<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1997
REGISTRATION NO. 333-30761
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 4
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK SPECIAL PURPOSE TRUST
SDG&E-1
(ISSUER OF SECURITIES)
SDG&E FUNDING LLC
(DEPOSITOR OF THE TRUST DESCRIBED HEREIN)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF FORMATION)
---------------
<TABLE>
<S> <C>
DELAWARE 33-0762746
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
SDG&E FUNDING LLC
101 ASH STREET, ROOM 111
SAN DIEGO, CALIFORNIA 92101
(619) 696-2328
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GARY PERLMUTTER
VICE PRESIDENT, COUNSEL & SECRETARY
SDG&E FUNDING LLC
101 ASH STREET, ROOM 111
SAN DIEGO, CALIFORNIA 92101
(619) 696-2328
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C> <C>
GILBERT T. RAY ERIC D. TASHMAN GREGORY M. SHAW
JOHN D. HARDY, JR. CATHY M. KAPLAN CRAVATH, SWAINE & MOORE
O'MELVENY & MYERS LLP BROWN & WOOD LLP WORLDWIDE PLAZA
400 SOUTH HOPE STREET 555 CALIFORNIA STREET, 50TH FLOOR 825 EIGHTH AVENUE
LOS ANGELES, CALIFORNIA 90071 SAN FRANCISCO, CALIFORNIA 94104 NEW YORK, NEW YORK 10019
</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 AMOUNT TO BE AGGREGATE PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT PRICE FEE(1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rate Reduction Certifi-
cates.................... $800,000,000 100%(2) $800,000,000(2) $242,424.24
- --------------------------------------------------------------------------------------------------
SDG&E Funding LLC Notes... $800,000,000(3) (3) (3) None
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Aggregate fee of $242,424.24 previously paid in connection with original
Registration Statement filed on July 3, 1997 and Amendment No. 3 filed on
November 10, 1997.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) No additional consideration will be paid by the purchasers of the Rate
Reduction Certificates for the Notes which secure the Rate Reduction
Certificates.
---------------
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 21, 1997
PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus dated , 1997)
California Infrastructure and Economic Development Bank Special Purpose Trust
SDG&E-1
RATE REDUCTION CERTIFICATES, SERIES 199 -
$ Original Principal Balance
$ Class % Certificates
$ Class % Certificates
$ Class % Certificates
$ Class % Certificates
$ Class Floating Rate Certificates
----------
SDG&E Funding LLC
Issuer of the Notes
----------
San Diego Gas & Electric 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.
THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK SPECIAL PURPOSE
TRUST SDG&E-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 SDG&E FUNDING LLC NOTES, SERIES
199 - (THE "UNDERLYING NOTES"), ISSUED BY SDG&E 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 SDG&E-1 (THE "TRUST"). (CONTINUED ON
FOLLOWING PAGE.)
----------
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 IN THE PROSPECTUS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS 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].
----------
MORGAN STANLEY DEAN WITTER LEHMAN BROTHERS
CHASE SECURITIES INC.
PRUDENTIAL SECURITIES INCORPORATED
SALOMON BROTHERS INC
ARTEMIS CAPITAL GROUP, INC. SAMUEL A. RAMIREZ & CO., INC.
The date of this Prospectus Supplement is , 199
<PAGE>
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 SDG&E-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 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 UNDERLYING
NOTES OR THE OFFERED CERTIFICATES OR TO THE PAYMENTS IN RESPECT OF THE
TRANSITION PROPERTY NOR IS THE STATE OF CALIFORNIA OR ANY POLITICAL
SUBDIVISION, 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- herein and which begins on page 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>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Holders......................................................... S-3
Prospectus Supplement Summary.............................................. S-5
Description of the Certificates............................................ S-15
Summary of Certain Provisions of the Swap Agreement........................ S-18
Description of the Notes................................................... S-20
Required Overcollateralization Level Schedule.............................. S-22
Description of the Transition Property..................................... S-23
Certain Distribution, Weighted Average Life and Yield Considerations....... S-24
The Seller and Servicer.................................................... S-25
Servicing.................................................................. S-25
Certain Federal Income Tax Consequences.................................... S-26
State Taxation............................................................. S-32
ERISA Considerations....................................................... S-32
Underwriting............................................................... S-34
Ratings.................................................................... S-35
Legal Matters.............................................................. S-35
Index of Principal Definitions............................................. S-36
PROSPECTUS
Available Information...................................................... 3
Reports to Holders......................................................... 3
Incorporation of Certain Documents by Reference............................ 4
Prospectus Supplement...................................................... 4
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....... 46
The Trust.................................................................. 47
The Infrastructure Bank.................................................... 48
The Note Issuer............................................................ 49
The Seller and Servicer.................................................... 51
Servicing.................................................................. 57
Description of the Notes................................................... 63
Description of the Certificates............................................ 72
Certain Federal Income Tax Consequences.................................... 84
State Taxation............................................................. 89
ERISA Considerations....................................................... 90
Use of Proceeds............................................................ 91
Plan of Distribution....................................................... 91
Ratings.................................................................... 91
Legal Matters.............................................................. 92
Index of Principal Definitions............................................. 93
Index to Financial Statements.............................................. F-1
</TABLE>
S-4
<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- 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 SDG&E-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 SCHEDULED FINAL CERTIFICATE
CLASS PRINCIPAL AMOUNT DISTRIBUTION DATE TERMINATION DATE INTEREST 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 SDG&E and the Note Issuer, any subsequent
sale agreement relating to a separate Series of
Notes, the Transition Property Servicing
Agreement between SDG&E 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
S-5
<PAGE>
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.
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 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 SDG&E-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-6
<PAGE>
Seller and Servicer......... San Diego Gas & Electric Company, a California
corporation ("SDG&E" 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 SDG&E 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
SDG&E-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................. SDG&E Funding LLC, a Delaware special purpose
limited liability company whose single member is
SDG&E (the "Note Issuer"). The principal
executive office of the Note Issuer is located at
101 Ash Street, Room 111, San Diego, California
92101, and its telephone number is (619) 696-
2328.
The Underlying Notes........ SDG&E 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-7
<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
Schedules, 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-8
<PAGE>
Failure to distribute principal on 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 CDC
Financial Products, Inc., 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.
Payments between the Swap Counterparty and the
Trust will be made on a net basis as further
described herein.
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.]
Interest.................... On each Distribution Date, the Certificate
Trustee shall distribute pro rata to the
Certificateholders of each Class as of the
related Record
S-9
<PAGE>
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 Obligations" in the Prospectus,
which repurchase will require the Trust to redeem
the Offered Certificates.
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
S-10
<PAGE>
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 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 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 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
S-11
<PAGE>
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 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.
S-12
<PAGE>
If FTA Collections are received at a slower rate
than expected, distributions on a Certificate may
be made later than expected, and 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 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 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 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
S-13
<PAGE>
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 in 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-14
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The California Infrastructure and Economic Development Bank Special Purpose
Trust SDG&E-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 Certificate Interest Rate on the Floating Rate Certificates
for the initial Interest Accrual Period (as defined below) ending ,
1998, will be percent. Following the initial Interest Accrual Period, 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 of 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
S-15
<PAGE>
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;
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) of 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 close of business on 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 of the Underlying Notes.
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 SWAP AGREEMENT
GENERAL
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, a termination event will be deemed to have occurred
with respect to the Swap Agreement, with the Swap Counterparty as the affected
party. An "event of default" under the Swap Agreement will occur upon: (i) the
failure of the Trust or the Swap Counterparty to pay any amount when due under
the Swap Agreement if such failure is not remedied on or before the fifth
Certificate Business Day after the occurrence of such failure; (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. Upon the occurrence of any event of default by the Swap
Counterparty, or a Downgrade Event resulting in a termination event, the Trust
is required under the Trust Agreement to terminate the Swap Agreement. Upon
the occurrence of an event of default by the Trust, the Swap Counterparty has
the right to 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.
S-18
<PAGE>
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 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, as required,
during the continuance of a Downgrade Event.]
[THE SWAP COUNTERPARTY
CDC Financial Products, Inc. (the "Swap Counterparty") is a corporation
formed under the laws of the State of Delaware and a wholly owned, indirect
subsidiary of Caisse des Depots et Consignations ("CDC"). The obligations of
the Swap Counterparty under the Swap Agreement are unconditionally guaranteed
by CDC. The Swap Counterparty has recently commenced commercial operation, and
therefore has not previously engaged in swap transactions.
CDC 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 CDC 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 de etudes economique et financieres, 195 Boulevard
Saint Germain, 75007, Paris, France.]
S-19
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The SDG&E 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.
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 INTEREST
CLASS AMOUNT MATURITY 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) of 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. 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
S-20
<PAGE>
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.
EXPECTED AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
OUTSTANDING PRINCIPAL BALANCE
----------------------------------------- SERIES
DATE CLASS CLASS CLASS CLASS CLASS 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.
S-21
<PAGE>
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
PAYMENT DATE OVERCOLLATERALIZATION LEVEL
------------ ---------------------------
<S> <C>
, 199 ............................... $
, 199 ............................... $
, 199 ............................... $
[Etc.]....................................... $
</TABLE>
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 UPON ISSUANCE]
S-22
<PAGE>
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 class of 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>
FTA
CHARGE
PER
KILOWATT
CLASS OF CUSTOMERS 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 $ per
month. The average monthly electricity bill, excluding local taxes, during
1996 was $53 for a Residential Customer and $172 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
AGGREGATE
ADJUSTMENT FTA CHARGE EFFECTIVE
ADVICE LETTER TO FTA CHARGE PER DATE OF
FILING DATE PER KILOWATT HOUR KILOWATT HOUR ADJUSTMENT
- ------------- ----------------- ------------- ----------
<S> <C> <C> <C>
</TABLE>
[TO BE PREPARED UPON ISSUANCE]
FTA CHARGE FOR SMALL COMMERCIAL CUSTOMERS
<TABLE>
<CAPTION>
RESULTING
AGGREGATE
EFFECTIVE FTA CHARGE ADJUSTMENT
ADVICE LETTER DATE OF PER TO FTA CHARGE
FILING DATE ADJUSTMENT KILOWATT HOUR PER KILOWATT HOUR
- ------------- ---------- ------------- -----------------
<S> <C> <C> <C>
]
</TABLE>
[TO BE PREPARED UPON ISSUANCE]
See "Description of the Transition Property--Adjustments to the FTA Charges"
in the Prospectus.
S-23
<PAGE>
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 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.
S-24
<PAGE>
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.
San Diego Gas & Electric Company reported net income of $156,814,000 on
revenues of $1,552,825,000 for the nine months ended September 30, 1997, as
compared with net income of $165,934,000 on revenues of $1,403,648,000 for the
nine months ended September 30, 1996. San Diego Gas & Electric Company
reported net income of $216,183,000 on revenues of $1,938,917,000 for the year
ended December 31, 1996, as compared with net income of $225,794,000 on
revenues of $1,814,068,000 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 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 other charges, including the
applicable FTA Charges.
Any ESP that provides consolidated billing is required to pay the Servicer
amounts billed by the Servicer 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 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
S-25
<PAGE>
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. 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
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 SDG&E, 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 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
S-26
<PAGE>
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 Notes 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.
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.
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<PAGE>
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).
The tax treatment of payments made or received under the Swap Agreement
depends on whether the payments are periodic payments, non-periodic 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 non-periodic 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
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<PAGE>
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 2 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 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 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
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<PAGE>
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 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.]
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<PAGE>
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% 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 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.
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<PAGE>
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.
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 SDG&E, 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 SDG&E, the Certificate Trustee, the Underwriters or their
respective
S-32
<PAGE>
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) unless exemptive relief is available
under DOL Prohibited Transaction Exemption 95-60, 91-38 or 90-1 (as described
below), 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 SDG&E, 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 SDG&E, 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 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 a 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.
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<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 Morgan Stanley & Co.
Incorporated 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 CLASS
NAME CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
- ---- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Morgan Stanley & Co.
Incorporated........... $ $ $ $ $ $
Lehman Brothers Inc. ...
Chase Securities Inc. ..
Prudential Securities
Incorporated...........
Salomon Brothers Inc....
Artemis Capital Group,
Inc. ..................
Samuel A. Ramirez & Co.
Inc. ..................
[Others]................
---- ---- ---- ---- ---- ----
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, 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 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 STO 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.
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<PAGE>
RATINGS
It is a condition of issuance of the Offered Certificates that the Offered
Certificates be rated " " 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 O'Melveny & Myers LLP, 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.
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<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-15
Book-Entry Certificates.......................................... S-13
Capital Subaccount............................................... S-11
CDC.............................................................. S-13
Cede............................................................. S-13
Certificate Interest Rate........................................ S-17
Certificate Trustee.............................................. S-7
Certificateholders............................................... S-3
Certificates..................................................... S-15
Class............................................................ S-6, S-7
Class Principal Balance.......................................... S-6
Code............................................................. S-14, S-26
Commission....................................................... S-3
Delaware Trustee................................................. S-7
Distribution Date................................................ S-2, S-8, S-17
DOL.............................................................. S-33
Downgrade Event.................................................. S-18
DTC.............................................................. S-3, S-13
ERISA............................................................ S-14, S-32
ESPs............................................................. S-25
Exchange Act..................................................... S-3
Fixed Rate Certificates.......................................... S-27
Floating Rate.................................................... S-10
Floating Rate Certificates....................................... S-1
General Subaccount............................................... S-10
Infrastructure Bank.............................................. S-7
Interest Accrual Period.......................................... S-16
Interest Determination Date...................................... S-15
IRS.............................................................. S-27
LIBOR............................................................ S-15
London Banking Day............................................... S-15
Net Trust Swap Payment........................................... S-9
Net Trust Swap Receipt........................................... S-9
Non-U.S. Offered Certificateholder............................... S-27
Note Interest Rate............................................... S-20
Note Issuer...................................................... S-1, S-7
Note Trustee..................................................... S-7
Noteholders...................................................... S-20
Notes............................................................ S-1, S-20
Notional Principal Contract...................................... S-15, S-28
NPC.............................................................. S-28
Offered Certificates............................................. S-1, S-15
OID.............................................................. S-27
Original Certificate Principal Balance........................... S-6
Overcollateralization Amount..................................... S-11, S-22
</TABLE>
S-36
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
--------------
<S> <C>
Overcollateralization Subaccount................................. S-11
Parties in Interest.............................................. S-32
Payment Date..................................................... S-8, S-20
Plan Asset Regulation............................................ S-33
Plan Assets...................................................... S-14, S-32
Plans............................................................ S-14, S-32
Prospectus....................................................... S-2
Quarterly Interest............................................... S-16
Rating Agency.................................................... S-13, S-35
Record Date...................................................... S-8
Replacement Counterparty......................................... S-18
Required Overcollateralization Amount............................ S-11
Reserve Subaccount............................................... S-11
SDG&E............................................................ S-7
Seller........................................................... S-7
Series Issuance Date............................................. S-5, S-20
Servicer......................................................... S-7
Servicing Fee.................................................... S-12
Special Counsel.................................................. S-26
Swap Agent....................................................... S-18
Swap Agreement................................................... S-9
Swap Counterparty................................................ S-9, S-19
Telerate Page.................................................... S-15
Trust............................................................ S-1, S-7
U.S. Offered Certificateholder................................... S-27
U.S. Person...................................................... S-26
Underlying Notes................................................. S-1, S-7, S-20
Underwriters..................................................... S-34
Withholding Agent................................................ S-30
</TABLE>
S-37
<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 21, 1997
PROSPECTUS
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST SDG&E-1
RATE REDUCTION CERTIFICATES
ISSUABLE IN SERIES
----------
SDG&E FUNDING LLC
(ISSUER OF THE NOTES)
----------
SAN DIEGO GAS & ELECTRIC 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 SDG&E-1 Rate Reduction Certificates (the "Certificates") offered hereby
in an aggregate principal amount of up to $800,000,000 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 SDG&E-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 SDG&E Funding LLC Notes
(the "Notes") issued by SDG&E Funding LLC, a Delaware special purpose limited
liability company (the "Note Issuer"), and the proceeds thereof. The sole
member of the Note Issuer is San Diego Gas & Electric Company, a California
corporation ("SDG&E"). 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 SDG&E and the
Note Issuer, the Transition Property Servicing Agreement between SDG&E 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.
SDG&E 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 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, 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 93 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
any 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
Sections 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 SDG&E Funding LLC at P.O. Box 1831, Room 111, San Diego,
California 92112 or by telephone at (619) 696-2328.
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............................................... 31
Uncertainties Related to the Electric Industry Generally................. 31
Bankruptcy and Creditors' Rights Issues.................................. 32
Nature of the Certificates............................................... 34
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....... 46
THE TRUST.................................................................. 47
THE INFRASTRUCTURE BANK.................................................... 48
THE NOTE ISSUER............................................................ 49
Officers and Directors................................................... 49
THE SELLER AND SERVICER.................................................... 51
General.................................................................. 51
SDG&E Customer Base and Electric Energy Consumption...................... 51
Forecasting Consumption.................................................. 52
Forecast Variance........................................................ 52
Credit Policy; Billing; Collections; Restoration of Service.............. 53
Loss and Delinquency Experience.......................................... 55
Delinquencies............................................................ 56
SERVICING.................................................................. 57
Servicing Procedures..................................................... 57
Servicing Standards and Covenants........................................ 57
Remittances to Collection Account........................................ 58
No Servicer Advances..................................................... 58
Servicing Compensation................................................... 58
Aggregators and Other Suppliers.......................................... 59
Servicer Representations and Warranties.................................. 59
</TABLE>
5
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Statements by Servicer................................................... 60
Evidence as to Compliance................................................ 60
Certain Matters Regarding the Servicer................................... 60
Servicer Defaults........................................................ 61
Rights Upon Servicer Default............................................. 61
Waiver of Past Defaults.................................................. 62
Successor Servicer....................................................... 62
Amendment................................................................ 62
Termination.............................................................. 62
DESCRIPTION OF THE NOTES................................................... 63
General.................................................................. 63
Security................................................................. 63
Collection Account....................................................... 63
Interest and Principal................................................... 64
Optional Redemption...................................................... 65
Overcollateralization Amount............................................. 65
Capital Subaccount....................................................... 66
Reserve Subaccount....................................................... 66
Allocations; Payments.................................................... 66
Actions by Noteholders................................................... 67
Note Events of Default; Rights Upon Note Event of Default................ 68
Certain Covenants of the Note Issuer..................................... 69
Reports to Noteholders................................................... 71
Annual Compliance Statement.............................................. 71
DESCRIPTION OF THE CERTIFICATES............................................ 72
General.................................................................. 72
State Pledge............................................................. 72
Payments and Distributions............................................... 72
Floating Rate Certificates............................................... 74
Voting of the Notes...................................................... 76
Events of Default........................................................ 76
Redemption............................................................... 78
Reports to Certificateholders............................................ 78
Supplemental Trust Agreements............................................ 78
List of Certificateholders............................................... 79
Registration and Transfer of the Certificates............................ 79
Book-Entry Registration.................................................. 80
Definitive Certificates.................................................. 82
Conditions of Issuance of Additional Series.............................. 83
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 84
General.................................................................. 84
Treatment of the Certificates............................................ 84
Taxation of U.S. Fixed Rate Certificateholders........................... 85
Taxation of U.S. Floating Rate Certificateholders........................ 86
Integration of the Underlying Notes and the Swap Agreement............... 87
Sale or Exchange of Fixed Rate Certificates.............................. 87
Sale or Exchange of Floating Rate Certificates........................... 87
</TABLE>
6
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Non-U.S. Certificateholders.............................................. 88
Information Reporting and Backup Withholding............................. 88
STATE TAXATION............................................................. 89
California Taxation...................................................... 89
Other States............................................................. 89
ERISA CONSIDERATIONS....................................................... 90
USE OF PROCEEDS............................................................ 91
PLAN OF DISTRIBUTION....................................................... 91
RATINGS.................................................................... 91
LEGAL MATTERS.............................................................. 92
INDEX OF PRINCIPAL DEFINITIONS............................................. 93
INDEX TO 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 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 SDG&E,
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
fractional undivided beneficial interests 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 pay interest and amortize the Notes, in
accordance with the Expected Amortization
Schedules, pay all related fees and expenses, and
fund the Overcollateralization Subaccount up to
the Required Overcollateralization Level and
replenish the Capital Subaccount up to the
Required Capital Level to the extent amounts are
drawn therefrom, 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.]
9
<PAGE>
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.
The ability of the Note Issuer to receive FTA
Payments and make payments on the Notes could be
adversely affected 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 Charges" 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 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.
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Seller and Servicer......... San Diego Gas & Electric Company, a California
corporation ("SDG&E"). SDG&E will sell the
Transition Property (in its capacity as seller,
the "Seller") to SDG&E Funding LLC, a Delaware
limited liability company of which the Seller is
the sole member (the "Note 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").
SDG&E 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").
SDG&E is a public utility primarily engaged in
the business of supplying (i) electric energy to
customers in San Diego County and adjacent
portions of Orange County, California and (ii)
natural gas to customers in San Diego County.
See "The Seller and Servicer" herein.
Issuer of Certificates...... A trust entitled "California Infrastructure and
Economic Development Bank Special Purpose Trust
SDG&E-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 SDG&E-1
Rate Reduction Certificates (the "Certificates"),
issuable in Series. The Certificates will be
issuable under the terms of the Trust Agreement.
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<PAGE>
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 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"
herein.
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
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<PAGE>
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.
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.................
SDG&E Funding LLC, a Delaware special purpose
limited liability company whose single member is
SDG&E. The assets of the Note Issuer will consist
of the Transition Property and the other Note
Collateral, including capital contributed by
SDG&E in an amount specified in each Prospectus
Supplement. The principal executive office of the
Note Issuer is located at 101 Ash Street, Room
111, San Diego, California 92101, and its
telephone number is (619) 696-2328.
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 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
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<PAGE>
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.
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 electric generating facilities,
generation related regulatory assets, amounts
recoverable in electric rates pursuant to
settlement agreements approved by the California
Public Utilities Commission (the "CPUC") 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, including
associated costs, is $800,000,000. 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
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<PAGE>
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, 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,
determined on a one-time basis, was less than 20
kilowatts in at least nine of the twelve billing
periods prior to October 1, 1997, and new
commercial customers since that time whose peak
demand, estimated on a one-time basis, is less
than 20 kilowatts ("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 initial FTA Charges are
expected to result in FTA Payments by the
Residential Customers and Small Commercial
Customers representing approximately 75% and 25%,
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 that Customers choose to purchase
electricity services from an ESP that provides
consolidated billing, payments of the FTA Charges
relating to the electricity usage of 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 payment
of interest, 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 through which certain Transition Costs
are to be recovered from on the class of
electricity consumers comprised of (i)
Residential Customers and (ii) Small Commercial
Customers. In each case, the FTA Charge will be
collected 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 an alternative energy service providers
("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 below).
