<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1998
REGISTRATION NO. 333-60907
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
COMED TRANSITIONAL FUNDING TRUST
(Issuer of Securities)
COMED FUNDING, LLC
(Depositor of the Trust as described herein)
(Exact name of Registrant as Specified in Its Certificate of Formation)
<TABLE>
<S> <C>
DELAWARE 36-4239488
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) No.)
</TABLE>
COMED FUNDING, LLC
TEN SOUTH DEARBORN STREET, 37TH FLOOR, CHICAGO, ILLINOIS 60603, (312) 394-7937
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
RUTH ANN M. GILLIS, MANAGER
TEN SOUTH DEARBORN STREET, 37TH FLOOR, CHICAGO, ILLINOIS 60603, (312) 394-3149
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
WITH COPIES TO:
Frederick L. Kevin J. Hochberg, Daniel C. Bird, Esq.
Feldkamp, Esq. Esq. Winston & Strawn
Foley & Lardner Sidley & Austin 35 W. Wacker Drive
330 North Wabash One First National Chicago, Illinois
Avenue, Suite 3300 Plaza 60601
Chicago, Illinois Chicago, Illinois (312) 558-7446
60611 60603
(312) 755-1900 (312) 853-2085
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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 this prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO AGGREGATE PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE(2)
<S> <C> <C> <C> <C>
Transitional Funding Trust Notes.......... $4,000,000,000 100% $4,000,000,000 $1,112,017
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Of this amount, $295 was paid August 7, 1998.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED DECEMBER 4, 1998
$
COMED TRANSITIONAL FUNDING TRUST
$ CLASS A-1 % TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998
$ CLASS A-2 % TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998
$ CLASS A-3 % TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998
$ CLASS A-4 % TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998
$ CLASS A-5 % TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998
$ CLASS A-6 % TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998
$ CLASS A-7 % TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998
COMMONWEALTH EDISON COMPANY
SERVICER
The ComEd Transitional Funding Trust Transitional Funding Trust Notes,
Series 1998 (the "Offered Notes") offered hereby will consist of the [seven]
Classes listed above. Each Offered Note will be secured primarily by, and
payable from, the Intangible Transition Property owned by the Trust, as
described under "Description of the Intangible Transition Property" herein and
in the Prospectus and by the other Note Collateral described under "Security for
the Notes" in the Prospectus.
------------------
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE OFFERED NOTES, 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 28 IN THE PROSPECTUS.
------------------
THE OFFERED NOTES OFFERED HEREBY DO NOT CONSTITUTE A DEBT, LIABILITY OR
OTHER OBLIGATION OF THE STATE OF ILLINOIS OR OF ANY POLITICAL SUBDIVISION,
AGENCY OR INSTRUMENTALITY THEREOF AND DO NOT REPRESENT AN INTEREST IN OR
OBLIGATION OF COMMONWEALTH EDISON COMPANY OR ANY OF ITS AFFILIATES. NONE OF THE
OFFERED NOTES OR THE UNDERLYING INTANGIBLE TRANSITION PROPERTY WILL BE
GUARANTEED OR INSURED BY COMMONWEALTH EDISON COMPANY OR ITS AFFILIATES.
------------------
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 SUPPLEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO PUBLIC(1) DISCOUNTS(2) PROCEEDS TO TRUST(1)(3)
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Per Class A-1 Note............... % % %
Per Class A-2 Note............... % % %
Per Class A-3 Note............... % % %
Per Class A-4 Note............... % % %
Per Class A-5 Note............... % % %
Per Class A-6 Note............... % % %
Per Class A-7 Note............... % % %
Total............................ $ $ $
</TABLE>
- ------------------
(1) Plus accrued interest, if any, at the applicable Note Interest Rate from
, 1998.
(2) The Grantee and ComEd have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $ payable by the Trust.
------------------
The Offered Notes are offered severally by the Underwriters when, as and if
issued by the Trust and subject to receipt and acceptance by the Underwriters
and subject to their rights to reject orders in whole or in part. It is expected
that the Offered Notes will be delivered on or about , 1998, in book-entry
form through the facilities of The Depository Trust Company, Cedel Bank, societe
anonyme, and the Euroclear System.
------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
CHASE SECURITIES INC.
FIRST CHICAGO CAPITAL MARKETS, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
BNY CAPITAL MARKETS,
INC.
<TABLE>
<S> <C> <C>
GARDNER RICH & COMPANY MESIROW FINANCIAL, INC.
RAMIREZ & CO., INC. LOOP CAPITAL MARKETS, LLC SIEBERT BRANDFORD SHANK & CO., LLC
</TABLE>
--------------
The date of this Prospectus Supplement is , 1998.
<PAGE>
Interest on each Class of Offered Notes at the applicable Note Interest Rate
will be distributable quarterly on March 25th, June 25th, September 25th and
December 25th or, if any such day is not a Business Day, the next succeeding
Business Day (each, a "Payment Date") commencing , 1999. See "Description of
the Offered Notes" herein.
The Offered Notes are part of a separate Series of ComEd Transitional
Funding Trust Transitional Funding Trust Notes being offered by the Trust from
time to time pursuant to a Prospectus dated , 1998 (the "Prospectus"), of
which this Prospectus Supplement is a part and which accompanies this Prospectus
Supplement.
THE INTANGIBLE TRANSITION PROPERTY ASSIGNED TO THE TRUST BY THE GRANTEE AND
CERTAIN OTHER ASSETS OF THE TRUST ARE THE SOLE SOURCE OF PAYMENTS ON THE OFFERED
NOTES. NONE OF COMMONWEALTH EDISON COMPANY OR ITS AFFILIATES WILL HAVE ANY
OBLIGATIONS IN RESPECT OF THE OFFERED NOTES OR THE INTANGIBLE TRANSITION
PROPERTY, EXCEPT AS EXPRESSLY SET FORTH HEREIN AND IN THE PROSPECTUS.
THE TRANSITIONAL FUNDING ORDER AUTHORIZING THE ISSUANCE OF THE OFFERED NOTES
DOES NOT CONSTITUTE A PLEDGE OF THE FULL FAITH AND CREDIT OF THE STATE OF
ILLINOIS OR OF ANY OF ITS POLITICAL SUBDIVISIONS. THE ISSUANCE OF THE OFFERED
NOTES UNDER THE FUNDING LAW SHALL NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY
OBLIGATE THE STATE OF ILLINOIS OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR
TO PLEDGE ANY FORM OF TAXATION THEREFOR OR TO MAKE ANY APPROPRIATION FOR THEIR
PAYMENT.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE OFFERED NOTES,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
OFFERED NOTES AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
Prospective investors should refer to the "Index of Principal Definitions"
which begins on page S-23 herein and which begins on page 128 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 Notes 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 Notes, and, upon
request, to Participants of DTC, periodic reports concerning the Offered Notes.
See "Servicing--Statements by Servicer" in the Prospectus. Such reports may be
made available to the holders of interests in the Offered Notes (the
"Noteholders") 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 Noteholders will
not be examined and reported upon, nor will an opinion thereon be provided, by
any independent public accountant.
The Grantee, on behalf of the Trust, 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 Grantee may discontinue
filing periodic reports under the Exchange Act at the beginning of any fiscal
year following the issuance of the Offered Notes if there are fewer than 300
holders of such Offered Notes.
S-3
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING PROSPECTUS SUPPLEMENT SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE DETAILED INFORMATION APPEARING ELSEWHERE HEREIN AND IN THE
PROSPECTUS. CERTAIN CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS PROSPECTUS
SUPPLEMENT SUMMARY HAVE THE MEANINGS ASCRIBED TO SUCH TERMS ELSEWHERE IN THIS
PROSPECTUS SUPPLEMENT OR, TO THE EXTENT NOT DEFINED HEREIN, HAVE THE MEANINGS
ASCRIBED TO SUCH TERMS IN THE PROSPECTUS. THE INDEX OF PRINCIPAL DEFINITIONS
INCLUDED IN THIS PROSPECTUS SUPPLEMENT WHICH BEGINS ON PAGE S-23 SETS FORTH THE
PAGES ON WHICH THE DEFINITIONS OF CERTAIN PRINCIPAL TERMS APPEAR.
<TABLE>
<S> <C>
Summary of Offered Notes.......... The ComEd Transitional Funding Trust Transitional
Funding Trust Notes, Series 1998 (the "Offered Notes").
On the date of initial issuance of the Offered Notes
(the "Series Issuance Date"), the Offered Notes will be
issued as described below.
</TABLE>
<TABLE>
<CAPTION>
NOTE
INITIAL SCHEDULED INTEREST
CLASS PRINCIPAL AMOUNT MATURITY DATE FINAL MATURITY DATE RATE
- ---------------------------- ------------------- ------------- ------------------- -----------
<S> <C> <C> <C> <C>
A-1......................... %
A-2......................... %
A-3......................... %
A-4......................... %
A-5......................... %
A-6......................... %
A-7......................... %
</TABLE>
<TABLE>
<S> <C>
Transaction Overview.............. For a brief summary of the statutes and proceedings
which form the basis for the issuance and sale of the
Offered Notes 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 Trust, whose primary asset will be Intangible
Transition Property transferred to the Trust pursuant to
the Sale Agreements, will issue the Offered Notes, which
will be sold to the Underwriters. The Offered Notes will
be secured primarily by, and payable from, all of the
Intangible Transition Property (whether created by the
Transitional Funding Order issued by the ICC on July 21,
1998 (the "1998 TFO") or any other Transitional Funding
Order) which has been transferred to the Trust pursuant
to a Sale Agreement. The Offered Notes also will be
secured by the Grant Agreements, the Sale Agreements and
the Servicing Agreement; the Collection Account and all
amounts of cash or investment property on deposit
therein or credited thereto from time to time; all
rights to compel ComEd, as Servicer (or any successor),
to file for and obtain adjustments to the IFC Charges in
accordance with Section 18-104(d) of the Act, the
Transitional Funding Orders, including the 1998 TFO and
all IFC Tariffs, including the 1998 IFC Tariff (as
hereinafter defined) filed with the ICC in connection
therewith; all present and future claims, demands,
causes and choses in action in respect of any or all of
the foregoing; and all
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
payments on or under and all proceeds in respect of any
or all of the foregoing.
The IFC Charges are calculated to be sufficient over
time to (a) pay interest and make Scheduled Payments on
the Offered Notes, (b) pay all related fees and expenses
of the Trust, including the Servicing Fee and any
Quarterly Administration Fee, (c) replenish the Capital
Subaccount up to the Required Capital Level, and (d)
fund and maintain the Overcollateralization Subaccount
up to the Required Overcollateralization Level. These
payments are collectively referred to herein as the
"Specified Payments". The IFC Charges will be increased
in connection with the issuance of any additional Notes
pursuant to any subsequent Transitional Funding Order,
to a level calculated to be sufficient over time to make
the Specified Payments in respect of all outstanding
Notes.
To enhance the likelihood of timely recovery of the
amounts necessary to make the Specified Payments, the
IFC Charges may be increased from time to time through
both Reconciliation Adjustments and True-Up Adjustments,
as described in the Prospectus over the life of the
Notes (including the Offered Notes). See "Description of
the Intangible Transition Property--Adjustments to the
IFC Charges" in the Prospectus.
Risk Factors...................... Investors should consider the risks associated with an
investment in the Offered Notes. For a discussion of
certain material risks associated therewith, investors
should review the discussion under "Risk Factors" which
begins on page 28 of the Prospectus.
The Offered Notes................. The Offered Notes are the ComEd Transitional Funding
Trust Transitional Funding Trust Notes, Series 1998. The
Offered Notes are comprised of the [seven] classes
listed on the cover page hereof (each, a "Class"). As of
the Series Issuance Date, the aggregate principal
balance of the Offered Notes (the "Original Note
Principal Balance") will be $ . Each Class of Offered
Notes will have a principal balance (the "Class
Principal Balance") equal to the initial amount of
principal allocable to such Class, reduced by principal
paid to such Class in accordance with the terms of the
Indenture. See "Description of the Offered Notes" herein
and "Description of the Notes" in the Prospectus.
None of the Offered Notes or the underlying Intangible
Transition Property will be guaranteed or insured by
ComEd or any of its affiliates. The 1998 TFO authorizing
the issuance of the Offered Notes does not constitute a
pledge of the full faith and credit of the State of
Illinois or of any of its political subdivisions. The
issuance of the Offered Notes under the Funding Law
shall not directly, indirectly or contingently obligate
the State of Illinois or any political subdivision,
agency
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
or instrumentality thereof to levy or to pledge any form
of taxation therefor or to make any appropriation for
their payment. The Offered Notes will be payable solely
by application of the proceeds of the Intangible
Transition Property and the other Note Collateral held
by the Indenture Trustee under the Indenture. If
additional Notes (other than the Offered Notes) are
subsequently issued under the Indenture, the Offered
Notes will be at least PARI PASSU with such other Notes
as to all of the Intangible Transition Property and the
other Note Collateral. Any and all funds or property
released by the Indenture Trustee pursuant to the
Indenture will cease to be Note Collateral and will no
longer be available for payment of the Offered Notes.
Servicer/Administrator............ Commonwealth Edison Company, an Illinois corporation
("ComEd") and a subsidiary of Unicom Corporation, an
Illinois corporation, will act as the initial servicer
(in such capacity, and together with any successor
servicer, the "Servicer") of the Intangible Transition
Property pursuant to the terms of the Servicing
Agreement, and as the initial administrator (in such
capacity, and together with any successor administrator,
the "Administrator") of the Trust and the Grantee
pursuant to the terms of an Administration Agreement
among the Trust, the Grantee and the Administrator (the
"Administration Agreement"). For a more complete
discussion of ComEd and its role as Servicer, see "The
Servicer" herein and in the Prospectus.
Grantee........................... The grantee of the Intangible Transition Property will
be ComEd Funding, LLC, a special purpose Delaware
limited liability company (the "Grantee"), whose sole
member is ComEd. Pursuant to the Sale Agreement entered
into with respect to the issuance by the Trust of the
Offered Notes, the Grantee will assign all of its right,
title and interest in the Intangible Transition Property
created by the 1998 TFO (the "1998 ITP"), the Servicing
Agreement and certain other related assets to the Trust.
For a more complete discussion of the Grantee, see "The
Grantee" in the Prospectus.
Trust............................. The issuer of the Offered Notes will be the ComEd
Transitional Funding Trust (the "Trust"), a Delaware
business trust created under a Declaration of Trust (the
"Trust Agreement") by the Delaware Trustee and the
Beneficiary Trustees. For a more complete discussion of
the Trust, see "The Trust" in the Prospectus.
Delaware Trustee.................. First Union Trust Company, National Association, acting
not in its individual capacity, but solely as trustee
under the Trust Agreement (the "Delaware Trustee").
Beneficiary Trustees.............. Ruth Ann M. Gillis and David R. Zahakaylo.
Indenture......................... The Offered Notes will be issued pursuant to the terms
of the Indenture through the execution and delivery of a
trustee's issuance certificate or a supplement to the
Indenture. The 1998
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
ITP, any other subsequent Intangible Transition Property
created by subsequent Transitional Funding Orders and
the other Note Collateral will be pledged under the
Indenture for the benefit of the Noteholders. The
Indenture will be qualified under the Trust Indenture
Act of 1939.
Indenture Trustee................. Harris Trust and Savings Bank, an Illinois banking
corporation, (the "Indenture Trustee").
Intangible Transition Property.... As more fully described under "Description of the
Intangible Transition Property" herein and in the
Prospectus, the Intangible Transition Property,
including the 1998 ITP, is the separate property right
as set forth in the Funding Law and created under the
Transitional Funding Orders, including the 1998 TFO,
including, without limitation, the right, title and
interest to impose and receive the IFC Charges
authorized thereby and all related revenues,
collections, claims, payment, money, or proceeds
thereof, including all right, title, and interest under
and pursuant to such Transitional Funding Orders.
IFC Charges....................... As more fully described under "Description of the
Intangible Transition Property" and "Electric Industry
Restructuring in Illinois--Instrument Funding Charges"
in the Prospectus, IFC Charges are nonbypassable,
usage-based, per kilowatt-hour charges to be imposed on
each existing and future retail customer or class of
retail customers in ComEd's service area in Illinois, or
other person or group of persons obligated from time to
time to pay to ComEd or any successor Applicable Rates,
including any customers who enter into competitive
contracts with ComEd to take non-tariffed services but
would otherwise have been obligated to pay Applicable
Rates (collectively, the "Customers").
The IFC Charges authorized in the 1998 TFO (the "1998
Authorized IFC Charges"), which ComEd believes are
higher than will actually be required to make all
payments on the Offered Notes based on certain
assumptions contained in the 1998 TFO, are set forth in
"Description of the Intangible Transition Property"
herein.
As required by the Funding Law, any increase in the
amount of the IFC Charges for any of the IFC Customer
Classes above the level of the 1998 Authorized IFC
Charges for such IFC Customer Classes shall require
ComEd or any successor Utility thereto to file an
amendatory tariff adjusting the amounts otherwise
billable by ComEd or such successor Utility for
Applicable Rates to offset the amount of such excess
(or, if ComEd or such successor Utility shall have
previously filed any such amendatory tariffs, the
incremental amount of such excess). However, the failure
of such amendatory tariff to become effective for any
reason shall not delay or impair the effectiveness of
the increase in the IFC Charges.
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
In connection with the issuance and pricing of the
Offered Notes, ComEd filed an IFC Tariff with the ICC
(the "1998 IFC Tariff") which provides for, among other
things, certain revisions to the IFC Charges. The actual
initial cents per kilowatt-hour IFC Charge payable by
each of the thirteen (13) IFC Customer Classes beginning
on the Series Issuance Date is as follows:
</TABLE>
<TABLE>
<CAPTION>
IFC CHARGES
IFC CUSTOMER CLASS (CENTS PER KWH)
- ---------------------------------------------------------- -----------------
<S> <C>
Residential--No Space Heat................................
Residential--Space Heat...................................
Standby Service...........................................
Interruptible Service.....................................
Street Lighting--Fixture Based Rates......................
Street Lighting--Dusk to Dawn and Traffic Signal..........
Railroads.................................................
Water-Supply and Sewage Pumping Service...................
In Lieu of Demand.........................................
0 to and including 100 kW Demand..........................
Over 100 to and including 1,000 kW Demand.................
Over 1,000 to and including 10,000 kW Demand..............
Over 10,000 kW Demand.....................................
</TABLE>
<TABLE>
<S> <C>
Adjustments to the IFC Charges.... The Servicing Agreement and the 1998 TFO require the
Servicer to calculate and implement two different kinds
of adjustments to the IFC Charges: Reconciliation
Adjustments and True-Up Adjustments, which are
collectively referred to as the "Adjustments." The
Adjustments to the IFC Charges will continue until all
interest and principal on all the Offered Notes have
been paid in full, subject only to the limitation of the
maximum amount of Intangible Transition Property
authorized by the ICC in the related Transitional
Funding Order or Orders. In addition, the IFC Charges
will be increased in connection with the issuance of
additional Notes pursuant to any subsequent Transitional
Funding Order, to a level calculated to be sufficient
over time to provide for, among other things, payment of
all interest and principal in respect of all outstanding
Notes. For a detailed discussion of Adjustments to IFC
Charges, see "Description of the Intangible Transition
Property--Adjustments to the IFC Charges" in the
Prospectus and "Description of the Intangible Transition
Property-- Adjustments to the IFC Charges" herein.
Payment Dates..................... Payments will be made to holders of the Offered Notes on
each March 25th, June 25th, September 25th and December
25th or, if any such date is not a Business Day, the
next succeeding Business Day), commencing , 1999
(each, a "Payment Date").
Record Dates...................... With respect to any Payment Date or date of any
redemption, the Business Day preceding such Payment Date
or other date if the Offered Notes are Book-Entry Notes
or, if Definitive Notes
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
are issued, the last day of the preceding calendar month
(each, a "Record Date").
Scheduled Maturity and Final
Maturity Dates.................. The "Scheduled Maturity Date" for any Class will be the
date when all principal and interest on such Class of
Offered Notes is expected to be paid in full by the
Trust. The "Final Maturity Date" for any Class
corresponds to the date on which such Class of Offered
Notes may be accelerated for failure to pay outstanding
principal thereon. The Scheduled Maturity Date and the
Final Maturity Date for each Class of Offered Notes are
specified herein under "Description of the Offered
Notes."
Failure to pay principal on any Class of Offered Notes
in full by the Final Maturity Date shall constitute an
Event of Default, and the Indenture Trustee may and,
upon the written direction of the holders of not less
than a majority in principal amount of all Notes 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 Notes--Events of Default" and "Ratings" in the
Prospectus.
Issuance of Additional Series..... The Trust may issue additional Series of Notes from time
to time. An additional Series may be issued only upon
satisfaction of the conditions described under
"Description of the Notes-- Conditions of Issuance of
Additional Series" in the Prospectus.
Interest.......................... On each Payment Date, the Indenture Trustee shall pay
pro rata to the Noteholders of each Class as of the
related Record Date any unpaid interest payable on any
prior Payment Dates (together with, to the extent
permitted by applicable law, interest on such unpaid
interest at the applicable Note Interest Rate), and
interest in 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 initial Payment Date. Interest
will be calculated on the basis of a 360-day year of
twelve 30-day months. Interest on the Offered Notes will
be distributed prior to any distribution of principal on
the Offered Notes. See "Description of the Offered
Notes--Payments of Interest" herein and "Description of
the Notes--Interest and Principal" in the Prospectus.
Principal......................... Unless an Event of Default has occurred and is
continuing and the Offered Notes have been declared due
and payable, on each Payment Date, the Indenture Trustee
shall, as of the related Record Date and subject to
availability of funds in the Collection Account, make
principal payments on the Offered Notes in the following
order and priority: [(1) to the holders of
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
the Class A-1 Notes, until the Class Principal Balance
thereof has been reduced to zero; (2) to the holders of
the Class A-2 Notes, until the Class Principal Balance
thereof has been reduced to zero; (3) to the holders of
the Class A-3 Notes, until the Class Principal Balance
thereof has been reduced to zero; (4) to the holders of
the Class A-4 Notes, until the Class Principal Balance
thereof has been reduced to zero; (5) to the holders of
the Class A-5 Notes, until the Class Principal Balance
thereof has been reduced to zero; (6) to the holders of
the Class A-6 Notes, until the Class Principal Balance
thereof has been reduced to zero; (7) to the holders of
the Class A-7 Notes, until the Class Principal Balance
thereof has been reduced to zero; provided, however,
that, unless an Event of Default has occurred and is
continuing and the Offered Notes have been declared due
and payable, in no event shall the principal payment on
any Class on a Payment Date be greater than the
Scheduled Payment for such Class and Payment Date.] See
"Description of the Offered Notes--Payments of
Principal" herein and "Description of the
Notes--Interest and Principal" in the Prospectus.
Optional Redemption............... Pursuant to the terms of the Indenture, the Offered
Notes may be redeemed on any Payment Date if, after
giving effect to payments that would otherwise be made
on such date, the outstanding principal balance of the
Offered Notes has been reduced to less than five percent
(5%) of the initial principal balance thereof. The Notes
may be so redeemed upon payment of the outstanding
principal amount of the Notes and accrued but unpaid
interest thereon as of the date of redemption. See
"Description of the Offered Notes--Optional Redemption"
herein.
Collection Account and
Subaccounts..................... Upon issuance of the Offered Notes, a Collection Account
will be established and held by the Indenture Trustee
for the benefit of the Noteholders of all outstanding
Series of Notes. 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
"Security for the Notes--Allocations; Payments" in the
Prospectus.
Credit Enhancement................ The Offered Notes will benefit from the following forms
of credit enhancement:
OVERCOLLATERALIZATION. The Overcollateralization Amount
established in connection with the issuance of the
Offered
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
Notes will be [$ ], which is 0.50 percent of the
initial aggregate Class Principal Balance for all of the
Offered Notes. The IFC Charges will be set and adjusted
at a rate that is intended to recover, among other
things, the Overcollateralization Amount over the life
of the Offered Notes according to the schedule set forth
under "Description of the Offered
Notes--Overcollateralization Amount" herein. Collections
allocated to the Overcollateralization Amount for all
Series of Notes, including the Offered Notes, will be
held in the Overcollateralization Subaccount, as
described further under "Security for the
Notes--Description of Indenture Accounts--
Overcollateralization Subaccount" in the Prospectus and
any such amounts will be available to pay interest and
make Scheduled Payments on all Series of Notes,
including the Offered Notes, to the extent of any
shortfalls in current IFC Collections and the Reserve
Subaccount available for such payment. The amount
required to be on deposit in the Overcollateralization
Subaccount with respect to the Offered Notes as of any
Payment Date, as specified in the schedule set forth
under "Description of the Offered Notes--
Overcollateralization Amount" herein, is referred to
herein as the "Required Overcollateralization Level."
RESERVE SUBACCOUNT. IFC Collections available with
respect to any Payment Date in excess of amounts
necessary to make the Specified Payments (all as
described under "Security for the Notes--Allocations;
Payments" in the Prospectus), will be allocated to the
Reserve Subaccount. On each Payment Date, the Indenture
Trustee will draw on amounts in the Reserve Subaccount
to the extent amounts available in the General
Subaccount are insufficient to pay expenses of the Trust
and to pay interest and make Scheduled Payments on the
Notes and to make other payments and transfers in
accordance with the terms of the Indenture.
CAPITAL SUBACCOUNT. Prior to or upon the issuance of
the Offered Notes, the Grantee will transfer capital to
the Trust in the amount of [$ ], which is 0.50
percent of the initial aggregate Class Principal Balance
for all of the Offered Notes. Such amount is the
Required Capital Level with respect to the Offered Notes
and, together with the Required Capital Level with
respect to any other Series of Notes, will be deposited
into the Capital Subaccount. Withdrawals from and
deposits to the Capital Subaccount will be made as
described under "Security for the Notes--Allocations;
Payments" in the Prospectus.
Allocations and Payment........... On each Payment Date, amounts on deposit in the
Collection Account will be applied in the manner
described under "Security for the Notes--Allocations;
Payments" in the Prospectus.
Servicing Compensation............ The Servicer will be entitled to receive a servicing fee
on each Payment Date (the "Servicing Fee"), in an amount
equal to [assuming quarterly Payment Dates](a) $750,000,
for so long
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
as IFC Charges are billed concurrently with charges
otherwise billed by the Servicer to Customers (which
ComEd and any successor thereto are required to do) and
(b) $5,000,000, if IFC Charges are not billed
concurrently with charges otherwise billed by the
Servicer to Customers. The Servicing Fee in clause (b)
will only be payable if the Servicer is not ComEd or a
successor thereto. The Servicing Fee will be paid prior
to the payment of any amounts in respect of interest on
and principal of the Offered Notes. The Servicer will be
entitled to retain as additional compensation net
investment income on IFC 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 IFC Payments. See
"Servicing--Servicing Compensation" herein and in the
Prospectus.
No Servicer Advances.............. The Servicer will not be obligated to make any advances
of interest or principal on the Offered Notes.
Maturity, Weighted Average Life
and Yield Considerations........ The actual Payment Dates on which principal is paid on
each Class of Offered Notes and, therefore, the weighted
average life and yield to maturity on the Offered Notes
may be affected by various factors. See "Certain
Payment, Weighted Average Life and Yield Considerations"
and "Description of the Intangible Transition
Property--Adjustments to the IFC Charges" in the
Prospectus.
Denominations..................... Each Class of Offered Notes will be issued in minimum
initial denominations of $1,000 and in integral
multiples thereof.
Book-Entry Notes.................. The Offered Notes will initially be represented by one
or more certificates registered in the name of Cede &
Co. ("Cede") (each, a "Book-Entry Note"), 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 Book-Entry Notes 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. For a more complete
discussion of the Book-Entry Notes, see "Risk Factors"
and "Description of the Notes--Book-Entry Registration"
in the Prospectus.
Ratings........................... It is a condition of issuance of the Offered Notes that
the Offered Notes be rated [ ] by , [ ] by
, [ ] by and [ ] by (each of
such rating agencies, a "Rating Agency").
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 Note and,
accordingly, there can be no assurance that the ratings
assigned to any Class of Offered Notes upon initial
issuance thereof will not be revised or withdrawn by a
Rating
</TABLE>
S-12
<PAGE>
<TABLE>
<S> <C>
Agency at any time thereafter. If a rating of any Series
or Class of Offered Notes is revised or withdrawn, the
liquidity of such Series or Class of Offered Notes may
be adversely affected. In general, the ratings address
credit risk and do not represent any assessment of the
rate of principal payments on the Offered Notes. See
"Risk Factors--Nature of the Notes-- Uncertain Payment
Amounts and Weighted Average Life" in the Prospectus,
"Certain Payment, Weighted Average Life and Yield
Considerations" herein and in the Prospectus and
"Ratings" herein and in the Prospectus.
Taxation of the Notes............. ComEd has received a ruling from the IRS holding that,
among other things, the Offered Notes will be
obligations of ComEd for federal income tax purposes. In
the opinion of Sidley & Austin, interest paid on the
Offered Notes generally will be taxable to a United
States Noteholder as ordinary interest income at the
time it accrues or is received in accordance with such
United States Noteholder's method of accounting for
United States federal income tax purposes. Such opinion
assumes, based on the ruling from the IRS described
above, that the Notes will constitute indebtedness of
ComEd for federal income tax purposes. See "Material
United States Federal Tax Consequences" herein and in
the Prospectus.
ERISA Considerations.............. The Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code") impose
various requirements on employee benefit plans and
certain other plans and arrangements subject to ERISA,
and on persons who are fiduciaries with respect to such
plans and arrangements, in connection with the
investment of assets which are deemed to be "plan
assets" for purposes of ERISA or Section 4975 of the
Code, unless a statutory or administrative exemption is
available. A fiduciary of any employee benefit plan or
other plan or arrangement that is subject to ERISA or
Section 4975 of the Code, before purchasing the Notes,
should therefore determine that an investment in the
Notes is consistent with the fiduciary duties of ERISA
and does not violate the prohibited transaction
provisions of ERISA or the Code.
</TABLE>
S-13
<PAGE>
DESCRIPTION OF THE OFFERED NOTES
GENERAL
The Offered Notes, together with any Notes of any other Series which may
hereafter be issued by the Trust (collectively, the "Notes"), will be issued by
the Trust pursuant to the Indenture and the trustee's issuance certificate or
series supplement, if any, thereto. Pursuant to the Indenture, further trustee's
issuance certificates or series supplements may be executed in order for the
Trust to issue additional Series of Notes. In connection with the issuance of
any additional Series of Notes pursuant to a subsequent Transitional Funding
Order, the IFC Charges will be increased to a level calculated to be sufficient
over time to provide for, among other things, payment of all interest and
principal in respect of all outstanding Notes. This summary should be read
together with the material under the heading "Description of the Notes" in the
Prospectus.
The Offered Notes will be comprised of the following [seven] Classes:
<TABLE>
<CAPTION>
INITIAL NOTE
PRINCIPAL SCHEDULED INTEREST
CLASS AMOUNT MATURITY DATE FINAL MATURITY DATE RATE
- ---------------- ------------- ------------- ------------------- ------------
<S> <C> <C> <C> <C>
A-1.............
A-2.............
A-3.............
A-4.............
A-5.............
A-6.............
A-7.............
</TABLE>
SECURITY
To secure the payment of principal of and interest on the Offered Notes, the
Trust has granted to the Indenture Trustee, for the benefit of the holders of
the Notes (the "Noteholders"), a security interest in all of the Trust's right,
title and interest in and to the 1998 ITP, any subsequent Intangible Transition
Property created under any subsequent Transitional Funding Order and the other
Note Collateral. If additional Notes (other than the Offered Notes) are
subsequently issued, the Offered Notes will be at least PARI PASSU with such
other Notes as to all of the Intangible Transition Property and the other Note
Collateral. The Note Collateral is described more specifically under "Security
for the Notes--Pledge of Note Collateral" in the Prospectus.
PAYMENTS OF INTEREST
Interest on each Class of the Offered Notes will accrue from the Series
Issuance Date at the rates set forth on the cover page and above (each, a "Note
Interest Rate"), in each case payable quarterly on each Payment Date of each
year, commencing , 1999.
On each Payment Date, Noteholders of each Class of Offered Notes will be
entitled to receive pro rata any unpaid interest payable on any prior Payment
Dates (together with, to the extent permitted by applicable law, interest on
such unpaid interest at the applicable Note Interest Rate), and interest in 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.
S-14
<PAGE>
PAYMENTS OF PRINCIPAL
Unless an Event of Default has occurred and is continuing and the Offered
Notes have been declared due and payable, on each Payment Date, each Class of
the Offered Notes will be entitled to receive payments of principal as follows:
[(1) to the holders of the Class A-1 Notes, until the Class Principal
Balance thereof has been reduced to zero;
(2) to the holders of the Class A-2 Notes, until the Class Principal
Balance thereof has been reduced to zero;
(3) to the holders of the Class A-3 Notes, until the Class Principal
Balance thereof has been reduced to zero;
(4) to the holders of the Class A-4 Notes, until the Class Principal
Balance thereof has been reduced to zero;
(5) to the holders of the Class A-5 Notes, until the Class Principal
Balance thereof has been reduced to zero;
(6) to the holders of the Class A-6 Notes, until the Class Principal
Balance thereof has been reduced to zero;
(7) to the holders of the Class A-7 Notes, until the Class Principal
Balance thereof has been reduced to zero;]
provided, however, that, unless an Event of Default has occurred and is
continuing and the Offered Notes have been declared due and payable, in no event
shall the principal payment on any Class on a Payment Date be greater than the
Scheduled Payment for such Class and Payment Date.
Principal will be payable at the Corporate Trust Office of the Indenture
Trustee in the City of Chicago, Illinois, or at the office or agency of the
Indenture Trustee 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 Offered Notes at each
Payment Date from the Series Issuance Date to the Scheduled Maturity Date for
such Class. In preparing the following table, it has been assumed, among other
things, that (a) the Offered Notes are issued on , 1998, (b)
payments on the Offered Notes are made on each Payment Date, commencing
, 1999, (c) the Servicing Fee equals $750,000 per quarter, (d)
there are no net earnings on amounts on deposit in the Collection Account, (e)
Operating Expenses, Quarterly Administration Fees, and amounts owed to the
Delaware Trustee and the Indenture Trustee are in the aggregate [$ ] per
quarter, and all such amounts are payable in arrears, and (f) all IFC
Collections are deposited in the Collection Account in accordance with ComEd's
forecasts.
EXPECTED AMORTIZATION SCHEDULE
OUTSTANDING PRINCIPAL BALANCE
<TABLE>
<CAPTION>
DATE CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 CLASS A-6 CLASS A-7
- --------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Series Issuance Date.......
<CAPTION>
SERIES 1998
DATE TOTAL
- --------------------------- -------------
<S> <C>
Series Issuance Date....... $
</TABLE>
[INFORMATION TO BE PROVIDED]
There can be no assurance that the Class Principal Balances of the Offered
Notes will be reduced as indicated in the foregoing table, and the actual
reductions in such Class Principal Balances may be
S-15
<PAGE>
slower (or, if an Event of Default occurs and is continuing and the Offered
Notes have been declared due and payable, faster) 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 Offered Notes.
The entire unpaid principal amount of the Offered Notes will be due and
payable on the date on which an Event of Default has occurred and is continuing,
if the Indenture Trustee or holders of not less than a majority in principal
amount of the Notes of all Series then outstanding have declared the Offered
Notes to be immediately due and payable. See "Security for the Notes--Events of
Default; Rights Upon Event of Default" in the Prospectus.
OPTIONAL REDEMPTION
The Offered Notes may be redeemed on any Payment Date commencing with the
Payment Date on which the outstanding principal balance of the Offered 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
Offered Notes. Notice of such redemption will be given by the Trust to the
Indenture Trustee and the Rating Agencies not less than 25 days nor more than 50
days prior to the date of redemption, and written notice shall also be given to
each holder of Offered Notes to be redeemed by first-class mail, postage
prepaid, mailed not less than five days nor more than 25 days prior to the
applicable date of redemption.
OVERCOLLATERALIZATION AMOUNT
The 1998 TFO provides that the Trust, as the assignee of the Intangible
Transition Property, is entitled to collect an additional amount (for the
Offered Notes, the "Overcollateralization Amount"), which is intended to enhance
the likelihood that payments on the Offered Notes will be made in accordance
with their respective Expected Amortization Schedules. The Overcollateralization
Amount established in connection with the issuance of the Offered Notes will be
[$ ], which is 0.50 percent of the initial aggregate principal amount of
the Offered Notes. The Overcollateralization Amount is scheduled to be collected
over the life of the Offered Notes in accordance with the Schedule set forth
hereinbelow. The Required Overcollateralization Level for the Offered Notes on
each Payment Date is as follows:
REQUIRED OVERCOLLATERALIZATION LEVEL SCHEDULE
<TABLE>
<CAPTION>
REQUIRED REQUIRED
OVERCOLLATERALIZATION OVERCOLLATERALIZATION
PAYMENT DATE LEVEL PAYMENT DATE LEVEL
- ---------------- -------------------- -------------- --------------------
<S> <C> <C> <C>
</TABLE>
[INFORMATION TO BE PROVIDED]
OTHER CREDIT ENHANCEMENT
RESERVE SUBACCOUNT. IFC Collections available with respect to any Payment
Date in excess of amounts necessary to make the Specified Payments (all as
described under "Security for the Notes-- Allocations; Payments" in the
Prospectus) will be allocated to the Reserve Subaccount. On each Payment Date,
the Indenture Trustee will draw on amounts in the Reserve Subaccount, to the
extent amounts available in the General Subaccount are insufficient to pay
expenses of the Trust and to pay interest and make Scheduled Payments on the
Notes and to make other payments and transfers in accordance with the terms of
the Indenture.
S-16
<PAGE>
CAPITAL SUBACCOUNT. Prior to or upon the issuance of the Offered Notes, the
Grantee will transfer capital to the Trust in the amount of [$ ], which
is 0.50 percent of the initial aggregate Class Principal Balance for all of the
Offered Notes. Such amount is the Required Capital Level with respect to the
Offered Notes and, together with the Required Capital Level with respect to any
other Series of Notes, will be deposited into the Capital Subaccount.
Withdrawals from and deposits to the Capital Subaccount will be made as
described under "Security for the Notes--Allocations; Payments" in the
Prospectus.
ALLOCATIONS; PAYMENTS
On each Payment Date, the Indenture Trustee will, at the direction of the
Servicer, apply all amounts on deposit in the Collection Account in the manner
described under "Security for the Notes--Allocations; Payments" in the
Prospectus.
DESCRIPTION OF THE INTANGIBLE TRANSITION PROPERTY
1998 TFO
The Funding Law authorizes the ICC to issue the 1998 TFO in favor of the
Grantee at the request of ComEd to create and establish the 1998 ITP and to
permit the Trust to finance the 1998 ITP through the issuance of the Offered
Notes. The total dollar amount of 1998 ITP authorized by the 1998 TFO is $6.323
billion, which represents the maximum dollar amount of IFC Charges which may be
applied and invoiced over time by the Servicer on behalf of the Trust without
further action by the ICC. In its application for the 1998 TFO based on certain
assumptions set forth therein, ComEd estimated $4.931 billion as the amount of
IFC Charges which would be necessary to be billed through the Scheduled Maturity
Date of all Classes of Offered Notes in order to pay interest and principal on
the Offered Notes. The 1998 TFO also permits the sale of the Offered Notes in an
aggregate principal amount not to exceed $3.4 billion. The 1998 TFO is final and
is no longer subject to appeal.
The 1998 TFO creates and establishes, among other things, the 1998 ITP and
authorizes the imposition and collection of the IFC Charges, which constitute
separate nonbypassable usage-based charges expressed in cents per kilowatt-hour
payable by Customers in an aggregate amount sufficient to repay in full the
Offered Notes, fund the Overcollateralization Subaccount and pay all related
fees and expenses. The 1998 TFO entitles the Trust, as the assignee of the 1998
ITP from the Grantee, to receive the payments made pursuant to the IFC Charges,
from all Customers through December 31, 2008 or, if later, until the Trust has
received IFC Collections sufficient to retire all the outstanding Offered Notes
and cover related fees and expenses. Subsequent Transitional Funding Orders may
authorize and create additional Intangible Transition Property and additions to
the IFC Charges in order to pay interest and principal on other Series of Notes
to be issued in connection therewith, together with related fees, expenses and
the Required Overcollateralization Level and Required Capital Level established
with respect to such Series of Notes.
The 1998 Authorized IFC Charges set forth in the 1998 TFO (which may be
increased by the ICC in connection with the issuance of a subsequent
Transitional Funding Order) which ComEd believes are
S-17
<PAGE>
higher than will actually be required to make all payments on the Offered Notes,
based on certain assumptions contained in the 1998 TFO, are as follows:
<TABLE>
<CAPTION>
IFC CHARGE
IFC CUSTOMER CLASS (CENTS PER KWH)
- ---------------------------------------------------------- -------------------
<S> <C>
Residential--No Space Heat................................ 1.476
Residential--Space Heat................................... 0.950
Standby Service........................................... 0.701
Interruptible Service..................................... 0.464
Street Lighting--Fixture Based Rates...................... 2.375
Street Lighting--Dusk to Dawn and Traffic Signal.......... 0.740
Railroads................................................. 1.047
Water-Supply and Sewage Pumping Service................... 0.963
In Lieu of Demand......................................... 1.399
0 to and including 100 kW Demand.......................... 1.099
Over 100 to and including 1,000 kW Demand................. 0.869
Over 1,000 to and including 10,000 kW Demand.............. 0.805
Over 10,000 kW Demand..................................... 0.623
</TABLE>
As required by the Funding Law, any increase in the amount of the IFC
Charges for any of the IFC Customer Classes above the level of the 1998
Authorized IFC Charges for such IFC Customer Class set forth in the immediately
preceding table shall require ComEd or any successor Utility thereto to file an
amendatory tariff adjusting the amounts otherwise billable by ComEd or such
successor Utility for Applicable Rates to offset the amount of such excess (or,
if ComEd or such successor Utility shall have previously filed any such
amendatory tariffs, the incremental amount of such excess).
In connection with the issuance and pricing of the Offered Notes, ComEd
filed the 1998 IFC Tariff with the ICC which provides for, among other things,
certain revisions to the IFC Charges. The actual initial cents per kilowatt-hour
IFC Charge payable by each of the thirteen (13) IFC Customer Classes beginning
on the Series Issuance Date is as follows:
<TABLE>
<CAPTION>
IFC CHARGE
IFC CUSTOMER CLASS (CENTS PER KWH)
- ---------------------------------------------------------- -------------------
<S> <C>
Residential--No Space Heat................................
Residential--Space Heat...................................
Standby Service...........................................
Interruptible Service.....................................
Street Lighting--Fixture Based Rates......................
Street Lighting--Dusk to Dawn and Traffic Signal..........
Railroads.................................................
Water-Supply and Sewage Pumping Service...................
In Lieu of Demand.........................................
0 to and including 100 kW Demand..........................
Over 100 to and including 1,000 kW Demand.................
Over 1,000 to and including 10,000 kW Demand..............
Over 10,000 kW Demand.....................................
</TABLE>
ADJUSTMENTS TO THE IFC CHARGES
The Servicing Agreement and the 1998 TFO require the Servicer to calculate
and implement Adjustments to the IFC Charges which are designed to enhance the
likelihood that the IFC Collections which are remitted to the Collection Account
will be sufficient to make the Specified Payments. In
S-18
<PAGE>
addition, the IFC Charges will be increased in connection with the issuance of
additional Notes pursuant to any subsequent Transitional Funding Order, to a
level calculated to be sufficient over time to provide for, among other things,
payment of all interest and principal in respect of all outstanding Notes.
The first kind of adjustment, a "Reconciliation Adjustment," will be
calculated by the Servicer within the two-week period preceding every other
Payment Date, commencing on , 1999 (each Payment Date, a
"Reconciliation Payment Date").
The second kind of adjustment to the IFC Charges, a "True-Up Adjustment,"
will be calculated by the Servicer within the two-week period preceding every
Payment Date which is not a Reconciliation Payment Date, commencing on
, 1999 (each Payment Date, a "True-Up Payment Date") only if, as of
the True-Up Payment Date, the aggregate outstanding principal balance of the
Notes exceeds the scheduled aggregate outstanding principal balance of the Notes
set forth on the Expected Amortization Schedule by the greater of 5% and
[$ ].
The changes in IFC Charges, if any, resulting from a Reconciliation
Adjustment and any True-Up Adjustment will take effect on the first billing day
of the month following the applicable Reconciliation Payment Date or True-Up
Payment Date.
See "Description of the Intangible Transition Property--Adjustments to the
IFC Charges" in the Prospectus.
THE SERVICER
The following is information which supplements that provided under the
heading "The Servicer" in the Prospectus. For a more complete discussion of the
Servicer, see "The Servicer" in the Prospectus.
[SUPPLEMENTAL FINANCIAL INFORMATION, IF ANY]
SERVICING
GENERAL
The Servicer will manage, service and administer, and make collections in
respect of, the Intangible Transition Property pursuant to the Servicing
Agreement between the Servicer and the Grantee. The Servicer may not resign from
its obligations and duties under the Servicing Agreement unless certain
requirements are met. The 1998 TFO does not require approval by the ICC of such
resignation. 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
Offered Notes.
SERVICING COMPENSATION
The Servicer will be entitled to receive a servicing fee on each Payment
Date in an amount equal to [assuming quarterly Payment Dates] (a) $750,000, for
so long as IFC Charges are billed concurrently with charges otherwise billed by
the Servicer to Customers (which ComEd and any successor thereto are required to
do) and (b) $5,000,000, if IFC Charges are not billed concurrently with charges
otherwise billed by the Servicer to Customers. The Servicing Fee in clause (b)
will only be payable if the Servicer is not ComEd or a successor thereto. 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 "Security for the Notes--Allocations;
Payments" in the Prospectus. The Servicing Fee will be paid prior to the payment
of any amounts in respect of interest on and principal of the Offered Notes. The
Servicer will be entitled to retain as additional compensation net investment
income on IFC
S-19
<PAGE>
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
IFC Payments.
STATEMENTS BY SERVICER
For each Remittance Date and each Payment Date, the Servicer will provide
the statements and reports described under "Servicing--Statements by Servicer"
in the Prospectus.
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
ComEd has received a ruling from the IRS holding that, among other things,
(a) the Trust's issuance of the Offered Notes will not result in gross income to
ComEd and (b) the Offered Notes will be obligations of ComEd. See "Material
United States Federal Tax Consequences" in the Prospectus.
The Indenture provides that a Noteholder and any persons holding a
beneficial interest in an Offered Note, by acquiring any Offered Note or
interest therein, agrees to treat the Offered Note as indebtedness of ComEd
secured by the Note Collateral for purposes of federal, state and local income
and franchise taxes, and any other taxes imposed upon, measured by, or based
upon gross or net income, unless otherwise required by appropriate taxing
authorities.
For a discussion of material United States federal income and estate tax
consequences relevant to the purchase, ownership and disposition of the Notes by
the initial beneficial owners thereof, see "Material United States Federal Tax
Consequences" in the Prospectus.
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 Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith Barney are
acting as representatives, has severally agreed to purchase, the respective
principal amounts of the Offered Notes set forth opposite its name below.
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 CLASS A-6 CLASS A-7
NAME OF UNDERWRITER NOTES NOTES NOTES NOTES NOTES NOTES NOTES
- --------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Goldman, Sachs & Co.................... $ $ $ $ $ $ $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................
Salomon Smith Barney...................
Chase Securities Inc...................
First Chicago Capital Markets, Inc.....
NationsBanc Montgomery Securities LLC..
BNY Capital Markets, Inc...............
Gardner Rich & Company.................
Loop Capital Markets, LLC..............
Mesirow Financial, Inc.................
Ramirez & Co., Inc.....................
Siebert Brandford Shank & Co., LLC.....
----------- ----------- ----------- ----------- ----------- ----------- -----------
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 Notes
offered hereby, if any are taken.
S-20
<PAGE>
The Underwriters propose to offer the Offered Notes 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 A-1 Notes, percent of the principal amount of the Class A-2
Notes, percent of the principal amount of the Class A-3 Notes, percent of
the principal amount of the Class A-4 Notes,
percent of the principal amount of the Class A-5 Notes, percent of the
principal amount of the Class A-6 Notes and percent of the principal amount
of the Class A-7 Notes. The Underwriters may allow and such dealers may reallow
a concession, not in excess of percent of the principal amount of the Class
A-1 Notes, percent of the principal amount of the Class A-2 Notes, percent
of the principal amount of the Class A-3 Notes, percent of the principal
amount of the Class A-4 Notes,
percent of the principal amount of the Class A-5 Notes, percent of the
principal amount of the Class A-6 Notes and percent of the principal amount
of the Class A-7 Notes. After the Offered Notes 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 Notes are a new issue of securities with no established trading
market. The Offered Notes 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 Notes 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 Notes.
In connection with the offering, the Underwriters may purchase and sell the
Offered Notes in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Offered Notes; and syndicate short positions involve
the sale by the Underwriters of a greater number of Offered Notes than they are
required to purchase from the Trust in the offering. The Underwriters also may
impose a penalty bid, whereby selling concessions allowed to syndicate members
or other broker-dealers in respect of the Offered Notes sold in the offering for
their account may be reclaimed by the syndicate if such Offered Notes are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Offered Notes, which may be higher than the price that might otherwise prevail
in the open market; and these activities, if commenced, may be discontinued at
any time.
Under the terms of the Underwriting Agreement, the Trust has agreed to
reimburse the Underwriters for certain expenses.
The Grantee and ComEd have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act.
RATINGS
It is a condition of issuance of the Offered Notes that the Offered Notes be
rated [ ] by , [ ] by , [ ] by
, and [ ] by .
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 Note, and,
accordingly, there can be no assurance that the ratings assigned to any Class of
Offered Notes 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 Notes is
revised or withdrawn, the liquidity of such Class of Offered Notes may be
adversely affected. In general, ratings address credit risk and do not represent
any assessment of the rate of principal payments.
S-21
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the issuance of the Offered Notes and
certain legal matters relating to the United States federal income tax
consequences of the issuance of the Offered Notes will be passed upon for the
Trust by Sidley & Austin, Chicago, Illinois, counsel to ComEd. Certain legal
matters relating to the Trust and the issuance of the Offered Notes will be
passed upon for the Trust by Foley & Lardner, Chicago, Illinois, counsel to
ComEd, and for the Underwriters by Winston & Strawn, Chicago, Illinois. Winston
& Strawn acts from time to time as counsel to ComEd and its affiliates in
certain matters unrelated to the offering of the Offered Notes.
S-22
<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>
DEFINED
DEFINED TERM ON PAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
1998 Authorized IFC Charges...................................................... S-7
1998 IFC Tariff.................................................................. S-8
1998 ITP......................................................................... S-6
1998 TFO......................................................................... S-4
Adjustments...................................................................... S-8
Administration Agreement......................................................... S-6
Administrator.................................................................... S-6
Book-Entry Note.................................................................. S-12
Capital Subaccount............................................................... S-10
Cede............................................................................. S-12
Class............................................................................ S-5
Class Principal Balance.......................................................... S-5
Code............................................................................. S-13
ComEd............................................................................ S-6
Customers........................................................................ S-7
Delaware Trustee................................................................. S-6
DTC.............................................................................. S-12
ERISA............................................................................ S-13
Final Maturity Date.............................................................. S-9
General Subaccount............................................................... S-10
Grantee.......................................................................... S-6
Indenture Trustee................................................................ S-7
Note Interest Rate............................................................... S-14
Noteholders...................................................................... S-14
Notes............................................................................ S-14
Offered Notes.................................................................... S-4
Original Note Principal Balance.................................................. S-5
Overcollateralization Amount..................................................... S-16
Overcollateralization Subaccount................................................. S-10
Payment Date..................................................................... S-8
Rating Agency.................................................................... S-12
Reconciliation Adjustment........................................................ S-19
Reconciliation Payment Date...................................................... S-19
Record Date...................................................................... S-9
Required Overcollateralization Level............................................. S-11
Reserve Subaccount............................................................... S-10
</TABLE>
S-23
<PAGE>
<TABLE>
<CAPTION>
DEFINED
DEFINED TERM ON PAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
Scheduled Maturity Date.......................................................... S-9
Series Issuance Date............................................................. S-4
Servicer......................................................................... S-6
Servicing Fee.................................................................... S-11
Specified Payments............................................................... S-5
True-Up Adjustment............................................................... S-19
True-Up Payment Date............................................................. S-19
Trust............................................................................ S-6
Trust Agreement.................................................................. S-6
Underwriters..................................................................... S-20
</TABLE>
(THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)
S-24
<PAGE>
PROSPECTUS
COMED TRANSITIONAL FUNDING TRUST
TRANSITIONAL FUNDING TRUST NOTES
ISSUABLE IN SERIES
-----------
COMMONWEALTH EDISON COMPANY
SERVICER
The ComEd Transitional Funding Trust Transitional Funding Trust Notes (the
"Notes") offered hereby in an aggregate principal amount of up to $4,000,000,000
may be sold from time to time in series (each, a "Series"), each of which may be
comprised of one or more classes (each, a "Class"), as described in the related
Prospectus Supplement. Each Series of Notes will be issued by the ComEd
Transitional Funding Trust (the "Trust"), a Delaware business trust to be
created under a Declaration of Trust (the "Trust Agreement") by a Delaware
trustee to be named in the related Prospectus Supplement (the "Delaware
Trustee").
(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 28 HEREIN.
THE NOTES OFFERED HEREBY DO NOT CONSTITUTE A DEBT, LIABILITY OR OTHER
OBLIGATION OF THE STATE OF ILLINOIS OR OF ANY POLITICAL SUBDIVISION, AGENCY OR
INSTRUMENTALITY THEREOF AND DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
COMMONWEALTH EDISON COMPANY OR ANY OF ITS AFFILIATES. NONE OF THE NOTES OR THE
UNDERLYING INTANGIBLE TRANSITION PROPERTY WILL BE GUARANTEED OR INSURED BY
COMMONWEALTH EDISON COMPANY OR ITS AFFILIATES.
THE INTANGIBLE TRANSITION PROPERTY ASSIGNED TO THE TRUST BY THE GRANTEE,
CERTAIN OTHER ASSETS OF THE TRUST AND PAYMENTS ON ANY RELATED SWAP AGREEMENT
WILL BE THE SOLE SOURCE OF PAYMENTS ON THE NOTES. NEITHER COMMONWEALTH EDISON
COMPANY NOR ANY OF ITS AFFILIATES WILL HAVE ANY OBLIGATIONS IN RESPECT OF THE
NOTES OR THE INTANGIBLE TRANSITION PROPERTY, EXCEPT AS EXPRESSLY SET FORTH
HEREIN OR IN THE RELATED PROSPECTUS SUPPLEMENT.
TRANSITIONAL FUNDING ORDERS AUTHORIZING THE ISSUANCE OF THE NOTES DO NOT
CONSTITUTE A PLEDGE OF THE FULL FAITH AND CREDIT OF THE STATE OF ILLINOIS OR OF
ANY OF ITS POLITICAL SUBDIVISIONS. THE ISSUANCE OF THE NOTES UNDER THE FUNDING
LAW SHALL NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OF
ILLINOIS OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF
TAXATION THEREFOR OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT.
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 128 herein for the location of the definitions of
capitalized terms that appear in this Prospectus.
December 4, 1998
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The Notes will be secured primarily by the Intangible Transition Property,
as described under "Prospectus Summary--Intangible Transition Property" and
"Description of the Intangible Transition Property." The Intangible Transition
Property, among other things, will represent a current right to receive certain
nonbypassable usage-based per kilowatt-hour charges to be imposed against
certain customers of Commonwealth Edison Company. Collection of these charges
will be the primary source of payment of principal and interest on the Notes.
The Trust will issue to investors separate Series of Notes from time to time
upon terms determined at the time of sale and described in the related
Prospectus Supplement. Each Series of Notes may be issuable in one or more
Classes. 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 "Security for the
Notes--Allocations; Payments," the Trust will use all payments made with respect
to Intangible Transition Property (including investment earnings thereon) 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, except
that investment earnings on amounts on deposit in the Collection Account shall,
to the extent such amounts are not otherwise required to make other payments
described herein, or in the related Prospectus Supplement, be paid to the Trust
or as it directs. All principal not previously paid, if any, on any Note will be
due and payable on the Final Maturity Date of such Note. While the specific
terms of any Series of Notes (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
Noteholders of any previously issued Series.
Offers of the Notes 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 Notes of any Series prior to
the offering thereof. There can be no assurance that a secondary market for any
Series of Notes will develop or, if one does develop, that it will continue. It
is not anticipated that any of the Notes will be listed on any securities
exchange.
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 ComEd, the Trust, the Grantee 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 NOTES, 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.
2
<PAGE>
AVAILABLE INFORMATION
The Grantee, as depositor of the Trust, 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 Notes. This Prospectus, which forms a
part of the Registration Statement, and any Prospectus Supplement describe all
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 Grantee will file with the Commission such periodic reports with respect
to each Series of Notes 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 Grantee may discontinue filing periodic reports under
the Exchange Act at the beginning of any fiscal year following the issuance of
the Notes of any Series if there are fewer than 300 holders of such Notes.
REPORTS TO HOLDERS
Unless and until the Notes 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 Notes, and, upon request, to Participants
of DTC, periodic reports concerning the Notes. See "Security For the
Notes--Reports to Noteholders." Such reports may be made available to the
holders of interests in the Notes (the "Noteholders") 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 Noteholders will not be examined and reported upon, nor
will an opinion thereon be provided, by any independent public accountant.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Grantee, on behalf of the
Trust, 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, in any Prospectus Supplement 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 Grantee 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
3
<PAGE>
should be directed to the Grantee, at ComEd Funding, LLC at Ten South Dearborn
Street, 37th Floor, Chicago, Illinois 60603, or by telephone at (312) 394-7937,
Attention: David Zahakaylo.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement for a Series of Notes 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 payments
of interest and principal are scheduled to occur, (e) the Scheduled Maturity
Date and the Final Maturity Date of such Series, (f) the initial Reconciliation
Payment Date and initial True-Up Payment Date of such 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 optional
redemption of such Series, (k) the Expected Amortization Schedule for principal
of such Series and, if applicable, the Classes thereof, (l) the IFC Charges as
of the date of issuance of such Series of Notes and the portion of total IFC
Charges authorized and initially imposed in connection with such issuance, (m)
the total dollar amount of Intangible Transition Property authorized by the
related Transitional Funding Order, (n) any other material terms of such Series
and any Class thereof 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 Series or Class of Notes, (o) the identity of
the Indenture Trustee and the Delaware Trustee, and (p) the terms of any Swap
Agreement executed solely to permit the issuance of Floating Rate Notes and the
identity of any swap counterparty related thereto.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
AVAILABLE INFORMATION................................................................ 3
REPORTS TO HOLDERS................................................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................... 3
PROSPECTUS SUPPLEMENT................................................................ 4
TABLE OF CONTENTS.................................................................... 5
PROSPECTUS SUMMARY................................................................... 8
RISK FACTORS......................................................................... 28
Uncertainties Associated with Unusual Asset Type................................... 28
Legal Challenges which Could Adversely Affect Noteholders.......................... 28
Possible Payment Delays or Losses as a Result of Amendment or Repeal of Amendatory
Act or Breach of State Pledge.................................................... 29
Limit on Amount of Intangible Transition Property Available to Pay Notes........... 30
Potential Servicing Issues......................................................... 31
Uncertainties Related to the Electric Industry Generally........................... 33
Uncertainties Caused by Changing Regulatory and Legislative Environment............ 36
Reduction in Amount of Revenue From Applicable Rates............................... 36
Bankruptcy and Creditors' Rights Issues............................................ 39
Nature of the Notes................................................................ 42
ELECTRIC INDUSTRY RESTRUCTURING IN ILLINOIS.......................................... 45
General............................................................................ 45
Amendatory Act Overview............................................................ 45
Transition Charges................................................................. 46
Transition Period.................................................................. 47
Alternative Retail Electric Suppliers.............................................. 48
Competitive Services............................................................... 49
Instrument Funding Charges; Private Contracts...................................... 49
Federal Initiatives; Increased Competition......................................... 50
DESCRIPTION OF THE INTANGIBLE TRANSITION PROPERTY.................................... 51
Creation of Intangible Transition Property Under the Funding Law................... 51
Limitations on the Amounts of Transitional Funding Instruments, Intangible
Transition Property and Instrument Funding Charges Which Can Be Authorized;
Permitted Use of Proceeds........................................................ 52
Imposition and Collection of Instrument Funding Charges; Adjustments Thereto....... 54
Transitional Funding Order Issued at the Request of ComEd.......................... 55
Transactions Pursuant to the Transitional Funding Orders........................... 56
Nonbypassable IFC Charges.......................................................... 57
Adjustments to the IFC Charges..................................................... 57
Sale and Assignment of Intangible Transition Property.............................. 59
Grant Agreement.................................................................... 60
Representations and Warranties of ComEd............................................ 61
Covenants of ComEd................................................................. 63
Amendment of Grant Agreements...................................................... 64
Indemnification Obligations of ComEd............................................... 65
Sale Agreement..................................................................... 65
Representations And Warranties of Grantee.......................................... 66
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Covenants of the Grantee........................................................... 67
Amendment of Sale Agreements....................................................... 69
Indemnification Obligations of the Grantee......................................... 70
CERTAIN PAYMENT, WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS...................... 71
THE TRUST............................................................................ 72
THE GRANTEE.......................................................................... 73
Managers........................................................................... 74
THE SERVICER......................................................................... 75
General............................................................................ 75
ComEd Customer Base, Electric Energy Consumption and Base Rates.................... 75
Forecasting Electricity Consumption................................................ 79
Forecast Variance.................................................................. 79
Credit Policy; Billing; Collections; Restoration of Service........................ 81
Loss and Delinquency Experience.................................................... 83
Delinquencies...................................................................... 85
Year 2000 Issues................................................................... 85
SERVICING............................................................................ 89
Servicing Procedures............................................................... 89
Servicing Standards and Covenants.................................................. 90
Remittances to Collection Account.................................................. 91
No Servicer Advances............................................................... 92
Servicing Compensation............................................................. 92
Alternative Retail Electric Suppliers and Other Third-Party Collectors............. 92
Servicer Representations and Warranties............................................ 94
Statements by Servicer............................................................. 94
Evidence as to Compliance.......................................................... 94
Certain Matters Regarding the Servicer............................................. 95
Servicer Defaults.................................................................. 95
Rights upon Servicer Default....................................................... 96
Waiver of Past Defaults............................................................ 96
Successor Servicer................................................................. 96
Amendment.......................................................................... 97
Termination........................................................................ 97
DESCRIPTION OF THE NOTES............................................................. 98
General............................................................................ 98
Interest and Principal............................................................. 99
Payments on the Notes.............................................................. 99
Floating Rate Notes................................................................ 100
No Third-Party Credit Enhancement.................................................. 101
Registration and Transfer of the Notes............................................. 101
Book-Entry Registration............................................................ 101
Definitive Notes................................................................... 104
Optional Redemption................................................................ 105
Conditions of Issuance of Additional Series and Acquisition of Subsequent
Intangible Transition Property................................................... 105
List of Noteholders................................................................ 106
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
SECURITY FOR THE NOTES............................................................... 107
General............................................................................ 107
Pledge of Note Collateral.......................................................... 107
Security Interest in Note Collateral............................................... 107
Description of Indenture Accounts.................................................. 109
Allocations; Payments.............................................................. 111
State Pledge....................................................................... 112
Reports to Noteholders............................................................. 113
Supplemental Indentures............................................................ 113
Certain Covenants of the Delaware Trustee and the Trust............................ 114
Events of Default; Rights Upon Event of Default.................................... 115
Actions by Noteholders............................................................. 117
Annual Compliance Statement........................................................ 117
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES...................................... 118
Tax Consequences to United States Noteholders...................................... 118
Tax Consequences to Non-United States Noteholders.................................. 119
Backup Withholding and Information Reporting....................................... 122
ERISA CONSIDERATIONS................................................................. 124
USE OF PROCEEDS...................................................................... 125
PLAN OF DISTRIBUTION................................................................. 126
RATINGS.............................................................................. 126
LEGAL MATTERS........................................................................ 126
EXPERTS.............................................................................. 127
INDEX OF PRINCIPAL DEFINITIONS....................................................... 128
INDEX OF 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 NOTES 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 128
SETS FORTH THE PAGES ON WHICH THE DEFINITIONS OF CERTAIN PRINCIPAL TERMS APPEAR.
<TABLE>
<S> <C>
Transaction Overview.............. The Illinois Electric Utility Transitional Funding Law
of 1997 (the "Funding Law") permits Illinois electric
utilities (collectively, the "Utilities"), including
Commonwealth Edison Company, an Illinois corporation
("ComEd"), and other permitted issuers, including the
Trust, to issue transitional funding instruments, such
as the Transitional Funding Trust Notes (the "Notes").
The Funding Law was one portion of Public Act 90-561
(the "Amendatory Act") which amended the Illinois Public
Utilities Act (as so amended, the "Act") and became law
on December 16, 1997.
Pursuant to the Funding Law, the Illinois Commerce
Commission (the "ICC") has issued and may hereafter
issue one or more Transitional Funding Orders in favor
of the Grantee at the request of ComEd each of which
provides, or will provide, among other things, for the
creation of Intangible Transition Property and the
vesting thereof in the Grantee. The Intangible
Transition Property created by each Transitional Funding
Order, among other things, represents the right to
impose and receive certain nonbypassable usage-based
charges (expressed in cents per kilowatt-hour) from
Customers, and all related revenues, collections,
claims, payments, money or proceeds thereof. These
charges are nonbypassable in that Customers cannot avoid
paying them regardless of from whom their electricity is
purchased; provided, however, that such charges must be
deducted from amounts which could otherwise be billed by
ComEd (or its successor) or other provider of electric
service to such Customers on account of its tariffed
rates (or, in the case of Customers not taking tariffed
services on account of private contracts, from the
charges and rates for the equivalent services provided
by ComEd).
ComEd will enter into one or more Agreements Relating to
Grant of Intangible Transition Property (each, a "Grant
Agreement" and collectively, the "Grant Agreements")
relating to the grant by the ICC to the Grantee of all
of the rights in and to the Intangible Transition
Property created by the related Transitional Funding
Order and containing certain representations, warranties
and covenants with respect to such Intangible Transition
Property.
Pursuant to one or more Intangible Transition Property
Sale Agreements between the Grantee and the Trust (each,
a "Sale
</TABLE>
8
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Agreement" and collectively, the "Sale Agreements"), the
Grantee has assigned or may further assign its rights
in, to and under the Intangible Transition Property
created by the related Transitional Funding Order, the
Servicing Agreement and certain other related assets to
the Trust. The Trust, whose primary asset will be all of
the Intangible Transition Property transferred to the
Trust pursuant to the Sale Agreements, will issue the
Notes, which will be sold to the underwriters named in
each Prospectus Supplement.
The Notes will be secured primarily by all of the
Intangible Transition Property. The Notes also will be
secured by the Grant Agreements, the Sale Agreements and
the Intangible Transition Property Servicing Agreement
between the Servicer and the Grantee (the "Servicing
Agreement"); the Collection Account and all amounts of
cash or investment property on deposit therein or
credited thereto from time to time; with respect to
Floating Rate Notes only, any interest rate exchange
agreements (each, a "Swap Agreement") entered into with
respect to the issuance of such Floating Rate Notes; all
rights to compel ComEd, as Servicer (or any successor),
to file for and obtain adjustments to the IFC Charges in
accordance with Section 18-104(d) of the Act, the
Transitional Funding Orders and all tariffs filed with
the ICC in connection therewith (each an "IFC Tariff");
all present and future claims, demands, causes and
choses in action in respect of any or all of the
foregoing; and all payments on or under and all proceeds
in respect of any or all of the foregoing. See "Security
for the Notes."
The IFC Charges will be calculated and adjusted from
time to time to generate projected revenues expected to
be sufficient over time to (a) pay interest and make
Scheduled Payments on the Notes, (b) pay all related
fees and expenses of the Trust, including the Servicing
Fee and any Quarterly Administration Fee, (c) replenish
the Capital Subaccount up to the Required Capital Level,
and (d) fund and maintain the Overcollateralization
Subaccount up to the Required Overcollateralization
Level. These payments are collectively referred to
herein as the "Specified Payments."
To enhance the likelihood of timely recovery of the
amounts necessary to make the Specified Payments, the
IFC Charges may be adjusted from time to time through
Reconciliation Adjustments and True-Up Adjustments, as
described under "Description of the Intangible
Transition Property-- Adjustments to the IFC Charges"
over the term of each Series of Notes.
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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.
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Risk Factors...................... Investors should consider the risks associated with an
investment in the Notes. For a discussion of certain
material risks associated therewith, investors should
review the discussion under "Risk Factors," which begins
on page 28.
Servicer/Administrator............ ComEd, a subsidiary of Unicom Corporation, an Illinois
corporation ("Unicom"), will act as the initial servicer
(in such capacity, and together with any successor
servicer, the "Servicer") of the Intangible Transition
Property pursuant to the terms of the Servicing
Agreement, and as the initial administrator (in such
capacity, and together with any successor administrator,
the "Administrator") of the Trust and the Grantee
pursuant to the terms of an Administration Agreement
among the Trust, the Grantee and the Administrator (the
"Administration Agreement").
ComEd is a public utility primarily engaged in the
business of generating, transmitting and distributing
electric energy to customers in Northern Illinois,
including the Chicago metropolitan area. See "The
Servicer."
Grantee........................... The grantee of the Intangible Transition Property will
be ComEd Funding, LLC, a special purpose Delaware
limited liability
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company (the "Grantee"), whose sole member is ComEd. In
accordance with the Funding Law and each Transitional
Funding Order, the Grantee shall be a grantee of the
Intangible Transition Property, authorized to assign
such Intangible Transition Property to the Trust as an
assignee. Pursuant to a Sale Agreement, the Grantee will
sell and assign to the Trust all of its right, title and
interest in such Intangible Transition Property, the
Servicing Agreement and certain other related assets.
Trust............................. The issuer of the Notes will be the ComEd Transitional
Funding Trust (the "Trust"), a Delaware business trust.
In accordance with the Funding Law and the related
Transitional Funding Order, the Trust shall be entitled
to receive the Intangible Transition Property created by
such Transitional Funding Order as assignee of the
Grantee, and shall be authorized to issue Notes as
transitional funding instruments.
Trust Assets...................... The assets of the Trust will consist of the Intangible
Transition Property and the other Note Collateral,
including capital transferred by the Grantee in an
amount specified in each Prospectus Supplement which
will be sufficient to meet certain requirements of the
Indenture (the "Indenture") between the Trust and the
Indenture Trustee.
Delaware Trustee.................. A Delaware entity (the "Delaware Trustee") shall be
named as trustee under the Declaration of Trust (the
"Trust Agreement"), as set forth in each Prospectus
Supplement. The Delaware Trustee will manage the Trust
pursuant to the Trust Agreement.
Beneficiary Trustees.............. The individuals named in the related Prospectus
Supplement as Beneficiary Trustees shall serve as
Beneficiary Trustees (each, a "Beneficiary Trustee") of
the Trust. The Beneficiary Trustees will execute and
file the Registration Statement and certain related
documents, register the Notes with the applicable state
securities commissions and take other necessary or
appropriate related actions.
The Notes......................... The Notes will be issued in series (each, a "Series")
and each Series of Notes may be issued in one or more
classes (each, a "Class"). Each Series and Class of
Notes will be in an initial aggregate principal amount,
and will bear interest at a rate described in the
related Prospectus Supplement and will be at least PARI
PASSU in right of payment with any subsequent Series and
Class of Notes. The Notes will be issued under the
Indenture.
The Indenture provides that collections received with
respect to the Intangible Transition Property ("IFC
Collections") will be used, among other things, to pay
(a) fees payable to the Delaware Trustee, the Indenture
Trustee, the Servicer and the Administrator; (b) all
other fees, costs, expenses and indemnities of the Trust
("Operating Expenses"); and (c) interest (including
amounts, if any, payable with respect to
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any Swap Agreement entered into with respect to the
issuance of any Floating Rate Notes) 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, until each outstanding Series and Class of
Notes is retired. However, as described under
"Description of the Notes--Interest and Principal,"
unless an Event of Default has occurred and is
continuing and the Notes have been declared due and
payable, principal on the Notes on any Payment Date will
only be paid until the outstanding principal balance of
the Notes has been reduced to the principal balance
specified in the Expected Amortization Schedule for such
Payment Date.
To the extent that, with respect to any Payment Date,
amounts on deposit in certain subaccounts of the
Collection Account are insufficient to reduce the
principal balance of the Notes to the amount required
pursuant to the Expected Amortization Schedule on such
Payment Date, the amount of such deficiency will be
deferred to a subsequent Payment Date without a default
occurring under the Indenture. All principal not
previously paid, if any, on a Note is due and payable on
the Final Maturity Date of such Note.
Each Series of Notes is non-recourse, and will be
secured only by, and payable solely out of the proceeds
of, Intangible Transition Property, together with the
other Note Collateral. If additional Notes are
subsequently issued, the previously issued and
outstanding Notes will be at least PARI PASSU with such
subsequently issued Notes as to all of the Intangible
Transition Property and the other Note Collateral. Any
and all funds or property released by the Indenture
Trustee pursuant to the Indenture will cease to be Note
Collateral and will no longer be available for payment
of the Notes. See "Description of the Notes" and
"Security for the Notes."
A Series of Notes may include two or more Classes of
Notes which differ as to the interest rate and the
timing, sequential order and amount of payments of
principal or interest or both or otherwise.
In addition, a Series of Notes may include one or more
Classes of Notes that accrue interest at a variable rate
based on the index described in the related Prospectus
Supplement (the "Floating Rate Notes"). See "Description
of the Notes-- Floating Rate Notes."
While the specific terms of any Series of Notes (and the
Classes thereof, if any) 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 Noteholders of any
previously issued Series of Notes.
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All Notes 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 Notes of the same Class will be identical
in all respects except for the denominations thereof.
No additional Notes will be issued or shall be secured,
directly or indirectly, by the Intangible Transition
Property and the other Note Collateral unless, among
other things, each Rating Agency with respect to any
outstanding Notes shall have affirmed the then current
rating of all such outstanding Notes in connection with
the issuance of such additional Notes.
So long as any Notes are outstanding, the Noteholders
will direct the Indenture Trustee as to matters in which
the Noteholders are permitted or required to take
action; provided, however, that the Indenture Trustee
will be permitted to take certain actions specified in
the Indenture without the direction of the Noteholders.
See "Security for the Notes--Actions by Noteholders."
None of the Notes or the underlying Intangible
Transition Property will be guaranteed or insured by
ComEd or any of its affiliates. Transitional Funding
Orders authorizing the issuance of the Notes do not
constitute a pledge of the full faith and credit of the
State of Illinois or of any of its political
subdivisions. The issuance of the Notes under the
Funding Law shall not directly, indirectly or
contingently obligate the State of Illinois or any
political subdivision thereof to levy or to pledge any
form of taxation therefor or to make any appropriation
for their payment.
See "Description of the Notes."
Indenture......................... The Notes will be issued pursuant to the terms of the
Indenture, and the Intangible Transition Property and
the other Note Collateral will be pledged under the
Indenture for the benefit of the Noteholders.
Indenture Trustee................. The entity named as trustee under the Indenture, as set
forth in each Prospectus Supplement (the "Indenture
Trustee"). The Indenture Trustee acts for and on behalf
of the Noteholders pursuant to the Indenture.
Rating Agency..................... Each nationally recognized statistical rating
organization which rates any Series of Notes upon
request of the Trust (each, a "Rating Agency") as set
forth in the Prospectus Supplement related thereto.
Transitional Funding Orders....... The ICC has issued and may hereafter issue one or more
financing orders in favor of the Grantee at the request
of ComEd (each, a "Transitional Funding Order"). Each
Transitional Funding Order will provide for, among other
things, the creation of Intangible Transition Property
and the vesting thereof in the Grantee. Although it is
anticipated that all
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Transitional Funding Orders will be identical in all
material respects, since the issuance thereof is subject
to the discretion of the ICC, there may be variations
between Transitional Funding Orders. If the findings in
any subsequent Transitional Funding Order differ
materially from the findings in the Transitional Funding
Order disclosed in this Prospectus, all of such
differences will be disclosed in the related Prospectus
Supplement.
Intangible Transition Property.... Each Transitional Funding Order obtained by ComEd from
the ICC will create and establish a certain dollar
amount of Intangible Transition Property. The Prospectus
Supplement related to an issuance of Notes will identify
the Transitional Funding Order and the total dollar
amount of Intangible Transition Property authorized
thereby, which will represent the maximum dollar amount
of IFC Charges which may be applied and invoiced under
such Transitional Funding Order over time by the
Servicer on behalf of the Trust without further action
by the ICC.
The right to impose, and collect payments of, the IFC
Charges from the Customers (such payments, whether
collected directly from Customers or through third-party
collection agents, including ARES, being the "IFC
Payments") gives rise to a separate property right as
set forth in the Funding Law. This property is created,
and vested in the Grantee, by a Transitional Funding
Order and, together with the related items described in
this paragraph, is referred to herein generally as the
"Intangible Transition Property." The Intangible
Transition Property includes the right, title and
interest to impose and receive IFC Charges, and all
related revenues, collections, claims, payments, money,
or proceeds thereof, including all right, title, and
interest under and pursuant to the Transitional Funding
Order which created such Intangible Transition Property.
IFC Charges....................... Under the Act, each Transitional Funding Order will
provide for the establishment, imposition and collection
of nonbypassable, usage-based, per kilowatt-hour charges
on designated consumers of electricity (the "IFC
Charges"). Specifically, each such order will provide
that IFC Charges will be imposed on each existing and
future retail customer or class of retail customers in
ComEd's service area (I.E., ComEd's geographic service
area as of January 1, 1998 and any other locations in
which it was then providing electric utility services to
Customers) in Illinois, or other person or group of
persons obligated, from time to time, to pay to ComEd or
any successor Applicable Rates (including any customers
who enter into contracts with ComEd to take non-tariffed
services but would otherwise have been obligated to pay
Applicable Rates) (collectively, the "Customers"). Of
amounts collected from the Customers, only the portion
of amounts collected that
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comprise the IFC Charges, as adjusted from time to time,
will be available to make payments on the Notes. IFC
Charges will be deducted and stated separately from
Applicable Rates.
"Applicable Rates" means all charges for tariffed
services owed to ComEd (I.E., charges owed under any
tariffs now or hereafter filed with the ICC), including,
without limitation, charges for "base rates," "delivery
services" and "transition charges" (including lump-sum
payments of such charges) as each such term is defined
in the Act. Applicable Rates do not include late charges
or charges set forth in those tariffs which are filed
specifically and primarily to collect amounts related to
decommissioning expense, taxes, franchise fees or other
franchise cost additions, costs imposed by local
governmental units which are allocated and charged to
customers within the boundaries of such governmental
units' jurisdictions, renewable energy resources and
coal technology development assistance charges, energy
assistance charges for the Supplemental Low-Income
Energy Assistance Fund, reimbursement for the costs of
optional or non-standard facilities and reimbursement
for the costs of optional or non-standard meters, or
monies that will be paid to third parties (after
deduction of allowable administrative, servicing or
similar fees) (collectively, "Excluded Amounts").
Payments owed to the Grantee or the Trust in respect of
IFC Charges do not constitute Excluded Amounts.
To the extent any Applicable Rates reflect compensation
owed by ComEd for power or energy generated by a person
or entity other than ComEd, the IFC Charges will be
deducted and stated separately from such Applicable
Rates without giving effect to such compensation.
Administrative, servicing and similar fees referred to
in the parenthetical above means fees which ComEd is
expressly authorized under its current agreements with
third parties or by statute, tariff or otherwise to
deduct from monies owed to such parties to cover its
cost of processing such third-party payments. Charges
associated with Excluded Amounts are generally the
subject of separate riders to ComEd's rates, such that
increases in such charges are collected through an
increase in the amount permitted to be collected under
such rider, rather than through an increased share of
the Applicable Rates. As a result, any increase in
Excluded Amounts should not result in a material
decrease in the amount of Applicable Rates available to
cover the amount of IFC Charges.
Each Transitional Funding Order will provide that
neither ComEd nor any successor Utility may enter into
any contract with any Customer obligated (or who would,
but for such contract, be obligated) to pay IFC Charges
if, as a result thereof, such Customer would not receive
services subject to Applicable Rates, unless the
contract provides that the
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Customer will pay an amount to the Grantee or its
assigns, as applicable, equal to the amount of IFC
Charges that would have been billed if the services
provided under such contract were services subject to
Applicable Rates. Each Transitional Funding Order will
further provide that any revenues received by ComEd or a
successor Utility from such contracts entered into with
Customers paying IFC Charges shall, to the extent of the
authorized amount of the IFC Charges included therein,
be deemed to be proceeds of, and included in, the
Intangible Transition Property created by the related
Transitional Funding Order. See "Electric Industry
Restructuring in Illinois-- Instrument Funding Charges;
Private Contracts."
The IFC Charges will be calculated and adjusted from
time to time to generate projected revenues expected to
be sufficient to make the Specified Payments. In each
case, the IFC Charges will be assessed for the benefit
of the Trust as assignee of all of the Grantee's right,
title and interest in the Intangible Transition
Property. Such IFC Charges will be collected by the
Servicer, either directly from Customers or from an ARES
or other third-party collection agent that collects such
amounts from Customers, as part of its normal collection
activities and will be deposited into the Collection
Account under the terms of the Indenture and the
Servicing Agreement on each Monthly Remittance Date or
Daily Remittance Date, as the case may be.
The Funding Law provides that, notwithstanding any other
provision of law, once a Transitional Funding Order has
become final and nonappealable, none of such
Transitional Funding Order, the Intangible Transition
Property created and established thereby or the IFC
Charges authorized to be imposed and collected
thereunder shall be subject to any reduction,
postponement, impairment or termination by any
subsequent action of the ICC.
Adjustments to IFC Charges........ The Servicing Agreement and each Transitional Funding
Order will require the Servicer to calculate and
implement adjustments to the IFC Charges which are
designed to enhance the likelihood that the IFC
Collections which are remitted to the Collection Account
will be sufficient to make the Specified Payments.
Each Transitional Funding Order will provide for a
"Reconciliation Adjustment" to the IFC Charges which
will be calculated by the Servicer within the two-week
period preceding every other Payment Date, commencing on
the Payment Date indicated in the related Prospectus
Supplement (each such Payment Date, a "Reconciliation
Payment Date").
Each Transitional Funding Order will also provide for a
"True-Up Adjustment" to the IFC Charges which will be
calculated by the Servicer within the two-week period
preceding every
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Payment Date which is not a Reconciliation Payment Date
commencing on the Payment Date indicated in the related
Prospectus Supplement (each such Payment Date, a
"True-Up Payment Date") only if, as of the True-Up
Payment Date, the aggregate outstanding principal
balance of the Notes exceeds the scheduled aggregate
outstanding principal balance of the Notes set forth on
the Expected Amortization Schedule by 5%, or such
greater amount as may be set forth in the related
Prospectus Supplement.
Changes in IFC Charges, if any, resulting from a
Reconciliation Adjustment and any True-Up Adjustment
(collectively, the "Adjustments") will take effect on
the first billing day of the month following the
applicable Reconciliation Payment Date or True-Up
Payment Date.
The IFC Charges will, subject to Adjustment as provided
herein, continue to be imposed and collected until all
interest on and principal of all Series of the Notes
have been paid in full, subject only to the limitation
of the maximum amount of Intangible Transition Property
authorized by the ICC in the related Transitional
Funding Order or Orders, and will be based on expected
IFC Collections which are calculated in accordance with
the Servicer's normal servicing procedures using data
available through the end of the prior monthly period.
All Adjustments shall be implemented pursuant to the IFC
Tariff filed by ComEd in connection with the related
Transitional Funding Order. As required by the Funding
Law, if, as a result of any Adjustment, the IFC Charge,
as so adjusted, will exceed the amount per kilowatt-hour
of the IFC Charge authorized by the ICC in any
Transitional Funding Order, then ComEd shall be
obligated to file amendatory tariffs (each, an
"Amendatory Tariff") adjusting the amounts otherwise
billable by ComEd for Applicable Rates, to offset the
amount of such excess (or, if ComEd shall have
previously filed any such Amendatory Tariffs, the
incremental amount of such excess). However, the failure
of such Amendatory Tariff to become effective for any
reason shall not delay or impair the effectiveness of
any such Adjustments.
See "Description of the Intangible Transition Property--
Adjustments to the IFC Charges."
State Pledge...................... Pursuant to the Funding Law, the State of Illinois
pledges to and agrees with the Noteholders that the
State of Illinois will not in any way limit, alter,
impair or reduce the value of the Intangible Transition
Property created by, or the IFC Charges approved by, any
Transitional Funding Order so as to impair the terms of
any contract made by ComEd, the Grantee or the Trust
with the Noteholders or in any way impair their rights
and remedies, until the Notes, together with the
interest, premium
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and other fees, costs and charges related thereto, are
fully paid and discharged (the "State Pledge"). The
Funding Law authorizes issuers, such as the Trust, to
include these pledges and agreements of the State in any
contract with the holders of the transitional funding
instruments, and the pledges and agreements shall be so
included in the Indenture and the Notes for the benefit
of the Noteholders. See "Security for the Notes--State
Pledge."
Payment Dates..................... The payment dates on Notes of each Series will be the
quarterly dates specified in the related Prospectus
Supplement (each, a "Payment Date"). If such specified
date is not a Business Day, then the Payment Date shall
be the next succeeding Business Day.
Record Dates...................... With respect to any Payment Date or date of any
redemption, the Business Day preceding such Payment Date
or other date if the Notes are Book-Entry Notes or, if
Definitive Notes are issued, the last day of the
preceding calendar month (each, a "Record Date").
Scheduled Maturity and Final
Maturity Dates.................. For each Series or Class of Notes, the related
Prospectus Supplement will specify a Scheduled Maturity
Date and a Final Maturity Date. The "Scheduled Maturity
Date" will be the date when all principal and interest
on such Series or Class of Notes is expected to be paid
in full by the Trust. The "Final Maturity Date"
corresponds to the date on which such Series or Class of
Notes may be accelerated for failure to pay outstanding
principal thereon, which may be up to two years after
the Scheduled Maturity Date for such Series or Class.
The Funding Law provides that the authority of the Trust
to impose and collect IFC Charges shall continue until
such time as all Notes have been paid in full.
Issuance of Additional Series..... The Trust may issue additional Series of Notes from time
to time; provided, however, the Trust may not issue in
excess of $3.4 billion in aggregate principal amount of
Notes prior to August 1, 1999, and thereafter may not
issue in excess of $6.8 billion of Notes (less the
initial amount of any previously issued Notes). A
subsequent Transitional Funding Order would authorize
additional Intangible Transition Property and an
increase in the authorized amount of IFC Charges in
connection with such issuance. See "Description of the
Intangible Transition Property--Transitional Funding
Order Issued to ComEd." An additional Series may be
issued only upon satisfaction of the conditions
described under "Description of the Notes--Conditions of
Issuance of Additional Series." Each Series of Notes
will be secured solely by the Intangible Transition
Property and the other Note Collateral. An Event of
Default with respect to one Series of Notes (or one or
more Classes thereof) may adversely affect
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other outstanding Classes and Series of Notes since such
event will be considered an Event of Default with
respect to all Series of Notes and each such Class or
Series will be entitled only to its ratable portion of
the Intangible Transition Property and the other Note
Collateral as determined under the Indenture. In
addition, all Intangible Transition Property owned by
the Trust will secure all Series of Notes and any
remedial action taken by Noteholders of one Series will
affect the other Series.
Interest.......................... Unless otherwise specified in the related Prospectus
Supplement, interest on each Series of Notes (and, if
applicable, each Class thereof) will accrue and be
payable in arrears at the interest rate for such Series
(or Class), or calculated in the manner, specified in
the related Prospectus Supplement.
Principal......................... Principal of each Series of Notes (and, if applicable,
each Class thereof) will be paid to the Noteholders of
such Series (or Class) 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 herein. See "Security for the
Notes--Allocations; Payments." The related Prospectus
Supplement will set forth a schedule of the expected
amortization of principal of such Series of Notes and,
if applicable, the Classes thereof (for any Series or
Class, the "Expected Amortization Schedule"). Unless an
Event of Default has occurred and is continuing and the
Notes have been declared due and payable, on any Payment
Date, subject to availability of funds in the Collection
Account, the Trust 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 (each, a "Scheduled
Payment"). However, if insufficient IFC 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 Notes
may be paid later than reflected in the related Expected
Amortization Schedule, as described herein and in the
related Prospectus Supplement. See "Risk Factors--Nature
of the Notes-- Uncertain Payment Amounts and Weighted
Average Life" and "Certain Payment, Weighted Average
Life and Yield Considerations."
Events of Default................. The Indenture provides that any of the following events
will constitute an "Event of Default" with respect to
any Series of Notes: (a) a default for five days in the
payment of any interest on any Note; (b) a default in
the payment of the then unpaid principal of any Note on
the Final Maturity Date for such Note; (c) a default in
the payment of the optional redemption price for
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any Note on the optional redemption date therefor; (d) a
default in the observance or performance in any material
respect of any covenant or agreement of the Trust made
in the Indenture and the continuation of any such
default for a period of 30 days after notice thereof is
given to the Trust by the Indenture Trustee or to the
Trust and the Indenture 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 Trust in the 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
Trust by the Indenture Trustee or to the Trust and the
Indenture Trustee by the holders of at least 25 percent
in principal amount of the Notes of such Series then
outstanding; (f) certain events of bankruptcy,
insolvency, receivership or liquidation of the Trust;
(g) a breach by the State of Illinois or any of its
agencies (including the ICC), officers or employees of
the State Pledge; and (h) any other event designated as
such in the trustee's issuance certificate or series
supplement relating to such Series.
If an Event of Default (other than as specified in
clause (g) above) has occurred and is continuing with
respect to the Notes, the Indenture Trustee may and,
upon the written direction of the holders of not less
than a majority in principal amount of the Notes then
outstanding shall, declare the unpaid principal amount
of all the Notes of all Series then outstanding to be
immediately due and payable. If an Event of Default as
specified in clause (g) above has occurred, the Servicer
shall be obligated to institute (and the Indenture
Trustee, for the benefit of the Noteholders, shall be
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 each of the
Servicer and the Indenture Trustee may prosecute any
such suit, action or proceeding to final judgment or
decree.
See "Security for the Notes--Events of Default; Rights
Upon Event of Default" and "Ratings."
Optional Redemption............... Pursuant to the terms of the Indenture, any Series of
Notes may be redeemed 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 (5%) of the initial principal balance thereof.
If specified in the Prospectus Supplement related to any
Series or Class of Notes, the Indenture may also permit
the redemption of any such Series or Class of Notes in
full on any Payment Date on or prior to December 31,
2004 using proceeds received from the issuance of any
additional Series
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or Class of Notes (the "New Notes"). The New Notes will
be payable solely out of the Intangible Transition
Property and the other Note Collateral and will have no
more than a PARI PASSU lien thereon VIS-A-VIS all
existing Series of Notes.
In addition, a Series of Notes shall be subject to
redemption if and to the extent provided in the related
Prospectus Supplement.
No redemption shall be permitted under the Indenture
unless each Rating Agency with respect to any Notes that
will remain outstanding after such redemption shall have
affirmed the then current rating of all such outstanding
Notes. Upon any redemption of any Series or Class of
Notes, the Trust will have no further obligations under
the Indenture with respect thereto.
The Notes may be so redeemed upon payment of the
outstanding principal amount of the Notes and accrued
but unpaid interest thereon as of the date of
redemption.
See "Description of the Notes--Optional Redemption."
Establishment of Collection
Account and Subaccounts......... Pursuant to the Indenture, a Collection Account will be
established and held by the Indenture 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 "Security for the Notes--Allocations;
Payments."
General Subaccount................ The General Subaccount will hold all funds held in the
Collection Account that are not held in the other three
subaccounts. The Servicer will remit all IFC Collections
to the General Subaccount on each Monthly Remittance
Date or Daily Remittance Date, as required under the
Servicing Agreement. On each Payment Date, the Indenture
Trustee will draw on amounts in the General Subaccount
to pay expenses of the Trust and to pay interest and
make Scheduled Payments on the Notes and to make other
payments and transfers in accordance with the terms of
the Indenture.
Reserve Subaccount................ IFC Collections available with respect to any Payment
Date in excess of amounts necessary to make the
Specified Payments will be allocated to the Reserve
Subaccount. On each Payment Date, the Indenture Trustee
will draw on amounts in the Reserve Subaccount, to the
extent amounts available in the General Subaccount are
insufficient to pay expenses of the
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Trust and to pay interest and make Scheduled Payments on
the Notes and to make other payments and transfers in
accordance with the terms of the Indenture.
Overcollateralization
Subaccount...................... In order to enhance the likelihood that payments on the
Notes will be made in accordance with their Expected
Amortization Schedules, each Transitional Funding Order
will permit the Servicer to set the IFC Charges at
levels that are expected to produce IFC Collections in
amounts that exceed the amounts expected to be required
to pay interest and make Scheduled Payments on the Notes
and to pay all related fees and expenses of the Trust,
including the Servicing Fee and any Quarterly
Administration Fee, in order to collect an additional
amount (for any Series, the "Overcollateralization
Amount") specified in the related Prospectus Supplement.
The Overcollateralization Amount established in
connection with each Series of Notes will not be less
than 0.50 percent of the initial principal balance of
such Series of Notes, collected over the expected life
of the Notes of such Series according to a schedule set
forth in the related Prospectus Supplement. The
Overcollateralization Amount for all Series of Notes
will be held in the Overcollateralization Subaccount, as
described further under "Security for the
Notes--Description of Indenture
Accounts--Overcollateralization Subaccount." The amount
required to be on deposit in the Overcollateralization
Subaccount as of any Payment Date with respect to each
Series, as specified in the schedule set forth in the
related Prospectus Supplement, is referred to herein as
the "Required Overcollateralization Level." On each
Payment Date, the Indenture Trustee will draw on amounts
in the Overcollateralization Subaccount, if any, to the
extent amounts available in the General Subaccount and
the Reserve Subaccount are insufficient to pay expenses
of the Trust and to pay interest and make Scheduled
Payments on the Notes. If amounts on deposit in the
Overcollateralization Subaccount are used to pay such
expenses and make such payments, the
Overcollateralization Subaccount will be replenished on
subsequent Payment Dates to the extent IFC Collections
exceed amounts required to make payments or transfers
having a higher priority of payment, as more fully
described under "Security for the Notes--Allocations;
Payments."
Capital Subaccount................ Prior to or upon the issuance of each Series of Notes,
the Grantee will transfer capital to the Trust which
will equal 0.50 percent of the initial principal amount
of such Series of Notes. Such amount 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 Indenture
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
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expenses of the Trust and to pay interest and make
Scheduled Payments on the Notes and to make other
payments and transfers in accordance with the terms of
the Indenture. If amounts on deposit in the Capital
Subaccount are used to make such payments and transfers,
the Capital Subaccount will be replenished on subsequent
Payment Dates to the extent IFC Collections exceed
amounts required to make such payments and transfers
having a higher priority of payment, as more fully
described under "Security for the Notes-- Allocations;
Payments."
Collections....................... The IFC Tariffs allow the Trust to begin to impose and
collect the IFC Charges concurrently with the issuance
of the Notes of any Series (each, a "Series Issuance
Date"). The IFC Charges shall be imposed and collected
based upon the entire electricity consumption of
Customers included in bills issued to Customers on and
after such Series Issuance Date, including that portion
of the applicable Billing Period during which electric
service was provided prior to such Series Issuance Date.
The Servicing Agreement provides, among other things,
that the Servicer will collect the IFC Payments on
behalf of the Trust, as assignee of the Grantee. The
Servicer will remit all IFC Payments to the Collection
Account within two Servicer Business Days of receipt
unless the Monthly Remittance Conditions are met, in
which case the Servicer will remit to the Collection
Account on the Servicer Business Day immediately
preceding the tenth day of each month, all IFC Payments
received by the Servicer during the immediately
preceding Billing Period. See "Servicing--Remittances to
Collection Account."
Because the Servicer does not track cash collections on
bills rendered within a particular Billing Period,
amounts remitted to the Collection Account with respect
to IFC Charges included in bills issued to Customers
during each Billing Period will be based upon the actual
amounts billed for each class of Customers and the
Servicer's estimation of write-offs and delinquencies
for each class of Customers, all in accordance with the
Servicing Standard.
The Servicer also will be required pursuant to the
Servicing Agreement to periodically reconcile the amount
of IFC Payments actually received against the IFC
Payments remitted by the Servicer to the Collection
Account. See "Servicing-- Remittances to Collection
Account."
The "Servicing Standard" will be set forth in the
Servicing Agreement and shall require the Servicer to
calculate, collect, apply, remit and reconcile proceeds
of the Intangible Transition Property, including IFC
Payments, and other Note Collateral for the benefit of
the Trust and the Noteholders (a) with the same
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degree of care and diligence as the Servicer applies
with respect to payments owed to it for its own account,
(b) in accordance with procedures and requirements
established by the ICC for collection of electric
utility tariffs, and (c) in accordance with the other
terms of the Servicing Agreement.
Allocations and Payments.......... On each Payment Date, amounts in the Collection Account,
including net earnings thereon, will be allocated as
shown in the following diagram, which provides a general
summary of the flow of funds from the Customers through
the Servicer to the Collection Account, and the various
allocations therefrom. For a more detailed discussion,
see "Security for the Notes-- Allocations; Payments."
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Servicing......................... The Servicer is responsible for servicing, managing and
receiving IFC Payments in accordance with the Servicing
Standard. Pending deposit into the Collection Account,
all IFC Payments received by the Servicer may be
invested by the Servicer at its own risk and for its own
benefit, and need not be segregated from other funds of
the Servicer. See "Servicing-- Remittances to Collection
Account."
It is possible that certain third-party collection
agents may collect payments (including IFC Charges) from
Customers and that certain ARES may also bill charges
for such payments. In the latter case, the Servicer will
bill each such ARES for the full amount of IFC Charges,
and other charges owed to the Servicer in its individual
capacity. In order to enhance the likelihood that the
collection of IFC Charges by the Servicer will not be
adversely affected as a result of the collection of the
IFC
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Charges by ARES and other third-party collection agents,
the ICC will approve certain procedures in each
Transitional Funding Order regarding the remittance
obligations of such third parties. See
"Servicing--Alternative Retail Electric Suppliers and
Other Third-Party Collectors."
To the extent that there is a shortfall in the amount
received by the Servicer from (a) Customers it bills
directly or (b) a third-party collection agent,
including an ARES, such shortfall will be allocated by
the Servicer FIRST, to the Trust and ComEd pro rata,
based on the amount of Customers' bills constituting IFC
Charges, and the amount constituting other fees and
charges not constituting IFC Charges owed to ComEd or
any successor, respectively, until all kilowatt-hour
charges, other than late charges, are paid, and SECOND,
such amount of late charges shall be allocated to ComEd.
In the event that an ARES or another Utility provides
consolidated billing to Customers for both the services
provided by such ARES or other Utility and services
provided by ComEd, partial payments made to an ARES by
such Customers are required by the Act to be credited
first to amounts due to ComEd's tariffed services
(including IFC Charges collected on behalf of
Noteholders), and the Servicer will allocate such
payments as otherwise described above.
Servicing Compensation............ The Servicer will be entitled to receive a servicing fee
on each Payment Date (the "Servicing Fee"), in the
amount specified in the related Prospectus Supplement.
The Servicing Fee will be paid prior to the payment 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 IFC
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 IFC
Payments. See "Servicing--Servicing Compensation."
No Servicer Advances.............. The Servicer will not be obligated to make any advances
of interest or principal on the Notes.
Denominations..................... Each Series of Notes (and, if applicable, each Class
thereof) will be issued in the minimum initial
denominations set forth in the related Prospectus
Supplement and in integral multiples thereof.
Book-Entry Notes.................. Each Series of Notes (and, if applicable, each Class
thereof) may be issued in definitive form or may be
represented by one or more notes registered in the name
of Cede & Co. ("Cede") (each, a "Book-Entry Note" and
collectively, the "Book-Entry Notes"), 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
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relationships with a Participant, either directly or
indirectly ("Indirect Participant"). If so indicated in
the applicable Prospectus Supplement, Noteholders may
also hold Book-Entry Notes 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. Notes representing
Book-Entry Notes 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 Notes, all references herein to "Noteholders"
reflect the rights of owners of the Book-Entry Notes as
they may indirectly exercise such rights through DTC and
Participants, except as otherwise specified herein. See
"Risk Factors" and "Description of the Notes--Book-Entry
Registration."
Ratings........................... It is a condition of issuance of each Series of Notes
(and, if applicable, each Class thereof) that at the
time of issuance such Series (or Class) receive the
rating indicated in the related Prospectus Supplement,
which will be in one of the four highest categories,
from one or more of the Rating Agencies specified
therein. 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 Note and, accordingly, there
can be no assurance that the ratings assigned to any
Series (or Class) of Notes upon initial issuance thereof
will not be revised or withdrawn by a Rating Agency at
any time thereafter. If a rating of any Series (or
Class) of Notes is revised or withdrawn, the liquidity
of such Series (or Class) of Notes 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 Notes. See "Risk Factors--
Nature of the Notes--Uncertain Payment Amounts and
Weighted Average Life," "Certain Payment, Weighted
Average Life and Yield Considerations" and "Ratings."
Taxation of the Notes............. In the opinion of Sidley & Austin, interest paid on the
Notes generally will be taxable to a United States
Noteholder (as hereinafter defined) as ordinary interest
income at the time it accrues or is received in
accordance with such United States Noteholder's method
of accounting for United States federal income tax
purposes. Such opinion assumes that, based on a ruling
or tax opinion described under "Material United States
Federal Tax Consequences," the Notes will constitute
indebtedness of ComEd for federal income tax purposes.
See "Material United States Federal Tax Consequences"
herein and in the related Prospectus Supplement.
ERISA Considerations.............. The Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Internal
Revenue
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Code of 1986, as amended (the "Code") impose various
requirements on employee benefit plans and certain other
plans and arrangements subject to ERISA, and on persons
who are fiduciaries with respect to such plans and
arrangements, in connection with the investment of
assets which are deemed to be "plan assets" for purposes
of ERISA or Section 4975 of the Code, unless a statutory
or administrative exemption is available. A fiduciary of
any employee benefit plan or other plan or arrangement
that is subject to ERISA or Section 4975 of the Code,
before purchasing the Notes, should therefore determine
that an investment in the Notes is consistent with the
fiduciary duties of ERISA and does not violate the
prohibited transaction provisions of ERISA or the Code.
See "ERISA Considerations" herein and in the related
Prospectus Supplement.
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RISK FACTORS
THE RISK FACTOR DISCLOSURE IN THIS PROSPECTUS AND IN ANY PROSPECTUS
SUPPLEMENT, TO THE EXTENT DISCLOSURE IS INCLUDED THEREIN, SUMMARIZES ALL
MATERIAL RISK FACTORS. INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS DISCLOSED
IN THIS PROSPECTUS, THE FOLLOWING FACTORS IN CONNECTION WITH THE PURCHASE OF THE
NOTES.
UNCERTAINTIES ASSOCIATED WITH UNUSUAL ASSET TYPE
There is no historical performance data for an asset type such as the
Intangible Transition Property in the State of Illinois and the Servicer does
not have any historical experience administering this specific type of asset.
Although energy usage records are available, such records have limited
predictive value with respect to the cash flows expected to be available for
payment of the Notes because of the significant changes to electricity markets
in Illinois that are likely to result from the Amendatory Act. In addition,
although the Funding Law provides that the Noteholders or the Indenture Trustee
may foreclose or otherwise enforce the lien on the Intangible Transition
Property securing the Notes, in the event of a foreclosure, there is likely to
be a limited market, if any, for Intangible Transition Property and, therefore,
foreclosure upon the Intangible Transition Property may not be a realistic or
practical remedy for the Noteholders.
LEGAL CHALLENGES WHICH COULD ADVERSELY AFFECT NOTEHOLDERS
The existence and grant of Intangible Transition Property, the status of
such Intangible Transition Property as a separate property right and the
regulatory authorization for ComEd's entering into the transactions under the
Basic Documents are generally dependent on relevant provisions of the Funding
Law and the related Transitional Funding Order. The Amendatory Act (of which the
Funding Law is a part) provides that if any of its provisions are held invalid,
all of its provisions shall be deemed invalid. Thus, a judicial determination
that any provision of the Amendatory Act is invalid would, absent legislative
intervention at that time, result in the entirety of the Amendatory Act
(including the Funding Law) being deemed invalid. It is therefore possible that,
although a Transitional Funding Order has become final and no longer subject to
appeal, a legal challenge to the Amendatory Act could result in payment delays
or losses to Noteholders. However, the Amendatory Act also provides that no
presumption as to the validity or invalidity of any contracts, transactions,
orders, billings or payments pursuant to the Funding Law (such as the contracts,
transactions, orders, billings or payments related to the Transitional Funding
Orders) shall result from a determination of the invalidity of the Amendatory
Act.
ComEd will represent and warrant in each Grant Agreement that the related
Transitional Funding Order is valid, binding and irrevocable. There can be no
assurances, however, that a claim by a person that a provision of the Amendatory
Act is invalid would not result in the invalidation of the entire Amendatory Act
(including the Funding Law). If the Amendatory Act were invalidated, a person
could attempt to challenge such Transitional Funding Order by arguing that such
invalidation should be applied retroactively with the result that there is no
regulatory authorization for the associated transactions. If such an argument
were successful, such Transitional Funding Order, the Intangible Transition
Property created thereby and the transactions entered into pursuant to its
authorization, could all be deemed invalid for lack of authorization, and
Noteholders could suffer a loss of their investment in the Notes.
The issuance of Notes is conditioned upon the rendering of an opinion by
Sidley & Austin, counsel to ComEd, to the effect that such Transitional Funding
Order would remain in effect and the rights thereunder, including the rights of
the Trust to impose and collect the portion of Customers' bills represented by
the IFC Charges, would remain enforceable against ComEd and its assigns
(including a trustee in bankruptcy) in the event of a judicial invalidation of
the Amendatory Act unless a specific order
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or ruling were obtained from a court or the ICC invalidating, amending or
otherwise modifying such Transitional Funding Order.
The issuance of Notes is further conditioned upon the rendering of an
opinion by Sidley & Austin to the effect that a judicial determination that one
or more provisions of the Amendatory Act is invalid should not be applied so as
to result in the Noteholders losing their rights created pursuant to such
Transitional Funding Order. Such opinion will be based on a reasoned application
of judicial decisions involving similar or analogous circumstances (inasmuch as
there are no reported controlling precedents) which have recognized that
judicial decisions should not be applied retroactively where to do so would
produce inequitable results, reopen final judgments or impair vested rights,
such as the rights created pursuant to such Transitional Funding Order. Any
judicial determination would also involve the application of equitable
principles. Although ComEd has agreed in the Grant Agreement that any impairment
of Noteholders' rights to payments on the Notes arising from a judicial
invalidation of the Amendatory Act is inequitable, such statement is not binding
on any court and any application of equitable principles would be subject to the
discretion of the court which is asked to apply them and the
court's evaluation of the facts and equities before it. In that connection, a
declaration of invalidity of the Funding Law itself, as opposed to an
invalidation solely as the result of an invalidation of another provision of the
Amendatory Act, would be a factor tending to reduce the strength of the
equitable principles and related considerations that otherwise would support the
continuing validity of the rights of the Noteholders. Accordingly, the issuance
of the Notes is further conditioned on the inclusion of a statement in the
opinion to be delivered by Sidley & Austin that nothing in their research
conducted in connection with such opinion revealed any judicial decisions which
such firm believes would provide a basis on which a court would declare the
Funding Law to be invalid.
In light of the foregoing discussion, there can be no assurance that a
judicial invalidation of one or more provisions of the Amendatory Act will not
also result in the invalidation of a Transitional Funding Order or Noteholders'
rights with respect thereto. In this regard, investors should be aware that a
successful challenge under federal law of another state's utility deregulation
statute that is similar to the Amendatory Act could be invoked as legal
precedent for invalidating the Amendatory Act.
POSSIBLE PAYMENT DELAYS OR LOSSES AS A RESULT OF AMENDMENT OR REPEAL OF
AMENDATORY ACT OR BREACH OF STATE PLEDGE
The Illinois Legislature could amend or repeal the Funding Law or other
provisions of the Amendatory Act or take actions in contravention of the State
Pledge which could impair the rights of the Noteholders and affect the
collection of IFC Charges and payments on the Notes. Such actions would be
subject to challenge under the United States and Illinois Constitutions, and as
a condition to the issuance of Notes, Sidley & Austin will render an opinion to
the effect that, absent a demonstration by the State of Illinois that an
impairment is necessary to further a significant and legitimate public purpose,
the Noteholders could challenge successfully under the Contract Clause of such
Constitutions the constitutionality of any law subsequently enacted by the
Illinois Legislature that purports to limit, alter, impair or reduce the value
of the rights of the Noteholders or the IFC Charges so as to impair
substantially the Indenture or the Notes or the rights and remedies of the
Noteholders until such time as the Notes are fully paid and discharged. In
addition, ComEd will represent and warrant in the Grant Agreement that the State
of Illinois may not limit, alter, impair or reduce the value of the Intangible
Transition Property in a manner substantially impairing the Indenture or the
rights and remedies of the Noteholders (and, consequently, may not revoke,
reduce, postpone or terminate the related Transitional Funding Order or the
rights of the Noteholders to receive IFC Payments and all other proceeds of the
Intangible Transition Property), until the Notes, together with interest
thereon, are fully paid and discharged (except to the extent of a temporary
impairment that the State of Illinois is able to demonstrate is necessary to
advance a significant and legitimate public purpose).
