Mar-02 1,560,000,000 25,259,000 65,729,195 1,494,270,805 90,988,195
25-Jun-02 1,494,270,805 24,215,549 54,855,802 1,439,415,003 79,071,351
25-Sep-02 1,439,415,003 23,344,713 64,729,176 1,374,685,828 88,073,889
25-Dec-02 1,374,685,828 22,317,138 74,685,828 1,300,000,000 97,002,965
25-Mar-03 1,300,000,000 21,131,500 65,745,537 1,234,254,463 86,877,037
25-Jun-03 1,234,254,463 20,087,790 55,325,949 1,178,928,513 75,413,739
25-Sep-03 1,178,928,513 19,209,490 64,723,699 1,114,204,814 83,933,189
25-Dec-03 1,114,204,814 18,182,001 74,204,814 1,040,000,000 92,386,816
25-Mar-04 1,040,000,000 17,004,000 65,680,736 974,319,264 82,684,736
25-Jun-04 974,319,264 15,935,046 55,800,887 918,518,377 71,735,933
25-Sep-04 918,518,377 15,026,887 64,744,426 853,773,951 79,771,312
25-Dec-04 853,773,951 13,973,171 73,773,951 780,000,000 87,747,122
25-Mar-05 780,000,000 12,772,500 65,674,210 714,325,790 78,446,710
25-Jun-05 714,325,790 11,703,652 56,286,702 658,039,088 67,990,355
25-Sep-05 658,039,088 10,787,586 64,746,784 593,292,304 75,534,370
25-Dec-05 593,292,304 9,733,832 73,292,304 520,000,000 83,026,137
25-Mar-06 520,000,000 8,541,000 65,625,508 454,374,492 74,166,508
25-Jun-06 454,374,492 7,463,101 56,777,390 397,597,102 64,240,491
25-Sep-06 397,597,102 6,530,532 64,763,008 332,834,094 71,293,540
25-Dec-06 332,834,094 5,466,800 72,834,094 260,000,000 78,300,894
25-Mar-07 260,000,000 4,270,500 65,600,287 194,399,713 69,870,787
25-Jun-07 194,399,713 3,193,015 57,272,020 137,127,693 60,465,035
25-Sep-07 137,127,693 2,252,322 64,771,809 72,355,884 67,024,131
25-Dec-07 72,355,884 1,188,445 72,355,884 0 73,544,330
</TABLE>
NB: Preliminary, subject to change based upon determination of
definitive pricing terms.
<PAGE>
AGENDA ITEM VI.
CIEDB Board Meeting
November 10, 1997
EXHIBIT 99.5
FORM OF
RESOLUTION B97-19
RESOLUTION OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
APPROVING THE TERMS AND CONDITIONS FOR THE ISSUANCE OF NOT TO EXCEED $3.0
BILLION OF RATE REDUCTION BONDS TO FINANCE THE RECOVERY OF TRANSITION COSTS
BY SOUTHERN CALIFORNIA EDISON COMPANY, THE EXECUTION OF VARIOUS RATE
REDUCTION BOND FINANCING DOCUMENTS AND THE MAKING OF RELATED APPROVALS,
FINDINGS AND DETERMINATIONS
WHEREAS, AB 1890 (Chapter 854, Statutes of 1996), as amended by SB 477
(Chapter 275, Statutes of 1997) (collectively, "Restructuring Legislation"),
provides the legislative foundation for transforming the regulatory framework of
California's electric utility industry; and
WHEREAS, the Restructuring Legislation allows each California investor-owned
electric utility (each, an "IOU") to recoup net costs of its uneconomic
generation-related assets and obligations (defined in the Restructuring
Legislation as "transition costs") from its customers within its historic
service territory and authorizes the issuance of rate reduction bonds (as
defined in the Restructuring Legislation) ("Bonds") to facilitate the recovery
of a portion of these transition costs and the implementation of a ten percent
rate reduction for residential and small commercial electric customers; and
WHEREAS, pursuant to the Restructuring Legislation, a project for the
financing of transition costs and the acquisition of transition property (as
defined in the Restructuring Legislation) upon the request of an IOU is deemed
to be in the public interest and eligible for financing by the California
Infrastructure and Economic Development Bank ("Bank"); and
WHEREAS, pursuant to Resolutions B97-06 and B97-15 the Bank approved the form
of application for the financing of transition costs ("Application Form") and
has established procedures for the expeditious review of applications submitted
by the IOUs for the issuance and approval of the Bonds ("Procedures"); and
WHEREAS, pursuant to the Restructuring Legislation, Southern California Edison
Company ("Utility") filed an application with the California Public Utilities
Commission ("CPUC") on May 6, 1997 requesting approval to finance a portion of
its transition costs through the issuance of Bonds and simultaneously filed part
one of a completed Application Form with the Bank requesting the Bank to issue,
or cause to be issued through a special purpose trust (as defined in the
Restructuring Legislation), such Bonds; and
WHEREAS, pursuant to the Restructuring Legislation, the CPUC issued Decision
97-09-056 dated September 3, 1997 ("Financing Order"), authorizing the Utility,
among other things, to recover up to $3.0 billion of its transition costs
through the imposition of fixed transition amounts (as defined in the