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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
below) are collectively referred to as "Advice
Letters." The Servicing Agreement requires the
Servicer to calculate adjustments to the FTA
Charges and to file 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, 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 pay interest and 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. The
Servicer may also file a routine True-Up
Mechanism Advice Letter quarterly if so 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 fund
the Overcollateralization Subaccount and
replenish the Capital 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 SDG&E 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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<PAGE>
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 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
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<PAGE>
Prospectus Supplement, to the extent of payments
received with 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, a
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"Certificate Event of Default," and, together
with a Note Event of 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
Obligations" 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 recover FTA Charges in amounts
equal to the 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 State of California Treasurer's Office
should determine the Overcollateralization Amount
required. The Overcollateralization Amount for
each Series of Notes will be either (a) 0.50% 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 the Notes
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<PAGE>
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 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% 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 calendar month. Because the
Servicer does not track cash collections on bills
rendered within each calendar month, the amounts
remitted will be based on estimates
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using the model described herein under
"Servicing--Remittances to Collection Account."
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
SDG&E, 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, provided that the amount paid on each
Payment Date pursuant to this clause (4) may not
exceed $100,000; (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. On each
Remittance Date, the Servicer will remit FTA
Payments expected to have been received during
the preceding calendar month (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
within each calendar month, the amounts remitted
will be based on estimates using the model
described under
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<PAGE>
"Servicing--Remittances to Collection 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
Certificate"), 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 Participant"). 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
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<PAGE>
Prospectus Supplement, which will be in one of
the four highest categories, from one or more
nationally recognized statistical rating 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 in 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 the 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 Note Issuer, the Trust and 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
26
<PAGE>
intended to eliminate the Utilities' ability to recover fully stranded costs,
including the cost of nuclear plants, and intended to 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 and the effect any
such litigation or voter initiative measure will have on the Certificates.
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.
27
<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 application 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." No
assurances are given that SDG&E, as the 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
Certificates.
Limited Rights and Remedies.
Under the terms of the Sale Agreement, SDG&E, 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 if it can be shown to be
necessary to advance an important public interest,
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<PAGE>
as described below. 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 Obligations."
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 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
if it can be shown to be 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, SDG&E 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 been quite accurate, with an
average of a 1.3% underestimate of usage. See "The Seller and Servicer--
Forecast Variance" herein. The accuracy of the Servicer's historical forecasts
are 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
collection of the Overcollateralization Amount and the pledge of 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
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 SDG&E 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 SDG&E'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. SDG&E generally is obligated to provide
service to new Customers under California law. SDG&E relies on the information
provided by Customers and its customer information system. If SDG&E 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. 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 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 other charges, including the
applicable FTA Charges.
Any ESP that provides consolidated billing, including monthly amounts with
respect to the FTA Charges, is required to pay the Servicer periodic amounts
billed by the Servicer 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. 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 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 would
nevertheless have the right to elect 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 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
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ESPs to forward FTA Payments to SDG&E, as Servicer. 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 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. 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.
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
calendar month. 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
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 may occur as a result of delays in
implementation of the adjustment mechanism. Furthermore, six months after each
calendar month, the Actual FTA Payments with respect to such month 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 generation, transmission and distribution may be adversely
affected, FTA Payments may not be made as expected, the Servicer's business
may be impacted 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
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Federal Preemption of the Statute," at least one of the bills may prohibit the
recovery of FTA Charges; however, none of the bills have 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 could 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" herein, 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 be able to exercise shut-off rights as an enforcement tool against a
self-generator.
In addition, to the extent that Customers elect to have their electricity
provided by 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 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.
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
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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 a SDG&E bankruptcy proceeding, the mere
fact of a SDG&E bankruptcy proceeding could have an adverse effect on the
secondary market of the Certificates, including an adverse effect on the
liquidity and market 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. These steps include the fact that 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, these
steps may not be completely effective, and thus 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 purported to be 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
purported to be granted in the Sale Agreement do not attach to collections of
FTA Payments made in respect of electricity consumed after the commencement of
a bankruptcy case for 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 are 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 a delay in receipt of scheduled
distributions.
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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 would
order that the assets 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.
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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 assets. 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
Counterparty 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 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 the payments in respect of the Transition
Property.
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
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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 of
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.
Effect of 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. In addition, the Note
Issuer may be required to redeem the Notes if the Seller is required to
repurchase the Transition Property as a result of a breach of the Seller's
representations and warranties in the Sale Agreement as described herein under
"Description of the Transition Property--Seller Representations and Warranties
and Repurchase Obligations." 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 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.
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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
under the Swap Agreement, 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 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,
a termination event 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 Transition 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 changes which are occurring at both the federal and the California
levels will have a significant impact on SDG&E and the other Utilities, as
well as other entities in the industry. SDG&E 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 SDG&E'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 legislation,
which as amended is referred to herein as the Statute, was adopted to provide,
among other things, for the issuance of "rate reduction bonds," which are the
Certificates described herein, 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 this legislation, 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 electric generating
facilities, amounts recoverable in electric rates pursuant to settlement
agreements approved by the CPUC, and 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 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 approximately $2 billion and the Financing Order
authorizes the issuance of up to $800 million 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 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, SDG&E 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 $800,000,000. 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.
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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 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 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 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 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 the Residential Customers and Small Commercial Customers
representing approximately 75% and 25%, 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 will still be required to make payments with respect to the
applicable FTA Charges, even if a Customer elects to purchase electricity from
another supplier, another entity takes over a portion of SDG&E's existing
service territory or a Small Commercial Customer's load increases so that such
Customer is no longer a Small Commercial Customer. The Financing Order
provides that each Customer who leaves SDG&E'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. The Financing Order
provides that each Customer who ceases to be a Small Commercial Customer as a
result of increased electricity usage will continue to pay the applicable FTA
Charge, based on either (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; provided, however, that any such Customer
will have the opportunity to continue to pay for electricity based on the
Small Commercial Customer rates, including the applicable FTA Charge. To the
extent that Customers elect to have their electricity provided by 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 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." In addition, 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 be able to exercise shut-off rights as an enforcement tool against a
self-generator. 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 pay interest and 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: (a)
to fund the Overcollateralization Subaccount up to the Required
Overcollateralization Level and (b) 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 were 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
methodology described in the Seller's application for the Financing Order,
(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 (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
Overcollateralization Subaccount as scheduled. 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 15 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 15 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 15 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 OBLIGATIONS
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 of the Certificateholders' rights, which under current
law would be permitted if it can be shown to be 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
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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 the Infrastructure Bank, the Transition
Property or the FTA Charges or 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, 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, and such
escrowed amounts will be used by the Note Trustee to make such interest
payments if there are not sufficient funds otherwise available therefore. The
Sale Agreement will provide that any change in 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.
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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
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 on the Certificateholders 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, as agent for sale
(the "STO"), 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.
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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 related Scheduled Final Distribution 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 Final
Distribution 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 in the Reserve Subaccount, the Overcollateralization Subaccount and
the Capital Subaccount. Since the FTA Charges 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
Certificates will depend, in part, on actual electricity 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 energy 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--Adjustments to the FTA Charges" 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 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 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.
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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 fractional
undivided beneficial interests 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 wilful 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.
47
<PAGE>
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.
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, 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.
48
<PAGE>
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 101 Ash Street, Room 111, San Diego, California 92101.
The mailing address of SDG&E Funding LLC is P.O. Box 1831, Room 111, San
Diego, California 92112 and its phone number is (619) 696-2328. 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 capital contributed by SDG&E 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 SDG&E in the event SDG&E
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.
DIRECTORS AND OFFICERS
The following is a list of the principal officers and directors of the Note
Issuer. All such persons have served in the capacities set forth below since
July 1, 1997, unless otherwise indicated, 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, directors and employees to carry on its
business.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Charles A. McMonagle................ 47 President, Chief Executive Officer and Director
James P. Trent...................... 53 Chief Financial Officer, Chief Accounting Officer,
Treasurer and Director
Gary A. Perlmutter.................. 33 Vice President, Counsel and Secretary
Christian P. Fonss.................. 51 Vice President and Chief Taxation Officer
Donald J. Puglisi................... 52 Director
</TABLE>
Charles A. McMonagle is President, Chief Executive Officer and a Director of
the Note Issuer. Mr. McMonagle has served as manager of financial services of
SDG&E for the past five years. As manager of financial services, Mr. McMonagle
has been involved in many aspects of corporate financing, including securing
long-term financing for SDG&E, managing the assets of SDG&E's pension plan,
performing financial planning for SDG&E and managing SDG&E's cash position.
James P. Trent is Chief Financial Officer, Chief Accounting Officer,
Treasurer and a Director of the Note Issuer. Mr. Trent was appointed Treasurer
of the Note Issuer on November 6, 1997. Mr. Trent has served as manager of
accounting operations of SDG&E since January 1996. From December 1991 to
December 1995, Mr. Trent served as manager of accounting services for SDG&E.
As manager of accounting operations, Mr. Trent has been involved in many
aspects of accounting, including management and external financial reporting,
cost and fixed asset accounting, accounts payable and payroll.
Gary A. Perlmutter is Vice President, Counsel and Secretary of the Note
Issuer. Mr. Perlmutter was appointed Secretary of the Note Issuer on November
6, 1997. Mr. Perlmutter has also served as corporate counsel to SDG&E since
April 1996. From 1988 to 1996, Mr. Perlmutter practiced general corporate law
as an associate with various law firms. Mr. Perlmutter has been involved in
the legal aspects of financing, forming business entities and major
acquisitions and sales of assets and businesses.
49
<PAGE>
Christian P. Fonss is Vice President and Chief Taxation Officer of the Note
Issuer. Mr. Fonss also served as corporate tax director of SDG&E and as vice
president of corporate development of two subsidiaries of SDG&E, Califia
Company and ENOVA Financial, Inc. for the past five years. As corporate tax
director of SDG&E, Mr. Fonss has been involved in federal and state income tax
matters and franchise and sales tax issues. As vice president of corporate
development of Califia Company and ENOVA Financial, Inc., Mr. Fonss
participates in the decision making process of investing in tax advantaged low
income housing projects and leasing transactions.
Donald J. Puglisi is the Independent Director of the Note Issuer. Mr.
Puglisi is also the MBNA America Business Professor and Professor of Finance
at the University of Delaware, where he has been on the faculty since 1971,
and managing director and founder of Puglisi & Associates since 1973. Puglisi
and Associates provides investment management, accounting and other
administrative services to a variety of Delaware-based holding companies. In
July 1997, Mr. Puglisi was nominated by the Governor of Delaware and confirmed
by the Senate of Delaware to serve as a Commissioner on the State of
Delaware's Public Service Commission, the group that is authorized to regulate
investor-owned utilities within the State of Delaware. Mr. Puglisi serves on
the boards of the following public companies: Aames Capital Acceptance Corp.;
AJL PEPS Trust; American Express Receivables Financing Corporation II;
Caterpillar Financial Receivables Inc.; DECS Trust; Fingerhut Receivables,
Inc.; Great Lakes Fund, Inc.; Huron Investment Fund, Inc.; Mandatory Common
Exchange Trust; Merril Lynch Mortgage Investors, Inc.; Nextel STRYPES Trust;
Select Asset Fund, Series 1, Inc.; Select Asset Fund, Series 2, Inc.; Select
Asset Fund, Series 3, Inc.; Snyder STRYPES Trust; Toyota Motor Credit
Receivables Corporation; Volkswagen Credit Auto Receivables Corporation; and
WBK STRYPES Trust.
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 initial compensation for the Independent Director will be $5,000.
Each officer serves in such capacity at the discretion of the Note Issuer's
Board of Directors. SDG&E 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.
50
<PAGE>
THE SELLER AND SERVICER
GENERAL
The Seller is engaged in the business of generating, transmitting and
distributing electric power to residential, commercial, industrial and
agricultural customers within its electric service territory. SDG&E's electric
service territory currently consists of San Diego County and adjacent portions
of Orange County, California with an estimated population of 2.7 million.
During 1996, SDG&E provided a total of 16,046 million kilowatt-hours of
electricity to 1.2 million customers, including 7,822 million kilowatt-hours
of electricity provided to its approximately 1.14 million Residential
Customers and Small Commercial Customers.
As an investor-owned electric utility, the Seller is regulated by the CPUC
and the FERC.
SDG&E CUSTOMER BASE AND ELECTRIC ENERGY CONSUMPTION
SDG&E's customer base is divided into several categories, including the
residential and small commercial categories covered by the Statute.
Residential Customers use electricity for lighting, operating household
appliances and other domestic purposes. The primary factor influencing the
number of Residential Customers is the number of housing starts, which is a
measure of the strength of the economy. The primary factors influencing short-
term energy consumption are weather and electricity prices. Long-term factors
would include the availability of more energy efficient appliances, new energy
consuming technologies and the customer's ability to acquire these new
products. Small Commercial Customers use electricity for lighting, operating
appliances and operating equipment in office and retail settings. The primary
factor influencing the number of Small Commercial Customers is commercial
employment, which is also a measure of the strength of the economy. The
factors influencing the energy consumption of a Small Commercial Customer
include those of the Residential Customers, and also include the level of
business activity associated with the particular Small Commercial Customer.
The table below sets forth the number of customers, electric energy
consumption and billed revenues for the two categories.
CUSTOMERS AND ENERGY CONSUMPTION
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
AVERAGE NUMBER OF CUSTOMERS:
(IN THOUSANDS)
Residential................................... 998 1,005 1,012 1,021 1,032
Small Commercial.............................. 98 99 101 102 104
----- ----- ----- ----- -----
Total....................................... 1,096 1,104 1,113 1,123 1,136
===== ===== ===== ===== =====
ENERGY CONSUMPTION (GWH):
Residential................................... 5,611 5,550 5,731 5,736 5,936
Small Commercial.............................. 1,828 1,795 1,831 1,833 1,904
----- ----- ----- ----- -----
Total....................................... 7,439 7,345 7,562 7,569 7,840
===== ===== ===== ===== =====
BILLED REVENUES:
(IN MILLIONS)
Residential................................... $ 605 $ 600 $ 632 $ 635 $ 647
Small Commercial.............................. 188 189 208 210 216
----- ----- ----- ----- -----
Total....................................... $ 793 $ 789 $ 840 $ 845 $ 863
===== ===== ===== ===== =====
</TABLE>
51
<PAGE>
FORECASTING CONSUMPTION
SDG&E has developed sales and load forecasts since its inception. The only
things that have changed over the years have been the length of the forecast
horizon and the methods of forecasting. Sales forecasts have always had a
short horizon since they are used for rate making and budgeting purposes. Load
forecast horizons have varied over the years, depending on the lead time
necessary to construct new resources. In the early years, the horizon was as
few as four or five years, but since then it has been twelve to twenty years.
Forecasts developed in the early years used simple trending techniques.
Forecasts produced more recently have been done using more sophisticated
statistical techniques. These models produce quarterly estimates, which are
then spread to the months using recorded monthly sales data as allocation
factors.
SDG&E's electric sales forecast was last updated in September 1997 and is
based on a combination of short-term and long-term forecasting models. The
short-term forecasting models are econometric models used to project sales for
the first three years after the base year. SDG&E develops econometric models
to forecast electric sales for the classes of Residential Customers and Small
Commercial Customers. These forecasts also will be used in calculating the FTA
Charges for any given period, in order to determine the revenue required (in
the form of FTA Payments) to meet the Expected Amortization Schedules.
The long-term models are used to forecast sales for years three through
twenty after the base year. They are end-use models as required by the
California Energy Commission's Common Forecasting Methodology process. Such
models explicitly forecast energy consumption by end-uses such as lighting and
heating.
For the residential sector, energy consumption is the product of the total
number of households in the SDG&E service area, average appliance saturations,
and average unit energy consumption by end-use. Adjustments for additional
conservation savings and appliance utilization are also accounted for in the
model.
For the small commercial sector, energy consumption is the product of floor
space (organized by building type and climate area), average end-use equipment
saturation and average unit energy consumption by end-use. Equipment
replacement rates and efficiency rates of new equipment are accounted for in
the calculations. Adjustments for additional conservation savings and
equipment utilization are also accounted for in the model.
The short- and long-term models have been in use for more than twenty years
and have undergone extensive review by the CPUC and the California Energy
Commission, respectively. Each year SDG&E updates these models with the most
recent recorded data, and conducts testing to ensure that model statistics
meet the highest standards possible.
SDG&E utilizes DRI/McGraw Hill ("DRI") to produce economic and demographic
forecasts. The most recent DRI regional economic forecast (February 1997) was
used to drive SDG&E's electric sales forecast of both the short-term and long-
term models of the residential and commercial sectors.
The forecasted weather related drivers assume normal weather conditions.
Normal weather conditions imply a fifteen year average for such weather
drivers as heating and cooling degree days.
FORECAST VARIANCE
SDG&E conducts sales forecast variance analyses on a regular basis to
monitor how well forecasts track recorded consumption. This is important for
short-term resource procurement functions as well as budgeting and financial
reporting.
52
<PAGE>
Since SDG&E updates its forecast on an annual basis, the table below shows
annual variance for forecasts prepared for one year in the future. For
example, the annual 1992 variance is based on a forecast prepared in 1991. The
variances for the Aggregate Combined Classes, which consist of both the
Residential and the Small Commercial Customer classes, range from no variance
to a high of 3.4% in absolute terms.
ANNUAL FORECAST VARIANCES
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
RESIDENTIAL:
Actual (1).......................... 5,611 5,550 5,731 5,736 5,936
Forecast (1)........................ 5,425 5,519 5,610 5,724 5,882
----- ----- ----- ----- -----
Variance............................ (3.3)% (0.6)% (2.1)% (0.2)% (0.9)%
SMALL COMMERCIAL:
Actual (1).......................... 1,828 1,795 1,831 1,833 1,904
Forecast (1)........................ 1,760 1,792 1,832 1,843 1,892
----- ----- ----- ----- -----
Variance............................ (3.7)% (0.2)% 0.1 % 0.5 % (0.6)%
AGGREGATE COMBINED CLASSES:
Actual (1).......................... 7,439 7,345 7,562 7,569 7,840
Forecast (1)........................ 7,185 7,311 7,442 7,567 7,774
----- ----- ----- ----- -----
Variance............................ (3.4)% (0.5)% (1.6)% 0.0 % (0.8)%
</TABLE>
- --------
(1) In Giga Watt hours.
During the last five years, no discernible trend is apparent with respect to
the historical forecast variance relating to the Residential Customers or the
Aggregate Combined Classes. The variance for the Residential Customer class
has ranged from a 3.3% underestimate of usage to a 0.2% underestimate of
usage, with an average of 1.4% underestimate of usage and the variance for the
Small Commercial Customer class has ranged from a 3.7% underestimate of usage
to a 0.5% overestimate of usage, with an average of 1.6% underestimate of
usage. The variance for the Aggregate Combined classes has ranged from a 3.4%
underestimate of usage to an accurate estimate of usage, with an average 1.3%
underestimate of usage. With respect to historical forecast variances relating
to both the Residential and Small Commercial Customers, there has been a trend
towards improvement in forecasting in recent years.
CREDIT POLICY; BILLING; COLLECTIONS; RESTORATION OF SERVICE
Credit Policy
SDG&E is obligated to provide service to all customers under California law.
SDG&E relies on the information provided by the customer and its customer
information system to indicate whether the customer has been previously served
by SDG&E.
Certain accounts are secured with deposits or guarantees to reduce losses.
The amount of the deposit reflects the potential use over a two-month period,
which is the average time period required to take billing action on past-due
billings. 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.
As a rule, Residential Customers may establish credit by depositing cash
equal to twice the average monthly bill or furnishing a satisfactory guarantee
or bond. Deposits or guarantees may not be required if the applicant has
previously been a customer of SDG&E and has paid all bills for service for a
period of 12 consecutive months immediately prior to the date when the
customer previously ceased SDG&E service; provided such service occurred
within two years from the date of the new application for service. Further,
SDG&E uses a positive identification and credit scoring system to determine
the creditworthiness of its new customers. This system has proven to be an
effective method for further reducing SDG&E's uncollectible amounts.
53
<PAGE>
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 SDG&E.
Deposits or guarantees for Small Commercial Customers may not be required if
the applicant has been a SDG&E customer during the past two years with like
service, during the past 12 consecutive months of that prior service has not
had any past due bills, and the customer has paid all prior SDG&E bills.
SDG&E may change its credit policies and procedures from time to time. It is
expected that any such changes would be designed to enhance SDG&E's ability to
make timely recovery of amounts billed to customers.
Billing Process
SDG&E 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, SDG&E mailed out an average of 59,000 bills on each
Servicer Business Day to 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.
SDG&E may change its billing policies and procedures from time to time. It
is expected that any such changes would be designed to enhance SDG&E's ability
to make timely recovery of amounts billed to customers.
Collection Process
SDG&E receives approximately 84 percent of total bill payments via the U.S.
mail. Approximately 12 percent of bill payments are received at local offices
and other pay offices. SDG&E receives the remainder of payments via automatic
payment service, electronic funds transfer and electronic data interchange.
Either the night after the day the meter is read or the next business day,
bills are processed and mailed to customers. Bills are due on presentation,
and are considered past due after 15 calendar days for small commercial
accounts, and after 19 days for residential accounts. Timing and collection
follow-up is based on customer type, as follows.
For Residential Customers, a past due reminder notice is sent with the
residential bill if payment has not been received by the time of the second
month's billing. Two to four business days after the past due bill is issued,
a "first call" is made to the account address to deliver a notice to either
pay or face potential disconnection. If payment is not received, approximately
9 to 11 business days later another field call is made to the residential
customer and if payment is not made to the collector making the visit, the
service may be terminated at that time.
For Small Commercial Customers, a past due notice is mailed if the account
remains unpaid seventeen days after the original bill date. Such past due
notice provides seven additional days for the Small Commercial Customer to
pay. If payment is not received after the seventh day, a field call is
arranged two to four days later to request payment. If payment is not made
four days thereafter, another field call is arranged and the commercial
account may be disconnected.