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Illinois law does not permit citizens to initiate substantive legislation
through referendums. The Illinois Constitution does permit citizen-initiative
amendments; however, those amendments are constitutionally limited to addressing
"structural and procedural subjects" governing the structure, composition and
operation of the Illinois Legislature. The Illinois Supreme Court has held
attempts to use those provisions to enact substantive legislation to be outside
the scope of the provisions. As a condition to the issuance of Notes, Sidley &
Austin will render an opinion to the effect that, based on such court decisions,
an attempt by citizens of Illinois to use the initiative power to enact
legislation causing an impairment of the rights of Noteholders would be held
invalid.
Because the IFC Charges are to be deducted from Applicable Rates and the
right of ComEd to collect such Applicable Rates is not dependent on the
provisions of the Amendatory Act, an amendment or repeal of the Amendatory Act
would not eliminate (although it could reduce) the sources of cash flow from
which the Notes are to be repaid. ComEd will covenant in the Servicing Agreement
that it will continue to impose and collect all IFC Charges (as adjusted from
time to time) or equivalent amounts, deduct IFC Charges or equivalent amounts
from Applicable Rates and remit such amounts to the Trust (in each such case,
unless otherwise prohibited by applicable law or judicial or regulatory order in
effect at such time) notwithstanding any such repeal or any amendment of the
Amendatory Act. Nonetheless, no assurance can be given that a repeal or
amendment of provisions of the Amendatory Act might not impair the rights of the
Noteholders. If the Illinois Legislature were to repeal or amend the Funding Law
in a manner adverse to Noteholders in violation of the State Pledge, the
Servicer would be obligated to institute (and the Indenture Trustee, for the
benefit of the Noteholders, shall be entitled and empowered to institute) any
necessary proceedings to seek to overturn such change in law, to enforce the
State Pledge and to collect any monetary damages which may result therefrom; and
each of the Servicer and the Indenture Trustee may prosecute such proceedings to
final judgment or decree. The Servicer would be required to advance its own
funds to cover the costs of prosecuting any such proceedings, but would be
entitled to reimbursement for such costs as an Operating Expense under the
Indenture. Any such proceedings might adversely affect the price and liquidity
of the Notes and the rate of repayment 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 Notes, the outcome of any such
proceedings cannot be predicted with certainty; and, accordingly, Noteholders
may suffer a loss of their investment in the Notes.
LIMIT ON AMOUNT OF INTANGIBLE TRANSITION PROPERTY AVAILABLE TO PAY NOTES
The Funding Law requires that each Transitional Funding Order authorize a
specific dollar amount of Intangible Transition Property, which represents the
maximum dollar amount of IFC Charges which may be imposed and collected over
time without further action by the ICC. If for any reason the amount of IFC
Charges necessary to amortize the Notes in full were to exceed the maximum
authorized dollar amount of IFC Charges which may be imposed by more than the
amount in the Capital Subaccount, then ComEd, as Servicer, would be obligated,
in good faith, to request the ICC to increase the previously authorized dollar
amount of Intangible Transition Property. The ICC is not required under the
Funding Law to approve any such increase, however, except in connection with an
issuance of additional Notes, and the Noteholders could, accordingly, suffer a
loss in such event. The Prospectus Supplement related to each Series of Notes
will set forth the maximum aggregate dollar amount of IFC Charges which may be
imposed. In its application for the initial Transitional Funding Order, ComEd
estimated the amount of IFC Charges which would be necessary to be billed
through the Scheduled Maturity Date of all Classes of Notes described in the
related Prospectus Supplement in order to pay interest and principal on the
Notes.
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POTENTIAL SERVICING ISSUES
RELIANCE ON COMED AS SERVICER
The Trust will rely on the Servicer for the determination of any adjustments
to the IFC Charges and for the Customer billing and collection services that are
necessary to recover the IFC Payments and, ultimately, to make payments on the
Notes. If, as a result of its insolvency or liquidation or otherwise, ComEd were
to cease performing its functions as Servicer, it may be difficult to find a
substitute servicer and there can be no assurance that a substitute servicer
will be engaged. In such an event, the timing of recovery of IFC Payments could
be delayed. Any successor servicer may have less experience than ComEd and less
capable systems than those employed by ComEd, and, given the complexity of the
tasks to be performed by the servicer and the expertise required, a successor
servicer may experience difficulties in collecting IFC Payments and determining
appropriate adjustments to IFC Charges. Further, any successor servicer who is
not a provider of electric service may not be able to invoke a remedy of
shutting off service to a Customer for nonpayment of the IFC Charge. See
"Servicing."
POSSIBLE PAYMENT DELAYS CAUSED BY INACCURATE USAGE AND CREDIT PROJECTIONS
If the Servicer is unable to forecast accurately the electricity usage of
Customers, the related revenues from Applicable Rates, and the delinquency and
write-off experience relating to IFC Payments, the timing and amount of IFC
Collections may be significantly affected and therefore Noteholders may fail to
receive timely payments on the Notes. 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, changes
in technology, unexpected catastrophes, and other causes. Past accuracy of the
Servicer's historical forecasts is not necessarily indicative of the accuracy of
the Servicer's future forecasts and there can be no assurances that actual
usage, delinquencies and write-offs will not be significantly different from
future forecasts thereof. See "The Servicer--Forecast Variance."
POSSIBLE PAYMENT DELAYS CAUSED BY CHANGES IN PAYMENT TERMS OF CUSTOMERS
Because the Servicer is permitted (in accordance with the Servicing
Standard) to alter the terms of billing and collection arrangements and modify
amounts due from Customers, such alterations and modifications could delay
collections from Customers or result in lower collections, and accordingly could
adversely affect the timely payment of interest on the Notes or the payment of
the principal of the Notes pursuant to the Expected Amortization Schedule
therefor or in full by the applicable Scheduled or Final Maturity Date.
Although the Servicer does not have the right to change the amount of an
individual Customer's IFC 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. In certain circumstances, ComEd is required by
provisions of the Act or regulations of the ICC to take such actions or to
refrain from normal collection actions. While ComEd 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 IFC Payments, there can be
no assurance that changes in ComEd'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. ComEd
could also be required to modify its billing and collection arrangements due to
changes in ICC regulations governing such arrangements. See "The
Servicer--Credit Policy; Billing; Collections; Restoration of Service."
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LIMITED INFORMATION REGARDING CUSTOMERS
The ability of the Servicer to collect amounts billed to Customers,
including the IFC Charges, will depend in part on the creditworthiness of the
Customers. If ComEd evaluates the creditworthiness of a significant number of
its Customers incorrectly, resulting in significant increases in delinquencies
and write-offs, delays in payments to Noteholders may occur. As a general
matter, ComEd is obligated to provide service to new Customers under Illinois
law and performs no outside credit investigations on new Customers. ComEd's
information regarding the credit status of new Customers is limited to
information arising as a result of any prior service from ComEd to such
Customers.
An important element of ComEd's policies and procedures relating to credit
and collections is its right to disconnect service on account of nonpayment.
Each Transitional Funding Order will expressly provide that ComEd may disconnect
service for nonpayment of IFC Charges to the same extent as ComEd would be
entitled to take such action because of nonpayment of any other charge for
tariffed services. Nonetheless, ComEd's rights to disconnect service are subject
to and, to a material extent, controlled by Illinois statutory requirements and
the rules and regulations of the ICC which may change from time to time. See
"The Servicer--Credit Policy; Billing; Collections; Restoration of Service."
POSSIBLE PAYMENT DELAYS CAUSED BY RELIANCE ON ALTERNATIVE RETAIL ELECTRIC
SUPPLIERS AND OTHER THIRD-PARTY COLLECTORS
As part of the restructuring of the Illinois electric industry, certain
Customers will be allowed, beginning October 1, 1999, and all Customers will be
allowed as of May 1, 2002, to purchase electricity and related services from
ARES and from other Utilities rather than from ComEd. See "Electric Industry
Restructuring in Illinois--Alternative Retail Electric Suppliers." The
Amendatory Act requires ComEd to allow such ARES and other Utilities, pursuant
to a tariff to be filed by ComEd with, and approved by, the ICC, to issue a
single bill (which would include the applicable IFC Charges) to any retail
customer purchasing electricity or related services from the ARES or other
Utility and delivery services from ComEd for both the services provided by the
ARES or other Utility and the delivery services provided by ComEd. The
applicable IFC Charges included in a single bill to a Customer are required to
be remitted to the Servicer by such ARES. If a substantial number of Customers
elect to purchase their electricity from ARES that elect to provide a single
bill, the Servicer may be relying on a small number of ARES, each of whom is
responsible for a substantial portion of the Servicer's total billings, to
collect IFC Charges, rather than the Servicer collecting IFC Charges directly
from Customers. In this circumstance, a default in the collection and remittance
of IFC Charges to the Servicer by a single ARES that provides electricity to a
large number of Customers may adversely affect the Servicer's ability to make
timely remittance of IFC Collections to the Collection Account, resulting in
shortfalls thereof. Such IFC Collection shortfalls could adversely affect the
timely payment of interest on the Notes or the payment of principal of the Notes
in accordance with the Expected Amortization Schedule therefor or in full by the
applicable Scheduled or Final Maturity Date.
In addition there can be no assurance that any ARES will use the same
customer credit standards as the Servicer or that the Servicer will be able to
mitigate credit risks relating to ARES in the same manner in, or to the same
extent to, which it mitigates such risks relating to its Customers, both of
which may have the effect of causing shortfalls in IFC Collections. Changes in
Customer billing and payment practices caused by ARES billing may result in
misdirected or delayed payments due to customer confusion, which could also have
the effect of causing shortfalls in IFC Collections. Furthermore, the Servicer
will have no meaningful ability to control the collection procedures of ARES or
other third-party collection agents who simply forward payments on behalf of
Customers and not pursuant to contractual arrangements with ComEd or pursuant to
consolidated billing procedures. Finally, any problems arising from new and
untested systems or any lack of experience on the part of any ARES or other
third parties with Customer billings and collections could cause delays in
billing and collecting the IFC Charges resulting in shortfalls in IFC
Collections. Such IFC Collection shortfalls could adversely affect the timely
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payment of interest on the Notes or the payment of principal of the Notes in
accordance with the Expected Amortization Schedule therefor or in full by the
applicable Scheduled or Final Maturity Date.
POSSIBLE PAYMENT DELAYS CAUSED BY COMMINGLING OF IFC PAYMENTS WITH SERVICER'S
OTHER FUNDS
If the Monthly Remittance Conditions are met, on each Monthly Remittance
Date the Servicer will remit to the Collection Account IFC Payments received
during the preceding Billing Period. Accordingly, IFC Payments received by the
Servicer would not be segregated from the Servicer's general funds until they
are remitted to the Collection Account. A failure or inability of the Servicer
to remit the full amount of the estimated IFC Payments on any Monthly Remittance
Date, whether voluntary or involuntary, might result in delays in payments to
Noteholders. Such retention of funds could also have adverse consequences to
Noteholders in the event of a bankruptcy of the Servicer. See "--Bankruptcy and
Creditors' Rights Issues--Possible Adverse Effect on Noteholders as a Result of
the Bankruptcy of Servicer."
POSSIBLE PAYMENT DELAYS AS A RESULT OF YEAR 2000 ISSUES
ComEd uses various software applications and embedded systems throughout its
businesses that will be affected by so-called "Year 2000 issues." These issues
may prevent an application or system from correctly processing dates up to the
year 2000 and beyond. Based on ComEd's current schedule for completion of Year
2000 tasks, ComEd believes that its planning is adequate to secure Year 2000
readiness of its critical systems. Nevertheless, achieving Year 2000 readiness
is subject to various risks and uncertainties, and ComEd is not able to predict
all the factors that could cause actual results to differ materially from its
current expectations as to its Year 2000 readiness.
A failure to correct any critical Year 2000 processing problems prior to
January 1, 2000 could have material adverse operational and financial
consequences if the affected systems either cease to function or produce
erroneous data. For example, the Year 2000 issues could affect, among other
things, the ability of ComEd, as Servicer, and any ARES to bill and collect the
IFC Charges, both because of problems with their own systems and problems that
Customers may have in processing bills, and the ability of the Servicer and ARES
to meter usage. This could result in significant delays in IFC Collections and,
therefore, in payments to Noteholders. The Year 2000 issues could also affect
usage by Customers if there are problems with the generation or distribution of
electricity which could cause the amount of Applicable Rates from which IFC
Charges will be deducted to be materially decreased or delayed. See "--Reduction
in Amount of Revenues From Applicable Rates." For a more thorough discussion of
the Year 2000 issues, see "The Servicer--Year 2000 Issues."
UNCERTAINTIES RELATED TO THE ELECTRIC INDUSTRY GENERALLY
UNTRIED NEW ILLINOIS MARKET STRUCTURE
The Illinois electric industry is expected to change dramatically in the
near future as a result of enactment of the Amendatory Act. See "Electric
Industry Restructuring in Illinois." If difficulties are experienced in
implementing the various aspects of the new market structure in Illinois,
electricity generation, transmission and distribution may be adversely affected,
IFC Payments may not be made as expected, ComEd's business may be adversely
affected, and Noteholders may fail to receive payments of principal and
interest.
Beginning October 1, 1999, under the new market structure, certain retail
customers will be eligible to purchase electricity from suppliers other than the
local Utility, and by May 2002, all retail customers of investor-owned Utilities
will be eligible to purchase electricity from other suppliers. Each local
Utility, such as ComEd, will be required to deliver the electricity sold by
other suppliers to customers in such Utility's service area. In addition, as a
result of both the Amendatory Act and federal initiatives, Utilities may be
required to turn over control of their transmission systems to an independent
operating entity.
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Further, under the Amendatory Act, Utilities, such as ComEd, are entitled to
enter into contracts with customers which are not subject to regulation by the
ICC as to prices, terms and conditions. The new electric market structure has
neither been tested nor implemented on a scale represented by the State of
Illinois. Recent attempts to initiate operations under a similar market
structure in California, as mandated by statute, resulted in a series of delays
in implementation due to difficulties in bringing the necessary new systems and
procedures to an acceptable state of readiness and reliability. In addition, the
impacts of the implementation of the new market structure on the pricing of
electricity services, customer usage of electricity, and the tariffed and other
revenues received by the Servicer, cannot be predicted with certainty.
ComEd is in the process of examining its existing investments and operations
in relation to the changing regulatory environment, with a view to rationalizing
ComEd's investment in, and operating costs of, particular assets against their
ability to contribute to ComEd's profits and revenues. As a result of such
examination, ComEd recently announced plans to sell its coal-fired generating
plants, and other asset sales or other transactions could occur in the future.
Such sales could have the effect of separating the generation component of
ComEd's business from the transmission and distribution component with the
result, for example, that ComEd would substitute open-market purchases of
electricity for lost generation capacity and resell the electricity so purchased
to its retail customers under tariffs or contracts for fully bundled services.
ComEd does not believe that such transactions will have a material adverse
effect on the revenues it receives from Customers and therefore that such
transactions will not materially adversely affect the timing or amounts of IFC
Collections. Nonetheless, there can be no assurance that such transactions will
not reduce the amount of Applicable Rates available to ComEd from which the IFC
Charges must be deducted. See "--Uncertainties Related to the Electric Industry
Generally--Reduction in Amount of Revenue from Applicable Rates."
SHRINKING CUSTOMER BASE AS A RESULT OF TECHNOLOGICAL CHANGE
The continuous processes of technological development may result in
introduction of economically-attractive alternatives to the purchase of
electricity from Utilities, such as ComEd, for increasing numbers of customers.
Since the IFC Charges are based on electricity usage by the Customers of ComEd,
reductions in the amount of electricity sold or delivered by ComEd to its
Customers will result in higher IFC Charges than would otherwise exist and could
negatively impact the timing of IFC Payments and may result in delays in
payments on the Notes. For example, a Customer which obtains its electricity
from its own cogeneration or self-generation facilities and does not purchase
any electricity or take delivery services or any other tariffed services from
ComEd will not pay transition charges or other tariffed charges on the
electricity it obtains from such facilities and thus will not be obligated to
pay IFC Charges with respect to that electricity. Even if such a Customer were
to continue purchasing some but not all of its electricity from ComEd, the
amount of electricity which the Customer purchases from ComEd, and therefore the
amount of IFC Charges the Customer is obligated to pay, would be less than if
the Customer were purchasing all of its electricity from ComEd.
Previously, only the largest industrial and institutional users with large
process steam requirements in the Servicer's service area were considered
candidates for cost-effective cogeneration or self-generation installations.
However, manufacturers of self-generation facilities continue to develop
smaller-scale, more fuel-efficient generating units which can be cost-effective
options for customers with smaller electric energy requirements. For example,
Unicom Energy Services Inc., an affiliate of ComEd, is engaged in a joint
venture with a major electrical equipment manufacturer to market smaller
electric generating units that may be suitable and cost-effective for
installation in smaller commercial establishments. Eventually, such units may be
produced in sizes, at prices and with operating efficiencies that make them
cost-effective for installation in residences. Other types of distributed
generation which could be purchased by customers in order to bypass the local
Utility include fuel cells. In addition, continuing advances in the operating
efficiencies of electricity-consuming devices are a factor reducing the amount
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of electricity purchased by consumers from Utilities. Within the time period
between issuance and maturity of the Notes, there can be no assurances that
technological developments such as those described in this paragraph will not
result in material reductions in the amount of electricity sold or delivered by
ComEd to its Customers.
SHRINKING CUSTOMER BASE AS A RESULT OF MUNICIPALIZATION
The Amendatory Act expressly preserves the rights of a municipality under
certain circumstances to form a municipal utility which can purchase electric
power and energy on a wholesale basis for resale to customers within the
geographic areas it is lawfully entitled to serve and also allows
municipalities, subject to certain conditions, to become ARES. In either the
event of municipalization or upon a municipality becoming an ARES, the number of
ComEd's Customers receiving power and energy from ComEd would decline, resulting
in the reduction in the amount of electricity sold or delivered by ComEd to its
Customers. Since the IFC Charges are based on electricity usage by the Customers
of ComEd, such reductions will result in higher IFC Charges than would otherwise
exist and could negatively impact the timing of IFC Payments and may result in
delays in payments on the Notes.
A municipality within ComEd's service area which wanted to operate a
municipal utility would have to form its own distribution system, either by
building one or acquiring (through negotiated purchase or appropriate
condemnation proceedings) the portion of ComEd's distribution system related to
such municipality's service area. Under Order 888 of the Federal Energy
Regulatory Commission ("FERC"), ComEd would have the right to seek recovery of
its legitimate, prudent and verifiable stranded costs resulting from a
municipalization, with the amount of such recovery to be determined through
appropriate proceedings before FERC. If a municipalization were to occur, a
portion of any such condemnation awards or other recoveries that was made in
respect of lost tariffed revenues would be allocable, in accordance with the
Servicing Agreement, to the IFC Charges and ComEd would be required to pay such
portion to the Trust as proceeds of the Intangible Transition Property.
Nonetheless, in the event of a municipalization, the Customers within such
municipal utility's service area would thereafter cease to be Customers of ComEd
obligated to pay IFC Charges and the loss of such Customers could result in a
material reduction in the amount of electricity sold or delivered by ComEd.
Moreover, unless the municipality, in its capacity as a retail customer under
the Act, elected to take tariffed or contract services from ComEd, the
municipality itself would not be a Customer and would also not be obligated to
pay IFC Charges. Reductions in the amount of electricity sold or delivered by
ComEd will result in increased IFC Charges and could negatively impact the
timing of IFC Payments and may result in delays in payments on the Notes.
As of September 1, 1998, there were only seven municipal utilities operating
within ComEd's service area, the last of which was created several decades ago.
Two other municipalities have approved the formation of municipal utilities, but
only one such municipal utility has been formed and its electricity operations
are currently limited to supplying electricity for the municipality's wastewater
plant. In addition, one other suburban municipality recently voted to not renew
its franchise agreement with ComEd and is reported to be exploring its options
in connection therewith, including municipalization. Although there can be no
assurance that other municipalities in ComEd's service area might not seek,
prior to the time the Notes are paid in full, to form a municipal utility, ComEd
does not believe there is any material risk of future municipalizations having
an adverse impact on the Noteholders.
In the event that a municipality becomes an ARES, the Customers receiving
power and energy from such municipality (or the municipality on their behalf)
would remain obligated to pay IFC Charges in connection with ComEd's provisions
of delivery services to such Customers and in connection with any payments of
transition charges owed by such Customers. The loss of such Customers could
nonetheless result in a material reduction in the amount of electricity
generated by ComEd and, therefore, in the amount of revenues supporting payment
of the IFC Charges.
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POSSIBLE PAYMENT DELAYS CAUSED BY CHANGES IN GENERAL ECONOMIC CONDITIONS AND
ELECTRICITY USAGE
General economic conditions and technological changes that would
significantly alter power consumption or reduce the Customer base in ComEd's
service area may affect payments on the Notes. Changes in business cycles,
departures of Customers from ComEd's service area, other demographic changes,
changes in weather, occurrence of natural disasters such as earthquakes and
floods and implementation of energy conservation efforts all affect energy
usage. If a sufficient number of Customers reduce significantly their
electricity consumption or cease consuming electricity altogether, the revenues
supporting payment of the IFC Charges could decrease, and such decreases could
negatively impact the timing of the IFC Payments.
UNCERTAINTIES CAUSED BY CHANGING REGULATORY AND LEGISLATIVE ENVIRONMENT
Although the Amendatory Act provides for comprehensive changes in the legal
and regulatory framework governing Utilities such as ComEd, in Illinois, there
can be no assurances that, during the term to maturity of the Notes, the
Illinois Legislature will not pass additional laws materially changing the legal
and regulatory framework to which ComEd is subject. 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 ComEd and its business, and thus the likelihood that Noteholders will
receive payments in the amounts and at the times scheduled.
In addition to actions taken by the Illinois Legislature and regulation by
the ICC, the electric industry is also subject to federal law and regulation by
the FERC. 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 eight bills (none of which has passed in committee) have
been introduced in the 105th Congress, First Session, mandating the deregulation
of the electric utility industry on the state level. In their current forms,
most but not all of the bills contain provisions recognizing the validity of
prior state actions relating to deregulation. At least two of the bills, H.R.
1230 and H.R. 4798, however, would prohibit the recovery of stranded costs
through charges such as the transition charges provided for in the Amendatory
Act. Although the IFC Charges do not constitute recoveries for stranded costs,
any prohibition on the imposition of transition charges under the Amendatory Act
could have a material adverse impact on the amount of Applicable Rates from
which the IFC Charges are deducted and on the timing of IFC Charges. In any
event, 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.
REDUCTION IN AMOUNT OF REVENUE FROM APPLICABLE RATES
Each Transitional Funding Order will include determinations, with which
ComEd will concur, to the effect that (a) the imposition of IFC Charges will not
increase the total charges to ComEd's Customers over those that the Customers
would pay absent the imposition of IFC Charges and (b) the IFC Charges will be
deducted from and stated separately from the Applicable Rates charged on each
Customer's bill. Therefore, a decline in revenues from Applicable Rates may have
a negative impact on the timing and amount of IFC Charges and may adversely
affect ComEd's financial condition and thereby its ability to provide electric
service or to perform its obligations as Servicer.
Under the Funding Law, the ICC is required to authorize in each Transitional
Funding Order and in each IFC Tariff, and ComEd is entitled to implement, a
procedure for periodic prospective adjustments to the IFC Charges in respect of
any over-collection or shortfall in collections of IFC Charges during prior
periods. See "Description of the Intangible Transition Property Adjustments to
the IFC Charges." The Funding Law provides that if, as a result of any such
adjustment, the IFC Charge, as so adjusted, will exceed the amount per
kilowatt-hour of the IFC Charge authorized by the ICC in any Transitional
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Funding Order, then ComEd shall be obligated to file Amendatory Tariffs
adjusting the amounts otherwise billable by ComEd for Applicable Rates, to
offset the amount of such excess (or, if ComEd shall have previously filed any
such Amendatory Tariffs, the incremental amount of such excess). However,
although the Funding Law specifically preserves the right of ComEd's Customers
to bring actions against ComEd for failure to file such Amendatory Tariff, the
failure of such Amendatory Tariff to become effective for any reason shall not
delay or impair the effectiveness of any such adjustments and the obligation of
Customers to pay the IFC Charges, as adjusted, shall not be subject to any
defense, counterclaim or right of set-off arising as a result of either (a) the
failure of ComEd to file such Amendatory Tariff or (b) ComEd's failure to
perform or provide past, future or present services.
There are several provisions of the Amendatory Act (including the provision
requiring the filing of Amendatory Tariffs) which will result in reductions to
the amounts of Applicable Rates which ComEd will be allowed to bill to and
collect from Customers and from which ComEd is required to deduct IFC Charges.
The Amendatory Act required ComEd to implement a 15% reduction in base rates
to its residential customers on August 1, 1998, and requires an additional 5%
reduction in base rates to its residential customers on May 1, 2002, based on
ComEd's rates in effect immediately prior to January 1, 1998. The Amendatory Act
also provides that, with one exception, ComEd may not request an increase in the
base rates that it charges its retail customers until January 1, 2005.
Commencing January 1, 2005, the ICC may, pursuant to appropriate proceedings,
modify ComEd's base rates in accordance with cost of service, and may set the
components of any such rates that are intended to recover power supply costs at
the lower of cost of service or 110% of market price (which modifications could
act to reduce such base rates). In addition, under the Amendatory Act, the ICC,
at ComEd's request and subject to satisfaction of statutory criteria, may
declare tariffed services offered by ComEd to be "competitive." If a tariffed
service is declared competitive, ComEd is obligated to continue to offer the
service as a tariffed service for three years to those customers who were served
on the tariff on the date the service is declared competitive, but is relieved
of the obligation to offer or provide the service as a tariffed service to any
new customers who otherwise would have been eligible for it. In addition, the
Amendatory Act allows ComEd to self-declare a tariffed service (other than
delivery service or the provision of electric power and energy) "competitive,"
but only with respect to those customers not then taking the tariffed service,
subject to the authority of the ICC to thereafter review and revoke such
declaration. Charges for a competitive service are not included in Applicable
Rates, thereby reducing the amount of Applicable Rates from which the IFC
Charges must be deducted and available to ComEd to offset against any increase
in the IFC Charges as a result of any Amendatory Tariff.
The Amendatory Act allows certain non-residential customers of ComEd to
purchase their electricity from other suppliers commencing October 1, 1999,
allows all other non-residential customers to purchase their electricity from
other suppliers commencing December 31, 2000, and allows all of ComEd's
residential customers to purchase their electricity from other suppliers
commencing May 1, 2002. It is anticipated that most Customers electing to
purchase electricity from other suppliers will find it necessary to purchase
delivery services, which will be a tariffed service, from ComEd, and may be
required to pay a transition charge to ComEd until December 31, 2006. The
transition charge is calculated according to a formula which is designed to
allow ComEd to recover a portion, but not all, of the revenue requirement
associated with its generation and power supply costs that are above market
prices. The market prices used in the calculation of the transition charge are
redetermined from year to year and it is possible that the transition charge for
some Customers may be zero, in which event the amount of Applicable Rates from
which the IFC Charges must be deducted and which are available to ComEd to
offset against any increase in the IFC Charges would be limited by the remaining
tariffed charges imposed on such Customers. Moreover, the transition charge
revenues are designed to decrease over time, and such reductions may further
reduce the amount of such Applicable Rates. See "Electric Industry Restructuring
in Illinois--Transition Charges."
The ICC, on petition by a Utility and based on application of statutory
criteria set forth in the Amendatory Act, is authorized to extend the period
during which transition charges may be collected
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until no later than December 31, 2008. There can be no assurances that the ICC
will grant any such request for extension of this right to collect transition
charges. Based on the manner in which transition charges must be established, as
provided in the Amendatory Act, ComEd, until at least December 31, 2004, expects
to receive less revenue from a retail customer who elects to purchase
electricity from another supplier than ComEd would receive if the customer
continued to purchase electricity from ComEd at base rates. Prior to December
31, 2006, some customers who have elected to purchase electricity from other
suppliers, and after December 31, 2006, all such customers (unless the ICC
grants a ComEd request for an extension of the authority to collect transition
charges) will no longer pay ComEd transition charges, and may pay ComEd only
delivery service charges as a rate for tariffed services. It has not been
determined at this time whether delivery service charges will be calculated on a
cents per kilowatt-hour basis. In any event, the delivery service charges are
expected to be, on a per kilowatt-hour basis and in the aggregate, materially
lower than ComEd's current bundled charges for tariffed services.
In addition, under the Amendatory Act, Utilities (including ComEd) will be
required to offer, as a tariffed service, (a) to their non-residential delivery
service customers, certain power purchase options pursuant to which such
customers may purchase electric power and energy from the Utility at the
market-based prices used in the calculation of transition charges and (b) to all
customers, real-time pricing whereby charges for delivered electric power and
energy may vary on an hour-to-hour basis for non-residential retail customers
and that vary on a periodic basis during the day for residential retail
customers. See "Electric Industry Restructuring in Illinois--Amendatory Act
Overview." Such pricing options have generally not existed in the past and,
accordingly, there can be no assurance as to how the offering of such options
might affect the amount of Applicable Rates from which the IFC Charges must be
deducted and which are available to ComEd to offset against any increase in the
IFC Charges as a result of an Amendatory Tariff.
A Customer which obtains its electricity from its own cogeneration or
self-generation facilities and does not purchase any electricity or take
delivery services or any other tariffed services from ComEd will not pay
transition charges or other tariffed charges on the electricity it obtains from
such facilities and thus will not be obligated to pay IFC Charges with respect
to that electricity. Even if such a Customer were to continue purchasing some
but not all of its electricity from ComEd, the amount of electricity which the
Customer purchases from ComEd, and therefore the amount of IFC Charges the
Customer is obligated to pay, would be less than if the Customer were purchasing
all of its electricity from ComEd. Certain electricity consumers in the State of
Illinois and certain entities involved in the sale, installation, operation and
sale of fuel for cogeneration and self-generation facilities have taken the
position that the phrase "customer's own cogeneration or self-generation
facilities" for purposes of the Amendatory Act should be interpreted to include,
among other things (i) facilities which are not located on the customer's
premises, (ii) facilities which are owned by a third party and leased to the
customer, (iii) facilities which are operated for the customer by a third party,
(iv) a customer's ownership or leasehold interest in a portion of a facility
which, in its entirety, is larger than required to serve the electrical needs of
the customer, and the remaining portion of which is used to serve other
customers or to make wholesale or retail sales of electricity to other customers
or third parties, and (v) facilities from which sales of electricity not needed
to serve the electricity requirements of the particular customer are made to
other customers or third parties. ComEd and certain other entities have
disagreed with this interpretation as overbroad and contrary to the terms of the
Amendatory Act. Nonetheless, if the Illinois Legislature, a court, or the ICC
were to agree with such an interpretation, in whole or in part, and adopt a
conforming amendment to the Act or enter a binding decision to such effect, then
the number and extent of installation of cogeneration or self-generation
facilities (as so defined) may increase, and the amount of electricity usage by
Customers installing such facilities and the amount of Applicable Rates from
which IFC Charges must be deducted and which are available for ComEd to offset
against an increase in IFC Charges as a result of an Amendatory Tariff, may be
reduced. However, any electricity delivered to a retail customer by ComEd from a
privately-owned generation facility, using ComEd's transmission or distribution
system, would be subject to delivery charges and transition charges and
therefore to IFC Charges.
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As a result of the statutory provisions and the events described in the
preceding five paragraphs, the total amount of Applicable Rates which ComEd will
be entitled, and can expect, to collect from its Customers may decline
materially over the period between issuance and maturity of the Notes. To the
extent any decline in tariffed revenues is supplanted by revenues from contracts
between ComEd and Customers who would otherwise have been obligated to pay
tariffed revenues and, therefore, would have been obligated to pay IFC Charges,
however, the Transitional Funding Orders prohibit ComEd from entering into such
contracts unless the Customers expressly agree to pay to the Trust an amount
equal to the amount of IFC Charges that would have been billed if the services
taken by such Customers under such contracts had continued to be taken under
tariff. In addition, each Transitional Funding Order and the Servicing Agreement
will provide that, if the IFC Charges to be imposed on any IFC Customer Class in
an Applicable Period exceed the total projected revenues for such class in such
Applicable Period, the deficiency shall be allocated among all remaining IFC
Customer Classes. There can nonetheless be no assurance that any decline in
revenues from Applicable Rates would not have a negative impact on the timing
and amount of IFC Charges and on the ability of ComEd to offset against any
increase in the IFC Charges as a result of an Amendatory Tariff, nor can there
be any assurance that any decline in overall revenues would not adversely affect
ComEd's financial condition and thereby its ability to provide electric service
or to perform its obligations as Servicer.
In addition, if the amount of ComEd's Applicable Rates has been reduced to
such a low level that ComEd cannot offset adjusted IFC Charges against such
Applicable Rates and fails to file an Amendatory Tariff, ComEd may become
subject to actions by Customers, as described in the second paragraph in this
section, and no assurance can be given that such actions may not adversely
affect the Noteholders. Furthermore, under ComEd's proposed servicing
procedures, in the event that total IFC Charges for a particular Customer during
a particular Billing Period were to exceed otherwise Applicable Rates for such
Customer, the Customer would only be billed IFC Charges for the amount of
Applicable Rates against which such IFC Charges could then be offset. If the
above-described circumstances occur, such a limitation on amounts billed to
individual Customers could result in payment delays on the Notes,
notwithstanding the ability of the Servicer to allocate any deficiency in IFC
Charges with respect to one IFC Customer Class to the remaining IFC Customer
Classes, as discussed above. See "Servicing."
ComEd does not expect, taking into consideration the current authorized
levels of IFC Charges and anticipated future issuances of Notes, that any
decline in revenues from Applicable Rates would result in a limitation on the
timing or the overall amount of IFC Charges payable by Customers. See "The
Servicer--ComEd Customer Base, Electric Energy Consumption and Base Rates."
BANKRUPTCY AND CREDITORS' RIGHTS ISSUES
POSSIBLE ADVERSE EFFECT ON NOTEHOLDERS AS A RESULT OF THE BANKRUPTCY OF COMED,
THE GRANTEE OR THE TRUST
If ComEd were to become a debtor in a bankruptcy case, and a creditor or
bankruptcy trustee of ComEd or ComEd itself as debtor-in-possession were to take
the position that the Intangible Transition Property constituted property of
ComEd's bankruptcy estate, and a court were to adopt such position, then delays
or reductions in payments on the Notes could result. Regardless of any specific
adverse determinations in a ComEd, Grantee or Trust bankruptcy proceeding, the
mere fact of a ComEd, Grantee or Trust bankruptcy proceeding could have an
adverse effect on the secondary market of the Notes, including an adverse effect
on the liquidity and market value of the Notes.
ComEd, the Grantee and the Trust have taken steps to minimize the risk that
a creditor or bankruptcy trustee of ComEd or ComEd itself would succeed on such
a claim. For example, the Grantee will represent and warrant in each Sale
Agreement that the transfer of the related Intangible Transition Property by the
Grantee to the Trust pursuant to such Sale Agreement is a valid sale and
assignment of such Intangible Transition Property, including amounts deemed to
be Intangible Transition Property
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pursuant to the related Transitional Funding Order, from the Grantee to the
Trust. ComEd will also represent and warrant in the Basic Documents that the
vesting of the Intangible Transition Property in the Grantee shall be
irrevocable and enforceable against ComEd and that it has no right, title and/or
interest in the Intangible Transition Property nor in the portion of the
Applicable Rates otherwise to have been received by ComEd to the extent such
portion has become IFC Charges in accordance with the terms and provisions of
the related Transitional Funding Order. ComEd, the Grantee and the Trust will
also covenant in the other Basic Documents that they will each take all
appropriate actions to perfect the Indenture Trustee's security interest in the
Intangible Transition Property and the other Note Collateral. Further, the
Funding Law provides that a sale, assignment or other transfer of intangible
transition property in a transaction approved by a transitional funding order,
which is expressly stated in the documents governing the transaction to be a
sale or other absolute transfer, shall be treated as an absolute transfer of all
the transferor's right, title and interest in, to and under such intangible
transition property which places such transferred property beyond the reach of
the transferor or its creditors. ComEd, the Grantee and the Trust will,
therefore, treat the transactions as an absolute transfer under applicable law,
although for financial reporting and federal income tax purposes the
transactions will be treated as debt of ComEd. See "--Potential Servicing
Issues--Possible Payment Delays Caused by Commingling of IFC Payments with
Servicer's Other Funds."
If ComEd were to become a debtor in a bankruptcy case and a court were to
order that the assets and liabilities of the Trust or the Grantee should be
consolidated with those of ComEd, delays or reductions in payments on the Notes
would likely result. ComEd, the Grantee and the Trust have taken steps to
minimize the risk of such a consolidation. The major step is that, instead of
the Intangible Transition Property being transferred directly from ComEd to the
Grantee, the Funding Law permits, and each Transitional Funding Order will
provide, that the Intangible Transition Property created by such Transitional
Funding Order is vested directly in the Grantee and is not subject to defense,
counterclaim or right of setoff as a result of ComEd's failure to perform or
provide past, present or future services. Additional steps include the fact that
the Grantee is a separate, special purpose limited liability company, subject to
the direction of a management committee, at least two of whose members must be
independent from ComEd, and the organizational documents of which provide that
it shall not commence a voluntary bankruptcy case without the unanimous
affirmative vote of all of its managers, and that the Trust is a distinct entity
managed by the Delaware Trustee. Nonetheless, these steps may not be completely
effective.
Should any transfer of Intangible Transition Property to the Trust be
recharacterized in a bankruptcy proceeding as a borrowing by ComEd or the
Grantee, the Funding Law provides that, subject to certain required filings with
the ICC which ComEd must make at the time the Notes are issued, there is a
perfected first priority statutory lien on such Intangible Transition Property
that secures all obligations to the holders of the Notes.
Pursuant to the Funding Law and each Transitional Funding Order, upon any
issuance of Notes, the Intangible Transition Property identified in such
Transitional Funding Order constitutes a current property right and thereafter
continuously exists as property for all purposes. Nonetheless, no assurances can
be given that if ComEd, the Grantee or the Trust were to become the debtor in a
bankruptcy case, a creditor of, or a bankruptcy trustee for, ComEd, the Grantee
or the Trust, or ComEd, the Grantee or the Trust itself as debtor-in-possession
would not attempt to take the position that, because the payments based on the
IFC Charges are usage-based charges, Intangible Transition Property comes into
existence only as Customers use electricity or, in the case of Customers
agreeing to pay IFC Charges under contracts, as such Customers enter into such
contracts or use electricity. Any such party might similarly argue, to the
extent that any condemnation or FERC stranded cost recoveries which include
amounts for lost tariffed revenues are awarded from and after commencement of a
bankruptcy by or against ComEd, that such amounts came into existence only as
such recoveries were awarded, notwithstanding the provisions of the Servicing
Agreement which provide that a portion of such awards should be allocable to the
Trust as
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proceeds of Intangible Transition Property. If a court were to adopt any of the
foregoing positions, no assurances can be given that the statutory lien created
by the Funding Law would attach to collections of IFC Payments in respect of
electricity consumed after the commencement of a bankruptcy case by or against
ComEd, the Grantee or the Trust or in respect of IFC Payments received under
contracts entered into after the commencement of such case. If it were
determined that any Intangible Transition Property has not been sold to the
Trust, and that the statutory lien created by the Funding Law does not attach to
collections of IFC Payments in respect of electricity consumed after the
commencement of a bankruptcy case for ComEd, the Grantee or the Trust, then the
Indenture Trustee, as trustee for the Noteholders, would be an unsecured
creditor of ComEd, the Grantee or the Trust, as the case may be, and delays or
reductions in payments on the Notes could result. Whether or not the court
determined that any Intangible Transition Property had been sold to the Trust,
no assurances can be given that the court would not rule that any IFC Payments
relating to electricity consumed after the commencement of ComEd's, the
Grantee's or the Trust's bankruptcy cannot be transferred to the Indenture
Trustee, thus resulting in delays or reductions of payments on the Notes.
Because the IFC Charges are usage-based charges, if ComEd or the Grantee
were to become the debtor in a bankruptcy case, a creditor of, or a bankruptcy
trustee for, ComEd or the Grantee, or ComEd or the Grantee itself as
debtor-in-possession could take the position that the Trust should pay a portion
of the costs of ComEd associated with the generation, transmission, or
distribution by ComEd of the electricity whose consumption gave rise to the IFC
Collections that are used to make payments on the Notes. If a court were to
adopt this position, the result could initially be a reduction in the amounts
paid to the Trust, and thus to the Noteholders. Although the IFC Charges may be
adjusted by the Servicer, delays in implementation thereof may cause a delay in
receipt of IFC Collections sufficient to pay interest and make Scheduled
Payments on the Notes.
In addition, if ComEd were to become the debtor in a bankruptcy case, a
bankruptcy trustee for ComEd, or ComEd itself as debtor-in-possession, could
take the position that it is not bound prospectively by the provisions of a
Transitional Funding Order requiring that ComEd will not enter into any
contracts with any Customer obligated (or who would but for such contract, be
obligated) to pay IFC Charges if, as a result thereof, the Customer would not
receive services subject to Applicable Rates, unless such contract provides that
the Customer will pay an amount to the Grantee or its assigns, or to ComEd, as
Servicer, as applicable, equal to the amount of IFC Charges that would have been
billed if the services provided under such contract were subject to Applicable
Rates. If a court were to adopt this position, the result could be a further
reduction in the amounts available to be paid to the Trust, and thus to the
holders of the Notes.
Regardless of whether ComEd, the Grantee or the Trust is the debtor in a
bankruptcy case, if a court were to accept the arguments of a creditor of ComEd,
the Grantee or the Trust that Intangible Transition Property and/or related
assets come into existence only as Customers use electricity, a tax or
government lien or other nonconsensual lien on property of ComEd arising before
such Intangible Transition Property and/or related assets came into existence
may have priority over the Trust's or the Noteholders' interest in such
Intangible Transition Property or related assets, thereby possibly initially
resulting in a reduction of amounts paid to the Noteholders. Although the IFC
Charges may be adjusted by the Servicer, any delays in implementation thereof
may cause a delay in receipt of IFC Collections sufficient to pay interest and
make Scheduled Payments on the Notes.
POSSIBLE ADVERSE EFFECT ON NOTEHOLDERS AS A RESULT OF THE BANKRUPTCY OF
SERVICER
The bankruptcy or insolvency of the Servicer could result in delays or
reductions in the payments due on the Notes.
If the Servicer (a) 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"), "P-1"
by Moody's Investors Service, Inc. ("Moody's"), if
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rated by Duff & Phelps Credit Rating Co., "D-1" by Duff & Phelps and, if rated
by Fitch IBCA, Inc. "F-1" by Fitch, and (b) meets certain other conditions
(collectively, the "Monthly Remittance Conditions"), the Servicer will be
entitled to commingle IFC Payments with its own funds until the relevant Monthly
Remittance Date. In the event of a bankruptcy of the Servicer, under normal
principles of the Uniform Commercial Code in effect in the State of Illinois
(the "UCC"), the Indenture Trustee likely would not have a perfected interest in
such commingled funds and the inclusion thereof in the bankruptcy estate of the
Servicer may result in delays or reductions in payments due on the Notes.
Although (a) the Funding Law provides that both the property interest of the
Trust in the Intangible Transition Property and the security interest of the
Indenture Trustee in such Intangible Transition Property shall not be defeated
by the commingling of revenues arising from such Intangible Transition Property
with funds of ComEd or the Grantee and (b) each Transitional Funding Order will
provide that, in the case of any such commingled revenues, collections, claims,
payments, money or proceeds, the portion allocable to the IFC Charges may be
determined by such reasonable methods of estimation as are set forth in the
Servicing Agreement, if ComEd were unable to trace or otherwise identify the IFC
Collections held by it and were subsequently to become a debtor in a bankruptcy
case, a creditor or bankruptcy trustee of ComEd or ComEd itself as
debtor-in-possession could take the position that the Noteholders' property
interest in such commingled and no longer identifiable IFC Collections had been
lost and that the Noteholders' sole claim in respect of such unidentifiable
property would be an unsecured claim against ComEd.
In addition, if there has been a Remittance Shortfall (I.E., Redetermined
IFC Payments exceed Remitted IFC Payments), the Servicer is required to increase
the amount that it otherwise would remit on the Monthly 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, which may result in delays or reductions in payments due on the
Notes.
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 ComEd as Servicer; Possible
Payment Delays Caused by Commingling of IFC Payments with Servicer's Other
Funds."
NATURE OF THE NOTES
LIMITED LIQUIDITY
There is no assurance that a secondary market for any of the Notes will
develop or, if one does develop, that it will provide the Noteholders with
liquidity of investment or that it will continue for the life of such Notes. It
is not anticipated that any Notes will be listed on any securities exchange.
RESTRICTIONS ON BOOK-ENTRY REGISTRATION
The Notes will be initially represented by one or more Notes registered in
Cede's name, as nominee for DTC, and will not be registered in the names of the
Noteholders or their nominees. Therefore, unless and until Definitive Notes are
issued, Noteholders will not be recognized by the Indenture Trustee as
Noteholders. Hence, until such time, Noteholders will only be able to receive
payments from, and exercise the rights of Noteholders indirectly through, DTC
and participating organizations, and, unless a Noteholder requests a copy of any
such report from the Indenture 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 Noteholders by DTC and its participating
organizations. In addition, the ability of Noteholders to pledge Notes to
persons or entities that do not participate in the DTC system, or otherwise take
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actions in respect of such Notes, may be limited due to the lack of physical
notes for such Notes. See "Description of the Notes--Book-Entry Registration."
LIMITED SOURCES OF PAYMENT FOR THE NOTES AND LIMITED CREDIT ENHANCEMENT
The Notes are limited-recourse obligations, and the sole source of payments
thereon is the payments made with respect to the Intangible Transition Property
and the other Note Collateral (which is expected to be relatively small) and,
for Floating Rate Notes, the proceeds of any Swap Agreement. It is anticipated
that the Note Collateral, which is described under "Security for the
Notes--Security Interest in Note Collateral," will, with the limited exceptions
specified therein, constitute the Trust's only assets and there will be no forms
of credit enhancement for the Notes except for amounts held in the
Overcollateralization Account and the Capital Subaccount and the right of the
Trust to compel ComEd, as Servicer, to make Adjustments to the IFC Charges. It
is not currently anticipated that the Notes will have the benefit of any
third-party credit enhancement, such as guarantees, letters of credit, insurance
or the like. If, however, any Series of Notes is to be issued with any
third-party credit enhancement, it will be set forth in the related Prospectus
Supplement. The Trust's organizational documents will restrict its right to
acquire other assets unrelated to the transactions described herein.
The Notes will not constitute a debt, liability or other obligation of the
State of Illinois or of any political subdivision, agency or instrumentality
thereof and will not represent an interest in or obligation of ComEd or its
affiliates. None of the Notes or the underlying Intangible Transition Property
will be guaranteed or insured by ComEd or its affiliates. Transitional Funding
Orders authorizing issuance of the Notes do not constitute a pledge of the full
faith and credit of the State of Illinois or of any of its political
subdivisions. The issuance of the Notes under the Funding Law shall not
directly, indirectly or contingently obligate the State of Illinois or any
political subdivision thereof to levy or to pledge any form of taxation therefor
or to make any appropriation for their payment.
EFFECT OF ADDITIONAL SERIES OF NOTES OR OTHER TRANSITIONAL FUNDING ORDERS ON
OUTSTANDING NOTES
The issuance of additional Series of Notes may have an adverse effect on the
timing or amount of payments received by a Noteholder of outstanding Notes.
Under the Basic Documents, the Trust will have the right, subject to ComEd's
seeking and obtaining one or more subsequent Transitional Funding Orders from
the ICC, to issue one or more subsequent Series of Notes on or after August 1,
1999 in an additional amount of up to approximately $6.8 billion in aggregate
principal amount, less the initial principal amount of previously issued Notes.
Any such subsequent Series of Notes which increases the cumulative amount of
issued Notes above $3.4 billion would be issued in connection with the creation
of additional Intangible Transition Property under such subsequent Transitional
Funding Order and such subsequent Notes will have no more than a PARI PASSU lien
on the Note Collateral, including all additional Intangible Transition Property,
VIS-A-VIS all previously issued and outstanding Series of Notes. The terms of
any such Series of Notes will be specified in a supplement to the Indenture or a
trustee's issuance certificate and described in the related Prospectus
Supplement. The provisions of the supplement to the Indenture or trustee's
issuance certificate and the terms of any additional Series of Notes will not be
subject to the prior review or consent of the Noteholders of any previously
issued Series. The terms of an additional Series of Notes may include, without
limitation, the matters described under "Description of the Notes--General." The
ability of the Trust to issue any additional Series of Notes 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 Notes of any outstanding
Class. There can be no assurance, however, that the issuance of any other Series
of Notes, including any Series issued from time to time hereafter, might not
have an impact on the timing or amount of payments received by a Noteholder. See
"Description of the Notes--Conditions of Issuance of Additional Series." In
addition, various matters relating to the Notes are subject to a vote of all
Noteholders for all Series and Classes of Notes, even though there
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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 Notes. Moreover, the Basic Documents do not prohibit ComEd
from seeking transitional funding orders under the Funding Law which would
create intangible transition property in favor of a party other than the
Grantee.
Issuance of an additional Series of Notes and/or the creation of additional
intangible transition property will require the imposition and collection of
additional instrument funding charges from Customers. This may increase the
risks to Noteholders as described above, in particular those risks described
under "--Reduction in Amount of Revenue From Applicable Rates" "--Limit on
Amount of Intangible Transition Property Available to Pay Notes," "--Potential
Servicing Issues," "--Uncertainties Related to the Electric Industry Generally,"
and "--Bankruptcy and Creditors' Rights Issues."
LIMITED NATURE OF RATINGS
It is a condition of issuance of each Class of Notes that they receive from
the Rating Agencies the respective ratings set forth in the applicable
Prospectus Supplement. The ratings of the Notes address the likelihood of the
ultimate payment of principal and the timely payment of interest on the Notes.
The ratings do not represent an assessment of the likelihood that the rate of
IFC Collections might differ from that originally anticipated; as a result of
such differences, any Series or Class of Notes might mature later than
scheduled, resulting in a weighted average life of such Notes 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 PAYMENT AMOUNTS AND WEIGHTED AVERAGE LIFE
The actual dates on which principal is paid on each Class of Notes might be
affected by, among other things, the amount and timing of receipt of IFC
Collections. Since each IFC Charge will consist of a charge per kilowatt-hour
allocated to the applicable class of Customers, the aggregate amount and timing
of receipt of IFC Collections (and the resulting amount and timing of principal
amortization on the Notes) will depend, in part, on actual usage of electricity
by Customers and the rate of delinquencies and write-offs. See "--Potential
Servicing Issues--Possible Payment Delays Caused by Inaccurate Usage and Credit
Projections." Although the amount of the IFC Charges will be subject to
adjustment from time to time based in part on the actual rate of IFC
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 IFC Charges that will cause IFC
Payments to be made at any particular rate. If IFC Collections are received at a
slower rate than expected, payments on a Note may be made later than expected.
Because principal will only be paid at a rate not to exceed that set forth in
the Expected Amortization Schedules, except if an Event of Default occurs and
the Notes are declared due and payable or in the event of an early optional
redemption, the Notes are not expected to be retired earlier than scheduled. A
payment on a date that is earlier than forecasted will result in a shorter
weighted average life, and a payment on a date that is later than forecasted
will result in a longer weighted average life. See "Certain Payment, Weighted
Average Life and Yield Considerations" and "Description of the Intangible
Transition Property--Adjustments to the IFC Charges."
EFFECT OF OPTIONAL REDEMPTION ON WEIGHTED AVERAGE LIFE AND YIELD
As described more fully under "Description of the Notes--Optional
Redemption," any Series of Notes may be redeemed 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, if specified in the Prospectus Supplement related to any Series or
Class of Notes, such Series or Class of Notes may be redeemed in full on any
Payment Date on or prior to December 31, 2004 using proceeds received from
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the refinancing of any other Series or Class of Notes through the issuance of an
additional Series of Notes. Finally, a Series of Notes shall be subject to
redemption if and to the extent provided in the related Prospectus Supplement.
Redemption will cause such Notes 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 Notes. Such a redemption may also adversely affect the yield to
maturity of the Notes. There can be no assurance as to whether any Series of
Notes will be redeemed, or as to whether Noteholders will be able to receive an
equally attractive rate of return upon reinvestment of the proceeds resulting
from any such redemption.
ADDITIONAL RISKS OF FLOATING RATE NOTES
The liquidity and the market value of any Floating Rate Notes may be
adversely affected by a termination event under the related Swap Agreement. As
described under "Description of the Notes-- Floating Rate Notes," in the event
that Floating Rate Notes are issued, 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 Notes 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 Notes will convert permanently to the fixed swap rate payable to the swap
counterparty, which may be substantially less than the rate otherwise payable on
the Floating Rate Notes. In the event of such conversion to a fixed interest
rate, both the liquidity and the market value of the Floating Rate Notes may be
adversely affected.
ELECTRIC INDUSTRY RESTRUCTURING IN ILLINOIS
GENERAL
The electric industry is experiencing intensifying competitive pressures in
both the wholesale generation market and, in many states, including Illinois, in
the retail market. Historically, electric utilities have operated as regulated
monopolies in their service territories and were the primary suppliers of
electricity. In Illinois, Utilities' rates were set by the ICC based upon the
Utilities' cost of providing services and a reasonable return on their prudent
capital investments. Changes to the traditional legal and regulatory framework
and market structure are occurring at both the federal and state levels.
AMENDATORY ACT OVERVIEW
In Illinois, dramatic changes in the retail electricity market are expected
to occur over the next ten years as a result of enactment of the Amendatory Act,
which became law on December 16, 1997 after being approved by a vote of 108-7 in
the Illinois House of Representatives and 57-2 in the Illinois Senate.
Utilities, such as ComEd, will be required to provide to customers in their
service areas, on a regulated basis, delivery services through which a customer
can purchase electricity from other suppliers and have it delivered by the local
Utility to the customer's premises. Beginning October 1, 1999, Utilities will be
required to offer delivery services to (a) all customers in a Utility's service
area with electric loads at a single site of 4 megawatts or greater, (b)
commercial customers in the Utility's service area with at least 10 sites under
common ownership whose electric loads total at least 9.5 megawatts, up to 3.5%
of the Utility's peak load, and (c) customers in non-residential service classes
whose usage constitutes one-third of the Utilities' remaining (I.E., excluding
customers in groups (a) and (b)) kilowatt-hour sales in
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each such class, with the customers in groups (b) and (c) to be selected by
lottery or other random non-discriminatory process. As of December 31, 2000, all
non-residential customers in a Utility's service area will be entitled to
delivery services. All residential customers in a Utility's service area will be
entitled to delivery services beginning May 1, 2002. The local Utility will be
required to provide delivery services to eligible customers on a
non-discriminatory basis regardless of the customer's choice of electricity
provider. The Utility will be compensated for providing delivery services
through rates set by the ICC to recover the costs of owning, operating and
maintaining the Utility's transmission and distribution facilities. Under the
Amendatory Act, Utilities also will be required to offer as a tariffed service
to their non-residential delivery service customers certain power purchase
options pursuant to which such customers may purchase electric power and energy
from the Utility at market-based rates determined by formulas set forth in the
Amendatory Act. In addition, the Amendatory Act requires Utilities, including
ComEd, to offer, as a tariffed service, real-time pricing to non-residential
customers beginning October 1, 1998, and to residential customers beginning
October 1, 2000 pursuant to which tariff kilowatt-hour charges for delivered
electric power and energy may vary on an hour-to-hour basis for non-residential
retail customers and on a periodic basis during the day for residential retail
customers.
TRANSITION CHARGES
Another change involves the ability of a Utility to collect "transition
charges" from those customers in its service area who obtain electricity from an
alternate provider. Until December 31, 2006, the Utility will be entitled,
pursuant to tariff, to collect these transition charges from delivery services
customers and include such transition charges in its bills to such customers.
These periodic transition charges are only applicable to delivery services
customers obtaining electricity from an alternate provider, and are not
applicable to customers taking traditional tariffed service from the Utility, or
to a customer to the extent it obtains its electricity from its own cogeneration
or self-generation facility. Transition charges are to be calculated annually
for each customer class and, for larger customers, on an individual customer
basis. The per kilowatt-hour transition charge applicable to a customer class or
an individual customer is calculated as follows using the class' or customer's
usage during a three-year period prior to the date the customer became eligible
for delivery service: (1) the revenues the Utility would receive based on the
applicable tariffed base rate (adjusted for specific changes set forth in the
Act including, in the case of residential customers, for the mandated rate
reductions described below) or contract rate, less (2) the revenues the Utility
would receive for delivering the same amount of usage, based on its currently
applicable delivery service rates, less (3) the market value of the capacity and
energy of the Utility that it would have used to supply customers' electric
power and energy requirements, with the "market value" determined through an
ICC-approved tariff using market-based data as determined through a market index
or by a neutral fact-finder retained annually by the ICC, less (4) a further
specific deduction, referred to as the "mitigation factor," which is set forth
in the Amendatory Act for each year in the relevant period and which increases
over that period. If the foregoing calculation results in a negative number, the
transition charge will be zero. The product of the foregoing calculation is
divided by the class' or customer's kilowatt-hour usage during the three-year
base period to yield a transition charge expressed in cents per kilowatt-hour,
which is charged on every kilowatt-hour delivered by the Utility for the
delivery services customer until December 31, 2006. A Utility may petition the
ICC to allow it to collect transition charges for an additional period not to
extend beyond December 31, 2008. The ICC must apply criteria specified in the
Amendatory Act to the Utility's request, and may deny the request, may authorize
the Utility to collect transition charges for some or all of the additional
two-year period, in which case the mitigation factor deductions are increased
over those applicable for the year 2006, or may, in granting such authority,
impose additional reductions on the allowable transition charges.
In addition to the periodic transition charge from delivery services
customers who obtain electricity from an alternate provider described above, a
Utility shall also be entitled, pursuant to a tariff, to collect transition
charges from customers in such Utility's service area who obtain electricity
from an alternate provider and do not take delivery services from such Utility.
As with the periodic transition charges
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described above, these transition charges are only applicable to customers in
its service area obtaining electricity from an alternate provider and not to
customers who obtain their electricity from their own cogeneration or
self-generation facility. These transition charges shall be calculated in the
same manner set forth above for the entire period of time that the customer
would be obligated to pay transition charges if it were taking delivery
services, except that no deduction for delivery services shall be made in such
calculation, and usage data from such customer's class shall be used where
historical usage data is not available for such customer. These customers are
obligated to pay such transition charges on a lump-sum basis on or before the
date such customer begins to take electricity from an alternate provider;
provided, however, that the Utility is to offer such customer the option of
paying such transition charges to such Utility ratably over the period in which
the transition charges would otherwise have applied pursuant to a contract
between such customer and such Utility, in which case the IFC Charges would be
deducted and stated separately from the transition charges.
The transition charge formula is designed to allow the Utility to recover a
portion, but not all, of the revenue requirement associated with its generation
and power supply costs that are above market prices. Transition charges for any
customer or group of customers will be recalculated annually based on changes in
market prices, changes in delivery service rates and changes in the "mitigation
factor" specified in the Amendatory Act, and there will be no retroactive
adjustments to compensate the Utility if transition charge revenues during any
prior period were less than expected. In order to realize the same overall
revenue stream from a customer who switches to another electricity supplier as
it would have realized if the customer had not switched, the Utility must
successfully remarket the electrical capacity and energy that is no longer
needed to serve the customer, at a price at least as high as the "market price"
used to calculate the customer's transition charges; and must otherwise reduce
its costs by, or develop other revenue sources equal to, an amount at least as
high as the amount of the "mitigation factor" used in calculating the customer's
transition charge. Otherwise, the revenue received by the Utility from delivery
charges and transition charges, both of which are tariffed revenues from which
instrument funding charges can be deducted, will be less than the revenue the
Utility would have received from the customer at existing tariffed rates for
traditional tariffed services. On and after the date that the Utility is no
longer able to collect transition charges from delivery services customers, and
may only collect delivery service charges, the Utility's tariffed revenues from
customers previously paying such transition charges will decline. In addition,
beginning in 1999, the ICC is authorized under the Amendatory Act to require a
Utility to unbundle components of its delivery service, such as metering
services and billing services, and offer the unbundled components to customers
separately, thereby enabling the customer to purchase the unbundled service from
an alternate provider. If alternative providers enter the service area to
compete for the provision of unbundled delivery service components, it is likely
that the Utility will be able to obtain an ICC declaration that the unbundled
service is "competitive" through the process described below. Unbundling of
delivery service components and the declaration of such components as
"competitive" may result in further declines in the Utility's tariffed revenues.
TRANSITION PERIOD
While Utilities are required under the Amendatory Act to offer delivery
services in accordance with the schedule and requirements described above, they
are also required to continue to offer each of their existing, tariffed bundled
services to customers in the Utility's service area until the service is
declared competitive by the ICC. A Utility may petition the ICC to declare a
service "competitive," but may not do so with respect to the provision of power
and energy for residential and small commercial (defined as a nonresidential
using less than 15,000 kilowatt-hours per year) customers until such customers
are no longer paying transition charges, and may not do so for any other
customer class or segment until after such customers are eligible for delivery
services. The ICC is to evaluate the Utility's request based on criteria,
specified in the Amendatory Act, which are tied to the existence of other
providers of the service. If the ICC declares the provision of power and energy
to residential or small commercial customers
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"competitive," the Utility must continue to offer tariffed, fully-bundled
service to such customers, but may provide the power and energy component of the
fully-bundled service on the basis of market prices determined in a manner
specified in the Amendatory Act. If the ICC declares the provision of a tariffed
service provided to any other customer class or segment "competitive," the
Utility (a) is no longer required to offer the service on a tariffed basis to
new customers, (b) must continue to provide the service on a tariffed basis for
three more years to those customers who were taking the tariffed service on the
date it was declared competitive, and (c) after the three-year period, is no
longer required to offer the service on a tariffed basis to any customers.
Accordingly, any such declaration may diminish the amount of the Utility's
tariffed revenues. See "Risk Factors--Reduction in Amount of Revenue From
Applicable Rates."
During the period that non-residential delivery service customers are paying
transition charges, a Utility is required to offer, by tariff, to sell
electricity to those customers at the same market prices that were used in
determining the customers' transition charges. This service must also be
offered, with some modifications, after payment of transition charges has
stopped, until the sale of electricity to these customers is declared
competitive. This service is a tariffed service; therefore, instrument funding
charges may be deducted from the charges for this service.
During the "mandatory transition period" provided by the Amendatory Act
(which lasts until December 31, 2004), Utilities are precluded, with one
exception, from requesting authority from the ICC to increase their base rates;
and the ICC is precluded from ordering on its own motion a Utility to reduce its
base rates. These prohibitions do not apply to delivery service rates. However,
Utilities are required to reduce their base rates to residential customers by
specified amounts on specified dates. For ComEd, the required reduction in
residential base rates is 15% effective August 1, 1998, and an additional 5%
effective May 1, 2002, based on ComEd's rates in effect immediately prior to
January 1, 1998. Further, during the mandatory transition period, a Utility is
allowed to reduce any rate for tariffed service by giving seven days' notice to
the ICC. In addition, during the mandatory transition period, if a Utility's
two-year average rate of return on common equity exceeds the two-year average of
the yields on 30-year U.S. Treasury bonds plus, for the years 1998-1999, 550
basis points and for the years 2000-2004, 650 basis points, the Utility must
refund 50% of the dollar amount of such excess earnings during the ensuing year
through cents-per-kilowatt-hour credits on the bills of both its bundled tariff
service customers and its delivery services customers.
After December 31, 2004, a Utility may again request increases in its base
rates for bundled tariffed services, and the ICC is again authorized to
investigate and order reductions in the Utility's base rates, in each case based
on cost of service principles. However, if the ICC finds that the rates for the
generation component of a bundled tariffed service of a Utility exceed market
price by more than 10%, the ICC may order such rates reduced to no less than
110% of market price, even if the Utility's cost of service exceeds that level.
ALTERNATIVE RETAIL ELECTRIC SUPPLIERS
The Amendatory Act allows alternative retail electric suppliers, referred to
as ARES, to provide electricity to customers eligible for delivery services, and
other services to customers, in the Utility's service area, thereby terminating
the Utility's historical status as the sole electric service provider. An ARES
may be an electric utility from another state, an affiliate of an out-of-state
utility, an affiliate of a Utility, a non-utility generator, or a power
marketer, broker, reseller or aggregator unaffiliated with any electric utility.
An ARES must obtain a certificate of service authority from the ICC based on
satisfaction of statutory criteria. The prices which an ARES charges to
customers for electricity and other services are not regulated by the ICC, but
various other aspects of the ARES' relationships with incumbent Utilities and
with customers, including certain marketing and billing practices, are
regulated. In addition, the Amendatory Act allows other Utilities to sell
electricity to customers eligible for delivery services, and to sell other
services to customers, in each other's service areas. For these purposes,
Utilities are not
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required to obtain certificates of service authority as are ARES, but are
subject to many of the same requirements as are ARES with respect to marketing
and billing practices and other aspects of their relationships with customers.
COMPETITIVE SERVICES
The Amendatory Act allows a Utility to provide on a competitive basis
services that were formerly regulated in three respects. First, with one
exception, a Utility and a customer in its service area may at any time enter
into a contract for the provision of services, at prices, terms and conditions
agreed to between the Utility and the customer. The exception is that a Utility
may not enter into a contract to provide delivery services until such services
have been declared competitive by the ICC. Second, a Utility may provide to
customers in its service area, as a competitive service (and may cease to offer
as a tariffed service), a service which has been declared competitive by the ICC
through the procedure described earlier in this section, and may self-declare a
tariffed service (other than delivery services or the provision of electric
power and energy) to be competitive for new customers only (subject to the
authority of the ICC to revoke such declaration). Third, the provision of
electric power and energy services by a Utility to customers in the service area
of another Utility is a competitive service.
In addition, the Amendatory Act classifies as competitive services those
services, other than tariffed services, which are related to, but not necessary
for, the provision of electric power and energy or delivery services. Under the
Amendatory Act, competitive services are not tariffed services and are provided
at the rates, terms and conditions agreed to between the Utility and the
customer. The contracts or terms agreed to between the Utility and the customer
for competitive services do not have to be filed with or approved by the ICC;
and the ICC is precluded from altering the rates, terms or conditions in such
contracts.
As a result of the changes imposed on the Illinois retail electric markets
by the Amendatory Act, it is highly possible that by 2007, if not earlier, a
significant portion of electricity purchased by customers in ComEd's service
area, whether obtained from ComEd, another electric utility or an ARES, will be
purchased on a competitive basis and not pursuant to a tariff. It is ComEd's
belief that by 2008, ComEd will still be the primary provider of delivery
services in its service area, even if its tariffed revenues from provision of
such services may have declined.
INSTRUMENT FUNDING CHARGES; PRIVATE CONTRACTS
The Funding Law authorizes the ICC, in a transitional funding order, to
authorize imposition of instrument funding charges on retail customers, groups
of retail customers and certain other persons obligated to pay base rates,
transition charges and other rates for tariffed services from which such
instrument funding charges have been deducted and separately stated. The ICC is
further authorized to specify the manner in which the instrument funding charges
shall be collected, and to authorize the levying of general tariffs on retail
customers of a Utility for the collection of instrument funding charges.
Pursuant to this authority, each Transitional Funding Order will authorize and
require ComEd, as Servicer, to impose and collect IFC Charges on any retail
customer, class of retail customers or other person or group of persons
obligated to pay any Applicable Rates, from which IFC Charges have been
deducted.
Customers who enter into private contracts with a Utility may no longer be
paying rates for tariffed services from which instrument funding charges are to
be deducted and therefore may not be subject to the imposition of such charges
under the Funding Law. To address this situation, each Transitional Funding
Order will provide that neither ComEd nor any successor Utility may enter into
any contract with any Customer obligated (or who would, but for such contract,
be obligated) to pay IFC Charges if, as a result thereof, such Customer would
not receive tariffed services (I.E., services subject to Applicable Rates),
unless the contract provides that the Customer will pay an amount to the Grantee
or its assigns,
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as applicable, equal to the amount of IFC Charges that would have been billed if
the services provided under such contract were tariffed services. Each
Transitional Funding Order will further provide that any revenues received by
ComEd or a successor Utility from such contracts entered into with Customers
paying IFC Charges, shall, to the extent of the authorized amount of the IFC
Charges included therein, be deemed to be proceeds of, and included in, the
Intangible Transition Property created by the related Transitional Funding
Order. Between the effective date of the Amendatory Act and the issuance of the
initial Transitional Funding Order, ComEd entered into three private contracts
with customers, the aggregate expected total annual revenues from which
currently approximate $3.3 million, representing approximately 0.05% of ComEd's
net total of billed revenue for the fiscal year ending December 31, 1997. Each
of these contracts provides that, except as expressly modified by the provisions
specified in such contract, the applicable customer will receive and pay for
electric service in accordance with the terms of all tariffs on file with the
ICC (which would include the IFC Tariffs). Although, in accordance with the
Transitional Funding Order and the Servicing Agreement, ComEd will deduct and
state separately the IFC Charges from the amounts otherwise payable under these
contracts, these contracts do not expressly provide for the payment of IFC
Charges to the Trust.
FEDERAL INITIATIVES; INCREASED COMPETITION
In addition to the changes which are occurring at the Illinois level
discussed throughout this section, federal legislative efforts may also
significantly alter the national market for electricity. See "Risk Factors
Changing Regulatory and Legislative Environment." The changes at both the
Illinois and federal level will have a significant impact on ComEd and the other
Utilities, as well as other entities in the industry. ComEd faces increased
competition for resources and for customers, and there can be no assurance that
such competition will not adversely affect ComEd's financial condition and its
ability to perform its obligations as Servicer. Competitors include other
electric utilities; privately owned independent power producers; exempt
wholesale generators; power marketers, brokers, resellers and aggregators;
customers with their own source of generation and developers, equipment
manufacturers, lenders and investment bankers in the business of promoting such
generation sources; suppliers of natural gas and other fuels; and electric
cooperatives and municipally-owned utility systems.
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DESCRIPTION OF THE INTANGIBLE TRANSITION PROPERTY
CREATION OF INTANGIBLE TRANSITION PROPERTY UNDER THE FUNDING LAW
The Funding Law provides the basis and authority for the creation of the
Intangible Transition Property and the issuance of the Notes issued hereunder.
Under the Funding Law, "intangible transition property" is defined as the right,
title and interest of a Utility, grantee or assignee, arising pursuant to a
transitional funding order, to impose and receive instrument funding charges and
all related revenues, collections, claims, payments, money or proceeds thereof,
including all right, title and interest of a Utility, grantee or assignee in,
to, under and pursuant to such transitional funding order. A "grantee" is
defined as any party, other than a Utility or an assignee which acquires its
interest from a Utility, to whom or for whose benefit the ICC creates,
establishes and grants rights in, to and under intangible transition property.
The Funding Law defines "instrument funding charge" as a nonbypassable charge
expressed in cents per kilowatt-hour authorized in a transitional funding order
to be applied and invoiced to each retail customer, class of retail customers of
a Utility or other persons or group of persons obligated to pay any base rates,
transition charges or other rates for tariffed services from which the
instrument funding charges have been deducted and separately stated. Upon the
effectiveness of tariffs filed with the ICC to provide for the deduction and
separate statement and collection of instrument funding charges, instrument
funding charges become intangible transition property as specified in the
transitional funding order.
The Funding Law authorizes the ICC, pursuant to an application filed by a
Utility and in accordance with specific limitations and restrictions which are
described in this section, to issue a transitional funding order or orders
establishing, creating and granting rights in and to a specific amount of
intangible transition property to or for the benefit of the Utility, a grantee
or an assignee. The Funding Law also empowers the ICC, in the transitional
funding order, to authorize the sale, pledge, assignment or other transfer of
the Utility's, grantee's or assignee's rights in and to the intangible
transition property; the issuance of a specific dollar amount of grantee
instruments and/or transitional funding instruments by or on behalf of the
grantee, an assignee or an issuer; and the imposition and collection of
instrument funding charges. The total amount of intangible transition property
which may be created by, and instrument funding charges which may be imposed
pursuant to, the related transitional funding order is projected to be
sufficient to pay when due principal and interest on the transitional funding
instruments, and to provide for servicing costs and related fees and expenses
and the funding or maintenance of debt service and other reserves as security to
the holders of the transitional funding instruments. The amount of transitional
funding instruments which may be authorized for issuance is subject to certain
limitations and restrictions, and the total dollar amount of intangible
transition property which may be created may not exceed specified limits, as
described below. See "--Limitations on the Amounts of Transitional Funding
Instruments, Intangible Transition Property and Instrument Funding Charges Which
Can Be Authorized; Permitted Use of Proceeds."
The Funding Law provides that the creation, establishment and granting of
rights in, to and under intangible transition property in and to any grantee,
Utility, issuer or assignee shall include a grant of the power to levy general
tariffs on retail customers of a Utility or other persons required to pay
instrument funding charges in order to collect the instrument funding charges
relating to the intangible transition property in which such party has been
granted rights and in order to facilitate the issuance of transitional funding
instruments by or on behalf of the Utility, grantee, issuer or assignee. The
Funding Law empowers the ICC to authorize the Utility to contract with the
grantee, issuer, assignee or holders to collect the applicable instrument
funding charges for the benefit and account of the grantee, issuer, assignee or
holder, and provides that the Utility will, except as otherwise specified in the
related transitional funding order, account for and remit the applicable
instrument funding charges, without the obligation to remit any investment
earnings thereon, to or for the account of the grantee, issuer, assignee or
holder. The Funding Law further provides that the obligation of the Utility to
collect and remit the applicable instrument funding charges shall continue
irrespective of whether such Utility is providing
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electric power and/or other services to the retail customers and other persons
obligated to pay the instrument funding charges. In addition, the Funding Law
states that if the documents creating the transitional funding instruments so
provide, the Utility's obligations, in the event of a default by the Utility in
performing them, shall be undertaken and performed by any other entity selected
by the assignee or any holder, group of holders or trustee or agent on behalf of
such holder or holders, (i) which provides electric power or services to a
person who was a retail customer of the Utility, and (ii) from whom such Utility
is entitled to recover transition charges under the Amendatory Act.
The Funding Law provides that the interest of a Utility, assignee, issuer or
grantee in intangible transition property may be assigned, sold or otherwise
transferred, in whole or in part, and may, in whole or in part, be pledged or
assigned as security to or for the benefit of a holder or holders. A "holder" is
defined in the Funding Law as any holder of a transitional funding instrument,
including a trustee, collateral agent, nominee or other such party acting for
the benefit of such a holder. The Funding Law specifies that neither intangible
transition property nor any right, title or interest therein shall constitute
property in which a security interest may be created under the UCC, that such
rights shall not be deemed proceeds of any property which is not intangible
transition property, and that the terms "account" and "general intangible" as
defined under Section 9-106 of the UCC and the term "instrument" as defined
under Section 9-105 of the UCC shall, as used in the UCC, be deemed to exclude
any intangible transition property or any right, title or interest therein. The
Funding Law provides that the granting, perfection and enforcement of security
interests in intangible transition property are governed by the provisions of
the Funding Law rather than by Article 9 of the UCC. The Funding Law further
provides that a sale, assignment or other transfer of intangible transition
property which is expressly stated in the documents governing the transaction to
be a sale or other absolute transfer, in a transaction approved in a
transitional funding order, shall be treated as an absolute transfer of all of
the transferor's right, title and interest in, to and under such intangible
transition property which places the transferred property beyond the reach of
the transferor or its creditors, as in a true sale, and not as a pledge or other
financing of such intangible transition property. The Funding Law states that
the characterization of any such transfer as an absolute transfer and the
corresponding characterization of the transferee's property interest shall not
be defeated or adversely affected by, among other things: (a) the commingling of
revenues arising with respect to intangible transition property with funds of
the Utility or other funds of the assignee, issuer or grantee; (b) granting to
holders of transitional funding instruments a preferred right to the intangible
transition property, whether direct or indirect; (c) the provision by the
Utility, grantee, assignee or issuer of any recourse, collateral or credit
enhancement with respect to transitional funding instruments; (d) the retention
by the assigning party of a partial interest in any intangible transition
property, whether direct or indirect, or whether subordinate or otherwise; or
(e) the Utility's responsibilities for collecting instrument funding charges and
any retention of bare legal title for the purpose of such collection activities.
The Funding Law further states that a sale, assignment or other such transfer of
intangible transition property shall be deemed perfected as against third
persons, including any judicial lien creditors, when (a) the ICC has issued the
transitional funding order creating the intangible transition property, and (b)
a sale, assignment or transfer of the intangible transition property has been
executed and delivered in writing. See "Security for the Notes--Security
Interest in Note Collateral."
LIMITATIONS ON THE AMOUNTS OF TRANSITIONAL FUNDING INSTRUMENTS, INTANGIBLE
TRANSITION PROPERTY AND INSTRUMENT FUNDING CHARGES WHICH CAN BE AUTHORIZED;
PERMITTED USE OF PROCEEDS
The Funding Law imposes several limitations and restrictions on the power of
the ICC to create intangible transition property and to authorize the issuance
of transitional funding instruments and the imposition and collection of
instrument funding charges.
Under the Funding Law, the ICC, in a transitional funding order, can only
create and establish intangible transition property in an amount (which, absent
further ICC action, is the total dollar amount of
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instrument funding charges which may be applied and invoiced over time) not to
exceed the sum of: (a) the rate base established by the ICC in the Utility's
last rate case prior to December 16, 1997, PLUS (b) any expenditures required to
be undertaken by the Utility by the provisions of Section 16-128 of the Act,
including labor severance costs and employee retraining costs, PLUS (c) amounts
necessary to fund debt service and other reserves, commercially reasonable costs
and fees necessary in connection with the marketing of the transitional funding
instruments, PLUS (d) commercially reasonable costs incurred from and after
December 16, 1997 or to be incurred which are associated with the issuance and
collateralization of the transitional funding instruments, PLUS (e) commercially
reasonable costs incurred from and after December 16, 1997 or to be incurred
which are associated with the issuance of the transitional funding instruments,
including costs incurred on and after such date, or to be incurred in connection
with transactions to recapitalize, refinance or retire stock and/or debt, any
associated taxes and the costs incurred to obtain, collateralize, issue, service
and/or administer transitional funding instruments, including interest and other
related fees, costs and charges, MINUS (f) the amount of any intangible
transition property previously created and established at the request of and for
the benefit of the Utility in a prior transitional funding order.
The Funding Law provides that transitional funding instruments may not be
issued prior to August 1, 1998 or after December 31, 2004. The aggregate dollar
amount of transitional funding instruments which may be authorized, in a
transitional funding order, for issuance, together with the amounts authorized
for issuance in any prior transitional funding order, may not exceed (a) between
August 1, 1998 and July 31, 1999, the Utility's total capitalization at December
31, 1996, times a percentage equal to 25% multiplied by the ratio of the
Utility's revenues from Illinois retail electric customers during the year ended
December 31, 1996 to its total retail electric revenues for such year, and (b)
subsequent to August 1, 1999, the Utility's total capitalization at December 31,
1996, times a percentage equal to 50% multiplied by the ratio of the Utility's
revenues from Illinois retail electric customers during the year ended December
31, 1996 to its total retail electric revenues for such year.
The Funding Law requires as a condition to the issuance of any Transitional
Funding Order that the final date on which the Utility, grantee or assignee
shall be entitled to charge and collect instrument funding charges related to
the intangible transition property shall be set to occur no later than December
31, 2008 (or December 31, 2010, if requested and approved by the ICC as being in
the public interest); provided, that the authority to impose and collect
instrument funding charges shall continue beyond such date until such time as
the related transitional funding instruments have been paid in full.
Transitional funding instruments may only be authorized for issuance if the
ICC finds, in the related transitional funding order, that the Utility seeking
the transitional funding order will use the proceeds from the sale and issuance
of the transitional funding instruments for one or more of the following
purposes: (a) to refinance debt or equity, or both, in a manner which the
Utility reasonably demonstrates will result in an overall reduction in its cost
of capital, taking into account the costs of financing, and provided that any
proceeds transferred to a parent company through a common stock repurchase
transaction shall be used to retire publicly-traded common stock of the parent
company or to pay commercially reasonable transaction costs associated with such
retirement; (b) to fund debt service and other reserves, commercially reasonable
costs and fees necessary or desirable in connection with the marketing of the
transitional funding instruments; (c) to pay for commercially reasonable costs
associated with issuance and collateralization of the transitional funding
instruments; (d) to pay for the commercially reasonable costs associated with
the issuance of the transitional funding instruments, including the costs
incurred since December 16, 1997, or to be incurred, in connection with
transactions to recapitalize, refinance or retire stock and/or debt, any
associated taxes, and the costs incurred or to be incurred to obtain,
collateralize, issue, service and administer the transitional funding
instruments, including interest and other related fees, costs and charges; and
(e) to repay or retire fuel contracts or obligations related to nuclear spent
fuel incurred by the Utility in providing electric power or energy services
prior to December 16, 1997 and to pay any expenditures required to be undertaken
by the Utility by the provisions of Section 16-128 of
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the Act, including labor severance costs and employee retraining costs.
Moreover, the transitional funding order must require the Utility to use at
least 80% of the proceeds from issuance of the transitional funding instruments
for the purposes specified in (a) and (e) above, and to use no more than 20% of
the maximum amount of such proceeds permitted for purposes other than those
specified in (a) above. The Funding Law prohibits a Utility from using the
proceeds from issuance of transitional funding instruments for the purpose of
refinancing debt or equity to such an extent that as of the date of application
of such proceeds, the common equity component of the Utility's capital
structure, exclusive of the portion that consists of obligations representing
transitional funding instruments, is reduced below the lesser of (1) 40% or (2)
the common equity percentage as of December 31, 1996, adjusted to reflect any
write-off of assets or common equity implemented or required to be implemented
as a result of the Amendatory Act. The Funding Law also prohibits the Utility
from using the proceeds from issuance of transitional funding instruments to
repay or retire obligations incurred by an affiliate of the Utility, other than
in connection with any refinancing of transitional funding instruments issued by
such affiliate, without consent of the ICC. Finally, the Funding Law provides
that any use of the proceeds from issuance of transitional funding instruments,
other than in accordance with the purposes specified in the related transitional
funding order, shall be void.
The Funding Law provides that the instrument funding charges imposed on a
customer or class of customers may not cause such customer's or class of
customers' rates for tariffed services, including delivery charges or transition
charges, to exceed the amounts which the customer otherwise would have paid, and
that the Utility may not, as the result of issuance of transitional funding
instruments, increase any of its rates for tariffed services, including delivery
charges, or its transition charges above the levels which the Utility would have
been authorized to charge if the Utility were not authorized to impose and
collect instrument funding charges.
IMPOSITION AND COLLECTION OF INSTRUMENT FUNDING CHARGES; ADJUSTMENTS THERETO
The Funding Law empowers the ICC, in a transitional funding order, to
authorize the imposition and collection of a specific amount of instrument
funding charges projected to be sufficient to pay when due the principal of and
interest on the corresponding transitional funding instruments, together with
premium, servicing fees and other fees, costs and charges related thereto, and
to maintain any required reserves.
The Funding Law provides that concurrently with the issuance of a
transitional funding order and with the sale, pledge, assignment or other
transfer of, or the establishment, creation and granting of, a Utility's,
assignee's or grantee's rights in and to intangible transition property and the
issuance of transitional funding instruments, the Utility shall begin to impose
and collect the specified instrument funding charges from retail customers,
classes of retail customers, and any other person or group of persons as set
forth in the transitional funding order. However, as a precondition to the
imposition of any instrument funding charges authorized in such transitional
funding order, the Utility shall file tariffs directing that the amount of the
instrument funding charges be deducted, stated and collected separately from the
amounts otherwise billable by the Utility for base rates, transition charges and
other rates for tariffed services as set forth in the related transitional
funding order. The total amount of instrument funding charges authorized by the
transitional funding order is to be allocated among the customer classes of the
Utility on the basis of the ratio of each class' base rate revenues for the year
ended December 31, 1996 to the Utility's total base rate revenues for that year,
and are then to be expressed in a cents per kilowatt-hour charge which is to be
deducted and stated separately from the base rates, transition charges and other
rates for tariffed services paid by the customers in each class. The Funding Law
specifies that upon the effectiveness of such tariffs, the amounts of instrument
funding charges thereby deducted and to be deducted shall become intangible
transition property as specified in the related transitional funding order. The
Funding Law expressly provides that the ICC has no authority to review the
tariffs filed by the Utility, except to confirm that the instrument funding
charges authorized in
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the transitional funding order have been deducted, stated and collected
separately from base rates, transition charges and other rates for tariffed
services otherwise in effect at that time; and that the ICC may not suspend such
tariffs for any other reason.
The Funding Law requires the ICC to provide in any transitional funding
order for a procedure for periodic adjustments to the instrument funding charges
authorized in such transitional funding order in order to ensure the repayment
in accordance with projections set forth in such transitional funding order of
all transitional funding instruments authorized therein and to reconcile the
revenues received from instrument funding charges during the applicable
adjustment period with the revenues projected to be received from such charges
as set forth in such transitional funding order. Unless the transitional funding
order provides otherwise, the Funding Law requires such adjustments whenever the
instrument funding charges actually collected during an adjustment period are
greater or less than the instrument funding charges projected in the related
transitional funding order to be collected during that period. The Funding Law
states that the Utility is to determine, within 90 days (or such shorter period
as may be specified in the documents relating to the transitional funding
instruments) of the end of each adjustment period, whether any such adjustments
are required. If adjustments are required, they are to be implemented by the
Utility, grantee, issuer or assignee, as applicable, with written notice to the
ICC, within such 90-day (or shorter) period after the end of the adjustment
period. The Funding Law provides that any adjustment is to be calculated to
include amounts necessary for recovery of any additional costs incurred by the
grantee, Utility, assignee or issuer as a result of the delay in collections of
instrument funding charges. If, as a result of an adjustment, the amount of the
instrument funding charges per kilowatt-hour will exceed the amount per
kilowatt-hour initially authorized by the ICC in the related transitional
funding order, the Utility shall file amendatory tariffs with the ICC
correspondingly reducing, by the amount of such excess, the amounts otherwise
billable by the Utility for base rates, transition charges and other rates for
tariffed services. The Funding Law provides that the ICC has no authority to
review any such amendatory tariffs except to confirm that the instrument funding
charges have been deducted, stated and collected separately from base rates,
transition charges and other rates for tariffed services otherwise in effect at
that time; and that the ICC may not suspend such amendatory tariffs for any
other reason. The Funding Law further specifies that the failure of such
amendatory tariff to become effective for any reason shall not delay or impair
the effectiveness of the adjustments otherwise required as described above.
TRANSITIONAL FUNDING ORDER ISSUED AT THE REQUEST OF COMED
The Funding Law authorizes the ICC to issue one or more transitional funding
orders in favor of the Grantee at the request of ComEd (each, a "Transitional
Funding Order"), in order to create and establish the Intangible Transition
Property which may be financed through the issuance of transitional funding
instruments, such as the Notes. The ICC issued a Transitional Funding Order (the
"Initial TFO") on July 21, 1998. The Initial TFO also permits the sale of Notes
in an aggregate principal amount not to exceed $3.4 billion.
Each Transitional Funding Order will create and establish, among other
things, the related Intangible Transition Property and authorizes the imposition
and collection of the related IFC Charges, which constitute separate
nonbypassable usage-based charges expressed in cents per kilowatt-hour payable
by Customers in an aggregate amount calculated to be sufficient to make the
Specified Payments. The Funding Law provides that the right to collect payments
based on the IFC Charges is a property right which may be pledged, assigned or
sold.
Each Transitional Funding Order will entitle the Trust, as the assignee of
the Intangible Transition Property from the Grantee, to receive the payments
made pursuant to the IFC Charges, from all Customers through December 31, 2008
or, if later, until the Trust has received IFC Collections sufficient to retire
all outstanding Series of Notes and cover related fees and expenses. Such
payments from the Customers are referred to herein as the "IFC Payments." The
Funding Law requires ComEd to submit a
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statement of the final terms of any Series of Notes to the ICC within 90 days of
the receipt of proceeds from such issuance and at twelve-month intervals
thereafter until all such proceeds are accounted for. Each Transitional Funding
Order will permit the Servicer to calculate and implement adjustment of the IFC
Charges from time to time, in order to enhance the likelihood of retirement of
each Series and Class of Notes on a timely basis. See "--Adjustments to the IFC
Charges."
The IFC Charges authorized in any Transitional Funding Order (which may be
increased by the ICC in connection with the issuance of any subsequent
Transitional Funding Order) will be based on certain assumptions contained
therein and will be set forth in the related Prospectus Supplement. In
connection with the issuance and pricing of any Series of Notes, ComEd will file
an IFC Tariff with the ICC to provide for, among other things, certain revisions
to the IFC Charges authorized in the related Transitional Funding Order, based
on the final terms of such Series, which will also be set forth in the related
Prospectus Supplement. Each Transitional Funding Order will provide that as each
Series of Notes is issued, ComEd shall file a tariff deducting and separately
stating from other rates for tariffed services the sum of the cents per
kilowatt-hour charges relating to that Series (plus, in connection with any
subsequent Transitional Funding Order increasing the IFC Charges, the cents per
kilowatt-hour charges relating to previously-issued Series), which shall be
calculated using projected kilowatt-hour sales and deliveries for the succeeding
calendar year, from ComEd's Applicable Rates.
"Applicable Rates" means all charges for tariffed services owed to ComEd
(I.E., charges owed under any tariffs now or hereafter filed with the ICC),
including, without limitation, charges for "base rates," "delivery services" and
"transition charges" (including lump-sum payments of such charges) as each such
term is defined in the Act. Applicable Rates do not include late charges or
charges set forth in those tariffs which are filed specifically and primarily to
collect amounts related to decommissioning expense, taxes, franchise fees or
other franchise cost additions, costs imposed by local governmental units which
are allocated and charged to customers within the boundaries of such
governmental units' jurisdictions, renewable energy resources and coal
technology development assistance charges, energy assistance charges for the
Supplemental Low-Income Energy Assistance Fund, reimbursement for the costs of
optional or non-standard facilities and reimbursement for the costs of optional
or non-standard meters, or monies that will be paid to third parties (after
deduction of allowable administrative, servicing or similar fees) (collectively,
"Excluded Amounts"). Payments owed to the Grantee or the Trust in respect of IFC
Charges do not constitute Excluded Amounts. To the extent any Applicable Rates
reflect compensation owed by ComEd for power or energy generated by a person or
entity other than ComEd, the IFC Charges will be deducted and stated separately
from such Applicable Rates without giving effect to such compensation.
Administrative, servicing and similar fees referred to in the parenthetical
above means fees which ComEd is expressly authorized under its current
agreements with third parties or by statute, tariff or otherwise to deduct from
monies owed to such parties to cover its cost of processing such third-party
payments. Charges associated with Excluded Amounts are generally the subject of
separate riders to ComEd's rates, such that increases in such charges are
collected through an increase in the amount permitted to be collected under such
rider, rather than through an increased share of the Applicable Rates. As a
result, any increase in Excluded Amounts should not result in a material
decrease in the amount of Applicable Rates available to cover the amount of IFC
Charges.
TRANSACTIONS PURSUANT TO THE TRANSITIONAL FUNDING ORDERS
Pursuant to the authority granted by the Transitional Funding Orders, the
Grantee will assign its rights in the Intangible Transition Property to the
Trust. The Trust will thereafter, at the times and in the amounts permitted by
the Funding Law and authorized by each Transitional Funding Order, issue the
Notes, which shall be secured by the Intangible Transition Property and the
other Note Collateral, to the public. The Trust will remit the proceeds from the
issuance of the Notes, less the expenses of issuance, and such amounts of the
proceeds necessary to fund the Capital Subaccount, to the Grantee as
consideration for the assignment to the Trust of the Grantee's rights in the
Intangible Transition Property.
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The Grantee will distribute the amount of the proceeds received from the Trust
to the Grantee's sole member, ComEd, in consideration for ComEd's actions
requesting that the Intangible Transition Property be created and vested in the
Grantee.
The Grantee will also enter into the Servicing Agreement with ComEd, as
Servicer, pursuant to which the Servicer, in connection with and upon the
issuance of each Series of Notes, will impose the IFC Charges on Customers, and
will thereafter collect and remit the IFC Charges to the Trust, as assignee of
the Grantee's ownership interest in the Intangible Transition Property. See
"Servicing." The Servicing Agreement provides that the Servicer will file
tariffs with the ICC in connection with each Series of Notes providing for the
deduction of the related IFC Charges.
NONBYPASSABLE IFC CHARGES
Each Transitional Funding Order will provide that the IFC Charges are
nonbypassable, meaning that Customers will still be required to make payments
with respect to the applicable IFC Charges even if a Customer elects to purchase
electricity from another supplier or another entity takes over a portion of
ComEd's existing service; provided, however, that the IFC Charges must be
deducted from Applicable Rates which could otherwise be charged by ComEd to such
Customers. If a Customer ceases to take any tariffed services from ComEd or any
successor Utility within ComEd's service area, for example, by generating its
own electricity or by moving outside of ComEd's service area, then such Customer
will not owe any IFC Charges except that, if such Customer takes electric power
or energy from an ARES or another Utility, then such Customer may be obligated
to pay transition charges under the Act from which the IFC Charges would
continue to be deducted and stated separately.
ADJUSTMENTS TO THE IFC CHARGES
The Servicing Agreement and each Transitional Funding Order will require the
Servicer to calculate and implement adjustments to the IFC Charges which are
designed to enhance the likelihood that the IFC Collections which are remitted
to the Collection Account will be sufficient to make the Specified Payments.
Each Transitional Funding Order will provide for a "Reconciliation
Adjustment" to the IFC Charges which will be calculated by the Servicer within
the two-week period preceding every other Payment Date, commencing on the
Payment Date indicated in the related Prospectus Supplement (each such Payment
Date, a "Reconciliation Payment Date").
Each Transitional Funding Order will also provide for a "True-Up Adjustment"
to the IFC Charges which will be calculated by the Servicer within the two-week
period preceding every Payment Date which is not a Reconciliation Payment Date
commencing on the Payment Date indicated in the related Prospectus Supplement
(each such Payment Date, a "True-Up Payment Date") only if, as of the True-Up
Payment Date, the aggregate outstanding principal balance of the Notes exceeds
the scheduled aggregate outstanding principal balance of the Notes set forth on
the Expected Amortization Schedule by 5%, or such greater amount as may be set
forth in the related Prospectus Supplement.
Each Transitional Funding Order will provide that the changes in IFC
Charges, if any, resulting from a Reconciliation Adjustment and any True-Up
Adjustment (collectively, the "Adjustments") will take effect on the first
billing day of the month following the applicable Reconciliation Payment Date or
True-Up Payment Date. The Servicing Agreement and each Transitional Funding
Order require the Servicer to provide the ICC staff with (a) in the case of a
Reconciliation Adjustment, at least three business days' prior written notice of
such Reconciliation or True-Up Adjustment and (b) in the case of a True-Up
Adjustment, must also provide at least seven business days' prior telephonic and
facsimile notice whether there will be a True-Up Adjustment.
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The IFC Charges will, subject to Adjustment as provided herein, continue to
be imposed and collected until all interest on and principal of all Series of
the Notes have been paid in full (subject only to the limitation on the maximum
amount of Intangible Transition Property authorized by the ICC in the related
Transitional Funding Order or Orders), and will be based on expected IFC
Collections which will be calculated in accordance with the Servicer's normal
servicing procedures using data available through the end of the prior monthly
period. The period included in determining the under-recovery of billed IFC
Charges for purposes of performing any True-Up Adjustment will include the
quarterly period commencing on the first billing date of the month during which
the immediately preceding Reconciliation Payment Date occurs and ending on the
last billing date of the month immediately preceding the date on which such
True-Up Adjustment is calculated. The period included in determining the over-or
under-recovery of billed IFC Charges for purposes of performing any
Reconciliation Adjustment will include the semiannual period commencing on the
first billing date of the month during which the immediately preceding
Reconciliation Payment Date occurs (or if a True-Up Adjustment was required with
respect to the True-Up Payment Date immediately following such Reconciliation
Payment Date, the quarterly period commencing on the first billing date of the
month during which the immediately preceding True-Up Payment Date occurs) and
ending on the last billing date of the month immediately preceding the date on
which such Reconciliation Adjustment is calculated. The data used in all of such
calculations will take into account to the extent available, among other things,
(a) updated assumptions by the Servicer as to projected future usage of
electricity by Customers, (b) future fees and expenses relating to the
Intangible Transition Property and the Notes, (c) amounts available in the
General Subaccount and Reserve Subaccount, (d) amounts necessary to fund and
replenish the Overcollateralization Subaccount and Capital Subaccount to
required levels, (e) amounts payable on the Notes, and (f) expected
delinquencies and write-offs, including amounts necessary for recovery of any
additional costs incurred by the Trust as a result of the relevant delay in
collections of IFC Charges, all assuming that there will be no net earnings on
any amounts in the Collection Account.
The Servicing Agreement and each Transitional Funding Order also require the
Servicer to calculate the "Debt Service Requirement" and the "Debt Service
Billing Requirement" for each applicable period as described below. The "Debt
Service Requirement" for any period means the total dollar amount of IFC
Payments which the Servicer calculates as to be needed to be collected in such
period to make the Specified Payments (after taking into account any prior
shortfalls in such payments and amounts available in the Reserve Subaccount for
payment of the Debt Service Requirement and assuming no net earnings on any
amounts in the Collection Account). The "Debt Service Billing Requirement" for
any period means the total dollar amount of IFC Charges, taking into account
delays in collections and write-offs, which the Servicer calculates will need to
be billed during such period in order to generate IFC Collections in the full
amount of the Debt Service Requirement for such period.
The Debt Service Requirement and the Debt Service Billing Requirement will
be calculated by the Servicer within the two-week period preceding each
Reconciliation Payment Date and will be calculated for the next semiannual
period commencing on the first billing date of the month during which such
Reconciliation Payment Date occurs and ending on the last billing date of the
month immediately preceding the date on which the following Reconciliation
Payment Date occurs. If a True-Up Adjustment is required, the Debt Service
Billing Requirement shall be calculated by the Servicer within the two-week
period preceding the related True-Up Payment Date and will be calculated for the
quarterly period commencing on the first billing date of the month during which
such True-Up Payment Date occurs and ending on the last billing date of the
month immediately preceding the date on which the following Reconciliation
Payment Date occurs.
The Debt Service Billing Requirement for each semiannual or quarterly period
will be allocated among the IFC Customer Classes on the basis of their
respective 1996 base rate revenues as set forth in "The Servicer--ComEd Customer
Base, Electric Energy Consumption and Base Rates." The amount so allocated to
each IFC Customer Class will be divided by the number of kilowatt-hours
projected to be
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sold and delivered to Customers in the class by ComEd during such semiannual or
quarterly period. If, in connection with the foregoing allocations, the
forecasted revenues from Applicable Rates for any IFC Customer Class during a
semiannual or quarterly period is projected to be less than the IFC Charges
allocated to that class for the same period, the deficiency shall be ratably
allocated among the remaining IFC Customer Classes based on their percentages of
the 1996 base rate revenues, recalculated to exclude such IFC Customer Class.
All Adjustments shall be implemented pursuant to the IFC Tariff filed by
ComEd in connection with the related Transitional Funding Order. As required by
the Funding Law, if, as a result of any Adjustment, the IFC Charge, as so
adjusted, will exceed the amount per kilowatt-hour of the IFC Charge initially
authorized by the ICC in such Transitional Funding Order, then ComEd shall be
obligated to file Amendatory Tariffs adjusting the amounts otherwise billable by
ComEd for Applicable Rates, to offset the amount of such excess (or, if ComEd
shall have previously filed any such Amendatory Tariffs, the incremental amount
of such excess). However, the failure of such Amendatory Tariff to become
effective for any reason shall not delay or impair the effectiveness of any such
Adjustments.
The Servicing Agreement will require the Servicer to deliver promptly a
written copy of all filings made with the ICC in connection with any Adjustment,
together with a copy of all material supporting documents, to the Trust and the
Indenture Trustee.
SALE AND ASSIGNMENT OF INTANGIBLE TRANSITION PROPERTY
On the initial Series Issuance Date, in accordance with the requirements of
the Funding Law and the terms of the Initial TFO and pursuant to the initial
Sale Agreement, the Grantee will sell, transfer and assign to the Trust, without
recourse, its entire right in, to and under the Intangible Transition Property
that is created by the Initial TFO (the "Initial Intangible Transition
Property") and in, to and under the related Basic Documents (such sale, transfer
and assignment to include all revenues, collections, claims, rights, payments,
money or proceeds, including, without limitation, any revenues derived from
lump-sum payments of transition charges, condemnation proceedings or FERC
stranded cost recoveries which are allocable to the IFC Charges under the
Servicing Agreement). The net proceeds received by the Trust from the sale of
the Notes will be applied to the purchase of the Initial Intangible Transition
Property and related assets. Thereafter, the Grantee may agree with the Trust to
sell additional Intangible Transition Property ("Subsequent Intangible
Transition Property") to the Trust, subject to the satisfaction of certain
conditions, including the establishment and creation of such Subsequent
Intangible Transition Property (and the vesting thereof in the Grantee) pursuant
to a subsequent Transitional Funding Order. Such Subsequent Intangible
Transition Property will be sold to the Trust effective on a date (a "Subsequent
Transfer Date") specified in a subsequent Sale Agreement between the Grantee and
the Trust. The Trust will issue and sell additional Notes in connection
therewith.
The Grantee's entire right in, to and under the Initial Intangible
Transition Property was granted to the Grantee by the ICC in accordance with the
Initial TFO. The Grantee's rights in, to and under any Subsequent Intangible
Transition Property will, subject to the satisfaction of certain conditions, be
granted to the Grantee by the ICC in accordance with a subsequent Transitional
Funding Order related thereto.
The Trust will appoint the Servicer as custodian of the documentation
relating to the Intangible Transition Property. ComEd's data systems will
reflect the sale and assignment of the Intangible Transition Property from the
Grantee to the Trust. ComEd's financial statements will indicate that the
Intangible Transition Property has been sold by the Grantee to the Trust and
will not be available to creditors of ComEd, although, unless otherwise
specified in the related Prospectus Supplement, for financial reporting and
federal income tax purposes ComEd intends to treat the Notes as representing
debt of ComEd.
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Subsequent Intangible Transition Property may be sold by the Grantee to the
Trust from time to time, solely in connection with the issuance and sale of
additional Notes by the Trust. Any such conveyance of Subsequent Intangible
Transition Property is subject to the following conditions, among others:
(a) the Grantee shall have entered into a written sale agreement with
the Trust;
(b) ComEd shall have received a subsequent Transitional Funding Order
issued by the ICC relating to such Subsequent Intangible Transition
Property;
(c) as of the applicable Subsequent Transfer Date, the Grantee 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) ComEd shall have delivered to the Grantee, the Trust, the Delaware
Trustee and the Indenture Trustee an opinion of independent tax counsel
and/or a ruling from the IRS (as selected by, and in form and substance
reasonably satisfactory to, ComEd) to the effect that, for federal income
tax purposes, (i) the ICC's issuance of the Transitional Funding Order
creating and establishing the Subsequent Intangible Transition Property in
the Grantee and the assignment pursuant to such conveyance of such
Subsequent Intangible Transition Property will not result in gross income to
the Grantee, the Trust or ComEd, and the future revenues relating to the
Subsequent Intangible Transition Property, and the assessment of the IFC
Charges (except for revenue related to certain lump-sum payments) will be
included in ComEd's gross income in the year in which the related electrical
service is provided to consumers and (ii) such conveyance will not adversely
affect the characterization of the then outstanding Notes as obligations of
ComEd;
(f) as of the applicable Subsequent Transfer Date, no breach by the
Grantee of its representations, warranties or covenants in the applicable
Sale Agreement and no Servicer Default shall exist;
(g) as of the applicable Subsequent Transfer Date, the Trust shall have
sufficient funds available to pay the purchase price for the Subsequent
Intangible Transition Property to be transferred on such date and all
conditions to the issuance of new series of Notes shall have been satisfied;
and
(h) the Grantee and the Trust shall have taken any action required to
perfect the ownership interest or security interest (as the case may be) of
the Trust in the Subsequent Intangible Transition Property and the proceeds
thereof, free and clear of any liens.
GRANT AGREEMENT
Under each Grant Agreement, the Grantee will agree, in consideration of
ComEd filing an application with the ICC requesting a Transitional Funding Order
creating and vesting in the Grantee the related Intangible Transition Property,
to remit to ComEd the net proceeds remitted to it by the Trust from the sale of
the Notes. To the extent that, notwithstanding the Funding Law and the related
Transitional Funding Order, applicable law provides that ComEd has any interest
in the Intangible Transition Property or any part thereof, ComEd will agree to
sell, transfer, assign, set over and otherwise convey to the Grantee without
recourse all of ComEd's right, title and interest, if any, in, to and under the
Intangible Transition Property (such sale, transfer and assignment to include
all revenues, collections, claims, rights, payments, money or proceeds,
including, without limitation, any revenues derived from lump-sum payments of
transition charges, condemnation proceedings or FERC stranded cost recoveries
which are allocable to the IFC Charges under the Servicing Agreement). Such
sale, transfer, assignment, set over and conveyance by ComEd contemplated under
each Grant Agreement will be expressly stated to be an absolute transfer
pursuant to Section 18-108 of the Funding Law.
In each Grant Agreement, ComEd will also acknowledge and consent to any
transfer, pledge, assignment or grant of a security interest by the Grantee to
the Trust pursuant to the related Sale Agreement, and by the Trust to the
Indenture Trustee for the benefit of the Noteholders pursuant to the
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Indenture, of all right, title and interest of the Grantee in, to and under the
Intangible Transition Property and the proceeds thereof, and the assignment of
any or all of the Grantee's rights and obligations under such Grant Agreement to
the Trust and the Indenture Trustee.
REPRESENTATIONS AND WARRANTIES OF COMED
In each Grant Agreement, ComEd will make representations and warranties to
the Grantee to the effect, among other things, that:
(a) the information provided by ComEd to the Grantee with respect to the
applicable Intangible Transition Property is correct in all material
respects;
(b) immediately prior to the transactions contemplated by the Grant
Agreement, ComEd's right, title and interest in and to all of its rights to
payment under Applicable Rates is free and clear of all encumbrances and is
not subject to any defenses or counterclaims nor have any such encumbrances,
defenses or counterclaims been asserted with respect thereto;
(c) the applicable Intangible Transition Property has been validly
granted to and vested in the Grantee, and the Grantee owns all right, title
and interest to such Intangible Transition Property free and clear of all
liens and rights of any other person (other than liens created pursuant to
the related Sale Agreement and the Indenture), and all filings to be made by
ComEd (including filings with the ICC under the Funding Law) necessary in
any jurisdiction to give the Grantee a first priority perfected ownership
interest in such Intangible Transition Property will have been made and no
further action is required under Illinois law to maintain such ownership
interest in such Intangible Transition Property;
(d) (i) ComEd was authorized to apply for each Transitional Funding
Order;
(ii) ComEd filed each such application in proper form with the ICC;
(iii) each Transitional Funding Order pursuant to which any
Intangible Transition Property has been created and each related IFC
Tariff has established, created and granted rights in and to the related
Intangible Transition Property and are valid, binding and irrevocable and
such Intangible Transition Property (including the right to impose and
collect the related IFC Charges) constitutes a current property right
vested in the Grantee;
(iv) each Transitional Funding Order pursuant to which any
Intangible Transition Property has been created has been duly entered by
the ICC, is final and non-appealable and is in full force and effect;
(v) no Transitional Funding Order nor any Intangible Transition
Property created and established thereby nor the related IFC Charges
shall be subject to reduction, postponement, impairment or termination by
any subsequent action of the ICC;
(vi) the State of Illinois may not limit, alter, impair or reduce
the value of the Intangible Transition Property in a manner substantially
impairing the Indenture or the rights and remedies of the Noteholders
(and, consequently, may not revoke, reduce, postpone or terminate the
related Transitional Funding Order or the rights of the Noteholders to
receive IFC Payments and all other proceeds of the Intangible Transition
Property), until the Notes, together with interest thereon, are fully
paid and discharged (except to the extent of a temporary impairment that
the State of Illinois is able to demonstrate is necessary to advance a
significant and legitimate public purpose);
(vii) the process by which the related Transitional Funding Order was
adopted and approved and the related IFC Tariff was filed, and such
Transitional Funding Order and IFC Tariff themselves, comply with all
applicable laws, rules and regulations; and
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(viii) no other approval or filing with any other governmental body
is required in connection with the grant of the related Intangible
Transition Property, except those that have been obtained or made;
(e) the assumptions used in calculating the related IFC Charges are
reasonable and made in good faith;
(f) upon the effectiveness of the applicable IFC Tariff:
(i) all of the related Intangible Transition Property constitutes a
current property right vested in the Grantee;
(ii) the related Intangible Transition Property includes, without
limitation, (A) the right, title and interest in the related IFC Charges
authorized under the related Transitional Funding Order, as adjusted from
time to time, (B) the right, title and interest in all revenues,
collections, claims, payments, money or proceeds of or arising from the
related IFC Charges set forth in such IFC Tariff, and (C) all rights to
obtain adjustments to the related IFC Charges pursuant to the related
Transitional Funding Order; and
(iii) the Grantee is entitled to impose and collect the related IFC
Charges in an aggregate amount equal to the principal amount of the
Notes, all interest on the Notes, all amounts required to be deposited in
the Reserve Subaccount, the Overcollateralization Subaccount and (to the
extent payable from the proceeds of the related IFC Charges) the Capital
Subaccount, and all related fees, costs and expenses in respect of the
Notes until they have been paid in full subject only to the limitation
set forth in the Transitional Funding Orders as to the aggregate maximum
dollar amount of Intangible Transition Property;
(g) ComEd is a corporation duly organized, validly existing and in good
standing under the laws of the State of Illinois, 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 such Grant
Agreement and has (and has had at all relevant times) the requisite power,
authority and legal right to request that the ICC issue the related
Transitional Funding Order;
(h) the execution, delivery and performance of such Grant Agreement have
been duly authorized by ComEd by all necessary corporate action;
(i) such Grant Agreement constitutes a legal, valid and binding
obligation of ComEd, enforceable against ComEd in accordance with its terms,
subject to customary exceptions relating to bankruptcy and equitable
principles;
(j) the consummation of the transactions contemplated by such Grant
Agreement does not conflict with, or result in a default under, ComEd's
Articles of Incorporation, bylaws or any agreement to which ComEd is a party
or bound, result in the creation or imposition of any lien upon ComEd's
properties pursuant to any agreement or violate any law or any order, rule
or regulation applicable to ComEd;
(k) no governmental approvals, authorizations or filings are required
for ComEd to execute, deliver and perform its obligations under such Grant
Agreement except those which have been previously obtained or made (it being
understood that ComEd nonetheless has ongoing legal obligations to make
future filings with the ICC relating to ComEd's use of proceeds from and the
final terms of the transactions contemplated by such Grant Agreement); and
(l) except as disclosed in such Grant Agreement, no court or
administrative proceeding or investigation is pending or, to ComEd's
knowledge, threatened (i) asserting the invalidity of the Funding Law, such
Grant Agreement, any of the other related Basic Documents or the related
Notes, (ii) seeking to prevent the grant of the related Intangible
Transition Property to the Grantee or
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the consummation of any of the transactions contemplated by such Grant
Agreement or any of the other related Basic Documents, (iii) seeking any
determination or ruling that could reasonably be expected to materially and
adversely affect the performance by ComEd of its obligations under, or the
validity or enforceability of, such Grant Agreement, any of the other
related Basic Documents or the related Notes, or (iv) which could reasonably
be expected to adversely affect the federal or state income tax attributes
of the related Notes.