Restructuring Legislation) in amounts necessary to repay an equivalent amount of
Bonds, together with overcollateralization ("Overcollateralization") for such
Bonds, and authorizing one or more financing entities (as defined in the
Restructuring Legislation) to issue not to exceed $3.0 billion principal amount
of Bonds on terms and conditions approved by the Bank, and the Utility consented
to the terms and conditions of the Financing Order in a timely manner; and
WHEREAS, pursuant to the Procedures, the Secretary of the Bank has notified
the Chairperson of the Bank that a completed Application Form, including
exhibits thereto ("Application"), from the Utility has been received by the
Bank; and
<PAGE>
Resolution B97-19
Page 2
WHEREAS, the Application has fully complied with the Procedures; and
WHEREAS, pursuant to the Restructuring Legislation, the Financing Order also
identified determinations and/or approvals required to be made by the Bank in
connection with the issuance of Bonds (collectively, "Necessary Approvals"),
which Necessary Approvals consist of the following: (1) approval of the final
transaction structure, including the terms of the "SPE Debt Securities" (as
defined in the Financing Order and hereinafter referred to as the "Notes") and
the terms of the Bonds (collectively, the "Structure"); (2) approval of certain
costs of issuance, delineated in the Financing Order, to be approved by the Bank
("Costs of Issuance"); (3) approval of the special purpose entity entitled "SCE
Funding LLC" ("SPE") as a "financing entity"; (4) the amount of
Overcollateralization; and (5) the determination of the final expected maturity
and final legal maturity of the Bonds and Notes ("Final Maturity"); and (6) a
determination of whether all or a portion of the Bonds are issued as variable
rate Certificates (as defined below), notwithstanding the fact that the Notes
are fixed rate; and
WHEREAS, pursuant to the Restructuring Legislation, Bonds may be issued by the
Bank or by a special purpose trust authorized by the Bank or, subject to certain
conditions, by a financing entity, and pursuant to Resolution B97-09, the Bank
determined that the issuer of Bonds will be a special purpose trust and,
pursuant to Resolution No. B97-16, the Bank determined that the special purpose
trust will be a business trust organized as a not-for-profit business trust
under the laws of the State of Delaware and named California Infrastructure and
Economic Development Bank Special Purpose Trust SCE-1 ("Trust"); and
WHEREAS, the Utility submitted to the Bank, as an exhibit to its Application,
a copy of registration statement No. 333-30785 ("Registration Statement") filed
with the United States Securities and Exchange Commission by the SPE as
registrant, which together with the exhibits thereto describe in detail the
Structure; and
WHEREAS, the Restructuring Legislation authorizes the sale or assignment of
transition property and the pledge of such transition property, directly or
indirectly, as security for Bonds; and
WHEREAS, the Financing Order approves the SPE and the sale of the transition
property, and further approves the pledge of such transition property for the
payment of the Notes, which Notes will in turn constitute security for the
Bonds; and
WHEREAS, as described in the Registration Statement and the exhibits thereto,
the Bonds will be denominated "California Infrastructure and Economic
Development Bank Special Purpose Trust SCE-1 Rate Reduction Certificates, Series
1997A" ("Certificates") and will be issued by the Trust in one or more series or
classes in amounts to be determined at the time of pricing of the Certificates;
and
WHEREAS, the Certificates will represent an undivided beneficial interest in
the Notes of a related series or class issued by the SPE, with each series or
class of Certificates being entitled to receive payments received by the Trust
with respect to a corresponding series or class of Notes issued by the SPE,
together with any interest exchange (swap) agreement to exchange fixed rate
payments on the Notes for amounts reflecting variable rate payments on any
variable rate Certificates ("Swap Agreement"); and
WHEREAS, the Board wishes to approve the issuance of the Certificates and
provide for the Necessary Approvals, approving specified documents and
determining certain terms and conditions relating thereto as required by the
Restructuring Legislation and the Financing Order and in accordance with the
Procedures;
NOW THEREFORE, the board of directors of the Bank hereby does resolve as
follows:
Section 1. RECITALS. The recitals above are true and correct.