For both Residential and Small Commercial Customers, a closing bill
including all unpaid amounts is generally issued within three days of service
disconnection. Unpaid closed accounts are written-off 145 days after the
closing bill is issued.
54
<PAGE>
SDG&E may change its collection policies and procedures from time to time.
It is expected that any such changes would be designed to enhance SDG&E's
ability to make timely recovery of amounts billed to customers.
Restoration of Service
Once service has been shut-off for non-payment, SDG&E has the right to
require the payment of all of the following charges: (i) the total amount
owing on an account including any past-due balance, 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 item 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.
SDG&E may change its restoration of service policies and procedures from
time to time. It is expected that any such changes would be designed to
enhance SDG&E's ability to make timely recovery of amounts billed to
customers.
LOSS AND DELINQUENCY EXPERIENCE
The following table sets forth information relating to the total billed
revenues and write-off experience of SDG&E for (i) residential and (ii)
commercial and industrial customers for the first nine months of 1997 and each
of the five preceding years. Such historical information is presented herein
because SDG&E's actual experience with respect to write-offs and delinquencies
may affect the timing of FTA Payments.
TOTAL ELECTRIC AND GAS BILLED REVENUES
(IN MILLIONS)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997(1)
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Residential....................... $ 757 $ 774 $ 825 $ 805 $ 824 $ 662
Commercial and Industrial(2)...... 1,101 1,114 1,141 1,108 1,154 976
------ ------ ------ ------ ------ ------
Total........................... $1,858 $1,888 $1,966 $1,913 $1,978 $1,638
====== ====== ====== ====== ====== ======
</TABLE>
NET ELECTRIC AND GAS WRITE-OFFS(3)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997(1)
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Residential....................... $4,241 $4,984 $4,327 $4,204 $2,496 $2,605
Commercial and Industrial(2)...... 769 768 594 838 28 399
------ ------ ------ ------ ------ ------
Total........................... $5,010 $5,752 $4,921 $5,042 $2,524 $3,004
====== ====== ====== ====== ====== ======
</TABLE>
NET WRITE-OFFS AS A PERCENTAGE OF BILLED REVENUE(3)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996(4) 1997(1)
---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Residential.......................... 0.56% 0.64% 0.52% 0.52% 0.30% 0.39%
Commercial and Industrial(2)......... 0.07% 0.07% 0.05% 0.08% 0.00% 0.04%
---- ---- ---- ---- ---- ----
Total.............................. 0.27% 0.30% 0.25% 0.26% 0.13% 0.18%
==== ==== ==== ==== ==== ====
</TABLE>
- --------
(1) Data is available for January 1, 1997 through September 30, 1997.
(2) SDG&E has not historically maintained separate information regarding
write-offs for the Small Commercial Customers. Revenues for Small
Commercial Customers constituted approximately 20% of revenues for the
commercial and industrial class of electricity consumers in 1996. Since
the composition of the Small Commercial Customers class differs from the
composition of the commercial and industrial class, the write-off
experience of the larger class may not be indicative of the write-off
experience of the Small Commercial Customers class.
(3) Net write-offs include any amounts recovered by SDG&E from deposits,
bankruptcy proceedings and payments received after an account has been
closed.
(4) Due principally to a one-time event, the 1996 loss data is lower than
would normally be expected. The one time event in 1996 related to a CPUC
mandated customer refund. This refund was applied to amounts owed by
Customers, thus decreasing the write-offs in 1996.
55
<PAGE>
Historical trends towards slightly decreasing net write-offs are apparent
with respect to both the Residential Customers and the commercial and
industrial users. Such net write-offs continue to be very small.
DELINQUENCIES
The following tables sets forth information relating to the delinquency
experience of SDG&E for (i) residential and (ii) commercial and industrial
customers for the first three months of 1997 and each of the five preceding
years:
RESIDENTIAL AND COMMERCIAL/INDUSTRIAL DELINQUENCY DATA
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997(1)
----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Residential(2) Amounts not
Collected within:
30 days.......................... 20.37% 19.12% 17.32% 17.15% 15.48% 15.45%
60 days.......................... 4.48 4.01 2.33 2.41 2.07 1.90
90 days.......................... 0.57 0.47 0.22 0.22 0.18 0.13
120+ days........................ 0.14 0.10 0.07 0.07 0.06 0.02
Commercial and Industrial(2)(3)
Amounts not Collected within:
30 days.......................... 16.91% 13.49% 10.61% 10.10% 12.62% 16.33%
60 days.......................... 0.43 0.36 0.44 0.63 0.71 0.64
90 days.......................... 0.10 0.06 0.10 0.12 0.17 0.13
120+ days........................ 0.12 0.06 0.06 0.08 0.12 0.19
</TABLE>
(1) Data is available for January 1, 1997 through March 31, 1997.
(2) This delinquency data is only for customer accounts where service is still
being provided, i.e., open accounts. The write-off data on the previous
page is compiled on a different basis in that it reflects only customer
accounts where service is no longer provided, i.e., closed accounts.
(3) SDG&E has not historically maintained separate information relating to
delinquencies for the Small Commercial Customers. Revenues for Small
Commercial Customers constituted approximately 20% of the commercial and
industrial class of electricity consumers in 1996. Since the composition
of the Small Commercial Customers class differs from the composition of
the commercial and industrial class, the delinquency experience of the
larger class may not be indicative of the delinquency experience of the
Small Commercial Customers class.
No discernible trends are apparent with respect to SDG&E's delinquency
experiences with respect to the Residential Customers and the commercial and
industrial customers. The Note Issuer does not believe that the delinquency
experience with respect to the FTA Payments will differ substantially from the
approximate rates indicated above.
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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 SDG&E based on the portions of the amount billed allocable to the
applicable FTA Charge and the total charges due to SDG&E. If such amounts are
billed and collected by SDG&E for an alternative energy service provider
pursuant to a consolidated billing arrangement, the total charges due to the
alternative energy service provider will also be included in the proportional
allocation of any partial payment.
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 Collections 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.
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, (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; (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.
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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
that month and each of the following five months (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 calendar month, based on
the applicable Collections Curve, 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 to be remitted with respect to a
particular calendar month during the six months following the beginning of
such calendar month based on the Collections Curve is referred to as the
"Estimated FTA Payments" herein. Pending remittance to the Collection Account,
FTA Payments 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 each
calendar month, the Servicer will compare actual FTA Payments received with
respect to that calendar month (the "Actual FTA Payments") to the Estimated
FTA Payments for that calendar month remitted to the Collection Account. If
Estimated FTA Payments remitted with respect to a calendar month exceed Actual
FTA Payments attributable to such calendar month (such excess, an "Excess
Remittance"), the Servicer shall be entitled to either (a) 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 or (b) immediately be paid from the Collection
Account or any subaccount therein the amount of such Excess Remittance, such
payment becoming the property of the Servicer. If Estimated FTA Payments
remitted with respect to a calendar month are less than Actual FTA Payments
attributable to such calendar month (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 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 alternative
energy service providers ("ESPs") to provide a consolidated bill to their
retail customers covering amounts owed 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 any ESP elects to perform
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 Servicer periodic amounts
billed by the Servicer 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.
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 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 SDG&E, as Servicer. 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 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. 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 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
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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 calendar month (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 Infrastructure Bank, 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 SDG&E may not resign from its
obligations and duties as Servicer thereunder, except upon either (a) a
determination that SDG&E's performance of such duties is no
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longer 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 SDG&E'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 Delaware Trustee, the Certificate 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
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for the Servicer, and no Servicer Default other than such appointment has
occurred, such trustee or 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 SDG&E 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 SDG&E and less capable systems than those employed
by SDG&E. 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 applicable FTA Charge.
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 calendar
month, 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 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 Capital 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 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
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 either (a) 0.50%
of the initial principal amount of the Series of Notes or (b) such greater
amount is necessary to obtain from the Rating Agencies the highest possible
investment grade ratings for the Notes 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% 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, fund the
Overcollateralization Subaccount as scheduled and replenish the Capital
Subaccount. 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, provided that the amount paid on each Payment Date
pursuant to this clause (d) may not exceed $100,000;
(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
Certificate Trustee, as Noteholder, for distribution to the
Certificateholders;
(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;
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(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 SDG&E
as the Administrator under the Administrative Services Agreement between
SDG&E 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.
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
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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
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)
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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.
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
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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
Note 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 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 calendar month 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 equity in the Note Issuer to decline below
0.50% of the initial principal amount of all Series of Notes issued and
outstanding pursuant to the Indenture.
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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, the proceeds thereof and
payments pursuant to any related Swap Agreement. 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 a 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 Note Issuer, the
Trust and the Certificateholders (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.
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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 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.
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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 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 San Diego, 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,
a termination event 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
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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 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 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 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
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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.
(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
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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.
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
for cash. 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% 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% 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.
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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
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 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
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Infrastructure Bank for the benefit of the Certificateholders, or to surrender
any right or power conferred upon 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 10 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.
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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.
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.
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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
Participants. In addition, Certificateholders will receive all distributions
of principal of 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 below) 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 be 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
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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.
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)
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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 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 up front
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
non-periodic payment made with respect to a Swap Agreement. If such a non-
periodic 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."
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
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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 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.
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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% 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
88
<PAGE>
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. 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 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.
89
<PAGE>
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.
90
<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 generally in proportion to its existing capital structure.
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 payments on
the Certificates.
91
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the Notes will be passed upon by O'Melveny
& Myers LLP, counsel to the Seller and the Note Issuer. Certain legal matters
relating to the Certificates and certain federal and California 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.
92
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Act.................................................................. 48
Actual FTA Payments.................................................. 58
Administrator........................................................ 22
Advice Letters....................................................... 16
Agent Bank........................................................... 74
Annual Accountant's Report........................................... 60
Base Calculation Model............................................... 40
Basic Documents...................................................... 70
Book-Entry Certificate............................................... 24
Calculation Date..................................................... 41
Capital Subaccount................................................... 20, 64
Cede................................................................. 24
CEDEL................................................................ 80
CEDEL Participants................................................... 81
Certificate Account.................................................. 73
Certificate Business Day............................................. 74
Certificate Event of Default......................................... 20, 76
Certificate Trustee.................................................. 11
Certificateholders................................................... 3
Certificates......................................................... 1, 11
Class................................................................ 1, 2, 12
Closing Date......................................................... 42
Code................................................................. 25, 84
Collection Account................................................... 63
Collections Curve.................................................... 58
Commission........................................................... 3
Cooperative.......................................................... 82
CPUC................................................................. 14
Customers............................................................ 15
Default.............................................................. 77
Definitive Certificates.............................................. 82
Delaware Business Trust Act.......................................... 34
Delaware Trustee..................................................... 11
Depositaries......................................................... 80
Distribution Date.................................................... 17
Downgrade Event...................................................... 37, 74
DRI.................................................................. 52
DTC.................................................................. 3, 24
Eligible Institution................................................. 64
Eligible Investments................................................. 64
ERISA................................................................ 25
ESPs................................................................. 15, 30, 59
Estimated FTA Payments............................................... 58
Euroclear............................................................ 80
Euroclear Operator................................................... 82
Euroclear Participants............................................... 82
Event of Default..................................................... 20, 68
Excess Remittance.................................................... 58
Exchange Act......................................................... 3
</TABLE>
93
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Expected Amortization Schedule........................................... 19
FDIC..................................................................... 64
Fee Agreement............................................................ 47
FERC..................................................................... 31
Final Maturity Date...................................................... 63
Financing Order.......................................................... 14
Financing Order Anniversary.............................................. 42
Floating Rate............................................................ 75
Floating Rate Certificates............................................... 12
FTA Charges.............................................................. 15
FTA Collections.......................................................... 16
FTA Payments............................................................. 16
General Subaccount....................................................... 20, 64
H.R. 1230................................................................ 27
Holder................................................................... 81
Indirect Participant..................................................... 24
Infrastructure Bank...................................................... 1, 11
Initial Transition Property.............................................. 42
Interest Accrual Period.................................................. 75
Interest Determination Date.............................................. 74
IRS...................................................................... 84
ISO...................................................................... 31
Issuance Advice Letter................................................... 16
London Banking Day....................................................... 74
Monthly Servicer's Certificate........................................... 60
Moody's.................................................................. 34
Non-U.S. Certificateholder............................................... 84
Note Collateral.......................................................... 63
Note Event of Default.................................................... 19, 68
Note Indenture........................................................... 63
Note Interest Rate....................................................... 63
Note Issuer.............................................................. 1, 11
Note Trustee............................................................. 14
Noteholder............................................................... 63
Notes.................................................................... 1
OID...................................................................... 84
Operating Expenses....................................................... 22
Overcollateralization Amount............................................. 20, 65
Overcollateralization Subaccount......................................... 20, 64
Participants............................................................. 24
Parties in Interest...................................................... 90
Payment Date............................................................. 17
Plan Assets.............................................................. 90
Plans.................................................................... 90
Proposition 218.......................................................... 27
PU Code.................................................................. 14
PX....................................................................... 31
Quarterly Administration Fee............................................. 67
Quarterly Interest....................................................... 67, 75
</TABLE>
94
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Quarterly Overcollateralization Collection............................... 68
Quarterly Principal...................................................... 67
Quarterly Servicer's Certificate......................................... 71
Rate Freeze Period....................................................... 40
Rating Agency............................................................ 25
Rating Agency Condition.................................................. 63
Record Date.............................................................. 18
Registration Statement................................................... 3
Remittance Date.......................................................... 58
Remittance Shortfall..................................................... 58
Repurchase Price......................................................... 44
Required Capital Level................................................... 21, 66
Required Overcollateralization Level..................................... 21
Reserve Subaccount....................................................... 20, 64
Residential Customers.................................................... 15
Rules.................................................................... 81
S&P...................................................................... 34
Sale Agreement........................................................... 11
Scheduled Final Distribution Date........................................ 18
Scheduled Maturity Date.................................................. 63
SDG&E.................................................................... 1, 11
Securities Act........................................................... 3
Seller................................................................... 1, 11
Series................................................................... 1, 22
Series Issuance Date..................................................... 63
Servicer................................................................. 1, 11
Servicer Business Day.................................................... 54
Servicer Defaults........................................................ 61
Servicing Agreement...................................................... 11
Servicing Fee............................................................ 24
Small Commercial Customers............................................... 15
Special Counsel.......................................................... 27
Special Distribution Date................................................ 73
Special Payments......................................................... 73
State Pledge............................................................. 17, 72
Statute.................................................................. 8
STO...................................................................... 45
Subsequent Transfer Date................................................. 42
Subsequent Transition Property........................................... 42
Successor Servicer....................................................... 64
Swap Agreement........................................................... 8, 74
Swap Counterparty........................................................ 74
Telerate Page............................................................ 75
Termination Date......................................................... 18
Terms and Conditions..................................................... 82
Territory................................................................ 15
Transition Costs......................................................... 8, 14
Transition Property...................................................... 16
True-Up Mechanism Advice Letter.......................................... 16, 42
</TABLE>
95
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
True-Up Mechanism Calculation Model...................................... 16, 42
Trust.................................................................... 1, 11
Trust Agreement.......................................................... 11
U.S. Certificateholder................................................... 84
U.S. Person.............................................................. 84
Underlying Notes......................................................... 25
Underwriters............................................................. 91
Utilities................................................................ 8
Withholding Agent........................................................ 88
</TABLE>
96
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheet as of September 30, 1997.................................... F-3
Statement of Operations for the Period from July 1, 1997 (inception) to
September 30, 1997....................................................... F-4
Statement of Cash Flows for the Period from July 1, 1997 (inception) to
September 30, 1997....................................................... F-5
Notes to Financial Statements............................................. F-6
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
SDG&E Funding LLC:
We have audited the accompanying balance sheet of SDG&E Funding LLC (the
"Company") as of September 30, 1997, and the related statements of operations
and of cash flows for the period from July 1, 1997 (inception) 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 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of September 30, 1997, and
the results of its operations and its cash flows for the period from July 1,
1997 (inception) to September 30, 1997 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
San Diego, California
November 6, 1997
F-2
<PAGE>
SDG&E FUNDING LLC
BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Cash.................................................................. $213,278
Unamortized debt issuance costs....................................... 520,223
Other................................................................. 486
--------
Total Assets........................................................ $733,987
========
<CAPTION>
LIABILITIES AND MEMBER'S EQUITY
-------------------------------
<S> <C>
Accounts payable and accrued expenses................................. $334,694
Commitments and contingencies (Notes D and E)
Member's equity....................................................... 399,293
--------
Total Liabilities and Member's Equity............................... $733,987
========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
SDG&E FUNDING LLC
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JULY 1, 1997 (INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<S> <C>
Revenue................................................................ $ --
Rent Expense........................................................... 1,193
-------
Loss Before Income Taxes............................................... (1,193)
Income Tax Benefit..................................................... 486
-------
Net Loss............................................................. $ (707)
=======
</TABLE>
See notes to financial statements.
F-4
<PAGE>
SDG&E FUNDING LLC
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JULY 1, 1997 (INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net loss.......................................................... $ (707)
Adjustments to reconcile net loss to net cash provided by
operating activities
Deferred income tax benefit..................................... (486)
Changes in working capital components
Accounts payable and accrued expenses........................... 1,193
---------
Net cash provided by operating activities..................... --
---------
Cash Flows from Financing Activities
Investment by sole member......................................... 400,000
Debt issuance costs............................................... (186,722)
---------
Net cash provided by financing activities....................... 213,278
---------
Net increase........................................................ 213,278
Cash at July 1, 1997 (inception).................................... --
---------
Cash at September 30, 1997.......................................... $ 213,278
=========
Supplemental Schedule of Noncash Financing Activities
Debt issuance costs............................................... $ 520,223
Cash paid......................................................... (186,722)
---------
Liabilities assumed............................................... $ 333,501
=========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
SDG&E FUNDING LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JULY 1, 1997 (INCEPTION) TO SEPTEMBER 30, 1997
A. NATURE OF OPERATIONS
SDG&E Funding LLC, a Delaware special purpose limited liability company, was
formed on July 1, 1997. Its sole member is San Diego Gas & Electric Company
(SDG&E), a provider of electric and gas services. SDG&E is a wholly owned
subsidiary of Enova Corporation. SDG&E Funding LLC was formed in order to
effect the issuance of notes (the Underlying Notes) intended to finance the
10% electric rate reduction provided to SDG&E's residential and small
commercial customers in connection with electric industry restructuring
mandated by California Assembly Bill 1890 (electric restructuring
legislation).
SDG&E Funding LLC was organized for the limited purpose of holding and
servicing the Transition Property (the right to be paid a specified amount
from a nonbypassable tariff 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, SDG&E Funding LLC's
organizational documents require it to operate in such a manner that it should
not be consolidated in the bankruptcy estate of SDG&E in the event SDG&E
becomes subject to such a proceeding. However, the financial statements of
SDG&E Funding LLC will be consolidated with SDG&E and Enova Corporation for
financial and income tax reporting purposes. The assets of SDG&E Funding LLC
will consist primarily of the Transition Property. SDG&E Funding LLC will
cease to exist upon the maturation or retirement of the Underlying Notes.
B. BASIS OF PRESENTATION
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. UNAMORTIZED DEBT ISSUANCE COSTS
The costs associated with the issuance of the Underlying Notes have been
capitalized and will be amortized over the life of the Underlying Notes.
F-6
<PAGE>
SDG&E FUNDING LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
D. LONG TERM NOTES
The purpose of SDG&E Funding LLC is to issue the Underlying Notes. The sole
holder of the Underlying Notes will be the California Infrastructure and
Economic Development Bank Special Purpose Trust SDG&E-1 (the Trust) which will
issue "rate reduction bonds" with terms and conditions similar to the
Underlying Notes.
SDG&E Funding LLC intends to issue approximately $800 million of Underlying
Notes in late 1997 or early 1998, 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 SDG&E. The Underlying Notes
are expected to be secured solely by the Transition Property and other assets
of SDG&E Funding LLC. The Underlying Notes will not be secured by assets of
SDG&E or Enova Corporation.
The source of repayment will be the nonbypassable tariff authorized by the
CPUC, which will be collected from SDG&E's customers by SDG&E, as servicer.
Principal and interest payments on the Underlying Notes will be due
quarterly and will be deposited monthly with the trustee of the Trust by
SDG&E, satisfying the debt service requirements of SDG&E 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 SDG&E Funding LLC.
E. SIGNIFICANT AGREEMENTS AND RELATED PARTY TRANSACTIONS
Under the Transition Property Servicing Agreement, SDG&E, the servicer, is
required to manage and administer the Transaction Property of SDG&E Funding
LLC and to collect the nonbypassable tariff from the electricity ratepayers on
behalf of SDG&E Funding LLC. SDG&E Funding LLC shall pay an annual servicing
fee equal to a percentage, which will be determined when the Notes are issued,
of the original principal amount 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 SDG&E's customers.
F-7
<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.................................... $ 242,424.24
Printing and Engraving Expenses............................... 100,000.00
Trustees' Fees and Expenses................................... 30,000.00
Legal Fees and Expenses....................................... 1,500,000.00
Blue Sky Fees and Expenses.................................... 10,000.00
Accountants' Fees and Expenses................................ 75,000.00
Rating Agency Fees............................................ 350,000.00
Miscellaneous Fees and Expenses............................... 250,000.00
-------------
Total....................................................... $2,557,424.24
=============
</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.
The Articles of Incorporation of San Diego Gas and Electric Company (the
"Member") authorizes the Member to provide indemnification of agents (as
defined in Section 317 of the California Law) through bylaw provision,
agreements with agents, vote 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.
Section 2 of Article 7 of the Bylaws of the Member provides for the Member
to indemnify any person who is or was a party, or is threatened to be made a
party, to any proceeding (other than an action by or in the right of the
Member to procure a judgment in its favor) by reason of the fact that such
person is or was an agent of the Member against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in the best interests of the Member and, in
the case of a criminal proceeding, had no reasonable
II-1
<PAGE>
cause to believe the conduct of such person was unlawful. Further, Section 3
of Article 7 of the Bylaws provides for the Member to indemnify any person who
is or was a party, or is threatened to be made a party, to any threatened,
pending or completed action by or in the right of the Member to procure a
judgment in its favor by reason of the fact that such person is or was an
agent of the Member against expenses actually and reasonably incurred by such
person in connection with the defense or settlement of such action if such
person acted in good faith and in a manner such person believed to be in the
best interests of the Member and its shareholders. However, no indemnification
shall be made (a) in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the member in the performance
of such person's duty to the Member and its shareholders, unless and only to
the extent that the court in which such proceeding is or was pending shall
determine upon application that, in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for expenses and
then only to the extent that the court shall determine; (b) of amounts paid in
settling or otherwise disposing of a pending action without court approval; or
(c) of expenses incurred in defending a pending action which is settled or
otherwise disposed of without court approval. Notwithstanding any other
provision of Article 7, to the extent that an agent of the Member has been
successful on the merits or otherwise (including the dismissal of an action
without prejudice or the settlement of a proceeding or action without
admission of liability) in defense of any proceeding referred to above, or in
defense of any claim, issue or matter therein, Section 4 of Article 7 provides
that he or she shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred in connection therewith.