COVENANTS OF COMED
In each Grant Agreement, ComEd will covenant, among other things, that:
(a) so long as any of the Notes are outstanding, it will keep in full
force and effect its existence, rights and franchises as a corporation under
the laws of its jurisdiction of incorporation and its qualification to do
business to the extent necessary to protect the validity of the Basic
Documents;
(b) it will not sell, pledge, assign or transfer to any other person, or
grant, create, incur, assume, suffer to exist or otherwise assert any lien
on or seek to limit, alter, impair, reduce or terminate any of the related
Intangible Transition Property or any interest therein;
(c) it shall defend the right, title and interest of the Grantee or the
Trust in, to and under the related Intangible Transition Property against
all claims of third parties claiming through or under ComEd;
(d) it will pay to the Servicer all payments received by it in respect
of the IFC Charges or the proceeds thereof no later than two Business Days
after such receipt by ComEd;
(e) it shall notify the Grantee, the Trust and the Indenture Trustee
promptly after becoming aware of any lien on any of the related Intangible
Transition Property other than the conveyances under the Grant Agreement,
the Sale Agreement and the Indenture;
(f) it shall comply with its organizational documents and all
applicable laws to the extent that failure to so comply would materially
adversely affect the Trust's or the Indenture Trustee's interests in the
Intangible Transition Property;
(g) it shall indicate in its financial statements that it is not the
owner of the Intangible Transition Property and it shall not own or purchase
any Notes;
(h) upon the creation and grant of the Intangible Transition Property
and, for so long as the Notes are outstanding, except with respect to taxes,
it will not make any statement or reference in respect of the Intangible
Transition Property that is inconsistent with the ownership interest of the
Grantee;
(i) it shall execute and file such filings, and cause to be executed
and filed such filings as may be required by law to fully preserve,
maintain, and protect the interests of the Grantee or the Trust in the
related Intangible Transition Property, including all filings required under
the Funding Law relating to the grant of the related Intangible Transition
Property to the Grantee;
(j) it shall institute any action or proceeding necessary to compel
performance by the ICC or the State of Illinois of any of their obligations
or duties under the Funding Law, the related Transitional Funding Order and
related Tariff, and will take such legal or administrative actions as may be
reasonably necessary to protect the Grantee or the Trust from claims, state
actions or other actions or proceedings of third parties which, if
successfully pursued, would result in a breach of any representation set
forth in such Grant Agreement;
(k) it shall not, prior to the date which is one year and one day after
the termination of the Indenture, acquiesce, petition or otherwise invoke or
cause any other Person to invoke the process of any court or governmental
authority for the purpose of commencing or sustaining a case against,
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or appointment of a receiver for, the Grantee or the Trust under any federal
or state bankruptcy, insolvency or similar law;
(l) it shall pay all material taxes, assessments and governmental
charges imposed upon it or any of its properties or assets if the failure to
pay any such taxes, assessments and governmental charges would, after any
applicable grace periods, result in a lien on the Intangible Transition
Property;
(m) neither ComEd nor any successor will cause or permit the Grantee or
the Trust to elect to be classified as an association taxable as a
corporation for federal income tax purposes;
(n) neither ComEd nor any successor thereto will enter into any contract
with any Customer obligated (or who would, but for such contract, be
obligated) to pay IFC Charges if, as a result thereof, such Customer would
not receive tariffed services, unless the contract provides that the
Customer will pay an amount to the Grantee or its assigns, as applicable,
equal to the amount such Customer would pay in IFC Charges;
(o) it will not, except as required by applicable law, initiate any
material changes to its policies and procedures which are likely to
adversely affect its timely recovery of amounts billed to Customers;
(p) if ComEd determines that the aggregate dollar amount of IFC Charges
to be imposed and collected is reasonably likely to exceed the maximum
dollar amount of Intangible Transition Property authorized by the
Transitional Funding Orders and any Notes remain outstanding, ComEd shall
make a good faith effort to take any and all subsequent regulatory action
with the ICC reasonably necessary to obtain an order permitting the creation
of additional Intangible Transition Property in an amount sufficient to pay
such Notes in full; and
(q) ComEd will take any and all actions reasonably necessary to preserve
the Noteholders' rights with respect to payments on the Notes out of amounts
represented by the IFC Charges or their equivalent, including, but not
limited to, (i) making appropriate filings with the State of Illinois, the
ICC or other regulatory bodies to defend, preserve and create on behalf of
Noteholders the right to receive payments as provided in the Notes, (ii)
defending against or instituting and pursuing legal actions and appearing or
testifying in hearings or similar proceedings, as may be necessary to block
or overturn any attempts to cause a repeal, modification of, supplement to
or judicial invalidation of, the Amendatory Act or the Transitional Funding
Order or the rights of holders of Intangible Transition Property by
legislative enactment or otherwise that would be adverse to the Grantee, the
Trust or any Noteholders, and (iii) unless otherwise prohibited by
applicable law or judicial or regulatory order in effect at such time,
continuing to deduct and pay over to the Servicer for the benefit of the
Trust all IFC Payments or equivalent revenues received by ComEd
notwithstanding any declaration of invalidity of the Amendatory Act and/or
the Funding Law.
AMENDMENT OF GRANT AGREEMENTS
Each Grant Agreement may be amended from time to time by ComEd and the
Grantee, with prior written notice given to the Rating Agencies and the prior
written consent of the Trust, but without the consent of any of the Noteholders,
to cure any ambiguity, to correct or supplement any provisions in such Grant
Agreement or for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions in such Grant Agreement or of
modifying in any manner the rights of the Noteholders; provided, however, that
such action shall not, as evidenced by an officer's certificate delivered to the
Trust, adversely affect in any material respect the interests of any Noteholder.
Each Grant Agreement may also be amended from time to time by ComEd and the
Grantee, with prior written notice given to the Rating Agencies and the prior
written consent of the Trust, the Indenture Trustee and Noteholders holding not
less than a majority in principal amount of the then outstanding
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Notes of all Series affected thereby, for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of such Grant
Agreement or of modifying in any manner the rights of the Noteholders; provided,
however, that no such amendment shall (a) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, IFC Collections relating to the
IFC Charges, or (b) reduce the percentage of the outstanding principal amount of
the Notes, the Noteholders of which are required to consent to any such
amendment, without the consent of the Noteholders of all the outstanding Notes.
INDEMNIFICATION OBLIGATIONS OF COMED
Each Grant Agreement will provide that ComEd will indemnify the Grantee, the
Trust, the Indenture Trustee, the Delaware Trustee and the Noteholders, and each
of their respective officers, directors, employees and agents for, and defend
and hold harmless each such person from and against, (a) any and all taxes
(other than any taxes imposed on the Noteholders) that may at any time be
imposed on or asserted against any such person as a result of the grant of the
Intangible Transition Property to the Grantee, or that may be imposed on or
asserted against any such person under existing law as of the closing date as a
result of the Grantee's ownership and assignment of the Intangible Transition
Property, the Trust's issuance and sale of the Notes, or the other transactions
contemplated herein, including, in each case, any sales, gross receipt, general
corporation, tangible personal property, privilege or license taxes (but
excluding any taxes imposed as a result of a failure of such person to properly
withhold or remit taxes imposed with respect to payments on any Note); and (b)
any and all amounts of principal and interest on the Notes not paid when due in
accordance with their terms and the amount of any deposits to the Trust required
to have been made in accordance with the terms of the Basic Documents which are
not made when so required and any and all liabilities, obligations, claims,
actions, suits or payments of any kind whatsoever that may be imposed on or
asserted against any such person, together with any reasonable costs and
expenses incurred by such person, as a result of ComEd's breach of any of its
representations, warranties or covenants contained in such Grant Agreement. Such
indemnification obligations will rank PARI PASSU with other general unsecured
obligations of ComEd. The indemnities described above will survive the
termination of such Grant Agreement and include reasonable fees and expenses of
investigation and litigation (including reasonable attorneys' fees and
expenses). ComEd will also deliver to the Indenture Trustee a Remediation
Agreement confirming the representations, warranties and covenants of ComEd
contained in the Grant Agreement and its agreement to continue to deduct and pay
IFC Charges in the event the Grant Agreement is declared invalid.
SALE AGREEMENT
Under each Sale Agreement, the Grantee will agree, in consideration of the
Trust remitting to it the net proceeds received from the issuance and sale of
the Notes, to sell, transfer, assign, set over or otherwise convey to the Trust
without recourse all of its right, title and interest in and to the Intangible
Transition Property created in connection with such issuance (such sale,
transfer and assignment to include all revenues, collections, claims, rights,
payments, money or proceeds, including, without limitation, any revenues derived
from lump-sum payments of transition charges, condemnation proceedings or FERC
stranded cost recoveries which are allocable to the IFC Charges under the
Servicing Agreement). Such sale, transfer, assignment, set over and conveyance
by the Grantee contemplated under each Sale Agreement will be expressly stated
to be an absolute transfer pursuant to Section 18-108 of the Funding Law.
In the Sale Agreement, the Grantee will also acknowledge and consent to any
transfer, pledge, assignment or grant of a security interest by the Trust to the
Indenture Trustee for the benefit of the Noteholders pursuant to the Indenture,
of all right, title and interest of the Trust in, to and under the related
Intangible Transition Property and the related assets, and the assignment of any
or all of the Trust's rights and obligations under each Sale Agreement to the
Indenture Trustee.
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REPRESENTATIONS AND WARRANTIES OF GRANTEE
In each Sale Agreement, the Grantee will make representations and warranties
to the Trust to the effect, among other things, that:
(a) the information provided by the Grantee to the Trust with respect to
the applicable Intangible Transition Property and related assets is correct
in all material respects;
(b) immediately prior to the sale of such Intangible Transition Property
to the Trust, the applicable Intangible Transition Property is owned by the
Grantee free and clear of all security interests, liens, charges and
encumbrances, and is not subject to any defenses or counterclaims nor have
any such encumbrances, defenses or counterclaims been asserted with respect
thereto;
(c) the applicable Intangible Transition Property has been validly
transferred and sold to the Trust and all filings to be made by the Grantee
(including filings with the ICC under the Funding Law) necessary in any
jurisdiction to give the Trust a first priority perfected ownership interest
in such Intangible Transition Property will have been made and no further
action is required under Illinois law to maintain such ownership interest in
such Intangible Transition Property;
(d) (i) each Transitional Funding Order pursuant to which any
Intangible Transition Property has been created has been duly entered by
the ICC, is final and non-appealable and is in full force and effect;
(ii) no Transitional Funding Order nor any Intangible Transition
Property created and established thereby nor the related IFC Charges
shall be subject to reduction, postponement, impairment or termination by
any subsequent action of the ICC;
(iii) the State of Illinois may not limit, alter, impair or reduce
the value of the Intangible Transition Property in a manner substantially
impairing the Indenture or the rights and remedies of the Noteholders
(and, consequently, may not revoke, reduce, postpone or terminate the
related Transitional Funding Order or the rights of the Noteholders to
receive IFC Payments and all other proceeds of the Intangible Transition
Property), until the Notes, together with interest thereon, are fully
paid and discharged (except to the extent of a temporary impairment that
the State of Illinois is able to demonstrate is necessary to advance a
significant and legitimate public purpose);
(iv) the process by which the related Transitional Funding Order was
adopted and approved and the related IFC Tariff was filed, and such
Transitional Funding Order and IFC Tariff themselves, comply with all
applicable laws, rules and regulations; and
(v) no other approval or filing with any other governmental body is
required in connection with the grant of the related Intangible
Transition Property, except those that have been obtained or made;
(e) the assumptions used in calculating the related IFC Charges are
reasonable and made in good faith;
(f) upon the effectiveness of the applicable IFC Tariff:
(i) all of the related Intangible Transition Property constitutes a
current property right vested in the Grantee;
(ii) the related Intangible Transition Property includes, without
limitation, (A) the right, title and interest in the related IFC Charges
authorized under the related Transitional Funding Order, as adjusted from
time to time, (B) the right, title and interest in all revenues,
collections, claims, payments, money or proceeds of or arising from the
related IFC Charges set forth in such IFC
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Tariff, and (C) all rights to obtain adjustments to the related IFC
Charges pursuant to the related Transitional Funding Order; and
(iii) the Grantee is entitled to impose and collect the related IFC
Charges in an aggregate amount equal to the principal amount of the
Notes, all interest on the Notes, all amounts required to be deposited in
the Reserve Subaccount, the Overcollateralization Subaccount and (to the
extent payable from the proceeds of the related IFC Charges) the Capital
Subaccount, and all related fees, costs and expenses in respect of the
Notes until they have been paid in full subject only to the limitation
set forth in the Transitional Funding Orders as to the aggregate maximum
dollar amount of Intangible Transition Property;
(g) the Grantee is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware, 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 such Sale Agreement;
(h) the execution, delivery and performance of such Sale Agreement have
been duly authorized by the Grantee by all necessary company action;
(i) such Sale Agreement constitutes a legal, valid and binding
obligation of the Grantee, enforceable against the Grantee in accordance
with its terms, subject to customary exceptions relating to bankruptcy and
equitable principles;
(j) the consummation of the transactions contemplated by such Sale
Agreement does not conflict with, or result in a default under, the
Grantee's operating agreement or certificate of formation or any agreement
to which the Grantee is a party or bound, result in the creation or
imposition of any lien upon the Grantee's properties pursuant to any
agreement or violate any law or any order, rule or regulation applicable to
the Grantee;
(k) no governmental approvals, authorizations or filings are required
for the Grantee to execute, deliver and perform its obligations under such
Sale Agreement except those which have been previously obtained or made; and
(l) except as disclosed in such Sale Agreement, no court or
administrative proceeding or investigation is pending or, to the Grantee's
knowledge, threatened (i) asserting the invalidity of the Funding Law, such
Sale Agreement, any of the other related Basic Documents or the related
Notes, (ii) seeking to prevent the issuance of the related Notes or the
consummation of any of the transactions contemplated by such Sale Agreement
or any of the other related Basic Documents, (iii) seeking any determination
or ruling that could reasonably be expected to materially and adversely
affect the performance by the Grantee of its obligations under, or the
validity or enforceability of, such Sale Agreement, any of the other related
Basic Documents or the related Notes, or (iv) which could reasonably be
expected to adversely affect the federal or state income tax attributes of
the related Notes.
COVENANTS OF THE GRANTEE
In each Sale Agreement, the Grantee will covenant, among other things, that:
(a) so long as any of the Notes are outstanding, it will keep in full
force and effect its existence, rights and franchises as a limited liability
company under the laws of its jurisdiction of organization and its
qualification to do business to the extent necessary to protect the validity
of the Basic Documents;
(b) it will not sell, pledge, assign or transfer to any other person, or
grant, create, incur, assume, suffer to exist or otherwise assert any lien
on any of the related Intangible Transition Property or related assets;
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(c) it shall defend the right, title and interest of the Trust and
Indenture Trustee in, to and under the related Intangible Transition
Property and related assets against all claims of third parties claiming
through or under the Grantee;
(d) it will hold all payments received by it in respect of the IFC
Charges or the proceeds thereof in trust for the Servicer and pay to the
Servicer all such payments no later than two Business Days after such
receipt by the Grantee;
(e) it shall notify the Trust and the Indenture Trustee promptly after
becoming aware of any lien on any of the related Intangible Transition
Property and related assets other than the conveyances under the Sale
Agreement and the Indenture;
(f) it shall comply with its organizational documents and all
applicable laws to the extent that failure to so comply would materially
adversely affect the Trust's or the Indenture Trustee's interests in the
Intangible Transition Property or related assets or under any Basic Document
to which it is party, or the Grantee's performance of its obligations under
the Sale Agreement or under any Basic Document to which it is party;
(g) it shall indicate in its financial statements that it is not the
owner of the Intangible Transition Property and it shall not own or purchase
any Notes and, except with respect to taxes, not make any statement or
reference in respect of the Intangible Transition Property and related
assets that is inconsistent with the ownership interest of the Trust;
(h) it shall execute and file such filings, and cause to be executed and
filed such filings as may be required by law to fully preserve, maintain,
and protect the interests of the Trust in the related Intangible Transition
Property and related assets, including all filings required under the
Funding Law relating to the transfer of the related Intangible Transition
Property to the Trust;
(i) it shall institute any action or proceeding necessary to compel
performance by the ICC or the State of Illinois of any of their obligations
or duties under the Funding Law, the related Transitional Funding Order and
related Tariff, and will take such legal or administrative actions as may be
reasonably necessary to protect the Trust and Noteholders from claims, state
actions or other actions or proceedings of third parties which, if
successfully pursued, would result in a breach of any representation set
forth in such Sale Agreement;
(j) it shall not, prior to the date which is one year and one day after
the termination of the Indenture, acquiesce, petition or otherwise invoke or
cause any other person to invoke the process of any court or governmental
authority for the purpose of commencing or sustaining a case against, or
appointment of a receiver for, the Trust under any federal or state
bankruptcy, insolvency or similar law;
(k) it shall pay all material taxes, assessments and governmental
charges imposed upon it or any of its properties or assets if the failure to
pay any such taxes, assessments and governmental charges would, after any
applicable grace periods, result in a lien on the Intangible Transition
Property or related assets;
(l) except as otherwise expressly permitted, the Grantee shall not
waive, amend, modify, supplement or terminate any Basic Document or any
provision thereof without the written consent of the Trust;
(m) without derogating from the absolute nature of the assignment
granted to the Trust under the Sale Agreement or the rights of the Trust,
the Grantee will not, without the prior written consent of the Trust, amend,
modify, waive, supplement, terminate or surrender, or agree to any
amendment, modification, supplement, termination, waiver or surrender of,
the terms of any collateral securing the Notes or the Basic Documents, or
waive timely performance or observance by ComEd or the Servicer under the
Grant Agreement or the Servicing Agreement, respectively;
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(n) it shall promptly notify the Trust, in writing, of each default
under the Indenture and each material default on the part of ComEd or the
Servicer of their respective obligations under the Grant Agreement or the
Servicing Agreement;
(o) the Grantee will not elect, nor cause or permit the Trust to elect,
to be classified as an association taxable as a corporation for federal
income tax purposes; and
(p) the Grantee shall conduct its affairs separate from those of its
members or affiliates.
In addition, so long as any of the Notes are outstanding, the Grantee will
covenant in each Sale Agreement that it shall not, except as otherwise permitted
thereunder:
(a) sell, transfer, exchange or otherwise dispose of any of its
properties or assets;
(b) take any action that would be inconsistent with the Trust's absolute
and first priority ownership interest in the Intangible Transition Property
and related assets;
(c) engage in any business other than acquiring, owning, financing,
transferring, assigning and otherwise managing the Intangible Transition
Property and related assets;
(d) incur, assume, guarantee or otherwise become liable, directly or
indirectly, for any indebtedness;
(e) 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; and
(f) make any expenditure (by long-term or operating lease or otherwise)
for capital assets (either realty or personalty) in an aggregate amount not
to exceed $25,000 in any calendar year.
AMENDMENT OF SALE AGREEMENTS
Each Sale Agreement may be amended from time to time by the Grantee and the
Trust, with prior written notice given to the Rating Agencies and the prior
written consent of the Indenture Trustee, but without the consent of any of the
Noteholders, to cure any ambiguity, to correct or supplement any provisions in
such Sale Agreement or for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions in such Sale Agreement or of
modifying in any manner the rights of the Noteholders; provided, however, that
such action shall not, as evidenced by an officer's certificate delivered to the
Indenture Trustee, adversely affect in any material respect the interests of any
Noteholder.
Each Sale Agreement may also be amended from time to time by the Grantee and
the Trust, with prior written notice given to the Rating Agencies and the prior
written consent of the Indenture Trustee and Noteholders holding not less than a
majority in principal amount of the then outstanding Notes of all Series
affected thereby, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of such Sale Agreement or of
modifying in any manner the rights of the Noteholders; provided, however, that
no such amendment shall (a) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, IFC Collections relating to the IFC Charges,
or (b) reduce the percentage of the outstanding principal amount of the Notes,
the Noteholders of which are required to consent to any such amendment, without
the consent of the Noteholders of all the outstanding Notes.
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INDEMNIFICATION OBLIGATIONS OF THE GRANTEE
Each Sale Agreement will provide that the Grantee will indemnify the Trust,
the Indenture Trustee, the Delaware Trustee and the Noteholders, and each of
their respective officers, directors, employees and agents for, and defend and
hold harmless each such person from and against, (a) any and all taxes (other
than any taxes imposed on the Noteholders) that may at any time be imposed on or
asserted against any such person as a result of the grant of the Intangible
Transition Property to the Grantee, or that may be imposed on or asserted
against any such person under existing law as of the closing date as a result of
the Grantee's ownership and assignment of the Intangible Transition Property,
the Trust's issuance and sale of the Notes, or the other transactions
contemplated herein, including, in each case, any sales, gross receipt, general
corporation, tangible personal property, privilege or license taxes (but
excluding any taxes imposed as a result of a failure of such person to properly
withhold or remit taxes imposed with respect to payments on any Note); and (b)
any and all amounts of principal and interest on the Notes not paid when due in
accordance with their terms and the amount of any deposits to the Trust required
to have been made in accordance with the terms of the Basic Documents which are
not made when so required and any and all liabilities, obligations, claims,
actions, suits or payments of any kind whatsoever that may be imposed on or
asserted against any such person, together with any reasonable costs and
expenses incurred by such person, as a result of the Grantee's breach of any of
its representations, warranties or covenants contained in such Sale Agreement.
The indemnities described above will survive the termination of such Sale
Agreement and include reasonable fees and expenses of investigation and
litigation (including reasonable attorneys' fees and expenses).
Notwithstanding the foregoing, but subject to the Grantee's covenant to
fully preserve, maintain and protect the interests of the Trust in the
Intangible Transition Property, the Grantee shall not be under any obligation to
appear in, prosecute or defend any legal action that shall not be incidental to
its obligations under each Sale Agreement.
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CERTAIN PAYMENT, WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS
The rate of principal payments on each Class of Notes, the aggregate amount
of each interest distribution on each Class of Notes and the actual maturity
date of each Class of Notes might be related, in part, to the rate and timing of
receipt of IFC Collections. Accelerated receipts of IFC Collections will not
result in principal payments on the Notes earlier than the related Scheduled
Maturity Dates since receipts in excess of the amounts necessary to make any
Scheduled Payment on the Notes will be deposited in the Reserve Subaccount for
payment in accordance with such schedule, except in the event of an early
redemption or the acceleration of the maturity of the Notes after an Event of
Default, in which event such amounts will be released to pay such accelerated
amounts. However, delayed receipts of IFC Collections may result in principal
payments on the Notes that occur later than the related Scheduled Maturity
Dates.
The actual payments on each date for each Class of Notes and the weighted
average life thereof will be affected primarily by the rate of IFC Collections
and the timing of receipt of such IFC Collections, as well as amounts in the
Reserve Subaccount, the Overcollateralization Subaccount and the Capital
Subaccount. Since each IFC Charge will consist of a charge per kilowatt-hour of
usage by the applicable class of Customers, the aggregate amount of IFC
Collections and the rate of principal amortization on the Notes might depend, in
part, on actual electricity usage by Customers and the rate of delinquencies and
write-offs. Although the amounts of the IFC Charges will be adjusted from time
to time based in part on the actual rate of IFC 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 IFC
Charges that will cause IFC Collections to be received at any particular rate.
See "Description of the Intangible Transition Property--Adjustments to the IFC
Charges--Reliance on IFC Adjustments." If IFC Collections are received at a
slower rate than expected, a Note 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 Notes after an Event of
Default, the Notes are not expected to mature earlier than scheduled. A payment
on a date that is earlier than forecasted will result in a shorter weighted
average life, and a payment on a date that is later than forecasted will result
in a longer weighted average life.
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
IFC Collections, the relative importance of such factors, the percentage of the
principal balance of the Notes that will be paid as of any date or the overall
rate of IFC Collections will be realized.
In addition, pursuant to the terms of the Indenture, any Series of Notes may
be redeemed 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. If specified in the Prospectus Supplement related to any Series
or Class of Notes, the Indenture may also permit the redemption of any such
Series or Class of Notes in full on any Payment Date on or prior to December 31,
2004 using proceeds received from the refinancing of any other Series or Class
of Notes, through the issuance of New Notes. The New Notes will be payable
solely out of the Intangible Transition Property and other Note Collateral.
Redemption will cause such Notes to be retired earlier than would otherwise be
expected and may adversely affect the yield to maturity of the Notes. There can
be no assurance as to whether any Series of Notes will be redeemed, or as to
whether Noteholders 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 a statutory business trust formed under the laws of the
State of Delaware pursuant to the Trust Agreement executed by the Beneficiary
Trustees and the Delaware Trustee (not in its individual capacity but solely in
its trust capacity under the terms of the Trust Agreement). The Trust will not
be an agency or instrumentality of the State of Illinois. Pursuant to the terms
of the Trust Agreement, the Trust will be created for the specific purpose of
acquiring and owning the Intangible Transition Property and the other Note
Collateral, issuing and registering the Notes, pledging its interest in the
Intangible Transition Property and other Note Collateral pursuant to the terms
of the Indenture, making payments on the Notes, distributing amounts released to
the Trust and performing other activities that are necessary, suitable or
convenient to accomplish these purposes. The Trust Agreement will not permit the
Trust to engage in any activities not directly related to the Note financing.
The assets of the Trust will consist of the Intangible Transition Property,
the other Note Collateral, and any money distributed by the Grantee to the
Delaware Trustee on behalf of the Trust to fund the Capital Subaccount. For a
description of the Notes to be issued by the Trust, see "Description of the
Notes."
As of the date of this Prospectus, the Trust has not carried on any business
activities and has no operating history. Audited financial statements of the
Trust are included as an exhibit to this Prospectus. The fiscal year of the
Trust will be the calendar year.
The Trust's business will be managed by the Delaware Trustee. Under the
terms of the Trust Agreement, the Delaware Trustee must at all times be: (1) a
corporation satisfying the provisions of Section 3807(a) of the Delaware
Business Trust Act; (2) authorized to exercise corporate trust powers; (3) have
a combined capital and surplus of at least $50,000,000 and be subject to
supervision or examination by federal or state authorities; and (4) have, or
have a parent which has, a long-term unsecured debt rating of at least "BBB-" by
S&P and at least "Baa3" by Moody's. If the Delaware Trustee at any time fails to
satisfy these provisions, if a receiver is appointed for it, if it is adjudged
bankrupt or if it is otherwise incapable of acting, it will be removed by the
Servicer and the Servicer will appoint a successor Delaware Trustee, which must
also meet the requirements described above.
The Delaware Trustee and the Servicer may jointly appoint a co-trustee for
the purpose of meeting any legal requirements of any state in which any part of
the estate of the Trust may be located. This co-trustee need not meet the
requirements described in the previous paragraph.
The authority of the Beneficiary Trustees under the Trust Agreement is
limited to the performance of the following duties: (1) to execute and file the
Registration Statement of which this Prospectus is a part, and to file any
supplements, amendments and exhibits to this Registration Statement; (2) to
register the Notes with applicable state securities commissions; and (3) to take
any necessary or appropriate related actions (including entering into certain
amendments to the Trust Agreement). The following two people have been named as
the Beneficiary Trustees in the Trust Agreement:
<TABLE>
<CAPTION>
NAME AGE TITLE
- --------------------------------------------- ---- ----------------------
<S> <C> <C>
Ruth Ann M. Gillis 44 Beneficiary Trustee
David R. Zahakaylo 37 Beneficiary Trustee
</TABLE>
Ruth Ann M. Gillis will be a Beneficiary Trustee of the Trust. Ms. Gillis
has served as Vice President and Treasurer of ComEd and Unicom Corporation since
September 1997. From 1996 to 1997, Ms. Gillis served as Chief Financial Officer,
Treasurer and Vice President of The University of Chicago Hospitals and Health
System. Ms. Gillis held the position of Chief Financial Officer and Senior Vice
President at American National Bank and Trust Company between 1993 and 1996.
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David R. Zahakaylo will be a Beneficiary Trustee of the Trust. Mr. Zahakaylo
has served as Assistant Treasurer of ComEd since May 1998. He was ComEd's
Director of Financial Forecasting for ComEd from 1997 to 1998 and Supervisor of
Corporate Modeling from 1994 to 1996. Prior to 1994, Mr. Zahakaylo served as
Senior Research Analyst for ComEd.
As of the date of this Prospectus, none of the Trustees have received any
compensation for their services. The Beneficiary Trustees will not be
compensated by the Trust for their services on behalf of the Trust. The Delaware
Trustee will be paid from the assets of the Trust and will be reimbursed for its
reasonable expenses, including, without limitation, the reasonable compensation,
expenses and disbursements of any agents, representatives, experts and counsel
the Delaware Trustee employs in connection with performance of its duties under
the Trust Agreement.
The Trust Agreement provides that neither the Beneficiary Trustees nor the
Delaware Trustee shall be liable under any circumstances except for liabilities
arising from: (1) such Trustee's grossly negligent action; (2) such Trustee's
grossly negligent failure to act; or (3) such Trustee's own willful misconduct.
The Trust Agreement also provides that the Servicer shall indemnify each of the
Delaware Trustee, the Beneficiary Trustees and their successors, assigns, agents
and servants to the fullest extent permitted by law against any liability
incurred with respect to their services under the Trust Agreement.
The Trust Agreement provides that the Trust shall dissolve, wind up and
terminate on the earlier of: (1) final distribution of all money and other
property of the Trust in accordance with the Trust Agreement and other Note
financing documents; (2) December 31, 2020; or (3) if the Grantee elects, the
day following the date when the aggregate outstanding amount of the Notes is
zero. The Grantee is not entitled to revoke or terminate the Trust prior to this
date. Any funds remaining in the Trust after this termination date are to be
distributed to the Grantee.
Under the Trust Agreement, no trustee shall have the power to commence a
voluntary proceeding in bankruptcy relating to the Trust, except that the
Delaware Trustee may commence such a proceeding with the prior approval of the
Grantee and delivery to the Delaware Trustee of a signed certificate from the
Grantee stating that the Grantee reasonably believes that the Trust is
insolvent.
The principal place of business of the Trust is c/o First Union Trust
Company, National Association, One Rodney Square, 920 King Street, 1st Floor,
Wilmington, Delaware 19801, and its telephone number is (302) 888-7532.
THE GRANTEE
The Grantee, ComEd Funding, LLC, a special purpose Delaware limited
liability company, the sole member of which is ComEd, was organized on July 21,
1998 for the exclusive purposes of (a) initially owning the Intangible
Transition Property established by Transitional Funding Orders, (b) assigning
all of its right, title and interest in the Intangible Transition Property and
the Servicing Agreement to the Trust, (c) entering into the Servicing Agreement
with the Servicer in respect of the Intangible Transition Property, and (d)
engaging in only those other activities incidental thereto and necessary,
suitable or convenient therefor. In addition, the Grantee's limited liability
company agreement and other organizational documents require it to operate in a
manner such that it should not be consolidated in the bankruptcy estate of ComEd
in the event ComEd becomes subject to such a proceeding.
The executive offices of the Grantee are located at Ten South Dearborn
Street, 37th Floor, Chicago, Illinois 60603, and its telephone number is (312)
394-7937.
The Grantee 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
Grantee are included as an exhibit to this Prospectus.
73
<PAGE>
MANAGERS
In accordance with the Amended and Restated Limited Liability Company
Agreement of the Grantee, the management of the Grantee shall be vested entirely
in the Management Committee.
The following is a list of the managers of the Grantee. All such persons
have served in the capacities set forth below since October 15, 1998. The
managers and any officers will devote such time as is necessary to the affairs
of the Grantee. The Grantee will have sufficient officers, managers and
employees to carry on its business.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------------------------ ----------- ---------
<S> <C> <C>
Ruth Ann M. Gillis 44 Manager
Patricia L. Kampling 39 Manager
John C. Bukovski 57 Manager
Andrew L. Stidd 41 Manager
Kevin P. Burns 29 Manager
</TABLE>
Ruth Ann M. Gillis is a Manager of the Grantee. Ms. Gillis also serves as
Vice President and Treasurer of Unicom and ComEd, positions she has held since
1997. From 1996 to 1997, she was Chief Financial Officer, Treasurer and Vice
President of The University of Chicago Hospitals and Health System. Ms. Gillis
held the position of Chief Financial Officer and Senior Vice President for
American National Bank and Trust Company between 1993 and 1996.
Patricia L. Kampling is a Manager of the Grantee. Ms. Kampling has served as
Manager of Finance for ComEd since May 1998. Ms. Kampling previously was
Assistant Treasurer of ComEd from 1991 to May 1998.
John C. Bukovski is a Manager of the Grantee. Mr. Bukovski has served as
Senior Vice President of Unicom and ComEd since 1997. From 1989 to 1997, he
served as Vice President of ComEd. Mr. Bukovski was appointed Chief Financial
Officer of ComEd in 1992, a position he also holds at Unicom.
Andrew L. Stidd is a Manager of the Grantee. Mr. Stidd has held the position
of President of Global Securitization Services, LLC since January 1998. He
served as Managing Director of Global Securitization Services, LLC between
December 1996 and December 1997. Prior to joining Global Securitization
Services, LLC, Mr. Stidd was Vice President and Director of Lord Securities
Corporation, where he was employed beginning in 1992.
Kevin P. Burns is a Manager of the Grantee. Mr. Burns has been a Vice
President of Global Securitization Services, LLC since December 1996. Prior to
joining Global Securitization Services, LLC, Mr. Burns served as a Director at
Lord Securities Corporation from 1992 to 1996. Prior to joining Lord Securities
in 1992, Mr. Burns was a fixed income analyst with Mabon Securities Corp. of New
York, New York.
The managers and any officers of the Grantee, other than the two managers
who are independent from ComEd (the "Independent Managers"), will not be
compensated by the Grantee for their services on behalf of the Grantee. The
initial annual compensation for both of the Independent Managers will be a total
of $3,500. Any officer will serve in such capacity at the discretion of ComEd,
as sole member of the Grantee. ComEd is an affiliate of the Grantee. The
Grantee's organizational documents provide that any officers and managers of the
Grantee shall be indemnified against liabilities incurred in connection with
their services on behalf of the Grantee.
74
<PAGE>
THE SERVICER
GENERAL
ComEd is engaged principally in the production, purchase, transmission,
distribution and sale of electricity to a diverse base of residential,
commercial, industrial and wholesale customers within its electric service
territory. ComEd's electric service territory currently consists of
approximately 11,300 square miles with an estimated population of approximately
8 million. During 1997, ComEd provided a total of 79,825 million kilowatt-hours
of electricity to 3.4 million retail customers.
ComEd is regulated by the ICC and the FERC.
COMED CUSTOMER BASE, ELECTRIC ENERGY CONSUMPTION AND BASE RATES
ComEd's customer base consists of five (5) revenue reporting classes (each,
a "Reporting Customer Class"): residential, small commercial and industrial,
large commercial and industrial, public authorities and electric railroads. The
Reporting Customer Classes are broad groups that include accounts with a wide
range of load characteristics served under a variety of rate designs. In order
to align the per kilowatt-hour IFC Charges with the electricity rate currently
paid by a Customer more closely than would occur using the Reporting Customer
Classes, each Transitional Funding Order will provide that for purposes of
billing IFC Charges, ComEd's customer base will be divided into the thirteen
(13) customer classes (each, an "IFC Customer Class") set forth below, and that
the total IFC Charges billed for each applicable period shall be allocated among
the IFC Customer Classes on the basis of their respective percentage of the 1996
base rate revenues of ComEd also set forth below. See "Description of the
Intangible Transition Property--Adjustments to the IFC Charges."
<TABLE>
<CAPTION>
PERCENTAGE OF
1996 BASE RATE
IFC CUSTOMER CLASS DESCRIPTION REVENUES(1)
- ------------------------------------ ------------------------------------ -------------------
<S> <C> <C>
Residential--No Space Heat Residential accounts without space 34.7
heating
Residential--Space Heat Residential accounts with space 3.8
heating
Standby Service Rate 18--Standby Service accounts 0.2
Interruptible Service Rider 26--Interruptible Service 1.3
accounts
Street Lighting--Fixture Based Rates Rate 23--Municipal Street Lighting 0.2
accounts and separately billed
Rate 26--Private Outdoor Lighting
accounts
Street Lighting--Dusk to Dawn and Accounts billed under Rate 0.4
Traffic Signal 25--Street, Highway and Traffic
Signal Lighting, as well as
contractual agreements for similar
services
Railroads Electric railroad customers using 0.4
electricity for traction power
Water-Supply and Sewage Pumping Accounts billed under Rate 0.7
Service 24--Water- Supply and Sewage
Pumping Service
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
1996 BASE RATE
IFC CUSTOMER CLASS DESCRIPTION REVENUES(1)
- ------------------------------------ ------------------------------------ -------------------
<S> <C> <C>
In Lieu of Demand Non-residential in lieu of demand 1.9
accounts
0 to and including 100 kW Demand Non-residential accounts with 13.2
highest billing demand during
previous billing year from 0 to
and including 100 kW
Over 100 to and including 1,000 kW Non-residential accounts with 20.1
Demand highest billing demand during
previous billing year over 100 to
and including 1,000 kW
Over 1,000 to and including 10,000 Non-residential accounts with 16.8
kW Demand highest billing demand during
previous billing year over 1,000
to and including 10,000 kW
Over 10,000 kW Demand Non-residential accounts with 6.1
highest billing demand during
previous billing year over 10,000
kW
</TABLE>
- --------------
(1) Total does not equal 100% due to rounding.
If the IFC Charges for any IFC Customer Class increase to an amount such
that the forecasted revenues from Applicable Rates for such IFC Customer Class
during a semiannual or quarterly period are projected to be less than the IFC
Charges allocated to such IFC Customer Class for the same period, the deficiency
shall, in accordance with the IFC Tariff, be ratably allocated among the
remaining IFC Customer Classes based on their percentages of the 1996 base rate
revenues, recalculated to exclude such IFC Customer Class.
The table below shows the electricity sales, billed revenues, number of
customers, and average revenues per kilowatt-hour for each of the five (5)
Reporting Customer Classes for the first six months of 1998 and each of the five
(5) preceding years. Any updated information relating to the table below will be
set forth in a Prospectus Supplement. There can be no assurances that the
electricity sales, billed revenues, number of customers, average billed revenues
per kilowatt-hour or the composition of any of the foregoing will remain at or
near the levels reflected in the following table.
76
<PAGE>
BILLED ELECTRICITY SALES, BILLED REVENUES AND CUSTOMERS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997(1) 1998(1)(2)
------------ ------------ ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
BILLED ELECTRICITY SALES
(MILLIONS OF
KILOWATT-HOURS):
Residential................. 20,818 21,376 23,303 22,310 22,364 17,771
Small commercial and
industrial................ 23,463 24,320 25,313 25,131 26,038 20,337
Large commercial and
industrial................ 22,917 23,450 23,777 23,896 24,253 17,958
Public authorities.......... 6,741 6,885 7,158 7,336 7,387 5,329
Electric railroads.......... 405 397 390 424 423 306
------------ ------------ ------------ ------------ ------------ -------
Total..................... 74,344 76,428 79,941 79,097 80,465 61,721
------------ ------------ ------------ ------------ ------------ -------
------------ ------------ ------------ ------------ ------------ -------
BILLED REVENUES (MILLIONS):
Residential................. $ 2,341 $ 2,274 $ 2,621 $ 2,542 $ 2,574 $ 1,986
Small commercial and
industrial................ 1,963 1,917 2,074 2,114 2,167 1,683
Large commercial and
industrial................ 1,438 1,381 1,426 1,446 1,475 1,089
Public authorities.......... 474 453 487 503 510 376
Electric railroads.......... 27 26 27 29 30 18
------------ ------------ ------------ ------------ ------------ -------
Gross Total............... $ 6,243 $ 6,051 $ 6,635 $ 6,634 $ 6,756 $ 5,152
Provisions for revenue
refunds(3)................ (1,282) (16) (46)
------------ ------------ ------------ ------------ ------------ -------
Net Total................. $ 4,961 $ 6,035 $ 6,635 $ 6,634 $ 6,710 $ 5,152
------------ ------------ ------------ ------------ ------------ -------
------------ ------------ ------------ ------------ ------------ -------
<CAPTION>
1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF CUSTOMERS
(AT YEAR END)
Residential................. 3,009,508 3,047,354 3,079,381 3,102,101 3,123,364
Small commercial and
industrial................ 283,764 286,793 288,848 289,803 291,143
Large commercial and
industrial................ 1,503 1,528 1,539 1,550 1,566
Public authorities.......... 12,023 12,059 12,039 12,142 12,180
Electric railroads.......... 2 2 2 2 2
------------ ------------ ------------ ------------ ------------
Total..................... 3,306,800 3,347,736 3,381,809 3,405,598 3,428,255
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998(2)
------------ ------------ ------------ ------------ ------------ ----------------
AVERAGE BILLED REVENUE PER
KILOWATT-HOUR:
<S> <C> <C> <C> <C> <C> <C>
Residential (excluding light
bulb service)............. 11.21 CENTS 10.60 CENTS 11.22 CENTS 11.36 CENTS 11.47 CENTS 11.18 CENTS
Small commercial and
industrial................ 8.36 CENTS 7.88 CENTS 8.19 CENTS 8.41 CENTS 8.32 CENTS 8.28 CENTS
Large commercial and
industrial................ 6.27 CENTS 5.89 CENTS 6.00 CENTS 6.05 CENTS 6.08 CENTS 6.06 CENTS
Public authorities.......... 7.03 CENTS 6.57 CENTS 6.80 CENTS 6.86 CENTS 6.90 CENTS 7.06 CENTS
Electric railroads.......... 6.81 CENTS 6.60 CENTS 6.90 CENTS 7.00 CENTS 7.16 CENTS 5.88 CENTS
</TABLE>
- --------------
(1) In 1997, ComEd changed its method of accounting for revenue recognition,
retroactive to January 1, 1997, to record estimated revenue for services
delivered but not billed at the end of each accounting period. ComEd
reported sales to ultimate consumers for operating revenues of $6,663.7
million and $5,247 million for the year 1997 and the nine months ended
September 30, 1998, respectively, and for electricity sales of 79,825
million kilowatt-hours and 62,488 million kilowatt-hours for the year 1997
and the nine months ended September 30, 1998, respectively.
(2) Data is available for January 1, 1998 through September 30, 1998.
(3) In November, 1993, two settlements (the "Settlements") related to various
proceedings and matters concerning ComEd's rates (the "Rate Matters
Settlement") and its fuel adjustment clause (the "Fuel Matters Settlement")
became final. The recording of the effects of the Settlements in October
1993 reduced 1993 net income and net income on common stock by approximately
$354 million (after-tax), in addition to the approximately $160 million
(after-tax) effect of the deferred recognition of revenues and after the
partially offsetting effect of recording approximately $269 million
(after-tax) in deferred carrying charges authorized in the ICC rate order
issued in January, 1993. Refunds related to the Rate Matters Settlement, and
reduced fuel adjustment clause collections related to the Fuel Matters
Settlement, have been completed. The Amendatory Act allowed Utilities the
option to eliminate their fuel adjustment clause ("FAC") as of January 1,
1997. Due to the elimination of the FAC, ComEd recorded a provision for
revenue refunds in the fourth quarter of 1997.
Principal factors influencing the number and electricity usage of
residential customers include population growth, weather (I.E., air conditioning
usage and, to a lesser extent, electric space heating usage), price, increased
saturation of electric appliances, the availability of more energy-efficient
appliances, changes in technology, and customer income. Principal factors
influencing the number and electricity usage of commercial customers (which
consist primarily of wholesale and retail trade establishments) include
population growth, service area economic growth, commercial floor space and
commercial employment. Principal factors influencing industrial electricity
usage include overall economic activity, developments in processes and
technologies using electricity, and increases in the efficiency with which
industrial processes use electric energy.
For the year ended December 31, 1997, the 10 largest Customers represented
approximately 3.0% of ComEd's Billed Revenues. There can be no assurance that
current Customers will remain Customers or that the levels of Customer
concentration in the future will be similar to those set forth above.
The table below shows the average revenue in cents per kilowatt-hour for
fully bundled services owed to ComEd for each of the thirteen (13) IFC Customer
Classes, based on tariffs then in effect but taking into account the fifteen
percent (15%) reduction in base rates for services charged to residential
78
<PAGE>
retail customers (based on ComEd's rates in effect immediately prior to January
1, 1998), effective as of August 1, 1998:
<TABLE>
<CAPTION>
AVERAGE REVENUE IN
CENTS PER KILOWATT-HOUR
IFC CUSTOMER CLASS FOR FULLY-BUNDLED SERVICES(1)
- ------------------------------------------------------------- -------------------------------
<S> <C>
Residential--No Space Heat................................... 10.41
Residential--Space Heat...................................... 6.87
Standby Service.............................................. 4.33
Interruptible Service........................................ 3.85
Street Lighting--Fixture Based Rates......................... 16.14
Street Lighting--Dusk to Dawn and Traffic Signal............. 5.17
Railroads.................................................... 7.16
Water-Supply and Sewage Pumping Service...................... 6.82
In Lieu of Demand............................................ 11.86
0 to and including 100 kW Demand............................. 9.30
Over 100 to and including 1,000 kW Demand.................... 7.47
Over 1,000 to and including 10,000 kW Demand................. 6.96
Over 10,000 kW Demand........................................ 5.09
</TABLE>
- --------------
(1) Based on year-end 1997 data and derived by dividing total revenue for each
IFC Customer Class (variable energy charge plus fixed demand/customer
charges) by total kilowatt-hour sales for such IFC Customer Class. Revenues
from the delivery service charges are expected to be materially lower than
revenues from rates for fully-bundled services, and may not be calculated in
the same manner. Revenues include decommissioning expense and miscellaneous
other items which will not be included in Applicable Rates.
FORECASTING ELECTRICITY CONSUMPTION
ComEd historically has prepared annual forecasts of electric energy
(kilowatt-hour) sales for the following year and several years thereafter. The
principal uses of the electric energy forecasts have been for shorter-term
budgeting and rate-setting purposes. ComEd has also prepared longer-term
forecasts of customer peak demand and energy consumption, primarily for use in
facilities planning. ComEd most recently updated its electric energy forecasting
models in 1997. Econometric and end-use models were developed for use in
forecasting electric energy sales to the residential, commercial and industrial
customer classes. These models forecast electric energy sales as a function of
electricity price, income, employment, weather and other economic factors that
influence electricity sales. Known and measurable industrial plant additions,
expansions and closures are incorporated into the electricity sales projections,
based on information obtained by account managers assigned to the larger
customer accounts. ComEd uses economic and demographic forecasts prepared by an
independent economic forecasting and consulting firm employed by ComEd
separately from any transaction contemplated by this Prospectus as inputs to its
forecasting models. Weather inputs to the forecasting models are based on
"normal" weather conditions which are based on thirty-year averages for heating
and cooling degree days.
FORECAST VARIANCE
ComEd 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. In addition, ComEd will use its annual sales forecast to determine
the appropriate levels of IFC Charges from time to time. As a result, ComEd's
ability to accurately predict energy consumption may affect the timing of IFC
Payments.
79
<PAGE>
Since ComEd 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 1993 variance is based on a forecast prepared in 1992. The variances
for the aggregate combined Reporting Customer Classes referred to in the table
below, which consist of all Reporting Customer Classes, range from a low of 0.6%
to a high of 4.3% in absolute terms. Any updated information relating to the
table below will be set forth in a Prospectus Supplement. There can be no
assurance that the future variance between actual and expected consumption in
the aggregate or by Reporting Customer Class will be similar to the historical
experience set forth below.
ANNUAL FORECAST VARIANCES
<TABLE>
<CAPTION>
ELECTRICITY SALES (MILLIONS OF KILOWATT-HOURS): 1993 1994 1995 1996 1997(1)
- ------------------------------------------------ --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Residential
Actual........................................ 20,818 21,376 23,303 22,310 22,364
Forecast...................................... 20,383 21,138 21,408 22,393 22,827
--------- --------- --------- --------- -----------
Variance...................................... (2.1%) (1.1%) (8.9%) 0.4% 2.0%
Small commercial and industrial
Actual........................................ 23,463 24,320 25,313 25,131 26,038
Forecast...................................... 23,485 23,764 24,082 24,843 25,772
--------- --------- --------- --------- -----------
Variance...................................... 0.1% (2.3%) (5.1%) (1.2%) (1.0%)
Large commercial and industrial
Actual........................................ 22,917 23,450 23,777 23,896 24,253
Forecast...................................... 22,820 23,229 23,567 23,895 24,510
--------- --------- --------- --------- -----------
Variance...................................... (0.4%) (1.0%) (0.9%) 0.0% 1.0%
Public authorities
Actual........................................ 6,741 6,885 7,158 7,336 7,387
Forecast...................................... 6,721 6,852 6,951 7,078 7,427
--------- --------- --------- --------- -----------
Variance...................................... (0.3%) (0.5%) (3.0%) (3.6%) 0.5%
Electric railroads
Actual........................................ 405 397 390 424 423
Forecast...................................... 442 452 458 395 436
--------- --------- --------- --------- -----------
Variance...................................... 8.4% 12.2% 14.8% (7.3%) 3.0%
Aggregate Combined Reporting Customer Classes:
Actual........................................ 74,344 76,428 79,941 79,097 80,465
Forecast...................................... 73,851 75,435 76,466 78,604 80,972
--------- --------- --------- --------- -----------
Variance...................................... (0.7%) (1.3%) (4.5%) (0.6%) 0.6%
</TABLE>
- --------------
(1) In 1997, ComEd changed its method of accounting for revenue recognition,
retroactive to January 1, 1997, to record estimated revenue for services
delivered but not billed at the end of each accounting period. ComEd
reported sales to ultimate consumers for operating revenues of $6,663.7
million for the year 1997 and for electricity sales of 79,825 million
kilowatt-hours for the year 1997.
During the last five years, no discernible trend is apparent with respect to
the historical forecast variance relating to any one Reporting Customer Class or
the aggregate combined Reporting Customer Classes referred to in the table
above. The variance for the aggregate combined Reporting Customer Classes has
ranged from a 4.5% underestimate of usage in the unseasonably warm year of 1995
to a 0.6% overestimate of usage, with an average inaccuracy of 1.5%.
80
<PAGE>
CREDIT POLICY; BILLING; COLLECTIONS; RESTORATION OF SERVICE
ComEd's policies and procedures pertaining to credit (including requirements
for deposits from customers), billing, collections (including procedures for
disconnection of service for non-payment) and restoration of service after
disconnection, are subject to and controlled, to a material extent, by Illinois
statutory requirements, rules and regulations of the ICC and ComEd's filed
tariffs. These statutory provisions, ICC regulations and tariffs may change from
time to time. In addition, to the extent permitted by statutory provisions and
regulatory requirements, ComEd may change its policies and procedures and seek
approval of new tariffs governing these activities from time to time. ComEd will
agree, in each Grant Agreement and the Servicing Agreement, not to initiate any
such changes which are likely to adversely affect ComEd's ability to make timely
recovery of amounts billed to Customers, except for any such changes required by
applicable law. Under the Servicing Agreement, any such changes initiated by
ComEd will also apply to the servicing by ComEd, as the Servicer, of the
Intangible Transition Property.
CREDIT POLICY
Under Illinois law, ComEd is generally required to provide electric service
to all retail customers in its service area. ComEd's review of the credit
history of a new applicant for electric service generally consists of a review
to determine if the applicant has previously received service from ComEd and, if
so, whether there are any delinquent billed amounts outstanding. ComEd relies on
information provided by the applicant, and on its customer information system,
to determine whether ComEd has previously served the customer and whether any
delinquent billed amounts are outstanding. In accordance with ICC regulations,
deposits may be required from certain applicants for service or existing
customer accounts to protect ComEd against losses. Accounts from which deposits
are most frequently obtained are new commercial and industrial customers (I.E.,
applicants with limited or no credit history), and residential customers with
poor payment histories (as defined in ICC regulations). The maximum allowable
amount of the deposit is one-sixth of the projected annual billings to the
customer for residential and small business applicants or customers, and
one-third of projected annual billing for other non-residential customers.
One-third of a requested deposit must be paid by the customer within 12 days and
the balance within two billing periods. The deposit is refunded to a new
customer after one year if the customer has not been disconnected for
non-payment and has not paid a bill after the due date more than three times
during the year. The deposit is refunded to an existing customer after one year
if the customer has not been disconnected for non-payment, and has not paid a
bill after the due date more than five times during the year.
BILLING PROCESS
ComEd generally 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, 1997, ComEd mailed out an average of 164,400 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.
ComEd may change its billing policies and procedures from time to time. It
is expected that any such changes would be designed to enhance ComEd's ability
to make timely recovery of amounts billed to customers.
81
<PAGE>
COLLECTION PROCESS
ComEd receives approximately 66 percent (66%) of total bill payments via the
U.S. mail. Approximately 27 percent (27%) of bill payments are received at local
offices and other pay offices. ComEd receives the remainder of payments via
automatic payment service, electronic funds transfer and electronic data
interchange.
Bills are processed and mailed to customers approximately three days after
the customer's meter is scheduled to be read. Bills are considered past due if
not paid within 21 calendar days for residential accounts and within 14 calendar
days for commercial and industrial accounts. Payment is considered timely if
received by mail not more than two days after the due date. These payment
periods are established by ICC regulations. In accordance with statutory
requirements and regulations pertaining to procurement by governmental entities,
certain federal customers are allowed 45 days to make net payment and certain
state, county and municipal customers are allowed 60 days to make net payment
and, in addition, ComEd may be limited under Illinois law in its ability to
impose late payment charges on such customers.
Under Illinois law, ComEd must waive one late payment charge incurred by a
residential customer during each twelve-month period. A reminder notice is
mailed to the customer if payment has not been received on the account by two
days after the due date of the most recent bill. If non-payment continues, a
service disconnection notice may be sent to the customer through operation of a
scoring system calculated by ComEd's customer information system. The scoring of
an account for this purpose is based on factors including the age of the
arrearage and the customer's years of service, non-sufficient funds payment
history, and disconnection history. When dictated by the scoring system, a
service disconnection notice is mailed to notify the customer of disconnection
activity scheduled for seven system days (ten calendar days) after the date of
the notice. If the scoring system does not dictate initiation of a service
disconnection notice, another reminder notice is included with the customer's
next bill.
Customers are entitled to enter into deferred payment arrangements in
accordance with statutory requirements, ICC regulations and ComEd's filed
tariffs. Such payment agreements allow the customer to make partial payments, or
to extend an arrearage, during periods of financial hardship. Service
disconnection is not implemented against a customer who has entered into and is
abiding by a payment agreement. In addition, Illinois statutory law and ICC
regulations prohibit Utilities from disconnecting service under certain
conditions, such as when the temperature is projected to be below 32 degrees
Fahrenheit or on weekends and holidays. ComEd may also be subject to agreements
with agencies administering the Low Income Home Energy Assistance Fund which
limits ComEd's ability to disconnect service to Customers with respect to whom
ComEd is receiving payments under that program.
ComEd sends an unpaid final bill to a database match service (Skip Alert) 40
days after the final bill issue date. An account is charged off as uncollectible
if payment is not received by 90 days after the final bill issue date. The
account is then given to a collection agency for an indefinite period.
ComEd may change its collection policies and procedures from time to time.
It is expected that any such changes would be designed to enhance ComEd's
ability to make timely recovery of amounts billed to customers.
RESTORATION OF SERVICE
Before restoring service that has been disconnected for non-payment, ComEd
has the right to require the payment of all of the following charges: (a) the
total amount owing on an account including any past-due balance, the current
billing, and a credit deposit, if requested; (b) any miscellaneous charges
associated with the reconnection of service (i.e., reconnection charges, field
collection charges, and/or returned item charges); (c) any charges assessed for
unusual costs incidental to the termination
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or restoration of service which have resulted from the customer's action or
negligence; and (d) any unpaid closing bills from other accounts in the name of
the customer of record.
ComEd 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
ComEd'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 net write-off experience of ComEd for each Reporting Customer Class
for the first six months of 1998 and each of the five preceding years. Such
historical information is presented herein because ComEd's actual experience
with respect to net write-offs and delinquencies may affect the timing of IFC
Payments. Any updated information relating to the table below will be set forth
in a Prospectus Supplement. There can be no assurance that the future net
write-off experience in the aggregate or by Reporting Customer Class will be
similar to the historical experience set forth below. In addition, to the extent
that an ARES is providing consolidated billing for ComEd, there is no assurance
that such ARES will apply the same credit and collection policies and procedures
to Customers as would be applied by ComEd, as the Servicer.
TOTAL BILLED REVENUES
(IN MILLIONS)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997(1) 1998(1)(2)
--------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Residential................................ $ 2,341 $ 2,274 $ 2,621 $ 2,542 $ 2,574 $ 1,986
Small commercial and industrial............ 1,963 1,917 2,074 2,114 2,167 1,683
Large commercial and industrial............ 1,438 1,381 1,426 1,446 1,475 1,089
Public authorities......................... 474 453 487 503 510 376
Electric railroads......................... 27 26 27 29 30 18
--------- --------- --------- --------- ----------- -----------
Gross Total.............................. $ 6,243 $ 6,051 $ 6,635 $ 6,634 $ 6,756 $ 5,152
Provisions for revenue refunds(3).......... (1,282) (16) -- -- (46)
--------- --------- --------- --------- ----------- -----------
Net Total................................ $ 4,961 $ 6,035 $ 6,635 $ 6,634 $ 6,710 $ 5,152
--------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- ----------- -----------
</TABLE>
NET WRITE-OFFS(4)
(IN MILLIONS)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998(2)(5)
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Residential................................ $ 21.6 $ 17.9 $ 17.8 $ 28.1 $ 34.6 $ 19.4
Small commercial and industrial............ 7.1 6.0 6.5 9.1 9.7 8.5
Large commercial and industrial............ 2.0 2.8 1.6 3.0 2.2 2.1
Public authorities......................... 0.0 0.1 0.2 0.2 0.3 0.3
Electric railroads......................... -- -- -- -- -- --
--------- --------- --------- --------- --------- -----
Total.................................... $ 30.7 $ 26.8 $ 26.1 $ 40.4 $ 46.8 $ 30.3
--------- --------- --------- --------- --------- -----
--------- --------- --------- --------- --------- -----
</TABLE>
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NET WRITE-OFFS AS A PERCENTAGE OF BILLED REVENUE
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997(1) 1998(1)(2)
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Residential............................... 0.9% 0.8% 0.7% 1.1% 1.3% 1.1%
Small commercial and industrial........... 0.4% 0.3% 0.3% 0.4% 0.4% 0.5%
Large commercial and industrial........... 0.1% 0.2% 0.1% 0.2% 0.1% 0.2%
Public authorities........................ 0.0% 0.0% 0.0% 0.0% 0.1% 0.1%
Electric railroads........................ 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
----- ----- ----- ----- ----- -----
Total................................... 0.5% 0.4% 0.4% 0.6% 0.7% 0.6%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
- --------------
(1) In 1997, ComEd changed its method of accounting for revenue recognition,
retroactive to January 1, 1997, to record estimated revenue for services
delivered but not billed at the end of each accounting period. ComEd
reported sales to ultimate consumers for operating revenues of $6,663.7
million and $5,247 million for the year 1997 and the nine months ended
September 30, 1998, respectively, and for electricity sales of 79,825
million kilowatt-hours and 62,488 million kilowatt-hours for the year 1997
and the nine months ended September 30, 1998, respectively.
(2) Data is available for January 1, 1998 through September 30, 1998.
(3) In November, 1993, two settlements (the "Settlements") related to various
proceedings and matters concerning ComEd's rates (the "Rate Matters
Settlement") and its fuel adjustment clause (the "Fuel Matters Settlement")
became final. The recording of the effects of the Settlements in October
1993 reduced 1993 net income and net income on common stock by approximately
$354 million (after-tax), in addition to the approximately $160 million
(after-tax) effect of the deferred recognition of revenues and after the
partially offsetting effect of recording approximately $269 million
(after-tax) in deferred carrying charges authorized in the ICC rate order
issued in January, 1993. Refunds related to the Rate Matters Settlement, and
reduced fuel adjustment clause collections related to the Fuel Matters
Settlement, have been completed. The Amendatory Act allowed Utilities the
option to eliminate their fuel adjustment clause ("FAC") as of January 1,
1997. Due to the elimination of the FAC, ComEd recorded a provision for
revenue refunds in the fourth quarter of 1997.
(4) Net write-offs include any amounts recovered by ComEd from deposits,
bankruptcy proceedings and payments received after an account has been
closed.
(5) Due to ComEd's recent conversion to a new billing system, this information
has been estimated by ComEd for the third fiscal quarter.
When accounts are billed final, most bills are due 21 days later. If unpaid
after such 21-day period, a series of letters will be issued and the account
reported to ComEd's skip tracing program for internal and external matching. If
still unpaid after 90 days since the bill issue date, the account will be
written off and automatically referred to a collection agency.
On a monthly basis, net write-offs are simply the gross write-offs for the
month, less recoveries (payments and adjustments) for that month. Although, for
the most part, the write-offs are accounts that have reached the 90-day point
during any particular month, recoveries, while received during such month, could
be for accounts charged off in any previous period.
During the five-year period 1993 through 1997, ComEd's net write-offs have
exhibited a slight upward trend. In 1998, ComEd instituted two significant
changes in its collection process in an effort to reverse this trend. The first
is the implementation of the Field Billing Package negotiated in 1997 which,
among other things, changed certain employee work rules. These work rules
changes made it possible to field additional workers to perform service
disconnections in early 1998. Secondly, a tighter credit policy has been enacted
which includes both increased deposit collection for commercial customers
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and stricter guidelines for deferred payment arrangements. The reduction in
active delinquency and the reversal of the increasing write-off trend would
appear to indicate that this is an effective tactic.
DELINQUENCIES
The following table sets forth information relating to the delinquency
experience of ComEd for all Customers as a whole for the first six months of
1998 and each of the five preceding years. Any updated information relating to
the table below will be set forth in a Prospectus Supplement. There can be no
assurance that the future delinquency experience will be similar to the
historical experience set forth below.
DELINQUENCY DATA(1)
PERCENTAGE OF DELINQUENT CUSTOMERS(2)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998(3)
- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
19.3% 18.7% 19.9% 19.5% 18.2% 17.1%
</TABLE>
- --------------
(1) This information is used by ComEd to evaluate delinquency experience because
ComEd does not collect and maintain typical aging data.
(2) This delinquency data is only for customer accounts where service is still
being provided, i.e., active accounts. Once an account enters the write-off
stream, it is no longer an active account and is not included in delinquent
data. The write-off data on the previous table is compiled on a different
basis in that it reflects only customer accounts where service is no longer
provided, i.e., closed accounts. Payment is considered late if received by
mail more than two (2) days after the due date.
(3) Data is available only for January 1, 1998 through September 30, 1998. Due
to ComEd's recent conversion to a new billing system, this information has
been estimated by ComEd for the third fiscal quarter.
In general, a favorable trend is emerging in the reduction of the active
delinquent balance. This is the result of tightening of ComEd's credit policy in
1997. This policy strengthening included more aggressive collection of deposits
on commercial customers, fewer discretionary deferred payment plans and an
increased level of disconnection of service.
YEAR 2000 ISSUES
BACKGROUND
ComEd uses various software applications and embedded systems throughout its
businesses that will be affected by so-called "Year 2000 issues." These issues
may prevent an application or system from correctly processing dates up to the
year 2000 and beyond. Based on ComEd's current schedule for completion of Year
2000 tasks, ComEd believes that its planning is adequate to secure Year 2000
readiness of its critical systems. Nevertheless, achieving Year 2000 readiness
is subject to various risks and uncertainties and ComEd is not able to predict
all the factors that could cause actual results to differ materially from its
current expectations as to its Year 2000 readiness.
ComEd management has established a Year 2000 project team, currently
composed of over 300 members, including members of ComEd's senior management, to
address Year 2000 issues. The team is focused on three elements that are
integral to the project: business continuity, project management and risk
management. Business continuity involves the continuation of reliable electric
supply and service in a safe and cost-effective manner. Project management
involves defining and meeting the
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project scope, schedule and budget. Risk management involves customer
management, contingency planning and legal issues.
In addition to its internal efforts, ComEd is working with various industry
groups to coordinate electric utility industry Year 2000 efforts with the
Clinton Administration's Year 2000 Conversion Council, the Department of Energy
(the "DOE") and Congress. The DOE has asked one of these industry groups to
report on the integrity of the transmission system for North America and to
coordinate and assess the preparation of the electric systems in North America
for the Year 2000. An initial status report and coordination plan was submitted
by this industry group to the DOE in September of 1998, and a full status report
is due by July of 1999, as to the measures that are being taken to prepare
electric power supply and delivery systems for transition into the Year 2000.
STATE OF READINESS
Since July 1996, ComEd has been working to identify and address Year 2000
issues. ComEd's approach to identifying and addressing noncompliant software
applications and embedded systems consists of the following stages: inventory,
analysis, renovation, testing and deployment. In addition, ComEd is engaged in
contingency planning for Year 2000 problems. The first stage is to inventory all
applications and systems. The analysis stage involves assessing whether software
applications and embedded systems are Year 2000 compliant. The renovation stage
involves remediating or upgrading applications and systems to make them Year
2000 ready. The testing stage determines whether the renovated applications and
systems are Year 2000 ready. The deployment stage is when the tested
applications and systems are implemented. ComEd also has begun to develop
contingency plans to address the possibility that the applications and systems
may not be Year 2000 ready at the end of this process. An independent consultant
has been engaged to assist ComEd in the assessment of the process being used to
address the Year 2000 issue.
ComEd's Year 2000 project focuses on those facets of its business that are
required to deliver reliable electric service. The project encompasses the
computer systems that support core business functions such as customer
information and billing, finance, procurement, supply and personnel as well as
the components of metering, transmission, distribution and generation support.
The project also focuses on embedded systems, instrumentation and control
systems in facilities and plants. In accordance with business plans, ComEd has
replaced certain of its financial, human resources and customer service and
billing software, and is planning to replace its payroll system in early 1999,
with new software that is Year 2000 compliant and that addresses ComEd's
strategic needs as it enters a less regulated environment.
The following table summarizes the status as of September 30, 1998 of
ComEd's progress toward achieving Year 2000 readiness. The figures set forth in
the table represent the approximate extent to which ComEd has completed each
phase of its Year 2000 project for software applications and embedded systems.
<TABLE>
<CAPTION>
SOFTWARE APPLICATIONS EMBEDDED SYSTEMS
(PERCENTAGE COMPLETE) (PERCENTAGE COMPLETE)
--------------------------- ---------------------------
<S> <C> <C>
Inventory................... 99 97
Analysis.................... 58 70
Renovation.................. 47 5
Testing..................... 35 7
Deployment.................. 31 4
</TABLE>
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The following is a brief summary of estimates of progress of the Year 2000
project and certain projected completion dates in each of ComEd's four critical
business areas--nuclear generation, fossil generation, transmission and
distribution and corporate information services:
- NUCLEAR GENERATION--Software applications inventory is 90% complete and
analysis is underway. Embedded systems inventory is 100% complete and
analysis is 84% complete. Eight of ten nuclear units are expected to be
Year 2000 ready in the first half of 1999. If Year 2000 modifications are
necessary, the two remaining units are expected to be made Year 2000 ready
during refueling outages previously scheduled for the fourth quarter of
1999.
- FOSSIL GENERATION--Software applications and embedded systems inventories
are 100% complete. Analysis is 32% complete for software applications and
56% complete for embedded systems. Deployment of software applications and
embedded systems is expected to be completed by May 30, 1999.
- TRANSMISSION AND DISTRIBUTION--Software applications and embedded systems
inventories are 100% complete. Analysis is 33% complete for software
applications and 56% complete for embedded systems. Testing and deployment
are each 20% complete for software applications. Deployment of software
applications and embedded systems is expected to be completed by May 30,
1999.
- CORPORATE INFORMATION SERVICES--Inventory is 100% complete. Analysis is
93% complete. Renovation is 88% complete. Deployment is 57% complete.
Deployment of software applications and embedded systems is expected to be
completed by December 31, 1998.
ComEd's current schedule is subject to change, depending on developments
that may arise through unforeseen business circumstances, and through
remediation and testing phases of its compliance effort. ComEd also depends upon
third parties, including customers, suppliers, government agencies and financial
institutions, to reliably deliver its products and services. ComEd has begun
implementing additional initiatives to assess the degree to which third parties
with whom it has business relationships are addressing Year 2000 issues. These
initiatives include analysis of the Year 2000 compliance programs of ComEd's
critical vendors and obtaining Year 2000 warranties in certain new contracts and
licenses. ComEd also has introduced protocols for assuring that software and
embedded systems remain Year 2000 compliant on a continuing basis. ComEd's
contingency planning is addressing mechanisms for preventing or mitigating
interruption caused by its suppliers. ComEd also has an outreach program in
place for communicating Year 2000 project information to residential and
business customers.
YEAR 2000 COSTS
ComEd estimates that the total cost of remediating or upgrading software
which would not otherwise be replaced in accordance with ComEd's business plans
is approximately $20 million, and the total cost of remediating or upgrading
embedded systems is approximately $20-40 million. Approximately $12.7 million
has been expended as of September 30, 1998 for external labor, hardware and
software costs, and for the costs of ComEd employees who are dedicated full-time
to the Year 2000 project. All of such costs are expensed as incurred. The
foregoing amounts do not include the cost of new software applications installed
as a result of strategic replacement projects described earlier. Such
replacement projects were not accelerated because of Year 2000 issues.
The cost of the project and the dates on which ComEd plans to complete its
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources, third parties' Year 2000 readiness and other
factors. Further, ComEd expects to incur additional costs after 1999 to
remediate and replace less critical software applications and embedded systems.
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CONTINGENCY PLAN
ComEd has existing contingency plans in place for events such as extreme
heat, storms, equipment failures and accidents. ComEd is preparing Year 2000
contingency plans based on the framework of existing emergency management system
preparation and scenario development.
ComEd has begun the process of developing contingency plans to address the
most reasonably likely worst case scenarios that could occur in the event that
various Year 2000 issues are not resolved in a timely manner. ComEd expects to
submit the first draft of contingency plans to an industry group by December 31,
1998, as they have requested. Final plans are due to be submitted to such
industry group by June 30, 1999. Contingency planning is an ongoing process and
will continue through the fourth quarter of 1999.
ComEd is using an approach in its contingency planning process that has been
recognized by various industry groups. The phases of the process include:
business impact analysis, contingency planning and testing. ComEd's business
impact analysis requires business unit personnel to evaluate the impact of
mission-critical systems failures on ComEd's core business operations, focusing
on specific failure scenarios and how they can be mitigated. The necessary
conditions for enacting the plans will be documented along with the appropriate
personnel responsible in each of the business units should a Year 2000 failure
occur. Additionally, ComEd will participate in industry-wide readiness drills
scheduled for the spring and fall of 1999.
A failure to correct any critical Year 2000 processing problems prior to
January 1, 2000 could have material adverse operational and financial
consequences if the affected systems either cease to function or produce
erroneous data. For example, the Year 2000 issues could affect, among other
things, the ability of ComEd, as Servicer, and any ARES to bill and collect the
IFC Charges, both because of problems with their own systems and problems that
Customers may have in processing bills, and the ability of the Servicer and ARES
to meter usage. This could result in significant delays in IFC Collections and,
therefore, payments to Noteholders. The Year 2000 issues could also affect usage
by Customers if there are problems with the generation or distribution of
electricity which could cause the amount of Applicable Rates from which IFC
Charges will be deducted to be materially decreased or delayed. See "Risk
Factors--Reduction in Amount of Revenues from Applicable Rates."
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SERVICING
SERVICING PROCEDURES
The Servicer, on behalf of the Trust, will, among other things, manage,
service and administer, and make collections in respect of, the Intangible
Transition Property pursuant to the Servicing Agreement between the Servicer and
the Grantee. The Servicer's duties will also include filing IFC Tariffs with the
ICC to provide for billing and collection of the IFC Charges and the
corresponding adjustments in other charges billed to Customers, calculation and
billing of all amounts based on the IFC Charges, receipt and posting of all IFC
Payments, responding to inquiries of Customers and the ICC with respect to the
Intangible Transition Property and the IFC Charges, accounting for collections
and furnishing monthly, quarterly and annual statements to the Trust and the
Indenture Trustee and taking action in connection with periodic revisions to the
IFC Charges as described below. Pending deposit into the Collection Account, all
IFC Payments received by the Servicer may be invested by the Servicer at its own
risk and for its own benefit, and need not be segregated from other funds of the
Servicer. In the Servicing Agreement, the Servicer will agree to continue to
impose IFC Charges (or equivalent amounts), collect IFC Charges (or equivalent
amounts), and remit IFC Charges (or equivalent amounts), in accordance with the
Servicing Agreement and to ensure that the IFC Charges (or equivalent amounts)
are deducted from ComEd's Applicable Rates and other charges in accordance with
the Basic Documents until the retirement of the Notes, unless expressly
prohibited by law, court or regulatory order in effect at such time.
Each IFC Charge will be expressed as an amount in cents per kilowatt-hour of
electricity usage by the applicable Customer, regardless of whether the Customer
purchases its electricity from ComEd or from another electricity provider.
However, in any Billing Period in which the total IFC Charges to be billed to a
Customer exceeds the amount of Applicable Rates for which the Customer would
otherwise be billed, the Servicer will only bill such Customer an IFC Charge
equal to the amount of Applicable Rates which the Customer would otherwise be
billed. The Servicer expects the applicable IFC Charge to be separately
identified on each Customer's bill with an aggregate amount (which includes the
applicable IFC Charge) to be paid to the Servicer. Bills are sent to each
Customer every 27 to 33 days.
Except as otherwise required by law with respect to taxes or similar
governmental charges included in bills and invoices to Customers, to the extent
that there is a shortfall in the amounts received by the Servicer from (a)
Customers it bills directly or (b) a third-party collection agent, including an
ARES, such shortfall will be allocated by the Servicer in accordance with the
servicing standards set forth below FIRST, to the Trust and ComEd PRO RATA,
based on the amount of Customers' bills constituting IFC Charges, and the amount
constituting other fees and charges not constituting IFC Charges owed to ComEd
or any successor, respectively, until all kilowatt-hour charges, other than late
charges, are paid, and SECOND, such amount of late charges shall be allocated to
ComEd. If such amounts are billed and collected by ComEd for an ARES pursuant to
a consolidated billing arrangement, the total charges due to the ARES will also
be included in the proportional allocation of any partial payment. In the event
that an ARES or another Utility provides consolidated billing to Customers for
both the services provided by such ARES or other Utility and services provided
by ComEd, partial payments made to an ARES by such Customers are required by the
Act to be credited first to amounts due to ComEd's tariffed services (including
IFC Charges collected on behalf of Noteholders), and the Servicer will allocate
such payments as otherwise described above. Unless the Servicer is not the
provider of electric service to Customers, the Servicer will be entitled to
disconnect service to any Customer who fails to pay IFC Charges billed on behalf
of the Trust in accordance with the ICC's regulations and other applicable law
pertaining to disconnections, in the same manner as the Servicer may disconnect
the Customer for failure to pay any charges for tariffed service billed thereby.
In addition, the Servicer will agree to advance its own funds in order to
institute any action or proceeding necessary to compel performance by the ICC or
the State of Illinois of any of their obligations
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or duties under the Funding Law, any Transitional Funding Order or any IFC
Tariff, and 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 necessary to block or overturn any
attempts to cause a repeal, modification of, supplement to or judicial
invalidation of, the Amendatory Act or the Transitional Funding Order or the
rights of holders of Intangible Transition Property by legislative enactment or
otherwise that would be adverse to the Grantee, the Trust or any Noteholders.
The Servicer would be entitled to reimbursement of its expenses advanced by it
in connection with such action or proceeding as an operating expense of the
Trust in accordance with the priority of payments as described in "Security for
the Notes--Allocations; Payments." The Servicer also will undertake to make
filings or initiate ICC proceedings to ensure that the dollar amount of
authorized Intangible Transition Property is adequate for the payment in full of
the Notes.
SERVICING STANDARDS AND COVENANTS
The Servicing Agreement will require the Servicer, in servicing and
administering the Intangible 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, in addition to certain requirements described
in "The Servicer-- Credit Policy; Billing; Collections; Restoration of Service"
above, 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 Noteholders 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 Intangible Transition Property, it will: (a) manage, service, administer and
make collections in respect of the Intangible Transition Property with
reasonable care and in accordance with applicable law, including all applicable
guidelines of the ICC, 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 Intangible Transition Property; (d) comply with all laws
applicable to and binding on it relating to the Intangible Transition Property;
and (e) make all required submissions and provide all required notifications to
the ICC with respect to Adjustments to the IFC Charges as described herein. The
Servicer will acknowledge and agree, to the fullest extent permitted by
applicable law, that its obligations under the Servicing Agreement shall remain
in effect notwithstanding any breach of the State Pledge, whether or not
contested, or subsequent invalidation of the Funding Law or any Transitional
Funding Order or related tariff, and that no such breach of the State Pledge or
invalidation shall excuse the Servicer from liability for any failure to perform
its covenants under the Servicing Agreement on account of any legal inability
stemming from such breach of the State Pledge or invalidation.
In addition, the Servicer will covenant that it will deduct and remit IFC
Charges paid by Customers under any contracts which provide that such Customer
is obligated thereunder to pay an amount equal to the amount of IFC Charges that
would be billed if the services provided under such contract were services
subject to Applicable Rates.
In the Servicing Agreement, the Servicer will indemnify, defend and hold
harmless the Grantee, the Trust, the Indenture Trustee, the Delaware Trustee and
the Noteholders against any costs, expenses, losses, claims, damages and
liabilities that may be imposed on, incurred by or asserted against any such
person as a result of (a) the Servicer's willful misconduct, bad faith, gross
negligence or reckless
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disregard in the performance of its duties or observance of its covenants under
the Servicing Agreement or (b) the Servicer's breach of any of its
representations or warranties thereunder.
REMITTANCES TO COLLECTION ACCOUNT
Under the terms of the IFC Tariff filed in connection with each Transitional
Funding Order, the Trust will begin to impose and collect the related IFC
Charges concurrently with the issuance of the Notes of any Series (each, a
"Series Issuance Date") and such right shall exist continuously thereafter in
accordance with the related Transitional Funding Order. The IFC Charges shall be
imposed and collected based upon the entire electricity consumption of Customers
included in bills issued to Customers on and after the related Series Issuance
Date, including that portion of the applicable Billing Period during which
electric service was provided prior to such Series Issuance Date.
The Servicing Agreement provides, among other things, that the Servicer will
collect the IFC Payments on behalf of the Trust, as assignee of the Grantee. The
Servicer will remit all IFC Payments to the Collection Account within two
Servicer Business Days of receipt (each, a "Daily Remittance Date") unless the
Monthly Remittance Conditions are met, in which case the Servicer will remit to
the Collection Account on the Servicer Business Day immediately preceding the
tenth day of each month (each such monthly date, a "Monthly Remittance Date")
all IFC Payments received by the Servicer during the immediately preceding
Billing Period (the "Monthly IFC Amount").
Because the Servicer does not track cash collections on bills rendered
within a particular Billing Period, amounts remitted to the Collection Account
with respect to IFC Charges included in bills issued to Customers during each
Billing Period will be based upon the actual amounts billed for each class of
Customers and the Servicer's estimation of write-offs and delinquencies for each
class of Customers, all in accordance with the servicing standards set forth
above.
Beginning with the Monthly Remittance Date following the end of the seventh
(7th) Billing Period after the related Series Issuance Date and on every Monthly
Remittance Date thereafter, the Servicer will calculate, in a manner which
conforms to the servicing standards set forth above, the amount of IFC Payments
received (the "Redetermined IFC Payments") with respect to the Billing Period
which is seven (7) Billing Periods prior to such Monthly Remittance Date (the
"Reconciled Billing Period"), and will reconcile such amount to the IFC Payments
for such Reconciled Billing Period previously remitted to the Collection Account
(the "Remitted IFC Payments"). If the Remitted IFC Payments remitted during any
Reconciled Billing Period exceed the Redetermined IFC Payments received during
such Reconciled Billing Period (an "Excess Remittance") or are less than the
Redetermined IFC Payments received during such Reconciled Billing Period (a
"Remittance Shortfall"), the Servicer shall (a) in the case of an Excess
Remittance, (i) reduce the amount(s) which the Servicer remits to the Collection
Account on such Monthly Remittance Date and each Monthly Remittance Date (or
Daily Remittance Date, as the case may be) thereafter until the entire amount of
such Excess Remittance has been recovered or (ii) immediately pay from the
General Subaccount or the Reserve Subaccount the amount of such Excess
Remittance; provided that the payment thereof will not prevent the Servicer from
making the payment of interest on the immediately following Payment Date, and
(b) in the case of a Remittance Shortfall, increase the amount which the
Servicer remits to the Collection Account on such Monthly Remittance Date by the
amount of such Remittance Shortfall, the increase coming from the Servicer's own
funds.
A "Billing Period" is a period created by dividing the calendar year into
twelve consecutive periods of approximately twenty-one (21) Servicer Business
Days each and represents the period for which the Servicer typically renders a
bill for electric service to each of its customers.
Due to difficulties in the implementation of ComEd's new computerized
billing system, ComEd is presently experiencing delays in the issuance of bills
to many large industrial customers and certain other customers. The Servicer
will covenant in the Servicing Agreement that, to the extent current billing
information for any IFC Customer Class is not available, the dollar amount of
IFC Charges billed for that
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class, for purposes of remitting IFC Collections, will be based on such class's
kilowatt usage in the same month of the preceding year (adjusted for normal
growth and unusual weather) until such time as the computer billing information
for that class is current. Any variances between such estimates and the actual
bills issued will be reconciled six Billing Periods later when ComEd reconciles
Remitted IFC Payments with the Redetermined IFC Payments as described above.
ComEd currently believes that substantially all bills will be current by the end
of February, 1999, at which time such usage estimates will no longer be needed,
and that the use of the above-described estimates will not adversely impact the
timing or amounts of IFC Collections.
The Servicing Agreement will require the Servicer to monitor ComEd's receipt
of any lump-sum payments of transition charges under Section 16-108(h) of the
Act, and, concurrently with such receipt, to set aside and allocate for the
benefit of the Trust, as proceeds of the Intangible Transition Property, an
amount equal to the product of (a) the IFC Charge which is then in effect for
such Customer at the time of receipt and (b) the total number of kilowatt-hours
utilized to compute the amount of such lump-sum transition charges. The
Servicing Agreement will also require the Servicer to monitor ComEd's receipt of
any revenues derived from condemnation proceedings, FERC stranded cost
recoveries or any other amounts which reflect compensation for lost revenues
which would otherwise have been attributable to Applicable Rates (collectively,
"Lost Revenue Recoveries"), and, concurrently with the receipt thereof, to set
aside and allocate for the benefit of the Trust, as proceeds of the Intangible
Transition Property, an amount equal to the product of (a) the total dollar
amount of such Lost Revenue Recoveries and (b) a fraction, (1) the numerator of
which equals the weighted average of the IFC Charges applicable to all classes
of Customers the revenues from which are included in the calculation of such
Lost Revenue Recoveries and (2) the denominator of which equals the weighted
average of the Applicable Rates charged to such Customers, with such weighted
averages to be in each case calculated based on the respective IFC Charges and
Applicable Rates applicable to such classes for the most recent calendar year
then ended.
NO SERVICER ADVANCES
The Servicer will not be obligated to, and consequently will not, make any
advances of interest or principal on the Notes.
SERVICING COMPENSATION
On each Payment Date, the Servicer will be entitled to receive the Servicing
Fee specified in the related Prospectus Supplement. 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 "Security for 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 IFC 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 IFC Payments.
ALTERNATIVE RETAIL ELECTRIC SUPPLIERS AND OTHER THIRD-PARTY COLLECTORS
As part of the restructuring of the Illinois electric industry, certain
Customers will be allowed, beginning October 1, 1999, and all Customers will be
allowed as of May 1, 2002, to purchase electricity and related services from
ARES and from other Utilities rather than from ComEd. See "Electric Industry
Restructuring in Illinois--Alternative Retail Electric Suppliers." The
Amendatory Act requires ComEd to allow such ARES and other Utilities, pursuant
to a tariff to be filed by ComEd with, and approved by, the ICC, to issue a
single bill to any retail customer purchasing electricity or related services
from the ARES or other Utility and delivery services from ComEd for both the
services provided by the ARES or other Utility and the delivery services
provided by ComEd. The Amendatory Act provides that the tariff to be
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filed by ComEd shall (a) require partial payments made by retail customers to be
credited first to ComEd's tariffed services (which would include the IFC
Charges), (b) impose commercially reasonable terms with respect to credit and
collection, including requests for deposits, (c) retain ComEd's right to
disconnect retail customers, if it does not receive payment for its tariffed
services, in the same manner that it would be permitted to if it had billed for
the services itself, and (d) require an ARES or other Utility that elects this
billing option to include on each bill to retail customers an identification of
the Utility (I.E., ComEd) providing the delivery services and a listing of the
charges applicable to those services.
In addition, under ComEd's current practices, customers are allowed to pay
their electricity bills indirectly through use of third-party collection agents
such as currency exchanges, grocery stores, banks and similar entities which
offer payment of utility bills as a convenience to their customers. The ICC will
approve procedures in each Transitional Funding Order that would (a) require any
third party (including the collection agents described above and any ARES that
is required to collect IFC Charges) who bills or collects IFC Charges on behalf
of Customers to either (i) remit IFC Collections to the Servicer within seven
days of receipt or (ii) pay such IFC Charges to the Servicer within fifteen days
of billing by ComEd irrespective of whether payments have been received from the
ultimate customer, (b) allow the Servicer, within ten days after a default by
any such third party in remitting IFC Collections, to give notice thereof to the
defaulting entity and, if it does not receive payment or other response
initiating dispute resolution within five days thereafter, to assume or transfer
to another third party that defaulting entity's billing and collection
responsibilities with respect to the IFC Charges, (c) grant the Servicer access
to information on total monthly kilowatt usage by the applicable Customers not
otherwise available to the Servicer to the extent reasonably required for the
Servicer to calculate and, if applicable, bill the related IFC Charges owed by
such Customers, and (d) allow the Servicer, pursuant to a tariff subject to
applicable regulatory approval, to impose such other terms with respect to
credit and collection policies as may be reasonably necessary to prevent the
then current rating of the Notes from being withdrawn or downgraded. Each IFC
Tariff filed in connection with the related Transitional Funding Order will
require a third-party collection agent, including any ARES, which assumes
payment responsibilities under clause (a)(ii) above and which does not have
investment-grade credit ratings (at least BBB- or the equivalent) to post a
deposit or comparable security equal to one month's estimated IFC Collections
collected by such third-party collector.
In addition, each Transitional Funding Order will provide that (a) a
third-party collector who is or otherwise becomes obligated to remit payments to
ComEd on a more frequent basis than as set forth above shall remit the IFC
Charges at the same time as such other payments and (b) a third-party collector
disputing payments shall pay the disputed amount under protest (or make other
suitable financial arrangements) pending a hearing. Such procedures will be
described in each Transitional Funding Order and in the related IFC Tariff filed
by ComEd under the Act to authorize the imposition and collection of the related
IFC Charges. In the Servicing Agreement, the Servicer will agree to implement
procedures and policies to ensure that the remittance obligations of ARES and
other third-party collection agents are properly enforced, including maintaining
adequate records and information about such ARES or third-party collectors,
monitoring the performance of and payments by such ARES or third-party
collectors, enforcing the obligations of such ARES or third-party collectors and
implementing appropriate credit and collection policies. Nonetheless, there can
be no assurance that an ARES or other third-party collection agent will apply
the same credit and collection policies and procedures to Customers as would be
applied by ComEd. In addition, the Servicer will have no meaningful ability to
control the collection procedures of ARES or other third-party collection agents
who simply forward payments on behalf of Customers and not pursuant to
contractual arrangements with ComEd or pursuant to consolidated billing
procedures. See "Risk Factors--Potential Servicing Issues--Possible Payment
Delays Caused by Reliance on Alternative Retail Electric Suppliers and Other
Third-Party Collectors."
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SERVICER REPRESENTATIONS AND WARRANTIES
In the Servicing Agreement, the Servicer will make representations and
warranties to the Grantee, which will be assigned to the Trust, 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 Illinois, 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, subject to applicable insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws relating to or affecting creditors'
rights generally from time to time in effect, and to general principles of
equity; (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 Agreement (except where the failure to have such licenses would not be
reasonably likely to have a material adverse effect on the Servicer or an
adverse effect on the Intangible Transition Property); (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 those which the Servicer is
required to make in the future; (g) except as disclosed in the Servicing
Agreement, 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, (ii) seeking a determination that might materially and
adversely affect the performance by the Servicer of its obligations thereunder,
or (iii) relating to the Servicer which could reasonably be expected to
adversely affect the federal or state income tax attributes of the Notes; and
(h) that the collection curve used to calculate the remittance amounts of IFC is
correct in all material respects.
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 Grantee, the Trust, the Indenture Trustee, the
Delaware Trustee and the Noteholders against any losses, claims, damages,
liabilities and reasonable costs or expenses incurred as a result thereof.
STATEMENTS BY SERVICER
On or before the 20th calendar day of each month, the Servicer will prepare
and furnish to the Grantee, the Trust, the Indenture Trustee and the Rating
Agencies a statement for the applicable calendar month (the "Monthly Servicer's
Statement") setting forth the aggregate amount of IFC Payments remitted by the
Servicer to the Collection Account and the Excess Remittance or the Remittance
Shortfall during the Billing Period immediately preceding such Monthly
Remittance Date. In addition, the Servicer will prepare, and the Indenture
Trustee will furnish to the Noteholders on each Payment Date, the quarterly
Servicer's Statement described under "Security for the Notes--Reports to
Noteholders."
EVIDENCE AS TO COMPLIANCE
The Servicing Agreement will provide that a firm of independent public
accountants retained by the Servicer at the Servicer's expense will furnish to
the Grantee, the Trust, the Indenture Trustee and the Rating Agencies on or
before September 30 of each year, beginning September 30, 1999, 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 Intangible 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
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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 Grantee, the
Trust, the Indenture Trustee and the Rating Agencies, on or before September 30
of each year, commencing September 30, 1999, of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its obligations
in all material respects 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, 1999) or, if there has been a default
in the fulfillment of any such material obligation, describing each such
material default. The Servicer has agreed to give the Grantee, the Trust, the
Indenture Trustee and the Rating Agencies notice of certain Servicer Defaults
under the Servicing Agreement.
Copies of such statements and certificates may be obtained by Noteholders by
a request in writing addressed to the Indenture Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicing Agreement will provide that ComEd may not resign from its
obligations and duties as Servicer thereunder, except upon (a) either (i) a
determination that ComEd's performance of such duties is no longer permissible
under applicable law, disregarding any breach of the State Pledge that is being
contested, or any subsequent invalidation of the Funding Law, any Transitional
Funding Order and/or the related IFC Tariff filed in connection therewith or
(ii) satisfaction of the Rating Agency Condition and (b) to the extent required
under any Transitional Funding Order, the approval by the ICC of such
resignation. No such resignation will become effective until a successor
Servicer has assumed ComEd's servicing obligations and duties under the
Servicing Agreement. The Servicer may perform its duties through agents or by
delegating them to a third party, but in any event the Servicer shall remain
liable for the performance of its duties and its obligations under the Servicing
Agreement and the other Basic Documents. Unless expressly reimbursable under the
Servicing Agreement, the fees and expenses of any such agent or third party
shall be paid by the Servicer.
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 Grantee, the Indenture Trustee, the Trust, the Delaware
Trustee, the Noteholders 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 related or
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 properties and assets of the Servicer substantially as a whole
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, among other
things, (a) any failure by the Servicer to make any required deposit into the
Collection Account, which failure continues
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unremedied for three Servicer Business Days after written notice from the
Grantee, the Trust or the Indenture Trustee is received by the Servicer or after
discovery by the Servicer; (b) any failure by the Servicer or ComEd, as the case
may be, duly to observe or perform in any material respect any other covenant or
agreement in the Servicing 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 ComEd, as the case may be, by the
Grantee or the Trust or (ii) to the Servicer or ComEd, as the case may be, 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 Grantee, the Trust or the
Noteholders and which material adverse effect continues unremedied for a period
of 60 days after the giving of notice to the Servicer by the Grantee, the Trust
or the Indenture Trustee; and (d) certain events of insolvency or similar
proceedings with respect to the Servicer or the Grantee and certain actions by
the Servicer or the Grantee 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 Indenture Trustee or Noteholders evidencing not less than
25 percent in principal amount of then outstanding Notes of all Series may by
written notice 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 Trust, with the Grantee's prior
written consent, 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 ICC for sequestration and
payment of revenues arising with respect to the Intangible Transition Property:
(1) the Noteholders and the Indenture Trustee as beneficiary of any statutory
lien permitted by the Funding Law; (2) the Grantee or its assignees; (3) the
Trust; or (4) pledgees or transferees of the Intangible Transition Property. If,
however, a bankruptcy trustee or similar official has been appointed for the
Servicer, and no Servicer Default other than such appointment has occurred, such
trustee or official may have the power to prevent the Indenture Trustee or the
Noteholders from effecting a transfer of servicing. The Indenture Trustee may
appoint, or petition the ICC or a court of competent jurisdiction for the
appointment of, a successor servicer which satisfies criteria specified by the
Rating Agencies if, within 30 days after notice of termination is given, the
Trust shall not have appointed a successor servicer. The Indenture Trustee may
make such arrangements for compensation to be paid.
WAIVER OF PAST DEFAULTS
Noteholders holding 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 (such third party in such role, the "Successor Servicer"),
the Servicing Agreement will require the Servicer being replaced to cooperate
with the Grantee, the Trust, the Indenture Trustee and the Successor
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Servicer in terminating such replaced 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 out-of-pocket costs and expenses (including attorneys' fees
and expenses) incurred in transferring its servicing responsibilities to the
Successor Servicer. Any Successor Servicer must satisfy the requirements of the
Act.
AMENDMENT
The Servicing Agreement may be amended by the parties thereto, without the
consent of the Noteholders, but with five Business Days' prior written notice to
the Rating Agencies and the consent of the Indenture Trustee, to cure any
ambiguity, to correct or supplement any provision or 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,
provided that such action will not, as certified in a certificate of an officer
of the Servicer delivered to the Indenture Trustee, the Grantee and the Delaware
Trustee, adversely affect in any material respect the interest of any
Noteholder. The Servicing Agreement may also be amended by the Servicer and the
Grantee with the consent of the Indenture 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; provided, however,
that no such amendment may (a) increase or reduce in any manner the amount of,
or accelerate or delay the timing of, IFC Collections or (b) 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 Grantee pursuant to the Servicing
Agreement will terminate upon the payment to the Noteholders and corresponding
distribution to the Noteholders of all amounts required to be paid or
distributed to them pursuant to the Servicing Agreement, the Notes and the
Indenture.
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DESCRIPTION OF THE NOTES
GENERAL
The Trust will issue the Notes pursuant to the terms of an Indenture (the
"Indenture") between the Trust and the Indenture Trustee. The particular terms
of the Notes of any Series will be established in a supplement to the Indenture
or a trustee's issuance certificate and, in either case, the material terms
thereof will be described in the related Prospectus Supplement. Although all
material terms of the Notes and the Indenture have been disclosed in this
Prospectus, 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
Indenture and related supplements or trustee's issuance certificates thereto,
forms of which are filed as exhibits to the Registration Statement.
The Notes may be issued in one or more Series, any one or more of which may
be comprised of one or more Classes. Classes of Notes may differ as to the
interest rate and the timing, sequential order and amount of payments of
principal or interest, or both. Each Series of Notes may include one or more
Classes of Notes that accrue interest at a variable rate based on the index
described in the related Prospectus Supplement. Each such Series will be secured
by a Swap Agreement, in addition to the security provided under the Indenture.
See "Floating Rate Notes" below. While the specific terms of only the Series of
Notes (and the Classes of such Series (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 of or consent of the holders of outstanding Notes. 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.
All Notes issued under the Indenture will be payable solely from, and
secured solely by, a pledge of and lien on the Intangible Transition Property
and the other Note Collateral as provided in the Indenture. See "Security for
the Notes--Pledge of Note Collateral." All Notes issued under the Indenture,
irrespective of when issued, shall have a parity lien on the Note Collateral,
although Floating Rate Notes shall also be secured by a Swap Agreement which
relates solely to such Series. See "--Conditions of Issuance of Additional
Series."
The Prospectus Supplement for a Series of Notes will describe the following
terms of such 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") and the final termination date of the Series (the
"Final Maturity Date"), (f) the initial Reconciliation Payment Date and the
initial True-Up Payment Date, (g) the Series Issuance Date of such Series, (h)
the place or places for the payment of principal, (i) the authorized
denominations, (j) the provisions for optional redemption of such Series or
Class, (k) the Expected Amortization Schedule for principal of such Series and,
if applicable, the Classes thereof, (l) the IFC Charges as of the Series
Issuance Date of such Series of Notes and the portion of total IFC Charges
authorized and initially imposed in connection with such issuance, (m) the total
dollar amount of Intangible Transition Property authorized by the related
Transitional Funding Order, (n) any other material 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 (the notification in writing by each Rating Agency to
the Servicer, the Grantee, the Indenture Trustee and the Delaware Trustee that
any action will not result in such a reduction or withdrawal is referred to
herein as the "Rating Agency Condition"), (o) the identity of the Indenture
Trustee and the Delaware Trustee, and (p) the terms of any Swap Agreement
executed solely to permit the issuance of Floating Rate Notes and the identity
of any swap counterparty related thereto.
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The Notes do not constitute a debt, liability or other obligation of the
State of Illinois or of any political subdivision, agency or instrumentality
thereof and do not represent an interest in or obligation of ComEd or any of its
affiliates. The Notes will not be guaranteed or insured by ComEd or any of its
affiliates. Transitional Funding Orders authorizing issuance of the Notes do not
constitute a pledge of the full faith and credit of the State of Illinois or of
any of its political subdivisions. The issuance of the Notes under the Funding
Law shall not directly, indirectly or contingently obligate the State of
Illinois or any political subdivision thereof to levy or to pledge any form of
taxation therefor or to make any appropriation for their payment.
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. IFC Collections, including such amounts as
are available in the Reserve Subaccount, 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. See "Security for the Notes--Allocations; Payments."
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 "Security for the
Notes--Allocations; Payments." Each Prospectus Supplement will set forth the
Expected Amortization Schedule for each Series of Notes and, if applicable, the
Classes of such Series. On any Payment Date, unless an Event of Default has
occurred and is continuing and the Notes have been declared due and payable, the
Indenture Trustee 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 Schedule for such
Payment Date (each, a "Scheduled Payment"). Any IFC Collections in excess of
amounts payable as (a) expenses of the Grantee, the Delaware Trustee and the
Indenture Trustee (including the Servicing Fee and Quarterly Administration
Fee), (b) payments of interest on and principal of the Notes, (c) allocations to
the Capital Subaccount, and (d) allocations to the Overcollateralization
Subaccount (all as described under "Security for the Notes--Allocations;
Payments") will be retained by the Indenture Trustee in the Reserve Subaccount
for payment on subsequent Payment Dates. However, if insufficient IFC
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
Class of Notes may be payable later than expected as described herein. See "Risk
Factors--Uncertain Payment Amounts and Weighted Average Life." The entire unpaid
principal amount of the Notes of all Series will be due and payable on the date
on which an Event of Default (other than a breach by the State of Illinois of
the State Pledge) has occurred and is continuing, if the Indenture Trustee or
the holders of not less than a majority in principal amount of the Notes of all
Series then outstanding have declared the Notes to be immediately due and
payable. See "Security for the Notes--Events of Default; Rights Upon Event of
Default."
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.
PAYMENTS ON THE NOTES
The Indenture Trustee will distribute on each Payment Date to the holders of
each Class of Notes all payments of principal and interest then due with respect
thereto (other than Special Payments, as defined in the Indenture) or, in the
case of Floating Rate Notes, in lieu of such interest, payments under any
related Swap Agreement with respect to interest. Each such payment other than
the final payment
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with respect to any Note will be made by the Indenture Trustee to the holders of
record of the Notes of the applicable Class on the Record Date in respect of
such Payment Date. The final payment with respect to any Note, however, will be
made only upon presentation and surrender of such Note at the office or agency
of the Indenture Trustee specified in the notice given by the Indenture Trustee
with respect to such final payment.
If interest on the Notes of any Series is not paid when due, such defaulted
interest shall be paid (plus interest on such defaulted interest at the
applicable Note Interest Rate to the extent lawful) to the persons who are
Noteholders on a subsequent Special Record Date (as defined in the Indenture),
which date shall be at least five Business Days prior to the Special Payment
Date (as defined in the Indenture). The Trust shall fix or cause to be fixed any
such Special Record Date and Special Payment Date, and, at least 20 days before
any such Special Record Date, the Trust shall mail to each affected Noteholder a
notice that states the Special Record Date, the Special Payment Date and the
amount of defaulted interest (plus interest on such defaulted interest) to be
paid.
At such time, if any, as the Notes of any Series are issued in the form of
Definitive Notes and not to DTC or its nominee, payments by the Indenture
Trustee with respect to such Class on a Payment Date or a Special Payment Date
will be made by check mailed to each holder of a Definitive Note of such Class
of record on the applicable Record Date at its address appearing on the register
maintained with respect to the Notes of such Series, or, upon application by a
holder of any Class of Notes in the principal amount of $10,000,000 or more to
the Indenture 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
payment for each Class of Notes, however, will be made only upon presentation
and surrender of the Notes of such Class at the office or agency of the
Indenture Trustee specified in the notice given by the Indenture Trustee of such
final payment. The Indenture Trustee will mail such notice of the final payment
to the Noteholders of such Class no later than five days prior to such final
payment date, specifying the date set for such final payment and the amount of
such payment.
If any Special Payment Date or other date specified herein for distribution
of any payments to Noteholders is not a Business Day, payments scheduled to be
made on such Special Payment Date or other date may be made on the next
succeeding Business Day and no interest shall accrue upon such payment during
the intervening period. "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, Wilmington, Delaware, or Chicago, Illinois are, or DTC is, authorized
or obligated by law, regulation or executive order to remain closed.
FLOATING RATE NOTES
If any Floating Rate Notes of any Class are offered, the Trust will enter
into one or more swap agreements (each, a "Swap Agreement") with a swap
counterparty identified and having the terms described in the related Prospectus
Supplement. Generally, pursuant to a Swap Agreement, on each Payment Date, the
Trust will be obligated to pay to the swap counterparty, solely from payments
received with respect to such Class of Notes, an amount equal to the interest
due on such Class of Notes on such Payment 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 Notes as of the
close of business on the preceding Payment Date after giving effect to all
payments of principal made to the Floating Rate Noteholders on such preceding
Payment Date. See "Risk Factors--Additional Risks of Floating Rate Notes."
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NO THIRD-PARTY CREDIT ENHANCEMENT
It is not currently anticipated that the Notes will have the benefit of any
third-party credit enhancement, such as guarantees, letters of credit, insurance
or the like. If, however, any Series of Notes is to be issued with any
third-party credit enhancement, it will be set forth in the related Prospectus
Supplement.
REGISTRATION AND TRANSFER OF THE NOTES
If so specified in the related Prospectus Supplement, one or more Classes of
Notes 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 Notes,
but the owner may be required to pay a sum sufficient to cover any tax or other
governmental charge.
Each Class of Notes 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.
Payments of interest and principal will be made on each Payment Date to the
Noteholders in whose names the Notes were registered on the related Record Date.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, one or more Classes of
Notes initially may be Book-Entry Notes, which are initially represented by one
or more Notes 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 Notes will initially be registered in the name of Cede, the nominee
of DTC. Holders may also hold Notes 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 Note or Notes. 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 UCC, 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.
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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 notes 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 Business Day following the DTC
settlement date. Such credits or any transactions in such Notes settled during
such processing will be reported to the relevant Euroclear or CEDEL Participant
on such Business Day. Cash received in CEDEL or Euroclear as a result of sales
of Notes 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
Business Day following settlement in DTC.
Noteholders that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in, Notes
may do so only through Participants and Indirect Participants. In addition,
Noteholders will receive all payments of principal of and interest on the Notes
from the Indenture Trustee through DTC and its Participants. Under a book-entry
format, Noteholders will receive payments after the related Payment Date, as the
case may be, because, while payments are required to be forwarded to Cede, as
nominee for DTC, on each such date, DTC will forward such payments to its
Participants, which thereafter will be required to forward them to Indirect
Participants or holders of beneficial interests in the Notes. The Indenture
Trustee, the Grantee, the Servicer and any paying agent, transfer agent or
registrar may treat the registered holder in whose name any Note is registered
(expected to be Cede) as the absolute owner thereof (whether or not such Note is
overdue and notwithstanding any notice of ownership or writing thereon or any
notice to the contrary) for the purpose of making payments and for all other
purposes.
Unless and until Definitive Notes (as defined below) are issued, it is
anticipated that the only "holder" of Book-Entry Notes of any Series will be
Cede, as nominee of DTC. Noteholders will only be permitted to exercise their
rights as Noteholders indirectly through Participants and DTC. All references
herein to actions by Noteholders thus refer to actions taken by DTC upon
instructions from its Participants, and all references herein to payments,
notices, reports and statements to Noteholders refer to payments, notices,
reports and statements to Cede, as the registered holder of the Notes, for
distribution to the beneficial owners of the Notes in accordance with DTC
procedures.
While any Book-Entry Notes 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 Notes and is required to receive and transmit payments
of principal of, and interest on, the Book-Entry Notes. Participants with whom
Noteholders have accounts with respect to Book-Entry Notes are similarly
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Noteholders. Accordingly, although Noteholders will
not possess physical notes, the Rules provide a mechanism by which Noteholders
will receive payments and will be able to transfer their interests.
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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 Notes to pledge Notes to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
Notes, may be limited due to the lack of a Definitive Note for such Notes.
DTC has advised the Indenture Trustee that it will take any action permitted
to be taken by a Noteholder under the Indenture and the related Prospectus
Supplement only at the direction of one or more Participants to whose account
with DTC the Notes are credited. Additionally, DTC has advised the Indenture
Trustee that it may take actions with respect to the Noteholders' 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 Notes offered hereby. Indirect access to CEDEL is also available
to others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a CEDEL Participant, either
directly or indirectly.
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
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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.
Payments with respect to Notes 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 payments will be subject to tax reporting in
accordance with relevant United States federal tax laws and regulations. See
"Material United States Federal Tax Consequences" herein. CEDEL or the Euroclear
Operator, as the case may be, will take any other action permitted to be taken
by a Noteholder under the Indenture 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 Notes 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 NOTES
Notes of a Series will be issued in registered form to Noteholders, or their
nominees, rather than to DTC (such Notes being referred to herein as "Definitive
Notes") only under the circumstances provided in the Indenture, which will
include, (a) the Administrator (initially, ComEd) advising the Indenture Trustee
in writing that DTC is no longer willing or able to properly discharge its
responsibilities as nominee and depository with respect to the Book-Entry Notes
of such Series and the Administrator being unable to locate a qualified
successor, (b) the Administrator (with written notice to the Indenture Trustee)
electing to terminate the book-entry system through DTC, or (c) after the
occurrence of a Servicer Default, holders of Notes representing not less than 50
percent of the aggregate outstanding principal amount of the Notes of any Series
maintained as Book-Entry Notes advising the Indenture Trustee, the
Administrator, the Trust and DTC in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of Noteholders of such Series. Upon issuance of Definitive Notes of a
Series, such Notes will be transferable directly (and not exclusively on a
book-entry basis) and registered holders will deal directly with the Indenture
Trustee with respect to transfers, notices and payments.
Upon surrender by DTC of the definitive securities representing the Notes
and instructions for registration, the Indenture Trustee will issue the Notes in
the form of Definitive Notes, and thereafter the Indenture Trustee will
recognize the holders of such Definitive Notes as Noteholders under the
Indenture.