----------
<PAGE>
Resolution B97-19
Page 3
Section 2. TRUST CONSTITUTES SPECIAL PURPOSE TRUST; TRUST POWERS; TRUST AND
----------
SPE AS FINANCING ENTITIES. The Bank hereby finds and determines that the Trust
constitutes a "special purpose trust" that is authorized to purchase the Notes
and issue the Certificates under the Restructuring Legislation, which
Certificates constitute "rate reduction bonds" under the Restructuring
Legislation and the Financing Order.
The Trust shall have the powers set forth in the Trust Agreement (as defined
in Section 11), including the power to purchase the Notes pursuant to the Note
Purchase Agreement (as defined in the Trust Agreement), issue the Certificates
and execute and deliver the Underwriting Agreement and Swap Agreement.
The Trust is authorized to issue Bonds and the SPE is authorized to purchase
transition property, and each is hereby found and determined to be a "financing
entity" (as defined in the Restructuring Legislation).
Section 3. AGREEMENT WITH SPE, TRUST AND CERTIFICATEHOLDERS. Pursuant to
----------
Public Utilities Code Section 841(c), the Bank, on behalf of the State of
California, does hereby pledge and agree with the SPE, the Trust and the holders
of the Certificates that the State of California shall neither limit nor alter
the fixed transition amounts, the transition property, the Financing Order, and
all rights thereunder until the Notes and Certificates, together with the
interest thereon, are fully met and discharged, provided, however, that nothing
contained herein shall preclude the limitation or alteration of such rights if
and when adequate provision shall be made by law for the protection of the SPE,
the Trust and the holders of the Certificates.
Section 4. NOTES AND CERTIFICATES NOT OBLIGATION OF STATE. The issuance of
----------
Certificates shall not directly, indirectly, or contingently obligate the State
or any political subdivision thereof to levy or pledge any form of taxation
therefor or to make any appropriation for their payment. Each Certificate shall
bear on its face a statement to the following effect: "Neither the full faith
and credit nor the taxing power of the State of California is pledged to the
payment of the principal of, or interest on, this bond."
Section 5. STRUCTURE. The Structure in substantially the form described in
----------
the Registration Statement is hereby approved.
Section 6. COSTS OF ISSUANCE. The Costs of Issuance identified in Exhibit A
----------
to this resolution are hereby approved to be paid or reimbursed from proceeds of
the Certificates and the Notes in amounts not exceeding the amounts identified
therein. Other Costs of Issuance to be paid or reimbursed from proceeds of the
Certificates and the Notes required in the Financing Order to be approved by the
Bank and/or the State Treasurer's Office ("STO") shall be approved by the STO.
Section 7. OVERCOLLATERALIZATION AMOUNT. Overcollateralization in an amount
----------
equal to 0.5% of the initial principal amount of the Certificates is hereby
approved.
Section 8. FINAL MATURITY; AUTHORITY OF STO AS AGENT OF SALE. The
----------
Certificates and Notes shall have an expected final maturity of not more than 10
years from their date of issuance, shall have a final legal maturity of not more
than 13 years from their date of issuance and principal shall be scheduled to be
repaid in substantially equal annual amounts. Subject to the preceding
sentence, the Notes and the Certificates shall mature on such dates and in such
principal amounts and shall bear interest at such rates per annum (or in the
case of variable rate Certificates, the interest rates shall be determined in
such manner) as determined at the time of sale by the State Treasurer as agent
for sale for the Bank and the Trust pursuant to Sections 63073 and 63074 of the
Government Code, and as set forth in the Underwriting Agreement approved
pursuant to Section 14. The STO is hereby authorized and requested to sell the
Bonds, at any time within one year of receipt of a certified copy of this
resolution.
<PAGE>
Resolution B97-19
Page 4
Section 9. VARIABLE RATE CERTIFICATES. Variable rate Certificates are hereby
----------
approved and authorized to be issued pursuant to the terms of the Trust
Supplement (defined and approved pursuant to Section 11) and secured by the Swap
Agreement (defined and approved pursuant to Section 12), if the STO determines
at the time of sale that such variable rate Certificates will result in lower
net interest costs on the Notes.
Section 10. NECESSARY APPROVALS. The Bank having approved in Sections
-----------
2,5,6,7,8, and 9 the various components of the Necessary Approvals, hereby finds
that all the Necessary Approvals have been provided for, and having provided for
the Necessary Approvals, and there having been full compliance with the
Procedures, hereby approves the issuance of Bonds under the terms and conditions
described in this resolution.