Except as provided in Section 4 of Article 7 of the Bylaws of the Member,
Section 5 of Article 7 provides that any indemnification under Section 3 of
Article 7 shall be made by the Member only if authorized in the specific case,
upon a determination that indemnification of the agent is proper in the
circumstances because the agent has met the applicable standard of conduct set
forth in Section 3, by (a) a majority vote of a quorum consisting of directors
who are not parties to such proceeding, (b) if such a quorum of directors is
not obtainable, by independent legal counsel in a written opinion, (c)
approval by the affirmative vote of a majority of the shares of the Member
represented and voting at a duly held meeting at which a quorum is present
(which shares voting affirmatively also constitute at least a majority of the
required quorum) or by the written consent of holders of a majority of the
outstanding shares which would be entitled to vote at such meeting and, for
such purpose, the shares owned by the person to be indemnified shall not be
considered outstanding or entitled to vote; or (d) the court in which such
proceeding is or was pending, upon application made by the corporation, the
agent or the attorney or other person rendering services in connection with
the defense whether or not such application by said agent, attorney or other
person is opposed by the Member. Section 6 of Article 7 of the Bylaws permits
the advancement of expenses incurred in defending any proceeding by the Member
prior to the final disposition of such proceeding upon receipt of an
undertaking by or on behalf of the agent to repay such amount if it shall be
determined ultimately that the agent is not entitled to be indemnified as
authorized in Article 7 of the Bylaws.
Section 7 of Article 7 of the Bylaws of the Member prohibits indemnification
or advancement, except as provided in Sections 4 and 6, as described above, in
any circumstance where it appears (a) that it would be inconsistent with a
provision of the Articles of Incorporation or Bylaws, a resolution of the
shareholders or an agreement in effect at the time of the accrual of the
alleged cause of action asserted in the proceeding in which the expenses were
incurred or other amounts were paid which prohibits or otherwise limits
indemnification or (b) that it would be inconsistent with any condition
expressly imposed by a court in approving a settlement. Section 8 of Article 7
of the Bylaws permits the Member to indemnify an agent in the absence of any
other basis for indemnification pursuant to Article 7. Further, the
indemnification provided by this Article 7 is not deemed to be exclusive of
any other rights to which those seeking indemnification may be entitled under
any statute, bylaw, agreement, vote of shareholders or disinterested directors
or otherwise, both as to action in an official capacity and as to action in
another capacity while holding such office. The rights to indemnification
under Article 7 continues as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of the person. Finally, to the extent that any
agent of the Member is by reason of such position, or a position with another
entity at the request of the Member, a witness in any action, suit or
proceeding, Section 9 of Article 7 provides indemnification against all costs
and expenses actually and reasonably incurred by such agent in connection
therewith.
II-2
<PAGE>
The Member has directors' and officers' liability insurance policies in
force insuring directors and officers of the Member and its subsidiaries.
ITEM 16. EXHIBITS.
<TABLE>
<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.
3.5 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 O'Melveny & Myers LLP 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 tax matters.
8.2 Internal Revenue Service Revenue Ruling.
**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 O'Melveny & Myers LLP (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, 99.7 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 Deloitte & Touche 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.
**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 Issuance Resolutions of Infrastructure Bank.
**99.6 Interim Opinion of CPUC.
99.7 Opinion of Brown & Wood LLP with respect to impairment of contracts.
99.8 Opinion of Brown & Wood with respect to Proposition 218.
**99.9 Form of Opinion of Brooke Bassett, Esq. with respect to validity of
Issuance Resolutions.
</TABLE>
- --------
** Previously filed.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant on behalf of the California Infrastructure and
Economic Development Bank Special Purpose Trust SDG&E-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 20% 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. 4
TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN DIEGO, STATE OF CALIFORNIA, ON
NOVEMBER 21, 1997.
SDG&E FUNDING LLC,
as Registrant
/s/ Charles A. McMonagle
By:_______________________________
Name: Charles A. McMonagle
Title: President and Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 4 TO REGISTRATION STATEMENT HAS BEEN SIGNED ON BEHALF OF SDG&E FUNDING LLC
ON NOVEMBER 21, 1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Charles A. McMonagle President, Chief Executive Officer and Director
____________________________________ (Principal Executive Officer)
Charles A. McMonagle
/s/ James P. Trent Chief Financial Officer, Chief Accounting
____________________________________ Officer and Director
James P. Trent (Principal Financial and Accounting Officer)
/s/ Donald J. Puglisi Director
____________________________________
Donald J. Puglisi
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
**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.
3.5 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 O'Melveny & Myers LLP 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 tax
matters.
8.2 Internal Revenue Service Revenue Ruling.
**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 O'Melveny & Myers LLP (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, 99.7 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 Deloitte & Touche 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.
**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 Issuance Resolutions of Infrastructure Bank.
**99.6 Interim Opinion of CPUC.
99.7 Opinion of Brown & Wood LLP with respect to impairment
of contracts.
99.8 Opinion of Brown & Wood with respect to Proposition
218.
**99.9 Form of Opinion of Brooke Bassett, Esq. with respect to
validity of Issuance Resolutions.
</TABLE>
- --------
** Previously filed.
<PAGE>
EXHIBIT 3.5
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
SDG&E FUNDING LLC
This Amended and Restated Limited Liability Company Agreement
(together with the schedules attached hereto, this "Agreement") of SDG&E Funding
LLC (the "Company"), is entered into by San Diego Gas & Electric 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 Amended and Restated Limited
Liability Company Agreement of the Company, dated as of November 6, 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 SDG&E Funding LLC.
2. Principal Business Office.
-------------------------
The principal business office of the Company shall be located at 101
Ash Street, Room 111, San Diego, California 92101, 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;
(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
2
<PAGE>
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.
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
3
<PAGE>
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 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
4
<PAGE>
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 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
-------- -------
5
<PAGE>
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;
(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;
6
<PAGE>
(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 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
7
<PAGE>
(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 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.
8
<PAGE>
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 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
9
<PAGE>
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 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.
10
<PAGE>
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;
(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.
11
<PAGE>
20. Exculpation and Indemnification.
-------------------------------
a. No Member, Officer, Director, manager, 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 such funds of the
Company (as distinct 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.
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.
12
<PAGE>
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.
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.
13
<PAGE>
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 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
14
<PAGE>
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.
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.
15
<PAGE>
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.
[This space is intentionally left blank]
16
<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, has duly executed this Agreement as of the 20th day of November, 1997.
MEMBER: SAN DIEGO GAS & ELECTRIC COMPANY
By: /s/ David R. Kuzma
------------------------------
Name: David R. Kuzma
Title: Chief Financial Officer of
of San Diego Gas & Electric Company
S-1
<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
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 July 1,
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 -
SDG&E-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 SDG&E 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 20a.
---------------
"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 -SDG&E-1, the
A-2
<PAGE>
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 order of the CPUC, Decision 97-09-057,
---------------
issued as of September 3, 1997 which became effective on October 6, 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, 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 San Diego Gas & Electric 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 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.
A-3
<PAGE>
"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 SDG&E 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, and Fitch Investors Service, L.P., 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.
"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.
A-4
<PAGE>
"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 Certificates, 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-SDG&E-1 and the underwrtiters
named therein.
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
A-5
<PAGE>
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>
San Diego 101 Ash Street $1,050,000.00 100%
Gas & Electric Room 111
Company San Diego, CA 92101
</TABLE>
B-1
<PAGE>
SCHEDULE C
Management Agreement
--------------------
November __, 1997
SDG&E Funding LLC
101 Ash Street
Room 111
San Diego, CA 92101
Re: Management Agreement
SDG&E Funding LLC
-----------------
Ladies and Gentlemen:
For good and valuable consideration, each of the undersigned persons,
who have been designated as directors of SDG&E 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 _____________,
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 involve or
cause the Company
C-1
<PAGE>
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-2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Management
Agreement as of the day and year first above written.
__________________________________
Name: Charles A. McMonagle
__________________________________
Name: James B. Trent
__________________________________
Name: Donald J. Puglisi
C-3
<PAGE>
EXHIBIT 4.1
[CS&M Draft--11/18/97]
================================================================================
[NAME OF SPE],
Note Issuer
and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
Note Trustee
______________________________
INDENTURE
Dated as of [ ] , 1997
______________________________
Issuable in Series
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <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....................... 16
ARTICLE II
The Notes
---------
SECTION 2.01. Form........................................ 17
SECTION 2.02. Denominations; Notes Issuable in Series..... 17
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................................. 23
SECTION 2.09. Cancelation................................. 25
SECTION 2.10. Amount Unlimited; Authentication and
Delivery of Notes......................... 25
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............. 33
</TABLE>
<PAGE>
Contents, pg. ii
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
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
SECTION 3.09. Annual Statement as to Compliance........... 42
SECTION 3.10. Note Issuer May Consolidate, etc.
Only on Certain Terms..................... 43
SECTION 3.11. Successor or Transferee..................... 45
SECTION 3.12. No Other Business........................... 45
SECTION 3.13. No Borrowing................................ 45
SECTION 3.14. Servicer's Obligations...................... 46
SECTION 3.15. Guarantees, Loans, Advances and Other
Liabilities............................... 46
SECTION 3.16. Capital Expenditures........................ 46
SECTION 3.17. Non-Routine True-Up Adjustment.............. 46
SECTION 3.18. Restricted Payments......................... 46
SECTION 3.19. Notice of Events of Default................. 47
SECTION 3.20. Further Instruments and Acts................ 47
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.................. 53
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
</TABLE>
<PAGE>
Contents, pg. iii
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 5.04. Remedies; Priorities........................ 59
SECTION 5.05. Optional Preservation of the Collateral..... 60
SECTION 5.06. Limitation of Suits......................... 61
SECTION 5.07. Unconditional Rights of Noteholders To
Receive Principal, Premium, if any,
and Interest.............................. 62
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.............. 63
SECTION 5.11. Control by Noteholders...................... 63
SECTION 5.12. Waiver of Past Defaults..................... 64
SECTION 5.13. Undertaking for Costs....................... 64
SECTION 5.14. Waiver of Stay or Extension Laws............ 65
SECTION 5.15. Action on Notes............................. 65
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...................... 68
SECTION 6.03. Individual Rights of Note Trustee........... 69
SECTION 6.04. Note Trustee's Disclaimer................... 69
SECTION 6.05. Notice of Defaults.......................... 69
SECTION 6.06. Reports by Note Trustee to Holders.......... 70
SECTION 6.07. Compensation and Indemnity.................. 70
SECTION 6.08. Replacement of Note Trustee................. 71
SECTION 6.09. Successor Note Trustee by Merger............ 73
SECTION 6.10. Appointment of Co-Trustee or Separate
Trustee................................... 73
SECTION 6.11. Eligibility; Disqualification............... 75
SECTION 6.12. Preferential Collection of Claims
Against Note Issuer....................... 75
</TABLE>
<PAGE>
Contents, pg. iv
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VII
Noteholders' Lists and Reports
------------------------------
SECTION 7.01. Note Issuer To Furnish Note Trustee
Names and Addresses of Noteholders........ 75
SECTION 7.02. Preservation of Information;
Communications to Noteholders............. 76
SECTION 7.03. Reports by Note Issuer...................... 76
SECTION 7.04. Reports by Note Trustee..................... 77
ARTICLE VIII
Accounts, Disbursements and Releases
------------------------------------
SECTION 8.01. Collection of Money......................... 77
SECTION 8.02. Collection Account.......................... 78
SECTION 8.03. General Provisions Regarding the
Collection Account........................ 81
SECTION 8.04. Release of Collateral....................... 82
SECTION 8.05. Opinion of Counsel.......................... 83
SECTION 8.06. Reports by Independent Accountants.......... 83
ARTICLE IX
Supplemental Indentures
-----------------------
SECTION 9.01. Supplemental Indentures Without Consent
of Noteholders............................ 84
SECTION 9.02. Supplemental Indentures with Consent
of Noteholders............................ 86
SECTION 9.03. Execution of Supplemental Indentures........ 88
SECTION 9.04. Effect of Supplemental Indenture............ 88
SECTION 9.05. Conformity with Trust Indenture Act......... 89
SECTION 9.06. Reference in Notes to Supplemental
Indentures................................ 89
</TABLE>
<PAGE>
Contents, pg. v
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE X
Redemption of Notes
-------------------
SECTION 10.01. Optional Redemption by Note Issuer......... 89
SECTION 10.02. Form of Optional Redemption Notice......... 89
SECTION 10.03. Notes Payable on Redemption Date or
Payment Date............................. 91
SECTION 10.04. Mandatory Redemption by Note Issuer........ 91
SECTION 10.05. Form of Mandatory Redemption Notice........ 91
SECTION 10.06. Notes Payable on Mandatory Redemption
Date or Payment Date..................... 92
ARTICLE XI
Miscellaneous
-------------
SECTION 11.01. Compliance Certificates and Opinions,
etc...................................... 92
SECTION 11.02. Form of Documents Delivered to Note
Trustee.................................. 95
SECTION 11.03. Acts of Noteholders........................ 96
SECTION 11.04. Notices, etc to Note Trustee, Note Issuer
and Rating Agencies...................... 97
SECTION 11.05. Notices to Noteholders; Waiver............. 98
SECTION 11.06. [Intentionally omitted].................... 98
SECTION 11.07. Conflict with Trust Indenture Act.......... 98
SECTION 11.08. Effect of Headings and Table
of Contents.............................. 99
SECTION 11.09. Successors and Assigns..................... 99
SECTION 11.10. Separability............................... 99
SECTION 11.11. Benefits of Indenture...................... 99
SECTION 11.12. Legal Holidays............................. 99
SECTION 11.13. GOVERNING LAW..............................100
SECTION 11.14. Counterparts...............................100
SECTION 11.15. Recording of Indenture.....................100
SECTION 11.16. Trust Obligation...........................100
SECTION 11.17. [Intentionally omitted]....................100
SECTION 11.18. No Recourse to Note Issuer.................100
SECTION 11.19. Inspection.................................101
EXHIBIT A-1 -- Form of Sale Agreement
</TABLE>
<PAGE>
Contents, pg. vi
<TABLE>
<CAPTION>
Page
----
<S> <C>
EXHIBIT A-2 -- Form of Servicing Agreement
EXHIBIT B -- Form of Notes
EXHIBIT C -- Form of Series Supplement
</TABLE>
<PAGE>
INDENTURE dated as of [ ], 1997, between [NAME OF SPE],
a Delaware limited liability company (the "Note Issuer"), and
Bankers Trust Company of California, N.A., a national banking
association, 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 chooses 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
<PAGE>
2
which at any time constitute all or part of or are included in the proceeds of
any of the foregoing and (h) all proceeds 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 otherwise 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 Section 11.03(a).
---
"Actual FTA Collections" means, with respect to any Collection Period,
----------------------
actual FTA Collections received with respect to such Collection Period.
"Administrative Services Agreement" means the Administrative Services
---------------------------------
Agreement dated as of [ ],
<PAGE>
3
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 Administrative Services Agreement.
"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
Administrative Services Agreement, the Note Purchase Agreement, the DTC
Agreement, the Fee and Indemnity Agreement, the Underwriting 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.
------------
<PAGE>
4
"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.
"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.
-------------
<PAGE>
5
"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 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, certificates of deposit or
bankers' acceptances of Eligible Institutions;
(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;
<PAGE>
6
(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);
(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 a depository institution or trust company
(acting as principal) described in clause (b); 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.
<PAGE>
7
"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.
"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
<PAGE>
8
of the Note Issuer, any other obligor upon the Notes, the Seller, the Servicer
and any Affiliate of any of the foregoing 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, 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 and, except as otherwise
provided in such Series Supplement, in integral multiples thereof.
"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
<PAGE>
9
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.
-----
"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
<PAGE>
10
applicable requirements of Section 11.01, and shall be in form and substance
satisfactory to the Note Trustee.
"Optional 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.
"Optional Redemption Price" has the meaning specified in Section
-------------------------
10.01.
"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 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
<PAGE>
11
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 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.
<PAGE>
12
"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 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 Business Day preceding such Payment Date or Redemption Date.
"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 sum of
----------------------
0.50% of the initial principal amount of each then-outstanding Series of Notes
issued pursuant to
<PAGE>
13
this Indenture prior to that Payment Date, less $100,000 in the aggregate for
all Series of Notes.
"Required Overcollateralization Level" means, as of any Payment Date,
------------------------------------
the amount required to be on deposit in the Overcollateralization Subaccount as
specified in a Series Supplement.
"Reserve Subaccount" has the meaning specified in Section 8.02(a).
------------------
"Responsible Officer" means any officer within the Corporate Trust
-------------------
Office, including any Managing Director, Vice President, 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 officers 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.
"Series Supplement" means an indenture supplemental to this Indenture
-----------------
that authorizes a particular Series of Notes.
["Servicer Business Day" means any Business Day on which the
---------------------
Servicer's offices in the State of California are open for business.]
<PAGE>
14
"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.
(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
<PAGE>
15
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
CPUC Regulations................. 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
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>
16
"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
<PAGE>
17
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 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.
<PAGE>
18
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;
(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
<PAGE>
19
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 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
<PAGE>
20
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 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.
<PAGE>
21
At the option of the Holder, Notes may be exchanged 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 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
<PAGE>
22
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 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
<PAGE>
23
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 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.
<PAGE>
24
(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
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 redemp-
<PAGE>
25
tion 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 Opinion of Counsel that the Note Trustee
is entitled to rely thereon and that the authorization, approval, or
<PAGE>
26
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 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:
<PAGE>
27
(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 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
<PAGE>
28
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:
(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;
<PAGE>
29
(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 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
<PAGE>
30
Collateral pursuant to this Indenture, then upon the giving of
value by the Note Trustee to the Note Issuer with respect to the
Collateral, 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 valid and 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 this Indenture in the Collateral is
perfected, and such perfected security interest is of first priority.
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, then upon the giving of value
by the Note Trustee to the Note Issuer with respect to the Collateral,
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 with respect
to such Collateral. Such security interest is perfected, and this
perfected security interest is of first priority;
(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
<PAGE>
31
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 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
<PAGE>
32
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.
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.
<PAGE>
33
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
[UTILITY COUNSEL TO PROVIDE] to serve as its agent for the foregoing purposes.
The Note Issuer will give prompt written notice to [UTILITY COUNSEL TO PROVIDE]
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 [UTILITY COUNSEL TO PROVIDE] 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 [UTILITY COUNSEL TO
PROVIDE] 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.
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
<PAGE>
34
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
<PAGE>
35
any Paying Agent to pay to the Note Trustee all sums held in 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,
<PAGE>
36
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, 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.
<PAGE>
37
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 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 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 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
<PAGE>
38
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
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.
<PAGE>
39
(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 and the Rating Agencies of the Servicer's rights and powers
pursuant to Section 7.01 of the Servicing Agreement, the Note Trustee 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 Issuer and the Note Trustee. Any Successor Servicer
shall (i) be permitted under CPUC Regulations to perform the duties of the
Servicer, (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 Trustee shall not have obtained such a new Servicer, the Note Issuer
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 Trustee shall notify the Note Issuer, the
Noteholders and the Rating Agencies of such
<PAGE>
40
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.
(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;
<PAGE>
41
(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 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
<PAGE>
42
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;
(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).
<PAGE>
43
(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;
(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
<PAGE>
44
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.
SECTION 3.14. Servicer's Obligations. The Note Issuer shall enforce
-----------------------
the Servicer's compliance with all of
<PAGE>
45
the Servicer's material obligations under the Servicing Agreement.
SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities.
--------------------------------------------------
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
<PAGE>
46
the Note Issuer to decline below 0.5 percent of the original principal amount of
all Series of Notes which remain 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
<PAGE>
47
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;
(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
<PAGE>
48
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 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
<PAGE>
49
(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 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
<PAGE>
50
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 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;
<PAGE>
51
(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
(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,
<PAGE>
52
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 pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental 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 Optional Redemption Price for any
Note on the Optional Redemption Date therefor, or a default in the payment
of the Mandatory Redemption Price for the Notes on the Mandatory Redemption
Date;
<PAGE>
53
(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
(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
<PAGE>
54
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 and the Rating Agencies, 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 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
<PAGE>
55
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.
(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
<PAGE>
56
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 compensation to the Note Trustee and each predecessor
Note Trustee, and their respective agents, attorneys
<PAGE>
57
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 insti-
<PAGE>
58
tuted 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, disbursements 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
<PAGE>
59
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 in accordance with Section 8.02(d) or (C) the Note Trustee
determines that the 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
<PAGE>
60
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;
(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
<PAGE>
61
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 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.
<PAGE>
62
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 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
<PAGE>
63
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 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
<PAGE>
64
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 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,
<PAGE>
65
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 Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
<PAGE>
66
(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
<PAGE>
67
shall also be afforded to such Paying Agent or Note Registrar.
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.
<PAGE>
68
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
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;
<PAGE>
69
(iii) the aggregate outstanding principal balance of the Notes, after
giving effect to payments allocated to principal reported under (i) above;
and
(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.
(c) The Note Issuer 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
<PAGE>
70
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 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
<PAGE>
71
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.
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
<PAGE>
72
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:
(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.
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73
(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.
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 A 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.
<PAGE>
74
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.
(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
<PAGE>
75
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.
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.