Payment of principal of and interest on the Notes will be made by the
Indenture Trustee directly to Noteholders in accordance with the procedures set
forth herein and in the Indenture and the related Prospectus Supplement.
Interest payments and principal payments will be made to Noteholders in whose
names the Definitive Notes were registered at the close of business on the
related Record Date. Payments will be made by check mailed to the address of
such Noteholder as it appears on the register maintained by the Indenture
Trustee or in such other manner as may be provided in the related trustee's
issuance certificate or supplement to the Indenture and except that certain
payments will be made by wire transfer as described in the Indenture. The final
payment on any Note (whether Definitive Notes or Notes registered in the name of
Cede), however, will be made only upon presentation and surrender of such Note
on the final payment date at such office or agency as is specified in the notice
of final payment to Noteholders. The Indenture Trustee will provide such notice
to registered Noteholders not later than the fifth day prior to the Final
Payment Date.
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Definitive Notes will be transferable and exchangeable at the offices of the
transfer agent and registrar, which initially will be the Indenture 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.
OPTIONAL REDEMPTION
Pursuant to the terms of the Indenture, a Series of Notes may be redeemed 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.
If specified in the Prospectus Supplement related to any Series or Class of
Notes, the Indenture may also permit the redemption of such Series or Class of
Notes in full for cash on any Payment Date on or prior to December 31, 2004
using proceeds received from the issuance of any additional Series or Class of
Notes (the "New Notes"). The New Notes will be payable solely out of the
Intangible Transition Property and other Note Collateral and will have no more
than a PARI PASSU lien thereon VIS-A-VIS all existing Series of Notes. In
addition, a Series of Notes shall be subject to redemption if and to the extent
provided in the related Prospectus Supplement.
No redemption shall be permitted under the Indenture unless each Rating
Agency (other than Moody's, to which prior written notice will be given) with
respect to any Notes that will remain outstanding after such redemption shall
have affirmed the then current rating of all such outstanding Notes. Upon any
redemption of any Series or Class of Notes, the Trust will have no further
obligations under the Indenture with respect thereto. The Notes may be so
redeemed in all instances of optional redemptions permitted by the Indenture
upon payment of the outstanding principal amount of the Notes to be redeemed and
accrued but unpaid interest thereon as of the date of redemption. Notice of such
redemption will be given by the Trust to the Indenture Trustee and the Rating
Agencies not less than 25 days nor more than 50 days prior to the date of
redemption, and written notice shall also be given 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 applicable date of redemption.
CONDITIONS OF ISSUANCE OF ADDITIONAL SERIES AND ACQUISITION OF SUBSEQUENT
INTANGIBLE TRANSITION PROPERTY
The Trust's acquisition of Subsequent Intangible Transition Property and
issuance of any additional Series of Notes with respect thereto is subject to
the following conditions, among others:
(a) appropriate documentation required by the 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) the Grantee shall have irrevocably assigned all of its right, title
and interest in such Subsequent Intangible Transition Property to the Trust
and a filing required by Section 18-107 of the Act shall have been made with
respect to such assignment;
(c) the Rating Agency Condition shall have been satisfied with respect
to such transactions;
(d) ComEd shall have delivered to the Grantee, the Trust, the Delaware
Trustee and the Indenture Trustee an opinion of independent tax counsel
and/or a ruling from the IRS (as selected by, and in form and substance
reasonably satisfactory to, ComEd) to the effect that, for federal income
tax purposes, (i) such issuance, and the transfer of the Note proceeds to
ComEd, will not result in gross income to the Grantee, the Trust or ComEd
and (ii) such issuance will not adversely affect the characterization of the
then outstanding Notes as obligations of ComEd;
(e) no Event of Default shall have occurred and be continuing under the
Indenture;
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(f) as of the date of issuance, the Trust shall have sufficient funds
available to pay the purchase price for such Subsequent Intangible
Transition Property, and all conditions to the issuance of a new series of
Notes shall have been satisfied or waived; and
(g) delivery by the Trust to the Indenture Trustee of certain
certificates and opinions specified in the Indenture.
LIST OF NOTEHOLDERS
Upon written request of any Noteholder or group of Noteholders of any Series
or of all outstanding Series of Notes evidencing not less than 10 percent of the
aggregate outstanding principal amount of the Notes of such Series or all
Series, as applicable, the Indenture Trustee will afford such Noteholder or
Noteholders access during business hours to the current list of Noteholders of
such Series or of all outstanding Series, as the case may be, for purposes of
communicating with other Noteholders with respect to their rights under the
Indenture.
The Indenture does not provide for any annual or other meetings of
Noteholders.
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SECURITY FOR THE NOTES
GENERAL
The Notes issued under the Indenture are payable solely from and secured
solely by a pledge of and lien of the Intangible Transition Property and the
other Note Collateral as provided in the Indenture. See "Description of the
Intangible Transition Property." As noted under the heading, "Description of the
Notes," the Trust will issue the Notes pursuant to the terms of the Indenture.
The particular terms of the Notes of any Series will be established in a
supplement to the Indenture or a trustee's issuance certificate and material
terms thereof will be described in the Prospectus Supplement for the related
Series of Notes.
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
Indenture and supplements or trustee's issuance certificate related thereto,
forms of which are filed as exhibits to the Registration Statement.
PLEDGE OF NOTE COLLATERAL
To secure the payment of principal of and interest on the Notes, the Trust
will grant to the Indenture Trustee a security interest in all of the Trust's
right, title and interest in and to (a) all of the Intangible Transition
Property and, to the fullest extent permitted by law, all proceeds thereof, (b)
the Grant Agreements, Sale Agreements and Servicing Agreement, (c) the
Collection Account and all amounts of cash or investment property on deposit
therein or credited thereto from time to time, (d) with respect to Floating Rate
Notes only, any Swap Agreement entered into with respect to the issuance of such
Floating Rate Notes, (e) all rights to compel ComEd, as Servicer (or any
successor), to file for and obtain adjustments to the IFC Charges in accordance
with Section 18-104(d) of the Act, the Transitional Funding Orders and all IFC
Tariffs filed with the ICC in connection therewith, (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
transferred to the Trust by the Grantee which is not held in the Capital
Subaccount, including cash that has been released to the Grantee or as it
directs following retirement of all Series of Notes, (2) net investment earnings
which have been released to the Trust by the Indenture Trustee pursuant to the
terms of the Indenture, (3) the Overcollateralization Amount that has been
released to the Grantee or as it directs following retirement of all Series of
Notes, and (4) amounts deposited with the Trust on any Series Issuance Date for
payment of costs of issuance with respect to the related Series of Notes
(together with any interest earnings thereon) will not be covered by the
foregoing security interest. The foregoing assets to which the Trust, as
assignee of the Grantee, will grant the Indenture Trustee a security interest
are referred to collectively as the "Note Collateral" herein.
SECURITY INTEREST IN NOTE COLLATERAL
CREATION AND PERFECTION OF SECURITY INTEREST UNDER THE ACT
Section 18-107 of the Act provides that neither Intangible Transition
Property, nor any right, title or interest in Intangible Transition Property,
shall constitute property in which a security interest may be created under the
UCC, nor shall any such rights be deemed proceeds of any property which is not
Intangible Transition Property. Rather, Section 18-107(c) of the Act provides
that a valid and enforceable security interest in Intangible Transition Property
shall attach and be perfected only by the means set forth in that Section
18-107(c). Specifically, Section 18-107(c) provides that, to the extent that
transitional funding instruments, such as the Notes, are purported to be secured
by Intangible Transition Property, as specified in the applicable Transitional
Funding Order, the lien of the transitional funding instruments shall attach
automatically to such Intangible Transition Property from the time of issuance
of the transitional funding instruments. Section 18-107(c) of the Act provides
that such lien shall be a valid and
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enforceable security interest in Intangible Transition Property, securing the
transitional funding instruments, and shall be continuously perfected if, before
the date of issuance of the applicable transitional funding instruments, or
within no more than 10 days thereafter, a filing has been made by or on behalf
of the holder with the Chief Clerk of the ICC stating that such transitional
funding instruments have been issued.
The liens provided under Section 18-107(c) of the Act are enforceable
against the Utility, any assignee, grantee or issuer and all third parties,
including judicial lien creditors. Moreover, a perfected lien in Intangible
Transition Property is a continuously perfected security interest in all then
existing or thereafter arising revenues and proceeds arising with respect to
such Intangible Transition Property, whether or not the electric power and
energy included in the calculation of such revenues and proceeds have been
provided. The lien created by Section 18-107(c) of the Act is perfected and
ranks prior to any other lien, including any judicial lien, which subsequently
attaches to the Intangible Transition Property, and to any other rights created
by the Transitional Funding Orders or any revenues or proceeds of the foregoing.
The relative priority of the lien created by Section 18-107(c) of the Act is
not defeated or adversely affected by (a) changes to the transitional funding
order or to the related instrument funding charges payable by any retail
customer, class of retail customers or other person or group of persons
obligated to pay such charges or (b) (subject to the tracing requirements of
federal bankruptcy law) the commingling of revenues arising with respect to any
intangible transition property with funds of the Utility or other funds of the
assignee, issuer or grantee.
Section 18-107(c)(5) of the Act provides that the ICC shall maintain
segregated records which reflect the date and time of receipt of all filings
made under Section 18-107(c). See "Filings Made With Respect to the Intangible
Transition Property" below.
RIGHT OF FORECLOSURE
Section 18-107(c)(4) of the Act provides that, if an event of default occurs
under the transitional funding instruments, the holders thereof or their
authorized representatives, as secured parties, may foreclose or otherwise
enforce the lien in the intangible transition property securing the transitional
funding instruments, subject to the rights of any third parties holding prior
security interests therein (perfected in the manner described in such
subsection). Upon application by such holders or their authorized
representatives, the ICC shall order the sequestration and payment to the
holders or their authorized representatives of revenues arising with respect to
the intangible transition property pledged to the holders. Section 18-107(c)(4)
of the Act provides that any such order shall remain in full force and effect
notwithstanding any bankruptcy, reorganization or other insolvency proceedings
with respect to the Utility, grantee, assignee or issuer. See "Risk
Factors--Bankruptcy and Creditors' Rights Issues-- Possible Adverse Effect on
Noteholders as a Result of the Bankruptcy of ComEd, the Grantee or the Trust."
FILINGS MADE WITH RESPECT TO THE INTANGIBLE TRANSITION PROPERTY
ComEd, as Servicer, pledges in the Servicing Agreement to file with the ICC
on or before the date of issuance of any Series of Notes the filing required by
Section 18-107(c)(1) of the Act to perfect the lien of the Indenture Trustee in
the Intangible Transition Property. The Grantee will represent, at the time of
issuance of any Series of Notes, that no prior filing has been made under the
terms of Section 18-107 of the Act with respect to such Intangible Transition
Property, other than a filing which provides the Indenture Trustee with a first
priority perfected security interest in such Intangible Transition Property on a
parity basis with that securing any outstanding Notes, if any.
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SECURITY INTEREST IN ADDITIONAL NOTE COLLATERAL
Certain items of the Note Collateral do not constitute Intangible Transition
Property and the perfection of the Indenture Trustee's security interest in such
items of Note Collateral is, therefore, subject to the UCC or common law and not
Section 18-107 of the Act. These items consist of the rights of the Trust in (a)
any Grant Agreement, any Sale Agreement or the Servicing Agreement, (b) the
Capital Subaccount or any other funds on deposit in the Collection Account which
do not constitute IFC Collections, (c) any interest rate exchange agreements,
and (d) proceeds of the foregoing items. Additionally, any contractual rights of
the Trust against Customers (other than the right to impose instrument funding
charges as defined in the Funding Law and rights otherwise included in the
definition of intangible transition property) would be collateral to which the
UCC applies. As a condition to the issuance of any Series of Notes, the Trust
shall have made all filings and taken any other action required by the UCC or
common law to perfect the lien of the Indenture Trustee in all such items
included in the Note Collateral which do not constitute Intangible Transition
Property, and will covenant to take all actions necessary to maintain or
preserve such lien and security interest on a first priority basis. Each of the
Grantee and the Trust will represent, at the time of issuance of any Series of
Notes, that no prior filing has been made with respect to such party under the
terms of the UCC, other than a filing which provides the Indenture Trustee with
a first priority perfected security interest in such Note Collateral on a parity
basis with that securing any outstanding Notes.
DESCRIPTION OF INDENTURE ACCOUNTS
COLLECTION ACCOUNT
Pursuant to the Indenture, a segregated trust account (the "Collection
Account") will be established by the Trust with an Eligible Institution. The
Collection Account will be held by the Indenture Trustee for the benefit of the
Noteholders and the Trust. 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
Indenture 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) (i) which has either (A) a
long-term unsecured debt rating of "AAA" 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
(subject to additional restrictions in the Indenture): (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 which are described
in clause (b) of the preceding paragraph, (c) commercial paper (other than
commercial paper issued by ComEd or any of its affiliates) having, at the time
of investment or contractual commitment to invest, a rating in the highest
rating category from each Rating Agency from which a rating is available, (d)
money market funds which have the highest rating from each Rating Agency from
which a rating is available, (e) 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 (f) any other
investment permitted by each Rating Agency (collectively,
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the "Eligible Investments"), in each case which mature on or before the Business
Day preceding the next Payment Date. The Indenture 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 Indenture.
The Servicer will remit IFC Payments to the Collection Account in the manner
described under "Servicing--Remittances to Collection Account."
GENERAL SUBACCOUNT
The General Subaccount will hold all funds held in the Collection Account
that are not held in the other three subaccounts. The Servicer will remit all
IFC Payments to the General Subaccount. On each Payment Date, the Indenture
Trustee will draw on amounts in the General Subaccount to pay expenses of the
Trust and to pay interest and make Scheduled Payments on the Notes and to make
other payments and transfers in accordance with the terms of the Indenture.
RESERVE SUBACCOUNT
IFC Collections available with respect to any Payment Date in excess of
amounts necessary to make the Specified Payments will be allocated to the
Reserve Subaccount.
OVERCOLLATERALIZATION SUBACCOUNT
Each Transitional Funding Order will provide that the Trust, as the assignee
of the Intangible Transition Property created thereby, is entitled to collect an
additional amount (for any Series, the "Overcollateralization Amount") specified
in the related Prospectus Supplement which is intended to enhance the likelihood
that payments on the Notes will be made in accordance with their Expected
Amortization Schedules. Each Transitional Funding Order will permit the Servicer
to set the IFC Charges at levels that are expected to produce IFC Collections in
amounts that exceed the amounts expected to be required to pay interest and make
Scheduled Payments on the Notes, and to pay all related fees and expenses of the
Trust, including the Servicing Fee and any Quarterly Administration Fee in order
to collect the Overcollateralization Amount. The Overcollateralization Amount
established in connection with each Series of Notes will be specified in the
related Prospectus Supplement, but will not be less than 0.50 percent of the
initial principal balance of such Series of Notes, and will be collected over
the expected life of the Notes of such Series (I.E., over the period from the
Series Issuance Date of the Notes of such Series through the latest Scheduled
Maturity Date for any Note in such Series). The Overcollateralization Amount for
all Series of Notes will be held in the Overcollateralization Subaccount. The
amount required to be on deposit in the Overcollateralization Subaccount as of
any Payment Date with respect to each Series, as specified in the schedule set
forth in the related Prospectus Supplement, is referred to herein as the
"Required Overcollateralization Level."
Amounts in the Overcollateralization Subaccount will be invested in Eligible
Investments, and the Trust will be entitled to earnings thereon, subject to the
limitations described under "--Allocations; Payments." Amounts in the
Overcollateralization Subaccount are intended to cover any shortfall in IFC
Collections that might otherwise occur on any Payment Date or at the last
Scheduled Maturity Date for any Series or Class of Notes.
CAPITAL SUBACCOUNT
Prior to or upon the issuance of each Series of Notes, the Grantee will
transfer capital to the Trust in an amount which will be at least equal to 0.50
percent of the initial principal amount of such Series of Notes. Such amount in
the aggregate for all Series of Notes (with respect to each Series, the
"Required Capital Level") will be deposited into the Capital Subaccount.
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ALLOCATIONS; PAYMENTS
On each Payment Date, the Indenture Trustee will apply, at the direction of
the Servicer, all amounts on deposit in the Collection Account (including net
earnings thereon) which have accumulated from the first billing date of the
month in which the prior Payment Date occurred until the final billing date of
the month immediately preceding the month of the relevant Payment Date, to pay
the following amounts in the following priority:
(a) all amounts owed by the Trust to the Delaware Trustee and the
Indenture 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, if any, and all unpaid Quarterly
Administration Fees (or any portions thereof) from prior Payment Dates will
be paid to the Administrator;
(d) so long as no Event of Default has occurred and is continuing 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 paid to the Noteholders;
(f) principal on any Series of Notes payable as a result of an Event of
Default or on the Final Maturity Date for such Series of Notes will be paid
to the Noteholders of the applicable Series;
(g) the Scheduled Payments for any Series of Notes based on priorities
described in each Prospectus Supplement will be paid to the Noteholders of
the applicable Series;
(h) unpaid Operating Expenses (including any amounts owed under the
Administration Agreement exceeding the Quarterly Administration Fee) will be
paid to the persons entitled thereto;
(i) 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;
(j) 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;
(k) funds up to the net earnings on amounts in the Collection Account
for the prior quarter without cumulation will be released to the Trust;
(l) the balance, if any, will be allocated to the Reserve Subaccount
for distribution on subsequent Payment Dates; and
(m) following the payment in full of all outstanding Series of Notes,
the balance, if any (including amounts in the Overcollateralization
Subaccount and the Capital Subaccount), will be released to the Trust.
If on any Payment Date funds on deposit in the General Subaccount are
insufficient to make the payments contemplated by clauses (a) through (g) above,
the Indenture 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
such payments in full. If amounts on deposit in the Capital Subaccount or the
Overcollateralization Subaccount are used to pay such amounts or make
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such transfers, as the case may be, subsequent Adjustments shall take into
account, among other things, such amounts and on subsequent Payment Dates the
Capital Subaccount or the Overcollateralization Subaccount, as the case may be,
will be replenished to the extent IFC Collections exceed amounts required to pay
amounts having a higher priority of payment, as more fully 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
Indenture Trustee will draw from amounts on deposit in the Reserve Subaccount to
make such transfers notwithstanding the fact that, on such Payment Date, the
allocation contemplated by clause (h) above may not have been fully satisfied.
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 payments
contemplated by clauses (e), (f) and (g) above, such funds will be allocated
among the various Series and Classes pro rata, as specified in the related
Prospectus Supplement.
For purposes of the foregoing allocations:
"Quarterly Administration Fee" means the $25,000 fee payable quarterly
to ComEd (or any successor Administrator) as the Administrator under the
Administration Agreement among ComEd, the Grantee and the Trust.
"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.
Payments to the Noteholders of a Series will be made to such holders as
specified in the related Prospectus Supplement.
STATE PLEDGE
The Funding Law provides: "The State [of Illinois] pledges to and agrees
with the holders of any transitional funding instruments who may enter into
contracts with an electric utility, grantee, assignee or issuer pursuant to this
Article XVIII [of the Act] that the State will not in any way limit, alter,
impair or reduce the value of intangible transition property created by, or
instrument funding charges approved by, a transitional funding order so as to
impair the terms of any contract made by such electric utility, grantee,
assignee or issuer with such holders or in any way impair the rights and
remedies of such holders until the pertinent grantee instruments or, if the
related transitional funding order does not provide for the issuance of grantee
instruments, the pertinent transitional funding instruments and interest,
premium and other fees, costs and charges related thereto, as the case may be,
are fully paid and discharged. Electric utilities, grantees and issuers are
authorized to include these pledges and agreements of the State in any contract
with the holders of transitional funding instruments or with any assignees
pursuant to this Article XVIII [of the Act] and any assignees are similarly
authorized to include these pledges and agreements of the State [of Illinois] in
any contract with any issuer, holder or any other assignee. Nothing in this
Article XVIII [of the Act] shall preclude the State of Illinois from requiring
adjustments as may otherwise be allowed by law to the electric utility's base
rates, transition charges, delivery services charges, or other charges for
tariffed services, so long as any such adjustment does not directly affect or
impair any instrument funding charges previously authorized by a transitional
funding order issued by the [ICC]."
Each Transitional Funding Order will provide that the Noteholders and the
Indenture Trustee for the benefit of the Noteholders shall be entitled to the
benefit of the pledges and agreements of the State of Illinois set forth in
Section 18-105(b) of the Act and that each of ComEd, the Grantee and the Trust
is authorized to include such pledges and agreements in any contract with the
Noteholders, the Indenture Trustee or with any assignees pursuant to Section
18-105(b) of the Act. The Grantee will include these pledges and agreements of
the State of Illinois in each Sale Agreement to the Trust, and the Trust, in
turn, has included these pledges and agreements in the Indenture and the Notes
for the benefit of the Indenture Trustee and the Noteholders.
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REPORTS TO NOTEHOLDERS
On or prior to each Payment Date, Special Payment Date or any other date
specified in the Indenture for payments with respect to any Class of Notes, the
Indenture Trustee will deliver to the Noteholders of such Class a statement with
respect to such payment to be made on such Payment Date, Special Payment Date or
other date, as the case may be, setting forth the following information:
(a) the amount of the payment to Noteholders allocable to (i) principal
and (ii) interest;
(b) the aggregate outstanding principal balance of the Notes, after
giving effect to payments 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 related 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 Indenture 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 United States
federal and state income tax returns. See "Material United States Federal Tax
Consequences."
SUPPLEMENTAL INDENTURES
The Trust and the Indenture Trustee may, from time to time, and without the
consent of the Noteholders of any Series (but with prior notice to the Rating
Agencies), enter into one or more agreements supplemental to the Indenture for
various purposes described in the Indenture, including (1) to add to the
covenants for the benefit of the Noteholders; (2) to cure any ambiguity or
correct or supplement any provision in the Indenture or in any supplemental
indenture which may be inconsistent with any other provision in the Indenture or
in any supplemental indenture or to make any other provisions with respect to
matters or questions arising under the Indenture; provided that any such action
shall not adversely affect the interests of the Noteholders; (3) to evidence the
succession of another person to the Trust or the Indenture Trustee in accordance
with the terms of the Indenture; (4) to effect qualification under the Trust
Indenture Act of 1939, as amended; or (5) to set forth the terms of any
additional Series of Notes or to provide for the terms of any Swap Agreement.
The Trust and the Indenture Trustee may also, without the consent of the
Noteholders, enter into one or more other agreements supplemental to the
Indenture so long as such supplemental agreement does not, as evidenced by an
opinion of counsel, adversely affect the interests of any Noteholders in any
material respect and the Rating Agency Condition shall have been satisfied with
respect thereto.
In addition, the Trust and the Indenture Trustee will, with the consent of
Noteholders holding not less than a majority of the aggregate outstanding
principal amount of the Notes of all affected Series or Classes, enter into one
or more indentures supplemental to the Indenture for the purpose of, among other
things, adding any provisions to or changing in any manner or eliminating any of
the provisions of the Indenture. No such supplement, however, may, without the
consent of each Noteholder of each Series or Class affected thereby, take
certain actions enumerated in the Indenture, including (a) reduce in any manner
the amount of, or delay the timing of, deposits or payments on any Note, (b)
reduce the aforesaid percentage of the aggregate outstanding principal amount of
the Notes the holders of which are required to consent to any such supplement,
(c) modify the provisions in the Indenture relating to amendments with the
consent of Noteholders to decrease any minimum percentage of Noteholders
required to approve such amendments, (d) permit the creation of any lien on the
Note Collateral ranking prior to or on a parity with the lien of the Indenture,
or (e) cause any material adverse federal income tax consequences to ComEd, the
Grantee, the Trust, the Delaware Trustee, the Indenture Trustee or the then
existing Noteholders. Promptly following the execution of any such supplement to
the Indenture, the Indenture Trustee will furnish written notice of the
substance of such supplement to each Noteholder.
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Any supplement to the Indenture or trustee's issuance certificate executed
in connection with the issuance of one or more additional Series of Notes will
not be considered an amendment to the Indenture.
CERTAIN COVENANTS OF THE DELAWARE TRUSTEE AND THE TRUST
The Trust 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
Indenture the performance or observance of every agreement and covenant of the
Trust under the Indenture, (c) no Default (as defined in the Indenture) or 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) ComEd shall have delivered to the Grantee, the
Trust, the Delaware Trustee and the Indenture Trustee an opinion of independent
tax counsel (as selected by, and in form and substance reasonably satisfactory
to, ComEd, and which may be based on a ruling from the IRS) to the effect that
such consolidation or merger will not result in a material adverse federal
income tax consequence to ComEd, the Grantee, the Trust, the Delaware Trustee,
the Indenture Trustee or the then existing Noteholders, (f) the Trust shall have
delivered to the Indenture Trustee an officer's certificate and an opinion of
counsel, each stating that all conditions precedent in the Indenture provided
for relating to such transaction have been complied with and (g) any action as
is necessary to maintain the lien and security interest created by the Indenture
will have been taken.
The Trust may not sell, convey, exchange or transfer or otherwise dispose of
any of the properties or assets of the Trust to any person or entity, unless (a)
the person or entity acquiring the properties and assets (i) is a United States
citizen or an entity organized under the laws of the United States, any state
thereof or the District of Columbia, (ii) expressly assumes by an indenture
supplemental to the Indenture the performance or observance of every agreement
and covenant of the Trust 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 Trust
against and from any loss, liability or expense arising under or related to the
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) ComEd shall have delivered to the Grantee, the Trust, the
Delaware Trustee and the Indenture Trustee an opinion of independent tax counsel
(as selected by, and in form and substance reasonably satisfactory to, ComEd,
and which may be based on a ruling from the IRS) to the effect that such
disposition will not result in a material adverse federal income tax consequence
to ComEd, the Grantee, the Trust, the Delaware Trustee, the Indenture Trustee or
the then existing Noteholders, (e) the Trust shall have delivered to the
Indenture Trustee an officer's certificate and an opinion of counsel, each
stating that such conveyance or transfer complies with the Indenture 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 Indenture shall have been taken.
The Trust will not, among other things, for so long as any Notes are
outstanding, (a) except as expressly permitted by the Indenture, sell, transfer,
exchange or otherwise dispose of any of the assets of the Trust, unless directed
to do so by the Indenture 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 Intangible Transition Property and the other
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Note Collateral, (c) terminate the existence of, or dissolve or liquidate in
whole or in part, the Trust, (d) permit the validity or effectiveness of the
Indenture to be impaired, (e) permit the lien of the 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 granted under 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 (other than tax liens
arising by operation of law with respect to amounts not yet due) or (g) permit
the lien granted under the Indenture not to constitute a valid first priority
security interest in the Note Collateral.
The Trust may not engage in any business other than financing, purchasing,
owning and managing the Intangible Transition Property and the other Note
Collateral and the issuance of the Notes in the manner contemplated by the
Notes, the Sale Agreements, the Servicing Agreement, the Trust Agreement, the
Grant Agreements, or certain related documents (collectively, the "Basic
Documents") and activities incidental thereto.
The Trust will not issue, incur, assume, guarantee or otherwise become
liable for any indebtedness except for the Notes.
The Trust will not, except 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 Trust 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 Trust will not, directly or indirectly, make payments to or distributions
from the Collection Account except in accordance with the Basic Documents.
The Trust will not make any payments, distributions or dividends to any
holder of beneficial interests in the Trust in respect of such beneficial
interest for any calendar month unless no 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 Trust to decline below 0.50 percent of the initial
principal amount of all Series of Notes issued and outstanding pursuant to the
Indenture.
The Trust will cause the Servicer to deliver to the Indenture Trustee the
annual accountant's certificates, compliance certificates, reports regarding
distributions and statements to Noteholders required by the Servicing Agreement.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
An "Event of Default" with respect to any Series of Notes is defined in the
Indenture as being: (a) a default for five days in the payment of any interest
on any Note; (b) a default in the payment of the then unpaid principal of any
Note on the Final Maturity Date for such Series; (c) a default in the payment of
the optional redemption price for any Note on the optional redemption date
therefor; (d) a default in the observance or performance in any material respect
of any covenant or agreement of the Trust made in the Indenture (other than a
default under clauses (a) through (c) above) and the continuation of any such
default for a period of 30 days after written notice thereof is given to the
Trust by the Indenture Trustee or to the Trust and the Indenture 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 Trust in the
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 Trust by the Indenture Trustee or to the Trust and the Indenture Trustee
by the holders of at least 25 percent in principal amount of the Indenture of
such Series then outstanding;
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(f) certain events of bankruptcy, insolvency, receivership or liquidation of the
Trust; (g) a breach by the State of Illinois or any of its agencies (including
the ICC), officers or employees of the State Pledge; or (h) any other event
designated as such in a trustee's issuance certificate or series supplement
relating to such Series.
If an Event of Default (other than as specified in clause (g) above) should
occur and be continuing with respect to any Series of Notes, the Indenture
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 Indenture, be rescinded by the holders of a
majority in principal amount of the Notes of all Series then outstanding. If an
Event of Default as specified in clause (g) above has occurred, the Servicer
shall be obligated to institute (and the Indenture Trustee, for the benefit of
the Noteholders, shall be 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
each of the Servicer and the Indenture Trustee may prosecute any such suit,
action or proceeding to final judgment or decree. The Servicer would be required
to advance its own funds in order to bring any such suits, actions or
proceedings and, for so long as such legal actions were pending, the Servicer
would, unless otherwise prohibited by applicable law or court or regulatory
order in effect at such time, be required to bill and collect the IFC Charges,
perform Adjustments and discharge its obligations under the Servicing Agreement.
The Servicer would be entitled to reimbursement of its expenses advanced by it
in connection with such legal or administrative action as an operating expense
of the Trust under the Indenture.
If the Notes of all Series have been declared to be due and payable
following an Event of Default, the Indenture Trustee may, in its discretion,
either sell the Intangible Transition Property or elect to have the Trust
maintain possession of the Intangible Transition Property and continue to apply
IFC Collections as if there had been no declaration of acceleration. There is
likely to be a limited market, if any, for the Intangible Transition Property
following a foreclosure thereon, in light of the preceding default, the unique
nature of the Intangible Transition Property as an asset and other factors
discussed herein. In addition, the Indenture Trustee is prohibited from selling
the Intangible Transition Property following an Event of Default with respect to
any Series, other than a default in the payment of any principal or redemption
price or a default for five days or more in the payment of any interest on any
Note of any Series unless (a) the holders of all the outstanding Notes of all
Series consent to such sale, (b) the proceeds of such sale are sufficient to pay
in full the principal of and the accrued interest on the outstanding Notes of
all Series or (c) the Indenture Trustee determines that the proceeds of the Note
Collateral 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 Indenture 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 Indenture relating to the duties of the
Indenture Trustee, if an Event of Default occurs and is continuing, the
Indenture 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 Indenture 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 Indenture, the holders
of not less than a majority in principal amount of the outstanding Notes of all
Series (or, if less than all Series or Classes are affected, the affected
Series, Class or Classes) will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Indenture
Trustee and the holders of not less than 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 Indenture that cannot
be modified without the consent of all of the holders of the outstanding Notes
of all Series or Classes affected thereby.
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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 Indenture 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 Indenture Trustee to institute such proceeding
in its own name as Indenture Trustee, (c) such holder or holders have offered
the Indenture Trustee satisfactory indemnity, (d) the Indenture Trustee has for
60 days failed to institute such proceeding and (e) no direction inconsistent
with such written request has been given to the Indenture Trustee during such
60-day period by the holders of a majority in principal amount of the
outstanding Notes of all Series.
In addition, each of the Indenture Trustee, the Noteholders and the Servicer
will covenant that it will not, prior to the date which is one year and one day
after the termination of the Indenture, institute against the Grantee, the Trust
or the Delaware Trustee any bankruptcy, reorganization or other proceeding under
any federal or state bankruptcy or similar law, subject to the right of the ICC
to order sequestration and payment of revenues arising with respect to the
Intangible Transition Property.
Neither the Delaware Trustee nor the Indenture Trustee in its individual
capacity, nor any holder of any ownership interest in the Trust, 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 Trust contained in the
Indenture.
ACTIONS BY NOTEHOLDERS
Subject to certain exceptions, the holders of not less than a majority of
the aggregate 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 Indenture Trustee, or exercising any
trust or power conferred on the Indenture Trustee under the Indenture; provided
that: (1) such direction shall not be in conflict with any rule of law or with
the Indenture and would not involve the Indenture Trustee in personal liability
or expense; (2) the Indenture Trustee shall not have determined that the action
might materially adversely affect the rights of any Noteholder not consenting to
such action; and (3) the Indenture Trustee may take any other action deemed
proper by the Indenture Trustee which is not inconsistent with such direction.
In circumstances under which the Indenture Trustee is required to seek
instructions from the holders of the Notes of any Class with respect to any such
action or vote, the Indenture 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 Notes taking the corresponding position.
Notwithstanding the foregoing, each Noteholder shall be allowed to institute
suit for the nonpayment of (a) the interest, if any, on its Note which remains
unpaid as of the applicable due date and (b) the unpaid principal, if any, of
such Notes on the Final Maturity Date therefor.
ANNUAL COMPLIANCE STATEMENT
The Trust will be required to file annually with the Indenture Trustee and
the Rating Agencies a written statement as to the fulfillment of its obligations
under the Notes.
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MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
The following discussion is a summary of material United States federal
income and estate tax consequences relevant to the purchase, ownership and
disposition of the Notes by the beneficial owners thereof ("Noteholders"). The
discussion is limited to Noteholders and, except as specifically addressed
herein, does not address the tax consequences to subsequent purchasers of Notes.
This summary does not purport to be a complete analysis of all the potential
United States federal income and estate tax effects relating to the purchase,
ownership and disposition of the Notes. There can be no assurance that the IRS
will take a similar view of such consequences. Further, the discussion does not
address all aspects of taxation that might be relevant to particular purchasers
in light of their individual circumstances (including the effect of any state,
local, non-United States or other tax laws) or to certain types of purchasers
(including dealers in securities, insurance companies, financial institutions
and tax-exempt entities) subject to special treatment under United States
federal tax law.
The discussion below is based on the Code, administrative pronouncements,
judicial decisions, existing, proposed and temporary United States Treasury
Regulations, all in effect as of the date hereof, all of which are subject to
change at any time, and any such change may be applied retroactively. The
discussion below assumes that the Notes are held as capital assets within the
meaning of Section 1221 of the Code.
IT IS RECOMMENDED THAT PERSONS CONSIDERING THE PURCHASE OF NOTES CONSULT
THEIR TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE UNITED STATES FEDERAL
INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX
CONSEQUENCES TO THEM ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR NON-UNITED
STATES TAXING JURISDICTION.
With respect to each Series of Notes, ComEd expects to receive a ruling from
the IRS to the effect that, among other things, (a) the Trust's issuance of the
Notes will not result in gross income to ComEd and (b) the Notes will be
obligations of ComEd. ComEd has received such a ruling with respect to the Notes
to be issued in accordance with the Initial TFO. For a given Series of Notes,
however, ComEd may decide that, in lieu of obtaining a ruling from the IRS,
ComEd will rely on an opinion from its tax counsel to the effect that, among
other things, the Notes will be obligations of ComEd. The IRS ruling or the tax
opinion will be discussed in the related Prospectus Supplement.
The following summary of material United States federal income and estate
tax consequences relevant to the purchase, ownership and disposition of the
Notes by Noteholders is based on the advice of Sidley & Austin, counsel to
ComEd, and assumes that, based on the ruling or tax opinion discussed above, the
Notes will constitute indebtedness of ComEd for federal income and estate tax
purposes.
TAX CONSEQUENCES TO UNITED STATES NOTEHOLDERS
UNITED STATES NOTEHOLDER
As used herein, the term "United States Noteholder" means a Noteholder who
or which is, for United States federal income tax purposes, (a) a citizen or
resident of the United States, (b) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any state
thereof (including the District of Columbia), (c) an estate the income of which
is subject to United States federal income taxation regardless of its source, or
(d) a trust described in Section 7701(a)(30) of the Code (taking into account
changes thereto and associated effective dates, elections and transition rules).
The term also includes certain Noteholders who are former citizens or residents
of the United States whose income and gain from the Notes will be subject to
United States taxation.
PAYMENTS OF INTEREST
Interest paid on a Note will generally be taxable to a United States
Noteholder as ordinary interest income at the time it accrues or is received in
accordance with the United States Noteholder's method of accounting for United
States federal income tax purposes. The preceding sentence assumes that, in the
case of Floating Rate Notes, the Floating Rate Notes will qualify as "variable
rate debt instruments" as
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defined in Treasury Regulation Section 1.1275-5(a) and that interest on such
Floating Rate Notes will be unconditionally payable, or will be constructively
received under Section 451 of the Code, in cash or in property at least annually
at a single "qualified floating rate" or "objective rate." If such assumption is
incorrect with respect to a Floating Rate Note, the taxation of interest on such
Floating Rate Note will be addressed in the related Prospectus Supplement.
"ORIGINAL ISSUE DISCOUNT"
Because it is expected that the stated principal amount of the Notes will
not exceed their issue price by more than a statutory DE MINIMIS amount (I.E.,
0.25% of the principal amount of a Note multiplied by its weighted average
maturity), the Notes should not be issued with "original issue discount." If the
stated principal amount of a Note exceeds its issue price by an amount that is
less than or equal to such DE MINIMIS amount, the excess generally will be taken
into income by a United States Noteholder as gain from the retirement of a Note
(as described below under "--Sale, Exchanges, Redemption or Retirement of the
Notes"), in proportion to principal payments made on the Notes. A United States
Noteholder may elect to treat all interest on a Note as original issue discount.
If such an election is made, the excess of a Note's stated principal amount over
its issue price would not be treated as DE MINIMIS, and would be taken into
income on a constant yield basis under the rules applicable to accrual of
original issue discount.
MARKET DISCOUNT AND PREMIUM
A Noteholder attempting to sell a Note in the secondary market should be
aware that a subsequent Noteholder who purchases a Note at a discount might be
subject to the "market discount" rules of the Code. Also, a subsequent
Noteholder who purchases a Note at a premium may elect to amortize and deduct
the premium over the remaining term of the Note in accordance with rules set
forth in Section 171 of the Code.
SALE, EXCHANGES, REDEMPTION OR RETIREMENT OF THE NOTES
Upon the sale, exchange, redemption or retirement of a Note, a United States
Noteholder will recognize taxable gain or loss equal to the difference between
the amount realized on such sale, exchange, redemption or retirement (not
including any amount attributable to accrued but unpaid interest) and such
Noteholder's adjusted tax basis in the Note. To the extent the amount realized
is attributable to accrued but unpaid interest, the amount recognized by the
United States Noteholder will be treated as a payment of interest. See
"--Payments of Interest" above. A United States Noteholder's adjusted tax basis
in a Note generally will equal the cost of the Note to such Noteholder, reduced
by any principal payments received by such Noteholder.
Gain or loss recognized on the sale, exchange, redemption or retirement of a
Note will be capital gain or loss. For non-corporate taxpayers, capital gain
recognized on the disposition of an asset (including a Note) held for more than
one year is subject to United States federal income tax at a maximum rate of
20%. Recently enacted legislation eliminated the long-term capital gain tax rate
differential between capital assets held for more than 18 months and capital
assets held for more than one year but not more than 18 months. Capital gain on
the disposition of an asset (including a Note) held for not more than one year
is taxed at the rates applicable to ordinary income (I.E., up to 39.6%). The
distinction between capital gain or loss and ordinary income or loss is relevant
for purposes of, among other things, limitations on the deductibility of capital
losses.
TAX CONSEQUENCES TO NON-UNITED STATES NOTEHOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) payments of principal and interest (including original issue
discount, if any) on a Note by the Trust or any paying agent to a Noteholder
that is not a United States Noteholder, as defined
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above (hereinafter, "Non-United States Noteholder"), will not be subject to
withholding of United States federal income tax, provided that, in the case
of interest, (i) such Noteholder does not own, actually or constructively,
10 percent or more of the total combined voting power of all classes of
stock of ComEd entitled to vote, (ii) such Noteholder is not, for United
States federal income tax purposes, a controlled foreign corporation
related, directly or indirectly, to ComEd through stock ownership, (iii)
such Noteholder is not a bank receiving interest described in Section
881(c)(3)(A) of the Code, and (iv) the certification requirements under
Section 871(h) or Section 881(c) of the Code and Treasury Regulations
thereunder (summarized below) are met;
(b) a Non-United States Noteholder will not be subject to United States
federal income tax on gain recognized on the sale, exchange, redemption,
retirement or other disposition of such Note, unless (i) such Noteholder is
a non-resident alien individual who is present in the United States for 183
days or more in the taxable year of disposition, and certain conditions are
met or (ii) such gain is effectively connected with the conduct by such
Noteholder of a trade or business in the United States; and
(c) a Note held by an individual who is not a citizen or resident (as
defined for United States federal estate tax purposes) of the United States
at the time of his death will not be subject to United States federal estate
tax as a result of such individual's death, provided that, at the time of
such individual's death, (i) the individual does not own, actually or
constructively, 10 percent or more of the total combined voting power of all
classes of stock of ComEd entitled to vote and (ii) payments with respect to
such Note, if received at the time of the individual's death, would not have
been effectively connected with the conduct by such individual of a trade or
business in the United States.
Sections 871(h) and 881(c) of the Code and United States Treasury
Regulations thereunder require that, in order to obtain the exemption from
withholding tax described in paragraph (a) above, either (a) the beneficial
owner of a Note must certify, under penalties of perjury, to the Trust or paying
agent, as the case may be, that such owner is a Non-United States Noteholder and
must provide such owner's name and address, or (b) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution") and holds the Note on behalf of the beneficial owner thereof must
certify, under penalties of perjury, to the Trust or paying agent, as the case
may be, that such certificate has been received from the beneficial owner by it
or by a Financial Institution between it and the beneficial owner and must
furnish the payor with a copy thereof. A certificate described in this paragraph
is effective only with respect to payments of interest made to the certifying
Non-United States Noteholder after issuance of the certificate in the calendar
year of its issuance and the two immediately succeeding calendar years. Under
temporary United States Treasury Regulations, the foregoing certification may be
provided by the beneficial owner of a Note on IRS Form W-8.
Notwithstanding the foregoing, interest described in Section 871(h)(4) of
the Code is subject to United States withholding tax at a 30% rate (or such
lower rate as may be provided by an applicable treaty). In general, interest
described in Section 871(h)(4) of the Code includes (subject to certain
exceptions) any interest, the amount of which is determined by reference to
receipts, sales or other cash flow of the issuer or a related person, any income
or profits of the issuer or a related person, any change in the value of any
property of the issuer or a related person or any dividends, partnership
distribution or similar payments made by the issuer or a related person.
Interest described in Section 871(h)(4) of the Code may include other types of
contingent interest identified by the IRS in future Treasury Regulations. The
Trust does not currently expect to issue Notes, the interest on which is
described in Section 871(h)(4) of the Code. However, if such Notes are issued,
the taxation of such Notes will be addressed in the related Prospectus
Supplement.
On October 14, 1997, the IRS published in the Federal Register final
Regulations (the "1997 Final Regulations") which affect the United States
taxation of Non-United States Noteholders. As promulgated, the 1997 Final
Regulations will be effective for payments after December 31, 1998, regardless
of
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the issue date of the instrument with respect to which such payments are made,
subject to certain transition rules. The IRS thereafter announced its intention
to amend the 1997 Final Regulations to extend this date to December 31, 1999,
subject to certain transition rules. The discussion under this heading and under
"--Backup Withholding and Information Reporting," below, is not intended to be a
complete discussion of the provisions of the 1997 Final Regulations or the
subsequent IRS announcement, and it is recommended that prospective purchasers
of the Notes consult their tax advisors concerning the tax consequences of their
acquiring, holding and disposing of the Notes in light of the 1997 Final
Regulations.
The 1997 Final Regulations provide documentation procedures designed to
simplify compliance by withholding agents. The 1997 Final Regulations generally
do not affect the documentation rules described above, but add other
certification options. Under one such option, a withholding agent will be
allowed to rely on an intermediary withholding certificate furnished by a
"qualified intermediary" (as defined below) on behalf of one or more beneficial
owners (or other intermediaries) without having to obtain the beneficial owner
certificate described above. "Qualified intermediaries" include: (a) foreign
financial institutions or foreign clearing organizations (other than a United
States branch or United States office of such institution or organization) or
(b) foreign branches or offices of United States financial institutions or
foreign branches or offices of United States clearing organizations, which, as
to both (a) and (b), have entered into withholding agreements with the IRS. In
addition to certain other requirements, qualified intermediaries must obtain
withholding certificates, such as revised IRS Form W-8 (see below), from each
beneficial owner. Under another option, an authorized foreign agent of a United
States withholding agent will be permitted to act on behalf of the United States
withholding agent, provided certain conditions are met.
For purposes of the certification requirements, the 1997 Final Regulations
generally treat, as the beneficial owners of payments on a Note, those persons
that, under United States tax principles, are the taxpayers with respect to such
payments, rather than persons such as nominees or agents legally entitled to
such payments. In the case of payments to an entity classified as a foreign
partnership under United States tax principles, the partners, rather than the
partnership, generally will be required to provide the required certifications
to qualify for the withholding exemption described above. A payment to a United
States partnership, however, is treated for these purposes as payment to a
United States payee, even if the partnership has one or more foreign partners.
The 1997 Final Regulations provide certain presumptions with respect to
withholding for Noteholders not furnishing the required certifications to
qualify for the withholding exemption described above. In addition, the 1997
Final Regulations will replace a number of current tax certification forms
(including IRS Form W-8 and IRS Form 4224, discussed below) with a single,
revised IRS Form W-8 (which, in certain circumstances, requires information in
addition to that previously required). Under the 1997 Final Regulations, this
Form W-8 will remain valid, generally, until the last day of the third calendar
year following the year in which the certificate is signed. The 1997 Final
Regulations contained detailed rules, which might be changed in light of the
recent IRS announcement that the effective date will be postponed, governing tax
certifications during the transition period prior to and immediately following
the effectiveness of the 1997 Final Regulations.
If a Non-United States Noteholder is engaged in a trade or business in the
United States, and if interest on the Note, or gain recognized on the sale,
exchange, redemption, retirement or other disposition of a Note, is effectively
connected with the conduct of such trade or business, the Non-United States
Noteholder, although exempt from withholding of United States income tax, will
generally be subject to regular United States income tax on such interest or
gain in the same manner as if it were a United States Noteholder. See "--Tax
Consequences to United States Noteholders" above. In lieu of the certificate
described above, such a Noteholder must provide to the withholding agent a
properly executed IRS Form 4224 (or successor form) in order to claim an
exemption from withholding. In addition, if such Non-United States Noteholder is
a foreign corporation, it may be subject to a branch profits tax equal to 30%
(or such lower rate provided by an applicable treaty) of its effectively
connected earnings and profits for
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the taxable year, subject to certain adjustments. For purposes of the branch
profits tax, interest on, and any gain recognized on the sale, exchange,
redemption, retirement or other disposition of, a Note will be included in the
effectively connected earnings and profits of such Non-United States Noteholder
if such interest or gain is effectively connected with the conduct by the
Non-United States Noteholder of a trade or business in the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current United States federal income tax law, a 31% backup withholding
tax and information reporting requirements apply to certain payments of
principal and interest made to, and to the proceeds of sale before maturity by,
certain Noteholders.
In the case of a non-corporate United States Noteholder, backup withholding
will apply only if (a) such Noteholder fails to furnish its Taxpayer
Identification Number ("TIN") (which, for an individual, is his or her Social
Security number) to the payor in the manner required, (b) such Noteholder
furnishes an incorrect TIN and the payor is so notified by the IRS, (c) the
payor is notified by the IRS that such Noteholder has failed properly to report
payments of interest or dividends or (d) under certain circumstances, such
Noteholder fails to certify, under penalties of perjury, that it has furnished a
correct TIN and has not been notified by the IRS that it is subject to backup
withholding for failure to report interest or dividend payments. Backup
withholding does not apply with respect to payments made to certain exempt
recipients, such as a corporation (within the meaning of Section 7701(a) of the
Code) and tax-exempt organizations. United States Noteholders should consult
their tax advisors regarding their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption if applicable.
The amount of any backup withholding from a payment to a United States
Noteholder will be allowed as a credit against such Noteholder's United States
federal income tax liability and may entitle such Noteholder to a refund,
provided that the required information is furnished to the IRS.
In the case of a Non-United States Noteholder, under currently applicable
United States Treasury Regulations, backup withholding and information reporting
will not apply to payments of principal or interest made by the Trust or any
paying agent thereof on a Note (absent actual knowledge that the Noteholder is a
United States Noteholder) if such Noteholder has provided the required
certification under penalties of perjury that it is not a United States
Noteholder (as defined above) or has otherwise established an exemption. If such
Noteholder does not provide the required certification, such Noteholder may
nevertheless avoid backup withholding or information reporting in the
circumstances described below, but might be subject to withholding of United
States federal income tax as described above under "--Tax Consequences to
Non-United States Noteholders."
Under currently applicable United States Treasury Regulations, if payments
of principal or interest are collected outside the United States by a foreign
office of a custodian, nominee or other agent acting on behalf of a beneficial
owner of a Note, such custodian, nominee or other agent will not be required to
apply backup withholding to such payments made to such beneficial owner, and
generally will not be subject to information reporting requirements. However, if
such custodian, nominee or other agent is a United States person, a controlled
foreign corporation for United States tax purposes or a foreign person 50% or
more of whose gross income is effectively connected with a United States trade
or business for a specified three-year period, information reporting (but not
backup withholding) will be required unless such custodian, nominee or other
agent has in its records documentary evidence that the beneficial owner is not a
United States Noteholder (which such agent does not actually know to be false)
and certain other conditions are met or the beneficial owner otherwise
establishes an exemption.
Under currently applicable United States Treasury Regulations, payments on
the sale, exchange, redemption, retirement or other disposition of a Note made
to or through a foreign office of a broker generally will not be subject to
backup withholding, and generally will not be subject to information reporting
requirements. Such payments, however, will be subject to information reporting
(but not
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backup withholding) if the broker is, for United States federal income tax
purposes, a United States person, a controlled foreign corporation or a foreign
person 50% or more of whose gross income is effectively connected with a United
States trade or business for a specified three-year period, unless the broker
has in its records documentary evidence that the beneficial owner is not a
United States Noteholder (which such broker does not actually know to be false)
and certain other conditions are met or the beneficial owner otherwise
establishes an exemption. Payments made to or through the United States office
of a broker will be subject to backup withholding and information reporting
unless the Non-United States Noteholder certifies, under penalties of perjury,
that it is not a United States person or otherwise establishes an exemption.
In general, the 1997 Final Regulations do not significantly alter the
substantive backup withholding and information reporting requirements described
above. As under current law, backup withholding and information reporting will
not apply to (a) payments to a Non-United States Noteholder of principal and
interest and (b) payments to a Non-United States Noteholder on the sale,
exchange, redemption, retirement or other disposition of a Note, in each case if
such Non-United States Noteholder provides the required certification to
establish an exemption from the withholding of United States federal income tax
or otherwise establishes an exemption. Similarly, even if a Non-United States
Noteholder does not provide such certification or otherwise establish an
exemption, unless the payor has actual knowledge that the payee is a United
States Noteholder, backup withholding will not apply to (a) payments of interest
made outside the United States to certain offshore accounts and (b) payments on
the sale, exchange, redemption, retirement or other disposition of a Note
effected outside the United States. However, information reporting (but not
backup withholding) will apply to (a) payments of interest made by a payor
outside the United States and (b) payments on the sale, exchange, redemption,
retirement or other disposition of a Note effected outside the United States if
payment is made by a broker that is, for United States federal income tax
purposes, (i) a United States person, (ii) a controlled foreign corporation,
(iii) a United States branch of a foreign bank or foreign insurance company,
(iv) a foreign partnership controlled by United States persons or engaged in a
United States trade or business or (v) a foreign person 50% or more of whose
gross income is effectively connected with the conduct of a United States trade
or business for a specified three-year period, in each case unless such payor or
broker has in its records documentary evidence that the beneficial owner is not
a United States Noteholder and certain other conditions are met or the
beneficial owner otherwise establishes an exemption (in which case neither
information reporting nor backup withholding will apply). As noted above, the
IRS has announced that the 1997 Final Regulations will be amended to be
effective generally for payments after December 31, 1999, subject to certain
transition rules.
Non-United States Noteholders should consult their tax advisors regarding
the application of information reporting and backup withholding in their
particular situations, the availability of an exemption therefrom, and the
procedure for obtaining such an exemption, if available. Any amounts withheld
from a payment to a Non-United States Noteholder under the backup withholding
rules will be allowed as a credit against such Noteholder's United States
federal income tax liability and may entitle such Noteholder to a refund,
provided that the required information is furnished to the IRS.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND MAY NOT BE
APPLICABLE DEPENDING UPON A NOTEHOLDER'S PARTICULAR SITUATION. IT IS RECOMMENDED
THAT PROSPECTIVE NOTEHOLDERS CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE
NOTES, INCLUDING THE TAX CONSEQUENCES UNDER FEDERAL, STATE, LOCAL, NON-UNITED
STATES AND OTHER TAX LAWS AND THE EFFECTS OF CHANGES IN SUCH LAWS.
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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.
Certain transactions involving the purchase, holding or transfer of the
Notes might be deemed to constitute prohibited transactions under ERISA and/or
Section 4975 of the Code if assets of the Trust were deemed to be Plan Assets.
Regulations issued by the United States Department of Labor, set forth in 29
C.F.R. Section 2510.3-101 (the "Plan Asset Regulations"), provide rules
regarding when assets of an entity, such as the Trust, would be treated as Plan
Assets. Under those rules, the assets of the Trust would be treated as Plan
Assets of a Plan for the purposes of ERISA and Section 4975 of the Code only if
the Plan acquires an equity interest in the Trust and none of the exceptions
contained in the Plan Asset Regulations is applicable. An equity interest is
defined under the Plan Asset Regulations as an interest in an entity other than
an instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. Although there is no authority
directly on point, it is anticipated that the Notes should be treated as
indebtedness under local law without any substantial equity features for
purposes of the Plan Asset Regulations. Accordingly, the assets of the Trust
should not be treated as Plan Assets.
Without regard to whether the Notes are treated as an equity interest for
such purposes, the acquisition or holding of Notes by or on behalf of a Plan or
with Plan Assets could be considered to give rise to a prohibited transaction if
ComEd, the Trust, the Indenture Trustee, the Delaware Trustee, the Grantee, the
Administrator, the Servicer, any swap counterparty, any Underwriter or any of
their respective affiliates is or becomes a Party in Interest with respect to
such Plan. In this event, certain exemptions from the prohibited transaction
rules could be applicable depending on the type and circumstances of the
fiduciary making the decision to acquire Notes. Included among these exemptions
are Prohibited Transaction Class Exemption ("PTCE") 75-1, which exempts certain
transactions involving Plans and certain broker-dealers, reporting dealers and
banks, PTCE 90-1, which exempts certain transactions between insurance company
separate accounts and Parties in Interest, PTCE 91-38, which exempts certain
transactions between bank collective investment funds and Parties in Interest,
PTCE 84-14, which exempts certain transactions effected on behalf of a Plan by a
"qualified professional asset manager," PTCE 95-60, which exempts certain
transactions between insurance company general accounts and Parties in Interest
and PTCE 96-23, which exempts certain transactions effected on behalf
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of a Plan by an "in-house asset manager" (collectively, the "Exemptions"). Even
if the conditions specified in one or more of the Exemptions are met, the scope
of the relief provided by the Exemptions might or might not cover all acts which
might be construed as prohibited transactions.
Nevertheless, a Plan generally should not purchase Notes if ComEd, the
Indenture Trustee, the Delaware Trustee, the Grantee, the Administrator, the
Servicer, any swap counterparty, any Underwriter or any of their respective
affiliates either (a) has investment discretion with respect to the investment
of assets of such Plan; (b) has authority or responsibility to give or regularly
gives investment advice with respect to assets of such Plan for a fee and
pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such assets and that such
advice will be based on the particular investment needs of such Plan; or (c) is
an employer maintaining or contributing to such Plan. A party that is described
in clause (a) or (b) of the preceding sentence is a fiduciary under ERISA with
respect to the Plan, and any such purchase might result in a "prohibited
transaction" under ERISA or the Code for which no exemption may be available.
ANY FIDUCIARY OR OTHER PLAN INVESTOR CONSIDERING WHETHER TO PURCHASE THE
NOTES OF ANY CLASS OR SERIES ON BEHALF OF OR WITH PLAN ASSETS OF ANY PLAN SHOULD
CONSULT WITH ITS LEGAL ADVISORS.
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 Notes 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.
USE OF PROCEEDS
The Trust will pay over the proceeds received from each sale of a Series of
Notes (net of the expenses of issuance and amounts required to fund the Capital
Subaccount) to the Grantee as the consideration for the Grantee's assignment of
its ownership rights in the related Intangible Transition Property and related
assets (as defined in the Basic Documents) to the Trust. The Grantee will
declare distributions to its sole member, ComEd, in the amount of the proceeds
received from the Trust net of the expenses of issuance and amounts required to
fund the Capital Subaccount and thereby transfer such proceeds to ComEd in
consideration for ComEd's request in each application for a Transitional Funding
Order that the related Intangible Transition Property be granted to and vested
in the Grantee.
Subject to the limitations on the use of proceeds described in "Description
of the Intangible Transition Property--Limitations on the Amounts of
Transitional Funding Instruments, Intangible Transition Property and Instrument
Funding Charges Which Can Be Authorized; Permitted Uses of Proceeds," ComEd
anticipates using the aggregate net proceeds which it receives from the Grantee
to redeem, retire or refinance mortgage bonds and notes, together with certain
premia anticipated in connection with such redemptions, to redeem preference
stock and securities, to repurchase common equity from its parent company,
including commissions in connection with such repurchases, and to pay any
transaction costs incurred in connection with such redemptions, retirements,
refinancings and repurchases. ComEd's parent company will use the proceeds it
receives from any repurchase of ComEd common equity to repurchase the parent
company's publicly-traded common stock, including payment of commissions
thereon.
125
<PAGE>
PLAN OF DISTRIBUTION
The Notes 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
Grantee and the Trust intend that Notes 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
Notes may be made through a combination of such methods.
The distribution of Notes 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 Notes, Underwriters or agents may receive
compensation in the form of discounts, concessions or commissions. Underwriters
may sell Notes 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
Notes 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
Notes 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 Grantee and the Trust,
Underwriters and agents who participate in the distribution of the Notes may be
entitled to indemnification by the Grantee and ComEd and against certain
liabilities, including liabilities under the Securities Act.
The Underwriters may, from time to time, buy and sell Notes, 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 Notes 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.
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 Note, and,
accordingly, there can be no assurance that the ratings assigned to any Class of
Notes upon initial issuance will not be lowered or withdrawn by a Rating Agency
at any time thereafter. If a rating of any Class of Notes is revised or
withdrawn, the liquidity of such Class of Notes may be adversely affected. In
general, ratings address credit risk and do not represent any assessment of the
rate of principal payments on the Notes.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Notes and certain
legal matters relating to the United States federal income tax consequences of
the issuance of the Notes will be passed upon for the Trust by Sidley & Austin,
Chicago, Illinois, counsel to ComEd. Certain legal matters relating to the Trust
and the issuance of the Notes will be passed upon by Foley & Lardner, Chicago,
Illinois, counsel to ComEd, and for the Underwriters by Winston & Strawn,
Chicago, Illinois. Winston & Strawn acts from time to time as counsel to ComEd
and its affiliates in certain matters unrelated to the offering of the Notes.
126
<PAGE>
EXPERTS
The financial statements included in this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
127
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
DEFINED
DEFINED TERM ON PAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
1997 Final Regulations........................................................... 120
Act.............................................................................. 8
Adjustments...................................................................... 17, 57
Administration Agreement......................................................... 10
Administrator.................................................................... 10
Amendatory Act................................................................... 8
Amendatory Tariff................................................................ 17
Annual Accountant's Report....................................................... 94
Applicable Rates................................................................. 15, 56
Basic Documents.................................................................. 115
Beneficiary Trustee.............................................................. 11
Billing Period................................................................... 91
Book-Entry Note.................................................................. 25
Business Day..................................................................... 100
Capital Subaccount............................................................... 21, 109
Cede............................................................................. 25
CEDEL............................................................................ 101
CEDEL Participants............................................................... 103
Class............................................................................ 11
Code............................................................................. 27
Collection Account............................................................... 109
ComEd............................................................................ 8
Cooperative...................................................................... 103
Customers........................................................................ 14
Daily Remittance Date............................................................ 91
Debt Service Billing Requirement................................................. 58
Debt Service Requirement......................................................... 58
Definitive Notes................................................................. 104
Delaware Trustee................................................................. 11
Depositaries..................................................................... 101
DOE.............................................................................. 86
Downgrade Event.................................................................. 45
DTC.............................................................................. 3, 25
Eligible Institution............................................................. 109
Eligible Investments............................................................. 110
ERISA............................................................................ 26
Euroclear........................................................................ 101
Euroclear Operator............................................................... 103
Euroclear Participants........................................................... 103
Event of Default................................................................. 19, 115
Excess Remittance................................................................ 91
Exchange Act..................................................................... 3
Excluded Amounts................................................................. 15, 56
Exemptions....................................................................... 125
</TABLE>
128
<PAGE>
<TABLE>
<CAPTION>
DEFINED
DEFINED TERM ON PAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
Expected Amortization Schedule................................................... 19
FDIC............................................................................. 109
FERC............................................................................. 35
Final Maturity Date.............................................................. 18, 98
Financial Institution............................................................ 120
Floating Rate Notes.............................................................. 12
Funding Law...................................................................... 8
General Subaccount............................................................... 21, 109
Grant Agreement.................................................................. 8
Grantee.......................................................................... 11
ICC.............................................................................. 8
IFC Charges...................................................................... 14
IFC Collections.................................................................. 11
IFC Customer Class............................................................... 75
IFC Payments..................................................................... 14, 55
IFC Tariff....................................................................... 9
Indenture........................................................................ 11, 98
Indenture Trustee................................................................ 13
Independent Managers............................................................. 74
Indirect Participant............................................................. 26
Initial Intangible Transition Property........................................... 59
Initial TFO...................................................................... 55
Intangible Transition Property................................................... 14
Lost Revenue Recoveries.......................................................... 92
Monthly IFC Amount............................................................... 91
Monthly Remittance Conditions.................................................... 42
Monthly Remittance Date.......................................................... 91
Monthly Servicer's Statement..................................................... 94
Moody's.......................................................................... 41
New Notes........................................................................ 21, 105
Non-United States Noteholder..................................................... 120
Note Collateral.................................................................. 107
Note Interest Rate............................................................... 98
Noteholders...................................................................... 3, 118
Notes............................................................................ 8
Operating Expenses............................................................... 11
Overcollateralization Amount..................................................... 21, 110
Overcollateralization Subaccount................................................. 21, 109
Participants..................................................................... 25
Parties in Interest.............................................................. 124
Payment Date..................................................................... 18
Plan Asset Regulations........................................................... 124
Plan Assets...................................................................... 124
Plans............................................................................ 124
PTCE............................................................................. 124
</TABLE>
129
<PAGE>
<TABLE>
<CAPTION>
DEFINED
DEFINED TERM ON PAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
Quarterly Administration Fee..................................................... 112
Quarterly Interest............................................................... 112
Rating Agency.................................................................... 13
Rating Agency Condition.......................................................... 98
Reconciled Billing Period........................................................ 91
Reconciliation Payment Date...................................................... 16, 57
Record Date...................................................................... 18
Redetermined IFC Payments........................................................ 91
Remittance Shortfall............................................................. 91
Remitted IFC Payments............................................................ 91
Reporting Customer Class......................................................... 75
Required Capital Level........................................................... 22, 110
Required Overcollateralization Level............................................. 22, 110
Reserve Subaccount............................................................... 21, 109
Rules............................................................................ 102
S&P.............................................................................. 41
Sale Agreement................................................................... 8
Scheduled Maturity Date.......................................................... 18, 98
Scheduled Payment................................................................ 19, 99
Series........................................................................... 11
Series Issuance Date............................................................. 23, 91
Servicer......................................................................... 10
Servicer Business Day............................................................ 81
Servicer Defaults................................................................ 95
Servicing Agreement.............................................................. 9
Servicing Fee.................................................................... 25
Servicing Standard............................................................... 23
Specified Payments............................................................... 9
State Pledge..................................................................... 18
Subsequent Intangible Transition Property........................................ 59
Subsequent Transfer Date......................................................... 59
Successor Servicer............................................................... 96
Swap Agreement................................................................... 9, 100
Terms and Conditions............................................................. 103
TIN.............................................................................. 122
Transitional Funding Order....................................................... 13, 55
True-Up Payment Date............................................................. 17, 57
Trust............................................................................ 11
Trust Agreement.................................................................. 11
UCC.............................................................................. 42
Unicom........................................................................... 10
United States Noteholder......................................................... 118
Utilities........................................................................ 8
</TABLE>
130
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
FINANCIAL STATEMENTS OF THE GRANTEE.................................................. F-2
Report of Independent Public Accountants............................................. F-3
Statement of Operations.............................................................. F-4
Balance Sheet........................................................................ F-5
Statement of Changes in Member's Equity.............................................. F-6
Statement of Cash Flows.............................................................. F-7
Notes to Financial Statements........................................................ F-8
FINANCIAL STATEMENTS OF THE TRUST.................................................... F-10
Definitions.......................................................................... F-11
Report of Independent Public Accountants............................................. F-12
Statement of Operations.............................................................. F-13
Balance Sheet........................................................................ F-14
Statement of Changes in Owner's Equity............................................... F-15
Statement of Cash Flows.............................................................. F-16
Notes to Financial Statements........................................................ F-17
</TABLE>
F-1
<PAGE>
COMED FUNDING, LLC
(A WHOLLY-OWNED SUBSIDIARY OF COMMONWEALTH EDISON COMPANY)
FINANCIAL STATEMENTS
AS OF JULY 31, 1998
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Member of
ComEd Funding, LLC:
We have audited the accompanying balance sheet of ComEd Funding, LLC (a
special purpose Delaware limited liability company) as of July 31, 1998, and the
related statements of operations, changes in member's equity and cash flows for
the period from inception (July 21, 1998) to July 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We have conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ComEd Funding, LLC as of
July 31, 1998, and the results of its operations and its cash flows for the
period from inception (July 21, 1998) to July 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 3, 1998
F-3
<PAGE>
COMED FUNDING, LLC
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JULY 21, 1998) TO JULY 31, 1998
<TABLE>
<S> <C>
Revenues......................................................................... $ --
Expenses:
Administrative and General..................................................... $ 16,000
---------
Net Loss......................................................................... $ (16,000)
---------
---------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-4
<PAGE>
COMED FUNDING, LLC
BALANCE SHEET
JULY 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Accounts Receivable from Commonwealth Edison....................................... $ 1,000
---------
Total Assets................................................................... $ 1,000
---------
---------
LIABILITIES AND MEMBER'S EQUITY
Member's Equity.................................................................... $ 1,000
---------
Total Liabilities and Member's Equity.......................................... $ 1,000
---------
---------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-5
<PAGE>
COMED FUNDING, LLC
STATEMENT OF CHANGES IN MEMBER'S EQUITY
FOR THE PERIOD FROM INCEPTION (JULY 21, 1998) TO JULY 31, 1998
<TABLE>
<S> <C>
Member's Equity at Inception..................................................... $ --
Add: Net Loss.................................................................. (16,000)
Contributed Equity........................................................ 17,000
---------
Member's Equity at End of Period................................................. $ 1,000
---------
---------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-6
<PAGE>
COMED FUNDING, LLC
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JULY 21, 1998) TO JULY 31, 1998
<TABLE>
<S> <C>
Cash Flows From Operating Activities............................................. $ --
---------
Cash Flows From Investing Activities............................................. $ --
---------
Cash Flows From Financing Activities............................................. $ --
---------
Net Increase/(Decrease) in Cash.................................................. $ --
Cash at Inception................................................................ --
---------
Cash at End of Period............................................................ $ --
---------
---------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-7
<PAGE>
COMED FUNDING, LLC
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The financial statements include the accounts of ComEd Funding, LLC (CE
Funding), a special purpose Delaware limited liability company, whose sole
member is Commonwealth Edison Company (ComEd). ComEd, the principal subsidiary
of Unicom Corporation (Unicom), is engaged in the production, purchase,
transmission, distribution and sale of electricity to a diverse base of
customers. CE Funding was formed on July 21, 1998, for the exclusive purposes of
(i) initially owning the "intangible transition property" (described below),
(ii) assigning all of its right, title and interest in the intangible transition
property and the servicing agreement to ComEd Transitional Funding Trust
(Trust), and (iii) entering into the servicing agreement with the servicer in
respect to the intangible transition property. The Trust is a special purpose
Delaware business trust which will issue Transitional Funding Trust Notes
(Notes) secured by the intangible transition property to investors and will
remit the proceeds to CE Funding in consideration for the transferring of its
interest in the intangible transition property. CE Funding, in turn, will remit
the net proceeds to ComEd in consideration for the intangible transition
property that will be vested in CE Funding. ComEd anticipates that the Notes
will be issued sometime in the fourth quarter of 1998.
CE Funding was organized solely to acquire, own, hold, administer, service
or enter into agreements regarding the receipt and servicing of intangible
transition property, along with certain other related assets. The Trust will be
organized with the sole purpose of limited business activities as are necessary
or reasonably related to the issuance of the Notes. CE Funding and the Trust are
structured and are to be operated in a manner such that even in the event of
bankruptcy proceedings against ComEd, the assets of CE Funding and the Trust
will not be consolidated into the bankruptcy estate of ComEd.
The intangible transition property is the separate property right, as
created under the Transitional Funding Order issued by the Illinois Commerce
Commission on July 21, 1998, including, without limitation, the right, title and
interest to impose and receive instrument funding charges (IFC). IFC's are
non-bypassable, usage-based, per kilowatt-hour charges to be imposed on
designated consumers of electricity.
(2) SUMMARY OF ACCOUNTING POLICIES
(A) GENERAL
CE Funding follows the accrual method of accounting. Administrative and
general expenses associated with CE Funding will be paid by ComEd and have
been recorded as member's equity. The accounts receivable from ComEd was
received subsequent to the Balance Sheet date.
(B) INVESTMENT IN THE TRUST
CE Funding will have an investment in and 100% ownership of the Trust.
(C) INCOME TAXES
As a limited liability company, the member intends for CE Funding to be
treated as a partnership for tax purposes. Income and losses are passed
through to the member and, accordingly, there is no provision for income
taxes.
F-8
<PAGE>
COMED FUNDING, LLC
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
(2) SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
(D) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) SIGNIFICANT AGREEMENTS AND RELATED PARTY TRANSACTIONS
Notwithstanding the non-recourse nature of the transactions, ComEd
(individually, as Servicer or otherwise) will be required under the transaction
documents (i) to make certain representations and warranties with respect to,
among other things, the validity of CE Funding's and its assignees' title to the
intangible transition property and (ii) to observe certain covenants for the
benefit of CE Funding and its assignees. ComEd will also be required to
indemnify CE Funding and its assignees against any breaches of such
representations, warranties and covenants and to protect such parties against
certain other losses, which result from actions or inactions of ComEd.
ComEd will act as the initial servicer (in such capacity, together with any
successor-in-interest, the "Servicer") for CE Funding under the transaction
documents. CE Funding's rights under the Servicing Agreement will be assigned to
the Trust. The transaction documents will contain provisions allowing the
Servicer to be replaced under limited circumstances. The Servicer will be paid a
servicing fee in consideration for billing and collecting the IFCs on behalf of
the Trust, calculating the reconciliation and true-up adjustments and performing
related services. Such servicing fees shall be paid to the Servicer from the IFC
collections.
F-9
<PAGE>
COMED TRANSITIONAL FUNDING TRUST
(A WHOLLY-OWNED SUBSIDIARY OF COMED FUNDING, LLC)
FINANCIAL STATEMENTS
AS OF OCTOBER 31, 1998
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
F-10
<PAGE>
DEFINITIONS
The following terms are used in these Financial Statements with the
following meanings:
<TABLE>
<CAPTION>
TERM MEANING
- ----------------------------- ------------------------------------------------------------
<S> <C>
CE Funding ComEd Funding, LLC, whose sole member is ComEd
ComEd Commonwealth Edison Company, a wholly-owned subsidiary of
Unicom
Funding Law The Illinois Electric Utility Transitional Funding Law of
1997
IFC Instrument Funding Charges
Notes Transitional Funding Trust Notes
Servicer Responsible for Servicing, Managing and Receiving IFC
Payments for a Servicing Fee
Transitional Funding Order Illinois Commerce Commission order, dated July 21, 1998,
issued pursuant to the Funding Law, which provides, among
other things, for the creation of intangible transition
property
Trust ComEd Transitional Funding Trust, whose sole owner is CE
Funding
Unicom Unicom Corporation
</TABLE>
F-11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owner of
ComEd Transitional Funding Trust:
We have audited the accompanying balance sheet of ComEd Transitional Funding
Trust (a special purpose Delaware business trust) as of October 31, 1998, and
the related statements of operations, changes in owner's equity and cash flows
for the period from inception (October 28, 1998) to October 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We have conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ComEd Transitional Funding
Trust as of October 31, 1998, and the results of its operations and its cash
flows for the period from inception (October 28, 1998) to October 31, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 9, 1998
F-12
<PAGE>
COMED TRANSITIONAL FUNDING TRUST
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (OCTOBER 28, 1998) TO OCTOBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Revenues............................................................................. $ --
Expenses............................................................................. $ --
---------
Net Income (Loss).................................................................... $ --
---------
---------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-13
<PAGE>
COMED TRANSITIONAL FUNDING TRUST
BALANCE SHEET
OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current Assets:
Accounts Receivable from CE Funding............... $ 1,000
------------
Deferred Charges:
Unamortized Issuance Expense of Notes............. $ 16,000
------------
Total Assets.................................... $ 17,000
------------
------------
LIABILITIES AND OWNER'S EQUITY
Current Liabilities:
Accounts Payable.................................. $ 16,000
------------
Owner's Equity.................................... $ 1,000
------------
Total Liabilities and Owner's Equity............ $ 17,000
------------
------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-14
<PAGE>
COMED TRANSITIONAL FUNDING TRUST
STATEMENT OF CHANGES IN OWNER'S EQUITY
FOR THE PERIOD FROM INCEPTION (OCTOBER 28, 1998) TO OCTOBER 31, 1998
<TABLE>
<S> <C>
Owner's Equity at Inception........................................................ $ --
Add: Net Income (Loss)........................................................... --
Contributed Equity........................................................... 1,000
---------
Owner's Equity at End of Period.................................................... $ 1,000
---------
---------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-15
<PAGE>
COMED TRANSITIONAL FUNDING TRUST
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (OCTOBER 28, 1998) TO OCTOBER 31, 1998
<TABLE>
<S> <C>
Cash Flows From Operating Activities............................................... $ --
---------
Cash Flows From Investing Activities............................................... $ --
---------
Cash Flows From Financing Activities............................................... $ --
---------
Net Increase/(Decrease) in Cash.................................................... $ --
Cash at Inception.................................................................. --
---------
Cash at End of Period.............................................................. $ --
---------
---------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-16
<PAGE>
COMED TRANSITIONAL FUNDING TRUST
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The financial statements include the accounts of the Trust, a special
purpose Delaware business trust, whose sole owner is CE Funding. CE Funding is a
special purpose Delaware limited liability company, whose sole member is ComEd.
ComEd, the principal subsidiary of Unicom, is engaged in the production,
purchase, transmission, distribution and sale of electricity to a diverse base
of customers. The Trust was formed on October 28, 1998, for the exclusive
purpose of issuing Notes and will remit the proceeds to CE Funding in
consideration for the transferring of CE Funding's interest in the intangible
transition property (described below). CE Funding, in turn, will remit the net
proceeds to ComEd in consideration for the intangible transition property that
will be vested in CE Funding. CE Funding was formed on July 21, 1998, for the
exclusive purposes of (i) initially owning the intangible transition property,
(ii) assigning all of its right, title and interest in the intangible transition
property and the servicing agreement to the Trust, and (iii) entering into the
servicing agreement with the servicer in respect to the intangible transition
property. In accordance with the Funding Law and the related Transitional
Funding Order, the Trust shall be entitled to receive the intangible transition
property created by such Transitional Funding Order as assignee of CE Funding,
and shall be authorized to issue Notes as transitional funding instruments. The
assets of the Trust will consist of the intangible transition property and the
other collateral, including capital transferred by CE Funding in an amount
specified in each Prospectus Supplement which will be sufficient to meet certain
requirements of the indenture between the Trust and the indenture trustee. ComEd
anticipates that the Notes will be issued sometime in the fourth quarter of
1998.
The Trust was organized with the sole purpose of limited business activities
as are necessary or reasonably related to the issuance of the Notes. CE Funding
and the Trust are structured and are to be operated in a manner such that even
in the event of bankruptcy proceedings against ComEd, the assets of CE Funding
and the Trust will not be consolidated into the bankruptcy estate of ComEd.
The intangible transition property is the separate property right, as
created under the Transitional Funding Order issued by the Illinois Commerce
Commission on July 21, 1998, including, without limitation, the right, title and
interest to impose and receive the IFCs. IFCs are non-bypassable, usage-based,
per kilowatt hour charges to be imposed on designated consumers of electricity.
(2) SUMMARY OF ACCOUNTING POLICIES
(A) GENERAL
The Trust follows the accrual method of accounting. The accounts
receivable from CE Funding was received subsequent to the Balance Sheet
date. The issuance expenses in connection with the Notes will be paid from
the proceeds received for the Notes.
(B) UNAMORTIZED ISSUANCE EXPENSE IN CONNECTION WITH THE NOTES
The unamortized issuance expenses in connection with the Notes will be
amortized over the life of the Notes.
(C) INCOME TAXES
As a special purpose business trust, the member of CE Funding intends
for the Trust, CE Funding and ComEd to be treated as a single entity for tax
purposes. Income and losses are passed through to the member of CE Funding
and, accordingly, there will be no provision for income taxes.
F-17
<PAGE>
COMED TRANSITIONAL FUNDING TRUST
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
(2) SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
(D) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) SIGNIFICANT AGREEMENTS AND RELATED PARTY TRANSACTIONS
Notwithstanding the non-recourse nature of the transactions, ComEd
(individually, as Servicer or otherwise) will be required under the transaction
documents (i) to make certain representations and warranties with respect to,
among other things, the validity of CE Funding's and its assignees' title to the
intangible transition property and (ii) to observe certain covenants for the
benefit of CE Funding and its assignees. ComEd will also be required to
indemnify CE Funding and its assignees against any breaches of such
representations, warranties and covenants and to protect such parties against
certain other losses, which result from actions or inactions of ComEd.
ComEd will act as the initial servicer for CE Funding under the transaction
documents. CE Funding's rights under the Servicing Agreement will be assigned to
the Trust. The transaction documents will contain provisions allowing the
Servicer to be replaced under limited circumstances. The Servicer will be paid a
servicing fee in consideration for billing and collecting the IFCs on behalf of
the Trust, calculating the reconciliation and true-up adjustments and performing
related services. Such servicing fees shall be paid to the Servicer from the IFC
collections.
F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH THEY RELATE OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
SUCH SECURITIES IN ANY JURISDICTIONS IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF COMED SINCE THE
DATE HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Reports to Holders S-3
Prospectus Supplement Summary.................. S-4
Description of the Offered Notes............... S-14
Description of the Intangible Transition
Property..................................... S-17
The Servicer................................... S-19
Servicing...................................... S-19
Material United States Federal Tax
Consequences................................. S-20
Underwriting................................... S-20
Ratings........................................ S-21
Legal Matters.................................. S-22
Index of Principal Definitions................. S-23
PROSPECTUS
Available Information.......................... 3
Reports to Holders............................. 3
Incorporation of Certain Documents by
Reference.................................... 3
Prospectus Supplement.......................... 4
Table of Contents.............................. 5
Prospectus Summary............................. 8
Risk Factors................................... 28
Electric Industry Restructuring in Illinois.... 45
Description of the Intangible Transition
Property..................................... 51
Certain Payment, Weighted Average Life and
Yield Considerations......................... 71
The Trust...................................... 72
The Grantee.................................... 73
The Servicer................................... 75
Servicing...................................... 89
Description of the Notes....................... 98
Security for the Notes......................... 107
Material United States Federal Tax
Consequences................................. 118
ERISA Considerations........................... 124
Use of Proceeds................................ 125
Plan of Distribution........................... 126
Ratings........................................ 126
Legal Matters.................................. 126
Experts........................................ 127
Index of Principal Definitions................. 128
Index of Financial Statements.................. F-1
</TABLE>
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
$
COMED TRANSITIONAL FUNDING TRUST
$ CLASS A-1
% TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998
$ CLASS A-2
% TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998
$ CLASS A-3
% TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998
$ CLASS A-4
% TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998
$ CLASS A-5
% TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998
$ CLASS A-6
% TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998
$ CLASS A-7
% TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998
COMMONWEALTH EDISON COMPANY
SERVICER
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
CHASE SECURITIES INC.
FIRST CHICAGO CAPITAL MARKETS, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
BNY CAPITAL MARKETS, INC.
GARDNER RICH & COMPANY
LOOP CAPITAL MARKETS, LLC
MESIROW FINANCIAL, INC.
RAMIREZ & CO., INC.
SIEBERT BRANDFORD SHANK & CO., LLC
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission filing fee.................................. $ 1,112,017
Blue sky fees and expenses..................................................... 12,375
Printing and engraving expenses................................................ 500,000
Accountants' fees and expenses................................................. 25,000
Trustees' fees and expenses.................................................... 75,000
Legal fees and expenses........................................................ 3,000,000
Rating Agency fees............................................................. 525,000
Miscellaneous fees and expenses................................................ 600,000
-------------
Total........................................................................ $ 5,849,392
-------------
-------------
</TABLE>
- --------------
All of the fees, costs and expenses set forth above will be paid by the
Trust.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Title 12, Section 3817 of the Delaware Code (the "Delaware Act") provides
that subject to such standards and restrictions, if any, as are set forth in its
governing instrument, a Delaware Business Trust may and has the power to
indemnify and hold harmless any trustee or beneficial owner or other person from
and against any and all claims and demands. The Delaware Act also provides that
the absence of a provision for indemnity in the governing instrument of a
business trust shall not be construed to deprive any trustee or beneficial owner
or other person of any right to indemnity which is otherwise available to such
person under the laws of the State of Delaware.
Section 6.07 of the Indenture provides that the Trust shall indemnify the
Indenture Trustee and its officers, directors, employees and agents against any
loss, liability or expense incurred by it in connection with the administration
of the trust and the performance of its duties under the Indenture, except for
any loss, liability or expense incurred as a result of the Indenture Trustee's
own willful misconduct, negligence or bad faith.
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 10.1 of the Limited Liability
Company Agreement of the Grantee provides that the Grantee shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Grantee) by reason of the fact that he is or was a manager,
officer, employee or agent of the Grantee, or is or was serving at the request
of the Grantee as a manager, director, officer, employee or agent of another
company, partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Grantee, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Certain provisions of the Illinois Business Corporation Act of 1983 (the
"BCA") provide that the sole member of the Grantee, Commonwealth Edison Company
("ComEd"), may, and in some circumstances must, indemnify the directors and
officers of ComEd and of each subsidiary company against liabilities and
expenses incurred by any such person by reason of the fact that such person was
serving
II-1
<PAGE>
in such capacity, subject to certain limitations and conditions set forth in the
statute. ComEd's By-laws provide that ComEd will indemnify its directors and
officers, and any person serving as a director or officer of another business
entity at ComEd's request, to the extent permitted by the statute. In addition,
ComEd's Restated Articles of Incorporation provide, as permitted by the BCA,
that directors shall not be personally liable for monetary damages for breach of
fiduciary duty as a director, except (i) for breaches of their duty of loyalty
to ComEd or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 8.65 of the BCA, and (iv) for transactions from which a director derived
an improper personal benefit.
ComEd has purchased liability insurance policies which indemnify ComEd's
directors and officers, the directors and officers of subsidiaries of ComEd, the
trustees of the Service Annuity Funds, and officers of ComEd serving as
directors and officers on behalf of ComEd with certain other entities, against
loss arising from claims by reason of their legal liability for acts as such
directors, officers or trustees, subject to certain limitations and conditions
set forth in the policies.
ComEd indemnifies assistant officers and certain other employees against
liabilities and expenses incurred by reason of acts performed in connection with
the operations of the various employee benefit systems of ComEd and its
subsidiaries.
The indemnification provided by the Delaware Code, the Delaware Limited
Liability Company Act, the Grantee's Limited Liability Company Agreement and the
Indenture is not exclusive of any other rights to which the Delaware Trustee,
the Indenture Trustee, the members and managers of the Grantee, the officers and
directors of ComEd and any beneficial owner of the Trust may be entitled.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
**3.1 Amended and Restated Certificate of Formation of the Registrant.
**3.2 Amended and Restated Limited Liability Company Agreement of the
Registrant.
**4.1 Trust Agreement.
4.2 Form of Transitional Funding Trust Note.
4.3 Form of Indenture.
4.4 Form of Amendment No. 1 to Trust Agreement (Exhibit Number 4.1); to be
executed.
5.1 Opinion of Foley & Lardner relating to legality of the Transitional
Funding Trust Notes.
5.2 Opinion of Sidley & Austin relating to the legality of the Transitional
Funding Trust Notes.
8.1 Opinion of Sidley & Austin with respect to material federal tax matters.
10.1 Form of Sale Agreement.
10.2 Form of Grant Agreement.
10.3 Form of Servicing Agreement.
**10.4 Form of Administration Agreement.
10.5 Form of Remediation Agreement.
23.1 Consent of Foley & Lardner (included in Exhibit 5.1).
23.2 Consent of Sidley & Austin (included in Exhibit 5.2 and Exhibit 8.1).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
**23.3 Consent of Winston & Strawn.
**23.4 Consent of Arthur Andersen, LLP with respect to the financial statements
of the Registrant.
**23.5 Consent of Arthur Andersen, LLP with respect to the financial statements
of the Trust.
**24.1 Power of Attorney with respect to the Registrant (included on page II-5 of
Amendment No. 1 to the Registration Statement).
**24.2 Power of Attorney with respect to the Trust (included on page II-5 of
Amendment No. 2 to the Registration Statement).
**25 Form T-1.
**99.1 Application for Transitional Funding Order.
**99.2 Transitional Funding Order.
**99.3 Internal Revenue Service Private Letter Ruling pertaining to the Notes.
</TABLE>
- --------------
** Previously filed.
ITEM 17. UNDERTAKINGS.
The Registrant, on behalf of the ComEd Transitional Funding Trust (the
"Trust") hereby undertakes as follows:
(a)(1) To do, or, pursuant to the Administration Agreement, to cause
Commonwealth Edison Corporation (the "Administrator") to do the following: (i)
to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement; (ii) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (iii) 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 a 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 offering price set
forth in the "Calculation of Registration Fee" table in the effective
Registration Statement); and (iv) 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)(ii) and (a)(1)(iii) 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, or to cause Administrator 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 Trust's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and,
II-3
<PAGE>
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 to
be 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 the Delaware Trustee, the Indenture
Trustee, the managers and members of the Grantee and the directors and officers
of the Administrator pursuant to the provisions described in Item 15 above, or
otherwise, the Registrant, the Grantee and the Administrator have 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 Delaware Trustee, Indenture Trustee, the
managers or members of the Grantee, or the directors or officers of the
Administrator 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 each issue.
(d) That, for purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(i) or
(4) or 497(h) under the Securities Act of 1933, as amended, shall be deemed to
be part of this Registration Statement as of the time it was declared effective.
(e) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering hereof.
(f) The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the Indenture Trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act of 1939, as amended, in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Trust Indenture Act of 1939, as amended.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant and the Trust each certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3 and that
the security rating requirement of Form S-3 will be met by the time of sale, and
has duly caused this Amendment No. 3 of the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on this 3rd day of December, 1998.
<TABLE>
<S> <C> <C>
COMED FUNDING, LLC
By: /s/ RUTH ANN M. GILLIS
-----------------------------------------
Ruth Ann M. Gillis, MANAGER
</TABLE>
<TABLE>
<S> <C> <C>
COMED TRANSITIONAL FUNDING TRUST
By: /s/ RUTH ANN M. GILLIS
-----------------------------------------
Ruth Ann M. Gillis, BENEFICIARY TRUSTEE
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to the Registration Statement has been signed by the following
person in the capacity and on the date indicated.
<TABLE>
<CAPTION>
By: /s/ RUTH ANN M. GILLIS
------------------------------ Manager December 3, 1998
Ruth Ann M. Gillis, MANAGER
<S><C> <C> <C>
Pursuant to a power of
attorney previously held.
By: /s/ RUTH ANN M. GILLIS
------------------------------
Ruth Ann M. Gillis, Beneficiary Trustee December 3, 1998
BENEFICIARY TRUSTEE
Pursuant to a power of
attorney previously held.
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT DESCRIPTION PAGE NUMBER
- ------ --------------------------------------------------------------------- -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
**3.1 Amended and Restated Certificate of Formation of the Registrant.
**3.2 Amended and Restated Limited Liability Company Agreement of the
Registrant.
**4.1 Trust Agreement.
4.2 Form of Transitional Funding Trust Note.
4.3 Form of Indenture.
4.4 Form of Amendment No. 1 to Trust Agreement (Exhibit Number 4.1); to
be executed.
5.1 Opinion of Foley & Lardner relating to legality of the Transitional
Funding Trust Notes.
5.2 Opinion of Sidley & Austin relating to the legality of the
Transitional Funding Trust Notes.
8.1 Opinion of Sidley & Austin with respect to material federal tax
matters.
10.1 Form of Sale Agreement.
10.2 Form of Grant Agreement.
10.3 Form of Servicing Agreement.
**10.4 Form of Administration Agreement.
10.5 Form of Remediation Agreement.
23.1 Consent of Foley & Lardner (included in Exhibit 5.1).
23.2 Consent of Sidley & Austin (included in Exhibit 5.2 and Exhibit 8.1).
**23.3 Consent of Winston & Strawn.
**23.4 Consent of Arthur Andersen, LLP with respect to the financial
statements of the Registrant.
**23.5 Consent of Arthur Andersen, LLP with respect to the financial
statements of the Trust.
**24.1 Power of Attorney with respect to the Registrant (included on page
II-5 of Amendment No. 1 to the Registration Statement).
**24.2 Power of Attorney with respect to the Trust (included on page II-5 of
Amendment No. 2 to the Registration Statement).
**25 Form T-1.
**99.1 Application for Transitional Funding Order.
**99.2 Transitional Funding Order.
**99.3 Internal Revenue Service Private Letter Ruling pertaining to the
Notes.
</TABLE>
- --------------
** Previously filed.
II-6
<PAGE>
EXHIBIT 1.1
COMED TRANSITIONAL FUNDING TRUST
TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998
COMMONWEALTH EDISON COMPANY
UNDERWRITING AGREEMENT
New York, New York
__________, 1998
To the Representative[s]
named in Schedule I
hereto of the Under-
writers named in
Schedule II hereto
Ladies and Gentlemen:
1. INTRODUCTION. ComEd Transitional Funding Trust, a Delaware
business trust (the "Note Issuer"), proposes to sell to the underwriters named
in Schedule II hereto (the "Underwriters"), for whom you (the "Representatives")
are acting as representatives, the principal amount and class of ComEd
Transitional Funding Trust Notes, Series 1998 identified in Schedule I hereto
(the "Notes"). If the firm or firms listed in Schedule I hereto include only
the firm or firms listed in Schedule II hereto, then the terms "Underwriters"
and "Representatives", as used herein, shall each be deemed to refer to such
firm or firms.
The Note Issuer was formed pursuant to a declaration of trust dated as
of ____________, 1998 by First Union Trust Company, National Association, as
Delaware trustee (the "Delaware Trustee"), and Ruth Ann M. Gillis and David R.
Zahakaylo, each as a beneficiary trustee (collectively, the "Beneficiary
Trustees"), and the Notes will be issued pursuant to an Indenture dated as
of _____________, 1998 (as amended and supplemented from time to time,
-1-
<PAGE>
including all Series Supplements and Trustee's Issuance Certificates, the
"Indenture"), between the Note Issuer and Harris Trust and Savings Bank, a
banking corporation organized under the laws of the State of Illinois, as
indenture trustee (the "Indenture Trustee"). The Notes will be secured
primarily by, and payable solely from, Intangible Transition Property created
by an order of the Illinois Commerce Commission (the "ICC") dated July 21,
1998 in Docket No. 98-0319 (the "1998 Funding Order") in accordance with
Article XVIII of the Illinois Public Utilities Act. In the 1998 Funding
Order such Intangible Transition Property was granted to ComEd Funding, LLC,
a Delaware limited liability company (the "Grantee"), and the Grantee
assigned its rights in, to and under such Intangible Transition Property and
other related assets to the Note Issuer. Pursuant to the Indenture, the Note
Issuer has granted to the Indenture Trustee, as trustee for the benefit of
the holders of the Notes, all of its right, title and interest in and to the
Intangible Transition Property as security for the Notes. The Intangible
Transition Property will be serviced pursuant to an Intangible Transition
Property Servicing Agreement dated as of ___________, 1998 (as amended and
supplemented from time to time, the "Servicing Agreement"), between
Commonwealth Edison Company, an Illinois corporation ("ComEd"), as servicer,
and the Grantee. ComEd is a wholly-owned subsidiary of Unicom Corporation,
an Illinois corporation ("Unicom").
Capitalized terms used and not otherwise defined herein shall have
the respective meanings given to them in the Indenture.
2. REPRESENTATIONS AND WARRANTIES. Each of ComEd and the Note
Issuer represents and warrants to, and agrees with, each Underwriter as set
forth below in this Section 2. Certain terms used in this Section 2 are
defined in paragraph (c) hereof.
(a) If the offering of the Notes is a Delayed Offering (as specified
in Schedule I hereto), paragraph (i) below is applicable and, if the
offering of the Notes is a Non-Delayed Offering (as so specified),
paragraph (ii) below is applicable.
(i) The Note Issuer and the Notes meet the requirements for the
use of Form S-3 under the Securities Act of 1933 (the "Act"), and the
Note Issuer has filed with the Securities and Exchange Commission (the
"SEC") a registration statement (file number 333-60907) on such Form,
including a basic prospectus, for registration under the Act of the
offering and sale of the Notes. The Note Issuer may have filed one or
more amendments thereto, and may have used a Preliminary Final
Prospectus, each of which has previously been furnished to you. Such
registration statement, as so amended, and in the form heretofore
delivered to you, has become effective. The offering of the Notes is
a Delayed Offering and, although the Basic Prospectus may not include
all the information with respect to the Notes and the offering thereof
required by the Act and the rules thereunder to be included in the
Final Prospectus, the Basic Prospectus includes all such information
required by the Act and the rules thereunder to be included
-2-
<PAGE>
therein as of the Effective Date. The Note Issuer will next file
with the SEC pursuant to Rules 415 and 424(b)(2) or (5) a final
supplement to the form of prospectus included in such registration
statement relating to the Notes and the offering thereof. As
filed, such final prospectus supplement shall include all required
information with respect to the Notes and the offering thereof and,
except to the extent the Representatives shall agree in writing to
a modification, shall be in all substantive respects in the form
furnished to you prior to the Execution Time or, to the extent not
completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in
the Basic Prospectus and any Preliminary Final Prospectus) as the
Note Issuer has advised you, prior to the Execution Time, will be
included or made therein.
(ii) The Note Issuer and the Notes meet the requirements for the
use of Form S-3 under the Act and the Note Issuer has filed with the
SEC a registration statement (file number 333-60907) on such Form,
including a basic prospectus, for registration under the Act of the
offering and sale of the Notes. The Note Issuer may have filed one or
more amendments thereto, including a Preliminary Final Prospectus,
each of which has previously been furnished to you. The Note Issuer
will next file with the SEC either (x) a final prospectus supplement
relating to the Notes in accordance with Rules 430A and 424(b)(1) or
(4), or (y) prior to the effectiveness of such registration statement,
an amendment to such registration statement, including the form of
final prospectus supplement. In the case of clause (x), the Note
Issuer has included in such registration statement, as amended at the
Effective Date, all information (other than Rule 430A Information)
required by the Act and the rules thereunder to be included in the
Final Prospectus with respect to the Notes and the offering thereof.
As filed, such final prospectus supplement or such amendment and form
of final prospectus supplement shall contain all Rule 430A
Information, together with all other such required information, with
respect to the Notes and the offering thereof and, except to the
extent the Representatives shall agree in writing to a modification,
shall be in all substantive respects in the form furnished to you
prior to the Execution Time or, to the extent not completed at the
Execution Time, shall contain only such specific additional
information and other changes (beyond that contained in the Basic
Prospectus and any Preliminary Final Prospectus) as the Note Issuer
has advised you, prior to the Execution Time, will be included or made
therein.
(b) On the Effective Date, the Registration Statement did or will,
and when the Final Prospectus is first filed (if required) in accordance
with Rule 424(b) and on the Closing Date, the Final Prospectus (and any
supplement thereto) will, comply in all material respects with the
applicable requirements of the Act, the Securities Exchange
-3-
<PAGE>
Act of 1934 (the "Exchange Act") and the Trust Indenture Act of 1939
(the "Trust Indenture Act") and the respective rules and regulations
thereunder; on the Effective Date, the Registration Statement did not or
will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading; on the Effective
Date and on the Closing Date the Indenture did or will comply in all
material respects with the requirements of the Trust Indenture Act and
the rules and regulations thereunder; and, on the Effective Date, the
Final Prospectus, if not filed pursuant to Rule 424(b), did not or will
not, and on the date of any filing pursuant to Rule 424(b) and on the
Closing Date, the Final Prospectus (together with any supplement
thereto) will not, include any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; PROVIDED, HOWEVER, that neither the Note Issuer nor
ComEd makes any representations or warranties as to (i) that part of the
Registration Statement which shall constitute the Statements of
Eligibility and Qualification (Forms T-1) under the Trust Indenture Act
of the Indenture Trustee (the "Form T-1") or (ii) the information
contained in or omitted from the Registration Statement or the Final
Prospectus (or any supplement thereto) in reliance upon and in
conformity with information furnished in writing to the Note Issuer by
or on behalf of any Underwriter through the Representatives specifically
for inclusion in the Registration Statement or the Final Prospectus (or
any supplement thereto). No stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or threatened.
(c) The terms which follow, when used in this Agreement, shall have
the meanings indicated. The term "the Effective Date" shall mean each date
that the Registration Statement and any post-effective amendment or
amendments thereto became or become effective and each date after the date
hereof on which a document incorporated by reference in the Registration
Statement is filed. "Execution Time" shall mean the date and time that
this Agreement is executed and delivered by the parties hereto. "Basic
Prospectus" shall mean the prospectus referred to in paragraph (a) above
contained in the Registration Statement at the Effective Date including, in
the case of a Non-Delayed Offering, any Preliminary Final Prospectus.
"Preliminary Final Prospectus" shall mean any preliminary prospectus
supplement to the Basic Prospectus which describes the Notes and the
offering thereof and is used prior to filing of the Final Prospectus.
"Final Prospectus" shall mean the prospectus supplement relating to the
Notes that is first filed pursuant to Rule 424(b) after the Execution Time,
together with the Basic Prospectus or, if, in the case of a Non-Delayed
Offering, no filing pursuant to Rule 424(b) is required, shall mean the
form of final prospectus relating to the Notes, including the Basic
Prospectus, included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement referred to
in paragraph (a) above, including all documents, exhibits and financial
statements
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incorporated therein by reference, as amended at the Execution
Time (or, if not effective at the Execution Time, in the form in which it
shall become effective) and, in the event any post-effective amendment
thereto becomes effective prior to the Closing Date (as hereinafter
defined), shall also mean such registration statement as so amended. Such
term shall include any Rule 430A Information deemed to be included therein
at the Effective Date as provided by Rule 430A. "Rule 415", "Rule 424",
"Rule 430A" and "Regulation S-K" refer to such rules or regulation under
the Act. "Rule 430A Information" means information with respect to the
Notes and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
Any reference herein to the Registration Statement, the Basic Prospectus,
any Preliminary Final Prospectus or the Final Prospectus shall be deemed to
refer to and include all documents incorporated by reference therein
pursuant to Item 12 of Form S-3 which were filed under the Exchange Act on
or before the Effective Date of the Registration Statement or the issue
date of the Basic Prospectus, any Preliminary Final Prospectus or the Final
Prospectus, as the case may be; and any reference herein to the terms
"amend", "amendment" or "supplement" with respect to the Registration
Statement, the Basic Prospectus, any Preliminary Final Prospectus or the
Final Prospectus shall be deemed to refer to and include the filing of any
document under the Exchange Act after the Effective Date of the
Registration Statement or the issue date of the Basic Prospectus, any
Preliminary Final Prospectus or the Final Prospectus, as the case may be,
deemed to be incorporated therein by reference. A "Non-Delayed Offering"
shall mean an offering of Notes which is intended to commence promptly
after the effective date of a registration statement, with the result that,
pursuant to Rules 415 and 430A, all information (other than Rule 430A
Information) with respect to the Notes so offered must be included in such
registration statement at the effective date thereof. A "Delayed Offering"
shall mean an offering of Notes pursuant to Rule 415 which does not
commence promptly after the effective date of a registration statement,
with the result that only information required pursuant to Rule 415 need be
included in such registration statement at the effective date thereof with
respect to the Notes so offered. Whether the offering of the Notes is a
Non-Delayed Offering or a Delayed Offering shall be set forth in Schedule I
hereto.
(d) Arthur Andersen LLP, the accountants who certified certain
financial statements of the Grantee and the Note Issuer included in the
Prospectus, are independent public accountants as required by the Act and
the rules and regulations of the SEC thereunder.
(e) The financial statements included or incorporated by reference in
the Prospectus present fairly the financial position and results of
operations of the Grantee and the Note Issuer, respectively, as at the
respective dates and for the respective periods specified and, except as
otherwise stated in the Prospectus, such financial statements have been
prepared in conformity with generally accepted accounting
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principles applied on a consistent basis during the periods involved.
Neither the Grantee nor the Note Issuer has any material contingent
obligation which is not disclosed in the Prospectus.
(f) Except as set forth in or contemplated by the Prospectus, no
material transaction has been entered into by Unicom, ComEd or their
respective significant subsidiaries (as such term is defined below) or the
Note Issuer otherwise than in the ordinary course of business, no
materially adverse change, or any development involving a prospective
material adverse change, has occurred in the business, properties or
condition, financial or otherwise, of Unicom, ComEd, such subsidiaries or
the Note Issuer, in each case since the respective dates as of which
information is given in the Prospectus and since September 30, 1998 there
has not been any change in capital stock or long-term debt of Unicom or
ComEd except for issuances of capital stock by Unicom pursuant to then
existing stock option, dividend reinvestment, stock exchange or related
plans for the benefit of employees or stockholders.
(g) ComEd has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state of Illinois with
corporate power and authority to own its properties and conduct its
business as described in the Prospectus.
(h) Each significant subsidiary of ComEd, as defined in Rule 1-02 of
Regulation S-X of the Commission ("significant subsidiary"), has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation; all of the issued
and outstanding capital stock of each significant subsidiary has been duly
and validly issued and is fully paid and non-assessable; and all of the
capital stock of each significant subsidiary is owned by ComEd free and
clear of any pledge, lien, encumbrance, claim or equity.
(i) Neither ComEd nor any significant subsidiary is in violation of
its Articles or Certificate of Incorporation, or in default in the
performance or observance of any material obligation, agreement, covenant
or condition contained in any mortgage or any material contract, lease,
note or other instrument to which it is a party or by which it may be
bound, or materially in violation of any law, administrative regulation or
administrative, arbitration or court order, except in each case to such
extent as may be set forth in the Prospectus; and the execution and
delivery of this Agreement, the Grant Agreement, the Servicing Agreement
and the Administration Agreement, the incurrence of the obligations set
forth herein and therein and the consummation of the transactions herein
and therein contemplated will not conflict with or constitute a breach of,
or default under, the Restated Articles of Incorporation or by-laws of
ComEd or any mortgage, contract, lease, note or other instrument to which
ComEd or any significant subsidiary is a party or by which it or any
significant subsidiary may be bound, or any law, administrative regulation
or administrative, arbitration or court order.
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(j) The Note Issuer has been duly formed and is validly existing as a
Delaware business trust and is in good standing under the laws of the State
of Delaware, with full power and authority to execute, deliver and perform
its obligations under this Agreement, the Sale Agreement, the Indenture and
the Notes.
(k) The Note Issuer is not in violation of the Trust Agreement, or in
default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material contract, lease,
note or other instrument to which it is a party or by which it may be
bound, or materially in violation of any law, administrative regulation or
administrative, arbitration or court order, except in each case to such
extent as may be set forth in the Prospectus; and the execution and
delivery of this Agreement, the Sale Agreement, and the Indenture and the
Notes, the incurrence of the obligations set forth herein and therein and
the consummation of the transaction herein and therein contemplated will
not conflict with or constitute a breach of, or default under, the Trust
Agreement or any mortgage, contract, lease, note or other instrument to
which the Note Issuer is a party or by which it may be bound, or any law,
administrative regulation or administrative, arbitration or court order.
(l) There is no pending or threatened suit or proceeding before any
court or governmental agency, authority or body or any arbitration
involving ComEd or any of its significant subsidiaries or the Note Issuer
required to be disclosed in the Prospectus which is not adequately
disclosed in the Prospectus.
(m) This Agreement has been duly authorized, executed and delivered
by ComEd and the Note Issuer.
(n) The Indenture has been duly and validly authorized by the
necessary action and duly qualified under the Trust Indenture Act; and the
Indenture has been duly and validly executed and delivered and is a valid
and enforceable instrument in accordance with its terms (subject to
bankruptcy, reorganization, insolvency, moratorium or other similar laws or
equitable principles affecting the enforcement of creditors' rights from
time to time in effect).
(o) The Grant Agreement, the Servicing Agreement and the
Administration Agreement have been duly authorized, executed and delivered
by ComEd, and constitute legal, valid and binding instruments enforceable
against ComEd in accordance with their terms (subject, to applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws or
equitable principles affecting creditors' rights generally from time to
time in effect).
(p) The Sale Agreement has been duly authorized and executed and
delivered by the Note Issuer and constitutes a legal, valid and binding
instrument enforceable against
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the Note Issuer in accordance with its terms (subject to applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws
or equitable principles affecting creditors' rights generally from time
to time in effect).
(q) The issuance and sale of the Notes in accordance with the terms
of this Agreement have been duly and validly authorized by the necessary
action; the Notes, when duly executed, authenticated and delivered against
payment of the agreed consideration therefor, will be valid and enforceable
obligations in accordance with their terms and with like exception as noted
in the foregoing Section 2(p), entitled to the benefits provided by the
Indenture, and the holders of the Notes will be entitled to the payment of
principal and interest as therein provided; and the Notes and the Indenture
conform to the descriptions thereof contained in the Prospectus.
Any certificate signed by any officer of ComEd or the Note Issuer
and delivered to you or to counsel for the Underwriters shall be deemed
a representation and warranty by ComEd and the Note Issuer to each
Underwriters as to the matters covered thereby.
3. PURCHASE AND SALE. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Note
Issuer agrees to issue and sell to each Underwriter, and each Underwriter
agrees, severally and not jointly, to purchase from the Note Issuer, at the
purchase price for each class of Notes set forth on Schedule II hereto, the
respective principal amount of each class of Notes set forth opposite the name
of each Underwriter on Schedule II hereto.
4. DELIVERY AND PAYMENT. Delivery of and payment for the Notes
shall be made on the date and at the time specified in Schedule I hereto (or
such later date not later than five business days after such specified date as
the Representatives shall designate), which date and time may be postponed by
agreement between the Representatives and the Note Issuer or as provided in
Section 9 hereof (such date and time of delivery and payment for the Notes being
herein called the "Closing Date"). Delivery of the Notes shall be made to the
Representatives for the respective accounts of the several Underwriters against
payment by the several Underwriters through the Representatives of the purchase
price thereof to the Note Issuer by wire transfer of immediately available
funds. Delivery of the Notes shall be made at such location as the
Representatives shall reasonably designate at least one business day in advance
of the Closing Date. The Notes to be so delivered shall be initially
represented by Notes registered in the name of Cede & Co., as nominee of The
Depository Trust Company ("DTC"). The interests of beneficial owners of the
Notes will be represented by book entries on the records of DTC and
participating members thereof. Definitive Notes will be available only under
limited circumstances described in the Final Prospectus.
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The Note Issuer agrees to have the Notes available for inspection,
checking and packaging by the Representatives in New York, New York, not later
than 1:00 PM on the business day prior to the Closing Date.
5. COVENANTS.
(a) COVENANTS OF THE NOTE ISSUER. The Note Issuer covenants and
agrees with the several Underwriters that:
(i) The Note Issuer will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and
any amendment thereto, to become effective. Prior to the termination
of the offering of the Notes, the Note Issuer will not file any
amendment of the Registration Statement or supplement (including the
Final Prospectus or any Preliminary Final Prospectus) to the Basic
Prospectus unless the Note Issuer has furnished you a copy for your
review prior to filing and will not file any such proposed amendment
or supplement to which you reasonably object. Subject to the
foregoing sentence, the Note Issuer will cause the Final Prospectus,
properly completed in a form approved by you, and any supplement
thereto to be filed with the SEC pursuant to the applicable paragraph
of Rule 424(b) within the time period prescribed and will provide
evidence satisfactory to the Representatives of such timely filing.