Section 11. TRUST AGREEMENT; TRUST SUPPLEMENT. For the purpose of
-----------
establishing the Trust and delineating the powers of the Trust, the form of the
Amended and Restated Declaration and Agreement of Trust, dated as of November 1,
1997 (the "Trust Agreement"), by and among the Bank, as originator, Bankers
Trust (Delaware), a Delaware banking corporation, as Delaware trustee ("Delaware
Trustee"), and Bankers Trust Company, as Certificate trustee ("Certificate
Trustee" and, together with the Delaware Trustee, the "Trustees"), and the form
of First Supplemental Agreement of Trust, dated as of November 1, 1997 ("First
Supplement"), including the form of same, both presented at this meeting and on
file with the Secretary of this Board, are hereby approved. The Chairperson is
hereby authorized and directed, for and in the name and on behalf of the Bank,
to execute and deliver the Trust Agreement and the First Supplement in
substantially the form presented at this meeting, with such changes therein as
such officer, with the advice of Bank counsel and Brown and Wood LLP ("Bond
Counsel") may require or approve, such approval to be conclusively evidenced by
the execution and delivery thereof.
Section 12. SWAP AGREEMENT. For the purpose of permitting the issuance of
-----------
variable rate Certificates with fixed rate Notes, the form of the Swap Agreement
appended as Exhibit B to the Trust Supplement is hereby approved. If the STO
approves the issuance of variable rate Certificates pursuant to Sections 9 and
14, the Chairperson of the Board is authorized to direct the Trust to execute
and deliver the Swap Agreement in substantially the form appended to the Trust
Supplement, with such changes therein as such officer, with the advice of Bank
Counsel and Bond Counsel, may require or approve, such approval to be
conclusively evidenced by the execution and delivery thereof.
Section 13. FEE AND INDEMNITY AGREEMENT. For the purpose of compensating and
-----------
providing certain indemnities to the Trustees under the Trust Agreement, the
form of the Fee and Indemnity Agreement, dated as of November 1, 1997, by and
among the Certificate Trustee, the Delaware Trustee, the SPE, the Bank and
Bankers Trust Company, as Note trustee, presented at this meeting and on file
with the Secretary of this Board, is hereby approved, and the Chairperson is
hereby authorized and directed, for and in the name and on behalf of the Bank,
to execute and deliver such Fee and Indemnity Agreement in substantially said
form, with such changes therein as such officer, with the advice of Bank counsel
and Bond Counsel, may require or approve, such approval to be conclusively
evidenced by the execution and delivery thereof.
Section 14. UNDERWRITING AGREEMENT. For the purpose of providing for the
-----------
sale of the Certificates, the form of the Underwriting Agreement dated as of
November 1, 1997, by and among the Utility, the Trust, the SPE, Salomon
Brothers, Inc. and Lehman Brothers as representatives of the underwriters, the
Bank on behalf of the Trust and the STO, as agent of sale for the Trust,
presented at this meeting and on file with the Secretary of this Board is hereby
approved. Upon approval by the STO of the scheduled maturity, the final legal
maturity, the interest rate and the purchase price for each class of
Certificates, and the award of the Certificates by the STO in accordance with
Section 5702 of the Government Code, the Chairperson is hereby authorized and
directed, for and in the name and on behalf of the Trust, to execute and deliver
such Underwriting Agreement in substantially said form, with such changes
therein as such officer, with the advice of Bank counsel and Bond Counsel, may
require or approve, and not inconsistent with the terms approved by the STO,
such approval to be conclusively
<PAGE>
Resolution B97-19
Page 5
evidenced by the execution and delivery thereof. The Secretary of the Bank shall
provide a certified copy of this resolution to the STO as required by Section
63074 of the Government Code.
Section 15. ATTESTATION. The Secretary of the Bank is hereby authorized and
-----------
directed to attest the signature of the Chairperson of the Bank in connection
with the execution and delivery of any document or certificate authorized to be
executed pursuant to the terms of this resolution.
Section 16. PROCEDURE FOR EXECUTION AND DELIVERY OF DOCUMENTS. The officers
-----------
of the Bank are hereby authorized and directed, jointly and severally, to do any
and all things necessary or desirable to execute and deliver any and all
documents that they may deem necessary or desirable in order to consummate the
transactions authorized hereby and to consummate the sale, execution and
delivery of the Certificates by the Trust, the registration of the Notes with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended, and the qualification of the Trust Agreement under the Trust
Indenture Act of 1939, as amended and otherwise to carry out, give effect to and
comply with the terms and intent of this resolution, and all such actions
heretofore taken by such officers, in respect to such matters, are hereby
ratified, confirmed and approved.
Section 17. EFFECTIVE DATE OF RESOLUTION. This resolution shall take effect
-----------
from and after its adoption.