<PAGE>
76
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 "Overcollateralization
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 Note Trustee or another Paying Agent shall have access to the Collection
Account for the purpose of making deposits in and withdrawals from the
Collection Account in accordance
<PAGE>
77
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 apply all amounts on deposit in the Collection Account, including all net
earnings thereon, to pay the following amounts, in accordance with the Quarterly
Servicer's Certificate, 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
appropriate;
(ii) the Servicing Fee for such Payment Date 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 overdue Quarterly Interest (together with, to the extent
lawful, interest on such overdue Quarterly Interest at the applicable Note
Interest Rate) and Quarterly Interest for such Payment Date with respect to
each Series of Notes shall be paid to the Noteholders of such Series of
Notes;
<PAGE>
78
(vi) any principal due and payable on the Notes of any Series on or
after an Event of Default has occurred with respect to such Series, as a
result of the acceleration of such Notes or otherwise, and an amount equal
to all unpaid principal of the Notes of any Series on any Payment Date on
or after the Final Maturity Date of the Notes of such Series, shall be paid
to the Noteholders of such Series of Notes;
(vii) Quarterly Principal for such Payment Date with respect to each
Series of Notes shall be paid to the Noteholders of such Series of Notes;
(viii) unpaid Operating Expenses shall be paid to the Persons entitled
thereto;
(ix) the amount, if any, by which the Required Overcollateralization
Level exceeds the amount in the Overcollateralization Subaccount as of such
Payment Date shall be allocated to the Overcollateralization Subaccount;
(x) 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 shall be allocated to the
Capital Subaccount;
(xi) 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;
(xii) if any Series of Notes has been paid in full 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 shall be paid to the Note Issuer,
free from the lien of this Indenture;
(xiii) if any Series of Notes has been paid in full 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;
<PAGE>
79
(xiv) the balance, if any, shall be allocated to the Reserve
Subaccount for distribution on subsequent Payment Dates; and
(xv) 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 (v), (vi) and
(vii) 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). In addition, if on any Payment Date funds on deposit
in the General Subaccount are insufficient to make the allocations contemplated
by clauses (ix) and (x) above, the Note Trustee shall draw from amounts on
deposit in the Reserve Subaccount to make such allocations.
(f) On any Mandatory Redemption Date, the Note Trustee shall pay to
the Noteholders the Mandatory Redemption Price.
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
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80
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 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 reinvest funds in the Collection Account in one
or more investments which qualify as investments in money market
<PAGE>
81
funds described under paragraph (d) of the definition of 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
required by the TIA) Independent Certificates in accordance 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
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82
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 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
<PAGE>
83
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 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
<PAGE>
84
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
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 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 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
<PAGE>
85
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>
86
(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 Rating Agencies and 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.
<PAGE>
87
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, 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
on any Payment Date if, after giving effect to payments that would otherwise be
made on such Payment Date, the Outstanding Amount of any such Series of Notes
has been reduced to less than five percent of the initial principal balance
thereof
<PAGE>
88
on any Redemption Date at a price equal to the outstanding principal amount of
the Notes to be redeemed plus accrued and unpaid interest thereon at the Note
Interest Rate to the Optional Redemption Date (such price being called the
"Optional 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 and the Rating Agencies not later than 25 days prior to the
Optional Redemption Date and shall deposit with the Note Trustee not later than
three Business Days prior to the Optional Redemption Date the Optional
Redemption Price of the Notes to be redeemed whereupon all such Notes shall be
due and payable on the Optional 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.
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 Optional Redemption Date to each Holder of Notes
to be redeemed, as of the close of business on the Record Date preceding the
applicable Optional Redemption Date at such Holder's address appearing in the
Note Register.
All notices of redemption shall state:
(1) the Optional Redemption Date;
(2) the Optional Redemption Price; and
(3) the place where such Notes are to be surrendered for payment of
the Optional 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.
<PAGE>
89
SECTION 10.03. Notes Payable on Optional 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 Optional Redemption Date become
due and payable at the Optional Redemption Price and (unless the Note Issuer
shall default in the payment of the Optional Redemption Price) no interest shall
accrue on the Optional Redemption Price for any period after the date to which
accrued interest is calculated for purposes of calculating the Optional
Redemption Price.
SECTION 10.04. Mandatory Redemption by Note Issuer. If the Seller is
------------------------------------
required to repurchase the Transition Property pursuant to Section 5.01(b) of
the Sale Agreement, the Note Issuer shall be required to redeem all outstanding
Series of Notes on or before the fifth Business Day following the date of such
repurchase (such date of mandatory redemption, the "Mandatory Redemption Date")
for a purchase price equal to the then outstanding principal amount of the Notes
plus accrued and unpaid interest thereon at the Note Interest Rate to the
Mandatory Redemption Date (such price being called the "Mandatory Redemption
Price"). If the Note Issuer is required to redeem the Notes pursuant to this
Section 10.04, it shall furnish written notice (which notice shall state all
items listed in Section 10.05) of such redemption to the Note Trustee and the
Rating Agencies not later than one Business Day after such repurchase date and
shall deposit with the Note Trustee, not later than three Business Days prior to
the Mandatory Redemption Date, the Mandatory Redemption Price of the Notes to be
redeemed whereupon all such Notes shall be due and payable on the Mandatory
Redemption Date upon the furnishing of a notice complying with Section 10.05
hereof to each Holder of the Notes of all such Series pursuant to this Section
10.04.
SECTION 10.05. Form of Mandatory Redemption Notice. Notice of
------------------------------------
redemption under Section 10.04 hereof shall be given by the Note Trustee by
first-class mail, postage prepaid, mailed not less than three days prior to the
Mandatory Redemption Date to each Holder of Notes to be redeemed, as of the
close of business on the Record Date preceding the Mandatory Redemption Date at
such Holder's address appearing in the Note Register.
<PAGE>
90
All notices of redemption shall state:
(1) the Mandatory Redemption Date;
(2) the Mandatory Redemption Price; and
(3) the place where such Notes are to be surrendered for payment of
the Mandatory 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 effect the validity of the redemption of any
other Note.
SECTION 10.06. Notes Payable on Mandatory Redemption Date or Payment
-----------------------------------------------------
Date. Notice of redemption having been given as provided in Section 10.05
- -----
hereof, the Notes to be redeemed shall on the Mandatory Redemption Date become
due and payable at the Mandatory Redemption Price and (unless the Note Issuer
shall default in the payment of the Mandatory Redemption Price) no interest
shall accrue on the Mandatory Redemption price for any period after the date to
which accrued interest is calculated for purposes of calculating the Mandatory
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 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
<PAGE>
91
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>
92
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
<PAGE>
93
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 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
<PAGE>
94
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.
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
evidenced 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 expressly 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.
- ----------------------------------------
<PAGE>
95
(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 hereunder 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 (10th 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
<PAGE>
96
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.
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. [Intentionally omitted]
-----------------------
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
Indenture 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
<PAGE>
97
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.
SECTION 11.10. Separability. In case any provision 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.
<PAGE>
98
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 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 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).
SECTION 11.17. [Intentionally omitted].
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
<PAGE>
99
make copies and extracts therefrom, to cause such books to be audited by
Independent certified public accountants, and 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, provided such parties are
rightfully in possession of such information, (ii) disclosure of any and all
information (A) if required to do so by any applicable statute, law, rule or
regulation, (B) pursuant to any subpoena, civil investigative demand or similar
demand or request of any court or regulatory authority exercising its proper
jurisdiction, (C) 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 (D) to any affiliate, independent or internal auditor, agent,
employee or attorney of the Note Trustee having a need to know the same,
provided that such parties agree to be bound by the confidentiality provisions
<PAGE>
100
contained in this Section 11.19, or (iii) any other disclosure authorized by the
Note Issuer.
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 OF CALIFORNIA, N.A., not in
its individual capacity but solely as Note
Trustee,
by
__________________________
Name:
Title:
<PAGE>
101
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>
102
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 of California,
N.A., a national banking association and the entity upon which the person acted,
executed this instrument.
WITNESS my hand and official seal.
____________________________
Notary Public
My commission expires:
<PAGE>
EXHIBIT 4.2
================================================================================
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 of California, N.A.,
as Certificate Trustee
Dated as of __________ 1, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS
<CAPTION>
<S> <C>
Section 1.01. Definitions................................................. 1
Section 1.02. Compliance Certificates and Opinions........................ 11
Section 1.03. Form of Documents Delivered to Certificate Trustee.......... 12
Section 1.04. Acts of Certificateholders.................................. 13
<CAPTION>
ARTICLE II
ORGANIZATION; ACQUISITION OF NOTES;
ORIGINAL ISSUANCE OF CERTIFICATES
<S> <C>
Section 2.01. Name; Declaration and Statement of Intent; Office;
Operations............................................... 14
Section 2.02. Trust Property.............................................. 14
Section 2.03. Tax Treatment; Construction................................. 15
Section 2.04. Purpose and Powers.......................................... 15
Section 2.05. Acquisition and Acceptance of Notes by Certificate Trustee.. 15
Section 2.06. Issuance of Certificates.................................... 15
Section 2.07. Representations and Warranties of the Originator............ 18
<CAPTION>
ARTICLE III
THE CERTIFICATES
<S> <C>
Section 3.01. Form, Denomination and Execution of Certificates............ 19
Section 3.02. Authentication of Certificates.............................. 19
Section 3.03. Temporary Certificates...................................... 20
Section 3.04. Registration of Transfer and Exchange of Certificates....... 20
Section 3.05. Certificateholders' Lists and Reports by Certificate Trustee 21
Section 3.06. Mutilated, Destroyed, Lost or Stolen Certificates........... 22
Section 3.07. Persons Deemed Owners....................................... 22
Section 3.08. Cancellation................................................ 22
Section 3.09. Limitation of Liability for Payments........................ 23
Section 3.10. Book-Entry and Definitive Certificates...................... 23
</TABLE>
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<TABLE>
<CAPTION>
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ARTICLE IV
DISTRIBUTIONS; STATEMENTS TO CERTIFICATEHOLDERS
<S> <C>
Section 4.01. Certificate Accounts........................................ 25
Section 4.02. Distributions from Certificate Accounts..................... 25
Section 4.03. Statements to Certificateholders............................ 27
Section 4.04. Investment of Special Payment Moneys........................ 28
Section 4.05. Reduction in Principal...................................... 28
<CAPTION>
ARTICLE V
DEFAULT
<S> <C>
Section 5.01. Events of Default........................................... 29
Section 5.02. Incidents of Sale of Notes.................................. 30
Section 5.03. Judicial Proceedings Instituted by Certificate Trustee;
Certificate Trustee May Bring Suit....................... 30
Section 5.04. Control by Certificateholders............................... 30
Section 5.05. Waiver of Past Defaults..................................... 31
Section 5.06. Right of Certificateholders To Receive Payments Not To
Be Impaired.............................................. 32
Section 5.07. Certificateholders May Not Bring Suit Except Under
Certain Conditions....................................... 32
Section 5.08. Remedies Cumulative......................................... 33
<CAPTION>
ARTICLE VI
THE CERTIFICATE TRUSTEE
<S> <C>
Section 6.01. Notice of Defaults.......................................... 33
Section 6.02. Certain Rights of Certificate Trustee....................... 33
Section 6.03. Not Responsible for Recitals or Issuance of Certificates.... 35
Section 6.04. May Hold Certificates....................................... 35
Section 6.05. Money Held in Trust......................................... 35
Section 6.06. Compensation and Reimbursement; Indemnification............. 35
Section 6.07. Corporate Certificate Trustee Required; Eligibility......... 36
Section 6.08. Resignation and Removal; Appointment of Successor........... 36
Section 6.09. Acceptance of Appointment by Successor...................... 39
Section 6.10. Merger, Conversion, Consolidation or Succession to Business. 39
Section 6.11. Maintenance of Agencies..................................... 40
Section 6.12. Money for Certificate Payments To Be Held in Trust.......... 41
Section 6.13. Registration of Notes in Certificate Trustee's Name......... 41
Section 6.14. Representations and Warranties of Certificate Trustee....... 41
</TABLE>
ii
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<TABLE>
<CAPTION>
Page
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<S> <C>
Section 6.15. Withholding Taxes; Information Reporting.................... 42
<CAPTION>
ARTICLE VII
THE DELAWARE TRUSTEE
<S> <C>
Section 7.01. Appointment................................................. 42
Section 7.02. Duties and Responsibilities................................. 42
Section 7.03. Acceptance of the Trusts.................................... 42
Section 7.04. Limitation of Liability..................................... 42
Section 7.05. Other Protections........................................... 44
Section 7.06. Compensation and Reimbursement; Indemnification............. 44
Section 7.07. Resignation................................................. 44
<CAPTION>
ARTICLE VIII
SUPPLEMENTAL TRUST AGREEMENTS
<S> <C>
Section 8.01. Supplemental Trust Agreements Without Consent of
Certificateholders....................................... 45
Section 8.02. Supplemental Trust Agreements with Consent of
Certificateholders....................................... 45
Section 8.03. Documents Affecting Immunity or Indemnity................... 46
Section 8.04. Execution of Supplemental Trust Agreements.................. 47
Section 8.05. Effect of Supplemental Trust Agreements..................... 47
Section 8.06. Conformity with Trust Indenture Act......................... 47
Section 8.07. Reference in Certificates to Supplemental Trust Agreements.. 47
<CAPTION>
ARTICLE IX
AMENDMENTS AND SUPPLEMENTS TO NOTES, NOTE INDENTURE
AND OTHER BASIC DOCUMENTS
<S> <C>
Section 9.01. Amendments and Supplements to Notes, Note Indenture and Other
Basic Documents.......................................... 47
<CAPTION>
ARTICLE X
TERMINATION OF TRUST
<S> <C>
Section 10.01. Termination of the Trust................................... 48
</TABLE>
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<TABLE>
<CAPTION>
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ARTICLE XI
MISCELLANEOUS PROVISIONS
<S> <C>
Section 11.01. Pledge of State of California; Certificates and
Notes Not Obligation of State of California,
Originator, or Seller.................................. 49
Section 11.02. Limitation on Rights of Certificateholders................. 50
Section 11.03. No Petition................................................ 50
Section 11.04. Certificates Nonassessable and Fully Paid.................. 50
Section 11.05. Notices.................................................... 50
Section 11.06. Governing Law.............................................. 53
Section 11.07. Severability of Provisions................................. 53
Section 11.08. Conflict With Trust Indenture Act.......................... 53
Section 11.09. Effect of Headings and Table of Contents................... 53
Section 11.10. Successors and Assigns; Delegation......................... 54
Section 11.11. Benefits of Trust Agreement................................ 54
Section 11.12. Legal Holidays............................................. 54
Section 11.13. Counterparts............................................... 54
Exhibit A--Form of Certificate............................................. A-1
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED DECLARATION AND AGREEMENT OF TRUST, dated as of
__________ 1, 1997 (the "Trust Agreement"), by and among Bankers Trust
(Delaware), as Delaware Trustee, and Bankers Trust Company of California, N.A.,
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 __________ 1, 1997 (the "Declaration and
Agreement of Trust"), creating the California Infrastructure and Economic
Development Bank Special Purpose Trust SDG&E-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 November 7, 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 Trust Agreement 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 a fractional undivided beneficial interest in a corresponding
series or class of Notes and the proceeds thereof, together with payments made
on any related Swap;
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:
(i) 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;
1
<PAGE>
(ii) Whenever this Trust Agreement refers to a provision of the Trust
Indenture Act, the provision is incorporated by reference in and made a
part of this Trust Agreement. The following Trust Indenture Act terms have
the following corresponding terms and meanings when used in this Trust
Agreement:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Certificates.
"indenture security holder" means a Certificateholder.
"indenture to be qualified" means this Trust Agreement.
"indenture trustee" or "institutional trustee" means the Certificate
Trustee.
"obligor" on the indenture securities means the Originator and any other
obligor on the indenture securities.
All other Trust Indenture Act terms used in this Trust Agreement that are
defined by the Trust Indenture Act, defined by Trust Indenture Act reference to
another statute or defined by Commission rule have the meaning assigned to them
by such definitions.
(iii) 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;
(iv) the words "include", "including" and similar terms shall be
construed as if followed by the phrase "without limitation"; and
(v) 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).
2
<PAGE>
"Avoidable Tax" has the meaning set forth in Section 6.08(f).
"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 Trust Statute" shall mean Chapter 38 of Title 12 of the Delaware
Code, 12 Del. C., (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.
"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).
"Certificate Business Day" or "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.
"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 Bankers Trust Company, as Certificate Trustee
under this Trust Agreement, and its successors in interest, and any successor
Certificate Trustee appointed as provided herein.
"Certificate Trustee Expenses" has the meaning set forth in Section 6.06.
"Certificate Trustee Indemnified Persons" has the meaning set forth in
Section 6.06.
"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.
3
<PAGE>
"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 this Trust Agreement is
located at Bankers Trust Company of California, N.A., c/o Bankers Trust Company,
Four Albany Street, New York, New York 10006, Attention: Structured Finance
Group and which office of the Delaware Trustee at the date of the execution of
this 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 given pursuant to Section
11.05.
"Declaration and Agreement of Trust" has the meaning set forth in the
preamble to this Trust Agreement.
"Definitive Certificates" has the meaning set forth in Section 3.10.
"Delaware Trustee" means Bankers Trust (Delaware), as Delaware Trustee
under this Trust Agreement, and its successors in interest, and any successor
Delaware Trustee appointed as provided herein.
"Delaware Trustee Expenses" has the meaning set forth in Section 7.06.
"Delaware Trustee Indemnified Persons" has the meaning set forth in Section
7.06.
"Distribution Date" means, with respect to any Series or Class of
Certificates, a Payment Date with respect to the Notes.
"DTC Agreement" means the agreement between the Certificate Trustee on
behalf of the Trust and The Depository Trust Company, as the initial Clearing
Agency, dated as of ___________, 1997, 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), that (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 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 that
evidence:
4
<PAGE>
(i) direct obligations of, and obligations fully and
unconditionally guaranteed as to timely payment by, the United States of
America;
(ii) 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;
(iii) 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;
(iv) 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);
(v) demand deposits, time deposits and certificates of deposit that
are fully insured by the FDIC;
(vi) bankers' acceptances issued by any depository institution or
trust company referred to in clause (b) above;
(vii) 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 (A) a depository institution or trust company
(acting as principal) described in clause (ii) or (B) a depository
institution or trust company the deposits of which are insured by the FDIC;
and
(viii) 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).
"FDIC" means the Federal Deposit Insurance Corporation, and its successors.
"Fee and Indemnity Agreement" means the fee and indemnity agreement dated
as of __________ 1, 1997, among the Note Issuer, the Note Trustee, the
Originator, the Delaware Trustee and the Certificate Trustee.
5
<PAGE>
"Initial Closing Date" means __________, 1997.
"London Banking Day" means any day on which dealings in deposits in U.S.
dollars are transacted in the London interbank market.
"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 SDG&E Funding LLC, 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 as such 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.
"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;
6
<PAGE>
(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
that 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, the
Originator, the Seller, the Swap Counterparty (if applicable) 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, the Swap Counterparty (if
applicable) 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 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 interest thereon.
"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 Distribution Date, the Business
Day immediately preceding such Distribution Date or, if Definitive Certificates
are issued, the last day of the calendar month preceding the calendar month in
which such Distribution Date occurs.
7
<PAGE>
"Redemption Payment" means, with respect to any Series or Class of Notes,
any payment of principal of 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, initially, the Certificate Trustee, pursuant to Section
3.04, and any successor 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 a Trustee, any
officer within the Corporate Trust Office of the related Trustee including any
Managing Director, Vice President, Assistant Vice President, Secretary,
Assistant Secretary or Assistant Treasurer or any other officer of the related
Trustee 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.
"Scheduled Final Distribution Date" means, with respect to any Series or
Class of Certificates, the Scheduled Maturity Date of the related Series or
Class of Notes.
"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 San Diego Gas and Electric Company, 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.
"Servicer" means San Diego Gas and Electric Company, 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.
8
<PAGE>
"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 Distribution 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 (A) if the Certificate Trustee shall
have received such Special Payment without prior notice thereof, 20 days after
such receipt is confirmed or (B) 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, provided that in the event of the repurchase of the Transition Property
by the Seller, the Special Distribution Date shall mean a date not later than
five Business Days after receipt of such proceeds.
"Special Payment" means, with respect to any Series or Class of Notes, (i)
any payment of principal of or interest on (including any interest accruing upon
default), 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 or (ii) any proceeds from the sale of
such Notes by the Certificate Trustee pursuant to Article V hereof or the
repurchase of the Transition Property by the Seller pursuant to Article V of the
Sale Agreement.
"Special Record Date" means, with respect to any Special Distribution Date,
the close of business on the 15th day (whether or not a Business Day) preceding
such Special Distribution Date.
"State Pledge" has the meaning set forth in Section 11.01.
"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 that may be entered into by the Trust, at the direction of the
Originator, for the purpose of managing interest rate risk with respect to a
specified Series or Class of Certificates that are being issued concurrently
with the execution of the Swap.
"Swap Counterparty" means the entity that is a party to a Swap with the
Trust.
"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.
9
<PAGE>
"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.
"Termination Date" means, with respect to any Series or Class of
Certificates, the Final Maturity Date of the related Series or Class of Notes.
"Trust" means the trust created by this Trust Agreement, the estate of
which consists of the Trust Property.
"Trust Agreement" means this Trust Agreement, as the same shall be amended
or supplemented from time to time.
"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 the
context may require.
"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.
10
<PAGE>
<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)
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)
Rating Agency Condition................. 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.
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Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Trust Agreement shall include:
(a) 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;
(b) 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;
(c) 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
(d) 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
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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 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
--------
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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.
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 - SDG&E-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 Trust 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.
(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 on behalf of the Trust
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. 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.
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(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 Certificate Account on
the date hereof, such sum constituting the initial Trust Property contributed by
the Originator.
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 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 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 beneficial interest in a
corresponding Series or Class of Notes and the proceeds thereof, together with
payments made on any related Swap. Prior to the execution and authentication of
the Certificates of any Series or Class, the Certificate Trustee shall have
received the following:
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(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 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 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, 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 that, 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, the Originator or the Trust, to the effect
that:
(i) this Trust Agreement and any Trust Supplement have been duly
authorized, executed and delivered by the parties hereto;
(ii) 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, fraudulent conveyance 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;
(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 Certificate Trustee to execute, authenticate
and deliver the Series or Class of Certificates to be issued;
(iv) 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
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Trust Supplement and delivered, will be validly issued by the Trust
entitled to the benefits of this Trust Agreement and any Trust Supplement;
(v) the Trust is a duly organized and validly existing business
trust under the Business Trust Statute and is in good standing;
(vi) this Trust Agreement and any Trust Supplement to be executed
in connection with such Series or Class of Certificates have been duly
qualified under the Trust Indenture Act or no such qualification is
necessary;
(vii) 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
(viii) such other matters as the Certificate Trustee or the
Delaware Trustee may reasonably require.