The Note Issuer will promptly advise the Representatives (i) when the
Registration Statement, if not effective at the Execution Time, and
any amendment thereto, shall have become effective, (ii) when the
Final Prospectus, and any supplement thereto, shall have been filed
with the SEC pursuant to Rule 424(b), (iii) when, prior to termination
of the offering of the Notes, any amendment to the Registration
Statement shall have been filed or become effective, (iv) of any
request by the SEC for any amendment of the Registration Statement or
supplement to the Final Prospectus or for any additional information,
(v) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (vi) of the receipt
by the Note Issuer of any notification with respect to the suspension
of the qualification of the Notes for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose. The
Note Issuer will use its best efforts to prevent the issuance of any
such stop order and, if issued, to obtain as soon as possible the
withdrawal thereof.
(ii) If, at any time when a prospectus relating to the Notes is
required to be delivered under the Act, any event occurs as a result
of which the Final Prospectus as then supplemented would include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the
circumstances under which they were made not
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<PAGE>
misleading, or if it shall be necessary to amend the Registration
Statement or supplement the Final Prospectus to comply with the Act
or the Exchange Act or the respective rules thereunder, the Note
Issuer promptly will (i) prepare and file with the SEC, subject to
the second sentence of paragraph (a) of this Section 5, an
amendment or supplement which will correct such statement or
omission or effect such compliance and (ii) supply any supplemented
Prospectus to you in such quantities as you may reasonably request.
(iii) On or before ____________, the Note Issuer will make
generally available to the Noteholders and to the Representatives an
earnings statement or statements of the Note Issuer which will satisfy
the provisions of Section 11(a) of the Act and Rule 158 under the Act.
(iv) The Note Issuer will furnish to each of the Representatives
and counsel for the Underwriters, without charge, one executed copy of
the Registration Statement and of the Form T-1 (including exhibits
thereto) and, so long as delivery of a prospectus by an Underwriter or
dealer may be required by the Act, as many copies of any Preliminary
Final Prospectus and the Final Prospectus and any supplement thereto
as the Representatives may reasonably request. The Final Prospectus
shall be delivered to the Representatives prior to 10:00 AM (New York
City time) on the second business day succeeding the Execution Date.
The Note Issuer shall cause the proceeds of the issuance and sale of
the Notes to be applied for the purposes described in the Prospectus
and shall furnish or cause to be furnished to the Representatives
copies of all reports on Form SR required by Rule 463 under the Act.
The Note Issuer will pay the expenses of printing or other production
of all documents relating to the offering.
(v) The Note Issuer will arrange for the qualification of the
Notes for sale under the laws of such jurisdictions as the
Representatives may designate, will maintain such qualifications in
effect so long as required for the distribution of the Notes and will
arrange for the determination of the legality of the Notes for
purchase by institutional investors; provided that in no event shall
the Note Issuer be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action
that would subject it to service of process in suits, other than those
arising out of the offering or sale of the Notes, in any jurisdiction
where it is not now so subject.
(vi) Until August 1, 1999, the Note Issuer will not, without the
written consent of the Representatives, offer, sell or contract to
sell, or otherwise dispose of, directly or indirectly, or announce the
offering of, any asset-backed securities of a trust or other special
purpose vehicle (other than the Notes).
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(vii) For a period from the date of this Agreement until the
retirement of the Notes, the Note Issuer will deliver to the
Representatives the annual statements of compliance and the annual
independent auditor's servicing reports furnished to the Note Issuer
or the Indenture Trustee pursuant to the Servicing Agreement or the
Indenture, as applicable, as soon as such statements and reports are
furnished to the Note Issuer or the Indenture Trustee.
(viii) So long as any of the Notes are outstanding, the Note
Issuer will furnish to the Representatives (i) as soon as available, a
copy of each report filed by it with the SEC under the Exchange Act,
or mailed to Noteholders, (ii) a copy of any filings with the ICC
pursuant to the 1998 Funding Order, and (iii) from time to time, any
information concerning ComEd, the Grantee or the Note Issuer, as the
Representatives may reasonably request.
(ix) To the extent, if any, that any rating necessary to satisfy
the condition set for in Section 6(p) of this Agreement is conditioned
upon the furnishing of documents or the taking of other actions by the
Note Issuer on or after the Closing Date, the Note Issuer shall
furnish such documents and take such other actions.
(b) COVENANTS OF COMED. ComEd covenants and agrees with the
several Underwriters that, to the extent that the Note Issuer has not
already performed such act pursuant to Section 5(a):
(i) ComEd will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereto, to become effective. ComEd will use its best efforts to prevent
the issuance by the SEC of any stop order suspending the effectiveness of
the Registration Statement and, if issued, to obtain as soon as possible
the withdrawal thereof.
(ii) ComEd will cause the proceeds of the issuance and sale of the
Notes to be applied for the purposes described in the Prospectus.
(iii) Until 90 days after the date hereof, ComEd will not, without
the written consent of the Representatives, offer, sell or contract to
sell, or otherwise dispose of, directly or indirectly, or announce the
offering of, any asset-backed securities of a trust or other special
purpose vehicle (other than the Notes).
(iv) So long as any of the Notes are outstanding and ComEd is the
Servicer, ComEd will furnish to the Representatives (i) as soon as
available, a copy of each report of the Note Trustee filed with the SEC
under the Exchange Act, or mailed to Noteholders, (ii) a copy of any
filings with the ICC pursuant to the 1998 Funding Order,
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<PAGE>
and (iii) from time to time, any information concerning ComEd, the
Grantee and the Note Issuer, as the Representatives may reasonably
request.
(v) To the extent, if any, that any rating necessary to satisfy the
condition set forth in Section 6(p) of this Agreement is conditioned upon
the furnishing of documents or the taking of other actions by ComEd on or
after the Closing Date, ComEd shall furnish such documents and take such
other actions.
(vi) If, at any time when a prospectus relating to the Notes is
required to be delivered under the Act, any event occurs as a result of
which the Final Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be necessary to amend
the Registration Statement or supplement the Final Prospectus to comply
with the Act or the Exchange Act or the respective rules thereunder, ComEd
promptly will (i) prepare and file with the SEC, subject to the second
sentence of paragraph (a) of this Section 5, an amendment or supplement
which will correct such statement or omission or effect such compliance and
(ii) supply any supplemented Prospectus to you in such quantities as you
may reasonably request;
(vii) Whether or not the transactions contemplated hereunder are
consummated or this Agreement is terminated, ComEd will pay all costs
and expenses incident to the performance of the obligations of ComEd,
the Note Issuer and the Grantee hereunder, including, without limiting
the generality of the foregoing, all costs, taxes and expenses incident
to the issue and delivery of the Notes to the Underwriters, all fees,
disbursements and expenses of ComEd's, the Note Issuer's and the
Grantee's counsel and accountants, all costs and expenses incident to
the preparation, printing and filing of the Registration Statement
(including all exhibits thereto), any preliminary prospectus, the Basic
Prospectus, any Preliminary Final Prospectus, the Final Prospectus and
any amendments thereof or supplements thereto (except the cost of
amending or supplementing the Final Prospectus after ninety days
following the Closing Date, which shall be at the expense of the
Underwriters requesting same), all costs and expenses (including fees of
counsel not exceeding $5,000, filing fees, and other disbursements)
incurred in connection with "Blue Sky" qualifications, examining the
legality of the Notes for the investment and the rating of the Notes,
all costs and expenses of the Indenture Trustee and the Delaware
Trustee, all costs and expenses incurred in the acquisition or
preparation of documents required to be delivered by ComEd or the Note
Issuer in connection with the closing of the transactions contemplated
hereby, all costs and expenses required in connection with any filing
with the National Association of Securities Dealers in connection with
the transactions contemplated hereby, and all costs and expenses of the
printing and distribution of all documents in connection with the Notes.
Except as provided in this Section 5(b)(vii), Section 7 and Section 8
hereof, the
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Underwriters will pay all their own costs and expenses, including any
advertising expenses in connection with any offer they may make of the
Notes, but excluding reasonable fees and expenses of Winston & Strawn,
counsel to the Underwriters, which fees and expenses of counsel shall be
included in, and become part of the Underwriters' fees and expenses to
be paid by ComEd; and
(viii) ComEd recognizes and agrees that a substantial impairment of
the rights of Holders with respect to the collection of IFCs and payments
on the Notes, arising from a declaration of invalidity of the Amendatory
Act and/or the Funding Law or for any other reason, occurring after ComEd
and its affiliates received the proceeds of such Notes, would not be
equitable. ComEd agrees to take any and all actions reasonably necessary
to preserve the rights of Holders with respect to payments on the Notes out
of the amounts represented by IFCs or their equivalent, including, but not
limited to, (i) making appropriate filings with the State of Illinois, the
ICC or other regulatory bodies to defend, preserve and create on behalf of
Holders the right to receive payments as provided in the Notes and (ii)
continuing to deduct and pay over to the Servicer for the benefit of the
Note Issuer all IFCs and IFC Payments or equivalent revenues received by
ComEd notwithstanding any declaration of invalidity of the Amendatory Act
and/or the Funding Law, in each such case unless otherwise prohibited by
applicable law or judicial or regulatory order in effect at such time.
6. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the Underwriters to purchase the Notes shall be subject to the
accuracy of the representations and warranties on the part of the Note Issuer
and ComEd contained herein as of the Execution Time and the Closing Date, on the
part of ComEd contained in Article III of the Grant Agreement and in Section
6.01 of the Servicing Agreement as of the Closing Date, on the part of the
Grantee in Article III of the Sale Agreement as of the Closing Date, to the
performance by the Note Issuer and ComEd of their respective obligations
hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Representatives agree in writing to a later
time, the Registration Statement will become effective not later than (i)
6:00 PM New York City time, on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 PM New
York City time on such date, or (ii) 12:00 Noon on the business day
following the day on which the public offering price was determined, if
such determination occurred after 3:00 PM New York City time on such date;
if filing of the Final Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b), the Final Prospectus, and any such supplement,
shall have been filed in the manner and within the time period required by
Rule 424(b) and shall have been delivered to the Representatives as
required by Section 5(a)(iv) of this Agreement; and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or
threatened.
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(b) The Representatives shall have received opinions of Sidley &
Austin, counsel for ComEd, dated the Closing Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that:
(i) ComEd (a) has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Illinois, (b) has all requisite corporate power and authority to own
its properties, conduct its business as presently conducted and
execute, deliver and perform its obligations under this Agreement, the
Grant Agreement, the Servicing Agreement and the Administration
Agreement, and (c) is duly qualified to do business in all
jurisdictions (and is in good standing under the laws of all such
jurisdictions) to the extent that such qualification and good standing
is or shall be necessary to protect the validity and enforceability of
this Agreement, the Grant Agreement, the Servicing Agreement and the
Administration Agreement and each other instrument or agreement
necessary or appropriate to the transactions contemplated hereby;
(ii) the Grant Agreement, the Servicing Agreement and the
Administration Agreement have been duly authorized, executed and
delivered by ComEd, and constitute legal, valid and binding
instruments enforceable against ComEd in accordance with their terms,
except to the extent enforceability may be limited by bankruptcy,
reorganization, insolvency, moratorium, fraudulent transfer or other
similar laws of general applicability relating to or affecting the
enforcement of creditors' rights and by the effect of general
principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law);
(iii) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator involving ComEd or any of
its significant subsidiaries of a character required to be disclosed
in the Registration Statement which is not adequately disclosed in the
Final Prospectus, and there is no franchise, contract or other
document of a character required to be described in the Registration
Statement or Final Prospectus, or to be filed as an exhibit to the
Registration Statement, which is not described or filed as required;
(iv) this Agreement has been duly authorized, executed and
delivered by ComEd;
(v) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated herein or the Basic Documents, except such
as have
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been obtained under the Act, the Funding Law and the Public
Utilities Act and such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and distribution of
the Notes by the Underwriters; and
(vi) neither the execution and delivery of this Agreement, the
Grant Agreement, the Servicing Agreement, the Administration Agreement
nor the consummation of the transactions contemplated by this
Agreement, the Grant Agreement, the Servicing Agreement or the
Administration Agreement, nor the fulfillment of the terms of this
Agreement, the Grant Agreement, the Servicing Agreement or the
Administration Agreement by ComEd, will (A) conflict with, result in
any breach or any of the terms or provisions of, or constitute (with
or without notice or lapse of time) a default under the articles of
incorporation, bylaws or other organizational documents of ComEd, or
to the knowledge of such counsel, conflict with or breach any of the
terms or provisions of, or constitute (with or without notice or lapse
of time) a default under, any indenture, material agreement or other
material instrument to which ComEd is a party or by which ComEd is
bound, (B) result in the creation or imposition of any lien upon any
properties of ComEd pursuant to the terms of any such indenture,
agreement or other instrument (other than as contemplated by the Basic
Documents and Section 18-107 of the Funding Law), or (C) violate any
law or any order, rule or regulation applicable to ComEd of any court
or of any federal or state regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over ComEd, or
any of its properties.
In rendering such opinion, such counsel may (A) assume the validity and
continued effectiveness of the Amendatory Act (including, without
limitation, the Funding Law), (B) rely, as to matters involving the
application of laws of any jurisdiction other than the States of Illinois
or New York or the United States, to the extent deemed proper and specified
in such opinion, upon the opinion of other counsel of good standing
believed to be reliable and who are satisfactory to counsel for the
Underwriters and (C) rely, as to matters of fact, to the extent deemed
proper, on certificates of responsible officers of ComEd or the Grantee.
References to the Final Prospectus in this paragraph (b) include any
supplements thereto at the Closing Date.
(c) The Representatives shall have received the opinion of Sidley &
Austin, counsel for the Grantee, dated the Closing Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that:
(i) the Grantee has been duly formed and is validly existing as a
single member limited liability company and is in good standing under the
laws of the State of Delaware, with full power and authority to execute,
deliver and perform its obligations under the
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Grant Agreement, the Sale Agreement, the Servicing Agreement and the
Administration Agreement;
(ii) the Grant Agreement, the Sale Agreement, the Servicing Agreement
and the Administration Agreement have been duly authorized, executed and
delivered by the Grantee, and constitute legal, valid and binding
instruments enforceable against the Grantee in accordance with their
respective terms, except to the extent enforceability may be limited by
bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance
or other similar laws of general applicability relating to or affecting the
enforceability of creditors' rights and by the effect of general principles
of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law);
(iii) the Grant Agreement, the Sale Agreement, the Service Agreement
and the Administration Agreement conform in all material respects to the
descriptions thereof contained in the Final Prospectus;
(iv) neither the execution and delivery of the Grant Agreement, the
Sale Agreement, the Servicing Agreement or the Administration Agreement,
nor the consummation of the transactions contemplated by the Grant
Agreement, the Sale Agreement, the Servicing Agreement or the
Administration Agreement, nor the fulfillment of the terms of the Grant
Agreement, the Sale Agreement, the Servicing Agreement or the
Administration Agreement by the Grantee, will (A) conflict with, result in
any breach of any of the terms or provisions of, or constitute (with or
without notice or lapse of time); a default under the Certificate of
Formation or Limited Liability Company Agreement of the Grantee or conflict
with or breach any of the material terms or provisions of, or constitute
(with or without notice or lapse of time) a default under, any indenture,
agreement or other instrument known to such counsel and to which the
Grantee is a party or by which the Grantee is bound, (B) result in the
creation or imposition of any lien upon any properties of the Grantee
pursuant to the terms of any such indenture, agreement or other instrument
(other than as contemplated by the Basic Documents and Section 18-107 of
the Funding Law), or (C) violate any law or any order, rule or regulation
applicable to the Grantee of any court or of any federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Grantee, or any of its
properties;
(v) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator challenging the validity or
enforceability of the Grant Agreement, the Sale Agreement, the Servicing
Agreement, or the Administration Agreement of a character required to be
disclosed in the Final Prospectus which is not adequately disclosed in the
Final Prospectus;
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(vi) upon the delivery of the fully executed Sale Agreement to the
Note Issuer and the payment of the purchase price of the Intangible
Transition Property by the Note Issuer to the Grantee pursuant to the Sale
Agreement, (A) the transfer of the Intangible Transition Property by the
Grantee to the Note Issuer pursuant to the Sale Agreement conveys all of
the Grantee's right, title and interest in the Intangible Transition
Property and related assets to the Note Issuer and will be treated as an
absolute transfer of all of the Grantee's right, title and interest in the
Intangible Transition Property, other than for federal and state income and
franchise tax purposes, (B) such transfer of the Intangible Transition
Property is perfected, (C) such transfer has priority over any other
assignment of the Intangible Transition Property and related assets, and
(D) the Intangible Transition Property and related assets are free and
clear of all liens created prior to its transfer to the Note Issuer
pursuant to the Sale Agreement; and
(vii) the Grantee is not an "investment company" or under the
"control" of an "investment company" as such terms are defined under the
Investment Company Act of 1940, as amended.
In rendering such opinion, such counsel may (A) assume the validity and
continued effectiveness of the Amendatory Act (including, without limitation,
the Funding Law), (B) rely, as to matters involving the application of laws of
any jurisdiction other than the States of Illinois, New York or Delaware or the
United States, to the extent deemed proper and specified in such opinion, upon
the opinion of other counsel of good standing believed to be reliable and who
are satisfactory to counsel for the Underwriters and (C) rely, as to matters of
fact, to the extent deemed proper, on certificates of responsible officers of
the Grantee and public officials. References to the Final Prospectus in this
paragraph (c) include any supplements thereto at the Closing Date.
(d) The Representatives, the Grantee, ComEd and the Indenture Trustee
shall have received opinions of Sidley & Austin, counsel for the Note
Issuer, portions of which may be delivered by Richards, Layton & Finger,
P.A., special Delaware counsel for the Note Issuer, each dated the Closing
Date, in form and substance reasonably satisfactory to the Representatives,
to the effect that:
(i) the Certificate of Trust has been duly filed with the
Secretary of State, the Note Issuer has been duly formed and is
validly existing in good standing as a Delaware business trust the
laws of the State of Delaware, 12 Del. C. Section 3801, ET SEQ.;
(ii) the Note Issuer has the power and authority to execute,
deliver and perform its obligations under this Agreement, the
Indenture, the Notes, the Administration Agreement and the Sale
Agreement;
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(iii) the Notes have been duly authorized and executed by the
Note Issuer and, when authenticated in accordance with the provisions
of the Indenture and delivered to and paid for by the Underwriters
pursuant to this Agreement, will be duly issued and valid and legally
binding obligations enforceable in accordance with their terms (except
to the extent the enforceability thereof may be limited by bankruptcy,
reorganization, insolvency, moratorium, fraudulent conveyance or other
similar laws of general applicability relating to or affecting the
enforceability of creditors' rights and by the effect of general
principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law)) and entitled to the
benefits of the Indenture; and the Notes and the Indenture conform in
all material respects to the descriptions thereof in the Final
Prospectus;
(iv) the Indenture, the Certificate, the Sale Agreement and the
Administration Agreement have been duly authorized, executed and
delivered by the Note Issuer and each constitutes a legal, valid and
binding instrument enforceable in accordance with its terms, except to
the extent enforceability may be limited by bankruptcy,
reorganization, insolvency, moratorium, fraudulent transfer or other
similar laws of general applicability relating to or affecting the
enforceability of creditors' rights and by the effect of general
principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law);
(v) the Indenture has been duly qualified under the Trust
Indenture Act;
(vi) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator challenging the validity
or enforceability of the Notes or the Indenture of a character
required to be disclosed in the Registration Statement which is not
adequately disclosed in the Final Prospectus, and there is no
franchise, contract or other document relating to the Notes or the
Indenture of a character required to be described in the Registration
Statement or Final Prospectus, or to be filed as an exhibit, which is
not described or filed as required; and the statements included or
incorporated in the Final Prospectus under the headings "Description
of the Intangible Transition Property" "Description of the Notes,"
"The Trust," "Servicing," "Security for the Notes," "Material United
States Federal Income Tax Consequences" and "ERISA Considerations", in
each case to the extent that such statements constitute matters of
Illinois, Delaware or federal law or legal conclusions with respect
thereto, provide a fair and accurate summary of such law or
conclusions;
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(vii) the Registration Statement has become effective under the
Act; any required filing of the Basic Prospectus, any Preliminary
Final Prospectus and the Final Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); to the knowledge of
such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for that
purpose have been instituted or threatened, and the Registration
Statement and the Final Prospectus (other than the financial
statements and other financial information contained therein as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act, the
Exchange Act and the Trust Indenture Act and the respective rules
thereunder;
(viii) this Agreement has been duly authorized, executed and
delivered by the Note Issuer;
(ix) neither the execution and delivery of this Agreement or the
Indenture, nor the issue and sale of the Notes, nor the consummation
of the transactions contemplated by this Agreement or the Indenture,
nor the fulfillment of the terms of this Agreement or the Indenture by
the Note Issuer will (A) conflict with, result in any breach of any of
the terms or provisions of, or constitute (with or without notice or
lapse of time) a default under the Trust Agreement, or conflict with
or breach any of the terms or provisions of, or constitute (with or
without notice or lapse of time) a default under, any indenture,
agreement or other instrument known to such counsel and to which the
Note Issuer is a party or by which the Note Issuer is bound, (B)
result in the creation or imposition of any lien upon any properties
of the Note Issuer pursuant to the terms of any such indenture,
agreement or other instrument other than the lien created by the
Indenture on the Note Collateral, (C) require the consent or approval
of, the giving of notice to, the registration with, or the taking of
any other action with respect to, any court, governmental or
regulatory authority or agency other than any such approvals, notices
or actions which have been obtained, made or taken; or (D) violate any
law or any order, rule or regulation applicable to the Note Issuer of
any court or of any federal or state regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over
the Note Issuer, or any of its properties;
(x) (A) the lien of the Indenture in favor of the Holders in the
Intangible Transition Property attaches automatically; (B) such lien
has been perfected in accordance with Section 18-107(c) of the Funding
Law and in accordance with the 1998 Funding Order; (C) such lien is
valid and enforceable against ComEd, the Servicer, the Grantee, the
Note Issuer and all third parties, including
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judgment lien creditors; and (D) such lien ranks prior to any other
lien which subsequently attaches to the Intangible Transition
Property; and
(xi) Neither ComEd nor the Note Issuer is an "investment
company" or under the "control" of an "investment company" as such
terms are defined under the Investment Company Act of 1940, as
amended.
Such counsel shall also state that it has no reason to believe that at the
Effective Date the Registration Statement contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Final Prospectus as of its date and the Closing Date includes any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading (other than the financial statements and other financial
and statistical information contained therein and Form T-1 as to which such
counsel need express no opinion).
In rendering such opinion, such counsel may (A) assume the validity and
continued effectiveness of the Amendatory Act (including, without limitation,
the Funding Law), (B) rely, as to matters involving the application of laws of
any jurisdiction other than the States of Illinois, New York or Delaware or the
United States, to the extent deemed proper and specified in such opinion, upon
the opinion of other counsel of good standing believed to be reliable and who
are satisfactory to counsel for the Underwriters, and (C) rely as to matters of
fact, to the extent deemed proper, on certificates of responsible officers of
the Note Issuer and public officials. References to the Final Prospectus in
this paragraph (d) include any supplements thereto at the Closing Date.
(e) The Representatives, ComEd and the Note Issuer shall have
received an opinion of Blanche O. Hurt, Esq., Vice President and Senior
Counsel of the Indenture Trustee, dated the Closing Date, in form and
substance reasonably satisfactory to the Representatives, to the effect
that:
(i) the Indenture Trustee is validly existing as a banking
corporation in good standing under the laws of the State of Illinois;
(ii) the Indenture has been duly authorized, executed and
delivered by the Indenture Trustee, and constitutes a legal, valid and
binding instrument enforceable against the Indenture Trustee in
accordance with its terms (subject to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws or
equitable principles affecting creditors' rights generally from time
to time in effect); and
(iii) the Notes have been duly authenticated by the Indenture
Trustee.
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(f) The Representatives, the Note Issuer and the Indenture Trustee
shall have received an opinion of Richards, Layton & Finger, counsel to the
Delaware Trustee, dated the Closing Date, in form and substance reasonably
satisfactory to the Representatives, to the effect that:
(i) the Delaware Trustee is duly incorporated and validly existing as
a national banking association under the laws of the United States of
America with trust powers and with its principal place of business in the
State of Delaware;
(ii) the Delaware Trustee has the power and authority to execute,
deliver and perform its obligations under the Trust Agreement, to act as
Delaware Trustee under the Trust Agreement, and to consummate the
transactions contemplated thereby;
(iii) the Delaware Trustee has duly authorized, executed and
delivered the Trust Agreement;
(iv) the Trust Agreement constitutes a legal, valid and binding
instrument enforceable in accordance with its terms, except to the extent
enforceability may be limited by bankruptcy, reorganization, insolvency,
moratorium, fraudulent conveyance or other similar laws of general
applicability relating to or affecting the enforcement of creditors' rights
and by general principles of equity (regardless of whether enforceability
is considered in a proceeding in equity or at law);
(v) the execution, delivery and performance by the Delaware Trustee
of the Trust Agreement do not conflict with or result in a violation of (A)
its articles of association or by-laws or (B) any law or regulation of the
State of Delaware or the United States of America governing the banking or
trust powers of the Delaware Trustee; and
(vi) no approval, authorization or other action by, or filing with,
any governmental authority of the State of Delaware or the United States of
America governing the banking and trust powers of the Delaware Trustee is
required in connection with the execution and delivery by the Delaware
Trustee of the Trust Agreement or the performance by the Delaware Trustee
of its obligations thereunder, except for the filing of the Certificate of
Trust with the Secretary of State.
(g) The Representatives shall have received from Winston & Strawn,
counsel for the Underwriters, such opinion or opinions, dated the Closing
Date, with respect to the issuance and sale of the Notes, the Indenture,
the Basic Documents, the Registration Statement and other related matters
as the Representatives may reasonably require; and ComEd and the Note
Issuer shall have furnished to such counsel such documents as they request
for the purpose of enabling them to pass upon such matters.
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(h) The Representatives and the Indenture Trustee shall have received
a certificate of ComEd, signed by the Chairman, the President or a Vice
President and the Treasurer or the principal financial or accounting
officer of ComEd, dated the Closing Date, to the effect that the signers of
such certificate have carefully examined the Registration Statement, the
Final Prospectus, any supplement to the Final Prospectus and this Agreement
and that:
(i) the representations and warranties of ComEd in this
Agreement, the Grant Agreement, the Servicing Agreement and the
Administration Agreement are true and correct on and as of the Closing
Date with the same effect as if made on the Closing Date, and ComEd
has complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to the Closing
Date; PROVIDED that the execution of such certificate by any of such
individuals on behalf of ComEd shall not be deemed to be the
expression of any legal opinion or opinions by any of such
individuals;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to ComEd's knowledge, threatened; and
(iii) since the date as of which information is given in the
Final Prospectus (exclusive of any supplement thereto), there has been
no material adverse change in (x) the condition (financial or other),
prospects, earnings, business or properties of ComEd and its
subsidiaries taken as a whole, whether or not arising from
transactions in the ordinary course of business, or (y) the Intangible
Transition Property, except as set forth in or contemplated in the
Final Prospectus (exclusive of any supplement thereto).
(i) At the Closing Date, Arthur Andersen LLP shall have furnished to
the Representatives (i) a letter or letters (which may refer to letters
previously delivered to one or more of the Representatives), dated as of
the Closing Date, in form and substance satisfactory to the
Representatives, confirming that they are independent accountants within
the meaning of the Act and the Exchange Act and the respective applicable
published rules and regulations thereunder and stating in effect that they
have performed certain specified procedures as a result of which they
determined that certain information of an accounting, financial or
statistical nature (which is limited to accounting, financial or
statistical information derived from the general accounting records of
ComEd and its subsidiaries) set forth in the Registration Statement and the
Final Prospectus, including information specified by the Underwriters and
set forth under the captions "Prospectus Summary," "Description of the
Intangible Transition Property," "The Servicer" and "Description of the
Notes" in the Final Prospectus, agrees with the accounting records of ComEd
and its subsidiaries, excluding any questions of legal interpretation, and
(ii) the
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opinion dated as of the Closing Date, in form and substance satisfactory
to the Representatives, satisfying the requirements of Section 2.10(8)
of the Indenture.
Reference to the Final Prospectus in this paragraph (i) includes any
supplement thereto at the date of the letter.
In addition, except as provided in Schedule I hereto, at the Execution
Time, Arthur Andersen LLP shall have furnished to the Representatives a letter
or letters, dated as of the Execution Time, in form and substance satisfactory
to the Representatives, to the effect set forth above.
(j) Subsequent to the Execution Time (or September 30, 1998 in the
case of (ii) below) or, if earlier, the dates as of which information is
given in the Registration Statement (exclusive of any thereof) and the
Final Prospectus (exclusive of any supplement thereto), there shall not
have been any change, or any development involving a prospective change, in
or affecting (i) the business, properties or condition, financial or
otherwise, of Unicom, ComEd, the Grantee or the Note Issuer, (ii) the
capital stock or long-term debt of Unicom or ComEd since September 30, 1998
(other than issuances of capital stock by Unicom pursuant to then existing
stock option, dividend reinvestment, stock exchange or related plans for
the benefit of employees or stockholders), or (iii) the Intangible
Transition Property, the Notes, the 1998 Funding Order, the Funding Law or
the 1998 Initial Tariff, the effect of which is, in the judgment of the
Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Notes as
contemplated by the Registration Statement (exclusively of any amendment
thereof) and the Final Prospectus (exclusive of any supplement thereto).
(k) The Representatives, the Note Issuer and ComEd shall have
received on the Closing Date an opinion letter or letters of Sidley &
Austin, counsel to ComEd and the Note Issuer, dated the Closing Date, in
form and substance reasonably satisfactory to the Representatives, (i) with
respect to the characterization of the transfer of the Intangible
Transition Property by Grantee to the Note Issuer as a "true sale" for
bankruptcy purposes and (ii) to the effect that a court would not order the
substantive consolidation of the assets and liabilities of the Grantee with
those of ComEd in the event of a bankruptcy, reorganization or other
insolvency proceeding involving ComEd.
(l) The Representatives, the Note Issuer and ComEd shall have
received on the Closing Date an opinion letter of Sidley & Austin to the
effect that, subject to the qualifications, limitations, assumptions and
analysis therein set forth:
(i) absent a demonstration by the State of Illinois (the
"State") that an impairment is necessary to further a significant and
legitimate public purpose, the Noteholders (or the Indenture Trustee
acting on their behalf) could challenge
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successfully under Article I, Section 10 of the United States
Constitution (the "Contract Clause") the constitutionality of any
law passed by the Illinois legislature determined by such court to
limit, alter, impair or reduce the value of the Intangible
Transition Property or the IFC so as to cause an impairment prior
to the time that the Notes are fully paid and discharged;
(ii) any attempt by citizens of the State of Illinois to
initiate changes to the Amendatory Act determined by such court to
limit, alter, impair or reduce the value of the Intangible Transition
Property or the IFC would be invalid;
(iii) under the Funding Law, the ICC would be prohibited from
taking action subsequent to the 1998 Funding Order becoming final
determined by such court to reduce, postpone, impair or terminate the
value of the Intangible Transition Property or the IFC;
(iv) permanent injunctive relief is available to prevent
implementation of legislation hereafter passed by the Illinois
legislature determined by such court to limit, alter, impair or reduce
the value of the Intangible Transition Property or the IFC so as to
cause an impairment in violation of the Contract Clause; and although
sound and substantial arguments support the granting of preliminary
injunctive relief, the decision to do so will be in the discretion of
the court requested to take such action, which will be exercised on
the basis of the considerations discussed in such opinion;
(v) in the event that a provision of the Amendatory Act were
hereafter declared to be invalid by a court, a reviewing court should
hold that the IFC would remain valid and vested in the Grantee or its
assignees and the Noteholders would continue to be secured thereby;
(vi) if a reviewing court were to determine, after such a
declaration, that the IFC would remain valid and so vested and that
the Noteholders would continue to be secured thereby, such court
should also determine, for the same reasons, that the substance of the
State Pledge would continue in effect for the benefit of the
Noteholders;
(vii) a reviewing court which determines that the substance of
the State Pledge continues in effect for the benefit of the
Noteholders should also determine, for the same reasons, that the ICC
could not take any action determined by such court to limit, alter,
impair or reduce materially the value of the Intangible Transition
Property or the IFC, except for such actions, if any, which could be
taken by the State without violating the State Pledge; and
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(viii) notwithstanding a judicial declaration of the invalidity
of the Amendatory Act, the 1998 Funding Order would remain in effect
and the Intangible Transition Property would continue to be valid and
enforceable, at least against ComEd and its successors and assigns
(including a trustee in bankruptcy), unless and until the 1998 Funding
Order were modified by the ICC or a court in subsequent proceedings
initiated to vacate, amend or otherwise modify the 1998 Funding Order;
however, notwithstanding such a declaration, it would be possible to
seek a stay of any decision which vacates, amends or otherwise
modifies the 1998 Funding Order in a manner adversely affecting the
payment of the IFC pending appellate review of such decision; and
while sound and substantial arguments support of the granting of such
a stay, the decision to do so will be in the discretion of the court
requested to take such action, which will be exercised on the basis of
the factors discussed in such opinion.
(m) The Representatives, the Note Issuer and ComEd shall have
received on the Closing Date an opinion letter or letters of Richards,
Layton & Finger, P.A., special Delaware counsel to the Grantee, dated the
Closing Date, in form and substance reasonably satisfactory to the
Representatives, to the effect that: (i) if properly presented to a
Delaware court, a Delaware court applying Delaware law, would conclude that
in order for a person to file a voluntary bankruptcy petition on behalf of
the Grantee, the prior affirmative vote of its Sole Member and of all of
its Managers (including the Independent Manager), as provided in Section
2.7(ii) of the Amended and Restated Limited Liability Company Agreement of
the Grantee (the "LLC Agreement") is required and (ii) the LLC Agreement
constitutes a legal, valid and binding agreement of the Sole Member and is
enforceable against the Sole Member in accordance with its terms.
(n) The Notes shall have been rated in the highest long-term rating
category by each of the Rating Agencies and on or after the date hereof (i)
no downgrading shall have occurred in the rating accorded the debt
securities of ComEd or Unicom by any Rating Agency, and (ii) no such
organization shall have publicly announced that it has under surveillance
or review, with possible negative implications, its rating of any of
Unicom's or ComEd's debt securities.
(o) On or prior to the Closing Date, the Note Issuer shall have
delivered to the Representatives evidence, in form and substance reasonably
satisfactory to the Representatives, that appropriate filings have been or
are being made in accordance with the 1998 Funding Law and other applicable
law reflecting the grant of a security interest by the Note Issuer in the
Note Collateral to the Indenture Trustee, including the filing of the
U.C.C. financing statements in the office of the Secretary of State of the
State of Illinois.
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(p) On or prior to the Closing Date, the Note Issuer shall have
delivered to the Representatives evidence, in form and substance
satisfactory to the Representatives, of the ICC's issuance of the 1998
Funding Order relating to the Intangible Transition Property.
(q) Prior to the Closing Date, ComEd, the Grantee and the Note Issuer
shall have furnished to the Representatives such further information,
certificates, opinions and documents as the Representatives may reasonably
request.
(r) On or after the date hereof there shall not have occurred any
of the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange; (ii) a suspension
or material limitation in trading in the securities of Unicom or ComEd;
(iii) a general moratorium on commercial banking activities declared by
either Federal, New York or Illinois State authorities; or (iv) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the
effect of any such event specified in this Clause (iv) in the judgment
of the Representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Notes.
If any of the conditions specified in this Section 6 shall not have
been fulfilled when and as provided in this Agreement, or if any of the
opinions and certificates mentioned above or elsewhere in this Agreement
shall not be reasonably satisfactory in form and substance to the
Representatives and counsel for the Underwriters, this Agreement and all
obligations of the Underwriters hereunder may be canceled at, or at any
time prior to, the Closing Date by the Representatives. Notice of such
cancellation shall be given to the Note Issuer in writing or by telephone
or telegraph confirmed in writing.
7. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the sale of the
Notes provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of ComEd or the Note Issuer to perform
any agreement herein or comply with any provision hereof other than by reason of
a default (including under Section 9) by any of the Underwriters, ComEd and the
Note Issuer will, jointly and severally, reimburse the Underwriters upon demand
for all reasonable out-of-pocket expenses (including reasonable fees and
disbursements of their counsel) that shall have been incurred by the
Underwriters in connection with the proposed purchase and sale of the Notes.
8. INDEMNIFICATION AND CONTRIBUTION. (a) ComEd and the Note Issuer
will, jointly and severally, indemnify and hold harmless each Underwriter, the
directors, officers, members, employees and agents of each Underwriter and each
person who controls any
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Underwriter within the meaning of either Section 15 of the Act or Section 20
of the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or other Federal or state statutory
law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement for the registration of
the Notes as originally filed or in any amendment thereof, or any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, any
untrue statement or alleged untrue statement of a material fact contained in
the Basic Prospectus, any Preliminary Final Prospectus or the Final
Prospectus, or any amendment thereof or supplement thereof, or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading and (ii) the
invalidation (for any reason) of the Amendatory Act and/or the Funding Law,
and will reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that in the case of indemnification under (a)(i) above, neither
ComEd nor the Note Issuer will be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Note Issuer or ComEd by or on behalf of any
Underwriter through the Representatives specifically for inclusion therein.
This indemnity agreement will be in addition to any liability which ComEd and
the Note Issuer may otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold harmless
ComEd and the Note Issuer, each of their directors, each of their officers who
signs the Registration Statement, and each person who controls ComEd, the Note
Issuer or the Grantee within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act, to the same extent as the foregoing indemnity
from ComEd and the Note Issuer to each Underwriter pursuant to Section 8(a)(i)
above, but only with reference to written information relating to such
Underwriter furnished to the Note Issuer or ComEd by or on behalf of such
Underwriter through the Representatives specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement will
be in addition to any liability which any Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by
the indemnifying party
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of substantial rights and defenses and (ii) will not, in any event, relieve
the indemnifying party from any obligations to any indemnified party other
than the indemnification obligation provided in paragraph (a) or (b) above.
The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent
the indemnified party in any action for which indemnification is sought (in
which case the indemnifying party shall not thereafter be responsible for the
fees and expenses of any separate counsel retained by the indemnified party
or parties except as set forth below); PROVIDED, HOWEVER, that such counsel
shall be reasonably satisfactory to the indemnified party (and shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party). Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees,
costs and expenses of such separate counsel only if (i) the use of counsel
chosen by the indemnifying party to represent the indemnified party would
present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there are legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnified party, (iii) the indemnifying party shall
not have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of the
institution of such action or (iv) the indemnifying party shall authorize the
indemnified party to employ separate counsel at the expense of the
indemnifying party. It is understood that the indemnifying party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. An indemnifying party will
not, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent (i) includes an unconditional
release of each indemnified party from all liability arising out of such
claim, action, suit or proceeding and (ii) does not include a statement as to
or an admission of fault, culpability or failure to act, by or on behalf of
any indemnified party. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, which
consent shall not be unreasonably withheld.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, ComEd, the Note Issuer and the Underwriters
agree to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which ComEd, the
Note Issuer and one or more of the Underwriters may be subject in such
proportion as is appropriate to reflect the relative benefits received by the
Note Issuer and by the Underwriters
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<PAGE>
from the offering of the Notes; PROVIDED, HOWEVER, that in no case shall any
Underwriter (except as may be provided in any agreement among underwriters
relating to the offering of the Notes) be responsible for any amount in
excess of the underwriting discount or commission applicable to the Notes
purchased by such Underwriter hereunder. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, ComEd, the Note
Issuer and the Underwriters shall contribute in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of ComEd, the Note Issuer and of the Underwriters in connection with
the statements or omissions which resulted in such Losses as well as any
other relevant equitable considerations. Benefits received by the Note
Issuer shall be deemed to be equal to the total net proceeds from the
offering (before deducting expenses) of the Notes, and benefits received by
the Underwriters shall be deemed to be equal to the total underwriting
discounts and commissions, in each case as set forth on the cover page of the
Final Prospectus. Relative fault shall be determined by reference to whether
any alleged untrue statement or omission relates to information provided by
ComEd, the Note Issuer or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. ComEd, the Note Issuer and the Underwriters agree
that it would not be just and equitable if contribution were determined by
pro rata allocation or any other method of allocation which does not take
account of the equitable considerations referred to above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person
who controls an Underwriter within the meaning of either the Act or the
Exchange Act and each director, officer, employee and agent of an Underwriter
shall have the same rights to contribution as such Underwriter, and each
person who controls the Note Issuer or ComEd within the meaning of either the
Act or the Exchange Act, each officer of the Note Issuer or ComEd who shall
have signed the Registration Statement and each director of the Note Issuer
or ComEd shall have the same rights to contribution as the Note Issuer or
ComEd, subject in each case to the applicable terms and conditions of this
paragraph (d). The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
9. DEFAULT BY AN UNDERWRITER. If any one or more Underwriters shall
fail to purchase and pay for any of the Notes agreed to be purchased by such
Underwriter or Underwriters hereunder the Representatives may in their
discretion arrange for the Underwriters or another party or other parties to
purchase such Notes on the terms contained herein. If within 36 hours after
such default by any Underwriter the Representatives do not arrange for the
purchase of such Notes, the nondefaulting Underwriters shall be obligated
severally to take up and pay for (in the respective proportions which the amount
of Notes set forth opposite the
-29-
<PAGE>
names of all the remaining Underwriters) the Notes which the defaulting
Underwriter or Underwriters agreed by failed to purchase; PROVIDED, HOWEVER,
that in the event that the aggregate amount of Notes which the defaulting
Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of
the aggregate amount of Notes set forth in Schedule II hereto, the
nondefaulting Underwriters shall have the right to purchase all, but shall
not be under any obligation to purchase any, of the Notes, and if such
nondefaulting Underwriters do not purchase all the Notes, this Agreement will
terminate without liability to any nondefaulting Underwriter, the Note Issuer
or ComEd. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
seven days, as the Representatives shall determine in order that the required
changes in the Registration Statement and the Final Prospectus or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Underwriter of its liability, if any,
to the Note Issuer and ComEd and any nondefaulting Underwriter for damages
occasioned by its default hereunder.
10. TERMINATION. This Agreement shall be subject to termination in
the absolute discretion of the Representatives, by notice given to the Note
Issuer and ComEd prior to delivery of and payment for the Notes, if prior to
such time there shall have occurred (i) any change, or any development involving
a prospective change, in or affecting (A) the business, properties or condition,
financial or otherwise, of Unicom, ComEd or the Note Issuer, (B) the capital
stock or long-term debt of Unicom or ComEd since September 30, 1998 (other than
issuances of capital stock by Unicom pursuant to then existing stock option,
dividend reinvestment, stock exchange or related plans for the benefit of
employees or stockholders) or (C) the Intangible Transition Property, the Notes,
the 1998 Funding Order, the Funding Law or the 1998 Initial Tariff, the effect
of which, in the judgment of the Representatives, materially impairs the
investment quality of the Notes or makes it impractical or inadvisable to market
the Notes, (ii) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange; (iii) a suspension or material
limitation in trading in the securities of Unicom or ComEd; (iv) a general
moratorium on commercial banking activities shall have been declared either by
Federal, New York State or Illinois State authorities or (v) any outbreak or
escalation of hostilities involving the United States or the declaration by the
United States of a national emergency or war the effect of which on financial
markets is such as to make it, in the judgment of the Representatives,
impracticable or inadvisable to proceed with the offering or delivery of the
Notes as contemplated by the Final Prospectus (exclusive of any supplement
thereto).
11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective
agreements, representations, warranties, indemnities and other statements of
ComEd or its officers, the Note Issuer or its officers and of the Underwriters
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or of ComEd, the Note Issuer or any of the officers, directors or controlling
persons referred to in Section 8 hereof, and will survive delivery of and
payment for the Notes. The provisions of Sections 7 and 8 hereof shall survive
the termination or cancellation of this
-30-
<PAGE>
Agreement and, to the fullest extent permitted by applicable law, the
invalidation (for any reason) of the Amendatory Act, the Funding Law and/or
any Transitional Funding Order.
12. NOTICES. All communications hereunder will be in writing and may
be given by United States mail, courier service, telegram, telex, telemessage,
telecopy, telefax, cable or facsimile (confirmed by telephone or in writing in
the case of notice by telegram, telex, telemessage, telecopy, telefax, cable or
facsimile) or any other customary means of communication, and any such
communication shall be effective when delivered, or if mailed, three days after
deposit in the United States mail with proper postage for ordinary mail prepaid,
and if sent to the Representatives, to them at the address specified in Schedule
I hereto; and if sent to ComEd, to it at Commonwealth Edison Company, 10 South
Dearborn Street, 37th Floor, Chicago, Illinois 60603, Telecopy: (312)
_____________; and if sent to the Note Issuer, to it at c/o First Union Trust
Company, National Association, One Rodney Square, 920 King Street, 1st Floor,
Wilmington, Delaware 19801, attn: Corporate Trust Administration, Telecopy:
(302) _________, with a copy to Commonwealth Edison Company, 10 South Dearborn
Street, 37th Floor, Chicago, Illinois 60603, Telecopy: (312) _____________. The
parties hereto, by notice to the others, may designate additional or different
addresses for subsequent communications.
13. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.
14. APPLICABLE LAW. This Agreement will be governed by and construed
in accordance with the laws of the State of New York.
15. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be deemed an original, which taken together
shall constitute one and the same instrument.
16. MISCELLANEOUS. Time shall be of the essence of this Agreement.
As used herein, the term "business day" shall mean any day when the SEC's office
in Washington, D.C. is open for business.
17. LIMITATION OF LIABILITY. It is expressly understood and agreed
by the parties hereto that (a) this Agreement is executed and delivered by First
Union Trust Company, National Association ("First Union"), not individually or
personally but solely as Delaware Trustee on behalf of the Note Issuer, in the
exercise of the powers and authority conferred and vested in it, (b) the
representations, undertakings and agreements herein made by the Delaware Trustee
on behalf of the Note Issuer are made and intended not as personal
representations, undertakings and agreements by First Union but are made and
intended for the purpose of
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<PAGE>
binding only the Note Issuer, (c) nothing herein contained shall be construed
as creating any liability on First Union, individually or personally, to
perform any covenant either expressed or implied contained herein, except in
its capacity as Delaware Trustee, all such liability, if any, being expressly
waived by the parties who are signatories to this Agreement and by any Person
claiming by, through or under such parties and (d) under no circumstances
shall First Union be personally liable for the payment of any indebtedness or
expense of the Note Issuer or be personally liable for the breach or failure
of any obligation, representation, warranty or covenant made or undertaken by
the Note Issuer under this Agreement; PROVIDED, HOWEVER, that this provision
shall not protect First Union against any liability that would otherwise be
imposed by reason of willful misconduct, bad faith or gross negligence in the
performance of its obligations and duties under this Agreement.
-32-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among ComEd,
the Note Issuer, and the several Underwriters.
Very truly yours,
COMMONWEALTH EDISON COMPANY
By:_________________________________
Name:
Title:
COMED TRANSITIONAL FUNDING TRUST
By: First Union Trust Company, National
Association, not in its individual capacity, but
solely as Delaware Trustee
By:_________________________________
Name:
Title:
CONFIRMED AND ACCEPTED
Goldman, Sachs & Co.
___________________________________
Goldman, Sachs & Co.
Merrill Lynch, Pierce Fenner & Smith Incorporated
by_________________________________
Salomon Smith Barney Inc.
by_________________________________
-33-
<PAGE>
EXHIBIT A
REGISTERED $________
No.
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.
THE PRINCIPAL OF THIS SERIES [ ], CLASS [__-__] ("THIS CLASS
[__-__ ] NOTE") WILL BE PAID IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS [__-__] NOTE AT
ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE HOLDER OF
THIS NOTE HAS NO RECOURSE TO THE ISSUER HEREOF AND AGREES TO LOOK ONLY TO THE
NOTE COLLATERAL, AS DESCRIBED IN THE INDENTURE AND ANY RELATED TRUSTEE'S
ISSUANCE CERTIFICATE OR SERIES SUPPLEMENT REFERRED TO ON THE REVERSE HEREOF,
FOR PAYMENT OF ANY AMOUNTS DUE HEREUNDER. ALL OBLIGATIONS OF THE ISSUER OF
THIS CLASS [__-__] NOTE UNDER THE TERMS OF THE INDENTURE WILL BE RELEASED AND
DISCHARGED UPON PAYMENT IN FULL HEREOF OR AS OTHERWISE PROVIDED IN SECTION
3.10(B) OR ARTICLE IV OF THE INDENTURE. THE HOLDER OF THIS CLASS [__-__]
NOTE HEREBY COVENANTS AND AGREES THAT PRIOR TO THE DATE WHICH IS ONE (1) YEAR
AND ONE (1) DAY AFTER THE PAYMENT IN FULL OF THE SERIES [ ] CLASS [__-__]
NOTES, IT WILL NOT INSTITUTE AGAINST, OR JOIN ANY OTHER PERSON IN INSTITUTING
AGAINST, THE ISSUER ANY BANKRUPTCY, REORGANIZATION, ARRANGEMENT, INSOLVENCY
OR LIQUIDATION PROCEEDINGS OR OTHER SIMILAR PROCEEDING UNDER THE LAWS OF THE
UNITED STATES OR ANY STATE OF THE UNITED STATES. NOTHING IN THIS PARAGRAPH
SHALL PRECLUDE, OR BE DEEMED TO ESTOP, SUCH HOLDER (A) FROM TAKING OR
OMITTING TO TAKE ANY ACTION PRIOR TO SUCH DATE IN (I) ANY CASE OR PROCEEDING
VOLUNTARILY FILED OR COMMENCED BY OR ON BEHALF OF THE ISSUER UNDER OR
PURSUANT TO ANY SUCH LAW OR (II) ANY INVOLUNTARY CASE OR PROCEEDING
PERTAINING TO THE ISSUER WHICH IS FILED OR COMMENCED BY OR ON BEHALF OF A
PERSON OTHER THAN SUCH HOLDER AND IS NOT JOINED IN BY SUCH HOLDER (OR ANY
PERSON TO WHICH SUCH HOLDER SHALL HAVE ASSIGNED, TRANSFERRED OR OTHERWISE
CONVEYED ANY PART OF THE OBLIGATIONS OF THE ISSUER HEREUNDER) UNDER OR
PURSUANT TO ANY SUCH LAW, OR (B) FROM COMMENCING OR PROSECUTING ANY LEGAL
ACTION WHICH IS NOT AN
A-1
<PAGE>
INVOLUNTARY CASE OR PROCEEDING UNDER OR PURSUANT TO ANY SUCH LAW AGAINST THE
ISSUER OR ANY OF ITS PROPERTIES.
COMED TRANSITIONAL FUNDING TRUST NOTES,
SERIES [ ], Class [__-__].
<TABLE>
<S> <C> <C>
INTEREST ORIGINAL PRINCIPAL FINAL MATURITY
RATE AMOUNT DATE
</TABLE>
ComEd Transitional Funding Trust, a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Note Issuer"), for value received, hereby promises to pay to [ ], or
registered assigns, the Original Principal Amount shown above
[in quarterly installments] on the Payment Dates and in the amounts specified
on the reverse hereof or, if less, the amounts determined pursuant to Section
8.02 of the Indenture, in each year, commencing on the date determined as
provided on the reverse hereof and ending on or before the Final Maturity
Date shown above and to pay interest, at the Interest Rate shown above, on
each [March 15, June 15, September 15 and December 15] or if any such day is
not a Business Day, the next succeeding Business Day, commencing on [ ] and
continuing until the earlier of the payment in full of the principal hereof
and the Final Maturity Date (each a "Payment Date"), on the principal amount
of this Series [ ], Class [__-__] Note (hereinafter referred to as "this
Class [__-__] Note"). Interest on this Class [__-__] Note will accrue for
each Payment Date from the most recent Payment Date on which interest has
been paid to but excluding such Payment Date or, if no interest has yet been
paid, from [ ]. Interest will be computed on the basis of
[specify method of computation]. Such principal of and interest on this
Class [__-__] Note shall be paid in the manner specified on the reverse
hereof.
The principal of and interest on this Class [__-__] Note are payable
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts. All payments
made by the Note Issuer with respect to this Class [__-__] Note shall be applied
first to interest due and payable on this Class [__-__] Note as provided above
and then to the unpaid principal of and premium, if any, on this Class [__-__]
Note, all in the manner set forth in Section 8.02 of the Indenture.
Reference is made to the further provisions of this Class [__-__] Note
set forth on the reverse hereof, which shall have the same effect as though
fully set forth on the face of this Class [__-__] Note.
A-2
<PAGE>
Unless the certificate of authentication hereon has been executed
by the Indenture Trustee whose name appears below by manual signature, this
Class [__-__] Note shall not be entitled to any benefit under the Indenture
referred to on the reverse hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Note Issuer has caused this instrument to
be signed, manually or in facsimile, by its Responsible Officer.
Date:
COMED TRANSITIONAL FUNDING TRUST
By: FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, not in its individual capacity
BUT solely as Delaware Trustee
By: ____________________________
Name:
Title:
A-3
<PAGE>
INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated:_______,______
This is one of the Series [ ], Class [__-__] Notes, designated
above and referred to in the within-mentioned Indenture.
HARRIS TRUST AND SAVINGS BANK, not in its
individual capacity but solely as Indenture
Trustee
By: _______________________________
Name: _____________________________
Title: ______________________________
A-4
<PAGE>
REVERSE OF NOTE
This Series [ ], Class [__-__] Note is one of a duly authorized
issue of Notes of the Note Issuer (herein called the "Notes"), issued and to
be issued in one or more Series, which Series are issuable in one or more
Classes, and the Series [ ] Notes consists of [ ] Classes, including
this Class [__-__] Note (herein called the "Class [__-__] Notes"), all issued
and to be issued under an Indenture dated as of [ ], 1998, (the
"Indenture"), between the Note Issuer and Harris Trust and Savings Bank, as
Indenture Trustee (the "Indenture Trustee", which term includes any successor
trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the
respective rights and obligations thereunder of the Note Issuer, the
Indenture Trustee and the Holders of the Notes. All terms used in this Class
[__-__] Note that are defined in the Indenture, as supplemented or amended,
shall have the meanings assigned to them in the Indenture.
The Class [__-__] Notes, the other Classes of Series [ ] Notes
(all of such Classes being referred to herein as "Series [ ] Notes") and
any other Series of Notes issued by the Note Issuer are and will be equally
and ratably secured by the Note Collateral pledged as security therefor as
provided in the Indenture.
The principal of this Class [__-__] Note shall be payable on each
Payment Date only to the extent that amounts in the Collection Account are
available therefor, and only until the outstanding principal balance thereof
on the preceding Payment Date (after giving effect to all payments of
principal, if any, made on the preceding Payment Date) has been reduced to
the principal balance specified in the Expected Amortization Schedule which
is attached to the related Trustee's Issuance Certificate or Series
Supplement, if any, as Schedule A, unless payable earlier either because (x)
an Event of Default shall have occurred and be continuing and the Indenture
Trustee or the Holders of Notes representing not less than a majority of the
Outstanding Amount of the Notes of all Series have declared the Notes of all
Series to be immediately due and payable in accordance with Section 5.02 of
the Indenture or (y) the Note Issuer, at its option, shall have called for
the redemption of the Series [ ] Notes pursuant to Section 10.01 of the
Indenture. However, actual principal payments may be made in lesser than
expected amounts and at later than expected times as determined pursuant to
Section 8.02 of the Indenture. The entire unpaid principal amount of this
Class [__-__] Note shall be due and payable on the earlier of the Final
Maturity Date hereof and the Optional Redemption Date, if any.
Notwithstanding the foregoing, the entire unpaid principal amount of the
Notes shall be due and payable, if not then previously paid, on the date on
which an Event of Default shall have occurred and be continuing and the
Indenture Trustee or the Holders of the Notes representing not less than a
majority of the Outstanding Amount of the Notes of all Series have
- -----------------
1 The form of the reverse of a Note is substantially as follows, unless
otherwise specified in the related Trustee's Issuance Certificate or Series
Supplement.
A-5
<PAGE>
declared the Notes of all Series to be immediately due and payable in the
manner provided in Section 5.02 of the Indenture. All principal payments on
the Class [__-__] Notes shall be made pro rata to the Class [__-__] Holders
entitled thereto based on the respective principal amounts of the Class
[__-__] Notes held by them.
Payments of interest on this Class [__-__] Note due and payable on
each Payment Date, together with the installment of principal or premium, if
any, shall be made by check mailed first-class, postage prepaid, to the Person
whose name appears as the Registered Holder of this Class [__-__] Note (or one
or more Predecessor Notes) on the Note Register as of the close of business on
the Record Date or in such other manner as may be provided in the related
Trustee's Issuance Certificate or Series Supplement, if any, except for the
final installment of principal and premium, if any, payable with respect to this
Class [__-__] Note on a Payment Date which shall be payable as provided below.
Such checks shall be mailed to the Person entitled thereto at the address of
such Person as it appears on the Note Register as of the applicable Record Date
without requiring that this Class [__-__] Note be submitted for notation of
payment. Any reduction in the principal amount of this Class [__-__] Note (or
any one or more Predecessor Notes) effected by any payments made on any Payment
Date shall be binding upon all future Holders of this Class [__-__] Note and of
any Note issued upon the registration of transfer hereof or in exchange hereof
or in lieu hereof, whether or not noted hereon. If funds are expected to be
available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Class [__-__] Note on a Payment Date,
then the Indenture Trustee, in the name of and on behalf of the Note Issuer,
will notify the Person who was the Registered Holder hereof as of the Record
Date preceding such Payment Date by notice mailed no later than five days prior
to such final Payment Date and shall specify that such final installment will be
payable only upon presentation and surrender of this Class [__-__] Note and
shall specify the place where this Class [__-__] Note may be presented and
surrendered for payment of such installment.
The Note Issuer shall pay interest on overdue installments of interest
at the Note Interest Rate to the extent lawful.
As provided in the Indenture, the Class [__-__] Notes may be
redeemed, in whole but not in part, at the option of the Note Issuer on any
Payment Date at the Optional Redemption Price if, after giving effect to
payments that would otherwise be made on such Payment Date, the Outstanding
Amount of the Class [__-__] Notes has been reduced to less than five percent
of the initial principal balance thereof.
This Note is a transitional funding instrument as such term is defined
in the Funding Law. Principal and interest due and payable on this Note are
payable from and secured primarily by intangible transition property created and
established by a transitional funding order obtained from the Illinois Commerce
Commission pursuant to the Funding Law. Intangible transition property consists
of the right to impose and collect certain charges (defined in the Funding Law
as "instrument funding charges") to be included in regular electric utility
bills of
A-6
<PAGE>
existing and future electric service customers of Commonwealth Edison
Company, an Illinois electric utility.
The Funding Law provides that: "The State [of Illinois] pledges to
and agrees with the holders of any transitional funding instruments who may
enter into contracts with an electric utility, grantee, assignee or issuer
pursuant to this Article XVIII [of the Public Utility Act] that the State
[of Illinois] will not in any way limit, alter, impair or reduce the value of
intangible transition property created by, or instrument funding charges
approved by, a transitional funding order so as to impair the terms of any
contract made by such electric utility, grantee, assignee or issuer with such
holders or in any way impair the rights and remedies of such holders until
the pertinent grantee instruments or, if the related transitional funding
order does not provide for the issuance of grantee instruments, the pertinent
transitional funding instruments and interest, premium and other fees, costs
and charges related thereto, as the case may be, are fully paid and
discharged. Electric utilities, grantees and issuers are authorized to
include these pledges and agreements of the State [of Illinois] in any
contract with the holders of transitional funding instruments or with any
assignees pursuant to this Article XVIII [of the Public Utility Act] and any
assignees are similarly authorized to include these pledges and agreements of
the State [of Illinois] in any contract with any issuer, holder or any other
assignee. Nothing in this Article XVIII [of the Public Utility Act] shall
preclude the State of Illinois from requiring adjustments as may otherwise be
allowed by law to the electric utility's base rates, transition charges,
delivery services charges, or other charges for tariffed services, so long as
any such adjustment does not directly affect or impair any instrument funding
charges previously authorized by a transitional funding order issued by the
[Illinois Commerce Commission]."
As a result of the foregoing pledge, the State of Illinois may not,
except as provided in the succeeding sentence, in any way limit, alter,
impair or reduce the value of such intangible transition property or such
instrument funding changes in a manner substantially impairing the Note
Indenture or the rights and remedies of the Holders, until the Notes,
together with interest thereon, are fully paid and discharged.
Notwithstanding the immediately preceding sentence, the State of Illinois
would be allowed to effect a temporary impairment of the Holders' rights if
it could be shown that such impairment was necessary to advance a significant
and legitimate public purpose.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Class [__-__] Note may be registered on
the Note Register upon surrender of this Class [__-__] Note for registration
of transfer at the office or agency designated by the Note Issuer pursuant to
the Indenture, duly endorsed by, or accompanied by (a) a written instrument
of transfer in form satisfactory to the Indenture Trustee duly executed by
the Holder hereof or his attorney duly authorized in writing, with such
signature guaranteed by an institution which is a member of one of the
following recognized Signature Guaranty Programs: (i) The Securities
Transfer Agent Medallion Program (STAMP); (ii)The New York Stock Exchange
Medallion Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP);
or (iv) in such other guarantee program acceptable to the Indenture Trustee,
and (b) such other documents as
A-7
<PAGE>
the Indenture Trustee may require, and thereupon one or more new Class [__-__]
Notes of Minimum Denominations and in the same aggregate principal amount
will be issued to the designated transferee or transferees. No service
charge will be charged for any registration of transfer or exchange of this
Class [__-__] Note, but the transferor may be required to pay a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection with any such registration of transfer or exchange, other than
exchanges pursuant to Section 2.04 or 9.06 of the Indenture not involving any
transfer.
Each Note holder, by acceptance of a Note, covenants and agrees
that no recourse may be taken, directly or indirectly, with respect to the
obligations of the Note Issuer or the Indenture Trustee on the Notes or under
the Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Indenture Trustee or the Delaware Trustee in its
respective individual capacity, (ii) any owner of a beneficial interest in
the Note Issuer (including the Grantee and ComEd) or (iii) any partner,
owner, beneficiary, agent, officer or employee of the Indenture Trustee or
the Delaware Trustee in its respective individual capacity, any holder of a
beneficial interest in the Indenture Trustee or of any successor or assign
of any of them in their individual or corporate capacities, except as any
such Person may have expressly agreed (it being understood that none of the
Indenture Trustee, the Delaware Trustee, the Grantee and ComEd has any such
obligations in their respective individual or corporate capacities).
Prior to the due presentment for registration of transfer of this
Class [__-__] Note, the Note Issuer, the Indenture Trustee and any agent of
the Note Issuer or the Indenture Trustee may treat the Person in whose name
this Class [__-__] Note is registered (as of the day of determination) as the
owner hereof for the purpose of receiving payments of principal of and
premium, if any, and interest on this Class [__-__] Note and for all other
purposes whatsoever, whether or not this Class [__-__] Note be overdue, and
neither the Note Issuer, the Indenture Trustee nor any such agent shall be
affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of
the Note Issuer and the rights of the Holders of the Notes under the
Indenture at any time by the Note Issuer with the consent of the Holders of
Notes representing a majority of the Outstanding Amount of all Notes at the
time outstanding of each Series or Class to be affected. The Indenture also
contains provisions permitting the Holders of Notes representing specified
percentages of the Outstanding Amount of the Notes of all Series, on behalf
of the Holders of all the Notes, to waive compliance by the Note Issuer with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder
of this Class [__-__] Note (or any one of more Predecessor Notes) shall be
conclusive and binding upon such Holder and upon all future Holders of this
Class [__-__] Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof
A-8
<PAGE>
whether or not notation of such consent or waiver is made upon this Class
[__-__] Note. The Indenture also permits the Indenture Trustee to amend or
waive certain terms and conditions set forth in the Indenture without the
consent of Holders of the Notes issued thereunder.
The term "Note Issuer" as used in this Class [__-__] Note includes
any successor to the Note Issuer under the Indenture.
The Note Issuer is permitted by the Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the
Indenture Trustee and the Holders of Notes under the Indenture.
The Class [__-__] Notes are issuable only in registered form in
denominations as provided in the Indenture and the related Trustee's Issuance
Certificate or Series Supplement, if any, subject to certain limitations
therein set forth.
This Class [__-__] Note, the Indenture and the related Trustee's
Issuance Certificate or Series Supplement, if any, shall be construed in
accordance with the laws of the State of Illinois, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder and thereunder shall be determined in accordance with such
laws.
No reference herein to the Indenture and no provision of this Class
[__-__] Note or of the Indenture shall alter or impair the obligation, which is
absolute and unconditional, to pay the principal of and interest on this Class
[__-__] Note at the times, place, and rate, and in the coin or currency herein
prescribed.
The Holder of this Class [__-__] Note by the acceptance hereof
agrees that, notwithstanding any provision of the Indenture or the related
Trustee's Issuance Certificate or Series Supplement, if any, to the
contrary, the Holder shall have no recourse against the Note Issuer, but
shall look only to the Note Collateral, with respect to any amounts due to
the Holder under this Class [__-__] Note.
The Note Issuer and the Indenture Trustee, by entering into the
Indenture, and the Holders and any Persons holding a beneficial interest in
any Class [__-__] Note, by acquiring any Class [__-__] Note or interest
therein, (i) express their intention that the Class [__-__] Notes qualify
under applicable tax law as indebtedness of ComEd secured by the Note
Collateral and (ii) unless otherwise required by appropriate taxing
authorities, agree to treat the Class [__-__] Notes as indebtedness of ComEd
secured by the Note Collateral for the purpose of federal income, state and
local income and franchise taxes, and any other taxes imposed upon, measured
by or based upon gross or net income.
A-9
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
- ------------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto _____________________________________________
(name and address of assignee)
the within Class [__-__] Note and all rights thereunder, and hereby
irrevocably constitutes and appoints_____________, attorney, to transfer
said Class [__-__] Note on the books kept for registration thereof, with full
power of substitution in the premises.
Dated: ___________ __________________________
Signature Guaranteed:
___________________________
- -----------------
NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Class [__-__] Note
in every particular, without alteration, enlargement or any change
whatsoever.
A-10
<PAGE>
EXHIBIT 4.3
FORM OF INDENTURE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
COMED TRANSITIONAL FUNDING TRUST,
Note Issuer,
and
HARRIS TRUST AND SAVINGS BANK,
Indenture Trustee
______________________________
INDENTURE
Dated as of December __, 1998
______________________________
Issuable in Series
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
Definitions and Incorporation by Reference. . . . . . . . . . . . . . . . . . .3
SECTION 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .3
SECTION 1.02. Incorporation by Reference of Trust Indenture Act. . . . . . . .3
SECTION 1.03. Rules of Construction. . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
The Notes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 2.01. Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 2.02. Denominations; Notes Issuable in Series. . . . . . . . . . . . .4
SECTION 2.03. Execution, Authentication and Delivery . . . . . . . . . . . . .6
SECTION 2.04. Temporary Notes. . . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 2.05. Registration; Registration of Transfer and Exchange of
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
SECTION 2.06. Mutilated, Destroyed, Lost or Stolen Notes . . . . . . . . . . .8
SECTION 2.07. Persons Deemed Owner . . . . . . . . . . . . . . . . . . . . . .9
SECTION 2.08. Payment of Principal, Premium, if any, and Interest;
Interest on Overdue Principal; Principal, Premium, if any,
and Interest Rights Preserved. . . . . . . . . . . . . . . . . .9
SECTION 2.09. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.10. Outstanding Amount; Authentication and Delivery of Notes . . . 10
SECTION 2.11. Book-Entry Notes . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.12. Notices to Clearing Agency . . . . . . . . . . . . . . . . . . 18
SECTION 2.13. Definitive Notes . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.14. CUSIP Number . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.15. Letter of Representations. . . . . . . . . . . . . . . . . . . 19
SECTION 2.16. Release of Note Collateral . . . . . . . . . . . . . . . . . . 19
SECTION 2.17. Special Terms Applicable to Subsequent Transfers of
Certain Notes. . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.18. Tax Treatment. . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.19. State Pledge . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE III
Covenants.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.01. Payment of Principal, Premium, if any, and Interest. . . . . . 21
SECTION 3.02. Maintenance of Office or Agency. . . . . . . . . . . . . . . . 21
SECTION 3.03. Money for Payments To Be Held in Trust . . . . . . . . . . . . 22
SECTION 3.04. Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 3.05. Protection of Note Collateral. . . . . . . . . . . . . . . . . 23
SECTION 3.06. Opinions as to Note Collateral . . . . . . . . . . . . . . . . 24
SECTION 3.07. Performance of Obligations; Servicing; SEC Filings . . . . . . 25
SECTION 3.08. Certain Negative Covenants . . . . . . . . . . . . . . . . . . 27
SECTION 3.09. Annual Statement as to Compliance. . . . . . . . . . . . . . . 27
SECTION 3.10. Note Issuer May Consolidate, etc., Only on Certain Terms . . . 28
SECTION 3.11. Successor or Transferee. . . . . . . . . . . . . . . . . . . . 30
SECTION 3.12. No Other Business. . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 3.13. No Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 3.14. Servicer's Obligations . . . . . . . . . . . . . . . . . . . . 30
SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities. . . . . . . 30
SECTION 3.16. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . 31
SECTION 3.17. Restricted Payments. . . . . . . . . . . . . . . . . . . . . . 31
SECTION 3.18. Notice of Events of Default. . . . . . . . . . . . . . . . . . 31
SECTION 3.19. Further Instruments and Acts . . . . . . . . . . . . . . . . . 31
SECTION 3.20. Purchase of Subsequent Transition Property . . . . . . . . . . 31
ARTICLE IV
Satisfaction and Discharge; Defeasance. . . . . . . . . . . . . . . . . . . . 33
SECTION 4.01. Satisfaction and Discharge of Indenture; Defeasance. . . . . . 33
SECTION 4.02. Conditions to Defeasance . . . . . . . . . . . . . . . . . . . 35
SECTION 4.03. Application of Trust Money . . . . . . . . . . . . . . . . . . 36
SECTION 4.04. Repayment of Moneys Held by Paying Agent . . . . . . . . . . . 36
ARTICLE V
Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 5.01. Events of Default. . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment . . . . . . 38
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement
by Indenture Trustee . . . . . . . . . . . . . . . . . . . . . 39
SECTION 5.04. Remedies; Priorities . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.05. Optional Preservation of the Note Collateral . . . . . . . . . 42
SECTION 5.06. Limitation of Suits. . . . . . . . . . . . . . . . . . . . . . 42
SECTION 5.07. Unconditional Rights of Holders To Receive Principal,
Premium, if any, and Interest. . . . . . . . . . . . . . . . . 43
SECTION 5.08. Restoration of Rights and Remedies . . . . . . . . . . . . . . 43
SECTION 5.09. Rights and Remedies Cumulative . . . . . . . . . . . . . . . . 43
SECTION 5.10. Delay or Omission Not a Waiver . . . . . . . . . . . . . . . . 44
SECTION 5.11. Control by Holders . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 5.12. Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . . 44
SECTION 5.13. Undertaking for Costs. . . . . . . . . . . . . . . . . . . . . 45
SECTION 5.14. Waiver of Stay or Extension Laws . . . . . . . . . . . . . . . 45
SECTION 5.15. Action on Notes. . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 5.16. Performance and Enforcement of Certain Obligations . . . . . . 46
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE VI
The Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 6.01. Duties of Indenture Trustee. . . . . . . . . . . . . . . . . . 46
SECTION 6.02. Rights of Indenture Trustee. . . . . . . . . . . . . . . . . . 48
SECTION 6.03. Individual Rights of Indenture Trustee . . . . . . . . . . . . 48
SECTION 6.04. Indenture Trustee's Disclaimer . . . . . . . . . . . . . . . . 49
SECTION 6.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.06. Reports by Indenture Trustee to Holders. . . . . . . . . . . . 49
SECTION 6.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . 50
SECTION 6.08. Replacement of Indenture Trustee . . . . . . . . . . . . . . . 50
SECTION 6.09. Successor Indenture Trustee by Merger. . . . . . . . . . . . . 51
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee. . . . . . . . . 52
SECTION 6.11. Eligibility; Disqualification. . . . . . . . . . . . . . . . . 53
SECTION 6.12. Preferential Collection of Claims Against Note Issuer. . . . . 53
SECTION 6.13. Representations and Warranties of Indenture Trustee. . . . . . 53
ARTICLE VII
Holders' Lists and Reports. . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 7.01. Note Issuer To Furnish Indenture Trustee Names and
Addresses of Holders . . . . . . . . . . . . . . . . . . . . . 54
SECTION 7.02. Preservation of Information; Communications to Holders. . . . 54
SECTION 7.03. Reports by Note Issuer . . . . . . . . . . . . . . . . . . . . 54
SECTION 7.04. Reports by Indenture Trustee . . . . . . . . . . . . . . . . . 55
ARTICLE VIII
Accounts, Disbursements and Releases. . . . . . . . . . . . . . . . . . . . . 55
SECTION 8.01. Collection of Money. . . . . . . . . . . . . . . . . . . . . . 55
SECTION 8.02. Collection Account . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 8.03. General Provisions Regarding the Collection Account. . . . . . 58
SECTION 8.04. Release of Note Collateral . . . . . . . . . . . . . . . . . . 59
SECTION 8.05. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 8.06. Reports by Independent Accountants . . . . . . . . . . . . . . 60
ARTICLE IX
Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 9.01. Supplemental Indentures Without Consent of Holders . . . . . . 60
SECTION 9.02. Supplemental Indentures with Consent of Holders. . . . . . . . 62
SECTION 9.03. Execution of Supplemental Indentures . . . . . . . . . . . . . 63
SECTION 9.04. Effect of Supplemental Indenture . . . . . . . . . . . . . . . 64
SECTION 9.05. Conformity with Trust Indenture Act. . . . . . . . . . . . . . 64
SECTION 9.06. Reference in Notes to Supplemental Indentures. . . . . . . . . 64
ARTICLE X
Redemption of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 10.01. Optional Redemption by Note Issuer. . . . . . . . . . . . . . 64
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 10.02. Form of Optional Redemption Notice. . . . . . . . . . . . . . 65
SECTION 10.03. Notes Payable on Optional Redemption Date . . . . . . . . . . 65
ARTICLE XI
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 11.01. Compliance Certificates and Opinions, etc.. . . . . . . . . . 66
SECTION 11.02. Form of Documents Delivered to Indenture Trustee. . . . . . . 67
SECTION 11.03. Acts of Holders . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 11.04. Notices, etc., to Indenture Trustee, Note Issuer and
Rating Agencies . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 11.05. Notices to Holders; Waiver. . . . . . . . . . . . . . . . . . 69
SECTION 11.06. Conflict with Trust Indenture Act . . . . . . . . . . . . . . 70
SECTION 11.07. Effect of Headings and Table of Contents. . . . . . . . . . . 70
SECTION 11.08. Successors and Assigns. . . . . . . . . . . . . . . . . . . . 70
SECTION 11.09. Separability. . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 11.10. Benefits of Indenture . . . . . . . . . . . . . . . . . . . . 70
SECTION 11.11. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 11.12. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 11.13. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 11.14. Recording of Indenture. . . . . . . . . . . . . . . . . . . . 71
SECTION 11.15. Trust Obligation. . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 11.16. No Recourse to Note Issuer. . . . . . . . . . . . . . . . . . 71
SECTION 11.17. Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 11.18 No Petition . . . . . . . . . . . . . . . . . . . . . . . . . 72
</TABLE>
EXHIBIT A -- Form of Notes
EXHIBIT B -- Form of Trustee's Issuance Certificate
EXHIBIT C -- Form of Series Supplement
iv
<PAGE>
CROSS REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Section INDENTURE SECTION
<S> <C> <C>
310 (a)(1) 6.11
(a)(2) 6.11
(a)(3) 6.10
(a)(4) N.A.
(a)(5) 6.11
(b) 6.11
(c) N.A.
311 (a) 6.12
(b) 6.12
(c) N.A.
312 (a) 7.01, 7.02
(b) 7.02
(c) 7.02
313 (a) 7.04
(b)(1) 7.04
(b)(2) 7.04
(c) 7.04
(d) 7.04
314 (a) 7.03(a), 3.09
(b) 3.06
(c)(1) 2.10,4.01,11.01(a)
(c)(2) 2.10,4.01,11.01(a)
(c)(3) 2.10,4.01,11.01(a)
(d) 2.10, 11.01(b)
(e) 11.01(a)
(f) 11.01(a)
315 (a) 6.01(b)
(b) 6.05
(c) 6.01 (a)
(d) 6.02, 6.01(c)
(e) 5.13
316 (a)last
sentence Appendix A "Outstanding"
(a)(1)(A) 5.11
(a)(1)(B) 5.12
(a)(2) Omitted
(b) 5.07
(c) Appendix A "Record Date"
317 (a)(1) 5.03(b)
(a)(2) 5.03(c)
(b) 3.03
318 (a) 11.07
</TABLE>
N.A. means Not Applicable.
Note: This cross reference table shall not, for any purpose, be deemed
to be part of this Indenture.
<PAGE>
INDENTURE dated as of December __, 1998, between COMED TRANSITIONAL
FUNDING TRUST, a Delaware business trust (the "Note Issuer"), and Harris
Trust and Savings Bank, a banking corporation organized under the laws of
the State of Illinois, as trustee (the "Indenture Trustee").
In consideration of the mutual agreements herein contained, each
party agrees as follows for the benefit of the other and each of the Holders:
RECITALS OF THE NOTE ISSUER
The Note Issuer has duly authorized the execution and delivery of
this Indenture and the creation and issuance of Notes issuable in Series
hereunder, each Series to be of substantially the tenor set forth herein and
in the respective Trustee's Issuance Certificate or Series Supplement, if
any, relating to each such Series of Notes.
The Notes shall be non-recourse obligations and shall be secured by
and payable solely out of the proceeds of the Intangible Transition Property
and the other Note Collateral. If and to the extent that such proceeds of
Intangible Transition Property and the other Note Collateral are insufficient
to pay all amounts owing with respect to the Notes, then, except as otherwise
expressly provided hereunder, the Holders of the Notes shall have no Claim in
respect of such insufficiency against the Note Issuer, and the Holders, by
their acceptance of the Notes, waive any such Claim.
All things necessary to (a) make the Notes, when executed by the
Note Issuer and authenticated and delivered by the Indenture Trustee
hereunder and duly issued by the Note Issuer, valid obligations, and (b) make
this Note Indenture a valid agreement of the Note Issuer, in each case, in
accordance with their respective terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That the Note Issuer, in consideration of the premises herein
contained and of the purchase of the Notes by the Holders and of other good
and lawful consideration, the receipt and sufficiency of which are hereby
acknowledged, and to secure, equally and ratably without prejudice, priority
or distinction, except as specifically otherwise set forth in this Indenture,
the payment of the Notes, the payment of all other amounts due under or in
connection with this Indenture and the performance and observance of all of
the covenants and conditions contained herein or in such Notes, has hereby
executed and delivered this Indenture and by these presents does hereby
convey, grant and assign, transfer and pledge, in each case, in and unto the
Indenture Trustee, its successors and assigns forever, for the benefit of the
Holders, all and singular the property hereinafter described (hereinafter
referred to as the "Note Collateral"), to wit:
1
<PAGE>
GRANTING CLAUSE
The Note Issuer hereby Grants to the Indenture Trustee at the
Closing Date, as Indenture 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 Intangible Transition Property
created under and pursuant to the 1998 Funding Order, and transferred by the
Grantee to the Note Issuer pursuant to the Sale Agreement (including, to the
fullest extent permitted by law, all revenues, collections, claims, rights,
payments, money or proceeds of or arising from the IFCs authorized in the
1998 Funding Order and any Tariffs filed pursuant thereto and any Allocable
IFC Revenue Amounts), (b) all Intangible Transition Property created under
and pursuant to any Subsequent Funding Order, and transferred by the Grantee
to the Note Issuer pursuant to a Subsequent Sale Agreement (including, to the
fullest extent permitted by law, all revenues, collections, claims, rights,
payments, money or proceeds of or arising from the IFCs authorized in such
Subsequent Funding Order and any Subsequent Tariffs filed pursuant thereto
and any Allocable IFC Revenue Amounts), (c) the Grant Agreement, the Sale
Agreement and all property and interests in property transferred under the
Sale Agreement, (d) each Subsequent Grant Agreement, Subsequent Sale
Agreement and all property and interests in property transferred under any
Subsequent Sale Agreement, (e) the Servicing Agreement, (f) the Collection
Account, all subaccounts thereof and all amounts of cash or investment
property on deposit therein or credited thereto from time to time, (g) any
interest rate exchange agreement which is executed in connection with the
issuance of Floating Rate Notes, if any, (h) all rights to compel the
Servicer to file for and obtain adjustments to the IFCs in accordance with
Section 18-104(d) of the Funding Law, the 1998 Funding Order or any
Subsequent Funding Order or any Tariff or Subsequent Tariff filed in
connection therewith, (i) all present and future claims, demands, causes and
choses in action in respect of any or all of the foregoing, and (j) all
payments on or under, and all proceeds in respect of, any or all of the
foregoing; it being understood that the following do not constitute note
collateral: (i) cash that has been released pursuant to Section 8.02(d)
(xiii) following retirement of all Outstanding Series of Notes, (ii) net
investment earnings which have been released to the Note Issuer pursuant to
Section 8.02(d), and (iii) amounts deposited with the Note Issuer on any
Series Issuance Date, including the Closing Date, for payment of costs of
issuance with respect to the related Series (together with any interest
earnings thereon), it being understood that such amounts described in clauses
(i) and (iii) above shall not be subject to Section 3.17.
The foregoing Grant is made in trust to secure the payment of
principal of and premium, if any, 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
2
<PAGE>
provided in this Indenture. This Indenture constitutes a security agreement
within the meaning of the UCC to the extent that, under Illinois law, the
provisions of the UCC are applicable hereto.
The Indenture Trustee, as trustee on behalf of the Holders,
acknowledges such Grant and accepts the trusts under this Indenture in
accordance with the provisions of this Indenture.
AND IT IS HEREBY COVENANTED, DECLARED AND AGREED between the
parties hereto that all Notes are to be issued, countersigned and delivered
and that all of the Note Collateral is to be held and applied, subject to the
further covenants, conditions, releases, uses and trusts hereinafter set
forth, and the Note Issuer, for itself and any successor, does hereby
covenant and agree to and with the Indenture Trustee and its successors in
said trust, for the benefit of the Holders, as follows:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS. Except as otherwise specified herein
or as the context may otherwise require, the capitalized terms used herein
shall have the respective meanings set forth in Appendix A attached hereto
and made a part hereof for all purposes of this Indenture.
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:
"indenture securities" means the Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture
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 SEC rule have
the meanings assigned to them by such definitions.
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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 Indenture 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 Trustee's Issuance Certificate or Series Supplement, if any, and may
have such letters, numbers or other marks of identification and such legends
or endorsements placed thereon as may, consistently herewith, be determined
by the officers executing such Notes, as evidenced by their execution of such
Notes. Any portion of the text of any Note may be set forth on the reverse
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 in the Minimum Denomination specified in the applicable
Trustee's Issuance Certificate or Series Supplement, if any, and, except as
otherwise provided in such Trustee's Issuance Certificate or Series
Supplement, if any, in integral multiples thereof.
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The Notes may, at the election of and as authorized by a
Responsible 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
"Transitional Funding Trust 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 a Responsible Officer of the Note Issuer
may determine. Each Note shall bear upon its face the designation so
selected for the Series or Class to which it belongs. All Notes of the same
Series shall be identical in all respects except for the denominations
thereof, unless such Series is comprised of one or more Classes, in which
case all Notes of the same Class shall be identical in all respects except
for the denominations thereof. All Notes of a particular Series or, if such
Series is comprised of one or more Classes, all Notes of a particular Class
thereof, in each case issued under this Indenture, shall be in all respects
equally and ratably entitled to the benefits hereof without preference,
priority, or distinction on account of the actual time or times of
authentication and delivery, all in accordance with the terms and provisions
of this Indenture.
Each Series of Notes shall be created by a Trustee's Issuance
Certificate or Series Supplement, as the case may be, authorized by a
Responsible 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) the principal amount;
(3) the Note Interest Rate;
(4) the Payment Dates;
(5) the Scheduled Maturity Date;
(6) the Final Maturity Date;
(7) the Series Issuance Date;
(8) the place or places for the payment of interest, principal and
premium, if any;
(9) the Minimum Denominations;
(10) the Expected Amortization Schedule;
(11) provisions with respect to the definitions set forth in Appendix
A hereto;
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(12) whether or not the Notes of such Series are to be Book-Entry
Notes and the extent to which Section 2.11 should apply;
(13) any redemption provisions applicable to the Notes of such Series
and the price or prices at which and the terms and conditions upon which
Notes of such Series shall be redeemed or purchased;
(14) to the extent applicable, the extent to which payments on the
Notes of the related Series are subordinate to or PARI PASSU in right of
payment of principal and interest to other Notes; and
(15) any other provisions expressing or referring to the terms and
conditions upon which the Notes of the applicable Series or Class are to be
issued under this Indenture that are not in conflict with the provisions of
this Indenture and as to which the Rating Agency Condition is satisfied.
SECTION 2.03. EXECUTION, AUTHENTICATION AND DELIVERY. The Notes
shall be executed on behalf of the Note Issuer by any of its Responsible
Officers. The signature of any such Responsible Officer on the Notes may be
manual or facsimile.
Notes bearing the manual or facsimile signature of individuals who
were at any time Responsible 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 Indenture Trustee pursuant to an Issuer Order for
authentication; and the Indenture Trustee shall authenticate and deliver such
Notes as in this Indenture provided and not otherwise.
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 therein
executed by the Indenture 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 Indenture 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.
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If Temporary Notes are issued, the Note Issuer will cause
Definitive Notes to be prepared without unreasonable delay. After the
preparation of Definitive Notes, the temporary Notes shall be exchangeable
for Definitive Notes upon surrender of the Temporary Notes at the office or
agency of the Note Issuer to be maintained as provided in Section 3.02,
without charge to the Holder. Upon surrender for cancellation of any one or
more Temporary Notes, the Note Issuer shall execute and the Indenture Trustee
shall authenticate and deliver in exchange therefor a like principal amount
of Definitive Notes of authorized denominations. Until so delivered in
exchange, 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
OF NOTES. 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 Indenture 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 Indenture Trustee is appointed by the
Note Issuer as Note Registrar, the Note Issuer will give the Indenture
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 Indenture Trustee shall have the right to inspect the Note Register at
all reasonable times and to obtain copies thereof, and the Indenture Trustee
shall have the right to rely conclusively 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 Indenture Trustee shall
authenticate and the Holder shall obtain from the Indenture Trustee, in the
name of the designated transferee or transferees, one or more new Notes in
any Minimum Denominations, of the same Series (and, if applicable, Class) and
aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes
in any Minimum Denominations, of the same 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 Indenture Trustee shall
authenticate and the Holder shall obtain from the Indenture Trustee, the
Notes which the Holder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of
other Notes shall be the valid obligations of the Note Issuer, evidencing the
same debt, and entitled to the same
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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 Indenture 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) such other guarantee program acceptable to the Indenture
Trustee, and (b) such other documents as the Indenture 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 or Indenture Trustee 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 (i) of Notes that have been selected for
redemption pursuant to Article X, (ii) of any Note that has been submitted
within 15 days preceding the due date for any payment with respect to such
Note or (iii) of Unregistered Notes unless Section 2.17 has been complied
with in connection with such transfer or exchange.
SECTION 2.06. MUTILATED, DESTROYED, LOST OR STOLEN NOTES. If (i)
any mutilated Note is surrendered to the Indenture Trustee, or the Indenture
Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, and (ii) there is delivered to the Indenture Trustee such
security or indemnity as may be required by it to hold the Note Issuer and
the Indenture Trustee harmless, then the Note Issuer shall execute and, upon
its written request, the Indenture 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 Optional 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 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 Indenture Trustee shall be entitled to recover
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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 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 Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section, the
Note Issuer and/or the Indenture Trustee 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 Indenture
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 found at any time
or enforced by any Person, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Notes duly
issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.07. PERSONS DEEMED OWNER. Prior to due presentment for
registration of transfer of any Note, the Note Issuer, the Indenture Trustee
and any agent of the Note Issuer or the Indenture 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 Indenture Trustee nor any agent of the Note Issuer or the Indenture
Trustee shall be affected by notice to the contrary.
SECTION 2.08. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST;
INTEREST ON OVERDUE PRINCIPAL; PRINCIPAL, PREMIUM, IF ANY, AND INTEREST
RIGHTS PRESERVED. (a) The Notes shall accrue interest as provided in the
related Trustee's Issuance Certificate or Series Supplement, if any, 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 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 Trustee's Issuance Certificate or Series Supplement, if any,
except that (i) upon application to the Indenture Trustee by any Holder
owning Notes of any Class in the principal amount of $10,000,000 or
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more not later than the applicable Record Date payment will be made by wire
transfer to an account maintained by such Holder and (ii) with respect to
Book Entry Notes payments will be made by wire transfer in immediately
available funds to the account designated by the Holder of the applicable
Global Note unless and until such Global Note is exchanged for Definitive
Notes (in which event payments shall be made as provided above) and except
for the final installment of principal and premium, if any, payable with
respect to such Note on a Payment Date which shall be payable as provided
below. The funds represented by any such checks returned undelivered shall be
held in accordance with Section 3.03 hereof.
(b) The principal of each Note of each Series (and, if applicable,
Class) shall be paid, to the extent funds are available therefor in the
Collection Account, in installments on each Payment Date specified in the
related Trustee's Issuance Certificate or Series Supplement, if any.
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 Indenture 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 Holders
entitled thereto unless otherwise provided in the related Trustee's Issuance
Certificate or Series Supplement, if any, with respect to any Class of Notes
included in such Series. The Indenture 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 Holders as provided in Section 10.02.
(c) If interest on the Notes of any Series is not paid when due,
such defaulted interest shall be paid (plus interest on such defaulted
interest at the applicable Note Interest Rate to the extent lawful) to the
Persons who are Holders on a subsequent Special Record Date, which date shall
be at least five Business Days prior to the Special Payment Date. The Note
Issuer shall fix or cause to be fixed any such Special Record Date and
Special Payment Date, and, at least 20 days before any such Special Record
Date, the Note Issuer shall mail to each affected Holder a notice that states
the Special Record Date, the Special Payment Date and the amount of defaulted
interest (plus interest on such defaulted interest) to be paid.
SECTION 2.09. CANCELLATION. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture
Trustee and shall be promptly canceled by the Indenture Trustee. The Note
Issuer may at any time deliver to the Indenture Trustee for cancellation any
Notes previously authenticated and delivered hereunder which the Note Issuer
may have acquired
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in any manner whatsoever, and all Notes so delivered shall be promptly
canceled by the Indenture 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 Indenture Trustee in accordance with its standard
retention or disposal policy as in effect at the time.
SECTION 2.10. OUTSTANDING AMOUNT; AUTHENTICATION AND DELIVERY OF
NOTES. The aggregate Outstanding Amount of Notes that may be authenticated
and delivered under this Indenture shall be limited as provided in Section
3.08 hereof.
Notes of each Series created and established by a Trustee's
Issuance Certificate or Series Supplement, if any, may from time to time be
executed by the Note Issuer and delivered to the Indenture Trustee for
authentication and thereupon the same shall be authenticated and delivered by
the Indenture Trustee upon Issuer Request and upon delivery by the Note
Issuer to the Indenture Trustee, and receipt by the Indenture 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) NOTE ISSUER ACTION. An Issuer Order authorizing and directing
the execution, authentication and delivery of the Notes by the Indenture
Trustee and specifying the principal amount of Notes to be authenticated.
(2) AUTHORIZATIONS. A Funding Order related to such Series which
shall be in full force and effect and be Final.
(3) OPINIONS. (a) An Opinion of Counsel that the applicable Funding
Order is in full force and effect and Final and that no other
authorization, approval or consent of any governmental body or bodies at
the time having jurisdiction in the premises is required for the valid
issuance, authentication and delivery of such Notes, except for such
registrations as are required under the Blue Sky and securities laws of any
State or such authorizations, approvals or consents of governmental bodies
that have been obtained and copies of which have been delivered with such
Opinion of Counsel.
(b) An Opinion of Counsel that no authorization, approval or consent
of any governmental body or bodies at the time having jurisdiction in the
premises 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,
except for such authorizations, approvals or consents of governmental
bodies that have been obtained and copies of which have been delivered with
such Opinion of Counsel.
(4) AUTHORIZING CERTIFICATE. An Officer's Certificate, dated the
Series Issuance Date, of the Note Issuer certifying that (i) the
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Note Issuer has duly authorized the execution and delivery of this
Indenture and the related Trustee's Issuance Certificate or Series
Supplement, as the case may be, and the execution and delivery of the
Notes of such Series and (ii) that the Trustee's Issuance Certificate or
Series Supplement, as the case may be, for such Series of Notes is in
the form attached thereto, which Trustee's Issuance Certificate or
Series Supplement, as the case may be, shall comply with the
requirements of Section 2.02 hereof.
(5) THE NOTE COLLATERAL. The Note Issuer shall have made or caused
to be made all filings with the ICC pursuant to the Funding Order and the
Funding Law and all other filings necessary to perfect the Grant of the
Note Collateral to the Indenture Trustee and the lien of this Indenture.
(6) CERTIFICATES OF THE NOTE ISSUER AND THE GRANTEE. (a) An Officer's
Certificate from the Note Issuer, dated as of the Series Issuance Date:
(i) to the effect that (A) 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 the Funding
Order or 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 (B) that all conditions precedent provided in this
Indenture relating to the execution, 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 Note Collateral except for the Grant
contained in this Indenture; the Note Issuer has the power and right
to Grant the Note Collateral to the Indenture Trustee as security
hereunder; and the Note Issuer, subject to the terms of this
Indenture, has Granted to the Indenture Trustee all of its right,
title and interest in and to such Note 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 Grant Agreement and the Sale Agreement or
Subsequent Grant Agreement and Subsequent Sale Agreement, as
applicable, and the Servicing Agreement; and
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(v) stating that all filings with the ICC pursuant to the
Funding Law and the Funding Order and all UCC financing statements
with respect to the Note Collateral which are required to be filed by
the terms of the Funding Order, the Funding Law, the Grant Agreement
and the Sale Agreement or Subsequent Grant Agreement and Subsequent
Sale Agreement, as applicable, the Servicing Agreement and this
Indenture have been filed as required.
(b) An Officer's Certificate from the Grantee, dated as of the Series
Issuance Date, to the effect that, in the case of the Intangible Transition
Property, immediately prior to the conveyance thereof to the Note Issuer
pursuant to the Sale Agreement or the Subsequent Sale Agreement, as
applicable:
(i) the Grantee was the owner of such Intangible Transition
Property, free and clear of any Lien; the Grantee had not assigned any
interest or participation in such Intangible Transition Property and
the proceeds thereof other than to the Note Issuer pursuant to the
Sale Agreement or Subsequent Sale Agreement, as applicable; the
Grantee has the power and right to convey such Intangible Transition
Property and the proceeds thereof to the Note Issuer; and the Grantee,
subject to the terms of the Sale Agreement or the Subsequent Sale
Agreement, as applicable, has validly conveyed to the Note Issuer all
of its right, title and interest in and to such Intangible 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 copy of the Funding Order creating such
Intangible Transition Property is true and correct.
(7) OPINION OF TAX COUNSEL. ComEd shall have delivered to the
Grantee, the Note Issuer, the Delaware Trustee and the Indenture Trustee an
opinion of independent tax counsel and/or a ruling from the Internal
Revenue Service (as selected by, and in form and substance reasonably
satisfactory to, ComEd) to the effect that, for federal income tax
purposes, (i) such issuance of Notes, and transfer of the Note proceeds to
ComEd, will not result in gross income to the Grantee, the Note Issuer or
ComEd and (ii) such issuance will not materially adversely affect the
characterization of any then Outstanding Notes as obligations of ComEd.
(8) OPINION OF COUNSEL. Unless otherwise specified in a Trustee's
Issuance Certificate or Series Supplement, if any, 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 Grantee and the Servicer, and
portions of which may be delivered by counsel for the Indenture Trustee,
dated the Series Issuance Date, in each case subject to the customary
exceptions, qualifications and assumptions contained therein, to the
collective effect that:
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(a) the Indenture has been duly qualified under the Trust
Indenture Act and either the related Trustee's Issuance Certificate
or Series Supplement, if any, has been duly qualified under the Trust
Indenture Act or no such qualification of the Trustee's Issuance
Certificate or Series Supplement is necessary;
(b) all instruments furnished to the Indenture Trustee pursuant
to this Indenture conform to the requirements set forth in this
Indenture and constitute all of the documents required to be delivered
hereunder for the Indenture 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 Trustee's Issuance Certificate, the Series Supplement, if
any, and this Indenture and to issue the Notes, and each of the
Trustee's Issuance Certificate, the Series Supplement, if any, this
Indenture, and the Notes have been duly authorized and the Note Issuer
is duly formed and is validly existing in good standing under the laws
of the jurisdiction of its organization;
(d) the Trustee's Issuance Certificate, the Series Supplement,
if any, and the Indenture have been duly 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 against payment of the purchase price
therefor, will constitute valid and binding obligations of the Note
issuer (subject to bankruptcy, insolvency, reorganization and other
similar laws affecting the rights of creditors generally and general
principles of equity), entitled to the benefits of the indenture and
any related Trustee's Issuance Certificate or Series Supplement;
(f) this Indenture, the Grant Agreement or the Subsequent Grant
Agreement as applicable, the Sale Agreement or the Subsequent Sale
Agreement as applicable, the Servicing Agreement and the related
Trustee's Issuance Certificate or Series Supplement, if any, 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) in accordance with the Funding Law, the Funding Order (A)
creates Intangible Transition Property in an amount not less than the
amount, if any,
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specified in the Trustee's Issuance Certificate or Series
Supplement, if any, which was vested by the Funding Order in the
Grantee; (B) approves and authorizes the sale, transfer and
assignment by the Grantee of such Intangible Transition Property to
the Note Issuer; (C) approves the issuance and sale by the Note
Issuer of the Notes to be issued on such Series Issuance Date in an
aggregate principal amount which equals or exceeds the initial
Outstanding Amount of the Notes referred to in (1) above; and (D)
declares and establishes that such Notes are Transitional Funding
Instruments within the meaning of Section 18-102 of the Funding Law;
(h) (A) at the time of the issuance of such Notes the lien of
this Indenture in favor of the Holders in the Intangible Transition
Property attaches automatically; (B) such lien has been perfected in
accordance with Section 18-107(c) of the Funding Law and in accordance
with the Funding Order; (C) such lien is valid and enforceable against
ComEd, the Servicer, the Grantee, the Note Issuer, and all third
parties, including judgment lien creditors; and (D) such lien ranks
prior to any other lien which subsequently attaches to the Intangible
Transition Property;
(i) with respect to the Note Collateral other than the
Intangible Transition Property, upon the giving of value by the
Indenture Trustee to the Note Issuer with respect to such Note
Collateral, (A) this Indenture, together with any related Trustee's
Issuance Certificate or Series Supplement, creates in favor of the
Indenture Trustee a security interest in the rights of the Note Issuer
in such Note Collateral, and such security interest is enforceable
against ComEd, the Servicer, the Grantee, the Note Issuer and all
third parties, (B) such security interest is perfected, and (C) such
perfected security interest is of first priority;
(j) either (A) the Registration Statement covering the Notes is
effective under the Securities Act and, to such counsel's knowledge,
no stop order suspending the effectiveness of such Registration
Statement has been issued under the Securities Act and no proceedings
for that purpose have been initiated or are pending or threatened by
the SEC or (B) the Notes are exempt from the registration requirements
under the Securities Act;
(k) 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 Intangible Transition Property in accordance with the terms
of the Sale Agreement or the Subsequent Sale Agreement, as applicable,
following the sale of the Notes to the underwriter, underwriters,
placement agent or agents or similar Person, neither the Note Issuer
nor the Grantee will be required to be registered under the Investment
Company Act of 1940, as amended;
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(l) the Grant Agreement or Subsequent Grant Agreement, as
applicable, is a valid and binding agreement of ComEd enforceable
against ComEd in accordance with its terms and the Sale Agreement or
Subsequent Sale Agreement as applicable, is a valid and binding
agreement of the Grantee enforceable against the Grantee in
accordance with its terms, except in each case 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);
(m) 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);
(n) pursuant to the Funding Order and upon the delivery of the
fully executed Sale Agreement or Subsequent Sale Agreement, as
applicable, to the Note Issuer and the payment of the purchase price
of the Intangible Transition Property by the Note Issuer to the
Grantee pursuant to the Sale Agreement or Subsequent Sale Agreement,
as applicable, (i) the transfer of the Intangible Transition Property
by the Grantee to the Note Issuer conveys the Grantee's right, title
and interest in the Intangible Transition Property to the Note Issuer
and will be treated under Illinois state law as an absolute transfer
of all of the Grantee's right, title, and interest in the Intangible
Transition Property, other than for federal and state income and
franchise tax purposes, (ii) such transfer of the Intangible
Transition Property is perfected, (iii) such transfer has priority
over any other assignment of the Intangible Transition Property and
(iv) the Intangible Transition Property is free and clear of all liens
created prior to its transfer to the Note Issuer pursuant to the Sale
Agreement; and
(o) such other matters as the Indenture Trustee may reasonably
require.
(8) ACCOUNTANT'S CERTIFICATE OR OPINION. Unless otherwise specified
in a Trustee's Issuance Certificate or a Series Supplement, if any, a
certificate or opinion, addressed to the Note Issuer and the Indenture
Trustee complying with the requirements of Section 11.01(a) hereof, of a
firm of Independent certified public accountants of recognized national
reputation to the effect that (a) such accountants are Independent with
respect to the Note Issuer within the meaning of this 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 Note Collateral, they have made such calculations as they deemed
necessary for the purpose and determined that, based on the
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assumptions used in calculating the initial IFCs or, if applicable, the
most recent revised IFCs, 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 IFCs 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.
(9) RATING AGENCY CONDITION. The Indenture 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.
(10) REQUIREMENTS OF TRUSTEE'S ISSUANCE CERTIFICATE OR SERIES
SUPPLEMENT. Such other funds, accounts, documents certificates,
agreements, instruments or opinions as may be required by the terms of the
Trustee's Issuance Certificate or Series Supplement, if any, creating such
Series.
(11) OTHER REQUIREMENTS. Such other documents, certificates,
agreements, instruments or opinions as the Indenture Trustee may reasonably
require.
SECTION 2.11. BOOK-ENTRY NOTES. Unless the applicable Trustee's
Issuance Certificate or Series Supplement, if any, provides otherwise, all of
the related Series of Notes shall be issued in Book-Entry Form, and the Note
Issuer shall execute and the Indenture Trustee shall, in accordance with this
Section and the Issuer Order with respect to such Series, authenticate and
deliver one or more Global Notes, evidencing the Notes of such Series which
(i) shall be an aggregate original principal amount equal to the aggregate
original principal amount of such Notes to be issued pursuant to the
applicable Issuer Order, (ii) shall be registered in the name of the Clearing
Agency therefor or its nominee, which shall initially be Cede & Co., as
nominee for The Depository Trust Company, the initial Clearing Agency,
(iii) shall be delivered by the Indenture Trustee to such Clearing Agency's
or such nominee's instructions, and (iv) shall bear a legend substantially to
the following effect: "Transfers of this Global Note shall be limited to
transfers in the Clearing Agency or to a successor thereof or such
successor's nominee and transfers of portions of this Global Note shall be
limited to transfers made in accordance with the restrictions set forth in
the Indenture."
Each Clearing Agency designated pursuant to this Section 2.11 must,
at the time of its designation and at all times while it serves as Clearing
Agency hereunder, be a "clearing agency" registered under the Exchange Act
and any other applicable statute or regulation.
No Holder of any such Series of Notes issued in Book-Entry Form
shall receive a Definitive Note representing such Holder's interest in any
such Notes, except as provided in Section 2.13 or in the applicable Trustee's
Issuance Certificate or Series Supplement, if any, relating to such Notes.
Unless (and until) certificated, fully registered Notes of any Series (the
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"Definitive Notes") have been issued to the Holders of such Series pursuant
to Section 2.13 or pursuant to any applicable Trustee's Issuance Certificate
or Series Supplement, if any, relating thereto:
(a) the provisions of this Section 2.11 shall be in full force
and effect;
(b) the Note Issuer, the Servicer, the Paying Agent, the Note
Registrar and the Indenture Trustee may deal with the Clearing Agency
for all purposes (including the making of distributions on the Notes
of such Series) as the authorized representatives of the Holders of
such Series;
(c) to the extent that the provisions of this Section 2.11
conflict with any other provisions of this Indenture, the provisions
of this Section 2.11 shall control; and
(d) the rights of Holders of such Series shall be exercised only
through the Clearing Agency and the Clearing Agency Participants and
shall be limited to those established by law and agreements between
such Holders and the Clearing Agency and/or the Clearing Agency
Participants. Unless and until Definitive Notes are issued pursuant
to Section 2.13, the initial Clearing Agency will make book-entry
transfers among the Clearing Agency Participants and receive and
transmit distributions of principal and interest on the Book-Entry
Notes to such Clearing Agency Participants.
SECTION 2.12. NOTICES TO CLEARING AGENCY. Unless and until
Definitive Notes shall have been issued to Holders of such Series pursuant to
Section 2.13 or the applicable Trustee's Issuance Certificate or Series
Supplement, if any, relating to such Notes, whenever notice, payment, or
other communication to the holders of Book-Entry Notes of any Series is
required under this Indenture, the Indenture Trustee, the Servicer and the
Paying Agent shall give all such notices and communications specified herein
to be given to Holders of such Series to the Clearing Agency.
SECTION 2.13. DEFINITIVE NOTES. If (i)(A) the Administrator
advises the Indenture Trustee in writing that the Clearing Agency is no
longer willing or able to properly discharge its responsibilities under any
Letter of Representations and (B) the Administrator is unable to locate a
qualified successor Clearing Agency, (ii) the Administrator, at its option,
advises the Indenture Trustee in writing that, with respect to any Series, it
elects to terminate the book-entry system through the Clearing Agency or
(iii) after the occurrence of a Servicer Default, Holders holding Notes
aggregating not less than 50% of the aggregate Outstanding Amount of any
Series of Notes maintained as Book-Entry Notes advise the Indenture Trustee,
the Administrator, the Note Issuer and the Clearing Agency (through the
Clearing Agency Participants) in writing that the continuation of a
book-entry system through the Clearing Agency is no longer in the best
interests of the Holders of such Series, the Administrator shall notify the
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Clearing Agency, the Indenture Trustee and all such Holders of such Series in
writing of the occurrence of any such event and of the availability of
Definitive Notes of such Series to the Holders of such Series requesting the
same. Upon surrender to the Indenture Trustee of the Global Notes of such
Series by the Clearing Agency accompanied by registration instructions from
such Clearing Agency for registration, the Indenture Trustee shall
authenticate and deliver Definitive Notes of such Series. None of the Note
Issuer, the Note Registrar, or the Indenture 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 Notes of any Series, all references herein to obligations with
respect to such Series imposed upon or to be performed by the Clearing Agency
shall be deemed to be imposed upon and performed by the Indenture Trustee, to
the extent applicable with respect to such Definitive Notes and the Indenture
Trustee shall recognize the Holders of the Definitive Notes as Holders
hereunder.
SECTION 2.14. CUSIP NUMBER. The Note Issuer in issuing any Note or
Series of Notes may use a "CUSIP" number and, if so used, the Indenture Trustee
shall use the CUSIP number in any notices to the Holders thereof as a
convenience to such Holders; PROVIDED, that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Notes and that reliance may be placed only on
the other identification numbers printed on the Notes. The Note Issuer shall
promptly notify the Indenture Trustee in writing of any change in the CUSIP
number with respect to any Note.
SECTION 2.15. LETTER OF REPRESENTATIONS. Notwithstanding anything to
the contrary in this Indenture or any Series Supplement or any Trustee's
Issuance Certificate, the parties hereto shall comply with the terms of each
Letter of Representations.
SECTION 2.16. RELEASE OF NOTE COLLATERAL. Subject to Section 11.01,
the Indenture Trustee shall release property from the lien of this Indenture
only as specified in Section 8.02(d) or upon receipt of an Issuer Request
accompanied by an Officer's Certificate, an Opinion of Counsel and Independent
Certificates in accordance with TIA Sections 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.
SECTION 2.17. SPECIAL TERMS APPLICABLE TO SUBSEQUENT TRANSFERS OF
CERTAIN NOTES.
(a) Certain Series of Notes may not be registered under the
Securities Act, or the securities laws of any other jurisdiction. Consequently,
such Unregistered Notes shall not be transferable other than pursuant to an
exemption from the registration requirements of the Securities Act and
satisfaction of certain other provisions specified herein or in the related
Trustee s Issuance Certificate or Series Supplement, if any. Unless otherwise
provided in the related Trustee s Issuance Certificate or Series Supplement, if
any, no sale, pledge or other transfer of any Unregistered Note (or interest
therein) may be made by any Person unless either (i)
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such sale, pledge or other transfer is made to a "qualified institutional
buyer" (as defined under Rule 144A under the Securities Act) or to an
"institutional accredited investor" (as described in Rule 501(a)(l), (2), (3)
or (7) under the Securities Act) and, if so requested by the Grantee or the
Indenture Trustee, such proposed transferee executes and delivers a
certificate, to such effect in form and substance satisfactory to the
Indenture Trustee and the Note Issuer, or (ii) such sale, pledge or other
transfer is otherwise made in a transaction exempt from the registration
requirements of the Securities Act, in which case (A) the Indenture Trustee
shall require that both the prospective transferor and the prospective
transferee certify to the Indenture Trustee and the Note Issuer in writing
the facts surrounding such transfer, which certification shall be in form and
substance satisfactory to the Indenture Trustee and the Note Issuer, and (B)
the Indenture Trustee shall require a written opinion of counsel (which shall
not be at the expense of the Note Issuer, the Servicer or the Indenture
Trustee) satisfactory to the Note Issuer and the Indenture Trustee to the
effect that such transfer will not violate the Securities Act. Neither the
Grantee, the Note Issuer, nor the Indenture Trustee nor the Servicer shall be
obligated to register any Unregistered Notes under the Securities Act,
qualify any Unregistered Notes under the securities laws of any state or
provide registration rights to any purchaser or holder thereof.