PASSED, APPROVED AND ADOPTED at a meeting of the California Infrastructure and
Economic Development Bank on November 10, 1997 by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
----------------------------------
CHRISTOPHER S. HOLBEN, Chairperson
ATTEST:
- -----------------------------------
GLENN STOBER,
Secretary of the Board of Directors
<PAGE>
Resolution B97-19
Page 6
Exhibit A
Resolution B97-17
Cost of Issuance
<TABLE>
<CAPTION>
Payee Description Amount
- ----- ----------- ------
<S> <C> <C>
California Infrastructure
and Economic Development Bank Bank fees/1/ $100,000
Brown & Wood LLP Bond Counsel fees [to follow]
Public Resources Advisory Group Financial Advisor fees $ 67,000
Bankers Trust Company and Note, Certificate and
Bankers Trust (Delaware) Delaware Trustee fees $ 10,200
Richards, Layton & Finger Note, Certificate and
Delaware Trustee counsel fees $ 17,000
TOTAL /2/[to follow]
</TABLE>
- --------------------------------
/1/ All fees categories include both fees and disbursements.
/2/ $50,000 of this fee will be credited to Utility as reimbursement for
previously paid Bank Application fee.
<PAGE>
EXHIBIT 99.7
[FORM OF CONTRACT IMPAIRMENT OPINION]
_________, 1997
Duff & Phelps Credit Rating Co.
17 State Street, 12th Floor
New York, New York 10004
Fitch Investors Service, L.P.
One State Street Plaza
New York, New York 10004
Moody's Investors Service
99 Church Street
New York, New York 10007
Standard & Poor's Ratings Services
26 Broadway, 20th Floor
New York, New York 10004
Re: California Infrastructure and Economic Development Bank
Special Purpose Trust SCE-1
Rate Reduction Certificates
Dear Sirs:
We have acted as special counsel to California Infrastructure and Economic
Development Bank Special Purpose Trust SCE-1, a business trust
established under Delaware law (the "Trust"), in connection with the issuance by
the Trust of up to $3,000,000,000 principal amount of its Rate Reduction
Certificates (the "Certificates"). The Trust is created and governed, and the
Certificates are to be issued, pursuant to an Amended and Restated Declaration
and Agreement of Trust dated as of ___________________, 1997 by and among
California Infrastructure and Economic Development Bank (the "Bank"), as
Originator, Bankers Trust (Delaware), as Delaware Trustee, and Bankers Trust
Company, as Certificate Trustee. Upon issuance, the Certificates will represent
a fractional undivided beneficial interest in a corresponding [Series] [Class]
of Notes (the "Notes") purchased by the Trust from SCE Funding LLC, together
with all payments on the Notes. The Notes are secured by a security interest in
transition property (as described below) together with certain limited equity of
SCE Funding LLC. Transition property is a property right created under Assembly
Bill No. 1890 (Chapter 854, California Statutes of 1996), as amended by Senate
Bill No. 477 (Chapter 275, California Statutes
<PAGE>
of 1997) (collectively, the "Restructuring Legislation"), pursuant to Financing
Order 97-09-056 issued by the California Public Utilities Commission (the
"CPUC") on September 3, 1997, and advice letters issued pursuant thereto,
representing the irrevocable right of Southern California Edison Company, a
California corporation ("SCE"), or its assignee (SCE Funding LLC) to receive
certain nonbypassable charges (as adjusted from time to time) ("fixed transition
amounts") on residential and small commercial customers within SCE's historical
service territory. The Trust has been designated by the Bank as a "special
purpose trust" and the Certificates constitute "rate reduction bonds" under the
Restructuring Legislation. The holders of beneficial interests of the Trust will
be the Certificateholders.
We have been asked whether the voters of the State of California (the
"State"), through exercise of their initiative power under California
Constitution Article II, Section 8, could amend the Restructuring Legislation or
otherwise enact legislation that would have the effect of substantially
impairing the rights of the owners of the Certificates. For the reasons set
forth below, we do not believe that the voters could do so.
The Restructuring Legislation provides, in pertinent part, that the State:
does hereby pledge and agree with the owners of transition property and
holders of rate reduction bonds that the state shall neither limit nor
alter the fixed transition amounts, transition property, financing orders,
and all rights thereunder until the obligations, together with the interest
thereon, are fully met and discharged, provided nothing contained in this
section shall preclude the limitation or alteration if and when adequate
provision shall be made by law for the protection of the owners and
holders. (California Public Utilities Code, Section 841(c)).
Section 10 of Article I of the United States Constitution provides, in
part, "No state shall . . . pass any law impairing the obligation of contracts"
(the "Federal Contract Clause"). Similarly, Section 9 of Article I of the
California Constitution provides, in part, "A . . . law impairing the
obligations of contracts may not be passed" (the "State Contract Clause"). The
Federal and State Contract Clauses protect contractual obligations from
impairment by enactment of state law, including State constitutional amendments.