(f) A certified copy of the Advice Letters relating to such Series or Class
of Notes and Certificates;
(g) Sufficient funds to pay the purchase price for the related Series or
Class of Notes, as well as the cost of issuance of the related Series or Class
of Certificates (to the extent not payable from Note proceeds);
(h) The Rating Agency Condition shall have been satisfied with respect to
the issuance of the Series or Class of Certificates and the execution of any
related Swap;
(i) The issuance of the Series or Class of Certificates shall not adversely
affect the status of the Trust as a grantor trust not taxable as a corporation
for federal income tax purposes; and
(j) 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 from the Originator 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;
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(C) the form of the Certificate for such Series or Class;
(D) such other matters as the Originator may reasonably deem
appropriate, or the Certificate Trustee or Delaware Trustee may
reasonably request, and that 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 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 have been duly
executed and delivered by the Originator and constitute its legal, valid
and binding obligations, enforceable in accordance with their 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.
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ARTICLE III
THE CERTIFICATES
Section 3.01. Form, Denomination and Execution of Certificates. The
------------------------------------------------
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: (a) 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, (b) the Certificate number or numbers thereof, (c)
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 (d) 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 execution of such Certificates by the
Certificate Trustee on behalf of the Trust.
The Certificates of each Series or Class shall be issued in minimum
denominations of $[1,000] Original Principal Amount and 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
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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
of the Originator shall authenticate (as Authentication Agent) and deliver,
temporary Certificates of such Series or Class that 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 the
execution of such temporary Certificates by the Certificate Trustee on behalf of
the Trust.
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.
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
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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.
(a) The Trust To Furnish Certificate Trustee with Names and Addresses of
--------------------------------------------------------------------
Certificate holders. The Registrar, on behalf of the Trust, will furnish to the
- --------------------
Certificate Trustee within 15 days after each Record Date, 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, 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) Communications Among Certificateholders. Certificateholders may
---------------------------------------
communicate pursuant to Section 312(b) of the Trust Indenture Act with other
Certificateholders with respect to their rights under this Trust Agreement or
under the Certificates.
(d) Reports by Certificate Trustee. To the extent that any of the events
-------------------------------
described in Section 313(a) of the Trust Indenture Act shall have occurred,
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
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as of such [ ], if required by Section 313(a) of the Trust Indenture Act.
The Certificate Trustee also shall comply with Section 313(b) of the Trust
Indenture Act.
A copy of each report at the time of its mailing to Certificateholders
shall be filed by the Certificate Trustee with the Commission and with each
stock exchange, if any, on which the Certificates are listed and of which
listing the Certificate Trustee has been informed. The Originator shall notify
the Certificate Trustee if and when the Certificates are listed on any stock
exchange.
(e) Reports by the Trust. The Trust shall furnish to the Certificate
---------------------
Trustee, not less often than annually, a certificate 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 and in accordance with
the Trust Indenture Act. 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.
(f) Protections. The Originator, the Certificate Trustee and the Registrar
-----------
shall have the protection of Section 312(c) of the Trust Indenture Act.
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 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 3.06 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 all other
purposes whatsoever, and none of the Certificate Trustee, 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 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
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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) the
Certificates are executed and delivered by Bankers Trust Company, not
individually or personally but solely as Certificate 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 of the Certificates or 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;
(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
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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 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 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.
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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
---------------------------------------
Distribution Date, 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 Distribution 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 Certificate 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 Distribution 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
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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 Distribution 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 Distribution 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 Certificate 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 Distribution 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 Distribution Date or Special
Distribution Date as follows: (i) to the extent such amounts represent payments
of principal of the corresponding Series or Class of Notes (including
prepayments or redemption price), 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 and (ii) and 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 or interest on such Notes,
provided that any Swap Payment or Swap Revenues shall be attributable to
interest. If no statement is 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 Special Distribution Date on which any such Redemption Payment is
26
<PAGE>
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 Distribution
Date on which any Special Payment is scheduled to be distributed in respect of
Certificates of such Series or Class stating such anticipated Special
Distribution Date. Any such notice mailed by the Certificate Trustee shall set
forth:
(i) the Special Distribution Date or the Distribution 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 Distribution for each $1,000 Original
Principal Amount of Certificates of the applicable Series or Class and the
amount thereof constituting principal and interest;
(iii) the reason for the Special Distribution; 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
Distribution Date is also a Distribution 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
------------------
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 Distribution
--------------------------------
Date, Special Distribution 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 Distribution 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 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:
(i) the amount of such distribution to Holders of Certificates
allocable to (a) principal and (b) 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;
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<PAGE>
(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
that 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) that 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 Distribution Date as part of such Special Payment
and shall be treated as payments of interest on the Certificates.
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.
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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
acting in accordance with the written direction of the Certificateholders 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 the Certificateholders 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 may, but is not obligated to, 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.
(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 2/3
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.
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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:
(a) 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.
(b) 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.
(c) 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 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 in writing 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 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 in
writing 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
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<PAGE>
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:
- --------
(a) 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;
(b) 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;
(c) the Certificate Trustee may take any other action deemed
proper by the Certificate Trustee that is not inconsistent with such
direction; and
(d) 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 interest on any of the Notes, (b) in respect of a covenant or
provision hereof that cannot be modified or amended without the consent of the
Holder of 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.
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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 Distribution Date, Special Distribution 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:
(a) 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;
(b) 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;
(c) 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;
(d) 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
(e) 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.
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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, receipt by a Responsible Officer of the
Certificate Trustee of notice or actual knowledge of 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, 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
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.
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;
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(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 that 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 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;
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(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.
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; Indemnification. 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.
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.
The Originator, but solely from amounts payable under the Fee and Indemnity
Agreement, shall indemnify, defend and hold harmless the Certificate Trustee and
any of the affiliates,
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officers, directors, employees and agents of the Certificate Trustee (the
"Certificate Trustee 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, "Certificate Trustee Expenses"), to the extent that such
Certificate Trustee Expenses arise out of or are imposed upon or asserted
against such Certificate Trustee 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
- ------------------
Certificate Trustee Indemnified Person for any Certificate Trustee Expenses that
result from the willful misconduct or gross negligence of such Certificate
Trustee Indemnified Person. The obligations of the Originator to indemnify the
Certificate Trustee Indemnified Persons in the Trust Agreement shall survive the
termination of this Trust Agreement and the resignation or removal of the
Certificate Trustee Indemnified Persons.
Notwithstanding anything to the contrary in this Agreement, the Certificate
Trustee shall have no recourse against the Originator or the Trust Property for
payment of any amounts required to be paid to the Certificate Trustee under this
Section 6.06.
Section 6.07. Corporate Certificate Trustee Required; Eligibility. (a)
---------------------------------------------------
This Trust Agree 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 Invest Company
Act of 1940, as amended, shall not be an affiliate (as that term is defined in
Rule 405 under the Securities Act) of the Trust or of any Person involved in the
organization or operation of the Trust, shall not provide credit or credit
enhancement to the Trust and shall be 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) If 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
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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
percent 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:
(i) 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
(ii) 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 Certificate holder; or
(iii) 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
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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, (x) the Originator may remove the Certificate Trustee with
respect to any Series or Class of Certificates affected thereby or (y) 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) that 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) that 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.
(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
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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. 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 the Certificates so authenticated with the same
effect as if such successor Certificate Trustee had itself authenticated such
Certificates.
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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 on behalf of the Trust 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 on behalf of the
Trust 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, consolidated 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 that has resigned or whose agency has been terminated or who
shall have ceased to be eligible under this Section. The Originator shall give
written notice of any such appointment made by it to the Certificate Trustee
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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:
(a) the Certificate Trustee is a corporation duly organized, validly
existing, and in good standing under the laws of the State of New York;
(b) 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; and
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(c) when delivered by the Certificate Trustee, the Certificates of
any Series or Class will have been duly executed by the Certificate Trustee
on behalf of the Trust and duly authenticated by 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 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 Certificateholders 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.
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.
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
42
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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 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
43
<PAGE>
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. Compensation and Reimbursement; Indemnification. 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.
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 "Delaware Trustee 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, "Delaware Trustee Expenses"), to the extent that such
Delaware Trustee Expenses arise out of or are imposed upon or asserted against
such Delaware Trustee 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 Delaware Trustee
Indemnified Person for any Delaware Trustee Expenses that result from the
willful misconduct or gross negligence of such Delaware Trustee Indemnified
Person. The obligations of the Originator to indemnify the Delaware Trustee
Indemnified Persons in the Trust Agreement shall survive the termination of this
Trust Agreement and the resignation or removal of the Delaware Trustee
Indemnified Persons.
Notwithstanding anything to the contrary in this Agreement, the Delaware
Trustee shall have no recourse against the Originator or the Trust Property for
payment of any amounts required to be paid to the Delaware Trustee under this
Section 7.06.
Section 7.07. Resignation. The Delaware Trustee may resign upon 30 days'
-----------
prior written notice to the Certificate Trustee, the Originator and the Note
Issuer; provided, however, 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.
44
<PAGE>
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:
(a) 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;
(b) to correct or supplement any provision herein or in any
supplemental agreement that 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
--------
in any material respect the interests of the Certificateholders;
(c) to cure any ambiguity or correct any mistake;
(d) 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
(e) 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 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
- --------
45
<PAGE>
agreement shall, without the consent of the Certificateholder of each
Outstanding Certificate affected thereby:
(a) 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 Distribution Date, Special
Distribution Date or other date specified herein applicable thereto;
(b) 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;
(c) reduce the percentage of the aggregate Outstanding Amount of the
Certificates of any Series or Class that 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;
(d) 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
(e) 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.
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.
46
<PAGE>
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 (a) whether or not the Certificate Trustee should take or refrain from taking
any action that a holder of such Note has the option to direct, (b) whether or
not to give or execute any waivers, consents, amendments, modifications or
supplements as a holder of such Note and (c) 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 that 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,
47
<PAGE>
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 Certificate 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, but solely from amounts payable under the Fee
and Indemnity Agreement, and thereupon the Delaware Trustee shall file, from
amounts payable under the Fee and Indemnity Agreement, a certificate of
cancellation under the Business Trust Statute and the Trust shall terminate.
Notice of any termination, specifying the Distribution Date or Special
Distribution 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 Distribution Date or Special
Distribution 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 Distribution Date or the
Special Record Date otherwise applicable to such Special Distribution 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 cause to be
distributed to the Holders thereof amounts distributable thereon on such
Distribution Date or Special Distribution 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
48
<PAGE>
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 relating to the related Notes or, if such collection
account no longer exists, to the Note Issuer and the Certificate Trustee or Note
Issuer 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 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, 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 Note Issuer, the Trustee and 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 beneficial interest
in a corresponding Series or Class of Notes and the proceeds thereof, together
with payments made on any related Swap. 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.
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, 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
49
<PAGE>
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, hereby covenants and
agrees that it 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, tele message, 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;
provided, however, that such notices, directions, consents and waivers to the
- ------------------
Delaware Trustee
50
<PAGE>
and/or the Certificate Trustee shall be given by United States first-class mail,
facsimile or overnight mail,
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: President
Facsimile: (302) 636-3222
Telephone: (302) 636-3305
(with a copy to the Certificate Trustee)
if to the Certificate Trustee, to:
Bankers Trust Company of California, N.A.
c/o Bankers Trust Company
Corporate Trust and Agency Services
Four Albany Street
New York, New York 10006
Attention: Structured Finance Group
Facsimile: (212) 250-0338
Telephone: (212) 250-8360
if to the Note Issuer, to:
SDG&E Funding LLC
Attention:
--------------------
Facsimile:
--------------------
Telephone:
--------------------
51
<PAGE>
if to the Note Trustee, to:
Bankers Trust Company of California, N.A.
c/o Bankers Trust Company
Corporate Trust and Agency Services
Four Albany Street
New York, New York 10006
Attention: Structured Finance Group
Facsimile: (212) 250-0338
Telephone: (212) 250-8360
if to the Rating Agencies, to:
Standard & Poor's Ratings Services
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.
52
<PAGE>
(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. 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. 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 Trust Agreement by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of Sections 310 through 317 of the Trust Indenture Act that
impose duties on any Person (including the provisions automatically deemed
included herein unless expressly excluded by this Trust Agreement) are a part of
and govern this Trust Agreement, whether or not physically contained herein.
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.
53
<PAGE>
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.
(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 Certificate 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
Certificate 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]
54
<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 OF CALIFORNIA, N.A.,
as Certificate Trustee
By:
--------------------------------
Name:
Title:
S-1
<PAGE>
EXHIBIT A
FORM OF FIXED RATE CERTIFICATE
REGISTERED REGISTERED
NO. . $.
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST SDG&E-1
CLASS .
RATE REDUCTION CERTIFICATE
<TABLE>
<CAPTION>
SCHEDULED
FINAL
INTEREST DISTRIBUTION TERMINATION
RATE DATE DATE CUSIP
- ---------- ------------ ----------- -----
<S> <C> <C> <C>
</TABLE>
REGISTERED OWNER: Cede & Co.
PRINCIPAL AMOUNT:
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.
This Certificate evidences a fractional undivided beneficial interest in an
underlying note of a corresponding class or series issued by SDG&E Funding LLC
and the proceeds thereof, held by a trust, as more fully described herein.
The Certificates do not represent an interest in or obligation of the State
of California, the California Infrastructure and Economic Development Bank (the
"Originator"), a public body established within the state government of the
State of California, any other governmental agency or instrumentality or the
Seller or any of its affiliates. None of the Certificates, the Underlying
A-1
<PAGE>
Note or the underlying Transition Property (as defined in the Trust Agreement)
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, this Certificate or the Underlying Note, 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.
THIS CERTIFIES THAT CEDE & CO., as nominee for The Depository Trust
Company, for value received, is the registered owner of a Principal Amount
(stated above) of nonassessable, fully-paid, fractional undivided beneficial
interest in certain property held by the California Infrastructure and Economic
Development Bank Special Purpose Trust SDG&E-1 (the "Trust"). The Trust is
created pursuant to, and this Certificate is issued under and is subject to the
terms, provisions, and conditions of, an Amended and Restated Declaration and
Agreement of Trust, as supplemented by a First Supplemental Agreement of Trust,
each dated as of __________ 1, 1997 (collectively, the "Trust Agreement"), by
and among Bankers Trust (Delaware), as Delaware Trustee (the "Delaware
Trustee"), Bankers Trust Company of California, N.A., as Certificate Trustee
(the "Certificate Trustee") and the Originator, a summary of certain of the
pertinent provisions of which is set forth below. This Certificate is one of the
duly authorized class of Certificates designated as "California Infrastructure
and Economic Development Bank Special Purpose Trust SDG&E-1 Class . Rate Rate
Reduction Certificates" (herein called the "Class . Certificates"). The Class .
Certificates are one of a series of classes of Certificates issued under the
Trust Agreement (such Class . Certificates, together with other Certificates
heretofore or hereafter issued under the Trust Agreement being herein called the
"Certificates"). The holder of this Certificate, by virtue of its acceptance
hereof, assents and agrees to be bound by the terms of the Trust Agreement. This
Class. Certificate represents a fractional undivided beneficial interest in the
note of a related class (the "Underlying Note") issued by SDG&E Funding LLC, as
Note Issuer, together with the proceeds of the Underlying Note. The Underlying
Note is one of a series of notes secured by a security interest in the property
right created under the PU Code, pursuant to a Financing Order (Decision
97-09-.) issued by the CPUC on September 3, 1997, and Advice Letters issued
pursuant thereto, representing the irrevocable right of San Diego Gas and
Electric Company (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 historic service territory, together with certain
related collateral, all as more fully described in the Note Indenture.
To the extent not otherwise defined herein, the capitalized terms used
herein have the meanings assigned to them in the Trust Agreement.
As provided in the Trust Agreement, additional Certificates may be issued
thereunder from time to time pursuant to trust supplements in one or more series
or classes, in various principal amounts equal to the corresponding series or
class of underlying notes, may bear interest at different rates and may
otherwise vary as provided in the Trust Agreement. The aggregate
A-2
<PAGE>
principal amount of Certificates equals the aggregate amount of the
corresponding series or class of underlying notes, and all Certificates issued
and to be issued under the Trust Agreement are and will be equally secured by
the pledge and covenants made therein, except as otherwise expressly provided or
permitted in the Trust Agreement.
Subject to and in accordance with the terms of the Trust Agreement, there
will be distributed on each March 25, June 25, September 25 and December 26 or
each year or, if any such day is not a Business Day, the next succeeding
Business Day (each, a "Distribution Date"), commencing on ., 1998 and ending no
later than the Termination Date (stated above) to the person in whose name this
Certificate is registered at the close of business on the last Business Day
immediately preceding the related Distribution Date or, if Definitive
Certificates are issued, the last day of the immediately preceding calendar
month (each, a "Record Date"), such Holder's pro rata interest in the payments
made on the Underlying Note due on such Payment Date, the receipt of which has
been confirmed by the Certificate Trustee. Subject to and in accordance with the
terms of the Trust Agreement, in the event that a Special Payment on the
Underlying Note is received by the Certificate Trustee, from funds then
available to the Certificate Trustee, there will 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,
such Holder's pro rata share of such amount. The Special Payment Date will be
determined as provided in the Trust Agreement. The Certificate Trustee will 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 as provided in the Trust
Agreement by the Certificate Trustee by wire transfer or check mailed to the
Certificateholder of record in the Certificate Register without the presentation
or surrender of this Certificate or the making of any notation hereon, except
that with respect to Certificates registered on the Record Date in the name of
the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
payments will be made by wire transfer in immediately available funds to the
account designated by such nominee. Except as otherwise provided in the Trust
Agreement and notwithstanding the above, the final distribution on this
Certificate will be made after due notice by the Certificate Trustee of the
pendency of such distribution and only upon presentation and surrender of this
Certificate at the office of the Paying Agent or the office or agency maintained
for that purpose by the Certificate Trustee in The City of New York.
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 Note Issuer, Trust and the Certificateholders that the State of
California will 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 that nothing in the pledge and agreement
will preclude such limitation or alteration if
A-3
<PAGE>
and when adequate provision is made by law for the protection of the Note
Issuer, the Trust and the Holders.
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.
Unless the certificate of authentication hereon shall have been executed by
an authorized officer of the Certificate Trustee, by manual signature, this
Certificate shall not entitle the holder hereof to any benefit under the Trust
Agreement or any other Basic Document or be valid for any purpose.
THIS TRUST CERTIFICATE SHALL BE 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 SHALL BE GOVERNED BY THE DOMESTIC LAW OF THE STATE OF CALIFORNIA.
A-4
<PAGE>
IN WITNESS WHEREOF, the Certificate Trustee has on behalf of the Trust
caused this Certificate to be duly executed.
By: BANKERS TRUST COMPANY OF
CALIFORNIA, N.A., not in its
individual capacity but solely as
Certificate Trustee
By:
-----------------------------------
Name:
Title:
A-5
<PAGE>
CERTIFICATE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: __________, 199_
This is one of the Certificates referred to in the within-mentioned Trust
Agreement.
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A., not in its individual
capacity but solely as Certificate Trustee
By:
----------------------------------------
Authorized Officer
A-6
<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 Holder 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 Holder 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
beneficial 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 beneficial
interest in the Underlying Note 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 and
integral multiples thereof. As provided in the Trust Agreement and subject to
certain limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the same aggregate
fractional undivided beneficial interest in the Underlying Note, as requested by
the Certificateholder surrendering the same.
A-7
<PAGE>
The Holder 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-8
<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 SDG&E-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>
================================================================================
FIRST SUPPLEMENTAL AGREEMENT OF TRUST
by and among
California Infrastructure and Economic Development Bank,
as Originator,
Bankers Trust (Delaware),
as Delaware Trustee,
and
Bankers Trust Company of California , N.A.
as Certificate Trustee
Dated as of __________ 1, 1997
(Supplemental to the Amended and Restated Declaration and
Agreement of Trust dated as of __________ 1, 1997)
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE XII
INITIAL ISSUANCE OF CERTIFICATES
SECTION 12.01. Definitions................................................ 2
SECTION 12.02. Authorization of Certificates, Classes A through [ ]...... 2
SECTION 12.03. Determination of Interest Rate on Floating Rate
Certificates............................................... 3
SECTION 12.04. Agent Bank................................................. 5
SECTION 12.05. Provisions Relating to Class [ ] Swap Agreement........... 6
SECTION 12.06. Terms of Floating Rate Certificates Subject to Trust
Agreement.................................................. 6
SECTION 12.07. Execution in Counterparts.................................. 7
EXHIBIT A - Form of Floating Rate Certificates............................. A-1
EXHIBIT B - Form of Swap Agreement......................................... B-1
i
<PAGE>
First Supplemental Agreement of Trust
(Supplemental to the Amended and Restated Declaration and
Agreement of Trust dated as of __________ 1, 1997)
Authorizing the Issuance of
$[ ] Aggregate Principal Amount of
Rate Reduction Certificates, Classes [A] through [ ]
------------------------
This First Supplemental Agreement of Trust, dated as of __________ 1, 1997
(the "First Supplemental Trust Agreement"), by and among Bankers Trust
(Delaware), as Delaware Trustee, Bankers Trust Company of California, N.A., as
Certificate Trustee, and the California Infrastructure and Economic Development
Bank, as Originator;
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Delaware Trustee and the Originator entered into a Declaration
and Agreement of Trust, dated as of __________ 1, 1997 (the "Declaration and
Agreement of Trust"), creating the California Infrastructure and Economic
Development Bank Special Purpose Trust SDG&E-1, a not-for-profit business trust
organized under the laws of the State of Delaware (the "Trust"); and
WHEREAS, pursuant to Section 1(c) of the Declaration and Agreement of
Trust, the Delaware Trustee, the Originator and the Certificate Trustee entered
into an Amended and Restated Declaration and Agreement of Trust, dated as of
__________ 1, 1997 (the "Trust Agreement") in order to provide for the operation
of the Trust and the issuance of rate reduction certificates (the
"Certificates"); and
WHEREAS, pursuant to Section 8.01 of the Trust Agreement, the Originator
may, and the Certificate Trustee and the Delaware Trustee shall, at any time and
from time to time enter into one or more agreements supplemental to the Trust
Agreement 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; and
WHEREAS, in order to finance the purchase of the Notes, consisting of
Classes [A] through [ ] from the Note Issuer, the Trust shall issue, pursuant
to this First Supplemental Trust Agreement, Rate Reduction Certificates
consisting of Classes [A] through [ ]; and
WHEREAS, the Originator desires to establish the terms and conditions for
the issuance of such Certificates; and
WHEREAS, interest payable with respect to the Class [ ] Certificates will
be calculated at a variable rate, as described herein, and the Trust will
execute and deliver an interest rate exchange agreement in connection with the
delivery of such Certificates, all as authorized herein;
<PAGE>
NOW THEREFORE, in consideration of the mutual agreements contained herein
and of other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE XII
INITIAL ISSUANCE OF CERTIFICATES
SECTION 12.01. Definitions. The terms defined in this Section shall, for
-----------
all purposes of this First Supplemental Trust Agreement and of any certificate,
opinion or other document herein mentioned, have the meanings herein specified,
to be equally applicable to both the singular and plural forms of any of the
terms herein defined. Terms defined in Section 1.01 of the Trust Agreement not
otherwise defined herein shall have the meanings specified therein.