(b) Unless otherwise provided in the related Trustee's Issuance
Certificate or Series Supplement, the Unregistered Notes may not be acquired by
or for the account of a Benefit Plan and, by accepting and holding an
Unregistered Note, the Holder thereof shall be deemed to have represented and
warranted that it is not a Benefit Plan and, if requested to do so by the Note
Issuer or the Indenture Trustee, the Holder of an Unregistered Note shall
execute and deliver to the Indenture Trustee a certificate to such effect in
form and substance satisfactory to the Indenture Trustee and the Note Issuer.
(c) Unless otherwise provided in the related Trustee s Issuance
Certificate or Series Supplement, Unregistered Notes shall be issued in the form
of Definitive Notes, shall be in fully registered form and Sections 2.11 and
2.12 of this Indenture shall not apply thereto.
(d) Each Unregistered Note shall bear legends to the effect set forth
in subsections (a) and (b) (if subsection (b) is applicable) above.
SECTION 2.18. TAX TREATMENT. The Note Issuer and the Indenture
Trustee, by entering into this Indenture, and the Holders and any Persons
holding a beneficial interest in any Note, by acquiring any Note or interest
therein, (i) express their intention that the Notes qualify under applicable tax
law as indebtedness of ComEd secured by the Note Collateral and (ii) agree to
treat the Notes as indebtedness of ComEd secured by the Note Collateral for the
purpose of federal income, state and local income and franchise taxes, and any
other taxes imposed upon, measured by or based upon gross or net income, unless
otherwise required by appropriate taxing authorities.
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SECTION 2.19. STATE PLEDGE. At the Closing Date, under the laws
of the State of Illinois and the United States in effect on the Closing Date,
the State of Illinois has agreed with the Holders, pursuant to Section
18-105(b) of the Funding Law, as follows:
"(b) The State pledges to and agrees with the holders of any transitional
funding instruments who may enter into contracts with an electric utility,
grantee, assignee or issuer pursuant to this Article XVIII that the State
will not in any way limit, alter, impair or reduce the value of intangible
transition property created by, or instrument funding charges approved by,
a transitional funding order so as to impair the terms of any contract made
by such electric utility, grantee, assignee or issuer with such holders or
in any way impair the rights and remedies of such holders until the
pertinent grantee instruments or, if the related transitional funding order
does not provide for the issuance of grantee instruments, the transitional
funding instruments and interest, premium and other fees, costs and charges
related thereto, as the case may be, are fully paid and discharged.
Electric utilities, grantees and issuers are authorized to include these
pledges and agreements of the State in any contract with the holders of
transitional funding instruments or with any assignees pursuant to this
Article XVIII and any assignees are similarly authorized to include these
pledges and agreements of the State in any contract with any issuer, holder
or any other assignee. Nothing in this Article XVIII shall preclude the
State of Illinois from requiring adjustments as may otherwise be allowed by
law to the electric utility's base rates, transition charges, delivery
services charges, or other charges for tariffed services, so long as any
such adjustment does not directly affect or impair any instrument funding
charges previously authorized by a transitional funding order issued by the
[ICC]."
As a result of the foregoing pledge, the State of Illinois may not, except as
provided in the succeeding sentence, in any way limit, alter, impair or
reduce the value of the ITP or the IFCs in a manner substantially impairing
this Indenture or the rights and remedies of the Holders (and, consequently,
may not revoke, reduce, postpone or terminate any Funding Order or the rights
of the Holders to receive IFC Payments and all other proceeds of the 1998
Transition Property), until the Notes, together with interest thereon, are
fully paid and discharged. Notwithstanding the immediately preceding
sentence, the State of Illinois would be allowed to effect a temporary
impairment of the Holders' rights if it could be shown that such impairment
was necessary to advance a significant and legitimate public purpose.
ARTICLE III
COVENANTS
SECTION 3.01. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST.
The principal of and premium, if any, and interest on the Notes will be duly
and punctually paid in accordance with the terms of the Notes and this
Indenture. Amounts properly withheld under the Code or other tax laws by any
Person from a payment to any Holder of interest or principal or
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premium, if any, shall be considered as having been paid by the Note Issuer
to such Holder 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 at 88 Pine Street, Wall Street Plaza, 19th Floor, New York, New
York 10005 where Notes may be surrendered for registration of transfer or
exchange. The Note Issuer hereby initially appoints the Indenture Trustee to
serve as its agent for the foregoing purposes. The Note Issuer will give
prompt written notice to the Indenture Trustee 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 the Indenture Trustee with the address thereof, such surrenders may
be made at the Corporate Trust Office of the Indenture Trustee, and the Note
Issuer hereby appoints the Indenture Trustee as its agent to receive all such
surrenders.
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 Indenture Trustee or by another Paying Agent, and no amounts so
withdrawn from the Collection Account for payments with respect to any Notes
shall be paid over to the Note Issuer except as provided in this Section and
Section 8.02.
The Note Issuer will cause each Paying Agent other than the
Indenture Trustee to execute and deliver to the Indenture Trustee an
instrument in which such Paying Agent shall agree with the Indenture Trustee
(and if the Indenture 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 Indenture Trustee written notice of any default by the
Note Issuer of which it has actual knowledge 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 Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to the
Indenture Trustee all sums held by it in trust for the payment of Notes if
at any time it determines that it has ceased to meet the standards required
to be met by a Paying Agent at the time of such determination; and
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(v) comply with all requirements of the Code and other tax laws with
respect to the withholding from any payments made by it on any Notes of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
The Note Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by
Issuer Order direct any Paying Agent to pay to the Indenture Trustee all sums
held in trust by such Paying Agent, such sums to be held by the Indenture
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 Indenture
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 Indenture 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 an Issuer
Request; and, subject to Section 11.16, 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 Indenture Trustee or such Paying Agent
with respect to such trust money shall thereupon cease; PROVIDED, HOWEVER,
that the Indenture 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
Chicago, 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 Indenture Trustee may also adopt and employ,
at the expense of the Note Issuer, any other reasonable means of notification
of such repayment (including, but not limited to, 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 Indenture
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 business trust under the laws of the
State of Delaware (unless it becomes, or any successor Note Issuer hereunder is
or becomes, organized under the laws of any other State or of the United States
of America, in which case the Note Issuer will keep in full effect its
existence, rights and franchises under the laws of such other jurisdiction) and
will obtain and preserve its qualification to do business in each jurisdiction
in which such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Note Collateral and each other
instrument or agreement included in the Note Collateral.
SECTION 3.05. PROTECTION OF NOTE COLLATERAL The Note Issuer will
from time to time execute and deliver all such supplements and amendments hereto
and all filings with the ICC
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pursuant to the Funding Order or to the Funding Law and all 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 Note Collateral;
(iv) preserve and defend title to the Note Collateral and the rights
of the Indenture Trustee and the Holders in such Note Collateral against
the Claims of all Persons and parties, including the challenge by any party
to the validity or enforceability of any Funding Order, any Tariff, the
Intangible Transition Property or any proceeding relating thereto and
institute any action or proceeding necessary to compel performance by the
ICC or the State of Illinois of any of its obligations or duties under the
Funding Law, the State Pledge, or any Funding Order; or
(v) pay any and all taxes levied or assessed upon all or any part of
the Note Collateral.
The Note Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any filings with the ICC, financing statements,
continuation statements or other instrument required by the Indenture Trustee
pursuant to this Section, it being understood that the Indenture Trustee
shall have no such obligation or any duty to prepare such documents.
SECTION 3.06. OPINIONS AS TO NOTE COLLATERAL. (a) On the Series
Issuance Date for each Series (including the Closing Date), the Note Issuer
shall furnish to the Indenture 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 ICC pursuant to the Funding Law and the applicable
Funding Order and any 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 [September 30] in each calendar year, while any
Series is outstanding, beginning on _________, 1999, the Note Issuer shall
furnish to the Indenture 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
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indentures supplemental hereto and any other requisite documents and with
respect to the execution and filing of any filings with the ICC pursuant to
the Funding Law and the Funding Order and any 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 ICC, financing statements and
continuation statements that will, in the opinion of such counsel, be
required to maintain the lien and security interest created by this Indenture
until [September 30] in the following calendar year.
(c) Prior to the effectiveness of any Subsequent Sale Agreement or
any amendment to any Sale Agreement, the Note Issuer shall furnish to the
Indenture Trustee an Opinion of Counsel either (A) stating that, in the
opinion of such counsel, all filings, including filings with the ICC pursuant
to the Funding Law, or the Funding Order, have been executed and filed that
are necessary fully to preserve and protect the interest of the Note Issuer
and the Indenture Trustee in the Intangible 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; SEC 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 Note 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, any Trustee's Issuance Certificate, any Series Supplement,
the Sale Agreement, any Subsequent Sale Agreement related to the applicable
Note Collateral, the Servicing Agreement, the Administration 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 Indenture Trustee herein or 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
Administrator 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 Note Collateral, including,
but not limited to, filing or causing to be filed all filings with the ICC
pursuant to the Funding Law or the Funding Order, all UCC financing statements
and continuation statements required to be filed by it by the terms of this
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Indenture, the Sale Agreement, any Subsequent Sale Agreement and the Servicing
Agreement in accordance with and within the time periods provided for herein and
therein.
(d) If the Note Issuer shall have knowledge of the occurrence of a
Servicer Default under the Servicing Agreement, the Note Issuer shall promptly
give written notice thereof to the Indenture Trustee and the Rating Agencies,
and shall specify in such notice the response or action, if any, the Note Issuer
has taken or 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 Intangible
Transition Property or the IFCs, 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 Issuer shall
appoint a successor Servicer (the "Successor Servicer") with the Grantee's
prior written consent thereto (which consent shall not be unreasonably
withheld), and such Successor Servicer shall accept its appointment by a written
assumption in a form acceptable to the Grantee, the Note Issuer and the
Indenture Trustee. A Person shall qualify as a Successor Servicer only if such
Person satisfies the requirements of the Servicing Agreement. If within 30 days
after the delivery of the notice referred to above, the Note Issuer shall not
have obtained such a Successor Servicer, the Indenture Trustee may petition the
ICC or a court of competent jurisdiction to appoint a Successor Servicer. In
connection with any such appointment, the Grantee may make such arrangements for
the compensation of such Successor Servicer as it and such successor shall
agree, subject to the limitations set forth below and in the Servicing
Agreement.
(f) Upon any termination of the Servicer's rights and powers pursuant
to the Servicing Agreement, the Indenture Trustee shall promptly notify the Note
Issuer, the Holders and the Rating Agencies. As soon as a Successor Servicer is
appointed, the Indenture Trustee shall notify the Grantee, the Note Issuer, the
Holders and the Rating Agencies of such appointment, specifying in such notice
the name and address of such Successor Servicer.
(g) Without derogating from the absolute nature of the assignment
Granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Note Issuer agrees that it will not, without
the prior written consent of the Indenture 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 Note Collateral or the Basic Documents, or waive timely performance or
observance by ComEd, the Grantee or the Servicer under the Grant Agreement,
any Subsequent Grant Agreement, the Sale Agreement any Subsequent Sale
Agreement or the Servicing Agreement, respectively; PROVIDED, that no such
consent shall be required if (i) the Indenture Trustee shall have received
an Officer's Certificate stating that such waiver, amendment, modification,
supplement or termination shall not adversely affect in any material respect
the interests of the Holders and (ii) the Rating Agency Condition
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shall have been satisfied with respect thereto. If any such amendment,
modification, supplement or waiver shall be so consented to by the Indenture
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, or shall cause the Administrator to,
file with the SEC such periodic reports, if any, as are required from time to
time under Section 13 of the Exchange Act.
(i) The Note Issuer shall make all filings required under the
Funding Law relating to the transfer of the ownership or security interest in
the Intangible Transition Property other than those required to be made by
the Grantee pursuant to the Basic Documents.
SECTION 3.08. CERTAIN NEGATIVE COVENANTS.
(a) The Note Issuer shall not issue Notes in an aggregate initial
Outstanding Amount (i) during the twelve-month period beginning on August 1,
1998 in excess of $3,400,000,000; and (ii) on any date from and after July
31, 1999, in excess of $6,800,000,000, less the aggregate initial Outstanding
Amount of any Notes issued on or prior to July 31, 1999.
(b) 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 Note Collateral, unless
directed to do so by the Indenture Trustee in accordance with Article V;
(ii) claim any credit on, or make any deduction from the principal or
premium, if any, or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code or other tax
laws) or assert any claim against any present or former Holder by reason of
the payment of the taxes levied or assessed upon any part of the Note
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
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encumbrance (other than the lien of this 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 (other than
tax liens arising by operation of law with respect to amounts not yet
due) or (C) permit the lien of this Indenture not to constitute a valid
first priority security interest in the Note Collateral; or
(v) elect to be classified as an association taxable as a corporation
for federal income tax purposes.
SECTION 3.09. ANNUAL STATEMENT AS TO COMPLIANCE. The Note Issuer
will deliver to the Indenture Trustee and the Rating Agencies not later than
[September 30] of each year (commencing with _________), an Officer's
Certificate stating, as to the Responsible Officer signing such Officer's
Certificate, that
(i) a review of the activities of the Note Issuer during the
preceding twelve months ended [________] and of performance under this
Indenture has been made under such Responsible Officer's supervision; and
(ii) to the best of such Responsible Officer's knowledge, based on
such review, the Note Issuer has in all material respects complied with all
conditions and covenants under this Indenture throughout such twelve month
period, or, if there has been a default in the compliance of any such
condition or covenant, specifying each such default known to such
Responsible 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
Indenture Trustee, in form and substance satisfactory to the Indenture
Trustee, 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 Trustee's Issuance
Certificates and Series Supplements, if any;
(ii) immediately after giving effect to such merger or consolidation,
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 merger or consolidation;
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(iv) ComEd shall have delivered to the Grantee, the Note Issuer, the
Delaware Trustee and the Indenture Trustee an opinion of independent tax
counsel (as selected by, and in form and substance reasonably satisfactory
to, ComEd, and which may be based on a ruling from the Internal Revenue
Service) to the effect that such consolidation or merger will not result in
a material adverse federal income tax consequence to ComEd, the Grantee,
the Note Issuer, the Delaware Trustee, the Indenture Trustee or the then
existing Holders;
(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 Indenture 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(a) and that all conditions precedent herein provided for in
this Section 3.10(a) with respect to such transaction have been complied
with (including any filing required by the Exchange Act).
(b) Except as specifically provided herein, the Note Issuer shall not
sell, convey, exchange, transfer or otherwise dispose of any of its properties
or assets included in the Note Collateral, to any Person, unless
(i) the Person that acquires 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
Indenture Trustee, in form and substance satisfactory to the Indenture
Trustee, 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 Trustee's Issuance
Certificates or Series Supplements, if any, (C) expressly agrees by means
of such supplemental indenture that all right, title and interest so sold,
conveyed, exchanged, transferred or otherwise disposed of 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 SEC (and any other
appropriate Person) required by the Exchange Act in connection with the
Notes;
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(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) ComEd shall have delivered to the Grantee, the Note Issuer, the
Delaware Trustee and the Indenture Trustee an opinion of independent tax
counsel (as selected by, and in form and substance reasonably satisfactory
to, ComEd, and which may be based on a ruling from the Internal Revenue
Service) to the effect that such transaction will not result in a material
adverse federal income tax consequence to ComEd, the Grantee, the Note
Issuer, the Delaware Trustee, the Indenture Trustee or the then existing
Holders;
(v) any action as is necessary to maintain the lien and security
interest created by this Indenture pursuant to the Funding Order or the
Funding Law shall have been taken; and
(vi) the Note Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
sale, conveyance, exchange, transfer or other disposition and such
supplemental indenture comply with this Section 3.10(b) and that all
conditions precedent herein provided for in this Section 3.10(b) with
respect 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) Except as set forth in Section 6.07, upon a sale, conveyance,
exchange, transfer or other disposition of all the assets and properties of the
Note Issuer pursuant to Section 3.10(b), the Note Issuer and the Grantee will be
released from every covenant and agreement of this Indenture and the other Basic
Documents to be observed or performed on the part of the Note Issuer and the
Grantee with respect to the Notes and the Intangible Transition Property
immediately upon the delivery of written notice to the Indenture Trustee from
the Person acquiring such assets and properties stating that the Note Issuer and
the Grantee are 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
Intangible Transition Property and the other Note Collateral and the issuance of
the Notes in the manner contemplated
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by the Funding Order and 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 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, any Subsequent 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 the purchase of
Intangible Transition Property from the Grantee on each Series Issuance Date
and other than expenditures made out of available funds 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. 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 similar security
in or of the Note Issuer, (ii) redeem, purchase, retire or otherwise acquire for
value any such ownership or equity interest or similar 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 similar security in or of the Note Issuer using
funds distributed to the Note Issuer pursuant to Section 8.02(d) to the extent
that such distributions would not cause the book value of the remaining equity
in 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.
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SECTION 3.18. NOTICE OF EVENTS OF DEFAULT. The Note Issuer agrees
to give the Indenture Trustee and the Rating Agencies prompt written notice
of each Event of Default hereunder and each default on the part of the
Grantee or the Servicer of its obligations under the Sale Agreement, any
Subsequent Sale Agreement or the Servicing Agreement, respectively.
SECTION 3.19. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Indenture 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 3.20. PURCHASE OF SUBSEQUENT TRANSITION PROPERTY. (a)
The Note Issuer may from time to time purchase Subsequent Transition Property
from the Grantee 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 Grantee
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 Grantee shall have provided the Note Issuer, the Indenture
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 IFCs 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) ComEd, the Grantee and the Note Issuer shall have delivered to
the Indenture Trustee a duly executed Subsequent Grant Agreement in
substantially the form of the Grant Agreement and a duly executed
Subsequent Sale Agreement in substantially the form of the Sale Agreement
and a filing shall have been made pursuant to Section 18-107 of the Funding
Law;
(iii) as of such Subsequent Sale Date, the Grantee was not insolvent
and will not have been made insolvent by such transfer and the Grantee 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) ComEd shall have delivered to the Grantee, the Note Issuer, the
Delaware Trustee and the Indenture Trustee an opinion of independent tax
counsel and/or a ruling from the Internal Revenue Service (as selected by,
and in form and substance reasonably
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satisfactory to, ComEd) to the effect that, for federal income tax
purposes (i) the ICC's issuance of the Subsequent Funding Order creating
and establishing the Subsequent Transition Property in the Grantee, and
the assignment pursuant to such Subsequent Sale Agreement of such
Subsequent Transition Property, will not result in gross income to the
Grantee, the Note Issuer or ComEd, and the future revenues relating to
the Subsequent Transition Property and the assessment of the IFCs
authorized in such Subsequent Funding Order (except for revenue related
to certain lump-sum payments) will be included in ComEd's gross income
in the year in which the related electrical service is provided to
Customers, and (ii) the assignment pursuant to such Subsequent Sale
Agreement will not adversely affect the characterization of the then
Outstanding Notes as obligations of ComEd;
(vi) as of such Subsequent Sale Date, no breach by ComEd of its
representations, warranties or covenants in the related Subsequent Grant
Agreement and no breach by the Grantee of its representations, warranties
or covenants in the related Subsequent 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 Indenture 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 Indenture Trustee the Opinion of Counsel
required by Section 3.06(c) of this Indenture; and
(x) the Grantee and the Note Issuer shall have taken any action
required to maintain the first perfected ownership interest of the Note
Issuer in the Subsequent Transition Property and the proceeds thereof, and
the Note Issuer shall have taken any action required to maintain the first
perfected security interest of the Indenture Trustee in the Subsequent
Transition Property and the proceeds thereof.
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ARTICLE IV
SATISFACTION AND DISCHARGE; DEFEASANCE
SECTION 4.01. SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE.
(a) This Indenture shall cease to be of further effect with respect to the Notes
of any Series and the Indenture 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 Indenture Trustee
for cancellation; or
(2) either (x) the Scheduled Maturity Date has occurred with
respect to all Notes of such Series not theretofore delivered to the
Indenture Trustee for cancellation, (y) such Notes will be due and
payable on their respective Scheduled Maturity Dates within one year,
or (z) such Notes are to be called for redemption within one year in
accordance with the provisions of the applicable Trustee's Issuance
Certificate or Series Supplement, if any, and in any such case, the
Note Issuer has irrevocably deposited or caused to be irrevocably
deposited with the Indenture 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 Indenture Trustee for
cancellation when due;
(B) the Note Issuer has paid or caused to be paid all other sums
payable hereunder by the Note Issuer with respect to such Series; and
(C) the Note Issuer has delivered to the Indenture Trustee an
Officer's Certificate, an Opinion of Counsel and (if required by the TIA or
the Indenture 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
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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, 3.18 AND 3.19
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 Indenture 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 Holders 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 Indenture Trustee hereunder
(including the rights of the Indenture Trustee under Section 6.07 and the
obligations of the Indenture Trustee under Section 4.03) and (vi) the rights
of Holders as beneficiaries hereof with respect to the property deposited
with the Indenture 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 Indenture 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 Optional Redemption Date therefor, as
applicable;
(b) the Note Issuer delivers to the Indenture 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 of 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
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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 Optional Redemption Price therefor on the Optional
Redemption Date and (iii) interest when due;
(c) in the case of the Legal Defeasance Option, 91 days pass after
the deposit is made and during the 91-day period no Default specified in
Section 5.01(v) or (vi) occurs which is continuing at the end of the
period;
(d) no Default has occurred and is continuing on the day of such
deposit and after giving effect thereto;
(e) in the case of an exercise of the Legal Defeasance Option, the
Note Issuer shall have delivered to the Indenture 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 Indenture 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;
(g) the Note Issuer delivers to the Indenture 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; and
(h) the Rating Agency Condition shall have been satisfied with
respect to the exercise of any Legal Defeasance Option or Covenant
Defeasance Option.
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 Indenture Trustee for the redemption of such Notes at a future date in
accordance with Article X.
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SECTION 4.03. APPLICATION OF TRUST MONEY. All moneys or U.S.
Government Obligations deposited with the Indenture Trustee pursuant to Section
4.01 or 4.02 hereof shall be held in trust and applied by it, in accordance with
the provisions of the Notes and this Indenture, to the payment, either directly
or through any Paying Agent, as the Indenture Trustee may determine, to the
Holders of the particular Notes for the payment or redemption of which such
moneys have been deposited with the Indenture 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 Indenture
Trustee under the provisions of this Indenture with respect to such Notes shall,
upon demand of the Note Issuer, be paid to the Indenture 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
(iv) default in the observance or performance in any material respect
of any covenant or agreement of the Note Issuer made in this Indenture
(other than defaults specified in clauses (i), (ii) or (iii) above), 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
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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 Indenture
Trustee or to the Note Issuer and the Indenture 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 Note 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 Note 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 for any substantial part of the Note
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; or
(vii) any act or failure to act by the State of Illinois or any of
its agencies (including the ICC), officers or employees which violates or
is not in accordance with the State Pledge; or
(viii) any other event designated as such in a Trustee's Issuance
Certificate or Series Supplement, if any.
The Note Issuer shall deliver to a Responsible Officer of the
Indenture Trustee and the Rating Agencies, within five days after a Responsible
Officer of the Note Issuer has knowledge of the occurrence thereof, written
notice in the form of an Officer's Certificate of any event (i) which is an
Event of Default under clause (vii) or (ii) which with the giving of notice and
the lapse of time would become an Event of Default under clause (iv), including,
in each case, the status of such Event of Default 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 (other than an Event of Default under clause (vii) of
Section 5.01) should occur
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and be continuing with respect to any Series, then and in every such case the
Indenture 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 Indenture Trustee if given by 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 Indenture 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 Indenture Trustee, may rescind and annul such declaration and its
consequences if:
(i) the Note Issuer has paid or deposited with the Indenture Trustee
a sum sufficient to pay:
(A) all payments of principal of and premium, if any, and
interest on all Notes of all Series and all other amounts that would
then be due hereunder or upon such Notes if the Event of Default
giving rise to such acceleration had not occurred; and
(B) all sums paid or advanced by the Indenture Trustee hereunder
and the reasonable compensation, expenses, disbursements and advances
of the Indenture 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
INDENTURE TRUSTEE. (a) If an Event of Default under Section 5.01(i), (ii) or
(iii) has occurred and is continuing with respect to any Series, subject to
Section 11.18, the Indenture 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,
subject to the limitations on recourse set forth herein, may enforce the same
and collect in the manner provided by law out of the Note Collateral and the
proceeds thereof, the whole amount then due and payable on the Notes of such
Series 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
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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
Indenture Trustee and its agents and counsel.
(b) If an Event of Default (other than Event of Default under
clause (vii) of Section 5.01) occurs and is continuing with respect to any
Series, the Indenture 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 Holders of such Series, by such appropriate Proceedings as the
Indenture 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
Indenture Trustee by this Indenture or by law.
(c) If an Event of Default under Section 5.01(v) or (vi) has
occurred and is continuing, the Indenture 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 Indenture Trustee shall have made any demand pursuant to the provisions
of this Section, shall be entitled and empowered, by intervention in any
Proceedings related to such Event of Default 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 Indenture Trustee (including
any claim for reasonable compensation to the Indenture Trustee and each
predecessor Indenture Trustee, and their respective agents, attorneys and
counsel, and for reimbursement of all expenses and liabilities incurred,
and all advances made, by the Indenture Trustee and each predecessor
Indenture Trustee, except as a result of negligence or bad faith) and of
the Holders 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 in bankruptcy,
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 Holders and of the Indenture 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 Holders to make
payments to the Indenture Trustee, and, in the event that the Indenture
Trustee shall consent to the making of payments directly to such Holders, to
pay to the Indenture Trustee such amounts as shall be sufficient to cover
reasonable
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compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and
each predecessor Indenture Trustee except as a result of negligence or bad
faith.
(d) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt
on behalf of any Holder any plan of reorganization, arrangement, adjustment
or composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any Holder
in any such proceeding except, as aforesaid, to vote for the election of a
trustee in bankruptcy or similar Person.
(e) 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
Indenture Trustee without the possession of any of the Notes of such Series
or the production thereof in any trial or other Proceedings relative thereto,
and any such action or proceedings instituted by the Indenture 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 Indenture Trustee, each predecessor Indenture Trustee and
their respective agents and attorneys, shall be for the ratable benefit of
the Holders of the Notes of such Series.
(f) In any Proceedings brought by the Indenture Trustee (and also
any Proceedings involving the interpretation of any provision of this
Indenture to which the Indenture Trustee shall be a party), the Indenture
Trustee shall be held to represent all the Holders of the Notes, and it shall
not be necessary to make any Holder a party to any such Proceedings.
SECTION 5.04. REMEDIES; PRIORITIES. (a) If an Event of Default
(other than an Event of Default under clause (vii) of Section 5.01) shall
have occurred and be continuing with respect to a Series, the Indenture
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 of acceleration or otherwise, and, subject to the limitations
on recovery set forth herein, enforce any judgment obtained, and collect
moneys adjudged due upon such Notes;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Note Collateral;
(iii) exercise any remedies of a secured party under the UCC or the
Funding Law and take any other appropriate action to protect and enforce
the rights and remedies of the Indenture Trustee and the Holders of the
Notes of such Series; and
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(iv) sell the Note 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 Indenture Trustee may not sell or otherwise
liquidate any portion of the Note Collateral following such an Event of
Default, other than an Event of Default described in Section 5.01(i), (ii) or
(iii), with respect to any Series unless (A) the Holders of 100 percent of
the Outstanding Amount of the Notes of all Series consent thereto, (B) the
proceeds of such sale or liquidation distributable to the Holders 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 after taking
into account payment of all amounts due prior thereto pursuant to the
priorities set forth in Section 8.02(d) or (C) the Indenture Trustee
determines that the Note 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 Indenture
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 Indenture 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 Note
Collateral for such purpose.
(b) If an Event of Default under clause (vii) of Section 5.01
shall have occurred and be continuing, the Indenture Trustee, for the benefit
of the Holders, shall be entitled and empowered to the extent permitted by
applicable law, to institute or participate in Proceedings reasonably
necessary to compel performance of or to enforce the State Pledge and to
collect any monetary damages incurred by the Holders or the Indenture Trustee
as a result of any such Event of Default, and may prosecute any such
Proceeding to final judgment or decree. The rights and remedies set forth in
this Section 5.04(b) and the obligations of the Servicer under Section
5.02(c) of the Servicing Agreement shall be the sole and exclusive remedies
for such an Event of Default.
(c) If the Indenture Trustee collects any money pursuant to this
Article V, it shall pay out such money in accordance with the priorities set
forth in Section 8.02(d).
SECTION 5.05. OPTIONAL PRESERVATION OF THE NOTE 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 Indenture Trustee may, but need
not, elect to maintain possession of the Note Collateral. It is the desire
of the parties hereto and the Holders 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 Indenture Trustee shall take such desire into account when
determining whether or not to maintain possession of the Note Collateral. In
determining whether to maintain possession of the Note Collateral, the
Indenture 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 Note Collateral for such purpose.
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SECTION 5.06. LIMITATION OF SUITS. No Holder of any Note of any
Series shall have any right to institute any Proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless:
(i) such Holder previously has given written notice to the Indenture
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
Indenture Trustee to institute such Proceeding in respect of such Event of
Default in its own name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture Trustee
indemnity satisfactory to it against the costs, expenses and liabilities to
be incurred in complying with such request;
(iv) the Indenture 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 Indenture 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 Indenture 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 Indenture 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 HOLDERS TO RECEIVE
PRINCIPAL, PREMIUM, IF ANY, AND INTEREST. Notwithstanding any other
provisions in this Indenture, the Holder of any Note shall have the right,
which is absolute and unconditional, (a) to receive payment of (i) the
interest, if any, on such Note on the due dates thereof expressed in such
Note or in this Indenture, (ii) the unpaid principal, if any, of such Notes
on the Final Maturity Date therefor or (iii) in the case of redemption,
receive payment of the unpaid principal and premium, if any, and interest, if
any, on such Note on the Optional Redemption Date therefor and (b) to
institute suit for the
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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
Indenture Trustee or any Holder 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 Indenture Trustee or to such Holder, then and in every such case the Note
Issuer, the Indenture Trustee and the Holders 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 Indenture Trustee and the Holders 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 Indenture Trustee or to the Holders
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 Indenture Trustee or any Holder 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 Indenture Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Indenture Trustee or by the Holders, as the case may be.
SECTION 5.11. CONTROL BY HOLDERS. 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 Indenture Trustee with respect to
the Notes of such Series or Class or Classes or exercising any trust or power
conferred on the Indenture 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 Indenture Trustee to sell or liquidate the Note Collateral shall be by
the Holders of Notes representing not less than 100 percent of the
Outstanding Amount of the Notes of all Series;
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(iii) if the conditions set forth in Section 5.05 have been satisfied
and the Indenture Trustee elects to retain the Note Collateral pursuant to
such Section, then any direction to the Indenture 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 Note Collateral shall be of no
force and effect; and
(iv) the Indenture Trustee may take any other action deemed proper by
the Indenture Trustee that is not inconsistent with such direction;
PROVIDED, HOWEVER, that, the Indenture Trustee's duties shall be subject to
Section 6.01, and the Indenture Trustee need not take any action that it
determines might involve it in liability or might materially adversely affect
the rights of any Holders 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 representing not less than a majority of
the Outstanding Amount of the Notes of all Series may waive any past Default
or Event of Default and its consequences except a Default (a) in payment of
principal of or premium, if any, or interest on any of the Notes or (b) in
respect of a covenant or provision hereof which cannot be modified or amended
without the consent of the Holder of each Note of all Series or Classes
affected. In the case of any such waiver, the Note Issuer, the Indenture
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 Indenture Trustee for any action taken,
suffered or omitted by it as Indenture 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 Indenture Trustee, (b) any suit instituted by
any Holder, or group of Holders, 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 Holder 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
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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 Optional Redemption Date therefor.
SECTION 5.14. WAIVER OF STAY OR EXTENSION LAWS. The Note Issuer
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead or in any manner whatsoever, claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or
at any time hereafter in force, that may affect the covenants or the
performance of this Indenture; and the Note Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of
any power herein granted to the Indenture 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 Indenture 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 Indenture Trustee or the Holders shall be
impaired by the recovery of any judgment by the Indenture Trustee against the
Note Issuer or by the levy of any execution under such judgment upon any
portion of the Note Collateral or any other assets of the Note Issuer.
SECTION 5.16. PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS.
(a) Promptly following a request from the Indenture Trustee to do so and at
the Note Issuer's expense, the Note Issuer agrees to take all such lawful
action as the Indenture Trustee may request to compel or secure the
performance and observance by ComEd, the Grantee and the Servicer, as
applicable, of each of their obligations to the Note Issuer under or in
connection with the Grant Agreement or any Subsequent Grant Agreement, the
Sale Agreement, or any Subsequent 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 any such agreements, respectively, to the
extent and in the manner directed by the Indenture Trustee, including the
transmission of notices of default on the part of ComEd, the Grantee or the
Servicer thereunder and the institution of legal or administrative actions or
proceedings to compel or secure performance by ComEd, the Grantee or the
Servicer of each of their respective obligations under the Grant Agreement,
any Subsequent Grant Agreement, the Sale Agreement, any Subsequent Sale
Agreement and the Servicing Agreement, respectively.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and, at the direction (which direction shall be in
writing or by telephone (confirmed in writing promptly thereafter)) of the
Holders of 66-2/3 percent of the Outstanding Amount of the Notes of all
Series shall, subject to Article VI, exercise all rights, remedies, powers,
privileges and claims of the Note Issuer against the Grantee or the Servicer
under or in connection with the Sale Agreement, any Subsequent 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
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Grantee 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, any Subsequent Sale Agreement
or the Servicing Agreement, respectively, and any right of the Note Issuer to
take such action shall be suspended.
ARTICLE VI
THE INDENTURE TRUSTEE
SECTION 6.01. DUTIES OF INDENTURE TRUSTEE. (a) If an Event of
Default has occurred and is continuing, the Indenture 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 Indenture 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
Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture 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 Indenture Trustee and conforming to the
requirements of this Indenture; however, the Indenture Trustee shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(c) The Indenture 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 (c) does not limit the effect of paragraph (b) of
this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is proved
that the Indenture Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Indenture 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 Indenture Trustee is subject to paragraphs (a), (b) and (c) of this
Section.
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(e) The Indenture Trustee shall not be liable for interest on any
money received by it except as the Indenture Trustee may agree in writing
with the Note Issuer.
(f) Money held in trust by the Indenture Trustee need not be
segregated from other funds except to the extent required by law or the terms
of this Indenture, the Sale Agreement, any Subsequent Sale Agreement and the
Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture
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 Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of
the TIA.
(i) In the event that the Indenture Trustee is also acting as
Paying Agent or Note Registrar hereunder, the protections of this Article VI
shall also be afforded to the Indenture Trustee in its capacity as Paying
Agent or Note Registrar.
(j) Except as expressly set forth in the Basic Documents, the
Indenture Trustee shall have no obligation to administer, service or collect
Intangible Transition Property or to maintain, monitor or otherwise supervise
the administration, servicing or collection of the Intangible Transition
Property.
SECTION 6.02. RIGHTS OF INDENTURE TRUSTEE. (a) The Indenture
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 Indenture Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require and shall be entitled to receive an Officer's Certificate or an Opinion
of Counsel that such action is required or permitted hereunder. The Indenture
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officer's Certificate or Opinion of Counsel.
(c) The Indenture 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 Indenture 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.
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(d) The Indenture 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 Indenture Trustee's
conduct does not constitute willful misconduct, negligence or bad faith.
(e) The Indenture 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 INDENTURE TRUSTEE. The
Indenture 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 Indenture
Trustee. Any Paying Agent, Note Registrar, co-registrar or co-paying agent
may do the same with like rights. However, the Indenture Trustee must comply
with Sections 6.11 and 6.12.
SECTION 6.04. INDENTURE TRUSTEE'S DISCLAIMER. The Indenture
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 Indenture 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 Indenture Trustee, the Indenture 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 and premium, if any, or interest on any Note, the Indenture
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 Holders. Except as provided in the first sentence of
this section 6.05, in no event shall the Indenture Trustee be deemed to have
knowledge of a Default.
SECTION 6.06. REPORTS BY INDENTURE TRUSTEE TO HOLDERS.
(a) So long as Notes are Outstanding and the Indenture Trustee is
the Note Registrar and Paying Agent, within the prescribed period of time for
tax reporting purposes after the end of each calendar year it shall deliver
to each relevant current or former Holder such information in its possession
as may be required to enable such Holder to prepare its Federal and state
income tax returns.
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(b) With respect to each Series of Notes, on or prior to each Payment
Date or Special Payment Date therefor, the Indenture Trustee will deliver to
each Holder of such Notes on such Payment Date or Special 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 Trustee's Issuance Certificate or Series Supplement,
if any,) as to the Notes of such Series with respect to such Payment Date or
Special Payment Date or the period since the previous Payment Date, as
applicable:
(i) the amount of the payment to Holders allocable to principal, if
any;
(ii) the amount of the payment to Holders allocable to interest;
(iii) the aggregate Outstanding Amount of such Notes, after giving
effect to any payments allocated to principal reported under (i) above; and
(iv) the difference, if any, between the amount specified in
subsection (iii) above and the Outstanding Amount specified in the related
Expected Amortization Schedule.
(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 Holder by a request in writing to the Indenture
Trustee.
SECTION 6.07. COMPENSATION AND INDEMNITY. The Note Issuer shall
pay to the Indenture Trustee from time to time reasonable compensation for
its services. The Indenture 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 Indenture 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
Indenture Trustee's agents, counsel, accountants and experts. The Note
Issuer shall indemnify the Indenture 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 Indenture Trustee shall notify the Note Issuer as soon as is reasonably
practicable of any claim for which it may seek indemnity. Failure by the
Indenture 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 Indenture 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 Indenture Trustee through the Indenture Trustee's own wilful
misconduct, negligence or bad faith.
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The payment obligations to the Indenture Trustee pursuant to this
Section shall survive the discharge of this Indenture or the earlier
resignation or removal of the Indenture Trustee. When the Indenture 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 INDENTURE TRUSTEE. The Indenture
Trustee may resign at any time by so notifying the Note Issuer, provided that
no such resignation shall be effective until either (a) the Note Collateral
has been completely liquidated and the proceeds of the liquidation
distributed to the Holders 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 Indenture Trustee by so notifying the
Indenture Trustee and may appoint a successor Indenture Trustee. The Note
Issuer shall remove the Indenture Trustee if:
(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee gives notice of resignation or is removed
or if a vacancy exists in the office of Indenture Trustee for any reason (the
Indenture Trustee in such event being referred to herein as the retiring
Indenture Trustee), the Note Issuer shall promptly appoint a successor
Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of
its appointment to the retiring Indenture Trustee and to the Note Issuer.
Thereupon the resignation or removal of the retiring Indenture Trustee shall
become effective, and the successor Indenture Trustee shall have all the
rights, powers and duties of the Indenture Trustee under this Indenture. The
successor Indenture Trustee shall mail a notice of its succession to Holders.
The retiring Indenture Trustee shall promptly transfer all property held by
it as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60
days after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture 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 Indenture Trustee.
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If the Indenture Trustee fails to comply with Section 6.11, any
Holder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant
to this Section, the Note Issuer's obligations under Section 6.07 shall
continue for the benefit of the retiring Indenture Trustee.
SECTION 6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER. If the
Indenture 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 Indenture Trustee;
PROVIDED, however, that if such successor Indenture Trustee is not eligible
under Section 6.11, then the successor Indenture Trustee shall be replaced in
accordance with Section 6.08.
In case at the time such successor or successors by merger,
conversion or consolidation to the Indenture 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 Indenture 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 Indenture
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor to the Indenture 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 Indenture Trustee shall have.
SECTION 6.10. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE. (a)
Notwithstanding any other provisions of this Indenture, at any time, for the
purpose of meeting any legal requirement of any jurisdiction in which any
part of the trust created by this Indenture or the Note Collateral may at the
time be located, the Indenture 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 created by this Indenture or the Note Collateral,
and to vest in such Person or Persons, in such capacity and for the benefit
of the Holders, such title to the Note Collateral, or any part hereof, and,
subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Indenture 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 Holders of the appointment of any co-trustee or
separate trustee shall be required under Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions
and conditions:
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(i) all rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon
and exercised or performed by the Indenture 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
Indenture 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 Indenture 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 Note 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 Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason of
any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the resignation of
or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture
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
Indenture 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 Indenture Trustee. Every such instrument shall be filed with
the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute
the Indenture 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 Indenture Trustee, to the extent permitted by
law, without the appointment of a new or successor trustee.
SECTION 6.11. ELIGIBILITY; DISQUALIFICATION. The Indenture Trustee
shall at all times satisfy the requirements of TIA Section 310(a) and Section
26(a)(i) of the Investment Company Act of 1940. The Indenture 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 the equivalent thereof) or better by all of the Rating
Agencies from which a rating is available. The Indenture Trustee shall comply
with TIA Section 310(b), including the optional provision permitted by the
second sentence of TIA Section 310(b)(9); PROVIDED, HOWEVER, that there shall be
excluded from the operation of TIA Section 310(b)(1) any indenture or indentures
under
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which other securities of the Note Issuer are outstanding if the requirements
for such exclusion set forth in TIA Section 310(b)(1) are met.
SECTION 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST NOTE
ISSUER, The Indenture Trustee shall comply with TIA Section 311(a), excluding
any creditor relationship listed in TIA Section 311(b). An Indenture Trustee
who has resigned or been removed shall be subject to TIA Section 311(a) to
the extent indicated.
SECTION 6.13. REPRESENTATIONS AND WARRANTIES OF INDENTURE TRUSTEE.
The Indenture Trustee hereby represents and warrants that:
(a) the Indenture Trustee is a banking corporation validly existing
and in good standing under the laws of the State of Illinois; and
(b) the Indenture Trustee has full power, authority and legal right to
execute, deliver and perform this Indenture and the Basic Documents to which
the Indenture Trustee is a party and has taken all necessary action to
authorize the execution, delivery, and performance by it of this Indenture
and such Basic Documents.
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ARTICLE VII
HOLDERS' LISTS AND REPORTS
SECTION 7.01. NOTE ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND
ADDRESSES OF HOLDERS. The Note Issuer will furnish or cause to be furnished
to the Indenture 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
Indenture 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 Indenture 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 Indenture Trustee is the
Note Registrar, no such list shall be required to be furnished.
SECTION 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
HOLDERS. (a) The Indenture 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 Indenture Trustee as
provided in Section 7.01 and the names and addresses of Holders of Notes
received by the Indenture Trustee in its capacity as Note Registrar. The
Indenture Trustee may destroy any list furnished to it as provided in such
Section 7.01 upon receipt of a new list so furnished.
(b) Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or under the
Notes.
(c) The Note Issuer, the Indenture Trustee and the Note Registrar
shall have the protection of TIA Section 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 SEC, provide to the Indenture Trustee, within 15 days after the
Note Issuer is required to file the same with the SEC, copies of the annual
reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the SEC may from time to time by
rules and regulations prescribe) which the Note Issuer may be required to
file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) provide to the Indenture Trustee and file with the SEC in
accordance with rules and regulations prescribed from time to time by the
SEC 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
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(iii) supply to the Indenture Trustee (and the Indenture Trustee
shall transmit by mail to all Holders described in TIA Section 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 SEC.
(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 INDENTURE TRUSTEE. If required by TIA
Section 313(a), within 60 days after [September 30] of each year, commencing
with the year after the issuance of the Notes of any Series, the Indenture
Trustee shall mail to each Holder of Notes of such Series as required by TIA
Section 313(c) a brief report dated as of such date that complies with TIA
Section 313(a). The Indenture Trustee also shall comply with TIA Section
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 Holders shall
be filed by the Servicer with the SEC and each stock exchange, if any, on
which the Notes are listed. The Note Issuer shall notify the Indenture
trustee in writing if and when the notes are listed on any stock exchange.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.01. COLLECTION OF MONEY. Except as otherwise expressly
provided herein, the Indenture 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 Indenture Trustee pursuant to this Indenture. The
Indenture 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 Note Collateral, the Indenture
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 of Notes issued hereunder, the Note Issuer
shall open, at the Indenture Trustee's Corporate Trust Office, or at another
Eligible Institution, one or more segregated trust accounts in the Indenture
Trustee's name for the deposit of Estimated IFC Collections (collectively, the
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"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. Prior to the initial Payment Date, all amounts in the
Collection Account (other than funds deposited into the Capital Subaccount,
up to the Required Capital Level for any Series of Notes) 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 in an Eligible
Deposit Account and only the Indenture Trustee shall have access to the
Collection Account for the purpose of making deposits in and withdrawals from
the Collection Account in accordance with this Indenture. Funds in the
Collection Account shall not be commingled with any other moneys. All moneys
deposited from time to time in the Collection Account, all deposits therein
pursuant to this Indenture, and all investments made in Eligible Investments
with such moneys, including all income or other gain from such investments,
shall be held by the Indenture Trustee in the Collection Account as part of
the Note Collateral as herein provided.
(b) The Indenture Trustee shall have sole dominion and exclusive
control over all moneys in the Collection Account and shall apply such amounts
therein as provided in this Section 8.02. The Indenture Trustee shall also pay
from the Collection Account any amounts requested to be paid by or to the
Servicer pursuant to Section 6.11(d)(ii) of the Servicing Agreement.
(c) IFC Collections shall be deposited in the General Subaccount as
provided in Section 6.11 of the Servicing Agreement. All deposits to and
withdrawals from the Collection Account , all allocations to the subaccounts of
the Collection Account and any amounts to be paid to the Servicer under Section
8.02(b) shall be made by the Indenture Trustee in accordance with the written
instructions provided by the Servicer in the Monthly Servicer's Certificate ,
the Quarterly Servicer's Certificate or upon other written notice provided by
the Servicer pursuant to Section 6.11(d)(ii) of the Servicing Agreement, as
applicable.
(d) On each Payment Date for any Series of Notes, the Indenture
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 Indenture Trustee
(including legal fees and expenses) shall be paid to the Indenture Trustee
(subject to Section 6.07) and all amounts owed to the Delaware Trustee in
connection with its acting as trustee under the Trust Agreement shall be
paid to the Delaware Trustee, as appropriate;
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(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, if any, 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 or, if such have
been previously paid by the Note Issuer, to the Note Issuer in
reimbursement thereof; PROVIDED that the amount paid on each Payment Date
pursuant to this clause (iv) shall not exceed $100,000;
(v) 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 for such Payment Date with
respect to each Series of Notes shall be paid to the Holders of such Series
of Notes;
(vi) principal due and payable on the Notes of any Series as a result
of an Event of Default or on the Final Maturity Date of the Notes of such
Series, shall be paid to the Holders of such Series of Notes;
(vii) Quarterly Principal for such Payment Date with respect to each
Series of Notes shall be paid to the Holders of such Series of Notes;
(viii) unpaid Operating Expenses shall be paid to the Persons
entitled thereto or, if such have been previously paid by the Note Issuer,
to the Note Issuer or as it directs in reimbursement thereof;
(ix) 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;
(x) the amount, if any, by which the Required Overcollateralization
Level with respect to all Outstanding Series of Notes exceeds the amount in
the Overcollateralization Subaccount as of such Payment Date shall be
allocated to the Overcollateralization 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)
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the balance, if any, shall be allocated to the Reserve Subaccount for
distribution on subsequent Payment Dates; and
(xiii) 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 (including all amounts then held in the
Overcollateralization Subaccount, the Capital Subaccount and the Reserve
Subaccount), if any, shall be paid to the Note Issuer, free from the lien
of this Indenture.
All payments to the Holders of a Series pursuant to clauses (v), (vi) and
(vii) above or, in the case of clause (vi), if there is more than one Series
of Notes outstanding all payments to the Holders of all Series, 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 Trustee's Issuance Certificate or
Series Supplement, if any, 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 Holders 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 Indenture 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 Indenture Trustee shall draw from amounts on
deposit in the Reserve Subaccount to make such allocations notwithstanding the
fact that on such Payment Date the allocation contemplated by clause (viii)
above may not have been fully satisfied.
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 Indenture Trustee upon
Issuer Order; PROVIDED, HOWEVER, that (i) such Eligible Investments shall not
mature later than the Business Day prior to the next Payment Date for the
related Series of Notes and (ii) such Eligible Investments shall not be
sold, liquidated or otherwise disposed of at a loss prior to the maturity
thereof. All income or other gain from investments of moneys deposited
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in the Collection Account shall be deposited by the Indenture 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
Indenture 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 Indenture
Trustee to make any such investment or sale, if requested by the Indenture
Trustee, the Note Issuer shall deliver to the Indenture Trustee an Opinion of
Counsel, acceptable to the Indenture Trustee, to such effect. In no event
shall the Indenture Trustee be liable for the selection of Eligible
Investments or for investment losses incurred thereon. The Indenture 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 or the Servicer to provide timely written
investment direction. The Indenture 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 Indenture 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 Indenture Trustee's failure to make payments on such
Eligible Investments issued by the Indenture 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
Indenture Trustee by 11:00 a.m. Eastern Time (or such other time as may be
agreed by the Note Issuer and Indenture 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 Indenture 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 funds described under paragraph (d) of the definition of Eligible
Investments.
(d) The parties hereto acknowledge that the Servicer may, pursuant to
the Servicing Agreement, select Eligible Investments on behalf of the Note
Issuer.
SECTION 8.04. RELEASE OF NOTE COLLATERAL. (a) The Indenture 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
Indenture 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 Indenture Trustee as provided in this
Article VIII shall be bound to ascertain the Indenture Trustee's authority,
inquire into the satisfaction of any conditions precedent or see to the
application of any moneys.
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(b) The Indenture Trustee shall, at such time as there are no
Notes Outstanding, release any remaining portion of the Note 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 Indenture 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 Sections 314(c) and 314(d)(1) meeting the applicable requirements of
Section 11.01.
SECTION 8.05. OPINION OF COUNSEL. The Indenture 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 Indenture Trustee shall also require, as a
condition to such action, an Opinion of Counsel, in form and substance
satisfactory to the Indenture 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 Holders 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 Note
Collateral. Counsel rendering any such opinion may rely, without independent
investigation, on the accuracy and validity of any certificate or other
instrument delivered to the Indenture 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 Trustee's Issuance Certificates or
Series Supplements, if any. In the event such firm requires the Indenture
Trustee to agree to the procedures performed by such firm, the Note Issuer
shall direct the Indenture Trustee in writing to so agree; it being
understood and agreed that the Indenture Trustee will deliver such letter of
agreement in conclusive reliance upon the direction of the Note Issuer, and
the Indenture 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 Indenture
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 Indenture 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 Indenture Trustee shall
promptly appoint a successor firm of Independent certified public accountants
of recognized national reputation; PROVIDED that the Indenture Trustee shall
have no liability with respect to such appointment if the Indenture Trustee
acted with due care with respect thereto. The fees of such Independent
certified public accountants and its successor shall be payable by the Note
Issuer.
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ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
(a) Without the consent of the Holders of any Notes but with prior notice to
the Rating Agencies, the Note Issuer and the Indenture Trustee, when
authorized by an Issuer Order, at any time and from time to time, may enter
into one or more indentures supplemental hereto (which shall conform to the
provisions of the Trust Indenture Act as in force at the date of the
execution thereof), in form satisfactory to the Indenture 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 Indenture 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 Indenture 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, as evidenced by an Opinion of Counsel, adversely affect the interests
of the Holders of the Notes;
(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
enacted and to add to this Indenture such other provisions as may be
expressly required by the TIA; or
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(viii) to set forth the terms of any Series that has not theretofore
been authorized by a Trustee's Issuance Certificate or Series Supplement,
if any, or to provide for the execution and delivery of any Swap Agreement.
The Indenture 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 Indenture 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 the Holders and
(ii) the Rating Agency Condition shall have been satisfied with respect
thereto.
SECTION 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. The
Note Issuer and the Indenture 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 Indenture 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 premium, if any, with respect
thereto, change any Optional Redemption Price, change the provisions of
this Indenture and the related applicable Trustee's Issuance Certificate or
Series Supplement, if any, relating to the application of collections on,
or the proceeds of the sale of, the Note 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 optional redemption, on or after the Optional
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
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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 Indenture Trustee to direct the Note Issuer to sell
or liquidate the Note Collateral pursuant to Section 5.04;
(v) modify any provision of this Section to decrease any minimum
percentage specified herein necessary to approve any amendments to any
provisions of this Indenture;
(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) ;
(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 Note
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; or
(viii) cause any material adverse federal income tax consequence to
ComEd, the Grantee, the Note Issuer, the Delaware Trustee, the Indenture
Trustee or the then existing Holders.
The Indenture Trustee may in its discretion determine whether or
not any Notes 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 of such Series or Class, whether theretofore or thereafter
authenticated and delivered hereunder. The Indenture Trustee shall not be
liable for any such determination made in good faith.
It shall not be necessary for any Act of Holders 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 Indenture
Trustee of any supplemental indenture pursuant to this Section, the Note
Issuer shall mail to the Rating Agencies
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and the Holders of the Notes to which such supplemental indenture relates a
notice setting forth in general terms the substance of such supplemental
indenture. Any failure of the Indenture 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 Indenture 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
Indenture Trustee may, but shall not be obligated to, enter into any such
supplemental indenture that affects the Indenture Trustee's own rights,
duties, liabilities or immunities under this Indenture or otherwise.
SECTION 9.04. EFFECT OF SUPPLEMENTAL INDENTURE. Upon the
execution of any supplemental indenture pursuant to the provisions hereof,
this Indenture shall be and be deemed to be modified and amended in
accordance therewith with respect to each Series or Class of Notes affected
thereby, and the respective rights, limitations of rights, obligations,
duties, liabilities and immunities under this Indenture of the Indenture
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 Indenture
Trustee shall, bear a notation in form approved by the Indenture Trustee as
to any matter provided for in such supplemental indenture. If the Note
Issuer or the Indenture Trustee shall so determine, new Notes so modified as
to conform, in the opinion of the Indenture 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 Indenture Trustee in exchange
for Outstanding Notes.
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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 (a) 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, or (b) if and to the extent specified in
the related Trustee's Issuance Certificate or Series Supplement, if any, on
any Payment Date on or prior to December 31, 2004, from the proceeds of the
issuance and sale of the Notes of any other Series. In addition, a Series of
Notes shall be subject to redemption if and to the extent provided in the
related Trustee's Issuance Certificate or Series Supplement, if any. In no
event, however, shall any Notes be redeemable unless the Rating Agency
Condition shall be satisfied with respect to each Rating Agency other than
Moody's, to which prior written notice of such redemption shall have been
given, with respect to any Notes which remain Outstanding after such
redemption. The redemption price in any case shall be 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 Indenture Trustee and the
Rating Agencies not more than 50 and not less than 25 days prior to the
Optional Redemption Date and shall deposit with the Indenture Trustee not
later than one Business Day 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 Trustee's Issuance Certificate or Series Supplement, if any,
relating to a Series of Notes, notice of redemption under Section 10.01 hereof
shall be given by the Indenture 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;
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(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);
(4) the CUSIP number, if applicable; and
(5) the principal amount of Notes to be redeemed.
Notice of redemption of the Notes to be redeemed shall be given by
the Indenture Trustee in the name and at the expense of the Note Issuer.
Failure to give notice of redemption, or any defect therein, to any Holder of
any Note selected for redemption shall not impair or affect the validity of
the redemption of any other Note.
SECTION 10.03. NOTES PAYABLE ON OPTIONAL REDEMPTION 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.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC. (a)
Upon any application or request by the Note Issuer to the Indenture Trustee
to take any action under any provision of this Indenture, the Note Issuer
shall furnish to the Indenture 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 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 Note Collateral or other property
or securities with the Indenture 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 Indenture 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 Note Collateral or other property or securities to be so
deposited.
(ii) Whenever the Note Issuer is required to furnish to the Indenture
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 Indenture Trustee an
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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 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 the lesser of (A) $25,000 or (B)
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 Indenture 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
Indenture Trustee an Officer's Certificate certifying or stating the opinion
of any signatory thereof as to the matters described in clause (iii) above,
the Note Issuer shall also furnish to the Indenture 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 the lesser of (A)
$25,000 or (B) one percent of the then Outstanding Amount of the Notes of all
Series.
(v) Notwithstanding Section 2.16 or any other provision of this
Section 11.01, the Indenture Trustee may (A) collect, liquidate, sell or
otherwise dispose of the Intangible Transition Property and the other Note
Collateral as and to the extent permitted or required by the Basic Documents
and (B) make cash payments out of the Collection Account as and to the extent
permitted or required by the Basic Documents.
SECTION 11.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE 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.
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Any certificate or opinion of a Responsible 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 a Responsible 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 Grantee,
the Note Issuer or the Administrator, stating that the information with
respect to such factual matters is in the possession of the Servicer, the
Grantee, 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 Indenture 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 Indenture Trustee's right to rely upon the truth and accuracy of
any statement or opinion contained in any such document as provided in
Article VI.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 11.03. ACTS OF HOLDERS. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Holders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Holders 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 Indenture 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 Holders 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 Indenture
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 Indenture Trustee
deems sufficient.
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(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 Indenture 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 INDENTURE TRUSTEE, NOTE ISSUER
AND RATING AGENCIES. (a) Any request, demand, authorization, direction,
notice, consent, waiver or Act of Holders or other documents provided or
permitted by this Indenture to be made upon, given or furnished to or filed
with:
(i) the Indenture Trustee by any Holder 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 Indenture Trustee at its Corporate Trust
Office, or
(ii) the Note Issuer by the Indenture Trustee or by any Holder
shall be sufficient for every purpose hereunder if in writing and
mailed, first-class, postage prepaid, to the Note Issuer addressed to:
ComEd Transitional Funding Trust, C/O First Union Trust Company,
National Association, One Rodney Square, 920 King Street, 1st Floor,
Wilmington, Delaware 19801, Attention: Corporate Trust Administration or
at any other address previously furnished in writing to the Indenture
Trustee by the Note Issuer. The Note Issuer shall promptly transmit any
notice received by it from the Holders to the Indenture Trustee.
(b) Notices required to be given to the Rating Agencies by the Note
Issuer or the Indenture 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, (iii) in the case of
Fitch IBCA, to Fitch IBCA, Inc., One State Street Plaza, New York, New York
10004, Attention ABS Surveillance, and (iv) in the case of Duff & Phelps, to
Duff & Phelps Credit Rating Co., 17 State Street, 12th Floor, New York, New York
10004, Attention: Asset-Backed Monitoring Group.
SECTION 11.05. NOTICES TO HOLDERS; WAIVER. Where this Indenture
provides for notice to Holders 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 Holder affected by such event, at such
Holder'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
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where notice to Holders is given by mail, neither the failure to mail such
notice nor any defect in any notice so mailed to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders, 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 Holders shall be filed with the Indenture
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 Holders 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 Indenture
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. 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 Sections 310 through 317 that impose duties
on any person (including the provisions automatically deemed included herein
unless expressly excluded by this Indenture) are a part of and govern this
Indenture, whether or not physically contained herein.
SECTION 11.07. 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 11.08. 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
Indenture Trustee in this Indenture shall bind its successors.
SECTION 11.09. 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.
72
<PAGE>
SECTION 11.10. 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 Holders, and any other
party secured hereunder, and any other Person with an ownership interest in
any part of the Note Collateral, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 11.11. 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 11.12. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REFERENCE TO
ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF
THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.13. 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 11.14. 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 Indenture Trustee or
any other counsel reasonably acceptable to the Indenture Trustee) to the
effect that such recording is necessary either for the protection of the
Holders or any other Person secured hereunder or for the enforcement of any
right or remedy granted to the Indenture Trustee under this Indenture.
SECTION 11.15. TRUST OBLIGATION. No recourse may be taken,
directly or indirectly, with respect to the obligations of the Note Issuer or
the Indenture Trustee on the Notes or under this Indenture or any certificate
or other writing delivered in connection herewith or therewith, against (i)
the Indenture Trustee or the Delaware Trustee in its respective individual
capacity, (ii) any owner of a beneficial interest in the Note Issuer
(including the Grantee and ComEd) or (iii) any partner, owner, beneficiary,
agent, officer, or employee of the Indenture Trustee or the Delaware Trustee
in its respective individual capacity, any holder of a beneficial interest in
the Indenture Trustee or of any successor or assign of any of them in their
respective individual or corporate capacities, except as any such Person may
have expressly agreed (it being understood that none of the Indenture
Trustee, the Delaware Trustee, the Grantee and ComEd has any such
obligations in their respective individual or corporate capacities).
73
<PAGE>
SECTION 11.16. NO RECOURSE TO NOTE ISSUER. Notwithstanding any
provision of this Indenture or any Trustee's Issuance Certificate or any
Series Supplement to the contrary, Holders shall have no recourse against the
Note Issuer, but shall look only to the Note Collateral with respect to any
amounts due to the Holders hereunder and under the Notes.
SECTION 11.17. INSPECTION. The Note Issuer agrees that, on
reasonable prior notice, it will permit any representative of the Indenture
Trustee, during the Note Issuer's normal business hours, to examine all the
books of account, records, reports, and other papers of the Note Issuer, to
make copies and extracts therefrom, to cause such books to be audited by
Independent certified public accountants, and 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 Indenture 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 Indenture 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 Indenture 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 Indenture Trustee having a need to know
the same, provided that such parties agree to be bound by the confidentiality
provisions contained in this Section 11.17, or (iii) any other disclosure
authorized by the Note Issuer.
SECTION 11.18 NO PETITION. The Indenture Trustee, by entering
into this Indenture, and each Holder, by accepting a Note (or interest
therein) issued hereunder, hereby covenant and agree that they shall not,
prior to the date which is one year and one day after the termination of the
Indenture, acquiesce, petition or otherwise invoke or cause the Grantee , the
Note Issuer or the Delaware Trustee to invoke the process of any court or
government authority for the purpose of commencing or sustaining a case
against the Grantee , the Note Issuer or the Delaware Trustee under any
insolvency law or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Grantee , the Note
Issuer or the Delaware Trustee or any substantial part of its respective
property, or ordering the winding up or liquidation of the affairs of the
Grantee, the Note Issuer or the Delaware Trustee .
74
<PAGE>
IN WITNESS WHEREOF, the Note Issuer and the Indenture 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.
COMED TRANSITIONAL FUNDING TRUST
By: FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, not in its individual capacity
but solely as Delaware Trustee
By: ____________________________
Name: __________________________
Title: _________________________
HARRIS TRUST AND SAVINGS BANK, not in its
individual capacity but solely as Indenture Trustee
By: _____________________________
Name: ___________________________
Title: __________________________
<PAGE>
STATE OF ILLINOIS, )
)ss:
COUNTY OF COOK )
On the day of [ ], 1998, 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 such person executed the same in such person's
authorized capacity, and that by the signature on the instrument Harris
Trust and Savings Bank, a banking corporation organized under the laws of the
State of Illinois, and the entity upon whose behalf the person acted,
executed this instrument.
WITNESS my hand and official seal.
------------------------------
Notary Public
My commission expires:
76
<PAGE>
STATE OF ILLINOIS, )
)ss:
COUNTY OF COOK )
On the day of [ ], 1998, 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 COMED TRANSITIONAL FUNDING TRUST, a Delaware
business trust and the entity upon whose behalf the person acted, executed
this instrument.
WITNESS my hand and official seal.
-----------------------------
Notary Public
My commission expires:
77
<PAGE>
EXHIBIT A
REGISTERED $________
No.
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.
THE PRINCIPAL OF THIS SERIES [ ], CLASS [__-__] ("THIS CLASS
[__-__ ] NOTE") WILL BE PAID IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS [__-__] NOTE AT
ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE HOLDER OF
THIS NOTE HAS NO RECOURSE TO THE ISSUER HEREOF AND AGREES TO LOOK ONLY TO THE
NOTE COLLATERAL, AS DESCRIBED IN THE INDENTURE AND ANY RELATED TRUSTEE'S
ISSUANCE CERTIFICATE OR SERIES SUPPLEMENT REFERRED TO ON THE REVERSE HEREOF,
FOR PAYMENT OF ANY AMOUNTS DUE HEREUNDER. ALL OBLIGATIONS OF THE ISSUER OF
THIS CLASS [__-__] NOTE UNDER THE TERMS OF THE INDENTURE WILL BE RELEASED AND
DISCHARGED UPON PAYMENT IN FULL HEREOF OR AS OTHERWISE PROVIDED IN SECTION
3.10(B) OR ARTICLE IV OF THE INDENTURE. THE HOLDER OF THIS CLASS [__-__]
NOTE HEREBY COVENANTS AND AGREES THAT PRIOR TO THE DATE WHICH IS ONE (1) YEAR
AND ONE (1) DAY AFTER THE PAYMENT IN FULL OF THE SERIES [ ] CLASS [__-__]
NOTES, IT WILL NOT INSTITUTE AGAINST, OR JOIN ANY OTHER PERSON IN INSTITUTING
AGAINST, THE ISSUER ANY BANKRUPTCY, REORGANIZATION, ARRANGEMENT, INSOLVENCY
OR LIQUIDATION PROCEEDINGS OR OTHER SIMILAR PROCEEDING UNDER THE LAWS OF THE
UNITED STATES OR ANY STATE OF THE UNITED STATES. NOTHING IN THIS PARAGRAPH
SHALL PRECLUDE, OR BE DEEMED TO ESTOP, SUCH HOLDER (A) FROM TAKING OR
OMITTING TO TAKE ANY ACTION PRIOR TO SUCH DATE IN (I) ANY CASE OR PROCEEDING
VOLUNTARILY FILED OR COMMENCED BY OR ON BEHALF OF THE ISSUER UNDER OR
PURSUANT TO ANY SUCH LAW OR (II) ANY INVOLUNTARY CASE OR PROCEEDING
PERTAINING TO THE ISSUER WHICH IS FILED OR COMMENCED BY OR ON BEHALF OF A
PERSON OTHER THAN SUCH HOLDER AND IS NOT JOINED IN BY SUCH HOLDER (OR ANY
PERSON TO WHICH SUCH HOLDER SHALL HAVE ASSIGNED, TRANSFERRED OR OTHERWISE
CONVEYED ANY PART OF THE OBLIGATIONS OF THE ISSUER HEREUNDER) UNDER OR
PURSUANT TO ANY SUCH LAW, OR (B) FROM COMMENCING OR PROSECUTING ANY LEGAL
ACTION WHICH IS NOT AN
A-1
<PAGE>
INVOLUNTARY CASE OR PROCEEDING UNDER OR PURSUANT TO ANY SUCH LAW AGAINST THE
ISSUER OR ANY OF ITS PROPERTIES.
COMED TRANSITIONAL FUNDING TRUST NOTES,
SERIES [ ], Class [__-__].
<TABLE>
<S> <C> <C>
INTEREST ORIGINAL PRINCIPAL FINAL MATURITY
RATE AMOUNT DATE
</TABLE>
ComEd Transitional Funding Trust, a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Note Issuer"), for value received, hereby promises to pay to [ ], or
registered assigns, the Original Principal Amount shown above
[in quarterly installments] on the Payment Dates and in the amounts specified
on the reverse hereof or, if less, the amounts determined pursuant to Section
8.02 of the Indenture, in each year, commencing on the date determined as
provided on the reverse hereof and ending on or before the Final Maturity
Date shown above and to pay interest, at the Interest Rate shown above, on
each [March 15, June 15, September 15 and December 15] or if any such day is
not a Business Day, the next succeeding Business Day, commencing on [ ] and
continuing until the earlier of the payment in full of the principal hereof
and the Final Maturity Date (each a "Payment Date"), on the principal amount
of this Series [ ], Class [__-__] Note (hereinafter referred to as "this
Class [__-__] Note"). Interest on this Class [__-__] Note will accrue for
each Payment Date from the most recent Payment Date on which interest has
been paid to but excluding such Payment Date or, if no interest has yet been
paid, from [ ]. Interest will be computed on the basis of
[specify method of computation]. Such principal of and interest on this
Class [__-__] Note shall be paid in the manner specified on the reverse
hereof.
The principal of and interest on this Class [__-__] Note are payable
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts. All payments
made by the Note Issuer with respect to this Class [__-__] Note shall be applied
first to interest due and payable on this Class [__-__] Note as provided above
and then to the unpaid principal of and premium, if any, on this Class [__-__]
Note, all in the manner set forth in Section 8.02 of the Indenture.
Reference is made to the further provisions of this Class [__-__] Note
set forth on the reverse hereof, which shall have the same effect as though
fully set forth on the face of this Class [__-__] Note.
A-2
<PAGE>
Unless the certificate of authentication hereon has been executed
by the Indenture Trustee whose name appears below by manual signature, this
Class [__-__] Note shall not be entitled to any benefit under the Indenture
referred to on the reverse hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Note Issuer has caused this instrument to
be signed, manually or in facsimile, by its Responsible Officer.
Date:
COMED TRANSITIONAL FUNDING TRUST
By: FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, not in its individual capacity
BUT solely as Delaware Trustee
By: ____________________________
Name:
Title:
A-3
<PAGE>
INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated:_______,______
This is one of the Series [ ], Class [__-__] Notes, designated
above and referred to in the within-mentioned Indenture.
HARRIS TRUST AND SAVINGS BANK, not in its
individual capacity but solely as Indenture
Trustee
By: _______________________________
Name: _____________________________
Title: ______________________________
A-4
<PAGE>
REVERSE OF NOTE
This Series [ ], Class [__-__] Note is one of a duly authorized
issue of Notes of the Note Issuer (herein called the "Notes"), issued and to
be issued in one or more Series, which Series are issuable in one or more
Classes, and the Series [ ] Notes consists of [ ] Classes, including
this Class [__-__] Note (herein called the "Class [__-__] Notes"), all issued
and to be issued under an Indenture dated as of [ ], 1998, (the
"Indenture"), between the Note Issuer and Harris Trust and Savings Bank, as
Indenture Trustee (the "Indenture Trustee", which term includes any successor
trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the
respective rights and obligations thereunder of the Note Issuer, the
Indenture Trustee and the Holders of the Notes. All terms used in this Class
[__-__] Note that are defined in the Indenture, as supplemented or amended,
shall have the meanings assigned to them in the Indenture.
The Class [__-__] Notes, the other Classes of Series [ ] Notes
(all of such Classes being referred to herein as "Series [ ] Notes") and
any other Series of Notes issued by the Note Issuer are and will be equally
and ratably secured by the Note Collateral pledged as security therefor as
provided in the Indenture.
The principal of this Class [__-__] Note shall be payable on each
Payment Date only to the extent that amounts in the Collection Account are
available therefor, and only until the outstanding principal balance thereof
on the preceding Payment Date (after giving effect to all payments of
principal, if any, made on the preceding Payment Date) has been reduced to
the principal balance specified in the Expected Amortization Schedule which
is attached to the related Trustee's Issuance Certificate or Series
Supplement, if any, as Schedule A, unless payable earlier either because (x)
an Event of Default shall have occurred and be continuing and the Indenture
Trustee or the Holders of Notes representing not less than a majority of the
Outstanding Amount of the Notes of all Series have declared the Notes of all
Series to be immediately due and payable in accordance with Section 5.02 of
the Indenture or (y) the Note Issuer, at its option, shall have called for
the redemption of the Series [ ] Notes pursuant to Section 10.01 of the
Indenture. However, actual principal payments may be made in lesser than
expected amounts and at later than expected times as determined pursuant to
Section 8.02 of the Indenture. The entire unpaid principal amount of this
Class [__-__] Note shall be due and payable on the earlier of the Final
Maturity Date hereof and the Optional Redemption Date, if any.
Notwithstanding the foregoing, the entire unpaid principal amount of the
Notes shall be due and payable, if not then previously paid, on the date on
which an Event of Default shall have occurred and be continuing and the
Indenture Trustee or the Holders of the Notes representing not less than a
majority of the Outstanding Amount of the Notes of all Series have
- -----------------
1 The form of the reverse of a Note is substantially as follows, unless
otherwise specified in the related Trustee's Issuance Certificate or Series
Supplement.
A-5
<PAGE>
declared the Notes of all Series to be immediately due and payable in the
manner provided in Section 5.02 of the Indenture. All principal payments on
the Class [__-__] Notes shall be made pro rata to the Class [__-__] Holders
entitled thereto based on the respective principal amounts of the Class
[__-__] Notes held by them.
Payments of interest on this Class [__-__] Note due and payable on
each Payment Date, together with the installment of principal or premium, if
any, shall be made by check mailed first-class, postage prepaid, to the Person
whose name appears as the Registered Holder of this Class [__-__] Note (or one
or more Predecessor Notes) on the Note Register as of the close of business on
the Record Date or in such other manner as may be provided in the related
Trustee's Issuance Certificate or Series Supplement, if any, except for the
final installment of principal and premium, if any, payable with respect to this
Class [__-__] Note on a Payment Date which shall be payable as provided below.
Such checks shall be mailed to the Person entitled thereto at the address of
such Person as it appears on the Note Register as of the applicable Record Date
without requiring that this Class [__-__] Note be submitted for notation of
payment. Any reduction in the principal amount of this Class [__-__] Note (or
any one or more Predecessor Notes) effected by any payments made on any Payment
Date shall be binding upon all future Holders of this Class [__-__] Note and of
any Note issued upon the registration of transfer hereof or in exchange hereof
or in lieu hereof, whether or not noted hereon. If funds are expected to be
available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Class [__-__] Note on a Payment Date,
then the Indenture Trustee, in the name of and on behalf of the Note Issuer,
will notify the Person who was the Registered Holder hereof as of the Record
Date preceding such Payment Date by notice mailed no later than five days prior
to such final Payment Date and shall specify that such final installment will be
payable only upon presentation and surrender of this Class [__-__] Note and
shall specify the place where this Class [__-__] Note may be presented and
surrendered for payment of such installment.
The Note Issuer shall pay interest on overdue installments of interest
at the Note Interest Rate to the extent lawful.
As provided in the Indenture, the Class [__-__] Notes may be
redeemed, in whole but not in part, at the option of the Note Issuer on any
Payment Date at the Optional Redemption Price if, after giving effect to
payments that would otherwise be made on such Payment Date, the Outstanding
Amount of the Class [__-__] Notes has been reduced to less than five percent
of the initial principal balance thereof.
This Note is a transitional funding instrument as such term is defined
in the Funding Law. Principal and interest due and payable on this Note are
payable from and secured primarily by intangible transition property created and
established by a transitional funding order obtained from the Illinois Commerce
Commission pursuant to the Funding Law. Intangible transition property consists
of the right to impose and collect certain charges (defined in the Funding Law
as "instrument funding charges") to be included in regular electric utility
bills of
A-6
<PAGE>
existing and future electric service customers of Commonwealth Edison
Company, an Illinois electric utility.
The Funding Law provides that: "The State [of Illinois] pledges to
and agrees with the holders of any transitional funding instruments who may
enter into contracts with an electric utility, grantee, assignee or issuer
pursuant to this Article XVIII [of the Public Utility Act] that the State
[of Illinois] will not in any way limit, alter, impair or reduce the value of
intangible transition property created by, or instrument funding charges
approved by, a transitional funding order so as to impair the terms of any
contract made by such electric utility, grantee, assignee or issuer with such
holders or in any way impair the rights and remedies of such holders until
the pertinent grantee instruments or, if the related transitional funding
order does not provide for the issuance of grantee instruments, the pertinent
transitional funding instruments and interest, premium and other fees, costs
and charges related thereto, as the case may be, are fully paid and
discharged. Electric utilities, grantees and issuers are authorized to
include these pledges and agreements of the State [of Illinois] in any
contract with the holders of transitional funding instruments or with any
assignees pursuant to this Article XVIII [of the Public Utility Act] and any
assignees are similarly authorized to include these pledges and agreements of
the State [of Illinois] in any contract with any issuer, holder or any other
assignee. Nothing in this Article XVIII [of the Public Utility Act] shall
preclude the State of Illinois from requiring adjustments as may otherwise be
allowed by law to the electric utility's base rates, transition charges,
delivery services charges, or other charges for tariffed services, so long as
any such adjustment does not directly affect or impair any instrument funding
charges previously authorized by a transitional funding order issued by the
[Illinois Commerce Commission]."
As a result of the foregoing pledge, the State of Illinois may not,
except as provided in the succeeding sentence, in any way limit, alter,
impair or reduce the value of such intangible transition property or such
instrument funding changes in a manner substantially impairing the Note
Indenture or the rights and remedies of the Holders, until the Notes,
together with interest thereon, are fully paid and discharged.
Notwithstanding the immediately preceding sentence, the State of Illinois
would be allowed to effect a temporary impairment of the Holders' rights if
it could be shown that such impairment was necessary to advance a significant
and legitimate public purpose.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Class [__-__] Note may be registered on
the Note Register upon surrender of this Class [__-__] Note for registration
of transfer at the office or agency designated by the Note Issuer pursuant to
the Indenture, duly endorsed by, or accompanied by (a) a written instrument
of transfer in form satisfactory to the Indenture Trustee duly executed by
the Holder hereof or his attorney duly authorized in writing, with such
signature guaranteed by an institution which is a member of one of the
following recognized Signature Guaranty Programs: (i) The Securities
Transfer Agent Medallion Program (STAMP); (ii)The New York Stock Exchange
Medallion Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP);
or (iv) in such other guarantee program acceptable to the Indenture Trustee,
and (b) such other documents as
A-7
<PAGE>
the Indenture Trustee may require, and thereupon one or more new Class [__-__]
Notes of Minimum Denominations and in the same aggregate principal amount
will be issued to the designated transferee or transferees. No service
charge will be charged for any registration of transfer or exchange of this
Class [__-__] Note, but the transferor may be required to pay a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection with any such registration of transfer or exchange, other than
exchanges pursuant to Section 2.04 or 9.06 of the Indenture not involving any
transfer.
Each Note holder, by acceptance of a Note, covenants and agrees
that no recourse may be taken, directly or indirectly, with respect to the
obligations of the Note Issuer or the Indenture Trustee on the Notes or under
the Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Indenture Trustee or the Delaware Trustee in its
respective individual capacity, (ii) any owner of a beneficial interest in
the Note Issuer (including the Grantee and ComEd) or (iii) any partner,
owner, beneficiary, agent, officer or employee of the Indenture Trustee or
the Delaware Trustee in its respective individual capacity, any holder of a
beneficial interest in the Indenture Trustee or of any successor or assign
of any of them in their individual or corporate capacities, except as any
such Person may have expressly agreed (it being understood that none of the
Indenture Trustee, the Delaware Trustee, the Grantee and ComEd has any such
obligations in their respective individual or corporate capacities).
Prior to the due presentment for registration of transfer of this
Class [__-__] Note, the Note Issuer, the Indenture Trustee and any agent of
the Note Issuer or the Indenture Trustee may treat the Person in whose name
this Class [__-__] Note is registered (as of the day of determination) as the
owner hereof for the purpose of receiving payments of principal of and
premium, if any, and interest on this Class [__-__] Note and for all other
purposes whatsoever, whether or not this Class [__-__] Note be overdue, and
neither the Note Issuer, the Indenture Trustee nor any such agent shall be
affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of
the Note Issuer and the rights of the Holders of the Notes under the
Indenture at any time by the Note Issuer with the consent of the Holders of
Notes representing a majority of the Outstanding Amount of all Notes at the
time outstanding of each Series or Class to be affected. The Indenture also
contains provisions permitting the Holders of Notes representing specified
percentages of the Outstanding Amount of the Notes of all Series, on behalf
of the Holders of all the Notes, to waive compliance by the Note Issuer with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder
of this Class [__-__] Note (or any one of more Predecessor Notes) shall be
conclusive and binding upon such Holder and upon all future Holders of this
Class [__-__] Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof
A-8
<PAGE>
whether or not notation of such consent or waiver is made upon this Class
[__-__] Note. The Indenture also permits the Indenture Trustee to amend or
waive certain terms and conditions set forth in the Indenture without the
consent of Holders of the Notes issued thereunder.
The term "Note Issuer" as used in this Class [__-__] Note includes
any successor to the Note Issuer under the Indenture.
The Note Issuer is permitted by the Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the
Indenture Trustee and the Holders of Notes under the Indenture.
The Class [__-__] Notes are issuable only in registered form in
denominations as provided in the Indenture and the related Trustee's Issuance
Certificate or Series Supplement, if any, subject to certain limitations
therein set forth.
This Class [__-__] Note, the Indenture and the related Trustee's
Issuance Certificate or Series Supplement, if any, shall be construed in
accordance with the laws of the State of Illinois, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder and thereunder shall be determined in accordance with such
laws.
No reference herein to the Indenture and no provision of this Class
[__-__] Note or of the Indenture shall alter or impair the obligation, which is
absolute and unconditional, to pay the principal of and interest on this Class
[__-__] Note at the times, place, and rate, and in the coin or currency herein
prescribed.
The Holder of this Class [__-__] Note by the acceptance hereof
agrees that, notwithstanding any provision of the Indenture or the related
Trustee's Issuance Certificate or Series Supplement, if any, to the
contrary, the Holder shall have no recourse against the Note Issuer, but
shall look only to the Note Collateral, with respect to any amounts due to
the Holder under this Class [__-__] Note.
The Note Issuer and the Indenture Trustee, by entering into the
Indenture, and the Holders and any Persons holding a beneficial interest in
any Class [__-__] Note, by acquiring any Class [__-__] Note or interest
therein, (i) express their intention that the Class [__-__] Notes qualify
under applicable tax law as indebtedness of ComEd secured by the Note
Collateral and (ii) unless otherwise required by appropriate taxing
authorities, agree to treat the Class [__-__] Notes as indebtedness of ComEd
secured by the Note Collateral for the purpose of federal income, state and
local income and franchise taxes, and any other taxes imposed upon, measured
by or based upon gross or net income.
A-9
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
- ------------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto _____________________________________________
(name and address of assignee)
the within Class [__-__] Note and all rights thereunder, and hereby
irrevocably constitutes and appoints_____________, attorney, to transfer
said Class [__-__] Note on the books kept for registration thereof, with full
power of substitution in the premises.
Dated: ___________ __________________________
Signature Guaranteed:
___________________________
- -----------------
NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Class [__-__] Note
in every particular, without alteration, enlargement or any change
whatsoever.
A-10
<PAGE>
EXHIBIT B
TRUSTEE'S ISSUANCE CERTIFICATE dated as of ____, ____ (this
"Certificate"), executed and delivered by COMED TRANSITIONAL
FUNDING TRUST, a business trust created under the laws of the
State of Delaware (the "Note Issuer"), to Harris Trust and
Savings Bank, a banking corporation organized under the laws of
the State of Illinois (the "Indenture Trustee"), as Indenture
Trustee under the Indenture dated as of [ ], 1998, between
the Note Issuer and the Indenture Trustee (the "Indenture").
PRELIMINARY STATEMENT
Article II of the Indenture provides, among other things, that the
Note Issuer may at any time and from time to time execute and deliver to
the Indenture Trustee one or more Trustee's Issuance Certificates for the
purposes of authorizing the issuance by the Note Issuer of a Series of Notes
and specifying the terms thereof. The Note Issuer has duly authorized the
creation of a Series of Notes with an initial aggregate principal amount of $
[ ] to be known as ComEd Transitional Funding Notes, Series [ ] (the
"Series [ ] Notes"), and the Note Issuer is executing and delivering this
Certificate in order to provide for the Series [ ] Notes.
All terms used in this Certificate that are defined in the
Indenture, either directly or by reference therein, have the meanings
assigned to them therein, except to the extent such terms are defined or
modified in this Certificate or the context clearly requires otherwise. In
the event that any term or provision contained herein shall conflict with or
be inconsistent with any term or provision contained in the Indenture, the
terms and provisions of this Certificate shall govern.
SECTION 1. DESIGNATION. The Series [ ] Notes shall be
designated generally as ComEd Transitional Funding Notes, Series [ ] and
further denominated as Classes [ ] through [ ].
SECTION 2. INITIAL PRINCIPAL AMOUNT; NOTE INTEREST RATE; SCHEDULED
MATURITY DATE; FINAL MATURITY DATE. The Notes of each Class of the Series
[ ] shall have the initial principal amount, bear interest at the rates per
annum and shall have Scheduled Maturity Dates and Final Maturity Dates set
forth below:
B-1
<PAGE>
<TABLE>
Initial Note Scheduled Final
Principal Interest Maturity Maturity
Class Amount Rate Date Date
- ----- ------ ---- ---- ----
<S> <C> <C> <C> <C>
</TABLE>
The Note Interest Rate shall be computed on the basis of a 360-day year of
twelve 30-day months. [If the Notes of all or any Classes are to be Floating
Rate Notes, describe here the index or indexes to be used to determine the
applicable variable interest rate].
SECTION 3. AUTHENTICATION DATE; PAYMENT DATES; EXPECTED
AMORTIZATION SCHEDULE FOR PRINCIPAL; QUARTERLY INTEREST; REQUIRED
OVERCOLLATERALIZATION LEVEL; NO PREMIUM; OTHER TERMS. (a) AUTHENTICATION
DATE. The Series [ ] Notes that are authenticated and delivered by the
Indenture Trustee to or upon the order of the Note Issuer on [ ] (the
"Series Issuance Date") shall have as their date of authentication [ ].
(b) PAYMENT DATES. The Payment Dates for the Series [ ] Notes
are [March 15, June 15, September 15 and December 15] of each year or, if any
such date is not a Business Day, the next succeeding Business Day, commencing
on [ ] and continuing until the earlier of repayment of the Series [ ]
Notes in full and the Final Maturity Date for the Series [ ] Notes.
(c) EXPECTED AMORTIZATION SCHEDULE FOR PRINCIPAL. Unless an Event of
Default shall have occurred and be continuing on each Payment Date, the
Indenture Trustee shall distribute to the Holders of record as of the related
Record Date amounts payable pursuant to Section 8.02(d)(vii) of the Indenture as
principal, in the following order and priority: [(1) to the holders of the Class
A-1 Notes, until the Outstanding Amount of such Class of Notes thereof has been
reduced to zero; (2) to the holders of the Class A-2 Notes, until the
Outstanding Amount of such Class of Notes thereof has been reduced to zero; (3)
to the holders of the Class A-3 Notes, until the Outstanding Amount of such
Class of Notes thereof has been reduced to zero; (4) to the holders of the Class
A-4 Notes, until the Outstanding Amount of such Class of Notes thereof has been
reduced to zero; (5) to the holders of the Class A-5 Notes until the Outstanding
Amount of such Class of Notes thereof has been reduced to zero; (6) to the
holders of the Class A-6 Notes, until the Outstanding Amount of such Class of
Notes thereof has been reduced to zero; (7) to the holders of the Class A-7
Notes until the Outstanding Amount of such Class of Notes thereof has been
reduced to zero; and (8) to the holders of the Class A-8 Notes, until the
Outstanding Amount of such Class of Notes thereof has been reduced to zero;]
PROVIDED, HOWEVER, that in no event shall a principal payment pursuant to this
Section 3(c) on any Class on a Payment Date be greater than the amount necessary
to reduce the Outstanding Amount of such Class of Notes below the amount
specified in the Expected Amortization Schedule which is attached as Schedule A
hereto for such Class and Payment Date.
B-2
<PAGE>
(d) QUARTERLY INTEREST. [Quarterly] Interest will be payable on each
Class of the Series [ ] Notes on each Payment Date in an equal amount to
[one-fourth] of the product of (i) the applicable Note Interest Rate and (ii)
the Outstanding Amount of the related Class of Notes as of the close of business
on the preceding Payment Date after giving effect to all payments of principal
made to the holders of the related Class of Series [ ] Notes on such
preceding Payment Date; PROVIDED, HOWEVER, that with respect to the initial
Payment Date, or, if no payment has yet been made, interest on the outstanding
principal balance will accrue from and including the Series Issuance Date to,
but excluding, the following Payment Date.
(e) REQUIRED OVERCOLLATERALIZATION LEVEL. The Required
Overcollateralization Level for any Payment Date shall be as set forth in
Schedule B hereto.
[(f) NO PREMIUM, No premium will be payable in connection with any
optional redemption of the Series [ ] Notes.]
[(g) The Series [ ] Notes shall not be Book-Entry Notes and the
applicable provisions of Section 2.11 of the Indenture shall not apply to such
Notes.]
SECTION 4. MINIMUM DENOMINATIONS. The Series [ ] Notes shall be
issuable in the Minimum Denomination and integral multiples thereof.
SECTION 5. CERTAIN DEFINED TERMS. Article I of the Indenture
provides that the meanings of certain defined terms used in the Indenture shall,
when applied to the Notes of a particular Series, be as defined in Appendix A
to the Indenture. Additionally, Article II of the Indenture provides that with
respect to a particular Series of Notes, certain terms will have the meanings
specified in the related Certificate. With respect to the Series [ ]
Notes, the following definitions shall apply:
"MINIMUM DENOMINATION" shall mean $1,000.
"NOTE INTEREST RATE" has the meaning set forth in Section 2 of this
Certificate.
"PAYMENT DATE" has the meaning set forth in Section 3(b) of this
Certificate.
"QUARTERLY INTEREST" has the meaning set forth in Section 3(d) of
this Certificate.
"SERIES ISSUANCE DATE" has the meaning set forth in Section 3(a) of
this Certificate.
B-3
<PAGE>
SECTION 6. DELIVERY AND PAYMENT FOR THE SERIES [ ] NOTES; FORM
OF THE SERIES [ ] NOTES. The Indenture Trustee shall deliver the Series
[ ] Notes to the Note Issuer when authenticated in accordance with Section
2.03 of the Indenture. The Series [ ] Notes of each Class shall be in
the form of Exhibits [A-1 through A-_] hereto.
SECTION 7. RATIFICATION OF AGREEMENT. As supplemented by this
Certificate, the Indenture is in all respects ratified and confirmed and the
Indenture, as so supplemented by this Certificate, shall be read, taken, and
construed as one and the same instrument.
SECTION 8. COUNTERPARTS. This Certificate may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all of such counterparts shall together constitute but one and
the same instrument.
SECTION 9. GOVERNING LAW. This Certificate shall be construed in
accordance with the laws of the State of Illinois, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 10. TRUST OBLIGATION. No recourse may be taken directly or
indirectly, with respect to the obligations of the Note Issuer or the Indenture
Trustee on the Notes or under this Certificate or any certificate or other
writing delivered in connection herewith or therewith, against (i) the Indenture
Trustee or the Delaware Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Note Issuer (including the Grantee or ComEd) or (iii)
any partner, owner, beneficiary, agent, officer, director, employee or agent of
the Indenture Trustee or the Delaware Trustee in its individual capacity, any
holder of a beneficial interest in the Note Issuer or the Indenture Trustee or
of any successor or assign of any of them in their respective individual or
corporate capacities, except as any such Person may have expressly agreed (it
being understood that none of the Indenture Trustee, the Delaware Trustee, the
Grantee and ComEd have any such obligations in their respective individual or
corporate capacities).
B-4
<PAGE>
IN WITNESS WHEREOF, the Note Issuer has caused this Certificate to
be duly executed by a Responsible Officer thereunto duly authorized as of the
first day of the month and year first above written.
COMED TRANSITIONAL FUNDING TRUST, as
Note Issuer,
By: FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, not in its individual capacity but
solely as Delaware Trustee
By: _________________________________
Name: _____________________________
Title: ____________________________
RECEIVED, this ____ day
of ___________.
HARRIS TRUST AND SAVINGS BANK, not in its individual
capacity but solely as Indenture Trustee
By: _________________________________
Name: _____________________________
Title: _____________________________
B-5
<PAGE>
SCHEDULE A
EXPECTED AMORTIZATION SCHEDULE
OUTSTANDING PRINCIPAL BALANCE
<TABLE>
<CAPTION>
Date Class Class Class Class Class
- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Series Issuance $ $ $ $ $
</TABLE>
Date
,199
,199
,199
,199
[Etc.]
B-6
<PAGE>
SCHEDULE B
REQUIRED OVERCOLLATERALIZATION LEVEL SCHEDULE
<TABLE>
<CAPTION>
Required
Payment Date Overcollateralization Level
------------ ---------------------------
<S> <C>
,199 $
,199 $
,199 $
[Etc.] $
</TABLE>
B-7
<PAGE>
EXHIBIT C
SERIES SUPPLEMENT dated as of ____, 199 ____ (this "Supplement"),
by and between COMED TRANSITIONAL FUNDING TRUST, a business trust
created under the laws of the State of Delaware (the "Note
Issuer"), and, Harris Trust and Savings Bank, a banking
corporation organized under the laws of the State of Illinois
(the "Indenture Trustee"), as Indenture Trustee under the
Indenture dated as of [ ], 1998, between the Note Issuer and
the Indenture trustee (the "Indenture").
PRELIMINARY STATEMENT
Section 9.01 of the Indenture provides, among other things, that
the Note Issuer and the Indenture Trustee may at any time and from time to
time enter into one or more indentures supplemental to the Indenture for the
purposes of authorizing the issuance by the Note Issuer of a Series of Notes
and specifying the terms thereof. The Note Issuer has duly authorized the
creation of a series of Notes with an initial aggregate principal amount of
$ [ ] to be known as ComEd Transitional Funding Trust Notes, Series [ ]
(the "Series [ ] Notes"), and the Note Issuer and the Indenture Trustee are
executing and delivering this Supplement in order to provide for the Series
[ ] Notes.
All terms used in this Supplement that are defined in the Indenture,
either directly or by reference therein, have the meanings assigned to them
therein, except to the extent such terms are defined or modified in this
Supplement or the context clearly requires otherwise. In the event that any
term or provision contained herein shall conflict with or be inconsistent with
any term or provision contained in the Indenture, the terms and provisions of
this Supplement shall govern.
SECTION 1. DESIGNATION. The Series [ ] Notes shall be designated
generally as the ComEd Transitional Funding Trust Notes, Series [ ] and
further denominated as Classes [ ] through [ ].
SECTION 2. Initial Principal Amount; Note Interest Rate; Scheduled
Maturity Date; Final Maturity Date. The Notes of each class of the Series [ ]
shall have the initial principal amount, bear interest at the rates per annum
and shall have Scheduled Maturity Dates and Final Maturity Dates set forth
below:
C-1
<PAGE>
<TABLE>
Initial Note Scheduled Final
Principal Interest Maturity Maturity
Class Amount Rate Date Date
- ----- --------- -------- --------- --------
<S> <C> <C> <C> <C>
</TABLE>
The Note Interest Rate shall be computed on the basis of a 360-day year of
twelve 30-day months. [If the Notes of all or any Classes are to be Floating
Rate Notes, describe here the index or indexes to be used to determine the
applicable variable rate.]
SECTION 3. AUTHENTICATION DATE; PAYMENT DATES; EXPECTED AMORTIZATION
SCHEDULE FOR PRINCIPAL; QUARTERLY INTEREST; REQUIRED OVERCOLLATERALIZATION
LEVEL; NO PREMIUM. (a) AUTHENTICATION DATE. The Series [ ] Notes that are
authenticated and delivered by the Indenture Trustee to or upon the order of the
Note Issuer on [ ] (the "Series Issuance Date") shall have as their date of
authentication [ ].
(b) PAYMENT DATES. The Payment Dates for the Series [ ] Notes are
[March 15, June 15, September 15 and December 15] of each year or, if any such
date is not a Business Day, the next succeeding Business Day, commencing on [ ]
and continuing until the earlier of repayment of the Series [ ] Notes in full
and the final maturity date for the Series [ ] Notes.
(c) EXPECTED AMORTIZATION SCHEDULE FOR PRINCIPAL. Unless an Event of
Default shall have occurred and be continuing on each Payment Date, the
Indenture Trustee shall distribute to the Holders of record as of the related
Record Date amounts payable pursuant to Section 8.02(d)(vii) of the Indenture as
principal, in the following order and priority: [(1) to the holders of the Class
A-1 Notes, until the Outstanding Amount of such Class of Notes thereof has been
reduced to zero; (2) to the holders of the Class A-2 Notes, until the
Outstanding Amount of such Class of Notes thereof has been reduced to zero; (3)
to the holders of the Class A-3 Notes, until the Outstanding Amount of such
Class of Notes thereof has been reduced to zero; (4) to the holders of the Class
A-4 Notes, until the Outstanding Amount of such Class of Notes thereof has been
reduced to zero; (5) to the holders of the Class A-5 Notes until the Outstanding
Amount of such Class of Notes thereof has been reduced to zero; (6) to the
holders of the Class A-6 Notes, until the Outstanding Amount of such Class of
Notes thereof has been reduced to zero; (7) to the holders of the Class A-7
Notes until the Outstanding amount of such Class of Notes thereof has been
reduced to zero; and (8) to the holders of the Class A-8 Notes, until the
Outstanding amount of such Class of Notes thereof has been reduced to zero;]
PROVIDED, HOWEVER, that in no event shall a principal payment pursuant to this
Section 3(c) on any Class on a Payment Date be greater than the amount necessary
to reduce the Outstanding Amount of such Class of Notes below the amount
specified in the Expected Amortization Schedule which is attached as Schedule A
hereto for such Class and Payment Date.
C-2
<PAGE>
(d) QUARTERLY INTEREST. [Quarterly] Interest will be payable on
each Class of the Series [ ] Notes on each Payment Date in an equal amount
to [one-fourth] of the product of (i) the applicable Note Interest Rate and
(ii) the Outstanding Amount of the related Class of Notes as of the close of
business on the preceding Payment Date after giving effect to all payments of
principal made to the holders of the related Class of Series [ ] Notes on
such preceding Payment Date; PROVIDED, HOWEVER, that with respect to the
initial Payment Date, or, if no payment has yet been made, interest on the
outstanding principal balance will accrue from and including the Series
Issuance Date to, but excluding, the following Payment Date.
(e) REQUIRED OVERCOLLATERALIZATION LEVEL. The Required
Overcollateralization Level for any Payment Date shall be as set forth in
Schedule B hereto.
[(f) NO PREMIUM. No Premium will be payable in connection with any
optional redemption of the Series [ ] Notes.]
[(g) The Series [ ] Notes shall not be Book-Entry Notes and the
applicable provisions of Section 2.11 of the Indenture shall not apply to such
Notes.]
SECTION 4. MINIMUM DENOMINATIONS. The Series [ ] Notes shall be
Issuable in the Minimum Denomination and Integral Multiples thereof.
SECTION 5. CERTAIN DEFINED TERMS. Article I of the Indenture
provides that the meanings of certain defined terms used in the Indenture shall,
when applied to the Notes of a particular Series, be as defined in Appendix A to
the Indenture. Additionally, Article II of the Indenture provides that with
respect to a particular Series of Notes, certain terms will have the meanings
specified in the related Supplement. With respect to the Series [ ] Notes,
the following definitions shall apply:
"MINIMUM DENOMINATION" shall mean $1,000.
"NOTE INTEREST RATE" has the meaning set forth in Section 2 of this
Supplement.
"PAYMENT DATE" has the meaning set forth in section 3(b) of this
Supplement.
"QUARTERLY INTEREST" has the meaning set forth in Section 3(d) of
this Supplement.
"SERIES ISSUANCE DATE" has the meaning set forth in Section 3(a) of
this Supplement.
C-3
<PAGE>
SECTION 6. DELIVERY AND PAYMENT FOR THE SERIES [ ] NOTES; FORM
OF THE SERIES [ ] NOTES. The Indenture Trustee shall deliver the Series
[ ] Notes to the Note Issuer when authenticated in accordance with Section
2.03 of the Indenture. The Series [ ] Notes of each Class shall be in
the form of Exhibits [A-1 through A-_] hereto.
SECTION 7. RATIFICATION OF AGREEMENT. As supplemented by this
Supplement, the Indenture is in all respects ratified and confirmed and the
Indenture, as so supplemented by this Supplement, shall be read, taken, and
construed as one and the same instrument.
SECTION 8. COUNTERPARTS. This Supplement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all of such counterparts shall together constitute but one and the
same instrument.
SECTION 9. GOVERNING LAW. This Supplement shall be construed in
accordance with the laws of the State of Illinois, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 10. TRUST OBLIGATION. No recourse may be taken directly or
indirectly, with respect to the obligations of the Note Issuer or the Indenture
Trustee on the Notes or under this Supplement or any certificate or other
writing delivered in connection herewith or therewith, against (i) the Indenture
Trustee or the Delaware Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Note Issuer (including the Grantee or ComEd) or (iii)
any partner, owner, beneficiary, agent, officer, director, employee or agent of
the Indenture Trustee or the Delaware Trustee in its individual capacity, any
holder of a beneficial interest in the Note Issuer or the Indenture Trustee or
of any successor or assign of any of them in their respective individual or
corporate capacities, except as any such person may have expressly agreed (it
being understood that none of the Indenture Trustee, the Delaware Trustee, the
Grantee and ComEd have any such obligations in their respective individual or
corporate capacities).
C-4
<PAGE>
IN WITNESS WHEREOF, the Note Issuer and the Indenture Trustee have
caused this Supplement to be duly executed by their respective officers
thereunto duly authorized as of the first day of the month and year first above
written.
COMED TRANSITIONAL FUNDING TRUST, as
Note Issuer,
By: FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, not in its individual capacity
but solely as Delaware Trustee
By: _________________________________
Name: ______________________________
Title: _______________________________
HARRIS TRUST AND SAVINGS BANK, not in its
individual capacity but solely as Indenture
Trustee
By: _________________________________
Name: ______________________________
Title: _______________________________
C-5
<PAGE>
SCHEDULE A
Expected Amortization Schedule
Outstanding Principal Balance
<TABLE>
<CAPTION>
Date Class Class Class Class Class
- ---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Series Issuance $ $ $ $ $
</TABLE>
Date
,199
,199
,199
,199
[Etc.]
C-6
<PAGE>
SCHEDULE B
REQUIRED OVERCOLLATERALIZATION LEVEL SCHEDULE
<TABLE>
<CAPTION>
Required
Payment Date Overcollateralization Level
------------ ---------------------------
<S> <C>
,199 $
,199 $
,199 $
[Etc.] $
</TABLE>
C-7
<PAGE>
BLACKLINED VERSION REVISED FROM FORM FILED
WITH AMENDMENT NO. 1
EXHIBIT 4.3
FORM OF APPENDIX A TO INDENTURE
APPENDIX A
DEFINITIONS
This is APPENDIX A to the Indenture.
A. DEFINED TERMS. As used in the Grant Agreement, the Sale
Agreement, the Indenture, the Trust Agreement, the Servicing Agreement,
Trustee's Issuance Certificate, Series Supplement or any other Basic Document as
hereinafter defined, as the case may be (unless the context requires a different
meaning), the following terms have the following meanings:
"1998 FUNDING ORDER" means the Final Transitional Funding Order dated
July 21, 1998 issued by the ICC pursuant to the Funding Law, Docket No. 98-0319.
"1998 INITIAL TARIFF" means the initial Tariff filed with the ICC to
evidence the IFCs pursuant to the 1998 Funding Order.
"1998 TRANSITION PROPERTY" means all ITP created in favor of the
Grantee pursuant to the 1998 Funding Order.
"ACT" is defined in Section 11.03 of the Indenture.
"ACTUAL IFC COLLECTIONS" means, with respect to IFCs billed in any
Billing Period, the amount of such IFCs less Net IFC Write-Offs calculated for
the Billing Period which occurs five Collection Periods after the Billing Period
in which such IFCs were billed.
"ADJUSTMENTS" means a Reconciliation Adjustment or a True-Up
Adjustment, as the context may require.
"ADMINISTRATION AGREEMENT" means the Administration Agreement dated as
of [__], 1998, among ComEd, the Grantee and the Note Issuer, as the same may be
amended, supplemented or otherwise modified from time to time.
"ADMINISTRATOR" means ComEd and any successor in interest to the
extent permitted under the Administration Agreement.
<PAGE>
"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.
"AGENCY OFFICE" means the office of the Note Issuer maintained
pursuant to Section 3.02 of the Indenture.
"AGGREGATE REMITTANCE AMOUNT" has the meaning set forth in ANNEX I to
the Servicing Agreement.
"ALLOCABLE IFC REVENUE AMOUNTS" means, (i) with respect to any
lump-sum payments of transition charges under Section 16-108(h) of the Public
Utilities Act or (ii) with respect to any revenues derived from condemnation
proceedings, or FERC stranded cost recoveries or any other amounts which
reflect compensation for lost revenues which would otherwise have been
attributable to Applicable Rates, the allocable amounts of such transition
charges or other revenues which are deemed to be proceeds of the IFCs in
accordance with the terms of the Funding Order and which are to be set aside
for the benefit of the Note Issuer, in each case as calculated pursuant to
Section 6(f) of ANNEX I to the Servicing Agreement.
"AMENDATORY ACT" means the Electric Service Customer Choice and Rate
Relief Law of 1997, 220 ILCS 5/16-101 ET SEQ., 220 ILCS 5/17-101 ET SEQ. and 220
ILCS 5/18-101 ET SEQ., as amended from time to time.
"AMENDATORY TARIFF" means a tariff or notice filing filed with the ICC
in respect of a Reconciliation Adjustment or a True-Up Adjustment, substantially
in the form of EXHIBIT C to the Servicing Agreement.
"ANNUAL ACCOUNTANT'S REPORT" is defined in Section 3.04 of the
Servicing Agreement.
"APPLICABLE ARES" means, with respect to each Customer taking service
from an ARES, the ARES, if any, providing consolidated billing to that Customer
which includes billing of IFCs.
"APPLICABLE RATES" means all of ComEd's tariffed charges including,
without limitation, charges for base rates and delivery services and transition
charges (including lump-sum payments of such charges); PROVIDED, however, that
Applicable Rates shall not include late charges or charges set forth in those
tariffs which are filed specifically and primarily to collect amounts related to
decommissioning expense, taxes, franchise fees or other franchise cost
additions, costs imposed by local governmental units which are allocated and
charged to customers within the boundaries of such governmental units'
jurisdiction, renewable energy resources and coal technology development
assistance charges, energy assistance charges for the
2
<PAGE>
Supplemental Low-Income Energy Assistance Fund, reimbursement for the costs
of optional or non-standard facilities and reimbursement for the costs of
optional or non-standard meters, or monies that will be paid to third parties
(after deduction of allowable administrative, servicing or similar fees).
"APPLICATION" means the Application for Transitional Funding Order and
Petition filed by ComEd with the ICC dated April 22, 1998 pursuant to Section
18-103 of the Funding Law.
"ARES" means an alternative retail electric supplier as defined in
Section 16-102 of the Amendatory Act.
"ARES SERVICE AGREEMENT" means an agreement between an ARES and ComEd
for the provision of consolidated billing by such ARES to customers in
accordance with ICC Regulations, the terms of any Tariffs and the terms of any
delivery service tariffs filed by ComEd under Section 16-118(b) of the Public
Utilities Act.
"BANKRUPTCY CODE" means Title 11 of the United States Code (11 U.S.C.
Section 101 ET SEQ.), as amended from time to time.
"BASIC DOCUMENTS" means each Grant Agreement, each Sale Agreement, the
Indenture, the Trust Agreement, the Servicing Agreement, each Series Supplement,
each Trustee's Issuance Certificate, the Administration Agreement, each Letter
of Representations, the Note Depository Agreement, each Underwriting Agreement
and all other documents and certificates delivered in connection therewith.
"BENEFIT PLAN" means, with respect to any Person, any defined benefit
plan (as defined in Section 3(35) of ERISA) that (a) is or was at any time
during the past six years maintained by such Person or any ERISA Affiliate of
such person, or to which contributions by any such Person are or were at any
time during the past six years required to be made or under which such Person
has or could have any liability or (b) is subject to the provisions of Title IV
of ERISA.
"BILLING PERIOD" means the period created by dividing the calendar
year into twelve consecutive periods of approximately twenty-one (21) Servicer
Business Days.
"BILLS" means each of the regular monthly bills, summary bills,
opening bills and closing bills issued to Customers or ARES by ComEd on its own
behalf and in its capacity as Servicer.
"BOOK-ENTRY FORM" means, with respect to any Note or Series of Notes,
that such Note or Series is not certificated and the ownership and transfers
thereof shall be made through the book entries by a Clearing Agency as described
in Section 2.11 of the Indenture and the applicable Trustee's Issuance
Certificate or Series Supplement, if any, pursuant to which such Note or Series
was issued.
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"BOOK-ENTRY NOTES" means any Notes issued in Book-Entry Form;
PROVIDED, HOWEVER, that after the occurrence of a condition whereupon book-entry
registration and transfer are no longer permitted and Definitive Notes are to be
issued to the Holder of such Notes, such Notes shall no longer be "Book-Entry
Notes".
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day
on which banking institutions or trust companies in Wilmington, Delaware,
Chicago, Illinois or New York, New York or the Depository Trust Company are
authorized or required by law, regulation or executive order to remain closed.
"BUSINESS TRUST ACT" means the Delaware Business Trust Act, 12 Del.
Code Section 3801 ET SEQ.
"CALCULATION PERIOD" means initially, the period commencing on the
Closing Date and ending on May 31, 1999 and, thereafter, each period of six
Collection Periods which ends one month prior to a Reconciliation Adjustment
Date; PROVIDED, that, if a True-Up Adjustment is required, then the Calculation
Period for such True-Up Adjustment shall mean the Collection Period of three
Collection Periods commencing with the period during which such True-Up
Adjustment is calculated and ending with the last day of the Collection Period
immediately preceding the next Payment Date.
"CAPITAL CONTRIBUTION" means the amount of cash contributed to the
Note Issuer by the Grantee as specified in the Trust Agreement.
"CAPITAL SUBACCOUNT" is defined in Section 8.02(a) of the Indenture.
"CERTIFICATE OF COMPLIANCE" means the certificate referred to in
Section 3.03 of the Servicing Agreement and substantially in the form of EXHIBIT
B attached to the Servicing Agreement.