Allied Structural Steel Co. v. Spannaus, 438 U.S. 234 (1978); United States
- --------------------------------------- -------------
Trust Co. of New York v. New Jersey, 431 U.S. 1, reh'g denied, 431 U.S. 975
- ----------------------------------- ------------
(1977); Los Angeles County v. Rockhold, 3 Cal.2d 192 (1935). Caselaw makes clear
------------------------------
that the principle precluding impairment of the contractual rights of
bondholders applies equally to the State legislature and the electorate
(utilizing its initiative powers). Continental Ill. Nat'l Bank & Trust Co. of
------------------------------------------
Chicago v. Washington, 696 F.2d 692, 700-01 (9th Cir. 1983). Clearly, any
- ---------------------
attempt by the State (or the voters) to repeal or amend the Restructuring
Legislation or enact other legislation which affects the transition property in
a manner that prevents the payment of the Certificates in a timely basis would
constitute a substantial impairment of the contractual rights of the
Certificateowners.
The courts, however, have held that the provisions of the Federal and State
Contract Clauses would not apply to state laws, the enactment of which
constitute a reasonable and necessary exercise of a state's sovereign power to
serve an important public purpose. See, e.g.,
--- ----
2
<PAGE>
United States Trust Co. of New York, supra, 421 U.S. at 1519-20. There have been
- ----------------------------------- -----
numerous cases in which legislative or popular concerns with the burden of
taxation or governmental charges have led to the adoption of legislation
reducing or eliminating taxes or charges that supported bonds or other
contractual obligations entered into by public instrumentalities. However, such
concerns have not been considered sufficient justification for a substantial
---
impairment of the security of such bonds or obligations provided by the taxes or
governmental charges involved. See, e.g., Ralls County Court v. United States,
--- ---- -----------------------------------
105 U.S. 733, 738 (1881); Rockhold, supra, 3 Cal.2d at 207-09. Instead, caselaw
---------------
suggests that the complete impairment of a municipal bond obligation will not be
tolerated, although a temporary impairment may be upheld if it can be shown to
be necessary to advance an important public interest, such as addressing the
concerns of a "great public calamity." See, e.g., Home Bldg. & Loan Ass'n v.
--- ---- --------------------------
Blaisdell, 290 U.S. 398, 439-41 (1934). In fact, the United States Supreme Court
- ---------
has consistently refused to permit complete destruction of a governmental
entity's obligation to repay a debt. As one commentator has noted: "Despite the
Supreme Court's general disinterest in the [Federal] Contract Clause, the Court
has invalidated virtually every legislative impairment of municipal or local
indebtedness that has come before it in the last fifty years. . . ." See Barton
---
H. Thompson, Jr., "The History of the Judicial Impairment 'Doctrine' and Its
Lessons for the Contract Clause," 44 Stan. L. Rev. 1373, 1463 (1992). While the
Certificates may have certain characteristics uncommon to more traditional
municipal obligations, challenges to the Certificates should nonetheless be
treated by the courts with the same critical scrutiny followed in prior binding
precedent.
Based upon such caselaw, absent a demonstration by the State of a "great
public calamity" that justifies a contractual impairment, it is our opinion that
neither the State nor the electorate through its initiative powers could repeal
or amend the Restructuring Legislation or take, or refuse to take, any action
required by the State of California under its pledge and agreement with the
Certificateholders (described above) if such repeal or amendment, or such action
or inaction, would substantially impair the rights of the Certificateholders.
We also have been asked whether the actual knowledge of the pendency of a
voter initiative by the Certificateholders at the time they purchase their
Certificate diminishes the protection afforded by the Federal and State Contract
Clauses. For the reasons presented below, we do not believe that it should.
In Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717 (1984), the
----------------------------------------------
United States Supreme Court expressly reserved the question of whether the
existence of notice or knowledge of the pendency of retroactive legislation is
relevant under the "Due Process Clause" of the United States Constitution. Id.
--
at 731-32. However, in that opinion, the Supreme Court also recognized that the
standards imposed on economic legislation by the Due Process Clause are "less
searching" than restrictions imposed on states by the Federal Contract Clause.
Consequently, although the existence of fair warning of a potentially impending
retroactive change of law may reduce or eliminate due process protection, this
does not appear to be true under the stricter limitations of the Federal
Contract Clause.
Finally, since the outcome of impending legislative changes is never
certain and there are strong policy reasons for permitting parties to contract
with reference to existing law without
3
<PAGE>
being deterred by uncertainties as to the outcome of impending legislative
changes or voter initiatives, a court should adopt the view that knowledge of
the pendency of a proposed voter initiative should not diminish the protection
afforded by the Federal Contract Clause (and, by analogy, the State Contract
Clause).
The opinions expressed above are based upon existing caselaw (none of which
addresses the specific facts presented herein), and do not constitute a
guarantee of the outcome of any particular litigation. Moreover, there can be no
assurance that, through the legislative or initiative process, a repeal or an
amendment of the Restructuring Legislation might not be approved. In such an
event, costly and time consuming litigation may ensue, adversely affecting, at
least temporarily, the price and liquidity of the Certificates.