"Agent Bank" means Bankers Trust Company or any successor person meeting
the requirements of Section 12.04 hereof.
"Class [ ] Swap" means the Swap Agreement, substantially in the form of
Exhibit B hereto, by and between the Class [ ] Swap Counterparty and the Trust,
to be executed in connection with the issuance of the Class [ ] Certificates,
together with any supplements or amendments thereto, or any replacement Swap
Agreement entered into in the event of a Downgrade Event.
"Class [ ] Swap Counterparty" means CDC Financial Products Inc., or any
successor to such party or any replacement counterparty under the Class [ ]
Swap.
"Downgrade Event" shall have the meaning assigned under the Class [ ]
Swap.
"First Supplement" means this First Supplemental Agreement of Trust dated
as of __________ 1, 1997.
"Floating Rate Certificate" shall have the meaning assigned in Section
12.02 hereof.
"Interest Accrual Period" shall have the meaning assigned in Section 12.03
hereof.
"Interest Determination Date" shall have the meaning assigned in Section
12.03 hereof.
"Interest Rate" shall have the meaning assigned in Section 12.03 hereof.
"London Banking Day" means any day on which dealings in deposits in U.S.
dollars are transacted in the London interbank market.
SECTION 12.02. Authorization of Certificates, Classes A through [ ]. The
-----------------------------------------------------
issuance by the Trust of the Certificates consisting of the Class [ ]
Certificates[,] [and] Class [ ] Certificates [identify each Class] is hereby
authorized, each such Class to be in an aggregate
2
<PAGE>
amount equal to the corresponding Class of Notes as set forth in the Note
Purchase Agreement. Each such Class of Certificates other than the Class [ ]
Certificates shall be denominated as "California Infrastructure and Economic
Development Bank Special Purpose Trust SDG&E-1 Class [ ] Fixed Rate Rate
Reduction Certificates" (the "Fixed Rate Certificates") and shall be
substantially in the form as provided in Section 3.01 and Exhibit A to the Trust
Agreement. The Class [ ] Certificates shall be denominated as "California
Infrastructure and Economic Development Bank Special Purpose Trust SDG&E-1 Class
[ ] Floating Rate Rate Reduction Certificates" (the "Floating Rate
Certificates") and shall be substantially in the form of Exhibit A to this First
Supplement.
For each Class of Certificates authorized to be issued hereby, there is
hereby created, pursuant to Section 4.01 of the Trust Agreement, an individual
account denominated as "Class [ ] Certificate Account" (each, a "Certificate
Account"). Deposits into and distributions from each Certificate Account shall
be made as provided in Article IV of the Trust Agreement.
Set forth below for each class of Certificates are the Scheduled Final
Distribution Date and the Termination Date as well as the Interest Rate payable
with respect to each such Class of Certificates:
<TABLE>
<CAPTION>
Scheduled Final Interest
Class Distribution Date Termination Date Rate
----- ----------------- ---------------- ----------
<S> <C> <C> <C>
_________, 200_ _________, 200_ ___.___%
_________, 200_ _________, 200_ ___.___%
_________, 200_ _________, 200_ ___.___%
_________, 200_ _________, 200_ ___.___%
_________, 200_ _________, 200_ ___(1)___
</TABLE>
- -------------------
(1) Interest Rate determined in accordance with Section 12.03 hereof.
SECTION 12.03. Determination of Interest Rate on Floating Rate
-----------------------------------------------
Certificates. (A) The initial Interest Rate on the Floating Rate Certificates
- ------------
for the initial Interest Accrual Period ending [__________, _____] will be [
]%. Following such initial Interest Accrual Period the Interest Rates
applicable from time to time to the Floating Rate Certificates shall be
determined by Agent Bank in accordance with the following provisions:
(i) Calculation of LIBOR. On the second 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 shall 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
3
<PAGE>
such Interest Accrual Period shall be determined as if the parties had
specified the rate described in clause (ii) below. The 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 [ ]%.
(ii) Alternate Interest Rate Calculation. With respect to an Interest
Determination Date on which no offered rate appears on the Telerate Page,
the Agent Bank shall 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 shall be the
arithmetic mean of such quotations. If fewer than two quotations are
provided, LIBOR for such Interest Accrual Period shall 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 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 Interest Rate in effect
for such Interest Accrual Period shall be the Interest Rate in effect on
such Interest Determination Date.
(iii) No Maximum or Minimum Interest Rate. There shall be no maximum
or minimum Interest Rate.
Notwithstanding the foregoing, in the event that the Class [ ] Swap Agreement
has been terminated, the Interest Rate with respect to the Floating Rate
Certificates shall be [ ]% 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 Class [ ] Swap
Agreement occurs or, in the case of a termination resulting from a failure of a
Class [ ] Swap Counterparty to make a payment due under the Class [ ] Swap,
effective as of the first day of the Interest Accrual Period preceding such
termination. In such event, the obligations of the Agent Bank shall cease and
terminate.
(B) Calculation of Quarterly Interest. The Agent Bank shall, as soon as
practicable after 11:00 a.m. (London time) on each Interest Determination Date,
determine the 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 shall 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
Certificate
4
<PAGE>
Interest Rate and (b) the outstanding principal amount of the Certificates as of
the close of Business Day 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.
(C) Notice of Interest Rate and Interest Payments. The Agent Bank shall
notify the Originator, the Certificate Trustee and any Paying Agents of the
Interest 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.
(D) Determination or Calculation by Certificate Trustee. If the Agent Bank
fails to determine an Interest Rate or calculate Quarterly Interest in
accordance with paragraph (B) above at any time or for any reason, the
Certificate Trustee as soon as reasonably practical shall determine the Interest
Rate and calculate the Quarterly Interest in accordance with paragraph (B)
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 the Interest Rate and calculation thereby of any
Quarterly Interest shall, in the absence of manifest error, be final and binding
on all parties.
(E) Distributions. Distributions of principal and interest with respect to
the Floating Rate Certificates shall be made as provided in Article IV of the
Trust Agreement.
SECTION 12.04. Agent Bank. The Originator agrees that, so long as any of
----------
the Floating Rate Certificates remain outstanding, there shall at all times be
an Agent Bank which shall calculate the Interest Rate on the Floating Rate
Certificates in accordance with Section 12.03 hereof. The initial Agent Bank
shall be Bankers Trust Company. The Originator, 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 shall be given by the
Certificate Trustee to Certificateholders within ten days of receipt of notice
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 Interest Rate and/or the
Quarterly Interest for any Interest Accrual Period, then the Originator shall
appoint a successor Agent Bank to act as such in its place and give notice of
such appointment to the Certificate Trustee; provided, however, that neither the
resignation nor the removal of the Agent Bank shall take effect until a
successor Agent Bank has been appointed. Notice of any appointment of a
successor Agent Bank shall be given by the Certificate Trustee to the
Certificateholders within ten days of such appointment.
Any successor Agent Bank shall 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 an active dealer in LIBOR-based securities.
5
<PAGE>
SECTION 12.05. Provisions Relating to Class [ ] Swap Agreement. The
------------------------------------------------
Certificate Trustee, on behalf of the Trust, is hereby authorized and directed
to execute and deliver the Class [ ] Swap, substantially in the form of Exhibit
B hereto, upon receipt of the following:
(a) an order of an Authorized Officer of the Originator directing the
Certificate Trustee to execute the Class [ ] Swap;
(b) an Opinion of Counsel to the effect that the Class [ ] Swap is a valid
and binding agreement of the Class [ ] Swap Counterparty, enforceable in
accordance with its 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; and
(c) evidence satisfactory to the Certificate Trustee that the Rating Agency
Condition has been satisfied with respect to the issuance of the Floating Rate
Certificates.
All Swap Revenues received or Swap Payments required to be made under the
Class [ ] Swap shall be deposited in or paid from the Class [ ] Certificate
Account established for the Floating Rate Certificates pursuant to Section 12.02
hereof and Section 4.01 of the Trust Agreement and shall secure payment of and
be allocated to the Floating Rate Certificates.
If a Downgrade Event shall occur, the Certificate Trustee shall execute and
deliver any documentation necessary or appropriate to assign the Class [ ] Swap
to (or enter into a replacement Swap with) a new Swap Counterparty.
If an event of default or a termination event shall occur and be continuing
under the Class [ ] Swap, then the Certificate Trustee may, and upon the
occurrence of an Event of Default (as defined in the Class [ ] Swap) or a
termination event caused by a Downgrade Event, or if directed by the holders of
a majority of the Outstanding Principal Amount of the Floating Rate Certificates
(but subject to the provisions of Section 6.02 of the Trust Agreement) shall,
terminate the Class [ ] Swap, in which event the interest rate with respect to
the Floating Rate Certificates shall revert to a fixed rate as provided in
Section 12.03 hereof.
Any termination or other payment received subsequent to the date of an
event of default or termination event under the Class [ ] Swap shall be
distributed to each Class [ ] Certificateholder on the Distribution Date so
received or on a Special Distribution Date (if not received on a Distribution
Date) shall be distributed to each Holder on a pro rata basis (based upon the
aggregate Outstanding Amount of the Floating Rate Certificates held by such
Holder).
SECTION 12.06. Terms of Floating Rate Certificates Subject to Trust
----------------------------------------------------
Agreement. Except as expressly provided in this First Supplemental Trust
- ---------
Agreement, every term and condition contained in the Trust Agreement shall apply
to this First Supplemental Trust Agreement and to the Floating Rate Certificates
with the same force and effect as if the same
6
<PAGE>
were herein set forth in full, with such omissions, variations and modifications
thereof as may be appropriate to make the same conform to this First
Supplemental Trust Agreement.
This First Supplemental Trust Agreement and all the terms and provisions
contained herein shall form part of the Trust Agreement and shall have the same
force and effect as if set forth in the Trust Agreement. The Trust Agreement is
hereby ratified and confirmed and shall continue in full force and effect in
accordance with the terms and provisions thereof, as supplemented and amended
hereby.
SECTION 12.07. Execution in Counterparts. This First Supplemental Trust
-------------------------
Agreement may be executed in several counterparts, each of which shall be deemed
an original and all of which shall constitute but one and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, the Originator, the Delaware Trustee and the
Certificate Trustee have caused this First Supplemental 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:
BANKER TRUST (DELAWARE),
as Delaware Trustee
By:
--------------------------------
Name:
Title:
BANKERS TRUST COMPANY OF
CALIFORNIA, N. A.,
as Certificate Trustee
By:
--------------------------------
Name:
Title:
S-1
<PAGE>
EXHIBIT A
FORM OF FLOATING RATE CERTIFICATE
REGISTERED REGISTERED
NO. . $ .
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST SDG&E-1
CLASS . FLOATING RATE
RATE REDUCTION CERTIFICATE
SCHEDULED FINAL
DISTRIBUTION DATE TERMINATION DATE CUSIP
----------------- ---------------- -----
REGISTERED OWNER: Cede & Co.
PRINCIPAL AMOUNT:
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.
This Certificate evidences a fractional undivided beneficial interest in an
underlying note of a corresponding class or series issued by SDG&E Funding LLC,
a related swap agreement, together with the proceeds of such note and payments
under a related swap agreement, held by a trust, as more fully described herein.
The Certificates do not represent an interest in or obligation of the State
of California, the California Infrastructure and Economic Development Bank (the
"Originator"), a public body established within the state government of the
State of California, any other governmental agency or instrumentality or the
Seller or any of its affiliates. None of the Certificates, the Underlying Note
or the underlying Transition Property (as defined in the Trust Agreement) 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.
A-1
<PAGE>
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, this Certificate or the Underlying Note, 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.
THIS CERTIFIES THAT CEDE & CO., as nominee for The Depository Trust
Company, for value received, is the registered owner of a Principal Amount
(stated above) of nonassessable, fully-paid, fractional undivided beneficial
interest in certain property held by the California Infrastructure and Economic
Development Bank Special Purpose Trust SDG&E-1 (the "Trust"). The Trust is
created pursuant to, and this Certificate is issued under and is subject to the
terms, provisions, and conditions of, an Amended and Restated Declaration and
Agreement of Trust, as supplemented by a First Supplemental Agreement of Trust,
each dated as of __________ 1, 1997 (collectively, the "Trust Agreement"), by
and among Bankers Trust (Delaware), as Delaware Trustee (the "Delaware
Trustee"), Bankers Trust Company of California, N.A., as Certificate Trustee
(the "Certificate Trustee") and the Originator, a summary of certain of the
pertinent provisions of which is set forth below. This Certificate is one of
the duly authorized class of Certificates designated as "California
Infrastructure and Economic Development Bank Special Purpose Trust SDG&E-1 Class
. Floating Rate Rate Reduction Certificates" (herein called the "Class .
Certificates"). The Class . Certificates are one of a series of classes of
Certificates issued under the Trust Agreement (such Class . Certificates,
together with other Certificates heretofore or hereafter issued under the Trust
Agreement being herein called the "Certificates"). The holder of this
Certificate, by virtue of its acceptance hereof, assents and agrees to be bound
by the terms of the Trust Agreement. This Class . Certificate represents a
fractional undivided beneficial interest in the note of a related class (the
"Underlying Note") issued by SDG&E Funding LLC, as Note Issuer, and the proceeds
thereof, together with payments made under a Swap Agreement dated as of ., 1997
between the Trust and CDC Financial Products, Inc., as swap counterparty
(together with any replacement swap agreement executed pursuant to the terms of
the Trust Agreement, the "Swap"). The Underlying Note is one of a series of
notes secured by a security interest in the property right created under the PU
Code, pursuant to a Financing Order (Decision 97-09-.) issued by the CPUC on
September 3, 1997, and Advice Letters issued pursuant thereto, representing the
irrevocable right of San Diego Gas and Electric Company (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 historic
service territory, together with certain related collateral, all as more fully
described in the Note Indenture.
To the extent not otherwise defined herein, the capitalized terms used
herein have the meanings assigned to them in the Trust Agreement.
As provided in the Trust Agreement, additional Certificates may be issued
thereunder from time to time pursuant to trust supplements in one or more series
or classes, in various principal amounts equal to the corresponding series or
class of underlying notes, may bear interest at different rates and may
otherwise vary as provided in the Trust Agreement. The aggregate principal
amount of Certificates equals the aggregate amount of the corresponding series
or class of underlying notes, and all Certificates issued and to be issued under
the Trust Agreement are
A-2
<PAGE>
and will be equally secured by the pledge and covenants made therein, except as
otherwise expressly provided or permitted in the Trust Agreement.
The Interest Rate applicable to the Class ___ Certificates for the Interest
Accrual Period relating to an Interest Determination Date will be the sum of
LIBOR as determined by the Bankers Trust Company (together with any successor
Agent Bank under the Trust Agreement, the "Agent Bank") on the most recent
Interest Determination Date plus .%. Except as set forth below, interest on the
Certificates will be calculated on the basis of the actual number of days in an
Interest Accrual Period and a 360-day year. There will be no maximum or minimum
Certificate Interest Rate. Notwithstanding the foregoing, in the event that the
Swap is terminated, the Interest Rate with respect to the Class ___ Certificates
will be .% per annum (calculated on the basis of a 360-day year consisting of
twelve 30-day months), effective, except as otherwise set forth in the Trust
Agreement, as of the first day of the Interest Accrual Period immediately
preceding the termination of the Swap.
Subject to and in accordance with the terms of the Trust Agreement, there
will be distributed on each March 25, June 25, September 25 and December 26 or
each year or, if any such day is not a Business Day, the next succeeding
Business Day (each, a "Distribution Date"), commencing on ., 1998 and ending no
later than the Termination Date (stated above) to the person in whose name this
Certificate is registered at the close of business on the last Business Day
immediately preceding the related Distribution Date or, if Definitive
Certificates are issued, the last day of the immediately preceding calendar
month (each, a "Record Date"), such Holder's pro rata interest in the payments
made on the Underlying Note and the Swap due on such Payment Date, the receipt
of which has been confirmed by the Certificate Trustee. Subject to and in
accordance with the terms of the Trust Agreement, in the event that a Special
Payment on the Underlying Note is received by the Certificate Trustee, from
funds then available to the Certificate Trustee, there will 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, such Holder's pro rata share of such amount. The Special Payment
Date will be determined as provided in the Trust Agreement. The Certificate
Trustee will 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 as provided in the Trust
Agreement by the Certificate Trustee by wire transfer or check mailed to the
Certificateholder of record in the Certificate Register without the presentation
or surrender of this Certificate or the making of any notation hereon, except
that with respect to Certificates registered on the Record Date in the name of
the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
payments will be made by wire transfer in immediately available funds to the
account designated by such nominee. Except as otherwise provided in the Trust
Agreement and notwithstanding the above, the final distribution on this
Certificate will be made after due notice by the Certificate Trustee of the
pendency of such distribution and only upon presentation and surrender of this
Certificate at the office of the Paying Agent or the office or agency maintained
for that purpose by the Certificate Trustee in The City of New York.
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
A-3
<PAGE>
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 Note Issuer, Trust and
the Certificateholders that the State of California will 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 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 Note
Issuer, the Trust and the Holders.
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.
Unless the certificate of authentication hereon shall have been executed by
an authorized officer of the Certificate Trustee, by manual signature, this
Certificate shall not entitle the holder hereof to any benefit under the Trust
Agreement or any other Basic Document or be valid for any purpose.
THIS TRUST CERTIFICATE SHALL BE 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 SHALL BE GOVERNED BY THE DOMESTIC LAW OF THE STATE OF CALIFORNIA.
A-4
<PAGE>
IN WITNESS WHEREOF, the Certificate Trustee has on behalf of the Trust
caused this Certificate to be duly executed.
By: BANKERS TRUST COMPANY OF
CALIFORNIA, N.A., not in its
individual capacity but solely
as Certificate Trustee
By:
--------------------------------
Name:
Title:
A-5
<PAGE>
CERTIFICATE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: __________, 199_
This is one of the Certificates referred to in the within-mentioned Trust
Agreement.
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A., not in its
individual capacity but
solely as Certificate Trustee
By:
---------------------------------
Authorized Officer
A-6
<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 Holder 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 Holder 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
beneficial 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 beneficial
interest in the Underlying Note and Swap 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 and
integral multiples thereof. As provided in the Trust Agreement and subject to
certain limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the same aggregate
fractional undivided beneficial interest in the Underlying Note and Swap, as
requested by the Certificateholder surrendering the same.
A-7
<PAGE>
The Holder 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-8
<PAGE>
EXHIBIT B
FORM OF SWAP AGREEMENT
[TO COME]
B-1
<PAGE>
Exhibit 5.1
[LETTERHEAD OF O'MELVENEY & MYERS]
November
21st
1997
748,980-013
LA1-764266.v3
(213) 669-6000
SDG&E FUNDING LLC
101 ASH STREET, ROOM 111
SAN DIEGO, CALIFORNIA 92101
RE: LEGALITY OF NOTES
-----------------
Ladies and Gentlemen:
This opinion is delivered in connection with Amendment No. 4 to the
Registration Statement on Form S-3 (the "Registration Statement") filed under
the Securities Act of 1933, as amended (the "Act"), by SDG&E Funding LLC, a
Delaware special purpose limited liability company (the "Note Issuer" and the
"Registrant"), with the Securities and Exchange Commission (the "Commission")
in connection with the registration by the Registrant under the Act, of rate
reduction certificates (the "Certificates") to be issued by the California
Infrastructure and Economic Development Bank Special Purpose Trust SDG&E-1 (the
"Trust") and notes (the "Notes") to be issued by the Note Issuer, which underlie
the Certificates. 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
and the prospectus and prospectus supplement relating to such Certificates and
Notes.
We have examined (i) the Registration Statement, (ii) the form of
Indenture, as to be filed as an exhibit to the Registration Statement, pursuant
to which the Notes are to be issued, and (iii) the form of Note Purchase
Agreement to be
<PAGE>
Page 2 - SDG&E Funding LLC - November 21, 1997
executed by the Note Issuer and a certificate trustee (the "Certificate
Trustee") on behalf of the Trust (the "Note Purchase Agreement"), as to be filed
as an exhibit to the Registration Statement, pursuant to which the Certificate
Trustee will acquire the Notes from the Note Issuer on behalf of the Trust. In
addition, we have examined such instruments, documents and records as we deemed
relevant and necessary as a basis for our opinion hereinafter expressed. In
such examination, we have assumed the following: (a) the authenticity of
original documents and the genuineness of all signatures; (b) the conformity to
the originals of all documents submitted to us as copies; and (c) the truth,
accuracy and completeness of the information, representations and warranties
contained in the records, documents, instruments and certificates we have
reviewed.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, it is our opinion that [when the Indenture has been
duly authorized by appropriate corporate action and validly executed and
delivered by the Note Issuer and the Note Trustee and the Notes of any Series or
Class have been duly authorized by appropriate corporate action and duly
executed, authenticated, issued and delivered in accordance with the provisions
of the Indenture and paid for and sold as contemplated by the Note Purchase
Agreement, the Notes of such Series or Class will constitute legally valid and
binding obligations of the Note Issuer, enforceable against the Note Issuer in
accordance with their terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally (including, without limitation, fraudulent conveyance laws) and
by 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. We note that you have
previously received an opinion from Richards, Layton & Finger dated November 10,
1997 regarding, among other things, the authority of the Note Issuer to execute
and deliver the Indenture.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name wherever it appears in the
Registration Statement and the prospectus contained therein.