"CERTIFICATE OF FORMATION" means the Amended and Restated Certificate
of Formation of the Grantee filed as of October 21, 1998 pursuant to, and in
accordance with, the Delaware Limited Liability Company Act, 6 Del. Code Section
18-101 ET SEQ.
"CERTIFICATE OF TRUST" means the Certificate of Trust filed with the
Secretary of State pursuant to which the Trust was established, substantially in
the form of EXHIBIT A to the Trust Agreement.
"CLAIM" means a "claim" as defined in Section 101(5) of the Bankruptcy
Code.
"CLASS" means, 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, as amended.
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"CLEARING AGENCY PARTICIPANT" means a securities broker, dealer, bank,
trust company, clearing corporation or other financial institution or other
Person for whom from time to time a Clearing Agency effects book entry transfers
and pledges of securities deposited with the Clearing Agency.
"CLOSING DATE" means December __, 1998.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and Treasury Regulations promulgated thereunder.
"COLLECTION ACCOUNT" means the account established and maintained by
the Indenture Trustee in accordance with Section 8.02(a) of the Indenture and
any subaccounts contained therein.
"COLLECTION PERIOD" means any period commencing on the first Servicer
Business Day of any calendar month and ending on the last Servicer Business Day
of such month.
"COMED" means Commonwealth Edison Company, an Illinois corporation,
and any successor in interest to the extent permitted under the Grant
Agreement.
"CONSOLIDATED ARES BILLING" has the meaning set forth in ANNEX I to
the Servicing Agreement.
"CORPORATE TRUST OFFICE" means with respect to the Indenture Trustee
or the Delaware Trustee, the principal office at which at any particular time
the corporate trust business of the Indenture Trustee or the Delaware Trustee,
respectively, shall be administered, which offices at the Closing Date are
located, in the case of the Indenture Trustee, at 311 West Monroe Street,
Chicago, Illinois, 60606, 12th Floor, Attention: Indenture Trust Administration,
and in the case of the Delaware Trustee, at First Union Trust Company, National
Association, One Rodney Square, 920 King Street, 1st Floor, Wilmington, Delaware
19801, Attention: Corporate Trust Administration or at such other address as the
Indenture Trustee or Delaware Trustee may designate from time to time by notice
to the Holders and the Note Issuer, or the principal corporate trust office of
any successor Indenture Trustee or Delaware Trustee (the addresses of which the
successor Indenture Trustee or Delaware Trustee will notify the Holders and the
Note Issuer).
"COVENANT DEFEASANCE OPTION" is defined in Section 4.01(b) of the
Indenture.
"CUSTOMERS" means all existing and future retail customers or classes
of retail customers of ComEd or other Persons or group of Persons obligated from
time to time to pay ComEd or any successor "Applicable Rates," and all other
Persons obligated to pay IFCs pursuant to the 1998 Funding Order or any
Subsequent Funding Order, as applicable, and, including, without limitation, any
Persons who enter into contracts with ComEd to take non-tariffed electrical
services but would otherwise have been obligated to pay Applicable Rates.
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"DEBT SERVICE BILLING REQUIREMENT" means, for any Calculation Period,
the aggregate amount of IFCs calculated by the Servicer as necessary to be
billed during such period in order to collect the Required Debt Service on or
before the end of the Collection Period immediately preceding the next Payment
Date.
"DEFAULT" means any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default as defined in Section 5.01 of the
Indenture.
"DEFINITIVE NOTES" means Notes issued in definitive form in accordance
with Section 2.13 of the Indenture.
"DELAWARE TRUSTEE" means the Person acting as Delaware Trustee under
the Trust Agreement.
"DTC" means the Depository Trust Company or any successor thereto.
"DUFF & PHELPS" means Duff & Phelps Credit Rating Co. or any successor
thereto.
"ELIGIBLE DEPOSIT ACCOUNT" means either (a) a segregated trust 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 Indenture Trustee; PROVIDED that an account with the Indenture Trustee
will only be an Eligible Deposit Account if it is a segregated trust account
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 AAA by Standard & Poor's
and Aaa by Moody's, and if rated by Fitch IBCA, AAA by Fitch IBCA and if
rated by Duff & Phelps, AAA by Duff & Phelps or (B) a certificate of deposit
rating of A-1+ by Standard & Poor's and P-1 by Moody's, and if rated by Fitch
IBCA, F1+ by Fitch IBCA and if rated by Duff & Phelps, D-1+ by Duff & Phelps
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 under clause (b) above, the Indenture Trustee may be
considered an Eligible Institution for the purposes of clause (a) 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;
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(b) demand deposits, time deposits, certificates of deposit or
bankers' acceptances of depository institutions meeting the
requirements of clause (b) of the definition of Eligible Institution;
(c) commercial paper (other than commercial paper of ComEd or
any of its Affiliates) having, at the time of the investment or
contractual commitment to invest therein, a rating from each of the
Rating Agencies from which a rating is available in the highest
investment category granted thereby;
(d) investments in money market funds having a rating from each
of the Rating Agencies from which a rating is available in the highest
investment category granted thereby (including funds for which the
Indenture Trustee or any of its Affiliates is investment manager or
advisor);
(e) 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 depository institutions or
trust companies meeting the requirements of clause (b) of the
definition of Eligible Institutions; and
(f) any other investment permitted by each of the Rating
Agencies;
in each case maturing not later than the Business Day immediately preceding the
next Payment Date. Notwithstanding the foregoing, (x) Eligible Investments in
the Collection Account may mature not later than the Business Day immediately
preceding the next Payment Date, and (y) subject to the conditions and
limitations set forth in Section 8.03 of the Indenture, funds in the Collection
Account may be invested in securities that will not mature prior to each Payment
Date; PROVIDED, HOWEVER, that any securities or investments which mature in 32
days or more shall not be an "Eligible Investment" unless the issuer thereof has
a long-term unsecured debt rating of at least A1 from Moody's and A+ from S&P.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESTIMATED IFC COLLECTIONS" means the sum of the amounts remitted with
respect to IFCs billed in any Billing Period during such Billing Period and
the five Collection Periods following such Billing Period based on the
Collections Curves.
"EVENT OF DEFAULT" is defined in Section 5.01 of the Indenture.
"EXCESS REMITTANCE" means the amount, if any, calculated for a
particular Monthly Remittance Date, by which all Estimated IFC Collections
remitted to the Collection Account on and prior to such Monthly Remittance Date
with respect to the IFCs billed to
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Customers during the sixth preceding Billing Period exceed Actual IFC
Collections received by the Servicer attributable to such preceding Billing
Period.
"EXPECTED AMORTIZATION SCHEDULE" means SCHEDULE 4.01(a) to the
Servicing Agreement, as the same may be amended from time to time.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor thereto.
"FERC" means the Federal Energy Regulatory Commission or any successor
thereto.
"FINAL" means, with respect to any Funding Order, that such Funding
Order has become final and that the time for filing an appeal therefrom has
expired.
"FINAL MATURITY DATE" means, with respect to any Series or Class of
Notes, the Final Maturity Date therefor, as specified in the related Trustee's
Issuance Certificate or Series Supplement, if any.
"FITCH IBCA" means Fitch IBCA, Inc. or any successor thereto.
"FLOATING RATE NOTES" means any Series or Class of Notes that accrue
interest at a variable rate based on the index described in the related
Trustee's Issuance Certificate or Series Supplement, if any.
"FUNDING LAW" means the Electric Utility Transitional Funding Law of
1997, 220 ILCS 5/18-101 ET SEQ.
"FUNDING ORDER" means, as the context may require, (i) the 1998
Funding Order and/or (ii) any Subsequent Funding Order.
"GENERAL SUBACCOUNT" is defined in Section 8.02(a) of the Indenture.
"GLOBAL NOTE" means a Note evidencing all or any part of a Series of
Notes to be issued to the Holders thereof in Book-Entry Form, which Global Note
shall be issued to the Clearing Agency, or its nominee, for such Series, in
accordance with Section 2.11 of the Indenture and the applicable Trustee's
Issuance Certificate or Series Supplement, if any, pursuant to which the Note is
issued.
"GOVERNMENTAL AUTHORITY" means any nation or government, any federal,
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative function of
government.
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"GRANT" means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, grant, 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 the Indenture. A Grant of the Note Collateral or of any other
agreement or instrument included therein 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 Note 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.
"GRANT AGREEMENT" means that certain Agreement Relating to Grant of
Intangible Transition Property dated as of December __, 1998 between ComEd and
the Grantee, as the same may be amended, supplemented or otherwise modified from
time to time.
"GRANTEE" means ComEd Funding, LLC, a Delaware limited liability
company, and any successor in interest to the extent permitted under the Sale
Agreement and the other Basic Documents.
"HOLDER" means the Person in whose name a Note is registered on the
Note Register.
"ICC" means the Illinois Commerce Commission, or any successor
thereto.
"ICC REGULATIONS" means the regulations, including proposed or
temporary regulations, promulgated under the Public Utilities Act.
"IFC" means the instrument funding charge as defined in Section 18-102
of the Funding Law (expressed in cents per kilowatt-hour) and as authorized by a
Funding Order, including, without limitation, each "IFC" or equivalent amount
which Customers agree to pay pursuant to any contract under which ComEd agrees
to provide non-tariffed electrical service and which are deemed to be proceeds
of the Intangible Transition Property in accordance with the terms of the
applicable Funding Order.
"IFC COLLECTIONS" means IFCs received by the Servicer which are
remitted to the Collection Account.
"IFC CUSTOMER CLASS" has the meaning set forth in Annex I of the
Servicing Agreement.
"IFC PAYMENTS" means the payments made by Customers based on the IFCs.
"INDENTURE" means the Indenture dated as of December __, 1998 between
the Note Issuer and the Indenture Trustee as originally executed and, as from
time to time
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supplemented or amended by one or more Trustee's Issuance Certificate or
indentures supplemental thereto entered into pursuant to the applicable
provisions of the Indenture, as so supplemented or amended, or both, and
shall include the forms and terms of the Notes established thereunder.
"INDENTURE TRUSTEE" means Harris Trust and Savings Bank, an
Illinois banking corporation, as Indenture Trustee under the Indenture, or
any successor Indenture Trustee under the Indenture.
"INDEPENDENT" means, when used with respect to any specified
Person, that the Person (a) is in fact independent of the Note Issuer, any
other obligor on the Notes, the Grantee, 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 Grantee, 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 Grantee, 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 Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.01 of the
Indenture, made by an Independent appraiser or other expert appointed by an
Issuer Order and consented to by the Indenture Trustee, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in the Indenture and that the signer is Independent within the meaning thereof.
"INDIRECT PARTICIPANT" means a securities broker, dealer, bank, trust
company or other Person that clears through or maintains a custodial
relationship with a Clearing Agency Participant, either directly or indirectly.
"INSOLVENCY EVENT" means, with respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable Federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or ordering the
winding-up or liquidation of such Person's affairs, and such decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; or (b)
the commencement by such Person of a voluntary case under any applicable Federal
or state bankruptcy, insolvency or other similar law now or hereafter in effect,
or the consent by such Person to the entry of an order for relief in an
involuntary case under any such law, or the consent by such Person to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or the making by such Person of any general
assignment for the benefit of creditors, or the failure by such Person generally
to pay its debts as such debts become due, or the taking of action by such
Person in furtherance of any of the foregoing.
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"INSOLVENCY LAW" means any applicable Federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect.
"INTANGIBLE TRANSITION PROPERTY" or "ITP" means all intangible
transition property as defined in Section 18-102 of the Funding Law created in
favor of the Grantee pursuant to a Funding Order and assigned to the Note Issuer
pursuant to a Sale Agreement, including the 1998 Transition Property and any
Subsequent Transition Property, and, including, without limitation, all
Allocable IFC Revenue Amounts.
"INVESTMENT EARNINGS" means investment earnings on funds deposited in
the Collection Account net of losses and investment expenses.
"ISSUER ORDER" and "ISSUER REQUEST" mean a written order or request
signed in the name of the Note Issuer by any one of its Responsible Officers and
delivered to the Indenture Trustee or Paying Agent, as applicable.
"LEGAL DEFEASANCE OPTION" is defined in Section 4.01(b) of the
Indenture.
"LETTER OF REPRESENTATIONS" means any applicable agreement among the
Note Issuer, the Indenture Trustee, the Administrator and the applicable
Clearing Agency, with respect to such Clearing Agency's rights and obligations
(in its capacity as a Clearing Agency) with respect to any Book-Entry Notes, as
the same may be amended, supplemented, restated or otherwise modified from time
to time.
"LIEN" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind other than tax liens, mechanics' liens and any liens
that attach by operation of law.
"MINIMUM DENOMINATION" means, with respect to any Note, the minimum
denomination therefor specified in the applicable Trustee's Issuance Certificate
or Series Supplement, if any, which minimum denomination shall be not less than
[$1,000] and, except as otherwise provided in such Trustee's Issuance
Certificate or Series Supplement, if any, integral multiples thereof.
"MONTHLY COLLECTIONS CURVES" has the meaning set forth in the
Servicing Agreement.
"MONTHLY REMITTANCE DATE" means the tenth day of each calendar month
or, if such day is not a Business Day, the next succeeding Business Day.
"MONTHLY SERVICER'S CERTIFICATE" means a certificate, substantially in
the form of EXHIBIT A to the Servicing Agreement, completed and executed by a
Responsible Officer of the Servicer pursuant to Section 3.01(b)(i) of the
Servicing Agreement.
"MOODY'S" means Moody's Investors Service Inc. or any successor
thereto.
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"NET IFC WRITE-OFFS" is defined in Annex I to the Servicing Agreement.
"NOTE COLLATERAL" has the meaning specified in the Granting Clause of
the Indenture.
"NOTE DEPOSITORY" means the depositary from time to time selected by
the Indenture Trustee on behalf of the Note Issuer in whose name the Notes are
registered prior to the issuance of Definitive Notes. The initial Note
Depository shall be Cede & Co., the nominee of the initial Clearing Agency.
"NOTE DEPOSITORY AGREEMENT" means the agreement, dated as of the
Closing Date, among the Note Issuer, the Indenture Trustee and the DTC, as the
initial Clearing Agency relating to the Notes, as the same may be amended
supplemented or otherwise modified from time to time.
"NOTE INTEREST RATE" means, with respect to any Series or Class of
Notes, the rate at which interest accrues on the Notes of such Series or Class,
as specified in the related Trustee's Issuance Certificate or Series Supplement,
if any.
"NOTE ISSUER" means ComEd Transitional Funding Trust, a Delaware
business trust named as such in the 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 OWNER" means with respect to a Book-Entry Note, the Person who
is the beneficial owner of such Book-Entry Note, as reflected on the books of
the Clearing Agency, or on the books of a Person maintaining an account with
such Clearing Agency (directly as a Clearing Agency Participant or as an
Indirect Participant, in each case in accordance with the rules of such Clearing
Agency).
"NOTE REGISTER" means the register maintained pursuant to Section 2.05
of the Indenture, providing for the registration of the Notes and transfers and
exchanges thereof.
"NOTE REGISTRAR" means the registrar at any time of the Note Register,
appointed pursuant to Section 2.05 of the Indenture.
"NOTES" means one or more Series of Notes authorized by the 1998
Funding Order and any Subsequent Funding Order and issued under the Indenture.
"OFFICER'S CERTIFICATE" means a certificate signed by a Responsible
Officer of the Note Issuer under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.01 of the Indenture,
and delivered to the Indenture Trustee. Unless otherwise specified, any
reference in the Indenture to an Officer's Certificate shall be to an Officer's
Certificate of any Responsible Officer of the party delivering such certificate.
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"OPERATING AGREEMENT" means the Amended and Restated Limited Liability
Company Agreement of the Grantee dated as of October 21, 1998 executed by ComEd
as sole member of the Grantee.
"OPERATING EXPENSES" means all fees, costs and expenses of the Note
Issuer, including all amounts owed by the Note Issuer to the Indenture Trustee
and the Delaware Trustee, 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 Grantee.
"OPINION OF COUNSEL" means one or more written opinions of counsel who
may, except as otherwise expressly provided in the Basic Documents, be employees
of or counsel to the party providing such opinion of counsel, which counsel
shall be acceptable to the party receiving such opinion of counsel, and shall be
in form and substance acceptable to such party.
"OPTIONAL REDEMPTION DATE" means, with respect to any Series of Notes,
the Payment Date specified for the redemption of the Notes of such Series
pursuant to Section 10.01 of the Indenture.
"OPTIONAL REDEMPTION PRICE" is defined in Section 10.01 of the
Indenture.
"OUTSTANDING" means, as of the date of determination, all Notes
theretofore authenticated and delivered under this Indenture except:
(a) Notes theretofore canceled by the Note Registrar or delivered to
the Note Registrar for cancellation;
(b) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited with the Indenture 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 Indenture Trustee, made); and
(c) 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 Indenture 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 Grantee or any Affiliate of any of the foregoing Persons shall be
disregarded and deemed not to be outstanding, except that, in determining
whether the Indenture Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only Notes
that the Indenture Trustee actually knows to be so owned shall be so
disregarded. Notes so owned that have been pledged in good
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faith may be regarded as outstanding if the pledgee establishes to the
satisfaction of the Indenture 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 Grantee 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" is defined in Section 8.02(a) of
the Indenture.
"PAYING AGENT" means with respect to the Indenture, the Indenture
Trustee or any other Person that meets the eligibility standards for the
Indenture Trustee specified in Section 6.11 of the Indenture and is authorized
by the Note Issuer to direct the Servicer to make the payments to and
distributions from the Collection Account, including payment of principal of or
interest on the Notes on behalf of the Note Issuer.
"PAYMENT DATE" means, with respect to any Series or Class of Notes,
March 25, June 25, September 25 and December 25 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, commencing [ ].
"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 of the Indenture 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.
"PRINCIPAL BALANCE" means, as of any Payment Date, the sum of the
outstanding principal amount of each Series of Notes.
"PROCEEDING" means any suit in equity, action at law or other judicial
or administrative proceeding.
"PROJECTED PRINCIPAL BALANCE" means, as of any Payment Date, the sum
of the projected outstanding principal amount of each Series of Notes for such
Payment Date set forth in the Expected Amortization Schedule.
"PUBLIC UTILITIES ACT" means the Illinois Public Utilities Act, 220
ILCS 5/1-101 ET SEQ., as the same may be amended from time to time.
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"QUARTERLY ADMINISTRATION FEE" means $25,000 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 Trustee's Issuance Certificate or Series Supplement,
if any.
"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.
"QUARTERLY SERVICER'S CERTIFICATE" means a certificate, substantially
in the form of EXHIBIT D to the Servicing Agreement, completed and executed by a
Responsible Officer of the Servicer pursuant to Section 4.01(c)(ii) of the
Servicing Agreement.
"RATING AGENCY" means Moody's, Standard & Poor's, Duff & Phelps and
Fitch IBCA. 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 Indenture 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
Indenture 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 Notes.
"RECONCILIATION ADJUSTMENT" means each adjustment to the IFCs made
pursuant to the terms of any Funding Order in accordance with Section 4.01(b)(i)
of the Servicing Agreement.
"RECONCILIATION ADJUSTMENT DATE" shall mean June 30 and December 31 of
each year, commencing on June 30, 1999.
"RECORD DATE" means, with respect to a Payment Date or Redemption
Date, in the case of Definitive Notes, the close of business on the last day of
the calendar month preceding the calendar month in which such Payment Date or
Redemption Date occurs, and in the case of Book Entry Notes, one Business Day
prior to the applicable Payment Date or Redemption Date.
"REDEMPTION DATE" means, with respect to any Series or Class of Notes,
the Payment Date specified by the Note Issuer for the redemption of the Notes of
such Series or Class pursuant to Section 10.01 of the Indenture.
"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 an
Event of Default with respect to such Series or Class of Notes.
15
<PAGE>
"REDEMPTION PRICE" means with respect to any Series or Class of Notes,
the unpaid principal amount of the Notes of such Series or Class redeemed, plus
accrued and unpaid interest thereon at the interest rate applicable to such
Series or Class to but excluding the Redemption Date.
"REGISTERED HOLDER" means the Person in whose name a Note is
registered on the Note Register on the applicable Record Date.
"REGISTRATION STATEMENT" means the registration statement, Form S-3
Registration No. 333-60907, filed with the SEC for registration under the
Securities Act relating to the offering and sale of the Notes, and including all
supplements thereto.
"RELATED ASSETS" means all of Grantee's and/or the Note Issuer's
right, title and interest in and to the Grant Agreement, the Sale Agreement, the
Servicing Agreement and all present and future claims, demands, causes and
choses in action in respect of 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 in any time constitute all or part of or are included in
the proceeds of any of the foregoing.
"REMITTANCE SHORTFALL" means the amount, if any, calculated for a
particular Monthly Remittance Date, by which Actual IFC Collections received by
the Servicer attributable to IFCs billed to Customers during the sixth preceding
billing Period exceed all Estimated IFC Collections remitted to the Collection
Account on and prior to such Monthly Remittance Date with respect to such
Billing Period.
"REQUIRED CAPITAL LEVEL" means, with respect to each Series of Notes,
an amount equal to 0.50% of the initial principal amount of such Series,
deposited into the Capital Subaccount by the Grantee prior to or upon the
issuance of such Series.
"REQUIRED DEBT SERVICE" for any Calculation Period means the total
dollar amount of IFC Collections reasonably calculated by the Servicer in
accordance with SECTION 4.01 of the Servicing Agreement as necessary to be
received during such period (after giving effect to the allocation and
distribution of amounts on deposit in the Reserve Subaccount at the time of
calculation and which are available for payments on the Notes and including any
shortfalls in Required Debt Service for any prior Calculation Period) in order
to ensure that, as of the last Payment Date occurring in such Calculation
Period, (1) all accrued and unpaid interest on the Notes then due shall have
been paid in full, (2) the Principal Balance of the Notes is equal to the
Projected Principal Balance, (3) the balance on deposit in the
Overcollateralization Subaccount equals the aggregate Required
Overcollateralization Level, (4) the balance on deposit in the Capital
Subaccount equals the aggregate Required Capital Level and (5) all other fees
and
16
<PAGE>
expenses due and owing and required or allowed to be paid under SECTION 8.02
of the Note Indenture as of such date shall have been paid in full; PROVIDED,
that, with respect to any Reconciliation Adjustment or True-Up Adjustment
occurring after the last Scheduled Maturity Date for any Notes, the Required
Debt Service shall be calculated to ensure that sufficient IFCs will be
collected to retire such Notes in full as of the earlier of (x) the Payment
Date preceding the next Reconciliation Adjustment Date and (y) the Final
Maturity Date for such Notes.
"REQUIRED OVERCOLLATERALIZATION LEVEL" means, as of any Payment Date
with respect to any Series, the amount required to be on deposit in the
Overcollateralization Subaccount as specified in the applicable Trustee's
Issuance Certificate or Series Supplement, if any, but not less than, as of the
Scheduled Maturity Date for such Series, 0.5% of the initial Outstanding amount
thereof.
"REQUIREMENT OF LAW" means any foreign, federal, state or local laws,
statutes, regulations, rules, codes or ordinances enacted, adopted, issued or
promulgated by any Governmental Authority or common law.
"RESERVE SUBACCOUNT" is defined in Section 8.02(a) of the Indenture.
"RESPONSIBLE OFFICER" means with respect to (a) the Note Issuer, any
officer within the Corporate Trust Office of the Delaware Trustee; (b) with
respect to the Indenture Trustee, the Delaware Trustee or other trustee, any
officer within the Corporate Trust office of such trustee (including, in the
case of (a) and (b) above, the President, any Vice President, Assistant Vice
President, Secretary or Assistant Treasurer or any other officer or assistant
officer of such Person customarily performing functions similar to those
performed by any of the chosen designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred to because
of such officer's knowledge and familiarity with the particular subject); (c)
any corporation, the Chief Executive Officer, the President, any Vice President,
the Chief Financial Officer or any other duly authorized officer of such Person
who has been authorized to act in the circumstances;(d) the Grantee, any Manager
or duly authorized officer who has been authorized to act in the circumstances;
(e) partnership, any general partner thereof; and (f) any other Person (other
than an individual), any duly authorized officer or member of such Person, as
the context may require, who is authorized to act in matters relating to such
Person.
"SALE AGREEMENT" means as the context may require, either (i) the
Intangible Transition Property Sale Agreement dated as of December __, 1998
between the Grantee and the Note Issuer, as the same may be amended,
supplemented or otherwise modified from time to time or (ii) any Subsequent Sale
Agreement.
17
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"SCHEDULED FINAL PAYMENT DATE" means, with respect to any Series or
Class of Notes, the Scheduled Maturity Date thereof.
"SCHEDULED MATURITY DATE" means, with respect to any Series or Class
of Notes, the Scheduled Maturity Date therefor, as specified in the related
Trustee's Issuance Certificate or Series Supplement, if any.
"SCHEDULED PAYMENT DATE" is defined in the applicable Trustee's
Issuance Certificate or Series Supplement, if any, with respect to each Series
or Class of Notes.
"SEC" means the Securities and Exchange Commission.
"SECRETARY OF STATE" means the Secretary of State of the State of
Delaware or the Secretary of State of the State of Illinois, as the case may be,
or any Governmental Authority succeeding to the duties of such offices.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERIES" means each series of Notes issued and authenticated pursuant
to the Indenture and a related Trustee's Issuance Certificate or Series
Supplement, if any.
"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 of the Indenture and the related Trustee's Issuance Certificate or
Series Supplement, if any.
"SERIES SUPPLEMENT" means an indenture supplemental to the Indenture
that authorizes the issuance of a particular Series of Notes.
"SERVICER" means ComEd, as Servicer under the Servicing Agreement, or
any successor Servicer to the extent permitted under the Servicing Agreement.
"SERVICER BUSINESS DAY" means any day other than a Saturday, Sunday or
holiday on which the Servicer maintains normal office hours and conducts
business.
"SERVICER DEFAULT" is defined in Section 7.01 of the Servicing
Agreement.
"SERVICER'S CERTIFICATE" means an Officer's Certificate of the
Servicer.
"SERVICING AGREEMENT" means the Intangible Transition Property
Servicing Agreement dated as of December __, 1998, between the Grantee and
ComEd assigned to the Note Issuer, as the same may be amended, supplemented or
otherwise modified from time to time.
"SERVICING FEE" means the fee payable to the Servicer on each Payment
Date for services rendered during the period from, but not including, the
preceding Payment Date to and
18
<PAGE>
including the current Payment Date, determined pursuant to Section 6.06 of
the Servicing Agreement.
"SOLE MEMBER" means ComEd as sole member of the Grantee defined in the
Operating Agreement.
"SPECIAL PAYMENT" means with respect to any Series or Class of Notes,
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, with respect to Floating Rate Notes only, a payment under any Swap)
that is not actually paid within five days of the Payment Date applicable
thereto.
"SPECIAL PAYMENT DATE" means the date on which a Special Payment is to
be made by the Indenture Trustee to the Holders.
"SPECIAL RECORD DATE" means with respect to any Special Payment Date,
the close of business on the 15th day (whether or not a Business Day) preceding
such Special Payment Date.
"STANDARD & POOR'S" means Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. or any successor thereto.
"STATE" means any one of the 50 states of the United States of America
or the District of Columbia.
"STATE PLEDGE" means the pledge of the State of Illinois as set forth
in Section 18-105(b) of the Funding Law.
"SUBSEQUENT CLOSING DATE" means any date (other than the Closing Date)
specified in a Trustee's Issuance Certificate or Series Supplement, if any,
under which Notes of any Series or Class are issued.
"SUBSEQUENT CREATION DATE" means any date on which Subsequent
Intangible Transition Property is created in favor of the Grantee pursuant to a
Subsequent Funding Order.
"SUBSEQUENT FUNDING ORDER" means a transitional funding order (other
than the 1998 Funding Order) issued hereafter by the ICC in favor of the Grantee
at the request of ComEd.
"SUBSEQUENT GRANT AGREEMENT" means an agreement substantially similar
to the Grant Agreement, relating to Subsequent Transition Property, as the same
may be amended, supplemented or otherwise modified from time to time.
"SUBSEQUENT RELATED ASSETS" means all of the Grantee's and/or the Note
Issuer's right, title and interest in and to any Subsequent Grant Agreement and
all present and future
19
<PAGE>
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 in any time constitute all or part of or are included in the proceeds
of any of the foregoing.
"SUBSEQUENT SALE AGREEMENT" means an agreement substantially similar
to the initial Sale Agreement, relating to Subsequent Intangible Transition
Property, as the same may be amended, supplemented or otherwise modified from
time to time.
"SUBSEQUENT SALE DATE" means any date on which Subsequent Intangible
Transition Property is to be sold to the Note Issuer pursuant to a Subsequent
Sale Agreement.
"SUBSEQUENT TARIFF" means a Tariff filed with the ICC in connection
with a Subsequent Funding Order.
"SUBSEQUENT TRANSITION PROPERTY" or "SUBSEQUENT ITP" means the
intangible transition property contemplated by, and specifically described in, a
Subsequent Funding Order.
"SUCCESSOR SERVICER" is defined in Section 3.07(e) of the Indenture.
"SWAP" means an interest rate swap, cap, floor, collar or other
hedging transaction that may be entered into by the Note Issuer for the purpose
of managing interest rate risk with respect to a specified Series or Class of
Floating Rate Notes that are being issued concurrently with the execution of the
Swap.
"SWAP AGREEMENT" means an Interest Rate and Currency Exchange
Agreement (including the Schedule and Confirmation thereto) entered into between
the Note Issuer and a swap provider.
"SWAP COUNTERPARTY" means the entity that is a party to a Swap with
the Note Issuer.
"SWAP PAYMENT" means the payments made by the Note Issuer to the Swap
Counterparty pursuant to any Swap, subject to any netting of payments provided
in the applicable Swap.
"SWAP REVENUES" means the payments paid by a Swap Counterparty to the
Note Issuer pursuant to any Swap, subject to any netting of payments provided in
the applicable Swap.
"TARIFF" means any rate tariff filed with the ICC pursuant to the
Funding Law to evidence any IFCs.
20
<PAGE>
"TEMPORARY NOTES" means Notes executed, and upon the receipt of an
Issuer Order, authenticated and delivered by the Indenture Trustee pending the
preparation of Definitive Notes pursuant to Section 2.04 of the Indenture.
"TREASURY REGULATIONS" means the regulations, including proposed or
temporary regulations, promulgated under the Code. References herein to
specific provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
"TRUE-UP ADJUSTMENT" means each adjustment to the IFCs made pursuant
to the terms of the 1998 Transitional Funding Order and in accordance with
Section 4.01(b)(ii) of the Servicing Agreement.
"TRUST AGREEMENT" means the Declaration of Trust by First Union Trust
Company, National Association as "Delaware Trustee", and Ruth Ann M. Gillis and
David R. Zahakaylo as "Beneficiary Trustees" dated as of October 28, 1998
acknowledged and agreed to by the Grantee, as the same may be amended,
supplemented or otherwise modified from time to time.
"TRUST ESTATE" means all right, title and interest of the Note Issuer
in, to and under the property and rights assigned to the Note Issuer pursuant to
the Sale Agreement, all funds on deposit from time to time in the Collection
Account and all other property of or interests of the Note Issuer from time to
time, including all rights, interests and claims of the Delaware Trustee and the
Note Issuer under or in connection with any Basic Documents.
"TRUST INDENTURE ACT" or "TIA" means the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, as in force on the Closing
Date, unless otherwise specifically provided.
"TRUSTEE'S ISSUANCE CERTIFICATE" means a certificate executed by a
Authorized Officer of the Delaware Trustee in accordance with the terms of the
Sale Agreement or any Subsequent Sale Agreement and delivered to the Indenture
Trustee under Section 2.01 of the Indenture substantially in the form attached
as EXHIBIT C to the Indenture.
"UCC" means, unless the context otherwise requires, the Uniform
Commercial Code, as in effect in the relevant jurisdiction, as amended from time
to time.
"UNDERWRITERS" means the underwriters who purchase Notes of any Series
or Class from the Note Issuer and sell such Notes in a public offering.
"UNDERWRITING AGREEMENT" means the Underwriting Agreement, dated as
of December __, 1998 among ComEd, the Underwriters party thereto, on their own
behalf and as representatives of the several underwriters named therein, and
the Note Issuer.
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<PAGE>
"UNREGISTERED NOTES" means any Notes not registered under the
Securities Act or the securities laws of any other jurisdiction.
"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. OTHER TERMS. All accounting terms not specifically defined herein
shall be construed in accordance with United States generally accepted
accounting principles. To the extent that the definitions of accounting terms
in any Basic Document are inconsistent with the meanings of such terms under
generally accepted accounting principles or regulatory accounting principles,
the definitions contained in such Basic Document shall control. All terms used
in Article 9 of the UCC in the State of Illinois and not specifically defined
herein, are used herein as defined in such Article 9. As used in the Basic
Documents, the term "INCLUDING" means "including without limitation," and other
forms of the verb "to include" have correlative meanings. All references to any
Person shall include such Person's permitted successors.
C. COMPUTATION OF TIME PERIODS. Unless otherwise stated in any of
the Basic Documents, as the case may be, in the computation of a period of time
from a specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each means "to but excluding".
D. REFERENCE; CAPTIONS. The words "hereof", "herein" and "hereunder"
and words of similar import when used in any Transaction Document shall refer to
such Transaction Document as a whole and not to any particular provision of such
Transaction Document; and references to "SECTION", "SUBSECTION", "SCHEDULE" and
"EXHIBIT" in any Basic Document are references to Sections, subsections,
Schedules and Exhibits in or to such Transaction Document unless otherwise
specified in such Basic Document. The various captions (including the tables of
contents) in each Basic Document are provided solely for convenience of
reference and shall not affect the meaning or interpretation of any Basic
Document.
E. The definitions contained in this APPENDIX A are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter forms of such terms.
22
<PAGE>
Exhibit 4.4
AMENDMENT NO. 1
DATED AS OF DECEMBER 2, 1998
TO
DECLARATION OF TRUST
DATED AS OF OCTOBER 28, 1998
BY
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
DELAWARE TRUSTEE
AND
RUTH ANN M. GILLIS AND DAVID R. ZAHAKAYLO
BENEFICIARY TRUSTEES
<PAGE>
AMENDMENT NO. 1, dated as of December 2, 1998 (the "Amendment"), to the
Declaration of Trust, dated as of October 28, 1998 (the "Declaration"), by
First Union Trust Company, National Association, a national banking
association, acting hereunder not in its individual capacity but solely as
Delaware trustee (the "Delaware Trustee") and Ruth Ann M. Gillis and David R.
Zahakaylo, each an individual, acting not in their individual capacities but
solely as beneficiary trustees (collectively, the "Beneficiary Trustees"),
with respect to the trust known as ComEd Transitional Funding Trust (the
"Trust").
WHEREAS, the Delaware Trustee and the Beneficiary Trustees entered into
the Declaration pursuant to which the Trust was formed;
WHEREAS, the parties to the Declaration desire to amend certain
provisions of the Declaration as set forth in this Amendment;
WHEREAS, Section 7.5 of the Declaration permits the amendment thereof by
the Delaware Trustee and the Beneficiary Trustees to cure any ambiguity.
NOW THEREFORE, in consideration of the recitals set forth above, and for
other good and valuable consideration, the adequacy, receipt and sufficiency
of which are hereby acknowledged by the parties hereto, the parties hereto
hereby agree as follows:
SECTION 1. DEFINED TERMS.
For purposes of this Amendment, unless the context clearly required
otherwise, all capitalized terms used herein and not otherwise defined shall
have the meanings assigned such terms in the Declaration.
SECTION 2. THE AMENDMENT.
(a) Section 5.9 is hereby amended and restated in its entirety to read
as follows:
5.9 COMPENSATION AND INDEMNITY. (a) A Trustee shall receive as
compensation for services hereunder such fees as have been separately agreed
upon before the date hereof between the Servicer and such Trustee, and such
Trustee shall be entitled to be reimbursed by the Servicer for such Trustee's
other reasonable expenses hereunder including the reasonable compensation
expenses and disbursements of such agents, custodians, nominees,
representatives, experts and counsel as such Trustee may employ in connection
with the exercise and performance of such Trustee's rights and duties
hereunder.
(b) The Servicer shall indemnify each Trustee and such Trustee's
successors, assigns, agents and servants in accordance with the provisions of
a separate agreement or agreements to be entered into from time to time by
and between the Servicer and such Trustee. The indemnities contained in this
SECTION 5.9(b) shall survive the resignation or termination of a Trustee or
the termination of this Declaration. Any amounts paid to a Trustee pursuant
to this ARTICLE V shall be deemed not to be a part of the Trust Estate
immediately after such payment. Each Trustee
<PAGE>
acknowledges that no recourse may be had against the Grantee, the Trust or
the Trust Estate with respect to this SECTION 5.9(b).
3. EFFECT OF AMENDMENT.
This Amendment to the Declaration shall be effective and the Declaration
shall be deemed to be modified and amended in accordance herewith upon the
receipt by the parties hereto of counterparts hereof executed and delivered on
behalf of each of the parties hereto. This Amendment to the Trust Agreement,
once effective, shall be effective as of December 2, 1998. The respective
rights, limitations, obligations, duties, liabilities and immunities of the
Delaware Trustee and the Beneficiary Trustees shall hereafter be determined,
exercised and enforced subject in all respects to such modifications and
amendments, and all the terms and conditions of the Declaration for any and all
purposes. The Declaration, as amended hereby, is hereby ratified and confirmed
in all respects.
4. GOVERNING LAW.
THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF DELAWARE, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES UNDER THIS
AMENDMENT SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES.
5. SEVERABILITY OF PROVISIONS.
If any one or more of the covenants, agreements, provisions or terms of
this Amendment 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 Amendment and shall
in no way affect the validity or enforceability of the other provisions of this
Amendment or of the Declaration.
6. BINDING EFFECT.
The provisions of this Amendment shall be binding upon and inure to the
benefit of the respective successors and assigns of the parties hereto, and all
such provisions shall inure to the benefit of the Delaware Trustee and the
Beneficiary Trustees.
7. SECTION HEADINGS.
The section headings herein are for convenience of reference only, and
shall not limit or otherwise affect the meaning hereof.
8. COUNTERPARTS.
<PAGE>
This Amendment may be executed by the parties hereto in separate
counterparts, each of which when so executed shall be an original but all of
which shall constitute but one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Delaware Trustee and the Beneficiary Trustees
have caused this Amendment to be duly executed by their respective officers
as of the day and year first above written.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, not in
its individual capacity but solely as Delaware Trustee
By: ___________________________________________
Name:
Title:
_________________________________________________
RUTH ANN M. GILLIS, not in her individual capacity but
solely as Beneficiary Trustee
_________________________________________________
DAVID R. ZAHAKAYLO, not in his individual capacity but
solely as Beneficiary Trustee
Acknowledged, accepted and agreed
on this 2nd day of December, 1998
COMED FUNDING, LLC
By:________________________________
Name: Ruth Ann M. Gillis
Title: Manager and President
<PAGE>
EXHIBIT 5.1
[FOLEY & LARDNER LETTERHEAD]
December 4, 1998
ComEd Transitional Funding Trust
c/o First Union Trust Company, National Association
Corporate Trust Office
One Rodney Square
920 King Street, 1st Floor
Wilmington, Delaware 19801
ComEd Funding, LLC
Ten South Dearborn Street, 37th Floor
Chicago, Illinois 60603
Re: ComEd Funding, LLC - Registration Statement on Form S-3 (No. 333-60907)
-----------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel for ComEd Funding, LLC, a Delaware
limited liability company (the "Registrant"), and for the ComEd Transitional
Funding Trust, a Delaware business trust (the "Trust"), in connection with
the matters set forth herein. At your request, this opinion is being
furnished to you.
For purposes of giving the opinions hereinafter set forth, we have
examined all documents that we have deemed appropriate for the purpose of our
opinions herein, including originals or copies of the following documents:
(a) The Certificate of Trust of the Trust (the "Certificate")
dated as of October 28, 1998 and filed in the office of the Secretary
of State of the State of Delaware (the "Secretary of State") on
October 28, 1998;
(b) Amendment No.3 to the Registration Statement (the
"Registration Statement") on Form S-3, including a prospectus (the
"Prospectus") and prospectus supplement, relating to the Notes, Series 1998
of the Trust (the "Notes"), as proposed to be filed by the Registrant with
the Securities and Exchange Commission on or about December 3, 1998, and
all other pre-effective amendments to the Registration Statement;
<PAGE>
ComEd Funding, LLC
ComEd Transitional Funding Trust
December 4, 1998
Page 2
(c) The Declaration of Trust, dated as of October 28, 1998, entered
into by the trustees of the Trust named therein (the "Trustees") and
acknowledged by the Registrant (the "Declaration of Trust"), attached as
an exhibit to the Registration Statement;
(d) A form of Indenture, to be entered into between the Trust and
Harris Trust and Savings Bank, as trustee, attached as an exhibit to the
Registration Statement pursuant to which the Notes are to be issued; and
(e) A Certificate of Good Standing for the Trust dated November 20,
1998, obtained from the Secretary of State.
Capitalized terms used herein and not otherwise defined are used as
defined in the Declaration of Trust.
For purposes of this opinion, we have not reviewed any documents
other than the documents listed in paragraphs (a) through (e) above. In
particular, we have not reviewed any document (other than the documents
listed in paragraphs (a) through (e) above) that is referred to in or
incorporated by reference into the documents reviewed by us. We have assumed
that there exists no provision in any document that we have not reviewed that
is inconsistent with the opinions stated herein. We have conducted no
independent factual investigation on our own but rather have relied solely
upon the foregoing documents, the statements and information set forth
therein and the additional matters recited or assumed herein, all of which we
have assumed to be true, complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i)
the authenticity of all documents submitted to us as authentic originals,
(ii) the conformity with the originals of all documents submitted to us as
copies or forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the
Certificate and the Declaration of Trust are in full force and effect and
have not been amended, (ii) that there are no proceedings pending or
contemplated for the merger, consolidation, conversion, dissolution or
termination of the Trust, (iii) that each party to documents examined by us
(other than the Trust) has been duly created, organized or formed, as the
case may be, and is validly existing in good standing under the laws of the
jurisdiction governing its creation, organization or formation, (iv) that
each of the parties to the documents examined by us (other than the Trust)
has the power and authority to execute and deliver, and to perform its
obligations under, such documents, (v) that each of the documents examined by
us has been duly authorized, executed and delivered by all parties thereto
(other than the Trust), and (vi) the legal capacity of natural persons who
are parties to the documents examined by us.
<PAGE>
ComEd Funding, LLC
ComEd Transitional Funding Trust
December 4, 1998
Page 3
This opinion is limited to the laws of the State of Delaware solely
with respect to the Delaware Business Trust Act (and specifically excludes
the securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal
laws and rules and regulations relating thereto. Our opinions are rendered
only with respect to the applicable Delaware laws and rules, regulations and
orders thereunder that are currently in effect.
Based upon the foregoing, and upon our examination of such
questions of law and statutes of the State of Delaware as we have considered
necessary or appropriate, and subject to the assumptions, qualifications,
limitations and exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act.
2. Under the Delaware Business Trust Act, the Trust has all
necessary trust power and authority to execute and deliver the Indenture and
to issue the Notes, and to perform its obligations under the Indenture and
the Notes.
3. Under the Delaware Business Trust Act, the execution and
delivery by the Trust of the Indenture and the Notes and the performance by
the Trust of its obligations under the Indenture and the Notes have been duly
authorized by all necessary trust action on the part of the Trust.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. In
addition, we hereby consent to the use of our name under the heading "Legal
Matters" in the Prospectus. We also consent to Sidley & Austin relying as to
matters of Delaware law upon this opinion in connection with its rendering of
an opinion to be attached as an exhibit to the Registration Statement. In
giving the foregoing consents, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange commission thereunder. Except as stated above,
without our prior written consent, this opinion may not be furnished or
quoted to, or relied upon by, any other person for any purpose.
Very truly yours,
/s/ Foley & Lardner
<PAGE>
EXHIBIT 5.2
LEGAL OPINION
SIDLEY & AUSTIN
One First National Plaza
Chicago, Illinois 60603
December 2, 1998
ComEd Funding, LLC
ComEd Transitional Funding Trust
c/o ComEd Funding, LLC
Ten South Dearborn Street--37th Floor
Chicago, Illinois 60603
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-3 (Registration No.
333-60907) as amended by Amendment Nos. 1, 2 and 3 thereto (such Registration
Statement, as so amended, being referred to herein as the "REGISTRATION
STATEMENT") filed by ComEd Funding, LLC ("FUNDING"), a Delaware limited
liability company and the depositor to ComEd Transitional Funding Trust, a
Delaware business trust (the "TRUST"), with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), on August 7, 1998, October 23, 1998, November 27, 1998 and
December 4, 1998, respectively. The Registration Statement relates to the
registration of Transitional Funding Trust Notes (the "NOTES") of the Trust to
be offered from time to time as described in the prospectus (the "PROSPECTUS")
included as a part of the Registration Statement. The Notes are to be issued
under an Indenture (in substantially the form filed as an exhibit to the
Registration Statement) (the "INDENTURE") between the Trust and Harris Trust and
Savings Bank, as trustee (the "INDENTURE TRUSTEE").
<PAGE>
ComEd Funding, LLC
ComEd Transitional Funding Trust
December 2, 1998
Page 2
We are familiar with the proceedings taken to date and proposed to be
taken with respect to the proposed authorization, issuance and sale of the Notes
and have examined the Registration Statement (including all amendments thereto)
and such records, documents and questions of law, and satisfied ourselves as to
such matters of fact, as we have considered relevant, necessary and appropriate
as a basis for the opinion expressed below. In such examination, we have
assumed the legal capacity of all natural persons, the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of documents submitted to us as certified,
conformed or photostatic copies and the authenticity of such original documents.
We have relied on the opinion of Foley & Lardner filed contemporaneously
herewith as to all matters of Delaware law relevant to our opinion.
Based on the foregoing, we are of the opinion that the Notes will be
legally issued and binding obligations of the Trust (except to the extent
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws affecting
the enforcement of creditors' rights generally and by the effect of general
principles of equity, regardless of whether enforceability is considered in a
proceeding in equity or at law) when: (i) the Registration Statement, as
finally amended, shall have become effective under the Securities Act, and a
supplement to the Prospectus describing the terms of the Notes shall have been
filed with the SEC pursuant to Rule 424 promulgated under the Securities Act;
(ii) the Indenture shall been qualified under the Trust Indenture Act of 1939,
as amended, and duly executed and delivered by the Trust and the Indenture
Trustee; (iii) the Agreement Relating to Grant of Intangible Transition Property
shall have been duly executed and delivered by Commonwealth Edison Company, an
Illinois corporation ("COMED"), and Funding; (iv) the Intangible Transition
Property Sale Agreement shall have been duly executed and delivered by the Trust
and Funding; (v) the Intangible Transition Property Servicing Agreement shall
have been duly executed and delivered by Funding and ComEd; (vi) the Trust shall
have duly authorized the issuance and sale of the Notes, as contemplated by the
Registration Statement and the Indenture; (vii) the terms of the Notes being
offered shall have been fixed in accordance with the terms of the Indenture and
set forth in a Trustee's Issuance Certificate (as defined in the Indenture);
(viii) the Notes shall have been duly executed and authenticated as provided in
the Indenture and shall have been duly delivered to the purchasers thereof
against payment of the agreed consideration therefor; and (ix) the transactions
relating to the sale of the Notes shall otherwise have been carried out on the
basis set forth in the Registration Statement and in conformity with the Order
dated July 21, 1998 issued by the Illinois Commerce Commission in Docket No.
98-0319.
<PAGE>
ComEd Funding, LLC
ComEd Transitional Funding Trust
December 2, 1998
Page 3
We do not find it necessary for the purposes of this opinion to cover,
and accordingly we express no opinion as to, the application of the securities
or blue sky laws of the various states to the issuance and sale of the Notes.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to all references to our firm included in or made a
part of the Registration Statement. In giving such consent, we do not thereby
admit that we are within the category of persons whose consent is required by
Section 7 of the Securities Act or the related Rules promulgated by the SEC.
Very truly yours,
/s/ Sidley & Austin
<PAGE>
[LETTERHEAD]
December 2, 1998
EXHIBIT 8.1
BLACKLINED VERSION REVISED FROM FORM FILED WITH
AMENDMENT NO. 1
Commonwealth Edison Company
Ten South Dearborn Street
37th Floor
Chicago, IL 60603
Ladies and Gentlemen:
Reference is made to Amendment No. 1, Amendment No. 2, Amendment No. 3
and any subsequent amendment to the Registration Statement on Form S-3
(collectively, the "Registration Statement") filed with the Securities and
Exchange Commission by Commonwealth Edison Company (the "Company") ,
Registration Number 333-60907, and to the prospectus (the "Prospectus") and
prospectus supplement (the "Prospectus Supplement") included in the
Registration Statement relating to the issuance of the Transitional Funding
Trust Notes, Series 1998 (the "Notes").
We are special counsel to the Company in connection with the
issuance of the Notes. Reference is made to the statements in the Prospectus
under the headings "Prospectus Summary -- Taxation of the Notes" and
"Material United States Federal Tax Consequences," and in the Prospectus
Supplement under the heading "Prospectus Supplement Summary -- Taxation of
the Notes," which have been prepared or reviewed by us. To the extent such
statements constitute discussion of matters of federal tax law or legal
conclusions with respect thereto, in our opinion such statements are correct
and, subject to the qualifications and limitations set forth under such
headings, such statements summarize all material United States federal income
and estate tax consequences relevant to the purchase, ownership and
disposition of the Notes by the beneficial owners thereof. To the extent not
inconsistent with the immediately preceding sentence, we hereby confirm and
adopt such statements as our opinion as to the matters described thereby.
In rendering this opinion, we have relied without independent
investigation on the description of the Notes set forth in the Prospectus and
Prospectus
<PAGE>
[LETTERHEAD]
Commonwealth Edison Company
December 2, 1998
Page 2
Supplement. In rendering this opinion, we have assumed that the Notes will
constitute indebtedness of ComEd for federal income and estate tax purposes.
We hereby consent to the reference to this Firm in the Prospectus and the
Prospectus Supplement and to the filing of this opinion as an exhibit to the
Registration Statement.
We assume no obligation to update or supplement this letter, the
Prospectus or the Prospectus Supplement to reflect any facts or circumstances
that may hereafter come to our attention with respect to the opinion expressed
above, including any changes in applicable law that may hereafter occur.
Very truly yours,
<PAGE>
BLACKLINED VERSION REVISED FROM FORM FILED
WITH AMENDMENT NO. 1
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
EXHIBIT 10.1
FORM OF SALE AGREEMENT
INTANGIBLE TRANSITION PROPERTY SALE AGREEMENT
between
COMED FUNDING, LLC
Grantee
and
COMED TRANSITIONAL FUNDING TRUST
Note Issuer
Dated as of December __, 1998
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS. . . . . . . . . . . . . . 1
ARTICLE II
CONVEYANCE OF 1998 TRANSITION PROPERTY AND RELATED ASSETS . . . . . . . 2
SECTION 2.01. CONVEYANCE OF 1998 TRANSITION PROPERTY AND
RELATED ASSETS . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GRANTEE . . . . . . . . . . . . . . . 3
SECTION 3.01. ORGANIZATION AND GOOD STANDING . . . . . . . . . . . . . 4
SECTION 3.02. DUE QUALIFICATION. . . . . . . . . . . . . . . . . . . . 4
SECTION 3.03. POWER AND AUTHORITY. . . . . . . . . . . . . . . . . . . 4
SECTION 3.04. BINDING OBLIGATION . . . . . . . . . . . . . . . . . . . 4
SECTION 3.05. NO VIOLATION . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 3.06. NO PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . 5
SECTION 3.07. APPROVALS. . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 3.08. THE 1998 TRANSITION PROPERTY AND RELATED ASSETS. . . . . 6
ARTICLE IV
COVENANTS OF THE GRANTEE . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.01. CORPORATE EXISTENCE. . . . . . . . . . . . . . . . . . . 10
SECTION 4.02. NO LIENS . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.03. DELIVERY OF COLLECTIONS. . . . . . . . . . . . . . . . . 11
SECTION 4.04. NOTICE OF LIENS. . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.05. COMPLIANCE WITH LAW. . . . . . . . . . . . . . . . . . . 11
SECTION 4.06. COVENANTS RELATED TO THE 1998 TRANSITION PROPERTY ,
RELATED ASSETS AND THE NOTES . . . . . . . . . . . . . . 12
SECTION 4.07. PROTECTION OF TITLE. . . . . . . . . . . . . . . . . . . 13
SECTION 4.08. NONPETITION COVENANTS. . . . . . . . . . . . . . . . . . 13
SECTION 4.09. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4.10. PERFORMANCE OF OBLIGATIONS; SERVICING. . . . . . . . . . 14
SECTION 4.11. ADDITIONAL NEGATIVE COVENANTS. . . . . . . . . . . . . . 16
SECTION 4.12. NO OTHER BUSINESS. . . . . . . . . . . . . . . . . . . . 16
SECTION 4.13. NO BORROWING . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 4.14. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES. . . . 16
SECTION 4.15. CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . 17
SECTION 4.16. NOTICE OF DEFAULTS . . . . . . . . . . . . . . . . . . . 17
SECTION 4.17. SEPARATE EXISTENCE.. . . . . . . . . . . . . . . . . . . 17
SECTION 4.18. FURTHER INSTRUMENTS AND ACTS . . . . . . . . . . . . . . 19
SECTION 4.19. SUBSEQUENT TRANSITION PROPERTY . . . . . . . . . . . . . 19
i
<PAGE>
ARTICLE V
THE GRANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 5.01. LIABILITY OF GRANTEE; INDEMNITIES. . . . . . . . . . . . 21
SECTION 5.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, GRANTEE. . . . . . . . . . . . . . . . . 23
SECTION 5.03. LIMITATION ON LIABILITY OF GRANTEE AND OTHERS. . . . . . 24
ARTICLE VI
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 6.01. AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 6.02. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 6.03. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 6.04. LIMITATIONS ON RIGHTS OF OTHERS. . . . . . . . . . . . . 27
SECTION 6.05. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 6.06. SEPARATE COUNTERPARTS. . . . . . . . . . . . . . . . . . 27
SECTION 6.07. HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 6.08. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . 27
SECTION 6.09. ASSIGNMENT TO INDENTURE TRUSTEE. . . . . . . . . . . . . 27
SECTION 6.10. LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . 28
SECTION 6.11. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . 28
SECTION 6.12. HOLDERS AS THIRD PARTY BENEFICIARIES . . . . . . . . . . 29
SECTION 6.13. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. . . . . . . 29
</TABLE>
ii
<PAGE>
INTANGIBLE TRANSITION PROPERTY SALE AGREEMENT dated as of December
__, 1998 between COMED FUNDING, LLC, a Delaware limited liability company
(the "Grantee"), and COMED TRANSITIONAL FUNDING TRUST, a Delaware business
trust (the "Note Issuer").
WHEREAS the Note Issuer desires to purchase the 1998 Transition Property
created pursuant to the Public Utilities Act and the 1998 Funding Order,
together with the Related Assets; and
WHEREAS the Grantee is willing to sell such 1998 Transition Property and
Related Assets to the Note Issuer.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. Capitalized terms used herein and not
otherwise defined herein have the meanings assigned to them in that certain
Indenture (including APPENDIX A thereto) dated as of the date hereof, between
the Note Issuer and Harris Trust and Savings Bank, as the Indenture Trustee, as
the same may be amended, supplemented or otherwise modified from time to time.
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.
(a) "AGREEMENT" means this Intangible Transition Property Sale Agreement,
as the same may be amended, supplemented or otherwise modified from time to
time.
(b) Non-capitalized terms used herein which are defined in the Public
Utilities Act shall, as the context requires, have the meanings assigned to
such terms in the Public Utilities Act, but
<PAGE>
without giving effect to amendments to the Public Utilities Act after the
date hereof which have a material adverse effect on the Note Issuer or the
Holders.
(c) All terms defined in this Agreement shall have the defined meaning
when used in any certificate or other document made or delivered pursuant
hereto unless otherwise defined therein.
(d) The words "hereof," "herein," "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any particular provision of this Agreement; Section, Schedule and
Exhibit references contained in this Agreement are references to Sections,
Schedules and Exhibits in or to this Agreement unless otherwise specified;
and the term "including" shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter forms of such terms.
ARTICLE II
CONVEYANCE OF 1998 TRANSITION PROPERTY AND RELATED ASSETS
SECTION 2.01. CONVEYANCE OF 1998 TRANSITION PROPERTY AND RELATED ASSETS.
In consideration of the Note Issuer's delivery of $[_________________] to or
upon the order of the Grantee, the Grantee irrevocably sells, transfers,
assigns, sets over and otherwise conveys to the Note Issuer, without recourse
(subject to the obligations herein), all of its right, title and interest in, to
and under:
(a) the 1998 Transition Property (such sale, transfer,
assignment, set over and conveyance of the 1998 Transition Property
includes, to the fullest extent permitted by the Funding Law, the
assignment of all revenues, collections, claims, rights, payments,
money or proceeds of or arising from the IFCs pursuant to the
2
<PAGE>
1998 Funding Order and the 1998 Initial Tariff), including, without
limitation, any Allocable IFC Revenue Amounts; and
(b) the Related Assets.
Such sale, transfer, assignment, set over and conveyance is expressly stated
to be a sale and absolute transfer, and pursuant to Section 18-108 of the
Funding Law, shall be treated as an absolute transfer (as in a true sale),
and not as a pledge or other financing, of the 1998 Transition Property. The
previous sentence is the express statement referred to in Section 18-108 of
the Funding Law. To the extent that, notwithstanding the Funding Law, the
Application and the 1998 Funding Order, the foregoing sale, transfer,
assignment, set over and conveyance is held not to be an absolute transfer
(as in a true sale) as contemplated under Section 18-108 of the Funding Law,
then such sale, transfer, assignment, set over and conveyance shall be
treated as a pledge of the 1998 Transition Property and the Grantee shall be
deemed to have granted a security interest to the Note Issuer in the 1998
Transition Property. The Grantee takes the position that it has no rights in
the 1998 Transition Property to which such a security interest could attach
because it has sold, transferred, assigned, set over or otherwise conveyed
all rights in, to and under the 1998 Transition Property to the Note Issuer
pursuant to Section 18-108 of the Funding Law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GRANTEE
The Grantee makes the following representations and warranties, as of the
Closing Date, on which the Note Issuer has relied in acquiring the 1998
Transition Property and Related Assets. These representations and warranties
shall survive the sale, transfer, assignment, set over and conveyance of the
1998 Transition Property and Related Assets to the Note Issuer , the pledge
thereof to the Indenture Trustee pursuant to the Indenture and the issuance of
the Notes.
3
<PAGE>
SECTION 3.01. ORGANIZATION AND GOOD STANDING. The Grantee is duly
organized and validly existing as a limited liability company in good standing
under the laws of the State of Delaware, with the power and authority to own its
properties and to conduct its business as such properties are currently owned
and such business is presently conducted, and had at all relevant times, and
has, the requisite power, authority and legal right to own the 1998 Transition
Property and Related Assets.
SECTION 3.02. DUE QUALIFICATION. The Grantee is duly qualified to do
business as a limited liability company in good standing, and has obtained all
necessary licenses and approvals, in all jurisdictions in which the ownership or
lease of property or the conduct of its business shall require such
qualifications, licenses or approvals (except where the failure to so qualify
would not be reasonably likely to have a material adverse effect on the
Grantee's business, operations, assets, revenues or properties).
SECTION 3.03. POWER AND AUTHORITY. The Grantee has the requisite power
and authority to execute and deliver this Agreement and to carry out its terms;
the Grantee has full power and authority to sell and assign the 1998 Transition
Property and Related Assets to be sold and assigned to the Note Issuer and the
Grantee has duly authorized such sale and assignment to the Note Issuer by all
necessary company action; and the execution, delivery and performance of this
Agreement have been duly authorized by the Grantee by all necessary company
action.
SECTION 3.04. BINDING OBLIGATION. This Agreement constitutes a legal,
valid and binding obligation of the Grantee enforceable against the Grantee in
accordance with its terms, subject to applicable insolvency, reorganization,
moratorium, fraudulent transfer and other similar laws relating to or affecting
creditors' rights generally from time to time in effect and to general
principles of equity (including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing), regardless of whether considered
in a proceeding in equity or at law.
4
<PAGE>
SECTION 3.05. NO VIOLATION. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do not
(i) conflict with, result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time) a default under, the
Operating Agreement or Certificate of Formation of the Grantee, or any
indenture, agreement or other instrument to which the Grantee is a party or by
which it shall be bound; (ii) result in the creation or imposition of any Lien
upon any of its properties pursuant to the terms of any such indenture,
agreement or other instrument; or (iii) violate any law or any order, rule or
regulation applicable to the Grantee of any court or of any Federal or state
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Grantee or its properties.
SECTION 3.06. NO PROCEEDINGS. There are no proceedings or investigations
pending or, to the Grantee's knowledge, threatened, before any court, Federal or
state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Grantee or its properties involving
or relating to the Grantee or the Note Issuer or, to the Grantee's knowledge,
any other Person: (i) asserting the invalidity of the Funding Law, this
Agreement, any of the other Basic Documents or the Notes, (ii) seeking to
prevent the issuance of the Notes or the consummation of any of the transactions
contemplated by this Agreement or any of the other Basic Documents, (iii)
seeking any determination or ruling that could reasonably be expected to
materially and adversely affect the Grantee's performance of its obligations
under, or the validity or enforceability of, this Agreement, any of the other
Basic Documents or the Notes, or (iv) which could reasonably be expected to
adversely affect the Federal or state income tax attributes of the Notes.
SECTION 3.07. APPROVALS. No approval, authorization, consent, order or
other action of, or filing with, any court, Federal or state regulatory body,
administrative agency or other
5
<PAGE>
governmental instrumentality is required in connection with the Grantee's
execution and delivery of this Agreement, the Grantee's performance of the
transactions contemplated hereby or the Grantee's fulfillment of the terms
hereof, except those that have been obtained or made .
SECTION 3.08. THE 1998 TRANSITION PROPERTY AND RELATED ASSETS.
(a) INFORMATION. At the Closing Date, all information provided by the
Grantee to the Note Issuer with respect to the 1998 Transition Property
(including the 1998 Funding Order and the 1998 Initial Tariff) and the Related
Assets is correct in all material respects.
(b) TITLE. It is the intention of the parties hereto that the transfer and
assignment herein contemplated constitute a sale and absolute transfer of the
1998 Transition Property and Related Assets from the Grantee to the Note Issuer
and that no beneficial interest in or title to the 1998 Transition Property and
Related Assets shall be part of the Grantee's estate in the event of the filing
of a bankruptcy petition by or against the Grantee under any bankruptcy law. No
portion of the 1998 Transition Property and Related Assets has been sold,
transferred, assigned, pledged or otherwise conveyed by the Grantee to any
Person other than the Note Issuer. At the Closing Date, immediately prior to
the sale hereunder, the Grantee owns the 1998 Transition Property and Related
Assets, free and clear of all Liens and rights of any other Person, and no
offsets, defenses or counterclaims exist or have been asserted with respect
thereto.
(c) TRANSFER FILINGS. At the Closing Date, the 1998 Transition Property
and Related Assets have been validly transferred, assigned and sold from the
Grantee to the Note Issuer, the Note Issuer owns all the 1998 Transition
Property and Related Assets, free and clear of all Liens and rights of any other
Person (other than Liens created pursuant to the Indenture), and all filings
6
<PAGE>
to be made by the Grantee (including filings with the ICC under the Funding
Law) necessary in any jurisdiction to give the Note Issuer a first priority
perfected ownership interest in the 1998 Transition Property and Related
Assets have been made. No further action is required under Illinois law to
maintain such first priority perfected ownership interest in the 1998
Transition Property. No further action, other than any filings or other
steps required to be taken with respect to proceeds or on account of events
occurring after the date hereof by Sections 9-103, 9-304, 9-306, 9-402(7) or
9-403(2)-(3) of the UCC, is required to maintain such first priority
perfected ownership interest in the Related Assets.
(d) STATE PLEDGE. The State of Illinois has agreed with the Holders,
pursuant to Section 18-105(b) of the Funding Law, as follows:
"(b) The State pledges to and agrees with the holders of any
transitional funding instruments who may enter into contracts with an
electric utility, grantee, assignee or issuer pursuant to this Article
XVIII that the State will not in any way limit, alter, impair or reduce
the value of intangible transition property created by, or instrument
funding charges approved by, a transitional funding order so as to
impair the terms of any contract made by such electric utility, grantee,
assignee or issuer with such holders or in any way impair the rights and
remedies of such holders until the pertinent grantee instruments or, if
the related transitional funding order does not provide for the issuance
of grantee instruments, the pertinent transitional funding instruments
and interest, premium and other costs and charges related thereto, as
the case may be, are fully paid and discharged. Electric utilities,
grantees and issuers are authorized to include these pledges and
agreements of the State in any contract with the holders of transitional
funding instruments or with any assignees pursuant to this Article XVIII
and any assignees are similarly authorized to include these pledges and
agreements of the State in any contract with any issuer, holder or any
other assignee. Nothing in this Article XVIII shall preclude the State
of Illinois from requiring adjustments as may otherwise be allowed by
law to the electric utility's base rates, transition charges, delivery
services charges, or other charges for tariffed services, so long as any
such adjustment does not directly affect or impair any instrument
funding charges previously authorized by a transitional funding order
issued by the [ICC]."
7
<PAGE>
As a result of the foregoing pledge, the State of Illinois may not, except as
provided in the succeeding sentence, in any way limit, alter, impair or reduce
the value of the 1998 Transition Property in a manner substantially impairing
the Indenture or the rights and remedies of the Holders (and consequently, may
not revoke, reduce, postpone or terminate the 1998 Funding Order or the rights
of the Holders to receive IFC payments and all other proceeds of the 1998
Transition Property), until the Notes, together with interest thereon, are fully
paid and discharged. Notwithstanding the immediately preceding sentence, the
State would be allowed to effect a temporary impairment of the Holders' rights
if it could be shown that a temporary impairment was necessary to advance a
significant and legitimate public purpose.
(e) 1998 FUNDING ORDER AND TARIFFS; OTHER APPROVALS. (i) The 1998 Funding
Order pursuant to which the 1998 Transition Property has been created has been
duly entered by the ICC, is valid and binding, is Final and is in full force and
effect; (ii) the 1998 Initial Tariff is in full force and effect and is not
subject to modification by the ICC except as provided under the Funding Law;
(iii) as of the issuance of the Notes, the Notes are entitled to the protections
provided in Section 18-104(c) of the Funding Law and, accordingly, the 1998
Funding Order , the 1998 Transition Property and the IFCs are not revocable by
the ICC; (iv) the ICC may not reduce, postpone, impair or terminate the 1998
Transition Property, the 1998 Funding Order or the IFCs; (v) the process by
which the 1998 Funding Order was adopted and approved and the 1998 Initial
Tariff was filed, and the 1998 Funding Order and the 1998 Initial Tariff
themselves, comply with all applicable laws, rules and regulations and the ICC
may not revoke, amend or otherwise change the 1998 Initial Tariff in any manner
which would defeat the expectations of the Holders to receive IFC
8
<PAGE>
Payments on a timely basis; and (vi) no other approval, authorization,
consent, order or other action of, or filing with, any court, Federal or
state regulatory body, administrative agency or other governmental
instrumentality is required in connection with the grant of the 1998
Transition Property, except those that have been obtained or made .
(f) ASSUMPTIONS. At the Closing Date, the assumptions used in calculating
the IFCs are reasonable and made in good faith.
(g) CREATION OF 1998 TRANSITION PROPERTY. Upon the effectiveness of the
1998 Initial Tariff: (i) all of the 1998 Transition Property constitutes a
current property right vested in the Grantee; (ii) the 1998 Transition Property
includes, without limitation, (A) the right, title and interest in and to the
IFCs authorized under the 1998 Funding Order, as adjusted from time to time, (B)
the right, title and interest in and to all revenues, collections, claims,
payments, money or proceeds of or arising from the IFCs set forth in the 1998
Initial Tariff, and (C) all rights to obtain adjustments to the IFCs pursuant to
the 1998 Funding Order; and (iii) the Grantee is entitled to impose and collect
the IFCs described in the 1998 Funding Order and the 1998 Initial Tariff in an
aggregate amount equal to the principal amount of the Notes, all interest
thereon, all amounts required to be deposited in the Reserve Subaccount, the
Overcollateralization Subaccount and (to the extent payable from the proceeds of
the IFCs) the Capital Subaccount, and all related fees, costs and expenses in
respect of the Notes until they have been paid in full, subject only to the
$6.323 billion limitation set forth in the 1998 Funding Order as the maximum
dollar amount of 1998 Transition Property created thereunder.
(h) PROPERTY OF GRANTEE. To the fullest extent permitted by the Funding
Law and all other applicable law, the 1998 Transition Property and the right to
impose and collect IFCs contemplated thereunder constitute property rights of
the Grantee and its assigns, including the
9
<PAGE>
Note Issuer and its assigns (including the Indenture Trustee on behalf of the
Holders), which property has been placed beyond the reach of ComEd and its
creditors, as in a true sale, and which property rights may not be limited,
altered, impaired, reduced or otherwise terminated by any subsequent actions
of ComEd or any third party and which shall, to the full extent permitted by
law, be enforceable against ComEd, its successors and assigns, and all other
third parties (including judicial lien creditors) claiming an interest
therein by or through ComEd or its successors and assigns.
(i) NATURE OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in this Section 3.08, insofar as they involve
conclusions of law, are made not on the basis that the Grantee purports to be
a legal expert or to be rendering legal advice, but rather to reflect the
parties' good faith understanding of the legal basis on which the parties are
entering into this Agreement and the other Basic Documents and the basis on
which the Holders are purchasing the Notes, and to reflect the parties'
agreement that, if such understanding turns out to be incorrect or
inaccurate, the Grantee will be obligated to indemnify the Note Issuer and
its permitted assigns, and that the Note Issuer and its permitted assigns
will be entitled to enforce any rights and remedies under the documents, on
account of such inaccuracy to the same extent as if the Grantee had breached
any other representations or warranties hereunder.
ARTICLE IV
COVENANTS OF THE GRANTEE
SECTION 4.01. CORPORATE EXISTENCE. So long as any of the Notes are
outstanding, the Grantee (a) will keep in full force and 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 Grantee
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hereunder is or becomes, organized under the laws of any other State or of
the United States of America, in which case the Grantee will keep in full
effect its existence, rights and franchises under the laws of such other
jurisdiction), (b) will obtain and preserve its qualification to do business,
in each case to the extent that in each such jurisdiction such existence or
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the Basic Documents to which the Grantee is
a party and each other instrument or agreement necessary or appropriate to
the proper administration of this Agreement and the transactions contemplated
hereby and (c) at all times hereafter, the Grantee will not elect nor cause
nor permit the Note Issuer to elect to be classified as an association
taxable as a corporation for federal income tax purposes.
SECTION 4.02. NO LIENS. Except for the conveyances hereunder, the Grantee
will not sell, pledge, assign or transfer to any other Person, or grant, create,
incur, assume, suffer to exist or otherwise assert any Lien on, any of the 1998
Transition Property or Related Assets, or any interest therein, and the Grantee
shall defend the right, title and interest of the Note Issuer and the Indenture
Trustee in, to and under the 1998 Transition Property and Related Assets,
against all claims of third parties claiming through or under the Grantee.
SECTION 4.03. DELIVERY OF COLLECTIONS. If the Grantee receives
collections in respect of the IFCs or the proceeds thereof, or in replacement
therefor, including, without limitation, any Allocable IFC Revenue Amounts, the
Grantee agrees to hold such payments in trust for the Servicer and to pay the
Servicer all payments received by the Grantee in respect thereof as soon as
practicable after receipt thereof by the Grantee, but in no event later than
two Business Days after such receipt.
SECTION 4.04. NOTICE OF LIENS. The Grantee shall notify the Note Issuer
and the Indenture Trustee in writing promptly after becoming aware of any Lien
on any of the 1998
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Transition Property or Related Assets other than the conveyances hereunder
and under the Indenture.
SECTION 4.05. COMPLIANCE WITH LAW. The Grantee shall comply with its
organizational or governing documents and all laws, treaties, rules, regulations
and determinations of any governmental instrumentality applicable to it, to the
extent that failure to so comply would materially adversely affect the Note
Issuer's or the Indenture Trustee's interests in the 1998 Transition Property or
Related Assets or under any of the Basic Documents or the Grantee's performance
of its obligations hereunder or under any of the other Basic Documents to which
it is party.
SECTION 4.06. COVENANTS RELATED TO THE 1998 TRANSITION PROPERTY, RELATED
ASSETS AND THE NOTES.
(a) So long as any of the Notes are outstanding, the Grantee shall
indicate in its financial statements that the Note Issuer and not the Grantee
owns the 1998 Transition Property and the Related Assets.
(b) So long as any of the Notes are outstanding, the Grantee shall not
own or purchase any Notes.
(c) The Grantee agrees that upon its sale of the 1998 Transition
Property and Related Assets to the Note Issuer pursuant to this Agreement,
(i) to the fullest extent permitted by law, including applicable ICC
Regulations, the Note Issuer shall have all of the rights of the owner of the
1998 Transition Property (including all of the rights originally held by the
Grantee with respect to the 1998 Transition Property and Related Assets),
including the right (subject to the terms of the Servicing Agreement) to
exercise any and all rights and remedies to collect any amounts payable by
any Customer or third party collection agent, including any ARES, in respect
of the 1998 Transition Property, notwithstanding any objection or direction
to the contrary by the
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Grantee and (ii) any payment by any Customer or third party collection agent,
including any ARES, to the Note Issuer (or to the Servicer for the benefit of
the Note Issuer) shall discharge such Customer's or third party's obligations
in respect of the 1998 Transition Property to the extent of such payment,
notwithstanding any objection or direction to the contrary by the Grantee.
(d) So long as any of the Notes are outstanding, (i) except with respect to
federal and other applicable taxes, the Grantee shall not make any statement or
reference in respect of the 1998 Transition Property or the Related Assets that
is inconsistent with the ownership interest of the Note Issuer therein, and (ii)
the Grantee shall not take any action in respect of the 1998 Transition Property
or the Related Assets except as otherwise contemplated by the Basic Documents.
SECTION 4.07. PROTECTION OF TITLE. The Grantee shall execute and file
such filings, including filings with the ICC pursuant to the Funding Law, and
cause to be executed and filed such filings, all in such manner and in such
places as may be required by law fully to preserve, maintain, and protect the
interests of the Note Issuer in the 1998 Transition Property and Related Assets,
including all filings required under the Funding Law relating to the transfer of
the ownership or security interest in the 1998 Transition Property by the
Grantee to the Note Issuer. The Grantee shall deliver (or cause to be
delivered) to the Note Issuer file-stamped copies of, or filing receipts for,
any document filed as provided above, promptly following such filing. The
Grantee shall institute any action or proceeding necessary to compel performance
by the ICC or the State of Illinois of any of their obligations or duties under
the Funding Law, the 1998 Funding Order, the 1998 Initial Tariff or any
amendatory tariff filed pursuant to Section 18-104(k) of the Funding Law, and
the Grantee agrees to take such legal or administrative actions, including
defending against or instituting and pursuing legal actions and appearing or
testifying at hearings
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or similar proceedings, as may be reasonably necessary to protect the Note
Issuer and the Holders from claims, state actions or other actions or
proceedings of third parties which, if successfully pursued, would result in
a breach of any representation set forth in Article III. The costs of any
such actions or proceedings will be payable by the Grantee. The Grantee
designates the Note Issuer as its agent and attorney-in-fact to execute any
filings with the ICC, financing statements, continuation statements or other
instruments required by the Note Issuer pursuant to this Section, it being
understood that the Note Issuer shall have no obligation to execute any such
instruments.
SECTION 4.08. NONPETITION COVENANTS. Notwithstanding any prior
termination of this Agreement or the Indenture, but subject to the ICC's right
to order the sequestration and payment of revenues arising with respect to the
1998 Transition Property notwithstanding any bankruptcy, reorganization or other
insolvency proceedings with respect to ComEd, the Grantee, the Note Issuer or
any other grantee or assignee of the 1998 Transition Property pursuant to
Section 18-107(c)(4) of the Funding Law, the Grantee shall not, prior to the
date which is one year and one day after the termination of the Indenture,
acquiesce, petition or otherwise invoke or cause or join with any other Person
to invoke the process of any court or governmental authority for the purpose of
commencing or sustaining a case against the Note Issuer under any Federal or
state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of or for the Note Issuer or any substantial part of the property of the Note
Issuer, or ordering the winding up or liquidation of the affairs of the Note
Issuer.
SECTION 4.09. TAXES. So long as any of the Notes are outstanding, the
Grantee shall, and shall cause each of its subsidiaries to, pay all material
taxes, assessments and governmental charges imposed upon it or any of its
properties or assets or with respect to any of its franchises, business, income
or property before any penalty accrues thereon if the failure to pay any such
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taxes, assessments and governmental charges would, after any applicable grace
periods, notices or other similar requirements, result in a lien on the 1998
Transition Property or Related Assets; provided that no such tax need be paid
if the Grantee or one of its subsidiaries is contesting the same in good
faith by appropriate proceedings promptly instituted and diligently conducted
and if the Grantee or such subsidiary has established appropriate reserves as
shall be required in conformity with generally accepted accounting principles.
SECTION 4.10. PERFORMANCE OF OBLIGATIONS; SERVICING. (a) The Grantee may
contract with other Persons to assist it in performing its duties under this
Agreement, and any performance of such duties by a Person identified to the Note
Issuer in an Officer's Certificate of the Grantee shall be deemed to be action
taken by the Grantee.
(b) Except as otherwise expressly permitted therein, the Grantee shall
not waive, amend, modify, supplement or terminate any Basic Document or any
provision thereof without the written consent of the Note Issuer (which
consent shall not be withheld if the Indenture Trustee shall have consented
thereto).
(c) Upon any termination of the Servicer's rights and powers pursuant to
the Servicing Agreement, the Note Issuer shall promptly notify the Grantee.
As soon as a Successor Servicer is appointed, the Note Issuer shall notify
the Grantee of such appointment, specifying in such notice the name and
address of such Successor Servicer.
(d) Without derogating from the absolute nature of the assignment
granted to the Note Issuer under this Agreement or the rights of the Note
Issuer hereunder, the Grantee will not, without the prior written consent of
the Note Issuer, amend, modify, waive, supplement, terminate or surrender, or
agree to any amendment, modification, supplement, termination, waiver or
surrender of, the terms of any Note Collateral or the Basic Documents, or
waive timely performance or observance by ComEd or the Servicer under the
Grant Agreement or the
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Servicing Agreement, respectively. If any such amendment, modification,
supplement or waiver shall be so consented to by the Note Issuer and the Note
Issuer shall so request, the Grantee shall 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.
(e) The Grantee shall make all filings required under the Funding Law
relating to the transfer of the ownership or security interest in the 1998
Transition Property other than those required to be made by ComEd pursuant to
the Basic Documents.
SECTION 4.11. ADDITIONAL NEGATIVE COVENANTS. So long as any Notes are
Outstanding, the Grantee shall not:
(i) except as permitted by Section 5.02, sell, transfer, exchange or
otherwise dispose of any of its properties or assets;
(ii) assert any claim against the Note Issuer by reason of the
payment of the taxes levied or assessed upon any part of the 1998
Transition Property or the Related Assets;
(iii) except as permitted by Section 5.02, terminate its existence or
dissolve or liquidate in whole or in part; or
(iv) take any action that would be inconsistent with the Note Issuer's
absolute and first priority ownership interest in the 1998 Transition
Property and the Related Assets.
SECTION 4.12. NO OTHER BUSINESS. The Grantee shall not engage in any
business other than acquiring, owning, financing, transferring, assigning and
otherwise managing the 1998 Transition Property and Related Assets, and any
Subsequent Intangible Transition Property and Subsequent Related Assets, in the
manner contemplated by this Agreement and the Basic Documents (or in a similar
manner, in the case of Subsequent Transition Property and Subsequent Related
Assets) and activities incidental thereto.
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SECTION 4.13. NO BORROWING. The Grantee shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness.
SECTION 4.14. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES. Except
as otherwise contemplated by the Grant Agreement, the Administration Agreement,
the Servicing Agreement or this Agreement, the Grantee 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 4.15. CAPITAL EXPENDITURES. Other than expenditures made out
of available funds in an aggregate amount not to exceed $25,000 in any
calendar year, the Grantee shall not make any expenditure (by long-term or
operating lease or otherwise) for capital assets (either realty or
personalty).
SECTION 4.16. NOTICE OF DEFAULTS. The Grantee shall promptly notify the
Note Issuer, in writing, of each default under the Indenture and each material
default on the part of ComEd or the Servicer of their respective obligations
under the Grant Agreement or the Servicing Agreement.
SECTION 4.17. SEPARATE EXISTENCE. The Grantee shall:
(i) Maintain with commercial banking institutions its own deposit
account or accounts separate from those of any Affiliate of the Grantee.
The Grantee's funds will not be diverted to any other Person or for other
than the Grantee's use, and, except as may be
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expressly permitted by this Agreement or the Servicing Agreement, the
funds of the Grantee shall not be commingled with those of any Affiliate
of the Grantee.
(ii) Ensure that, to the extent that it shares the same officers or
other employees as any of its members or Affiliates, the salaries of and
the expenses related to providing benefits to such officers and other
employees shall be fairly allocated among such entities, and each such
entity shall bear its fair share of the salary and benefit costs associated
with all such common officers and employees.
(iii) Ensure that, to the extent that it jointly contracts with any of
its members or Affiliates to do business with vendors or service providers
or to share overhead expenses, the costs incurred in so doing shall be
allocated fairly among such entities, and each such entity shall bear its
fair share of such costs. To the extent that the Grantee contracts or does
business with vendors or service providers where the goods and services
provided are partially for the benefit of any other Person, the costs
incurred in so doing shall be fairly allocated to or among such entities
for whose benefit the goods and services are provided, and each such entity
shall bear its fair share of such costs. All material transactions between
the Grantee and any of its Affiliates shall be only on an arm's-length
basis.
(iv) Maintain a principal executive and administrative office through
which its business is conducted separate from those of its members and
Affiliates. To the extent that the Grantee and any of its members or
Affiliates have offices in contiguous space, there shall be fair and
appropriate allocation of overhead costs among them, and each such entity
shall bear its fair share of such expenses.
(v) Conduct its affairs strictly in accordance with its Operating
Agreement and observe all necessary, appropriate and customary
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formalities, including, but not limited to, holding all regular and special
members' meetings, and meetings of the Grantee's management committee,
appropriate to authorize all action on behalf of the Grantee, keeping all
resolutions or consents necessary to authorize actions taken or to be
taken, and maintaining accurate and separate books, records and accounts,
including, but not limited to, payroll and intercompany transaction
accounts.
(vi) Ensure that its management committee (a) shall not include any
Person who is also a member of the Board of Directors of any of the
Grantee's Affiliates and (b) shall at all times include at least two
Independent Managers (as such term is defined in the Grantee's Operating
Agreement).
(vii) Act solely in its own name and through its own authorized
managers and agents, and no Affiliate of the Grantee shall be appointed to
act as agent of the Grantee, except as expressly contemplated by this
Agreement or the Servicing Agreement.
(viii) Ensure that no Affiliate of the Grantee shall advance funds to
the Grantee, or otherwise guaranty debts of, the Grantee, except as
provided in the Grantee's Operating Agreement; PROVIDED, HOWEVER, that an
Affiliate of the Grantee may provide funds to the Grantee in connection
with capitalization of the Grantee.
(ix) Not enter into any guaranty, or otherwise become liable, with
respect to any obligation of any Affiliate of the Grantee.
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SECTION 4.18. FURTHER INSTRUMENTS AND ACTS. Upon request of the Note
Issuer, the Grantee 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 purposes of this Agreement.
SECTION 4.19. SUBSEQUENT TRANSITION PROPERTY. (a) Notwithstanding any
provision hereof to the contrary, the Grantee may from time to time accept
newly-created Subsequent Transition Property pursuant to a related Subsequent
Funding Order and a Subsequent Tariff, subject to the conditions specified in
paragraph (b) below.
(b) The Grantee shall be permitted to accept Subsequent Transition Property
only upon the satisfaction of each of the following conditions on or prior to
the related Subsequent Creation Date:
(i) ComEd shall have provided the Grantee, the Subsequent Note Issuer,
the Indenture Trustee and the Rating Agencies with written notice, which
shall be given not later than 10 days prior to the related Subsequent
Creation Date, specifying the Subsequent Creation Date for such Subsequent
Transition Property and the aggregate amount of the IFCs 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 to be created in favor of the Grantee;
(ii) ComEd and the Grantee shall have delivered to the Note Issuer a
duly executed Subsequent Grant Agreement, and the Grantee shall have
delivered to the Note Issuer a duly executed Subsequent Sale Agreement;
(iii) as of such Subsequent Creation Date, ComEd will not be
insolvent and will not have been made insolvent by such transfer and ComEd
will not be aware of any pending insolvency with respect to itself;
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(iv) the Rating Agency Condition shall have been satisfied with
respect to such creation;
(v) ComEd shall have delivered to the Grantee, the Trust, the
Indenture Trustee and the Delaware Trustee an opinion of independent tax
counsel and/or a ruling from the IRS (as selected by, and in form and
substance reasonably satisfactory to, ComEd) to the effect that, for
federal income tax purposes, (i) the ICC's issuance of the Funding Order
creating and establishing the Subsequent Transition Property in the
Grantee, and the assignment of such Subsequent Transition Property, will
not result in gross income to the Grantee, the Note Issuer or ComEd, and
the future revenues relating to the Subsequent Transition Property and the
assessment of the IFCs (except for revenue related to certain lump-sum
payments) will be included in ComEd's gross income in the year in which the
related electrical service is provided to consumers and (ii) such
conveyance will not adversely affect the characterization of the then
outstanding Notes as obligations of ComEd;
(vi) as of such Subsequent Creation Date, no breach by ComEd of its
representations, warranties or covenants in the Grant Agreement and no
Servicer Default shall exist;
(vii) as of such Subsequent Creation Date, the Grantee shall have
sufficient funds available to pay ComEd the consideration set forth in the
Subsequent Grant Agreement, and all conditions shall have been satisfied
for the issuance of one or more instruments under the Indenture in order to
provide such funds;
(viii) the Grantee shall have delivered to the Rating Agencies any
Opinions of Counsel requested by the Rating Agencies;
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(ix) the Grantee and the Note Issuer shall have taken all actions
required to perfect the ownership interest or security interest (as the
case may be) of the Note Issuer in the Subsequent Transition Property and
Subsequent Related Assets and the proceeds thereof, free and clear of any
Liens; and
(x) the Grantee shall have delivered to the Note Issuer an Officer's
Certificate confirming the satisfaction of each condition precedent
specified in this paragraph (b).
ARTICLE V
THE GRANTEE
SECTION 5.01. LIABILITY OF GRANTEE; INDEMNITIES.
(a) The Grantee shall be liable in accordance herewith only to the extent
of the obligations specifically undertaken by the Grantee under this Agreement.
(b) The Grantee shall indemnify the Note Issuer, the Indenture Trustee and
the Delaware Trustee, and each of their respective officers, directors,
employees and agents for, and defend and hold harmless each such Person from and
against, any and all taxes (i) that may at any time be imposed on or asserted
against any such Person as a result of the grant of the 1998 Transition Property
to the Grantee, or (ii) that may be imposed on or asserted against any such
Person under existing law as of the Closing Date as a result of the Grantee's
ownership and assignment of the 1998 Transition Property, the Note Issuer's
issuance and sale of the Notes, or the other transactions contemplated herein,
including, in each case, any sales, gross receipt, general corporation, tangible
personal property, privilege or license taxes, but excluding any taxes imposed
as a result of a failure of such Person to withhold or remit taxes imposed with
respect to payments on any Note.
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(c) The Grantee shall indemnify the Note Issuer, the Indenture Trustee,
the Delaware Trustee and the Holders and each of their respective officers,
directors, employees and agents for, and defend and hold harmless each such
Person from and against, any and all amounts of principal and interest on the
Notes not paid when due in accordance with their terms and the amount of any
deposits to the Note Issuer required to have been made in accordance with the
terms of the Basic Documents which are not made when so required and any and
all liabilities, obligations, claims, actions, suits, or payments of any
kind whatsoever that may be imposed on or asserted against any such Person,
together with any reasonable costs and expenses incurred by such Person
(collectively, "Losses"), as a result of the Grantee's breach of any of its
representations, warranties or covenants contained in this Agreement.
(d) The Grantee shall pay any and all taxes levied or assessed upon all
or any part of the Note Issuer's property or assets based on existing law as
of the Closing Date.
(e) Indemnification under this Section 5.01 shall survive the resignation
or removal of the Indenture Trustee or the Delaware Trustee and the termination
of this Agreement and shall include reasonable fees and expenses of
investigation and litigation (including reasonable attorneys' fees and
expenses).
SECTION 5.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS
OF, GRANTEE. Any Person (a) into which the Grantee may be merged or
consolidated, (b) which may result from any merger or consolidation to which the
Grantee shall be a party or (c) which may succeed to the properties and assets
of the Grantee substantially as a whole, which Person in any
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of the foregoing cases executes an agreement of assumption to perform every
obligation of the Grantee hereunder, shall be the successor to the Grantee
under this Agreement without further act on the part of any of the parties to
this Agreement; PROVIDED, HOWEVER, that (i) immediately after giving effect
to such transaction, no representation or warranty made pursuant to Article
III shall have been breached, (ii) the Grantee shall have delivered to the
Note Issuer and the Indenture Trustee an Officers' Certificate and an Opinion
of Counsel each stating that such consolidation, merger or succession and
such agreement of assumption comply with this Section and that all conditions
precedent, if any, provided for in this Agreement relating to such
transaction have been complied with, (iii) the Grantee shall have delivered
to the Note Issuer and the Indenture Trustee an Opinion of Counsel either (A)
stating that, in the opinion of such counsel, all filings to be made by the
Grantee, including filings with the ICC pursuant to the Funding Law, have
been executed and filed that are necessary to fully preserve and protect the
interest of the Note Issuer in the 1998 Transition Property and Related
Assets and reciting the details of such filings, or (B) stating that, in the
opinion of such counsel, no such action shall be necessary to preserve and
protect such interests (iv) the Rating Agencies shall have received prior
written notice of such transaction and (v) ComEd shall have delivered to the
Grantee, the Note Issuer, the Delaware Trustee and the Indenture Trustee an
opinion of independent tax counsel (as selected by, and in form and substance
reasonably satisfactory to, ComEd, and which may be based on a ruling form
the Internal Revenue Service) to the effect that, for federal income tax
purposes, such consolidation or merger will not result in a material adverse
federal income tax consequence to ComEd, the Grantee, the Note Issuer, the
Delaware Trustee, the Indenture Trustee or the then existing Holders.
Notwithstanding anything herein to the contrary, the execution of the
foregoing agreement of assumption and compliance with clauses (i), (ii),
(iii), (iv) and (v) above shall be conditions to the consummation of any
transaction referred to in clauses (a), (b) or (c) above.
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When any Person acquires the properties and assets of ComEd Funding, LLC
substantially as a whole and becomes the successor to ComEd Funding, LLC in
accordance with the terms of this Section 5.02, then upon the satisfaction of
all of the other conditions of this Section 5.02, ComEd Funding, LLC shall
automatically and without further notice be released from its obligations
hereunder.
SECTION 5.03. LIMITATION ON LIABILITY OF GRANTEE AND OTHERS. The
Grantee and any director or officer or employee or agent of the Grantee may
rely in good faith on the advice of counsel or on any document of any kind,
PRIMA FACIE properly executed and submitted by any Person, respecting any
matters arising hereunder. Subject to Section 4.07, the Grantee shall not be
under any obligation to appear in, prosecute or defend any legal action that
shall not be incidental to its obligations under this Agreement, and that in
its opinion may involve it in any expense or liability.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.01. AMENDMENT. The Agreement may be amended by the Grantee and
the Note Issuer, with prior written notice given to the Rating Agencies and the
prior written consent of the Indenture Trustee, but without the consent of any
of the Holders, to cure any ambiguity, to correct or supplement any provisions
in this Agreement or for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions in this Agreement or of
modifying in any manner the rights of the Holders; PROVIDED, HOWEVER, that such
action shall not, as evidenced by an Officer's Certificate delivered to the Note
Issuer and the Indenture Trustee, adversely affect in any material respect the
interests of any Holder.
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This Agreement may also be amended from time to time by the Grantee and the
Note Issuer, with prior written notice given to the Rating Agencies and the
prior written consent of the Indenture Trustee and Holders holding not less than
a majority of the Outstanding Amount of the Notes of all Series affected
thereby, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of the Holders; PROVIDED, HOWEVER, that no such amendment
shall (a) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, IFC Collections or (b) reduce the aforesaid percentage of the
Outstanding Amount of the Notes, the Holders of which are required to consent to
any such amendment, without the consent of the Holders of all the outstanding
Notes.
Promptly after the execution of any such amendment or consent, the Note
Issuer shall furnish a copy of such amendment or consent to the Indenture
Trustee and each of the Rating Agencies.
It shall not be necessary for the consent of Holders pursuant to this
Section to approve the particular form of any proposed amendment or consent,
but it shall be sufficient if such consent shall approve the substance
thereof.
Prior to the execution of any amendment to this Agreement, the Indenture
Trustee shall be entitled to receive and rely upon an Opinion of Counsel
stating that the execution of such amendment is authorized or permitted by
this Agreement. The Indenture Trustee may, but shall not be obligated to,
enter into any such amendment which affects the Indenture Trustee's own
rights, duties or immunities under this Agreement or otherwise.
SECTION 6.02. NOTICES. All demands, notices and communications upon or to
the Grantee, the Note Issuer, the Indenture Trustee or the Rating Agencies under
this Agreement shall be in writing, personally delivered, mailed or sent by
telecopy or other similar form of rapid
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transmission, and shall be deemed to have been duly given upon receipt (a) in
the case of the Grantee, to ComEd Funding, LLC, c/o Commonwealth Edison
Company, 10 South Dearborn Street, 37th Floor, Chicago, Illinois 60603, (b)
in the case of the Note Issuer, to ComEd Transitional Funding Trust, c/o
First Union Trust Company, National Association, One Rodney Square, 920 King
Street, 1st Floor, Wilmington, Delaware 19801, Attention: Corporate Trust
Administration, with a copy to Richards, Layton & Finger, Attention: Doneene
Damon, (c) in the case of the Indenture Trustee, at the Corporate Trust
Office, (d) in the case of Moody's, to Moody's Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007, (e) 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, (f) in the case of Fitch IBCA, to Fitch IBCA, Inc.,
One State Street Plaza, New York, New York 10004, Attention of ABS
Surveillance, or (g) in the case of Duff & Phelps, to Duff & Phelps Rating
Co., 17 State Street, 12th Floor, New York, New York 10004, Attention of
Asset Backed Monitoring Group, or as to each of the foregoing, at such other
address as shall be designated by written notice to the other parties.
SECTION 6.03. ASSIGNMENT. Notwithstanding anything to the contrary
contained herein, except as provided in Section 5.02, this Agreement may not be
assigned by the Grantee.
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SECTION 6.04. LIMITATIONS ON RIGHTS OF OTHERS. The provisions of this
Agreement are solely for the benefit of the Grantee, the Note Issuer, the
Indenture Trustee, the Delaware Trustee and the Holders, and nothing in this
Agreement, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the 1998 Transition
Property or Related Assets or under or in respect of this Agreement or any
covenants, conditions or provisions contained herein.
SECTION 6.05. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 6.06. SEPARATE COUNTERPARTS. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 6.07. HEADINGS. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
SECTION 6.08. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Illinois, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 6.09. ASSIGNMENT TO INDENTURE TRUSTEE. The Grantee acknowledges
and consents to any transfer, pledge, assignment and grant of a security
interest by the Note Issuer to the Indenture Trustee pursuant to the Indenture
for the benefit of the Holders of all right, title and
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interest of the Note Issuer in, to and under the 1998 Transition Property and
Related Assets and the proceeds thereof and the assignment of any or all of
the Note Issuer's rights and obligations hereunder to the Indenture Trustee.
SECTION 6.10. LIMITATION OF LIABILITY. It is expressly understood and
agreed by the parties hereto that (a) this Agreement is executed and
delivered by First Union Trust Company, National Association ("First Union")
not individually or personally but solely as Delaware Trustee on behalf of
the Note Issuer, in the exercise of the powers and authority conferred and
vested in it, (b) the representations, undertakings and agreements herein
made by the Delaware Trustee on behalf of the Note Issuer are made and
intended not as personal representations, undertakings and agreements by
First Union are made and intended for the purpose of binding only the Note
Issuer, (c) nothing herein contained shall be construed as creating any
liability on First Union individually or personally, to perform any covenant
either expressed or implied contained herein, except in its capacity as
Delaware Trustee, all such liability, if any, being expressly waived by the
parties who are signatories to this Agreement and by any Person claiming by,
through or under such parties and (d) under no circumstances shall First
Union be personally liable for the payment of any indebtedness or expense of
the Note Issuer or be personally liable for the breach or failure of any
obligation, representation, warranty or covenant made or undertaken by the
Note Issuer under this Agreement; PROVIDED, HOWEVER, that this provision
shall not protect First Union against any liability that would otherwise be
imposed by reason of willful misconduct, bad faith or gross negligence in the
performance of its obligations and duties under this Agreement.
SECTION 6.11. LIMITATION OF LIABILITY. It is expressly understood and
agreed by the parties hereto that (a) this Agreement is executed and delivered
by Harris Trust and Savings Bank, not individually or personally but solely as
Indenture Trustee, in the exercise of the powers and authority conferred and
vested in it, and (b) nothing herein contained
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shall be construed as creating any liability on Harris Trust and Savings
Bank, individually or personally, to perform any covenant either expressed or
implied contained herein, all such liability, if any, being expressly waived
by the parties who are signatories to this Agreement and by any person
claiming by, through or under such parties.
SECTION 6.12. HOLDERS AS THIRD PARTY BENEFICIARIES. The Grantee and the
Note Issuer agree that the Holders and the Indenture Trustee are express
third-party beneficiaries of the provisions of this Agreement and that the
Indenture Trustee, on behalf of the Holders, shall have the right to enforce
the terms hereof as provided in Section 6.09 hereof. The Grantee will take
all appropriate actions to perfect and maintain the perfection of the
Grantee's and the Note Issuer's ownership interest in any of the 1998
Transition Property and to perfect and maintain the perfection of the
Indenture Trustee's security interest in such 1998 Transition Property and
all other Note Collateral.
SECTION 6.13. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. In addition to
the survival of representations and warranties as set forth in Article III, (a)
the agreements, representations, warranties, indemnities and other statements of
the Grantee set forth in or made pursuant to this Agreement will remain in full
force and effect and will survive the grant of the 1998 Transition Property and
the issuance and delivery of the Notes and (b) to the fullest extent permitted
by applicable law, the provisions of Articles III, IV and V hereof shall survive
the termination and cancellation or invalidity of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.
COMED FUNDING LLC, Grantee
By: ___________________________
Name:
Title:
COMED TRANSITIONAL FUNDING
TRUST, Note Issuer
By First Union Trust Company,
National Association, not in
its individual capacity but
solely as Delaware Trustee
By: ___________________________
Name:
Title:
Acknowledged and accepted:
Harris Trust and Savings Bank, not in
its individual capacity but
solely as Indenture Trustee,
By: ________________________
Name:
Title:
SIGNATURE PAGE
TO GRANT AGREEMENT
<PAGE>
BLACKLINED VERSION REVISED FROM FORM FILED
WITH AMENDMENT NO. 1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
EXHIBIT 10.2
FORM OF GRANT AGREEMENT
AGREEMENT RELATING TO GRANT OF
INTANGIBLE TRANSITION PROPERTY
between
COMMONWEALTH EDISON COMPANY
and
COMED FUNDING, LLC
Dated as of December __, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.01. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS. . . . . . . . . . . . . . . . . .2
ARTICLE II
GRANT OF TRANSITION PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . .3
SECTION 2.01. GRANT OF TRANSITION PROPERTY . . . . . . . . . . . . . . . . . .3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMED . . . . . . . . . . . . . . . . . . . .4
SECTION 3.01. ORGANIZATION AND GOOD STANDING . . . . . . . . . . . . . . . . .4
SECTION 3.02. DUE QUALIFICATION. . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 3.03. POWER AND AUTHORITY. . . . . . . . . . . . . . . . . . . . . . .5
SECTION 3.04. BINDING OBLIGATION . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 3.05. NO VIOLATION . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 3.06. NO PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 3.07. APPROVALS. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 3.08. THE 1998 TRANSITION PROPERTY . . . . . . . . . . . . . . . . . .7
ARTICLE IV
COVENANTS OF COMED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.01. CORPORATE EXISTENCE. . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.02. NO LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.03. DELIVERY OF COLLECTIONS. . . . . . . . . . . . . . . . . . . . 13
SECTION 4.04. NOTICE OF LIENS. . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.05. COMPLIANCE WITH LAW. . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.06. COVENANTS RELATED TO THE 1998 TRANSITION PROPERTY AND THE
NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.07. PROTECTION OF TITLE. . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4.08. NONPETITION COVENANTS. . . . . . . . . . . . . . . . . . . . . 16
SECTION 4.09. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 4.10. CONTRACTS FOR NON-TARIFFED SERVICES. . . . . . . . . . . . . . 17
SECTION 4.11. PRESERVATION OF RIGHT OF NOTEHOLDERS TO RECEIVE PAYMENT. . . . 17
ARTICLE V
COMED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 5.01. LIABILITY OF COMED; INDEMNITIES. . . . . . . . . . . . . . . . 18
SECTION 5.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, COMED. . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 5.03. LIMITATION ON LIABILITY OF COMED AND OTHERS. . . . . . . . . . 20
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ARTICLE VI
MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 6.01. AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 6.02. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 6.03. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.04. LIMITATIONS ON RIGHTS OF OTHERS. . . . . . . . . . . . . . . . 23
SECTION 6.05. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.06. SEPARATE COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.07. HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.08. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.09. ASSIGNMENTS TO NOTE ISSUER AND INDENTURE TRUSTEE . . . . . . . 24
SECTION 6.10. HOLDERS AS THIRD PARTY BENEFICIARIES . . . . . . . . . . . . . 24
</TABLE>
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<PAGE>
AGREEMENT RELATING TO GRANT OF INTANGIBLE TRANSITION PROPERTY (as the same
may be hereafter amended, supplemented or otherwise modified from time to time,
this "Agreement") dated as of December __, 1998, between COMMONWEALTH EDISON
COMPANY, an Illinois corporation ("ComEd"), and COMED FUNDING, LLC, a Delaware
limited liability company (the "Grantee").
WHEREAS, ComEd filed the Application with the ICC pursuant to Section
18-103 of the Funding Law requesting the issuance of a transitional funding
order;
WHEREAS, ComEd requested in the Application that the transitional funding
order (i) establish, create and grant rights, in favor of the Grantee, in and to
"intangible transition property" (as defined in Section 18-102 of the Funding
Law) in the aggregate amount of $6,323,000,000; and (ii) establish and create
"instrument funding charges" as defined in Section 18-102 of the Funding Law,
granting the right to impose and receive certain non-bypassable charges
expressed in cents per kilowatt hour from and after the effective date of the
associated tariff;
WHEREAS, the ICC issued the 1998 Funding Order on July 21, 1998, which
created and established the intangible transition property requested by ComEd in
the Application;
WHEREAS, the 1998 Funding Order granted to and vested in the Grantee, as
current and original property rights, and not by assignment from ComEd, all
right, title and interest to impose and receive the IFCs authorized by and under
the 1998 Funding Order and all related revenues, collections, claims, payments,
money or proceeds thereof, including all right, title and interest of the
Grantee in, to and under the 1998 Funding Order; and
WHEREAS, the Grantee has agreed to (i) transfer the 1998 Transition
Property to the Note Issuer pursuant to the Sale Agreement, and (ii) pay ComEd
the net proceeds received by the Grantee from the Note Issuer in connection with
such transfer;
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. Capitalized terms used herein and not
otherwise defined herein have the meanings assigned to them in that certain
Indenture (including APPENDIX A thereto) dated as of the date hereof, between
ComEd Transitional Funding Trust, as the Note Issuer, and Harris Trust and
Savings Bank, as the Indenture Trustee, as the same may be amended, supplemented
or otherwise modified from time to time.
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.
(a) "AGREEMENT" shall have the meaning set forth in the preamble hereto.
(b) Non-capitalized terms used herein which are defined in the Public
Utilities Act shall, as the context requires, have the meanings assigned to such
terms in the Public Utilities Act, but without giving effect to amendments to
the Public Utilities Act after the date hereof which have a material adverse
effect on the Note Issuer or the Holders.
(c) All terms defined in this Agreement shall have the defined meaning when
used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(d) The words "hereof," "herein," "hereunder" and words of similar import,
when used in this Agreement, shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; Section, Schedule and Exhibit
references contained in this Agreement are references to Sections, Schedules and
Exhibits in or to this Agreement unless otherwise specified; and the term
"including" shall mean "including without limitation".
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<PAGE>
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter forms of such terms.
ARTICLE II
GRANT OF TRANSITION PROPERTY
SECTION 2.01. GRANT OF TRANSITION PROPERTY. In consideration of ComEd's
actions in requesting that the 1998 Transition Property be created and vested in
the Grantee, the Grantee agrees to remit to ComEd the net proceeds remitted to
it by the Note Issuer from the sale of the Notes. To the extent that,
notwithstanding the Funding Law, the Application and the 1998 Funding Order,
applicable law provides that ComEd has any interest in the 1998 Transition
Property or any part thereof, ComEd hereby, effective upon the effectiveness of
the 1998 Initial Tariff, sells, transfers, assigns, sets over and otherwise
conveys to the Grantee without recourse (subject to the obligations herein) all
of ComEd's right, title and interest, if any, in, to and under the 1998
Transition Property (such grant of the 1998 Transition Property, and such sale,
transfer, assignment, set over and conveyance, to include, to the fullest extent
permitted by the Funding Law, the assignment of all revenues, collections,
claims, rights, payments, money or proceeds of or arising from the IFCs pursuant
to the 1998 Funding Order and the 1998 Initial Tariff, including, without
limitation, any Allocable IFC Revenue Amounts). Such sale, transfer,
assignment, set over and conveyance by ComEd is expressly stated to be an
absolute transfer, and pursuant to Section 18-108 of the Funding Law, shall be
treated as an absolute transfer (as in a true sale), and not as a pledge or
other financing, of the 1998 Transition Property. The previous sentence is the
express statement referred to in Section 18-108 of the Funding Law. To the
extent that, notwithstanding the Funding Law, the Application and the 1998
Funding Order,
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<PAGE>
ComEd is deemed to have any interest in the 1998 Transition Property or any
part thereof under applicable law, and if the foregoing sale, transfer,
assignment, set over and conveyance is held not to be an absolute transfer
(as in a true sale) as contemplated under Section 18-108 of the Funding Law,
then such sale, transfer, assignment, set over and conveyance shall be
treated as a pledge of the 1998 Transition Property and ComEd shall be deemed
to have granted a security interest to the Grantee in the 1998 Transition
Property. ComEd takes the position that it has no rights in the 1998
Transition Property to which such a security interest could attach.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMED
ComEd makes the following representations and warranties, as of the Closing
Date, on which the Grantee has relied in selling the 1998 Transition Property
to the Note Issuer. These representations and warranties shall survive (i) the
grant of the 1998 Transition Property to the Grantee pursuant to the 1998
Funding Order and the 1998 Initial Tariff, (ii) to the extent that ComEd has any
interest in the 1998 Transition Property or any part thereof, the sale,
transfer, assignment, set over and conveyance by ComEd contemplated hereby,
(iii) the sale, transfer, assignment, set over and conveyance of the 1998
Transition Property and Related Assets to the Note Issuer, (iv) the pledge
thereof to the Indenture Trustee pursuant to the Indenture and (v) the issuance
of the Notes.
SECTION 3.01. ORGANIZATION AND GOOD STANDING. ComEd is duly organized and
validly existing as a corporation in good standing under the laws of the State
of Illinois, with the power and authority to own its properties and to conduct
its business as such properties are currently owned and such business is
presently conducted, and had at all relevant times, and has the requisite power,
authority and legal right to request that the ICC issue the 1998 Funding Order.
4
<PAGE>
ComEd is engaged in the generation, transmission, distribution and sale of
electricity to the public in Illinois, is a public utility within the meaning of
Section 3-105 of the Public Utilities Act and is an electric utility within the
meaning of the Funding Law and Article XVI of the Public Utilities Act.
SECTION 3.02. DUE QUALIFICATION. ComEd is duly qualified to do business
as a corporation in good standing, and has obtained all necessary licenses and
approvals, in all jurisdictions in which the ownership or lease of property or
the conduct of its business shall require such qualifications, licenses or
approvals (except where the failure to so qualify would not be reasonably likely
to have a material adverse effect on ComEd's business, operations, assets,
revenues or properties).
SECTION 3.03. POWER AND AUTHORITY. ComEd has the requisite power and
authority to execute and deliver this Agreement and to carry out its terms; and
the execution, delivery and performance of this Agreement have been duly
authorized by ComEd by all necessary corporate action.
SECTION 3.04. BINDING OBLIGATION. This Agreement constitutes a legal,
valid and binding obligation of ComEd enforceable against ComEd in accordance
with its terms, subject to applicable insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws relating to or affecting creditors'
rights generally from time to time in effect and to general principles of equity
(including, without limitation, concepts of materiality, reasonableness, good
faith and fair dealing), regardless of whether considered in a proceeding in
equity or at law.