We consent to the filing of this opinion as an exhibit to SCE Funding
LLC's Registration Statement on Form S-3 (Registration No. 333-30785) and to
the use of our name wherever appearing in such Registration Statement and any
amendment thereto. In giving the foregoing consent, however, we do not admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
This opinion is solely for your benefit and may not be relied upon or used
by, circulated, quoted or referred to, nor may copies hereof be delivered to,
any other person without our prior written approval. We disclaim any obligation
to update this opinion letter for events occurring or coming to our attention
after the date hereof.
Respectfully submitted,
4
<PAGE>
EXHIBIT 99.8
[LETTERHEAD OF BROWN & WOOD LLP]
November 10, 1997
Duff & Phelps Credit Rating Co.
17 State Street, 12th Floor
New York, New York 10004
Fitch Investors Service, L.P.
One State Street Plaza
New York, New York 10004
Moody's Investors Service
99 Church Street
New York, New York 10007
Standard & Poor's Ratings Services
26 Broadway, 20th Floor
New York, New York 10004
Re: California Infrastructure and Economic Development Bank
Special Purpose Trust SCE-1
Rate Reduction Certificates
Ladies and Gentlemen:
We have acted as special counsel to California Infrastructure and Economic
Development Bank Special Purpose Trust SCE-1, a business trust established under
Delaware law (the "Trust"), in connection with the issuance by the Trust of up
to $3,000,000,000 principal amount of its Rate Reduction Certificates (the
"Certificates"). The Trust has been authorized by the California Infrastructure
and Economic Development Bank (the "Bank") to serve as a "special purpose trust"
for the purpose of issuing "rate reduction bonds" pursuant to the provisions of
Assembly Bill No. 1890, enacted into legislation as Chapter 854 of the
California Statutes of 1996 ("AB 1890"), as amended by Senate Bill 477, enacted
into legislation as Chapter 275 of the California Statutes of 1997
(collectively, the "Statute"). Upon issuance, the Certificates will represent a
fractional undivided beneficial interest in a corresponding [Series][Class] of
Notes (the "Notes") purchased by the Trust from SCE Funding LLC (the "SPE"),
together with all payments on the Notes. The Notes are secured by a security
interest in the property right created under the Statute pursuant to Decision
No. 97-09-056 issued by the California Public Utilities
<PAGE>
Commission (the "CPUC") and dated September 3, 1997, and Advice Letters issued
pursuant thereto, representing the irrevocable right of Southern California
Edison Company, a California corporation ("SCE") or its assignee to receive
certain non-bypassable charges (as adjusted from time to time) on residential
and small commercial customers within SCE's historical service territory as
"fixed transition amounts," together with certain related collateral. The
holders of beneficial interests of the Trust will be the Certificateholders.
You have requested our opinion as to whether the voters could reduce or
otherwise limit the "fixed transition amounts" through the exercise of their
initiative powers under Article XIIIC of the California Constitution.
Proposition 218, which added Articles XIIIC and XIIID to the California
Constitution, was approved by the voters of the State of California at the
general statewide election on November 5, 1996.
Section 3 of Article XIIIC of the California Constitution provides,
Notwithstanding any other provision of this Constitution, including, but
not limited to, Article 11, Sections 8 and 9, the initiative power shall
not be prohibited or otherwise limited in matters of reducing or repealing
any local tax, assessment, fee or charge. The power of initiative to affect
-----
local taxes, assessments, fees and charges shall be applicable to all local
----- -----
governments and neither the legislature nor any local government charter
shall impose a signature requirement higher than that applicable to
statewide statutory initiatives. (Emphasis added.)
"Local" taxes, fees or charges are not defined in Article XIIIC. Local
government, however, is defined in Section 1 of Article XIIIC as "any county,
city, city and county, including a charter city or county, any special district,
or any other local or regional government entity."
The "fixed transition amounts" are not "local" fees or charges within
the meaning of Article XIIIC. The first section of AB 1890 states that "[t]he
Legislature finds and declares that the restructuring of the California
electricity industry has been driven by changes in federal law intended to
increase competition in the provision of electricity." The language throughout
the Statute emphasizes that the tariffs authorized thereunder are to be
statewide and are designed to implement a statewide plan for restructuring the
electric utility industry. Moreover, the State Legislature has authorized the
CPUC to approve the "fixed transition amounts." Since Section 3 of Article XIIIC
applies only to local fees and charges, the "fixed transition amounts," which
-----
are authorized by the State legislature and subject to nondiscretionary approval
by the CPUC, are not local charges or fees within the meaning of Article XIIIC.