Respectfully submitted,
/s/ O'Melveny & Myers LLP
<PAGE>
Exhibit 8.1
[BROWN & WOOD LETTERHEAD]
November 21, 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 SDG&E-1
Registration Statement on Form S-3 (File No. 333-30761)
-------------------------------------------------------
Ladies and Gentlemen:
We have acted as special tax counsel to California Infrastructure and
Economic Development Bank Special Purpose Trust SDG&E-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. 333-30761)
relating to the issuance from time to time in one or more series (each, a
"Series") of up to $800,000,000 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.
Assuming that the Trust Agreement and other documents relevant to each
Series of Securities are executed and delivered in substantially the form we
have examined and the transactions contemplated to occur under the Registration
Statement in fact occur in accordance with the terms thereof, we hereby confirm
that the statements set forth in the Prospectus under the captions "Certain
Federal Income Tax Consequences" and "State Taxation" accurately reflect our
opinions with respect to a transaction to which those provisions by their terms
apply.
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 headings
"Certain Federal Income Tax Consequences" and "State Taxation" 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.
Respectfully submitted,
/s/ Brown & Wood LLP
<PAGE>
EXHIBIT 8.2
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
Index Numbers: Washington, DC 20224
61.00-00 61.03-00
61.43-00 451.01-00
Person to Contact:
Dean Weiner Jonathan R. Zelnik
O'Melveny & Myers Telephone Number:
400 South Hope St 202-622-3940
Los Angeles, CA 90071-2899 Refer Reply To:
CC:DOM:FI&P:2/PLR-103883-97
Washington, DC 20224 Date:
September 8, 1997
In re: San Diego Gas & Electric Co.
EIN: 95-1184800
101 West Ash St.
San Diego, CA 92101
Legend
Parent = Enova Corporation
EIN: 33-0643023
Company = San Diego Gas & Electric Co.
SPE = SDG&E Funding LLC
State A Bank = California Infrastructure and
Economic Development Bank
Trust = California Infrastructure and
Economic Development Bank Special
Purpose Trust SDG&E-1
State A = California
State B = Delaware
Statute = Assembly Bill 1890 (Chapter 854, California
Statutes of 1996), as amended by Senate
Bill 477
SPE Securities = SPE Debt
Investor Securities = Rate Reduction Bonds
Series A-1 = Series 1997-1
a = 0.5
-
b = 0.5
-
c = 5
-
d = 5
-
e = 2
-
f = 10
-
g = 3
-
h = 13
-
v = 100,000
-
x = 710,000,000
-
y = 800,000,000
-
z = 5,900,000
-
<PAGE>
-2-
PLR-103883-97
Dear Mr. Weiner:
This letter is in reply to your letter dated February 24, 1997, and other
correspondence, asking the Internal Revenue Service to rule on the transaction
described below (the Proposed Transaction).
FACTS
Parent is the common parent of an affiliated group of corporations that
includes Company. Parent files a consolidated return for the group.
Company, a calendar year taxpayer that uses the accrual method of
accounting, is an investor-owned electric utility in State A. Company generates,
transmits, and distributes electricity to residential, commercial, industrial,
and governmental customers within a designated territory. Company has a monopoly
for providing electricity within its territory and is regulated by State A's
Public Utility Commission (PUC) and the Federal Energy Regulatory Commission
(FERC). Company maintains its accounts in accordance with the uniform system of
accounts prescribed by the PUC and FERC.
State A is deregulating its electric industry. As a result, Company's
customers will be allowed to contract directly with alternative suppliers of
electricity, and Company will compete with other parties to sell electricity.
In a competitive market some of Company's generation facilities will have
values substantially below their book value and some of its contracts to
purchase electricity will be at rates above the market price. To enable Company
to recover the net uneconomic portions of its prudently incurred costs of
generation-related assets and obligations (Transition Costs), State enacted
Statute and the PUC issued orders allowing Company to collect nonbypassable
charges from consumers of electricity located in Company's territory. The
charges will be based, in part, on the amount of electricity purchased by the
consumer, whether from Company or from an alternative supplier.
Under Statute, a portion of Company's Transition Costs may be recovered by
collecting a separate, nonbypassable, usage-based charge called Fixed Transition
Amounts (FTAs) and by issuing securities that will be secured by Company's right
to collect the FTAs. The FTAs will be collected from residential and small
commercial consumers. To establish the actual amount of Company's Transition
Costs that may be recovered by collecting FTAs and issuing securities, Company
must apply for a financing order from the PUC.
<PAGE>
-3-
PLR-103883-97
Under a financing order, FTAs to be collected by Company will be generally
based on the actual electricity usage of each affected consumer. Actual
collection of FTAs will vary from expected collections due to a number of
factors including power usage and delinquencies. To ensure timely recovery of
all Transition Costs covered by a financing order, the financing order will
require the PUC to adjust, at least annually, the FTA charge. Under Statute, the
right to collect FTAs is a separate property right (Transition Property). The
final terms and conditions for collection of FTAs by Company will be set forth
in an advice letter to be filed by Company at a future date.
Proposed Transaction
- --------------------
The PUC has issued a financing order authorizing the issuance of up to $y
-
of Investor Securities. Company, through the SPE (described below), will
initially issue $x of SPE Securities. State A Bank, through Trust (described
-
below), will acquire the SPE Securities and will issue to investors $x of
-
Investor Securities.
Company will form the SPE under State B law as a bankruptcy remote, limited
liability company for the special purpose of effectuating the Proposed
Transaction. The SPE will use the accrual method of accounting. Company will be
the sole member of the SPE. The SPE will not elect to be treated as an
association taxable as a corporation under section 301.7701-3(b)(1) of the
Procedure and Administration Regulations.
State A Bank will establish Trust to hold the SPE Securities and to issue
the Investor Securities.
Company will transfer the Transition Property in the form of a sale to the
SPE in exchange for the proceeds from the SPE's issuance of the SPE Securities.
Company will also contribute as equity to the SPE cash equal to a percent of the
total issue price of the SPE Securities. The SPE will invest the equity in
financial instruments that are issued by parties unaffiliated with Company and
that can be readily converted to cash.
The SPE will issue the SPE Securities to Trust in exchange for the proceeds
from Trust's issuance of the Investor Securities. The SPE will use the proceeds
of the SPE Securities to pay costs of issuing the SPE Securities and the
Investor Securities and to acquire the Transition Property.
Trust will hold the SPE Securities and issue Investor Securities to
underwriters, who will sell the Investor Securities to public investors
(Investors). The Investor Securities will be issued in the form of pass-through
certificates that will
<PAGE>
-4-
PLR-103883-97
represent ownership interests in the SPE Securities held by Trust. The terms of
the Investor Securities will substantially mirror the terms of the associated
SPE Securities.
The SPE Securities will be nonrecourse but will be secured by the
Transition Property, the equity of the SPE (less $v), the Overcollateralization
-
Amount (described below), the FTA Reserve (described below), undistributed
investment earnings of the SPE, and any other assets of the SPE. Company expects
the SPE Securities to receive the highest credit rating from at least two
nationally recognized credit rating agencies.
The SPE will initially issue one series of SPE Securities (Series A-1).
Series A-1 will be divided into d sequential classes, each with a different
-
legal maturity date. Company expects that the SPE Securities will have scheduled
maturities of between e and f years and will have legal maturities of between g
- - -
and h years. Scheduled maturity is the date on which the final principal payment
-
is expected to be paid; legal maturity is the date on which nonpayment is a
default.
Interest on Series A-1 will be payable quarterly at rates that are based on
yields commensurate with similarly rated debt obligations of comparable weighted
average lives. The SPE Securities are expected to be sold at or near par value.
Principal payments will be scheduled to be made quarterly and will be applied in
sequential order to each class of Series A-1 until the outstanding principal
balance of the class is reduced to zero. Scheduled principal payments for each
quarter will be different, but the total scheduled principal payments for each
year will be approximately equal.
Series A-1 will be subject to an optional "clean-up" call -- early payment
of all outstanding principal and accrued interest -- when the outstanding
principal of the series declines to c percent of the original issue price of the
-
series. Because the classes will be allocated principal payments in sequential
order, the clean-up call for Series A-1 will apply only to the class with the
longest maturity.
Initially, Company will service the consumer accounts that are subject to
the FTAs. As servicer, Company will, on a monthly basis, bill and collect FTAs,
remit collected FTAs to Trust, and retain all books and records regarding the
FTAs, subject to the SPE's right of inspection. Company will retain all
investment income earned on the FTAs between the time they are collected and the
time they are remitted to Trust. Only in the event that Company fails to
satisfactorily perform its servicing functions will Company be subject to
replacement as servicer. Company's ability to resign as servicer will be
restricted.
<PAGE>
-5-
PLR-103883-97
The FTA charge will be set to provide for recovery of the costs associated
with billing and collecting the FTAs as well as for an excess amount
(Overcollateralization Amount) that will eventually reach b percent of the
-
original principal amount of the SPE Securities. The Overcollateralization
Amount will be collected ratably over the expected term of the SPE Securities.
Company also expects to receive at least $z (net of all fees and expenses
-
payable by the SPE) in FTAs after the last scheduled date for payment of accrued
interest and principal on the SPE Securities.
Trust will retain all remitted FTAs in the "Collection Account." Quarterly,
the Trustee will pay out of the Collection Account the Trustee's fees, servicing
fees, administrative costs, operating expenses of the SPE and Trust, accrued but
unpaid interest on all classes of the SPE Securities, and principal (to the
extent scheduled) on the outstanding SPE Securities. Any remaining FTAs will be
allocated to the Overcollateralization Amount (to the extent scheduled) and then
to a reserve fund (the FTA Reserve).
If the FTAs collected in any period are insufficient to satisfy the SPE's
payment obligations on the SPE Securities, then amounts in the FTA Reserve, the
accumulated Overcollateralization Amount, and all but $v of the SPE's equity
-
will be used to satisfy scheduled principal and interest payments. To the extent
that the SPE's equity or the Overcollateralization Amount is used to satisfy
scheduled principal and interest payments, future FTAs will be adjusted to
restore the SPE's equity and the scheduled Overcollateralization Amount.
Investment income earned on amounts in the Collection Account also may be
used to satisfy scheduled interest and principal payments on SPE Securities and
to replenish the SPE's equity and the scheduled Overcollateralization Amount.
Any excess earnings will be remitted to the SPE, which may distribute the
earnings to Company quarterly.
If the FTAs deposited in the Collection Account differ from the FTAs
projected to be collected by more than a certain amount, the PUC is required to
adjust the FTA charge at least annually.
The SPE Securities will provide for the following events of default: (1) a
default of five days or more in the payment of accrued interest on any class of
SPE Securities; (2) a default in the payment of outstanding principal as of the
legal maturity date; (3) a default in payment of the redemption price following
an optional clean-up call as of the redemption date; (4) certain breaches of
covenants, representations or warranties by the SPE in the indenture under which
the SPE Securities are issued; and
<PAGE>
-6-
PLR-103883-97
(5) certain events of bankruptcy, insolvency, receivership, or liquidation of
the SPE.
In the event of a payment default, the Trustee or holders of a majority in
principal amount of all series then outstanding may declare the principal of all
classes of the SPE Securities to be immediately due and payable. If all classes
of the SPE Securities have been declared to be due and payable following an
event of default, the Trustee may, in its discretion, either sell the Transition
Property or allow the SPE to maintain possession of the Transition Property and
continue to apply receipts of the FTAs as if there had been no declaration of
acceleration.
Representations
- ---------------
Company, the SPE, the Trust, and the Investors will expressly agree under
the terms of the applicable documents to treat the SPE Securities as debt of the
SPE for all purposes. For financial accounting purposes, the SPE Securities will
be treated as debt of Company. Company anticipates that the PUC and the credit
rating agencies will treat the SPE Securities as debt.
The SPE Securities will not be subordinated to the claims of any creditors
or equity owners of the SPE, other than for payments of trustee and servicing
fees.
The Trust will not be entitled to participate in the management of the SPE.
Company has been advised that the Overcollateralization Amount is necessary
for the SPE and Investor Securities to receive the highest credit rating.
ISSUES
Does the issuance of the PUC financing order authorizing the collection of
the FTAs result in gross income to Company?
Do the issuance of the SPE Securities to Trust and the issuance of the
Investor Securities result in gross income to Company?
Are the SPE Securities obligations of Company?
LAW
Section 61 of the Internal Revenue Code generally defines gross income as
"income from whatever source derived", except as otherwise provided by law.
Gross income includes income realized in any form, whether in money, property,
or services. Section
<PAGE>
-7-
PLR-103883-97
1.61-1(a) of the Income Tax Regulations. This definition encompasses all
"accessions to wealth, clearly realized, and over which the taxpayers have
complete dominion." Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431
-----------------------------------
(1955), 1955-1 C.B. 207.
The right to collect the FTAs is of significant value in producing income
for Company, and State A's action in making the FTA rights transferable has
enhanced that value. Generally, the granting of a transferable right by the
government does not cause the realization of income. Rev. Rul. 92-16, 1992-1
C.B. 15 (allocation of air emission rights by the Environmental Protection
Agency does not cause a utility to realize gross income); Rev. Rul. 67-135,
1967-1 C.B. 20 (fair market value of an oil and gas lease obtained from the
government through a lottery is not includible in income).
The economic substance of a transaction generally governs its federal tax
consequences. Gregory v. Helvering, 293 U.S. 465 (1935), XIV-1 C.B. 193.
---------------------
Affixing a label to an undertaking does not determine its character. Rev. Rul.
97-3, 1997-2 I.R.B. 5. An instrument secured by property may be an obligation of
the taxpayer or, alternatively, may be a disposition of the underlying property
by the taxpayer. Cf. id. (the Small Business Administration is the primary
-------
obligor of certain guaranteed payment rights that are created under its
participating security program).
CONCLUSIONS
Based on the facts as represented, we rule as follows:
(1) The issuance of the PUC financing order authorizing the collection of
the FTAs does not result in gross income to Company.
(2) The issuance of the SPE Securities to Trust and the issuance of the
Investor Securities will not result in gross income to Company.
(3) The SPE Securities will be obligations of Company.
Except as specifically ruled on above, no opinion is expressed or implied
regarding the federal tax aspects of the transaction.
This ruling is directed only to Company. Under section 6110(j)(3) of the
Code, this ruling may not be used or cited as precedent.
<PAGE>
-8-
PLR-103883-97
A copy of this letter should be attached to the federal income tax return
of Company for the taxable years that include the transaction described in this
letter.
Sincerely yours,
Assistant Chief Counsel
(Financial Institutions & Products)
By: /s/ Marshall Feiring
----------------------------
Marshall Feiring
Senior Technician Reviewer,
Branch 2
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 to Registration Statement No.
333-30761 on Form S-3 of our report dated November 6, 1997, appearing in the
Prospectus, which is part of such Registration Statement.
Deloitte & Touche LLP
San Diego, California November 20, 1997
<PAGE>
EXHIBIT 25.1
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.)
SDG & E FUNDING LLC
(Exact name of obligor as specified in its charter)
DELAWARE 33-0762746
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
101 Ash Street, Room 111
San Diego, California 92101
(Address of principal executive offices)
NOTES
(Title of the indenture securities)
<PAGE>
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.
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.
<PAGE>
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.
<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 20th day of November, 1997.
Bankers Trust Company of California, N.A.
By: /s/ Linda Rakolta
Linda Rakolta
Vice President
<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
<PAGE>
Directors may not increase the number of directors to a number
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
<PAGE>
Board except as may be otherwise provided by statute or the
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
<PAGE>
recommend amendments thereto, to purchase and sell securities, to
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
<PAGE>
appoint a Secretary or other designated officer who shall be
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
<PAGE>
activities. The trust officer shall be responsible for all
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.
<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,
<PAGE>
satisfactions, settlements, petitions, schedules, accounts,
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.
<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
SDG & E Funding LLC Notes, 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 20, 1997 Bankers Trust Company
of California, N.A.
By:Linda Rakolta
Linda Rakolta
Vice President
<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
SDG & E-1
(Exact name of obligor as specified in its charter)
DELAWARE 33-0762746
(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)
RATE REDUCTION CERTIFICATES
(Title of the indenture securities)
Item 1. General Information.
<PAGE>
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.
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 -
<PAGE>
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.
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 20th day of November, 1997.
Bankers Trust Company of California, N.A.
By: /s/ Linda Rakolta
-------------
Linda Rakolta
Vice President
<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
<PAGE>
Directors may not increase the number of directors to a number
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
<PAGE>
Board except as may be otherwise provided by statute or the
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
<PAGE>
recommend amendments thereto, to purchase and sell securities, to
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
<PAGE>
appoint a Secretary or other designated officer who shall be
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
<PAGE>
activities. The trust officer shall be responsible for all
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.
<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,
<PAGE>
satisfactions, settlements, petitions, schedules, accounts,
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.
<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 Develoment Bank Special Purpose Trust, SDG & E-1 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 20, 1997 Bankers Trust Company of California, N.A.
By: Linda Rakolta
------------------
Linda Rakolta
Vice President
<PAGE>
EXHIBIT 99.5
AGENDA ITEM IV.
CIEDB Board Meeting
November 10, 1997
RESOLUTION B97-17
RESOLUTION OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT
BANK APPROVING THE TERMS AND CONDITIONS FOR THE ISSUANCE OF NOT TO
EXCEED $800 MILLION OF RATE REDUCTION BONDS TO FINANCE THE RECOVERY OF
TRANSITION COSTS BY SAN DIEGO GAS AND ELECTRIC 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, San Diego Gas and
Electric 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 97-09-057 dated September 3, 1997 ("Financing Order"), authorizing the
Utility, among other things, to recover up to $800 million 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 $800 million 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
<PAGE>
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
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
"SDG&E 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 SDG&E-1
("Trust"); and
WHEREAS, the Utility submitted to the Bank, as an exhibit to its
Application, a copy of registration statement No. 333-30761 ("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 SDG&E-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:
<PAGE>
NOW THEREFORE, the board of directors of the Bank hereby does resolve as
follows:
Section 1. RECITALS. The recitals above are true and correct.
----------
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
<PAGE>
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.
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
overall 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 October 26,
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 of California, N.A., 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
October 26, 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 October 26, 1997, by and
among the Certificate Trustee, the Delaware Trustee, the SPE, the Bank and
Bankers Trust Company of California, N.A., 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
October 25, 1997, by and among the Utility, the Trust, the SPE, Morgan Stanley
Dean Witter 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
<PAGE>
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 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. SERVICING COMPENSATION. Any Servicer shall receive annual
-----------
compensation not to exceed 0.25% of the outstanding principal balance of the
Notes if the fixed transition amount (as defined in the Restructuring
Legislation) is included as a line item on bills otherwise sent to customers,
and shall receive annual compensation not to exceed 1.5% of the outstanding
principal balance of the Notes if the fixed transition amount is billed
separately to customers.
Section 18. RATINGS. The Certificates shall be rated the highest rating
-----------
category by any rating agency rating the Certificates.
Section 19. EFFECTIVE DATE OF RESOLUTION. This resolution shall take
-----------
effect from and after its adoption.
<PAGE>
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>
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) $60,000
Brown & Wood LLP Bond Counsel fees $220,000
Public Resources Advisory Group Financial Advisor fees $40,000
Bankers Trust of California, N.A. Note, Certificate and
and Bankers Trust (Delaware) Delaware Trustee fees $10,200
Bankers Trust of California, N.A. Trustee Counsel Fees
and Bankers Trust (Delaware) $17,000
TOTAL $347,200(2)
</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
[LETTERHEAD OF BROWN & WOOD LLP]
November 21, 1997
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 SDG&E-1
Rate Reduction Certificates
Dear Sirs:
We have acted as special counsel to California Infrastructure and Economic
Development Bank Special Purpose Trust SDG&E-1, a business trust established
under Delaware law (the "Trust"), in connection with the proposed issuance by
the Trust of up to $800,000,000 principal amount of its Rate Reduction
Certificates (the "Certificates"). The Trust is created and governed, and the
Certificates will be issued, pursuant to an Amended and Restated Declaration
and Agreement of Trust by and among California Infrastructure and Economic
Development Bank (the "Bank"), as Originator, Bankers Trust (Delaware), as
Delaware Trustee, and Bankers Trust Company of California, N.A., as Certificate
Trustee. Upon issuance, the Certificates will represent a fractional undivided
beneficial interest in a corresponding Series or Class of Notes (the "Notes")
purchased by the Trust from SDG&E Funding LLC together with all payments on the
Notes. The Notes will be secured by a security interest in transition property
(as described below) together with certain limited equity of the SPE. 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 97-09-057 issued by the California Public Utilities Commission (the
"CPUC") on September 3, 1997, and advice letters issued pursuant thereto,
representing the irrevocable right of San Diego Gas & Electric Company ("SDG&E")
or its assignee to receive certain nonbypassable charges (as adjusted from time
to time) ("fixed transition amounts") on residential and small commercial
customers within SDG&E'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 assumed for the purpose of this opinion that the Certificates and
related documents are executed in substantially the form we have examined and
the transactions contemplated to occur under the Registration Statement
(referred to below) in fact occur in accordance with the terms thereof.
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., United States Trust Co. of New
--- ---- ------------------------------
York, supra, 421 U.S. at 1519-20. There have been numerous
- ---- -----
2
<PAGE>
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 being deterred by uncertainties as to the
outcome of impending legislative changes or voter
3
<PAGE>
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 SDG&E Funding
LLC's Registration Statement on Form S-3 (Registration No. 333-30761), to
the use of our name wherever appearing in such Registration Statement and any
amendment thereto and to the disclosure regarding this opinion in the related
prospectus and prospectus supplement. 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.
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 and Wood LLP
4
<PAGE>
Exhibit 99.8
[BROWN & WOOD LLP LETTERHEAD]
November 21, 1997
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 SDG&E-1
Rate Reduction Certificates
Ladies and Gentlemen:
We have acted as special counsel to California Infrastructure and Economic
Development Bank Special Purpose Trust SDG&E-1, a business trust established
under Delaware law (the "Trust"), in connection with the issuance by the Trust
of up to $800,000,000 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 SDG&E 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. 97-09-057 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 San Diego Gas & Electric
Company ("SDG&E") or its assignee to receive certain non-bypassable charges (as
adjusted from time to time) on residential and small commercial customers within
SDG&E'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. 333-30761), to the use
of our name wherever appearing in such Registration Statement and any amendment
thereto and to the disclosure regarding this opinion in the related prospectus
and prospectus supplement. 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.
Respectfully submitted,
/s/ Brown & Wood llp
3