In view of its recent adoption, the provisions of Proposition 218 as
discussed above have not, to date, been the subject of judicial interpretation.
However, based on and subject to the foregoing, as well as the limitations set
forth below, it is our opinion that the local initiative power described by
Article XIIIC is inapplicable to the imposition of "fixed transition amounts"
under the Statute.
2
<PAGE>
The opinion expressed herein is based on an analysis of existing laws and
court decisions. Such opinions and conclusions are not intended to guarantee the
outcome of any litigation should any litigation be commenced. This opinion
speaks only as of its date, and we disclaim any obligation to update this
opinion for events occurring or coming to our attention after the date hereof.
We consent to the filing of this opinion as an exhibit to the SPE's
Registration Statement on Form S-3 (Registration No. 333-30785) and to the use
of our name wherever appearing in such Registration Statement and any amendment
thereto. In giving the foregoing consent, however, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
This opinion is solely for your benefit and may not be relied upon or used
by, circulated, quoted or referred to, nor may copies hereof be delivered to,
any other person without our prior written approval.
Respectfully submitted,
/s/ Brown & Wood LLP
3
<PAGE>
EXHIBIT 99.9
[FORM OF OPINION OF BROOKE BASSETT, ESQ.]
[CALIFORNIA TRADE AND COMMERCE AGENCY LETTERHEAD]
_____________,1997
California Infrastructure and Economic
Development Bank
C/O California Trade and Commerce Agency
801 K Street, Suite 1700
Sacramento, California 95814
Re: California Infrastructure and Economic Development Bank
Special Purpose Trust [ACRONYM Of UTILITY]
Rate Reduction Certificates
Ladies and Gentlemen:
I serve as general counsel to the California Infrastructure and Economic
Development Bank. The Bank is a public body organized within the government of
the State of California and created pursuant to the Bergeson-Peace
Infrastructure and Economic Development Bank Act, codified at (S) 63000 et seq.
of the California Government Code, as amended (the "Act"). The Bank is
governed, and its corporate powers are exercised by, a Board of Directors
consisting of the Director of Finance, the State Treasurer and Secretary of
Trade and Commerce.
Pursuant to AB 1890 (Chapter 854, Statutes of 1996), as amended by SB 477
(Chapter 275, Statutes of 1997)(collectively, "Restructuring Legislation"), each
California investor-owned electric utility (each an "IOU") is permitted to
recoup net costs of its uneconomic generation-related assets and obligations
(defined in the Restructuring Legislation as "transition costs") from its
customers within its historic service territory. The Restructuring Legislation
authorizes the issuance of rate reduction bonds (as defined in the Restructuring
Legislation) (the "Bonds") to facilitate the recovery of a portion of these
transition costs and the implementation of a ten percent rate reduction for
residential and small commercial electric customers.
Under the Restructuring Legislation, a project for the financing of
transition costs and the acquisition of transition property (as defined in the
Restructuring Legislation) upon the request of an IOU is deemed to be in the
public interest and eligible for financing by the Bank.
Pursuant to Resolutions B97-06 and B97-15 the Bank has approved the form of
application for the financing of transition costs and established procedures
(the "Procedures") for the expeditious review of applications submitted by the
IOUs for the issuance and approval of the Bonds.
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Pursuant to Resolution B97-09, the Bank determined that the issuer of Bonds
will be a special purpose trust and, pursuant to Resolution No. B97-16, the Bank
determined that the special purpose trust will be a business trust organized as
a not-for-profit business trust under the laws of the State of Delaware and
named California Infrastructure and Economic Development Bank Special Purpose
Trust [ ]-1 ("Trust").
Pursuant to Resolution No. 97-[ ] (the "Resolution"), the Bank has
approved the issuance of the Bonds by the Trust in the form of Rate Reduction
Certificates, has provided for the Necessary Approvals as therein defined,
approved specified documents and determined certain terms and conditions
relating thereto as required by the Restructuring Legislation and the Financing
Order.
I have examined originals, or copies identified to my satisfaction as being
true copies, of the Resolutions, certificates of Bank officers, and other such
documents, opinions and matters as I have considered necessary or appropriate
under the circumstances to render the opinions set forth herein.
Based on and subject to the foregoing, and in reliance thereon, as of the
date hereof, I am of the opinion that the Resolution has been duly and validly
adopted by the Bank at a meeting for which due and proper notice was given in
accordance with the laws of the State of California. I am further of the opinion
that such Resolution is in full force and effect and has not been amended.
I consent to the filing of this opinion as an exhibit to the Registration
Statement on Form S-3 (Registration No. ______) and to the use of my name
wherever appearing in such Registration Statement and any amendment thereto. In
giving the foregoing consent, however, I do not admit that I come within the
category of person whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
Respectfully submitted,
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