SECTION 3.05. NO VIOLATION. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do not
(i) conflict with, result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time) a default under, the
Articles of Incorporation or by-laws of ComEd, or any indenture, agreement or
5
<PAGE>
other instrument to which ComEd is a party or by which it shall be bound; (ii)
result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument; or
(iii) violate any law or any order, rule or regulation applicable to ComEd of
any court or of any Federal or state regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over ComEd or its
properties.
SECTION 3.06. NO PROCEEDINGS. There are no proceedings or investigations
pending or, to ComEd's knowledge, threatened, before any court, Federal or state
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over ComEd or its properties involving or relating to ComEd
or the Grantee or to ComEd's knowledge, any other Person: (i) asserting the
invalidity of the Funding Law, this Agreement, any of the other Basic Documents
or the Notes, (ii) seeking to prevent the grant of the 1998 Transition Property
to the Grantee or the consummation of any of the transactions contemplated by
this Agreement or any of the other Basic Documents, (iii) seeking any
determination or ruling that could reasonably be expected to materially and
adversely affect ComEd's performance of its obligations under, or the validity
or enforceability of, this Agreement, any of the other Basic Documents or the
Notes, or (iv) which could reasonably be expected to adversely affect the
Federal or state income tax attributes of the Notes.
SECTION 3.07. APPROVALS. No approval, authorization, consent, order or
other action of, or filing with, any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality is required in
connection with ComEd's execution and delivery of this Agreement, ComEd's
performance of the transactions contemplated hereby or ComEd's fulfillment of
the terms hereof, except those that have been obtained or made (it being
understood that ComEd nonetheless has ongoing legal obligations to make
6
<PAGE>
future filings with the ICC relating to ComEd's use of proceeds from the
transactions contemplated hereby and the final terms of each Series of Notes
issued pursuant to the Indenture).
SECTION 3.08. THE 1998 TRANSITION PROPERTY.
(a) INFORMATION. All information provided by ComEd to the Grantee with
respect to the 1998 Transition Property (including the 1998 Funding Order and
the 1998 Initial Tariff) is correct in all material respects.
(b) TITLE. It is the intention of the parties hereto that the vesting of
the 1998 Transition Property in the Grantee as contemplated by the 1998 Funding
Order shall be irrevocable and enforceable against ComEd and its successors and
that no interest in or title to the 1998 Transition Property shall be part of
ComEd's estate in the event of the filing of a bankruptcy petition by or against
ComEd under any bankruptcy law. Accordingly, ComEd reaffirms that it has no
right, title or interest in and to the 1998 Transition Property and any sale,
transfer, assignment, set over and conveyance which may nonetheless be
contemplated by Section 2.01 hereof shall constitute an absolute transfer to the
Grantee, within the meaning of Section 18-108 of the Funding Law, of any right,
title and interest ComEd may otherwise have had in the 1998 Transition Property
(or any part thereof) created by, under and pursuant to the 1998 Funding Order,
such transfer is irrevocable and enforceable against ComEd and its successors,
and no interest in or title to the 1998 Transition Property shall be part of
ComEd's estate in the event of the filing of a bankruptcy petition by or against
ComEd under any bankruptcy law. No portion of the 1998 Transition Property has
been sold, transferred, assigned, pledged or otherwise conveyed by ComEd to any
Person other than the Grantee. Immediately prior to the transactions
contemplated hereunder, ComEd's right, title and interest in and to all of its
rights to payment under Applicable Rates is free and clear of all Liens and
rights of any other Person, and no offsets,
7
<PAGE>
defenses or counterclaims exist or have been asserted with respect thereto.
(c) TRANSFER FILINGS. The 1998 Transition Property has been validly granted
and vested in the Grantee pursuant to the 1998 Funding Order and, to the extent
applicable, this Agreement, the Grantee owns all right, title and interest to
the 1998 Transition Property, free and clear of all Liens and rights of any
other Person (other than Liens created pursuant to the Sale Agreement and the
Indenture), and all filings to be made by ComEd (including filings with the ICC
under the Funding Law) necessary in any jurisdiction to give the Grantee a first
priority perfected ownership interest in the 1998 Transition Property, free and
clear of all Liens, have been made. No further action is required under
Illinois law to maintain such ownership interest in the 1998 Transition
Property. No further action, other than any filings or other steps required to
be taken with respect to proceeds or on account of events occurring after the
date hereof by Sections 9-103, 9-304, 9-306, 9-402(7) or 9-403(2)-(3) of the
UCC, is required to maintain such first priority perfected ownership interest in
the Related Assets.
(d) STATE PLEDGE. The State of Illinois has agreed with the Holders,
pursuant to Section 18-105(b) of the Funding Law, as follows:
"(b) The State pledges to and agrees with the holders of any
transitional funding instruments who may enter into contracts with an
electric utility, grantee, assignee or issuer pursuant to this Article
XVIII that the State will not in any way limit, alter, impair or reduce
the value of intangible transition property created by, or instrument
funding charges approved by, a transitional funding order so as to impair
the terms of any contract made by such electric utility, grantee, assignee
or issuer with such holders or in any way impair the rights and remedies
of such holders until the pertinent grantee instruments or, if the related
transitional funding order does not provide for the issuance of grantee
instruments, the pertinent transitional funding instruments and interest,
premium and other fees, costs and charges related thereto, as the case may
be, are fully paid and discharged. Electric
8
<PAGE>
utilities, grantees and issuers are authorized to include these pledges and
agreements of the State in any contract with the holders of transitional
funding instruments or with any assignees pursuant to this Article XVIII
and any assignees are similarly authorized to include these pledges and
agreements of the State in any contract with any issuer, holder or any
other assignee. Nothing in this Article XVIII shall preclude the State of
Illinois from requiring adjustments as may otherwise be allowed by law to
the electric utility's base rates, transition charges, delivery services
charges, or other charges for tariffed services, so long as any such
adjustment does not directly affect or impair any instrument funding
charges previously authorized by a transitional funding order issued by
the [ICC]."
As a result of the foregoing pledge, the State of Illinois may not, except as
provided in the succeeding sentence, in any way limit, alter, impair or reduce
the value of the 1998 Transition Property in a manner substantially impairing
the Indenture or the rights and remedies of the Holders (and consequently, may
not revoke, reduce, postpone or terminate the 1998 Funding Order or the rights
of the Holders to receive IFC Payments and all other proceeds of the 1998
Transition Property), until the Notes, together with interest thereon, are fully
paid and discharged. Notwithstanding the immediately preceding sentence, the
State would be allowed to effect a temporary impairment of the Holders' rights
if it could be shown that a temporary impairment was necessary to advance a
significant and legitimate public purpose.
(e) 1998 FUNDING ORDER AND TARIFFS; OTHER APPROVALS. (i) ComEd was
authorized to file the Application, (ii) ComEd filed the Application with the
ICC on April 22, 1998, in proper form, requesting the issuance of a transitional
funding order; (iii) the 1998 Funding Order and 1998 Initial Tariff
established, created and granted rights in and to intangible transition property
in an aggregate amount of $6.323 billion, and the 1998 Transition Property and
the right to impose and collect IFCs constitute current and original property
rights vested in the Grantee; (iv) the 1998 Funding Order has been duly entered
by the ICC, is valid
9
<PAGE>
and binding, is Final and is in full force and effect; (v) the 1998 Initial
Tariff is in full force and effect, is valid and binding, and is not subject to
modification by the ICC except as provided under the Funding Law; (vi) as of
the issuance of the Notes, the Notes are entitled to the protections provided
in Section 18-104(c) of the Funding Law and, accordingly, the 1998 Funding
Order, the 1998 Transition Property and the IFCs are not revocable by the ICC;
(vii) the ICC may not reduce, postpone, impair or terminate the 1998 Transition
Property , the 1998 Funding Order or the IFCs; (viii) the process by which the
1998 Funding Order was adopted and approved and the 1998 Initial Tariff was
filed, and the 1998 Funding Order and the 1998 Initial Tariff themselves, comply
with all applicable laws, rules and regulations and the ICC may not revoke,
amend or otherwise change the 1998 Initial Tariff in any manner which would
defeat the expectations of the Holders to receive IFC Payments on a timely
basis; and (ix) no other approval, authorization, consent, order or other action
of, or filing with, any court, Federal or state regulatory body, administrative
agency or other governmental instrumentality is required in connection with the
creation and grant of the 1998 Transition Property, except those that have been
obtained or made and those filings described in Section 3.07.
(f) ASSUMPTIONS. The assumptions used in calculating the IFCs are
reasonable and made in good faith.
(g) CREATION OF 1998 TRANSITION PROPERTY. Upon the effectiveness of the
1998 Initial Tariff: (i) all of the 1998 Transition Property constitutes a
current property right vested in the Grantee; (ii) the 1998 Transition Property
includes, without limitation, (A) the right, title and interest in the IFCs
authorized under the 1998 Funding Order, as adjusted from time to time, (B) the
right, title and interest in all revenues, collections, claims, payments, money
or proceeds of or arising from the IFCs set forth in the 1998 Initial Tariff,
and (C) all
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rights to obtain adjustments to the IFCs pursuant to the 1998 Funding Order;
and (iii) the Grantee is entitled to impose and collect the IFCs described in
the 1998 Funding Order and the 1998 Initial Tariff in an aggregate amount
equal to the principal amount of the Notes, all interest thereon, all amounts
required to be deposited in the Reserve Subaccount, the Overcollateralization
Subaccount and (to the extent payable from the proceeds of the IFCs) the
Capital Subaccount, and all related fees, costs and expenses in respect of
the Notes until they have been paid in full, subject only to the $6.323
billion limitation set forth in the 1998 Funding Order as to the maximum
dollar amount of 1998 Transition Property created thereunder.
(h) PROPERTY OF GRANTEE. To the fullest extent permitted by the Funding
Law and all other applicable law, the 1998 Transition Property and the right to
impose and collect IFCs contemplated thereunder constitute current property
rights of the Grantee and its assigns, including the Note Issuer and its assigns
(including the Indenture Trustee on behalf of the Holders), which property has
been placed beyond the reach of ComEd and its creditors, as in a true sale, and
which property rights may not be limited, altered, impaired, reduced or
otherwise terminated by any subsequent actions of ComEd or any third party and
which shall, to the full extent permitted by law, be enforceable against ComEd,
its successors and assigns, and all other third parties (including judicial lien
creditors) claiming an interest therein by or through ComEd or its successors
and assigns.
(i) NATURE OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in this Section 3.08, insofar as they involve conclusions
of law, are made not on the basis that ComEd purports to be a legal expert or to
be rendering legal advice, but rather to reflect the parties' good faith
understanding of the legal basis on which the parties are entering into this
Agreement and the other Basic Documents and the basis on which the Holders are
purchasing the Notes, and to reflect the parties' agreement that, if such
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understanding turns out to be incorrect or inaccurate, ComEd will be obligated
to indemnify the Grantee and its permitted assigns, and that the Grantee and its
permitted assigns will be entitled to enforce any rights and remedies under the
documents, on account of such inaccuracy to the same extent as if ComEd had
breached any other representations or warranties hereunder.
ARTICLE IV
COVENANTS OF COMED
SECTION 4.01. CORPORATE EXISTENCE. So long as any of the Notes are
outstanding, ComEd (a) will keep in full force and effect its existence, rights
and franchises as a corporation under the laws of the State of Illinois (unless
it becomes, or any successor to ComEd hereunder is or becomes, organized under
the laws of any other State or of the United States of America, in which case
ComEd will keep in full effect its existence, rights and franchises under the
laws of such other jurisdiction), (b) will obtain and preserve its qualification
to do business, in each case to the extent that in each such jurisdiction such
existence or qualification is or shall be necessary to protect the validity and
enforceability of this Agreement and any of the other Basic Documents to which
ComEd is a party and each other instrument or agreement necessary or appropriate
to the proper administration of this Agreement and the transactions contemplated
hereby and (c) at all times hereafter, neither ComEd nor any successor will
cause or permit the Grantee or the Note Issuer to elect to be classified as an
association taxable as a corporation for federal income tax purposes.
SECTION 4.02. NO LIENS. Except for the conveyances hereunder, ComEd (i)
will not sell, pledge, assign or transfer to any other Person, or grant, create,
incur, assume, suffer to exist or otherwise assert any Lien on, any of the 1998
Transition Property or any interest therein,
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(ii) will not at any time assert any Lien against or with respect to any of
the 1998 Transition Property in its capacity as Servicer or otherwise, (iii)
will not seek to limit, alter, impair, reduce or otherwise terminate the
property rights of the Grantee or any assignee of the Grantee, and (iv) shall
defend the right, title and interest of the Grantee or the Note Issuer in, to
and under the 1998 Transition Property against all claims of third parties
claiming through or under ComEd.
SECTION 4.03. DELIVERY OF COLLECTIONS. If ComEd receives collections in
respect of the IFCs or the proceeds thereof, or in replacement therefor,
including, without limitation, any Allocable IFC Revenue Amounts, ComEd agrees
to hold such payments in trust for the Servicer and to pay the Servicer all
payments received by ComEd in respect thereof as soon as practicable after
receipt thereof by ComEd, but in no event later than two Business Days after
such receipt.
SECTION 4.04. NOTICE OF LIENS. ComEd shall notify the Grantee, the Note
Issuer and the Indenture Trustee in writing promptly after becoming aware of any
Lien on any of the 1998 Transition Property other than the conveyances
hereunder, under the Sale Agreement and under the Indenture.
SECTION 4.05. COMPLIANCE WITH LAW. ComEd shall comply with its
organizational or governing documents and all laws, treaties, rules, regulations
and determinations of any governmental instrumentality applicable to it, to the
extent that failure to so comply would materially adversely affect the Note
Issuer's or the Indenture Trustee's interests in the 1998 Transition Property or
under any of the Basic Documents, or ComEd's performance of its obligations
hereunder or under any of the other Basic Documents to which it is party.
Without limiting the foregoing, ComEd shall comply with applicable laws and
regulations regarding its use of proceeds received hereunder, including all
applicable provisions of the Funding Law and the 1998 Funding Order.
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SECTION 4.06. COVENANTS RELATED TO THE 1998 TRANSITION PROPERTY AND THE
NOTES.
(a) So long as any of the Notes are outstanding, ComEd shall indicate in
its financial statements that it is not the owner of the 1998 Transition
Property.
(b) So long as any of the Notes are outstanding, ComEd shall not own or
purchase any Notes.
(c) ComEd agrees that upon the creation and grant of the 1998 Transition
Property to the Grantee pursuant to the 1998 Funding Order and, to the extent
applicable, this Agreement, (i) to the fullest extent permitted by law,
including applicable ICC Regulations, the Grantee shall have all of the rights
of the owner of the 1998 Transition Property (including all of the rights
originally held by ComEd, if any, with respect to the 1998 Transition Property),
including the right (subject to the terms of the Servicing Agreement) to
exercise any and all rights and remedies to collect any amounts payable by any
Customer or third party collection agent, including any ARES, in respect of the
1998 Transition Property, notwithstanding any objection or direction to the
contrary by ComEd and (ii) any payment by any Customer or third party collection
agent, including any ARES, to the Grantee (or to the Servicer for the benefit of
the Grantee) shall discharge such Customer's or third party's obligations in
respect of the 1998 Transition Property to the extent of such payment,
notwithstanding any objection or direction to the contrary by ComEd.
(d) So long as any of the Notes are outstanding, (i) except with respect to
federal and other applicable taxes, ComEd shall not make any statement or
reference in respect of the 1998 Transition Property that is inconsistent with
the ownership interest of the Grantee, and (ii) ComEd shall not take any action
in respect of the 1998 Transition Property except solely in its capacity as the
Servicer under the Servicing Agreement or as otherwise contemplated by the Basic
Documents.
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(e) So long as any of the Notes are outstanding, ComEd shall not, except as
required by applicable law, initiate any material changes to its policies and
procedures pertaining to credit (including requirements for deposits from
Customers), billing, collections (including procedures for disconnection of
service for non-payment) and restoration of service after disconnection, and
shall not initiate any changes in any ICC tariffs relating to the foregoing
matters which are likely to adversely affect ComEd's ability to make timely
recovery of amounts billed to Customers.
(f) If ComEd determines that aggregate dollar amount of IFCs to be imposed
and collected is reasonably likely to exceed the maximum dollar amount of
Intangible Transition Property authorized by the 1998 Funding Order and any
Subsequent Funding Orders and any Notes remain outstanding, ComEd shall make a
good faith effort to take any and all subsequent regulatory action with the ICC
reasonably necessary to obtain an order permitting the creation of additional
Intangible Transition Property in an amount sufficient to pay such Notes in
full.
SECTION 4.07. PROTECTION OF TITLE. ComEd shall execute and file such
filings, including filings with the ICC pursuant to the Funding Law, and cause
to be executed and filed such filings, all in such manner and in such places as
may be required by law fully to preserve, maintain, and protect the interests of
the Grantee or the Note Issuer in the 1998 Transition Property, including all
filings required under the Funding Law relating to the grant of the 1998
Transition Property to the Grantee. ComEd shall deliver (or cause to be
delivered) to the Grantee file-stamped copies of, or filing receipts for, any
document filed as provided above, promptly following such filing. ComEd shall
institute any action or proceeding necessary to compel performance by the ICC or
the State of Illinois of any of their obligations or duties under the Funding
Law, the 1998 Funding Order, the 1998 Initial Tariff or any amendatory tariff
filed pursuant to Section 18-104(k) of the
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Funding Law, and ComEd agrees to take such legal or administrative actions,
including defending against or instituting and pursuing legal actions and
appearing or testifying at hearings or similar proceedings, as may be
reasonably necessary to protect the Grantee or the Note Issuer from claims,
state actions or other actions or proceedings of third parties which, if
successfully pursued, would result in a breach of any representation set
forth in Article III hereof. The costs of any such actions or proceedings
will be payable by ComEd. ComEd designates the Grantee as its agent and
attorney-in-fact to execute any filings with the ICC or other instruments
required by the Grantee pursuant to this Section, it being understood that
the Grantee shall have no obligation to execute any such instruments.
SECTION 4.08. NONPETITION COVENANTS. Notwithstanding any prior
termination of this Agreement or the Indenture, but subject to the ICC's right
to order the sequestration and payment of revenues arising with respect to the
1998 Transition Property notwithstanding any bankruptcy, reorganization or other
insolvency proceedings with respect to ComEd, the Grantee or any other grantee
or assignee of the 1998 Transition Property pursuant to Section 18-107(c)(4) of
the Funding Law, ComEd shall not, prior to the date which is one year and one
day after the termination of the Indenture, acquiesce, petition or otherwise
invoke or cause or join with any other Person to invoke the process of any court
or governmental authority for the purpose of commencing or sustaining a case
against the Grantee or the Note Issuer under any Federal or state bankruptcy,
insolvency or similar law or appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of or for the Grantee
or the Note Issuer or any substantial part of the property of the Grantee or the
Note Issuer, or ordering the winding up or liquidation of the affairs of the
Grantee or the Note Issuer.
SECTION 4.09. TAXES. So long as any of the Notes are outstanding, ComEd
shall, and shall cause each of its subsidiaries to, pay all material taxes,
assessments and governmental
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charges imposed upon it or any of its properties or assets or with respect to
any of its franchises, business, income or property before any penalty
accrues thereon if the failure to pay any such taxes, assessments and
governmental charges would, after any applicable grace periods, notices or
other similar requirements, result in a lien on the 1998 Transition Property;
PROVIDED that no such tax need be paid if ComEd or one of its subsidiaries is
contesting the same in good faith by appropriate proceedings promptly
instituted and diligently conducted and if ComEd or such subsidiary has
established appropriate reserves as shall be required in conformity with
generally accepted accounting principles.
SECTION 4.10. CONTRACTS FOR NON-TARIFFED SERVICES. Neither ComEd nor any
successor thereto shall enter into any contract with any Customer obligated (or
who would, but for such contract, be obligated) to pay IFCs if, as a result
thereof, such Customer would not receive tariffed services, unless the contract
provides that the Customer will pay an amount to the Grantee or its assigns, as
applicable, equal to the amount such Customer would pay in IFCs if the services
provided under such contract were tariffed services. Any revenues received by
ComEd or such successor from any such contract services shall, to the extent of
the authorized amount of the IFCs included therein (or deemed included therein
pursuant to the 1998 Funding Order and this Section), be deemed to be proceeds
of, and included in, the 1998 Transition Property.
SECTION 4.11. PRESERVATION OF RIGHT OF NOTEHOLDERS TO RECEIVE
PAYMENT. In addition to any obligations of ComEd under the Servicing Agreement,
ComEd recognizes and agrees that any impairment of the rights of Holders with
respect to the collection of IFCs and payments on the Notes, arising from a
declaration of invalidity of the Amendatory Act and/or the Funding Law occurring
after ComEd and its Affiliates received the proceeds of such Notes, would not be
equitable. ComEd agrees, in consideration of the receipt of such proceeds, to
take any and all actions reasonably necessary to preserve the
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rights of Holders with respect to payments on the Notes out of the amounts
represented by IFCs or their equivalent, including, but not limited to, (i)
making appropriate filings with the State of Illinois, the ICC or other
regulatory bodies to defend, preserve and create on behalf of Holders the right
to receive payments as provided in the Notes, (ii) defending against or
instituting and pursuing legal actions and appearing or testifying at hearings
or similar proceedings, as may be necessary to block or overturn any attempts to
cause a repeal of, modification of or supplement to or judicial invalidation of
the Amendatory Act or any Funding Order or the rights of holders of Intangible
Transition Property by legislative enactment or otherwise that would be adverse
to the Grantee, the Note Issuer or any Holders, and (iii) unless otherwise
expressly prohibited by applicable law or regulatory order in effect at such
time, continuing to deduct and pay over to the Servicer for the benefit of
the Note Issuer all IFCs and IFC Payments or equivalent revenues received by
ComEd notwithstanding any declaration of invalidity of the Amendatory Act, the
Funding Law and/or the Funding Order.
ARTICLE V
COMED
SECTION 5.01. LIABILITY OF COMED; INDEMNITIES.
(a) ComEd shall indemnify the Grantee, the Note Issuer, the Indenture
Trustee and the Delaware Trustee and each of their respective officers,
directors, employees and agents for, and defend and hold harmless each such
Person from and against, any and all taxes (i) that may at any time be imposed
on or asserted against any such Person as a result of the grant of the 1998
Transition Property to the Grantee, or (ii) that may be imposed on or asserted
against any such Person under existing law as
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of the Closing Date as a result of the Grantee's ownership and assignment of
the 1998 Transition Property, the Note Issuer's issuance and sale of the
Notes, or the other transactions contemplated herein, including, in each
case, any sales, gross receipt, general corporation, tangible personal
property, privilege or license taxes (but excluding any taxes imposed as a
result of a failure of such Person to properly withhold or remit taxes
imposed with respect to payments on any Notes).
(b) ComEd shall indemnify the Grantee, the Note Issuer, the Indenture
Trustee, the Delaware Trustee and the Holders and each of their respective
officers, directors, employees and agents for, and defend and hold harmless each
such Person from and against, any and all amounts of principal and interest on
the Notes not paid when due in accordance with their terms and the amount of any
deposits to the Note Issuer required to have been made in accordance with the
terms of the Basic Documents which are not made when so required and any and all
liabilities, obligations, claims, actions, suits, or payments of any kind
whatsoever that may be imposed on or asserted against any such Person,
together with any reasonable costs and expenses incurred by such Person
(collectively, "Losses"), as a result of ComEd's breach of any of its
representations, warranties or covenants contained in this Agreement.
(c) ComEd shall pay any and all taxes levied or assessed upon all or any
part of the Grantee's property or assets based on existing law as of the Closing
Date.
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(d) Indemnification under Sections 5.01(a) through 5.01(c) shall survive
the termination of this Agreement and shall include reasonable fees and expenses
of investigation and litigation (including reasonable attorneys' fees and
expenses).
SECTION 5.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS
OF, COMED. Any Person (a) into which ComEd may be merged or consolidated, (b)
which may result from any merger or consolidation to which ComEd shall be a
party or (c) which may succeed to the properties and assets of ComEd
substantially as a whole, which Person in any of the foregoing cases executes an
agreement of assumption to perform every obligation of ComEd hereunder, shall be
the successor to ComEd under this Agreement without further act on the part of
any of the parties to this Agreement; PROVIDED, HOWEVER, that (i) immediately
after giving effect to such transaction, no representation or warranty made
pursuant to Article III shall have been breached and (if ComEd is the Servicer)
no Servicer Default, and no event which, after notice or lapse of time, or both,
would become a Servicer Default shall have occurred and be continuing, (ii)
ComEd shall have delivered to the Grantee, the Note Issuer and the Indenture
Trustee an Officers' Certificate and an Opinion of Counsel each stating that
such consolidation, merger or succession and such agreement of assumption comply
with this Section and that all conditions precedent, if any, provided for in
this Agreement relating to such transaction have been complied with, (iii) ComEd
shall have delivered to the Grantee, the Note Issuer and the Indenture Trustee
an Opinion of Counsel either (x) stating that, in the opinion of such counsel,
all filings to be made by ComEd, including filings with the ICC pursuant to the
Funding Law, have been executed and filed that are necessary to fully preserve
and protect the interest of the Grantee in the 1998 Transition Property and
reciting the details of such filings, or (y) stating that, in the opinion of
such counsel, no such action shall be necessary to preserve and protect such
interests, (iv) the Rating Agencies shall have received prior written notice of
such transaction and (v) ComEd shall
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have delivered to the Grantee, the Note Issuer, the Delaware Trustee and the
Indenture Trustee an opinion of independent tax counsel (as selected by, and
in form and substance reasonably satisfactory to, ComEd and which may be
based on a ruling from the Internal Revenue Service) to the effect that such
consolidation or merger will not result in a material adverse federal income
tax consequence to ComEd, the Grantee, the Note Issuer, the Delaware Trustee,
the Indenture Trustee or the then existing Holders. Notwithstanding anything
herein to the contrary, the execution of the foregoing agreement of
assumption and compliance with clauses (i), (ii), (iii) , (iv) and (v) above
shall be conditions to the consummation of any transaction referred to in
clauses (a), (b) or (c) above. When any Person acquires the properties and
assets of ComEd substantially as a whole and becomes the successor to ComEd
in accordance with the terms of this Section 5.02, then upon the satisfaction
of all of the other conditions of this Section 5.02, ComEd shall
automatically and without further notice be released from its obligations
hereunder.
SECTION 5.03. LIMITATION ON LIABILITY OF COMED AND OTHERS. ComEd and any
director or officer or employee or agent of ComEd may rely in good faith on the
advice of counsel or on any document of any kind, PRIMA FACIE properly executed
and submitted by any Person, respecting any matters arising hereunder. Subject
to Sections 4.07 and 4.11, ComEd shall not be under any obligation to appear
in, prosecute or defend any legal action that shall not be incidental to its
obligations under this Agreement, and that in its opinion may involve it in any
expense or liability.
ARTICLE VI
MISCELLANEOUS PROVISIONS
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SECTION 6.01. AMENDMENT. The Agreement may be amended by ComEd and the
Grantee, with prior written notice given to the Rating Agencies and the prior
written consent of the Note Issuer, but without the consent of any of the
Holders, to cure any ambiguity, to correct or supplement any provisions in this
Agreement or for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions in this Agreement or of modifying in
any manner the rights of the Holders; PROVIDED, HOWEVER, that such action shall
not, as evidenced by a ComEd Officer's Certificate delivered to the Note Issuer,
adversely affect in any material respect the interests of any Holder.
This Agreement may also be amended from time to time by ComEd and the
Grantee, with prior written notice given to the Rating Agencies and the prior
written consent of the Note Issuer, the Indenture Trustee and Holders holding
not less than a majority of the Outstanding Amount of the Notes of all Series
affected thereby, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement or of modifying in
any manner the rights of the Holders; PROVIDED, HOWEVER, that no such amendment
shall (a) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, IFC Collections or (b) reduce the aforesaid percentage of the
Outstanding Amount of the Notes, the Holders of which are required to consent to
any such amendment, without the consent of the Holders of all the outstanding
Notes.
Promptly after the execution of any such amendment or consent, the Grantee
shall furnish a copy of such amendment or consent to the Note Issuer, the
Indenture Trustee and each of the Rating Agencies.
It shall not be necessary for the consent of Holders pursuant to this
Section to approve the particular form of any proposed amendment or consent, but
it shall be sufficient if such consent shall approve the substance thereof.
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SECTION 6.02. NOTICES. All demands, notices and communications upon or to
ComEd, the Grantee, the Note Issuer, the Indenture Trustee or the Rating
Agencies under this Agreement shall be in writing, personally delivered, mailed
or sent by telecopy or other similar form of rapid transmission, and shall be
deemed to have been duly given upon receipt (a) in the case of ComEd, to
Commonwealth Edison Company, 10 South Dearborn Street, 37th Floor, Chicago,
Illinois 60603, (b) in the case of the Grantee, to ComEd Funding, LLC, c/o
Commonwealth Edison Company, 10 South Dearborn Street, 37th Floor, Chicago,
Illinois 60603, (c) in the case of the Note Issuer, to Transitional Funding
Trust, c/o First Union Trust Company, National Association, One Rodney Square,
920 King Street 1st Floor, Wilmington, Delaware 19801, Attn: Corporate Trust
Administration, (d) in the case of the Indenture Trustee, at the Corporate Trust
Office, (e) in the case of Moody's, to Moody's Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007, (f) 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, (g) in the case of Fitch IBCA, to Fitch IBCA, Inc. One State Street
Plaza, New York, New York 10004, Attention of ABS Surveillance, or (h) in the
case of Duff & Phelps, to Duff & Phelps Credit Rating Co., 17 State Street, 12th
Floor, New York, New York 10004, Attention of Asset Based Monitoring Group, or
as to each of the foregoing, at such other address as shall be designated by
written notice to the other parties.
SECTION 6.03. ASSIGNMENT. Notwithstanding anything to the contrary
contained herein, except as provided in Section 5.02, this Agreement may not be
assigned by ComEd.
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SECTION 6.04. LIMITATIONS ON RIGHTS OF OTHERS. The provisions of this
Agreement are solely for the benefit of ComEd, the Grantee, the Note Issuer, the
Indenture Trustee, the Delaware Trustee and the Holders, and nothing in this
Agreement, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the 1998 Transition
Property or under or in respect of this Agreement or any covenants, conditions
or provisions contained herein.
SECTION 6.05. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 6.06. SEPARATE COUNTERPARTS. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 6.07. HEADINGS. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
SECTION 6.08. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Illinois, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 6.09. ASSIGNMENTS TO NOTE ISSUER AND INDENTURE TRUSTEE. ComEd
acknowledges and consents to any transfer, pledge, assignment or grant of a
security interest by the Grantee to the Note Issuer pursuant to the Sale
Agreement, and by the Note Issuer to the
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Indenture Trustee for the benefit of the Holders pursuant to the Indenture,
of all right, title and interest of the Grantee in, to and under the 1998
Transition Property and the proceeds thereof, and the assignment of any or
all of the Grantee's rights and obligations hereunder to the Note Issuer and
the Indenture Trustee. ComEd agrees that the Note Issuer and the Indenture
Trustee, as assignees, shall, subject to the terms of the Basic Documents,
have the right to enforce this Agreement and to exercise directly all of the
Grantee's rights and remedies under this Agreement (including without
limitation, the right to give or withhold any consents or approvals of the
Grantee to be given or withheld hereunder), and acknowledges that with
respect to the sale, transfer, assignment, set over and conveyance of the
1998 Transition Property and Related Assets to the Note Issuer and the pledge
thereof to the Indenture Trustee pursuant to the Indenture, the Note Issuer
and the Indenture Trustee have relied on the representations and warranties
made by ComEd herein.
SECTION 6.10. HOLDERS AS THIRD PARTY BENEFICIARIES. ComEd and the Grantee
agree that the Holders and the Indenture Trustee are express third-party
beneficiaries of the provisions of this Agreement and that the Indenture
Trustee, on behalf of the Holders, shall have the right to enforce the terms
hereof as provided in Section 6.09 hereof. ComEd will take all appropriate
actions to perfect and maintain the perfection of the Grantee's and the Note
Issuer's ownership interest in any of the 1998 Transition Property and to
perfect and maintain the perfection of the Indenture Trustee's security interest
in such 1998 Transition Property and all other Note Collateral.
SECTION 6.11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. In addition to
the survival of representations and warranties as set forth in Article III, (a)
the agreements, representations, warranties, indemnities and other statements of
ComEd or its officers set forth in or made pursuant to this Agreement will
remain in full force and effect and will
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survive the grant of the 1998 Transition Property and the issuance and
delivery of the Notes and (b) to the fullest extent permitted by applicable
law, the provisions of Articles III, IV and V hereof shall survive the
termination, cancellation or invalidity of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.
COMMONWEALTH EDISON
COMPANY
By: ___________________________
Name:
Title:
COMED FUNDING, LLC, Grantee
By: ___________________________
Name:
Title:
<PAGE>
EXHIBIT 10.3
FORM OF SERVICING AGREEMENT
INTANGIBLE TRANSITION PROPERTY SERVICING AGREEMENT
between
COMED FUNDING, LLC
Grantee
and
COMMONWEALTH EDISON COMPANY,
Servicer
Dated as of DECEMBER __, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01. DEFINITIONS. . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS. . . . . . . . . . . 4
ARTICLE II
APPOINTMENT AND AUTHORIZATION . . . . . . . . . . . . . . . . . . 4
SECTION 2.01. APPOINTMENT OF SERVICER; ACCEPTANCE OF APPOINTMENT 4
SECTION 2.02. AUTHORIZATION. . . . . . . . . . . . . . . . . . . 5
SECTION 2.03. DOMINION AND CONTROL OVER THE INTANGIBLE TRANSITION
PROPERTY . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III
BILLING SERVICES . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 3.01. DUTIES OF SERVICER.. . . . . . . . . . . . . . . . 6
SECTION 3.02. SERVICING AND MAINTENANCE STANDARDS. . . . . . . . 9
SECTION 3.03. CERTIFICATE OF COMPLIANCE. . . . . . . . . . . . . 10
SECTION 3.04. ANNUAL REPORT BY INDEPENDENT PUBLIC ACCOUNTANTS. . 10
ARTICLE IV
SERVICES RELATED TO RECONCILIATION ADJUSTMENTS AND TRUE-UP
ADJUSTMENTS AND MONITORING OF THIRD-PARTY COLLECTORS 12
SECTION 4.01. RECONCILIATION ADJUSTMENTS AND TRUE-UP ADJUSTMENTS 12
SECTION 4.02. LIMITATION OF LIABILITY. . . . . . . . . . . . . . 17
SECTION 4.03 MONITORING OF THIRD-PARTY COLLECTORS . . . . . . . 18
ARTICLE V
THE INTANGIBLE TRANSITION PROPERTY . . . . . . . . . . . . . . . 23
SECTION 5.01. CUSTODY OF INTANGIBLE TRANSITION PROPERTY RECORDS. 23
SECTION 5.02. DUTIES OF SERVICER AS CUSTODIAN. . . . . . . . . . 23
SECTION 5.03. INSTRUCTIONS; AUTHORITY TO ACT . . . . . . . . . . 26
SECTION 5.04. CUSTODIAN'S INDEMNIFICATION. . . . . . . . . . . . 26
SECTION 5.05. EFFECTIVE PERIOD AND TERMINATION . . . . . . . . . 27
SECTION 5.06. GENERAL INDEMNIFICATION OF INDENTURE TRUSTEE AND
DELAWARE TRUSTEE . . . . . . . . . . . . . . . . . 27
ARTICLE VI
THE SERVICER . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 6.01. REPRESENTATIONS AND WARRANTIES OF SERVICER . . . . 28
SECTION 6.02. INDEMNITIES OF SERVICER; RELEASE OF CLAIMS . . . . 31
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SECTION 6.03. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, SERVICER . . . . . . . . . . . . . 32
SECTION 6.04. LIMITATION ON LIABILITY OF SERVICER AND OTHERS . . 33
SECTION 6.05. COMED NOT TO RESIGN AS SERVICER. . . . . . . . . . 34
SECTION 6.06. SERVICING COMPENSATION . . . . . . . . . . . . . . 35
SECTION 6.07. COMPLIANCE WITH APPLICABLE LAW . . . . . . . . . . 36
SECTION 6.08. ACCESS TO CERTAIN RECORDS AND INFORMATION REGARDING
INTANGIBLE TRANSITION PROPERTY . . . . . . . . . . 36
SECTION 6.09. APPOINTMENTS . . . . . . . . . . . . . . . . . . . 36
SECTION 6.10. NO SERVICER ADVANCES . . . . . . . . . . . . . . . 37
SECTION 6.11. REMITTANCES. . . . . . . . . . . . . . . . . . . . 37
SECTION 6.12 COMPLIANCE WITH SERVICING STANDARD; CHANGES IN ICC
TARIFFS. . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VII
DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.01. SERVICER DEFAULT . . . . . . . . . . . . . . . . . 40
SECTION 7.02. APPOINTMENT OF SUCCESSOR . . . . . . . . . . . . . 42
SECTION 7.03. WAIVER OF PAST DEFAULTS. . . . . . . . . . . . . . 43
SECTION 7.04. NOTICE OF SERVICER DEFAULT . . . . . . . . . . . . 43
ARTICLE VIII
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . 43
SECTION 8.01. AMENDMENT . . . . . . . . . . . . . . . . . . . . . 44
SECTION 8.02. MAINTENANCE OF RECORDS . . . . . . . . . . . . . . 45
SECTION 8.03. NOTICES. . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8.04. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.05. LIMITATIONS ON RIGHTS OF OTHERS. . . . . . . . . . 46
SECTION 8.06. SEVERABILITY. . . . . . . . . . . . . . . . . . . . 47
SECTION 8.07. SEPARATE COUNTERPARTS . . . . . . . . . . . . . . . 47
SECTION 8.08. HEADINGS. . . . . . . . . . . . . . . . . . . . . . 47
SECTION 8.09. GOVERNING LAW . . . . . . . . . . . . . . . . . . . 47
SECTION 8.10. ASSIGNMENTS TO NOTE ISSUER AND INDENTURE TRUSTEE. . 47
SECTION 8.11. NONPETITION COVENANTS . . . . . . . . . . . . . . . 48
SECTION 8.12. LIMITATION OF LIABILITY . . . . . . . . . . . . . . 48
EXHIBITS AND SCHEDULES
Exhibit A Form of Monthly Servicer's Certificate
Exhibit B Form of Certificate of Compliance
Exhibit C Form of Amendatory Tariff
Exhibit D Form of Quarterly Servicer's Certificate
Schedule 4.01(a) Expected Amortization Schedule
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Schedule 6.01(f) No Proceedings
ANNEXES
Annex I Servicing Procedures
Schedule 6 to
Annex I Calculation of Aggregate Remittance Amount
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INTANGIBLE TRANSITION PROPERTY SERVICING AGREEMENT dated as of December
__, 1998, between COMED FUNDING LLC, a Delaware limited liability company
(the "Grantee"), and COMMONWEALTH EDISON COMPANY, an Illinois corporation, as
Servicer (the "Servicer").
RECITALS
A. Pursuant to the Funding Law and the 1998 Transitional Funding Order,
the Grantee and the Note Issuer are concurrently entering into the Sale
Agreement, pursuant to which the Grantee is selling the 1998 Intangible
Transition Property to the Note Issuer, and the Grantee may sell Subsequent
Intangible Transition Property to the Note Issuer pursuant to Subsequent Sale
Agreements.
B. In connection with its ownership of the Intangible Transition Property
and in order to collect the IFCs, the Grantee desires to engage the Servicer to
carry out the functions described herein. The Servicer currently performs
similar functions for itself with respect to its own charges to its customers
and may in the future perform such functions for others. In addition, the
Grantee desires to engage the Servicer to act on its behalf in making
Reconciliation Adjustments and True-Up Adjustments. The Servicer desires to
perform all of these activities on behalf of the Grantee.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. (a) Capitalized terms used herein and not
otherwise defined herein have the meanings assigned to them in that certain
Indenture (including Appendix A thereto) dated as of the date hereof between the
Note Issuer and Harris Trust and Savings Bank,
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as the Indenture Trustee, as the same may be amended, supplemented or
otherwise modified from time to time (the "INDENTURE").
(b) Whenever used in this Agreement, the following words and phrases shall
have the following meanings:
"AGREEMENT" means this Intangible Transition Property Servicing
Agreement, together with all Exhibits, Schedules, Annexes and Attachments
hereto, as the same may be amended, supplemented and otherwise modified from
time to time.
"ALTERNATIVE REMITTANCE REQUIREMENT" means, with respect to any
Third-Party Collector, that such Third-Party Collector is obligated to remit
payments more frequently than under the Fifteen-Day Remittance Option or the
Seven-Day Remittance Option.
"ANNUAL ACCOUNTANT'S REPORT" has the meaning set forth in Section 3.04.
"AMENDATORY TARIFF" means an amendment to any Tariff substantially in
the form of Exhibit C.
"CERTIFICATE OF COMPLIANCE" has the meaning set forth in Section 3.03.
"COLLECTIONS CURVES" means the Monthly Collections Curves.
"DAILY REMITTANCE" has the meaning set forth in Section 6.11(a).
"FIFTEEN-DAY REMITTANCE OPTION" means, with respect to any Third-Party
Collector, the option set forth in the 1998 Initial Tariff (or any similar
option set forth in any Subsequent Tariff) to remit IFCS to the Servicer
(whether or not collected from Customers) within fifteen days of billing by
the Servicer.
"IFC CUSTOMER CLASS" has the meaning set forth in Annex I.
"INTANGIBLE TRANSITION PROPERTY RECORDS" has the meaning assigned to
that term in Section 5.01.
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"LOSSES" has the meaning assigned to that term in Section 5.04.
"MONTHLY COLLECTIONS CURVES" means the models used by the Servicer to
calculate collection amounts for each Billing Period pursuant to SCHEDULE 6 to
Annex I hereto, as such models may be modified from time to time in accordance
with this Agreement.
"MONTHLY SERVICER'S CERTIFICATE" has the meaning assigned to that term in
Section 3.01(b)(i).
"OFFICER'S CERTIFICATE" means a certificate signed by a Responsible
Officer.
"RETIREMENT OF THE NOTES" means the day on which the final distribution is
made to the Indenture Trustee in respect of the last Outstanding Notes.
"SERVICER DEFAULT" has the meaning assigned to that term in Section 7.01.
"SERVICING STANDARD" means the obligation of the Servicer to calculate,
collect, apply, remit and reconcile proceeds of the Intangible Transition
Property, including IFC Payments, and all other Note Collateral for the benefit
of the Note Issuer and the Holders (i) with the same degree of care and
diligence as the Servicer applies with respect to payments owed to it for its
own account, (ii) in accordance with all applicable procedures and requirements
established by the ICC for collection of electric utility tariffs and (iii) in
accordance with the other terms of this Agreement.
"SEVEN-DAY REMITTANCE OPTION" means, with respect to any Third-Party
Collector, the option set forth in the 1998 Initial Tariff (or any similar
option set forth in any Subsequent Tariff) to remit IFC Payments to the Servicer
within seven days of such Third-Party Collector's receipt from Customers.
"TERMINATION NOTICE" has the meaning assigned to that term in Section 7.01.
"THIRD-PARTY COLLECTOR" means each third-party, including each Applicable
ARES, which, pursuant to any Tariff, any other Tariffs filed with the ICC, or
any agreement with ComEd, is obligated to remit IFCs or IFC Payments to the
Servicer.
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.
(a) Non-capitalized terms used herein which are defined in the Public
Utilities Act shall, as the context requires, have the meanings assigned to
such terms in the Public Utilities Act, but without giving effect to
amendments to the Public Utilities Act after the date hereof which have a
material adverse effect on the Note Issuer or the Holders.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant
hereto unless otherwise defined therein.
(c) The words "hereof," "herein," "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any particular provision of this Agreement; Section, Schedule,
Exhibit, Annex and Attachment references contained in this Agreement are
references to Sections, Schedules, Exhibits, Annexes and Attachments in or to
this Agreement unless otherwise specified; and the term "including" shall
mean "including without limitation."
(d) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter forms of
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such terms.
ARTICLE II
APPOINTMENT AND AUTHORIZATION
SECTION 2.01. APPOINTMENT OF SERVICER; ACCEPTANCE OF APPOINTMENT.
Subject to Section 6.05 and Article 7, the Grantee appoints the Servicer, and
the Servicer accepts such appointment, to perform the Servicer's obligations
pursuant to this Agreement on behalf of and for the benefit of the Grantee or
any assignee thereof in accordance with the terms of this Agreement and
applicable law. This appointment and the Servicer's acceptance thereof may
not be revoked except in accordance with the express terms of this Agreement.
SECTION 2.02. AUTHORIZATION. With respect to all or any portion of the
Intangible Transition Property, the Servicer shall be and is authorized and
empowered by the Grantee to (a) execute and deliver, on behalf of itself
and/or the Grantee, as the case may be, any and all instruments, documents or
notices, and (b) on behalf of itself and/or the Grantee, as the case may be,
make any filing and participate in proceedings of any kind with any
governmental authorities, including with the ICC. The Grantee shall furnish
the Servicer with such documents as have been prepared by the Servicer for
execution by the Grantee, and with such other documents as may be in the
Grantee's possession, as necessary or appropriate to enable the Servicer to
carry out its servicing and administrative duties hereunder. Upon the
Servicer's written request, the Grantee shall furnish the Servicer with any
powers of attorney or other documents necessary or appropriate to enable the
Servicer to carry out its duties hereunder.
SECTION 2.03. DOMINION AND CONTROL OVER THE INTANGIBLE TRANSITION
PROPERTY. Notwithstanding any other provision herein, the Grantee shall have
dominion and control over the Intangible Transition Property, and the
Servicer, in accordance with the terms hereof, is acting
5
<PAGE>
solely as the servicing agent and custodian for the Grantee with respect to
the Intangible Transition Property and the Intangible Transition Property
Records. The Servicer shall not take any action that is not authorized by
this Agreement, that is not consistent with its customary procedures and
practices, or that shall impair the rights of the Grantee in the Intangible
Transition Property, in each case unless such action is required by
applicable law.
ARTICLE III
BILLING SERVICES
SECTION 3.01. DUTIES OF SERVICER. The Servicer, as agent for the
Grantee, shall have the following duties:
(a) DUTIES OF SERVICER GENERALLY. The Servicer's duties in general
shall include management, servicing and administration of the Intangible
Transition Property (including maintaining records of the cumulative total
of IFCs and verifying that such amount has not exceeded the dollar amount
of Intangible Transition Property established by the ICC pursuant to a
Funding Order); on or before the date of issuance of any Series of Notes,
filing with the ICC the filing required by Section 18-107(c)(1) of the
Funding Laws to perfect the lien of the Indenture Trustee in the Intangible
Transition Property; making such filings and initiating such proceedings
with the ICC as may be required to ensure that the dollar amount of
Intangible Transition Property authorized by the Funding Orders is adequate
for the payment in full of all principal and interest on the Notes;
obtaining meter reads, calculating usage, billing, collections and posting
of all payments in respect of the Intangible Transition Property;
responding to inquiries by Customers, the ICC or any federal, local or
6
<PAGE>
other state governmental authorities with respect to the Intangible
Transition Property; delivering Bills to Customers and ARES,
investigating and handling delinquencies, processing and depositing
collections and making periodic remittances; furnishing periodic reports
to the Grantee, the Note Issuer, the Indenture Trustee and the Rating
Agencies; and taking all necessary action in connection with
Reconciliation Adjustments and True-Up Adjustments as set forth herein.
Certain of the duties set forth above may be performed by ARES pursuant
to ARES Service Agreements. The Servicer shall be allowed to perform
its duties hereunder either directly or by or through agents, attorneys,
custodians, nominees or (with prior written notice to the Rating
Agencies) by delegating all or a portion of its duties to any
third-parties; provided, however, that, notwithstanding any such
delegation of duties, the Servicer shall remain liable for the
performance of all of its duties and obligations pursuant to the terms
of this Agreement and the other Basic Documents and such delegation
shall not relieve the Servicer of its liability and responsibility with
respect to such duties or obligations. The fees and expenses of any
such persons to whom the Servicer may delegate duties shall be as agreed
between the Servicer and such third parties from time to time, and,
except for such fees and expenses which are expressly reimbursable
hereunder, such third-party fees and expenses shall be payable solely by
the Servicer out of its Servicing Fee and neither the Grantee nor any
assignee thereof shall have any responsibility therefor. Anything to
the contrary notwithstanding, the duties of the Servicer set forth in
this Agreement shall be qualified in their entirety by any ICC
Regulations as in effect at the time such duties are to be performed.
Without limiting the generality of this Section 3.01(a), in furtherance
of the foregoing, the Servicer shall also have, and shall comply with,
the duties and
7
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responsibilities relating to data acquisition, usage and
bill calculation, billing, customer service functions, collections,
payment processing and remittance set forth in Annex I hereto, including
without limitation payment of all Allocable IFC Revenue Amounts
described therein.
(b) REPORTING FUNCTIONS.
(i) MONTHLY SERVICER'S CERTIFICATE. On or before the 20th
calendar day of each month (or, if such date is not a Servicer
Business Day, the immediately preceding Servicer Business Day), the
Servicer shall prepare and deliver to the Grantee, the Note Issuer,
the Indenture Trustee and the Rating Agencies a written report
substantially in the form of EXHIBIT A hereto (a "Monthly Servicer's
Certificate") setting forth certain information relating to IFC
Payments received by the Servicer during the Collection Period
immediately preceding such Monthly Remittance Date.
(ii) NOTIFICATION OF LAWS AND REGULATIONS. The Servicer shall
immediately notify the Grantee, the Note Issuer, the Indenture Trustee
and the Rating Agencies in writing of any laws or ICC Regulations
hereafter promulgated that have a material adverse effect on the
Servicer's ability to perform its duties under this Agreement.
(iii) OTHER INFORMATION. Upon the reasonable request of the
Grantee, the Note Issuer, the Indenture Trustee or any Rating Agency,
the Servicer shall provide to the Grantee, the Note Issuer, Indenture
Trustee or the Rating Agencies, as the case may be, any public
financial information in respect of the Servicer, or any material
information regarding the Intangible Transition Property to the extent
it is reasonably available to the Servicer, as may be reasonably
necessary and
8
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permitted by law, to enable the Grantee, the Note Issuer, the
Indenture Trustee or the Rating Agencies to monitor the Servicer's
performance hereunder. In addition, so long as any of the Notes of
any Series are outstanding, the Servicer shall provide the Grantee,
the Note Issuer and the Indenture Trustee, within a reasonable time
after written request therefor, any information available to the
Servicer or reasonably obtainable by it that is necessary to
calculate the IFCs applicable to each class of Customer.
(iv) PREPARATION OF REPORTS TO BE FILED WITH THE SEC. The
Servicer shall prepare any reports required to be filed by the Grantee
or the Note Issuer under the securities laws, including a copy of each
Quarterly Servicer's Certificate described in Section 4.01(c)(ii), the
annual Certificate of Compliance described in Section 3.03, and the
Annual Accountant's Report described in Section 3.04.
SECTION 3.02. SERVICING AND MAINTENANCE STANDARDS. On behalf of the
Grantee, the Servicer shall (i) manage, service, administer and make collections
in respect of the Intangible Transition Property with reasonable care and in
accordance with the Servicing Standard and applicable law, including all
applicable ICC Regulations and guidelines, using the same degree of care and
diligence that the Servicer exercises with respect to similar assets for its own
account and, if applicable, for others; (ii) follow customary standards,
policies and procedures for the industry in performing its duties as Servicer;
(iii) use all reasonable efforts, consistent with its customary servicing
procedures, to enforce, and maintain rights in respect of, the Intangible
Transition Property; (iv) comply with all laws and regulations applicable to and
binding on it relating to the Intangible Transition Property, and (v) make all
required submissions and provide all required notifications to the ICC with
respect to any Adjustments. The Servicer shall be responsible for the
imposition, collection and remittance of
9
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IFCs in accordance with Annex I hereto, the inclusion of IFCs in all Bills,
and the deduction of IFCs from tariffed charges and all other charges from
which the IFCs are to be deducted and stated separately, including, without
limitation, all charges under any contracts with Customers who would, but for
such contract, be paying Applicable Rates. The Servicer shall follow such
customary and usual practices and procedures as it shall deem necessary or
advisable in its servicing of all or any portion of the Intangible Transition
Property, which, in the Servicer's judgment, may include the taking of legal
action. Without limiting the foregoing, if the Servicer determines at any
time that the aggregate dollar amount of IFCS to be imposed is reasonably
likely to exceed the maximum dollar amount of Intangible Transition Property
authorized by the 1998 Transitional Funding Order and any Subsequent Funding
Orders to be imposed and collected and any Notes remain outstanding, the
Servicer shall make a good faith effort to take any and all subsequent
regulatory action with the ICC to obtain an order expressly authorizing a
larger dollar amount of Intangible Transition Property in an amount
sufficient to pay such Notes in full.
SECTION 3.03. CERTIFICATE OF COMPLIANCE. The Servicer shall deliver to
the Grantee, the Note Issuer, the Indenture Trustee and the Rating Agencies on
or before [INSERT APPROPRIATE MONTH AND DAY] of each year, commencing [INSERT
DATE FIRST REPORT IS DUE] to and including the [INSERT APPROPRIATE MONTH AND
DAY] succeeding the Retirement of the Notes, an Officer's Certificate
substantially in the form of EXHIBIT B hereto (a "Certificate of Compliance"),
stating that: (i) a review of the activities of the Servicer during the twelve
months ended the preceding [INSERT DATE AS OF WHICH REPORT WILL BE PREPARED]
(or, in the case of the first Certificate of Compliance to be delivered on or
before _____________, 199_, the period of time from the date of this Agreement
until [FIRST DATE AS OF WHICH REPORT WILL BE PREPARED]) and of its performance
under this Agreement has been made under such officer's supervision, and (ii) to
such officer's
10
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knowledge, based on such review, the Servicer has fulfilled all of its
obligations in all material respects under this Agreement throughout such
twelve months (or, in the case of the Certificate of Compliance to be
delivered on or before [DATE OF FIRST CERTIFICATE] the period of time from
the date of this Agreement until [FIRST DATE AS OF WHICH REPORT WILL BE
PREPARED]), or, if there has been a default in the fulfillment of any such
material obligation, specifying each such material default known to such
officer and the nature and status thereof.
SECTION 3.04. ANNUAL REPORT BY INDEPENDENT PUBLIC ACCOUNTANTS. (a)
The Servicer, at its own expense in consideration of the Servicing Fee paid
to it, shall cause a firm of independent certified public accountants (which
may provide other services to the Servicer or ComEd) to prepare, and the
Servicer shall deliver to the Grantee, the Note Issuer, the Indenture Trustee
and the Rating Agencies a report addressed to the Servicer (the "Annual
Accountant's Report"), which may be included as part of the Servicer's
customary auditing activities, for the information and use of the Grantee,
the Note Issuer, the Indenture Trustee and the Rating Agencies, on or before
[_______________] of each year, beginning [_____________, 199_] to and
including the [_____________]succeeding the Retirement of the Notes, to the
effect that such firm has performed certain procedures in connection with the
Servicer's compliance with its obligations under this Agreement during the
preceding twelve months ended [________] (or, in the case of the first Annual
Accountant's Report to be delivered on or before [_____________, 199_], the
period of time from the date of this Agreement until _________, 199_),
identifying the results of such procedures and including any exceptions
noted. If such accounting firm requires the Indenture Trustee to agree or
consent to the procedures performed by such firm, the Grantee shall direct
the Note Issuer to direct the Indenture Trustee in writing to so agree; it
being understood and agreed that the Indenture Trustee will deliver such
letter of agreement or consent in conclusive reliance upon the direction of
the Note Issuer, and the Indenture Trustee will not make
11
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any independent inquiry or investigation as to, and shall have no obligation
or liability in respect of the sufficiency, validity or correctness of such
procedures.
(b) The Annual Accountant's Report shall also indicate that the
accounting firm providing such report is independent of the Servicer within
the meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants.
SECTION 3.05 OBLIGATIONS. The Servicer acknowledges and agrees that,
to the fullest extent permitted by applicable law, its obligations under
this Agreement shall remain in effect notwithstanding any breach of the State
Pledge, whether or not contested, or subsequent invalidation of the Funding
Law or any Funding Order and/or any tariff or tariffs filed in connection
therewith, and that no such breach of the State Pledge or invalidation shall
act to excuse the Servicer from liability for any failure to perform its
covenants hereunder, including but not limited to its obligations to remit
IFCs and equivalent amounts for the benefits of the Holders, on account of
any legal inability stemming from such breach of the State Pledge or
invalidation.
ARTICLE IV
SERVICES RELATED TO RECONCILIATION ADJUSTMENTS AND TRUE-UP ADJUSTMENTS AND
MONITORING OF THIRD-PARTY COLLECTORS
SECTION 4.01. RECONCILIATION ADJUSTMENTS AND TRUE-UP ADJUSTMENTS. From
time to time, until the Retirement of the Notes, the Servicer shall identify the
need for Reconciliation Adjustments and True-Up Adjustments and shall take all
reasonable action to obtain and implement such Reconciliation Adjustments and
True-Up Adjustments, all in accordance with the following:
(a) EXPECTED AMORTIZATION SCHEDULE. The initial Expected Amortization
Schedule is attached hereto as SCHEDULE 4.01(a). In connection with the
Note Issuer's issuance of
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any additional Series of Notes after the Closing Date, the Servicer, on
or prior to the Series Issuance Date therefor, shall revise the Expected
Amortization Schedule to add the requisite information for each new
Series of Notes and set forth, as of each Payment Date through the
scheduled Retirement of the Notes, the aggregate principal amounts of
the Notes of all Series, including such additional Series, expected to
be outstanding on such Payment Date. The Servicer shall also, in
accordance with the requirements (if any) set forth in any Series
Supplement or Trustee's Issuance Certificate and otherwise in a manner
reasonably acceptable to the Grantee, revise the Expected Amortization
Schedule to reflect any required prepayments on account of the receipt
of Allocable IFC Revenue Amounts or any other required or permitted
prepayments affecting such schedule. If the Expected Amortization
Schedule is revised as set forth above, the Servicer shall send a copy
of such revised Expected Amortization Schedule to the Grantee, the Note
Issuer, the Indenture Trustee and the Rating Agencies promptly
thereafter.
(b) RECONCILIATION AND TRUE-UP ADJUSTMENTS (1)
(i) RECONCILIATION ADJUSTMENTS AND FILINGS. Each year within
the two-week period preceding each Reconciliation Adjustment Date, the
Servicer shall: (A) update the data and assumptions underlying the
calculation of the IFCs, including forecasted revenue from Applicable
Rates for each class of Customers, projected electricity usage during
the next Calculation Period for each such class and including interest
and estimated expenses and fees of the Grantee and the Note
- ------------------
(1) These provisions may need to be revised after the amortization of the
Notes (quarterly vs. semi-annually) has been determined. We have assumed
that reconciliations will be performed semi-annually, in June and December
(commencing June 1999), and true-up determinations will be performed
semi-annually, in March and September (commencing September 1999).
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Issuer to be paid during such period, the rate of delinquencies and
write-offs, and the Monthly Collections Curves; (B) determine the
Required Debt Service and Debt Service Billing Requirement for the
next Calculation Period based on such updated data and assumptions;
(C) determine the IFCs to be allocated to each class of Customers
during the next Calculation Period based on such Debt Service
Billing Requirement and the terms of the applicable Funding Orders
and the Tariffs filed pursuant thereto (including, without
limitation, the terms requiring that if the forecasted revenues
from Applicable Rates for IFC Customer Class are projected to be
less than the IFCS allocated to that class, the deficiency will be
ratably allocated to other IFC Customer Classes); (D) make all
required notice and other filings with the ICC to reflect the
revised IFCs, including any Amendatory Tariffs required under
Section 18-104(k) of the Funding Law if the resulting IFCs for any
class of Customer will exceed an amount per kilowatt-hour greater
than the amount per kilowatt-hour authorized for such class of
Customer in the applicable Funding Order, and (E) take all
reasonable actions and make all reasonable efforts to effect such
Reconciliation Adjustment and to enforce the provisions of the
Funding Law which limit the ICC's authority to suspend the
effectiveness of any such Amendatory Tariff.
(ii) TRUE-UP ADJUSTMENTS AND FILINGS. Each year immediately
before each March 31 and September 30, commencing September 30, 1999,
the Servicer shall compare the Principal Balance, as of the most
recent Payment Date and after giving effect to payments made on such
Payment Date, to the Projected Principal Balance as of such Payment
Date. If the Servicer determines that such Principal Balance equals
or exceeds 105% of such Projected Principal Balance, then the
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Servicer shall: (A) update the data and assumptions underlying the
calculation of the IFCs, including forecasted revenue from
Applicable Rates for each class of Customers, projected electricity
usage during the next Calculation Period for each such class and
including interest and estimated expenses and fees of the Grantee
and the Note Issuer to be paid during such period, the rate of
delinquencies and write-offs, and the Monthly Collections Curves;
(B) determine the Required Debt Service and Debt Service Billing
Requirement for the next Calculation Period based on such updated
data and assumptions; (C) determine the IFCs to be allocated to
each class of Customers during the next Calculation Period based
on such Debt Service Billing Requirement and the terms of the
applicable Funding Orders and the Tariffs filed pursuant thereto
(including, without limitation, the terms requiring that if the
forecasted revenues from Applicable Rates for IFC Customer Class
are projected to be less than the IFCs allocated to that class, the
deficiency will be ratably allocated to other IFC Customer
Classes); (D) make all required notice and other filings with the
ICC to reflect the revised IFCs, including any Amendatory Tariffs
required under Section 18-104(k) of the Funding Law if the
resulting IFCs for any class of Customer will exceed an amount per
kilowatt-hour greater than the amount per kilowatt-hour authorized
for such class of Customer in the applicable Funding Order, and (E)
take all reasonable actions and make all reasonable efforts to
effect such True-Up Adjustment and to enforce the provisions of the
Funding Law which limit the ICC's authority to suspend the
effectiveness go any such Amendatory Tariff.
(iii) In the case of any Reconciliation Adjustment or True-Up
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Adjustment, the Servicer shall implement the revised IFCs, if any, as
of the first Business Day of the following calendar month (e.g.,
January 1 for a Reconciliation Adjustment determined in December, July
1 for a Reconciliation Adjustment determined in June, April 1 for a
True-Up Adjustment determined in March and October 1 for a True-Up
Adjustment determined in September).
(c) REPORTS.
(i) NOTIFICATION OF AMENDATORY TARIFF FILINGS AND RECONCILIATION
AND TRUE-UP ADJUSTMENTS. Whenever the Servicer files an Amendatory
Tariff with the ICC or implements revised IFCs with notice to the ICC
but without filing a Amendatory Tariff as contemplated by any
applicable Funding Order, the Servicer shall send a copy of such
filing or notice (together with a copy of all notices and documents
which, in the Servicer's reasonable judgment, are material to the
adjustments effected by such Amendatory Tariff or notice) to the
Grantee, the Note Issuer, the Indenture Trustee and the Rating
Agencies concurrently therewith.
(ii) QUARTERLY SERVICER'S CERTIFICATE. Not later than five
Servicer Business Days prior to each Payment Date, the Servicer shall
deliver a written report substantially in the form of EXHIBIT D hereto
(the "Quarterly Servicer's Certificate") to the Grantee, the Note
Issuer, the Indenture Trustee and the Rating Agencies.
(iii) REPORTS TO CUSTOMERS. (A) After each revised IFC has gone
into effect pursuant to a Reconciliation Adjustment or a True-Up
Adjustment, the Servicer shall, to the extent and in the manner and
time frame required by applicable ICC Regulations, if any, cause to be
prepared and delivered to
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Customers any required notices announcing such revised IFCs.
(B) In addition, at least once each year, the Servicer shall (to
the extent that it does not include the notice described below in the
Bills regularly sent to Customers) cause to be prepared and delivered
to Customers a notice stating, in effect, that the IFCs are owned by
the Grantee or any assignee thereof and not ComEd. Such notice shall
be included either as an insert to or in the text of the Bills
delivered to such Customers or shall be delivered to Customers by
electronic means or such other means as the Servicer or the Applicable
ARES may from time to time use to communicate with their respective
customers.
(C) Except to the extent that applicable ICC Regulations make
the Applicable ARES responsible for such costs, or the Applicable ARES
has otherwise agreed to pay such costs, the Servicer shall pay from
its own funds all costs of preparation and delivery incurred in
connection with clauses (A) and (B) above, including but not limited
to printing and postage costs as the same may increase or decrease
from time to time.
(iv) ARES REPORTS. The Servicer shall provide to the Rating
Agencies, upon request, any publicly available reports filed by the
Servicer with the ICC (or otherwise made publicly available by the
Servicer) relating to ARES and any other non-confidential and
non-proprietary information relating to ARES reasonably requested
by the Rating Agencies.
SECTION 4.02. LIMITATION OF LIABILITY. (a) The Grantee and the Servicer
expressly agree and acknowledge that:
(i) In connection with any Reconciliation Adjustment or True-Up
Adjustment, the Servicer is acting solely in its capacity as the servicing
agent hereunder.
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(ii) Neither the Servicer nor the Grantee shall be responsible in any
manner for, and shall have no liability whatsoever as a result of, any
action, decision, ruling or other determination made or not made, or any
delay (other than any delay resulting from the Servicer's failure to file
the Amendatory Tariffs required by Section 4.01 in a timely and correct
manner or other breach by the Servicer of its duties under this Agreement),
by the ICC in any way related to the Intangible Transition Property or in
connection with any Reconciliation Adjustment or True-Up Adjustment, the
subject of any filings under Section 4.01, any proposed Reconciliation
Adjustment or True-Up Adjustment, or the approval of any revised IFCs.
(iii) The Servicer shall have no liability whatsoever relating to
the calculation of any revised IFCs, including as a result of any
inaccuracy of any of the assumptions made in such calculation regarding
expected energy usage volume and the rate of delinquencies and write-offs,
so long as the Servicer has acted in good faith and has not acted in a
grossly negligent manner in connection therewith, nor shall the Servicer
have any liability whatsoever as a result of any Person, including the
Holders, not receiving any payment, amount or return anticipated or
expected or in respect of any Note generally, except only to the extent
that the same is caused by the Servicer's gross negligence, willful
misconduct, bad faith, or reckless disregard of its obligations and duties
under this Agreement.
(b) Notwithstanding the foregoing, this Section 4.02 shall not relieve the
Servicer of liability for any misrepresentation by the Servicer under Section
6.01 or for any breach by the Servicer of its other obligations under this
Agreement.
SECTION 4.03 MONITORING OF THIRD-PARTY COLLECTORS. From time to time,
until the Retirement of the Notes, the Servicer shall, in accordance with the
Servicing Standard,
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implement such procedures and policies as are necessary to ensure that the
obligations of all Third-Party Collectors to remit IFCs or IFC Payments are
properly enforced in accordance with the terms and provisions of the Tariffs,
and any other applicable ICC Regulations in effect from time to time. Such
procedures and policies shall include the following:
(a) MAINTENANCE OF RECORDS AND INFORMATION. In addition to any
actions required by ICC Regulations or other applicable law, the Servicer
shall:
(i) maintain adequate records for promptly identifying and
contacting each such Third-Party Collector (including any ARES)
and for monitoring whether such Third-Party Collector is subject
to the Seven-Day Remittance Option, the Fifteen-Day Remittance
Option, or the Alternative Remittance Requirement;
(ii) maintain records of end-user Customers which are billed
by Third-Party Collectors to permit prompt reversion to
dual-billing in the event of default by a Third-Party Collector;
(iii) create and periodically update a record of the current
short-term and long-term unsecured debt ratings, if any, of each
Third-Party Collector which is responsible for billing IFCs directly
to end-user Customers and is obligated to remit IFCS whether or not
IFC payments are actually collected from end-user Customers (and,
where the IFC payment obligations of any such Third-Party Collector
are guaranteed by another entity, the ratings of such other entity);
(iv) create and periodically update, for each Third-Party
Collector which is responsible for billing IFCs directly to end-user
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Customers and has elected the Fifteen-Day Remittance Option
or is otherwise obligated to remit IFCs whether or not IFC
Payments are actually collected from end-user Customers,
estimates of one month's estimated IFC Collections and, in the
case of any such Third-Party Collector which does not have an
unsecured debt rating of at least BBB- or the equivalent,
maintain a deposit or comparable credit security equal to such
one month's estimated IFC Collections as provided in the Tariffs.
The Servicer shall update the records described in clauses (iii) and (iv)
above no less frequently than (A) monthly in the case of any such
Third-Party Collector with expected monthly IFC billings of greater than
or equal to $5,000,000 and (B) quarterly in each other case.
(b) MONITORING OF PERFORMANCE AND PAYMENT. In addition to any actions
required by ICC Regulations or other applicable law, the Servicer shall
undertake to do the following:
(i) The Servicer shall require each Third-Party Collector
which has elected the Fifteen-Day Remittance Option or is
otherwise obligated to remit IFCs whether or not IFC Payments are
actually collected from end-user Customers to pay all undisputed
and disputed IFCs billed to such Third-Party Collector, in
accordance with the provisions of the 1998 Initial Tariff and
each Subsequent Tariff. The Servicer shall monitor payment
compliance for each Third-Party Collector which has elected the
Fifteen-Day Remittance Option or otherwise obligated to remit
IFCs whether or not IFC payments are
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actually collected from end-user Customers.
(ii) The Servicer shall, for each Third-Party Collector
which is responsible for billing IFCs directly to end-user
Customers and has elected the Seven-Day Remittance Option or is
otherwise liable to remit IFC Payments only to the extent
actually received from end-user Customers, compare (x) actual IFC
Collections from such Third-Party Collector to (y) estimated IFC
Collections therefrom. Such comparisons shall be made no less
frequently than :
(A) Every five Servicer Business Days, in the case of
any such Third-Party Collector with expected monthly IFC
billings of greater than or equal to $5,000,000;
(B) Monthly in the case of any such Third-Party
Collector with expected monthly IFC billings of less than
$5,000,000 but greater than or equal to $1,000,000; and
(C) Quarterly in each other case.
If the discrepancy between actual IFC Collections and estimated IFC
Collections from any such Third-Party Collector, in the reasonable judgment
of the Servicer based upon historical experience and any other information
reasonably available thereto, indicates an actual or impending default in
such Third-Party Collector's remittance of IFC Collections, the Servicer
shall promptly notify such Third-Party Collector in an attempt to determine
the source of discrepancy. If, following such notice, the source of any
material discrepancy cannot be identified, the Servicer shall, in
accordance with ICC Regulations and other applicable law and the Servicing
Standard, take such steps as it reasonably determines are necessary to
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verify whether or not the applicable Third-Party Collector is in default.
(iii) The Servicer shall, consistent with its customary
billing practices, bill each Third-Party Collector who provides
consolidated billing to end-user Customers for all IFCs owed by such
end-user Customers in accordance with the billing cycle otherwise
applicable to such end-user Customers.
(c) ENFORCEMENT. The Servicer shall, in accordance with the terms of
the 1998 Initial Tariff and each Subsequent Tariff, ensure that each
Third-Party Collector remits the undisputed portions of the IFCs or IFC
Payments which it is obligated to remit to the Servicer and remits payment
of the disputed amount under protest (or make some other suitable and
agreeable financial arrangements) pending a hearing on the matter. In the
event of any default by any Third-Party Collector, the Servicer shall
enforce all rights set forth in, and take all other steps permitted by, the
1998 Initial Tariff or any Subsequent Tariff or other ICC Regulations as it
determines, in accordance with the Servicing Standard, are reasonably
necessary to ensure the prompt payment of IFCs by such Third-Party
Collector and to preserve the rights of the Holders with respect thereto,
including, where appropriate, terminating the right of any Third-Party
Collector to bill and collect IFCs or petitioning the ICC to impose such
other remedies or penalties as may be available under the circumstances.
In the event any disputed IFCs billed are resolved in favor of a
Third-Party Collector and the Servicer becomes liable for the payment of
interest in respect of IFCs paid under protest or any other penalty, the
Servicer agrees that it will pay such interest or penalty from the
Servicing Fee paid to it or its other funds and shall not deduct such
interest or penalty amounts from IFC
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Collections.
(d) CREDIT AND COLLECTION POLICIES.
(i) The Servicer shall, to the full extent permitted under the
1998 Funding Order or any Subsequent Funding Order, as applicable,
impose such terms with respect to credit and collection policies
applicable to Third-Party Collectors as may be reasonably necessary to
prevent the then current rating of the Notes from being downgraded.
The Servicer shall, in accordance with and to the extent permitted by
Section 16-118(b) of the Public Utilities Act and the terms of the
1998 Funding Order and any Subsequent Funding Order, include and
impose the above-described terms in all tariffs filed under Section
16-118(b) of the Public Utilities Act which would allow ARES or other
utilities to issue single bills to ComEd's Customers for services
provided by such ARES or other utility and services provided by ComEd.
The Servicer shall periodically review the need for modified or
additional terms based upon, among other things, (i) the relative
amount of IFC Payments received through Third-Party Collectors
relative to the Debt Service Billing Requirement, (ii) the historical
payment and default experience of each ARES and (iii) such other
credit and collection policies to which the ARES are subject, and will
set out any such modified or additional terms in a supplemental tariff
filed with the ICC.
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ARTICLE V
THE INTANGIBLE TRANSITION PROPERTY
SECTION 5.01. CUSTODY OF INTANGIBLE TRANSITION PROPERTY RECORDS. To
assure uniform quality in servicing the Intangible Transition Property and to
reduce administrative costs, the Grantee revocably appoints the Servicer, and
the Servicer accepts such appointment, to act as the agent of the Grantee, the
Note Issuer and the Indenture Trustee as custodian of any and all documents and
records that the Grantee shall keep on file, in accordance with its customary
procedures, relating to the Intangible Transition Property, including copies of
each Funding Order and all Tariffs relating thereto, and all documents filed
with the ICC in connection with any Reconciliation Adjustment or True-Up
Adjustment (collectively, the "Intangible Transition Property Records"), which
are hereby constructively delivered to the Note Issuer, as transferee of the
Grantee (or, in the case of the Subsequent Intangible Transition Property, will
as of the applicable Subsequent Sale Date be constructively delivered to the
Note Issuer, as transferee of the Grantee) with respect to all Intangible
Transition Property.
SECTION 5.02. DUTIES OF SERVICER AS CUSTODIAN. (a) SAFEKEEPING. The
Servicer shall hold the Intangible Transition Property Records on behalf of the
Grantee, the Note Issuer and the Indenture Trustee, and maintain such accurate
and complete accounts, records and computer systems pertaining to the Intangible
Transition Property Records as shall enable the Grantee to comply with this
Agreement and the Sale Agreement, and as shall enable the Note Issuer to comply
with the Sale Agreement and the Indenture. Except with respect to the
commingling of IFC Collections expressly permitted hereunder, the Servicer shall
keep all of the Intangible Transition Property separate and apart from its other
assets, and shall maintain records with respect to the Intangible Transition
Property (including all IFC Collections) in a manner that facilitates the
identification and segregation of such assets from those of the
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Servicer. The Servicer shall, in accordance with the remittance
procedures described in Annex I hereto, maintain records sufficient to permit
the IFC Collections to be accounted for separately from the funds with which
they may be commingled, so that the dollar amounts of IFC Collections
commingled with the Servicer's funds may be properly identified and traced.
In performing its duties as custodian the Servicer shall act with reasonable
care, using that degree of care and diligence that the Servicer exercises
with respect to comparable assets that the Servicer services for itself or,
if applicable, for others. The Servicer shall promptly report to the
Grantee, the Note Issuer, the Indenture Trustee and the Rating Agencies any
failure on its part to hold the Intangible Transition Property Records and
maintain its accounts, records and computer systems as herein provided and
promptly take appropriate action to remedy any such failure. Nothing herein
shall be deemed to require an initial review or any periodic review by the
Grantee, the Note Issuer or the Indenture Trustee of the Intangible
Transition Property Records. The Servicer's duties to hold the Intangible
Transition Property Records on behalf of the Grantee, the Note Issuer and the
Indenture Trustee set forth in this Section 5.02, to the extent such
Intangible Transition Property Records have not been previously transferred
to a successor Servicer pursuant to Article VII, shall terminate three years
after the earlier of the date on which (i) the Servicer is succeeded by a
successor Servicer in accordance with Article VII hereof and (ii) no Notes of
any Series are Outstanding.
(b) MAINTENANCE OF AND ACCESS TO RECORDS. The Servicer shall maintain the
Intangible Transition Property Records at [10 South Dearborn Street, Chicago,
Illinois, 37th Floor] or at such other office as shall be specified to the
Grantee, the Note Issuer and the Indenture Trustee by written notice at least 30
days prior to any change in location. The Servicer shall permit the Grantee,
the Note Issuer and the Indenture Trustee or their respective duly authorized
representatives, attorneys or auditors to inspect, audit and make copies of and
abstracts from the
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Servicer's records regarding the Intangible Transition
Property and the IFCs (including all the Intangible Transition Property
Records), at such times during normal business hours as the Grantee, the Note
Issuer or the Indenture Trustee shall reasonably request and which do not
unreasonably interfere with the Servicer's normal operations. Nothing in this
Section 5.02(b) shall affect the obligation of the Servicer to observe any
applicable law (including any ICC Regulations) prohibiting disclosure of
information regarding the Customers, and the failure of the Servicer to provide
access to such information as a result of such obligation shall not constitute a
breach of this Section 5.02(b).
(c) DEFENDING INTANGIBLE TRANSITION PROPERTY AGAINST CLAIMS. The Servicer
shall institute any action or proceeding necessary to compel performance by the
ICC or the State of Illinois of any of their obligations or duties under the
Funding Law, any Funding Order or any Tariff, and the Servicer agrees to take
such legal or administrative actions, including defending against or instituting
and pursuing legal actions and appearing or testifying at hearings or similar
proceedings, as may be necessary to block or overturn any attempts to cause a
repeal of, modification of or supplement to or judicial invalidation of the
Amendatory Act or any Funding Order or the rights of holders of Intangible
Transition Property that would be adverse to the Grantee, the Note Issuer or any
Holders. The Servicer shall continue to impose IFCs (or equivalent amounts),
collect IFCs (or equivalent amounts), and remit IFCs (or equivalent amounts), in
accordance with this Agreement and to ensure that the IFCs (or equivalent
amounts) are deducted from ComEd's Applicable Rates and other charges in
accordance with the Basic Documents continuing until the Retirement of the
Notes, in each such case unless expressly prohibited
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by law or by any court or regulatory order in effect at such time. The
Servicer shall advance its own funds in order to institute any actions or
proceedings described above, PROVIDED, however, that the costs of any such
action or proceeding shall be payable from IFC Collections as an Operating
Expense in accordance with the priorities set forth in Section 8.02(d) of the
Indenture. The Servicer's obligations pursuant to this Section 5.02 shall
survive and continue notwithstanding the fact that the payment of Operating
Expenses pursuant to Section 8.02(d) of the Indenture may be delayed (it
being understood that the Servicer may be required to advance its own funds
to satisfy its obligations hereunder).
SECTION 5.03. INSTRUCTIONS; AUTHORITY TO ACT. For so long as any Notes
remain Outstanding, the Servicer shall be deemed to have received proper
instructions with respect to the Intangible Transition Property Records upon its
receipt of written instructions signed by a Responsible Officer of the
Indenture Trustee.
SECTION 5.04. CUSTODIAN'S INDEMNIFICATION. The Servicer as custodian
shall indemnify the Grantee, the Note Issuer, the Delaware Trustee, the
Indenture Trustee and the Holders and each of their respective officers,
directors, employees and agents for, and defend and hold harmless each such
Person from and against, any and all liabilities, obligations, losses, damages,
payments and claims, and reasonable costs or expenses, of any kind whatsoever
(collectively, "Losses") that may be imposed on, incurred by or asserted against
any such Person as the result of any improper act or omission in any way
relating to the maintenance and custody by the Servicer, as custodian, of the
Intangible Transition Property Records; PROVIDED, HOWEVER, that the Servicer
shall not be liable for any portion of any such amount resulting from the
willful misconduct, bad faith or gross negligence of the Grantee, the Note
Issuer, the Delaware Trustee, the Indenture Trustee or any Holders.
Indemnification under this Section shall survive resignation or removal
of the Indenture
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Trustee or the Delaware Trustee and shall include reasonable out-of-pocket
fees and expenses of investigation and litigation.
SECTION 5.05. EFFECTIVE PERIOD AND TERMINATION. The Servicer's
appointment as custodian shall become effective as of the Closing Date and shall
continue in full force and effect until terminated pursuant to this Section. If
any Servicer shall resign as Servicer in accordance with the provisions of this
Agreement or if all of the rights and obligations of any Servicer shall have
been terminated under Section 7.01, the appointment of such Servicer as
custodian shall be terminated by the Indenture Trustee or by the Holders of
Notes evidencing not less than twenty-five percent (25%) of the Outstanding
Amount of the Notes of all Series in the same manner as the Indenture Trustee or
such Holders may terminate the rights and obligations of the Servicer under
Section 7.01.
SECTION 5.06. GENERAL INDEMNIFICATION OF INDENTURE TRUSTEE AND DELAWARE
TRUSTEE. The Servicer agrees to indemnify and hold harmless the Indenture
Trustee and the Delaware Trustee and their respective directors, officers,
employees and agents from and against any and all Losses incurred by or asserted
against any such Person as a result of or in connection with the transactions
contemplated by this Agreement or any other Basic Document, other than any Loss
incurred by reason or result of the gross negligence or willful misconduct of
the Indenture Trustee or the Delaware Trustee; PROVIDED, HOWEVER, that the
foregoing indemnity is extended to the Indenture Trustee and the Delaware
Trustee solely in their respective capacities as trustees and not for the
benefit of the Holders or any other Person. The obligations of the Servicer set
forth herein shall survive the termination of this Agreement or the earlier
resignation or removal of the Indenture Trustee under the Indenture or the
Delaware Trustee under the Trust Agreement.
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ARTICLE VI
THE SERVICER
SECTION 6.01. REPRESENTATIONS AND WARRANTIES OF SERVICER. The Servicer
makes the following representations and warranties, as of the Closing Date, as
of each Subsequent Sale Date relating to the sale of Subsequent Intangible
Transition Property pursuant to a Subsequent Sale Agreement, and as of such
other dates as expressly provided in this Section 6.01, on which the Grantee is
deemed to have relied in entering into this Agreement. The representations and
warranties shall survive the execution and delivery of this Agreement, the
transfer of this Agreement to the Note Issuer pursuant to the Sale Agreement and
the pledge thereof to the Indenture Trustee pursuant to the Indenture.
(a) ORGANIZATION AND GOOD STANDING. The Servicer is duly organized
and validly existing as a corporation in good standing under the laws of
the state of its incorporation, with the power and authority to own its
properties and to conduct its business as such properties are currently
owned and such business is presently conducted, and had at all relevant
times, and has, the requisite power, authority and legal right to service
the Intangible Transition Property and to hold the Intangible Transition
Property Records as custodian.
(b) DUE QUALIFICATION. The Servicer is duly qualified to do business
as a foreign corporation in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the ownership or
lease of property or the conduct of its business (including the servicing
of the Intangible Transition Property as required by this Agreement) shall
require such qualifications, licenses or approvals (except where the
failure to so qualify would not be reasonably likely to have a material
adverse
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effect on the Servicer's business, operations, assets, revenues or
properties or adversely affect the servicing of the Intangible Transition
Property).
(c) POWER AND AUTHORITY. The Servicer has the requisite power and
authority to execute and deliver this Agreement and to carry out its terms;
and the execution, delivery and performance of this Agreement have been
duly authorized by the Servicer by all necessary corporate action.
(d) BINDING OBLIGATION. This Agreement constitutes a legal, valid
and binding obligation of the Servicer enforceable in accordance with its
terms, subject to applicable insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws relating to or affecting
creditors' rights generally from time to time in effect and to general
principles of equity (including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing), regardless of
whether considered in a proceeding in equity or at law.
(e) NO VIOLATION. The consummation of the transactions contemplated
by this Agreement and the fulfillment of the terms hereof do not (i)
conflict with, result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time) a default under,
the articles of incorporation or bylaws of the Servicer, or any indenture,
agreement or other instrument to which the Servicer is a party or by which
it shall be bound; (ii) result in the creation or imposition of any Lien
upon any of its properties pursuant to the terms of any such indenture,
agreement or other instrument; or (iii) violate any law or any order, rule
or regulation applicable to the Servicer of any court or of any Federal or
state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Servicer or its properties.
(f) NO PROCEEDINGS. There are no proceedings or investigations
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pending or, to the Servicer's knowledge, threatened before any court,
Federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Servicer or its
properties involving or relating to the Servicer or the Grantee or, to the
Servicer's knowledge, any other Person: (i) asserting the invalidity of
this Agreement, or any of the other Basic Documents or the Notes, (ii)
seeking to prevent the issuance of the Notes or the consummation of any of
the transactions contemplated by this Agreement or any of the other Basic
Documents, (iii) seeking any determination or ruling that could reasonably
be expected to materially and adversely affect the performance by the
Servicer of its obligations under, or the validity or enforceability of,
this Agreement, any of the other Basic Documents or the Notes, or (iv)
relating to the Servicer and which could reasonably be expected to
adversely affect the Federal or state income tax attributes of the Notes.
(g) APPROVALS. No approval, authorization, consent, order or other
action of, or filing with, any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality is required in
connection with the Servicer's execution and delivery of this Agreement,
the Servicer's performance of the transactions contemplated hereby or the
Servicer's fulfillment of the terms hereof, except those that have been
obtained or made and those that the Servicer is required to make in the
future pursuant to Article IV hereof.
(h) MONTHLY COLLECTIONS CURVES. Each Monthly Collections Curve used
in connection with SCHEDULE 6 to Annex I hereto is accurate in all material
respects, and the future delivery of each revised Monthly Collections Curve
shall constitute a representation and warranty that each such revised
Monthly Collections Curve is accurate in all material respects.
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(i) ASSUMPTIONS. The assumptions set forth in SCHEDULE 6 to Annex I
hereto are reasonable and made in good faith, and will be reasonable and
made in good faith as they change from time to time.
(j) REPORTS AND CERTIFICATES. Each report and certificate delivered
in connection with a Tariff will constitute a representation and warranty
by the Servicer that each such report or certificate, as the case may be,
is true and correct; PROVIDED, HOWEVER, that to the extent any such report
or certificate is based in part upon or contains assumptions, forecasts or
other predictions of future events, the representation and warranty of the
Servicer with respect thereto will be limited to the representation and
warranty that such assumptions, forecasts or other predictions of future
events are reasonable based upon historical performance.
SECTION 6.02. INDEMNITIES OF SERVICER; RELEASE OF CLAIMS. (a) The Servicer
shall be liable in accordance herewith only to the extent of the obligations
specifically undertaken by the Servicer under this Agreement.
(b) The Servicer shall indemnify the Grantee, the Note Issuer, the
Indenture Trustee, the Delaware Trustee and the Holders and each of their
respective officers, directors, employees and agents for, and defend and hold
harmless each such Person from and against, any and all Losses that may be
imposed on, incurred by or asserted against any such Person as a result of (i)
the Servicer's willful misconduct, bad faith or gross negligence in the
performance of its duties or observance of its covenants under this Agreement or
its reckless disregard of its obligations and duties under this Agreement, or
(ii) the Servicer's breach of any of its representations or warranties in this
Agreement.
(c) For purposes of Section 6.02(b), in the event of the termination of
the rights and obligations of ComEd (or any successor thereto pursuant to
Section 6.03) as Servicer pursuant to
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Section 7.01, or a resignation by such Servicer pursuant to this Agreement,
such Servicer shall be deemed to be the Servicer pending appointment of a
successor Servicer pursuant to Section 7.02.
(d) Indemnification under this Section 6.02 shall survive any repeal of,
modification of, supplement to, or judicial invalidation of, the Funding Law or
any Funding Order, shall survive the resignation or removal of the Indenture
Trustee or the Delaware Trustee or the termination of this Agreement and shall
include reasonable out-of-pocket fees and expenses of investigation and
litigation (including reasonable attorneys' fees and expenses).
(e) Except to the extent expressly provided in this Agreement or the other
Basic Documents (including, without limitation, the Servicer's claims with
respect to the Servicing Fee, reimbursement for any Excess Remittance,
reimbursement for costs incurred pursuant to Section 5.12(d) and the payment of
the consideration for any grant of Intangible Transition Property to the
Grantee), the Servicer releases and discharges the Grantee, the Note Issuer, the
Delaware Trustee and the Indenture Trustee and each of their respective
officers, directors and agents (collectively, the "Released Parties") from any
and all actions, claims and demands whatsoever, whenever arising, which the
Servicer, in its capacity as Servicer or otherwise, shall or may have against
any such Person relating to the Intangible Transition Property or the Servicer's
activities with respect thereto other than any actions, claims and demands
arising out of the willful misconduct, bad faith or gross negligence of the
Released Parties.
SECTION 6.03. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS
OF, SERVICER. Any Person (a) into which the Servicer may be merged or
consolidated, (b) which may result from any merger or consolidation to which the
Servicer shall be a party or (c) which may succeed to the properties and assets
of the Servicer substantially as a whole, or, with respect to its obligations as
Servicer, which Person in any of the foregoing cases executes an agreement of
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assumption to perform every obligation of the Servicer hereunder, shall be the
successor to the Servicer under this Agreement without further act on the part
of any of the parties to this Agreement; PROVIDED, HOWEVER, that (i) immediately
after giving effect to such transaction, no Servicer Default and no event which,
after notice or lapse of time, or both, would become a Servicer Default shall
have occurred and be continuing, (ii) the Servicer shall have delivered to the
Grantee, the Note Issuer, the Indenture Trustee and the Rating Agencies an
Officers' Certificate and an Opinion of Counsel each stating that such
consolidation, merger or succession and such agreement of assumption complies
with this Section and that all conditions precedent provided for in this
Agreement relating to such transaction have been complied with and (iii) the
Servicer shall have delivered to the Grantee, the Note Issuer, the Indenture
Trustee and the Rating Agencies an Opinion of Counsel either (A) stating that,
in the opinion of such counsel, all filings to be made by the Servicer,
including filings with the ICC pursuant to the Funding Law, have been executed
and filed that are necessary to preserve and protect fully the interests of the
Grantee in the Intangible Transition Property and reciting the details of such
filings or (B) stating that, in the opinion of such counsel, no such action
shall be necessary to preserve and protect such interests. Notwithstanding
anything herein to the contrary, the execution of the foregoing agreement of
assumption and compliance with clauses (i), (ii) and (iii) above shall be
conditions to the consummation of the transactions referred to in clauses (a),
(b) or (c) above.
SECTION 6.04. LIMITATION ON LIABILITY OF SERVICER AND OTHERS. Neither the
Servicer nor any of the directors or officers or employees or agents of the
Servicer shall be liable to the Grantee, the Note Issuer, the Indenture Trustee,
the Delaware Trustee, the Holders or any other Person, except as provided under
this Agreement, for any action taken or for refraining from the taking of any
action pursuant to this Agreement or for errors in judgment; PROVIDED, HOWEVER,
that this provision shall not protect the Servicer or any such person against
any liability that would
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otherwise be imposed by reason of willful misconduct, bad faith or gross
negligence in the performance of the Servicer's duties or by reason of
reckless disregard of the Servicer's obligations and duties. The Servicer and
any director or officer or employee or agent of the Servicer may rely in good
faith on the advice of counsel reasonably acceptable to the Indenture Trustee
or on any document of any kind, PRIMA FACIE properly executed and submitted
by any Person, respecting any matters arising under this Agreement.
SECTION 6.05. COMED NOT TO RESIGN AS SERVICER. Subject to the provisions
of Sections 6.03, ComEd shall not resign from the obligations and duties hereby
imposed on it as Servicer under this Agreement unless either (a) the Servicer
determines that the performance of its duties under this Agreement shall no
longer be permissible under applicable law (disregarding any breach of the State
Pledge that is being contested or subsequent invalidation of the Funding Law,
any Funding Order and/or any Tariff or Tariffs filed in connection therewith),
or (b) the Rating Agency Condition shall have been satisfied and, in either such
case, to the extent required under any Funding Order, the ICC shall have
approved such resignation. Notice of any such determination permitting ComEd's
resignation shall be given to the Grantee, the Note Issuer, the Indenture
Trustee and the Rating Agencies at the earliest practicable time (and, if such
communication is not in writing, shall be confirmed in writing at the earliest
practicable time) and any such determination shall be evidenced by an Opinion of
Counsel to such effect delivered to the Grantee, the Note Issuer and the
Indenture Trustee concurrently with or promptly after such notice. No such
resignation shall become effective until a successor Servicer
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shall have assumed ComEd's responsibilities and obligations in accordance
with Section 7.02.
SECTION 6.06. SERVICING COMPENSATION. (a) In consideration for its
services hereunder, until the Retirement of the Notes, the Servicer shall
receive a fee (the "Servicing Fee") quarterly on each Payment Date in an amount
equal to (i) $750,000 for so long as IFCs are billed concurrently with charges
otherwise billed to Customers or (ii) $5,000,000 if IFCs are not billed
concurrently with charges otherwise billed to Customers but, instead, are
billed separately to Customers. The Servicer shall also be entitled to retain
as additional compensation (i) any interest earnings on IFC Payments received by
the Servicer and invested by the Servicer pursuant to Section 6(d) of Annex I
hereto during each Collection Period prior to remittance to the Collection
Account and (ii) all late payment charges, if any, collected from Customers or
ARES. So long as the Servicer is billing Customers for charges for electric
service or any Applicable Rates, the Servicer will bill IFCs to such Customers
concurrently with such other charges and such Applicable Rates.
(b) The Servicer shall receive, in accordance with Section 8.02 of the
Indenture, the Servicing Fee set forth in Section 6.06(a) above on each Payment
Date in accordance with the priorities set forth in Section 8.02(d) of the
Indenture, by wire transfer of immediately-available funds from the Collection
Account to an account designated by the Servicer. Any portion of the Servicing
Fee not paid on such date shall be added to the Servicing Fee payable on the
subsequent Payment Date.
(c) Except as provided in Section 5.02(c), the Servicer shall be required
to pay from its own account all expenses incurred by it in connection with its
activities hereunder (including any fees to and disbursements by accountants,
counsel, or any other Person, any taxes imposed on the Servicer and any expenses
incurred in connection with reports to Holders) out of the compensation retained
by or paid to it pursuant to this Section 6.06, and shall not be entitled to
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any extra payment or reimbursement therefor.
SECTION 6.07. COMPLIANCE WITH APPLICABLE LAW. The Servicer covenants and
agrees, in servicing the Intangible Transition Property, to comply with all laws
applicable to, and binding upon, the Servicer and relating to such Intangible
Transition Property the noncompliance with which would have a material adverse
effect on the value of the Intangible Transition Property; PROVIDED, HOWEVER,
that the foregoing is not intended to, and shall not, impose any liability on
the Servicer for noncompliance with any law that the Servicer is contesting in
good faith in accordance with its customary standards and procedures.
SECTION 6.08. ACCESS TO CERTAIN RECORDS AND INFORMATION REGARDING
INTANGIBLE TRANSITION PROPERTY. The Servicer shall provide to the Grantee, the
Note Issuer, the Indenture Trustee and the Holders access to the Intangible
Transition Property Records in such cases where the Grantee, the Note Issuer,
the Indenture Trustee and the Holders shall be required by applicable law to be
provided access to such records. Access shall be afforded without charge, but
only upon reasonable request and during normal business hours at the offices of
the Servicer. Nothing in this Section shall affect the Servicer's obligation to
observe any applicable law (including any ICC Regulation) prohibiting disclosure
of information regarding the Customers, and the failure of the Servicer to
provide access to such information as a result of such obligation shall not
constitute a breach of this Section.
SECTION 6.09. APPOINTMENTS. The Servicer may at any time appoint any
Person to perform all or any portion of its obligations as Servicer
hereunder; PROVIDED, HOWEVER, that, unless such person is Unicom Corporation
or a wholly-owned subsidiary thereof, the Rating Agency Condition shall have
been satisfied in connection therewith; PROVIDED FURTHER that the Servicer
shall remain obligated and be liable to the Grantee, the Note Issuer, the
Indenture Trustee and the Holders for the servicing and administering of the
Intangible Transition Property in accordance
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with the provisions hereof without diminution of such obligation and
liability by virtue of the appointment of such Person and to the same extent
and under the same terms and conditions as if the Servicer alone were
servicing and administering the Intangible Transition Property; and PROVIDED
FURTHER, HOWEVER, that nothing herein (including, without limitation, the
Rating Agency Condition) shall preclude the execution by the Servicer of an
ARES Service Agreement with any ARES pursuant to applicable ICC Regulations.
The fees and expenses of such Person shall be as agreed between the Servicer
and such Person from time to time and none of the Grantee, the Note Issuer,
the Indenture Trustee, the Holders or any other Person shall have any
responsibility therefor or right or claim thereto. No such appointment shall
constitute a Servicer resignation under Section 6.05.
SECTION 6.10. NO SERVICER ADVANCES. The Servicer shall not make any
advances of interest or principal on the Notes.
SECTION 6.11. REMITTANCES. (a) Subject to clause (b) below, on each
Servicer Business Day, the Servicer shall remit to the General Subaccount of
the Collection Account the total IFC payments estimated to have been received by
the Servicer from or on behalf of Customers on the second preceding Servicer
Business Day in respect of all previously Billed IFCS (the "Daily Remittance"),
which Daily Remittance may be calculated according to the procedures set forth
in Annex I. Prior to each remittance to the General Subaccount of the
Collection Account pursuant to this Section, the Servicer shall provide written
notice to the Indenture Trustee of each such remittance (including the exact
dollar amount to be remitted).
(b) Notwithstanding the foregoing clause (a), unless a Servicer Default
has occurred and is continuing or if the Rating Agency
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Condition is not satisfied, during any period in which the Servicer
maintains a short-term rating of A-1 or better by Standard & Poor's , P-1 or
better by Moody's, (if rated by Duff & Phelps) D-1 or better by Duff & Phelps
and (if rated by Fitch IBCA) F-1 or better by Fitch IBCA, the Servicer shall
no longer be required to make Daily Remittances and, in lieu thereof, the
Servicer shall, on each Monthly Remittance Date, cause to be made a wire
transfer of immediately-available funds equal to the Aggregate Remittance
Amount for the applicable Collection Period to the General Subaccount of the
Collection Account. On or before each Monthly Remittance Date, commencing
with the Monthly Remittance Date following the end of the [seventh] Billing
Period after the Closing Date, the Servicer shall calculate the amount of any
Remittance Shortfall or Excess Remittance attributable to the prior
Collection Period and (A) if a Remittance Shortfall exists, the Servicer
shall make a supplemental remittance to the General Subaccount of the
Collection Account on such Monthly Remittance Date in the amount of such
Remittance Shortfall, or (B) if an Excess Remittance exists, the Servicer
shall be entitled to take the actions described in clause (d) below.
(c) The Servicer agrees and acknowledges that it holds all IFC Payments
collected by it for the benefit of the Grantee and that all such amounts shall
be remitted by the Servicer in
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accordance with this Section without any surcharge, fee, offset, charge or
other deduction except (i) as set forth in clause (b) above or clause (d)
below and (ii) for late fees permitted by Section 6.06. The Servicer shall
not make any claim to reduce its obligation to remit all IFC Payments
collected by it in accordance with this Agreement except (i) as set forth in
clause (b) above or clause (d) below and (ii) for late fees permitted by
Section 6.06.
(d) If there is an Excess Remittance, the Servicer shall be entitled
either (i) to reduce the amount of each Daily Remittance which the Servicer
remits to the General Subaccount of the Collection Account (beginning with the
Daily Remittance occurring on such Monthly Remittance Date) for application to
the amount of such Excess Remittance until the balance of such Excess Remittance
has been reduced to zero, the amount of such reduction becoming the property of
the Servicer or (ii) so long as such withdrawal would not cause the amounts on
deposit in the General Subaccount or the Reserve Subaccount to be insufficient
for the payment of the next installment of interest on the Notes, to be paid
immediately from the General Subaccount or the Reserve Subaccount the amount of
such Excess Remittance, such payment becoming the property of the Servicer. If
there is a Remittance Shortfall, the amount which the Servicer remits to the
General Subaccount of the Collection Account on such Monthly Remittance Date
shall be increased by the amount of such Remittance Shortfall, such increase
coming from the Servicer's own funds.
(e) Unless otherwise directed to do so by the Note Issuer, the Servicer
shall be responsible for selecting Eligible Investments in which the funds in
the Collection Account shall be invested pursuant to Section 8.03 of the
Indenture.
SECTION 6.12 COMPLIANCE WITH SERVICING STANDARD; CHANGES IN ICC TARIFFS.
The Servicer shall, with respect to its duties hereunder, comply at all times
with the Servicing Standard, and, so long as any of the Notes are outstanding,
shall not initiate any material changes
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with respect to its policies and procedures pertaining to credit (including
requirements for deposits from Customers), billing, collections (including
procedures for disconnection of service for non-payment) and restoration of
service after disconnection, and shall not, except as required by applicable
law, initiate any changes in any ICC tariffs relating to the foregoing
matters which are reasonably likely to adversely affect the Servicer's
ability to make timely recovery of amounts billed to Customers.
Notwithstanding 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 Holders 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.
ARTICLE VII
DEFAULT
SECTION 7.01. SERVICER DEFAULT. If any one of the following events (a
"Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to deposit in the Collection Account
on behalf of the Grantee any required remittance that shall continue
unremedied for a period of three Business Days after written notice of such
failure is received by the Servicer from the Grantee, the Note Issuer or
the Indenture Trustee or after discovery of such failure by a Responsible
Officer of the Servicer; or
(b) any failure on the part of the Servicer or ComEd, as the case may
be, duly
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to observe or to perform in any material respect any other covenants or
agreements of the Servicer or ComEd (as the case may be) set forth in
this Agreement (including Section 4.01) or any other Basic Document to
which it is a party, which failure shall (i) materially and adversely
affect the rights of the Holders and (ii) continue unremedied for a
period of 30 days after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given (A) to
the Servicer or ComEd (as the case may be) by the Grantee or the Note
Issuer or (B) to the Servicer or ComEd (as the case may be) by the
Indenture Trustee or by the Holders of Notes evidencing not less than
twenty-five percent (25%) of the Outstanding Amount of the Notes of all
Series; or
(c) any representation or warranty made by the Servicer in this
Agreement shall prove to have been incorrect when made, which has a
material adverse effect on the Grantee, the Note Issuer or the Holders and
which material adverse effect continues unremedied for a period of 30 days
after the date on which written notice thereof, requiring the same to be
remedied, shall have been delivered to the Servicer by the Grantee, the
Note Issuer or the Indenture Trustee; or
(d) an Insolvency Event occurs with respect to the Servicer or ComEd;
then, and in each and every case, so long as the Servicer Default shall not have
been remedied, either the Indenture Trustee, or the Holders of Notes evidencing
not less than twenty-five percent (25%) of the Outstanding Amount of the Notes
of all Series, by notice (a "Termination Notice") then given in writing to the
Servicer (and to the Indenture Trustee if given by the Holders) may terminate
all the rights and obligations (other than the obligations set forth in Section
6.02 hereof) of the Servicer under this Agreement. In addition, upon a Servicer
Default described in Section 7.01(a), each of the following shall be entitled to
apply to the ICC for sequestration and payment
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of revenues arising with respect to the Intangible Transition Property: (1)
the Holders and the Indenture Trustee as beneficiaries of the lien provided
under Section 18-107(c) of the Funding Law; (2) the Grantee or its assignees;
(3) the Note Issuer; or (4) pledgees or transferees of the Intangible
Transition Property. On or after the receipt by the Servicer of a
Termination Notice, all authority and power of the Servicer under this
Agreement, whether with respect to the Notes, the Intangible Transition
Property, the IFCs or otherwise, shall, without further action, pass to and
be vested in such successor Servicer as may be appointed under Section 7.02;
and, without limitation, the Indenture Trustee is authorized and empowered to
execute and deliver, on behalf of the predecessor Servicer, as
attorney-in-fact or otherwise, any and all documents and other instruments,
and to do or accomplish all other acts or things necessary or appropriate to
effect the purposes of such Termination Notice, whether to complete the
transfer of the Intangible Transition Property Records and related documents,
or otherwise. The predecessor Servicer shall cooperate with the successor
Servicer, the Grantee, the Note Issuer and the Indenture Trustee in effecting
the termination of the responsibilities and rights of the predecessor
Servicer under this Agreement, including the transfer to the successor
Servicer for administration by it of (i) all cash amounts that shall at the
time be held by the predecessor Servicer for remittance, or shall thereafter
be received by it with respect to the Intangible Transition Property or the
IFCs, and (ii) any and all Intangible Transition Property Records. All
reasonable out-of-pocket costs and expenses (including attorneys' fees and
expenses) incurred in connection with transferring the Intangible Transition
Property Records to the successor Servicer and amending this Agreement to
reflect such succession as Servicer pursuant to this Section shall be paid by
the predecessor Servicer upon presentation of reasonable documentation of
such costs and expenses.
SECTION 7.02. APPOINTMENT OF SUCCESSOR. (a) Upon the Servicer's receipt
of a Termination Notice pursuant to Section 7.01 or the Servicer's resignation
or removal in
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accordance with the terms of this Agreement, the predecessor Servicer shall
continue to perform its functions as Servicer under this Agreement, and shall
be entitled to receive the requisite Servicing Fee, until a successor
Servicer shall have assumed in writing the obligations of the Servicer
hereunder as described below. In the event of the Servicer's termination
hereunder, the Note Issuer shall appoint a successor Servicer with the
Grantee's prior written consent thereto (which consent shall not be
unreasonably withheld), and the successor Servicer shall accept its
appointment by a written assumption in form acceptable to the Grantee and the
Note Issuer and provide prompt notice of such assumption to the Indenture
Trustee and the Rating Agencies. If within 30 days after the delivery of the
Termination Notice, the Note Issuer shall not have obtained such a new
Servicer, the Indenture Trustee may petition the ICC or a court of competent
jurisdiction to appoint a successor Servicer under this Agreement. A Person
shall qualify as a successor Servicer only if (i) such Person is permitted
under ICC Regulations to perform the duties of the Servicer, (ii) the Rating
Agency Condition shall have been satisfied and (iii) such Person enters into
a servicing agreement with the Grantee having substantially the same
provisions as this Agreement.
(b) Upon appointment, the successor Servicer shall be the successor in all
respects to the predecessor Servicer and shall be subject to all the
responsibilities, duties and liabilities arising thereafter relating thereto
placed on the predecessor Servicer and shall be entitled to the Servicing Fee
and all the rights granted to the predecessor Servicer by the terms and
provisions of this Agreement.
SECTION 7.03. WAIVER OF PAST DEFAULTS. The Holders of Notes evidencing
not less than a majority of the Outstanding Amount of the Notes of all Series
may, on behalf of all Holders, waive in writing any default by the Servicer in
the performance of its obligations hereunder and its consequences, except a
default in making any required deposits to the Collection Account in
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accordance with this Agreement, which waiver shall require the consent of all
Holders. Upon any such waiver of a past default, such default shall cease to
exist, and any Servicer Default arising therefrom shall be deemed to have
been remedied for every purpose of this Agreement. No such waiver shall
extend to any subsequent or other default or impair any right consequent
thereto.
SECTION 7.04. NOTICE OF SERVICER DEFAULT. The Servicer shall deliver to
the Grantee, the Note Issuer, the Indenture Trustee and the Rating Agencies,
promptly after having obtained knowledge thereof, but in no event later than
five Business Days thereafter, written notice in an Officer's Certificate of any
event which with the giving of notice or lapse of time, or both, would become a
Servicer Default under Section 7.01(a) or (b).
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.01. AMENDMENT. (a) This Agreement may be amended in writing by
the Servicer and the Grantee with five Business Days' prior written notice given
to the Rating Agencies and the prior written consent of the Indenture Trustee,
but without the consent of any of the Holders or Holders, to cure any ambiguity,
to correct or supplement any provisions in this Agreement or for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions in this Agreement or of modifying in any manner the rights of the
Holders; PROVIDED, HOWEVER, that such action shall not, as evidenced by an
Officer's Certificate delivered to the Grantee, the Note Issuer, the Delaware
Trustee and the Indenture Trustee, adversely affect in any material respect the
interests of any Holder.
This Agreement may also be amended in writing from time to time by the
Servicer and the Grantee with prior written notice given to the Rating Agencies
and the prior written consent of the Indenture Trustee and the prior written
consent of the Holders of Notes evidencing not less
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than a majority of the Outstanding Amount of the Notes of all Series, for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or of modifying in any manner the
rights of the Holders; PROVIDED, HOWEVER, that no such amendment shall (a)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, IFC Collections or (b) reduce the aforesaid percentage of the
Outstanding Amount of the Notes, the Holders of which are required to consent
to any such amendment, without the consent of the Holders of all the
outstanding Notes.
Promptly after the execution of any such amendment and the requisite
consents, the Grantee shall furnish written notification of the substance of
such amendment to the Note Issuer, the Indenture Trustee and each of the Rating
Agencies.
It shall not be necessary for the consent of Holders pursuant to this
Section to approve the particular form of any proposed amendment or consent, but
it shall be sufficient if such consent shall approve the substance thereof.
Prior to its consent to any amendment to this Agreement, the Indenture
Trustee shall be entitled to receive and conclusively rely upon an Opinion of
Counsel stating that such amendment is authorized or permitted by this
Agreement. The Indenture Trustee may, but shall not be obligated to, enter into
any such amendment which affects the Indenture Trustee's own rights, duties,
indemnities or immunities under this Agreement or otherwise.
(b) Notwithstanding Section 8.01(a) or anything to the contrary in this
Agreement, the Servicer and the Grantee may amend Annex I to this Agreement in
writing with prior written notice given to the Indenture Trustee and the Rating
Agencies, but without the consent of the Indenture Trustee, any Rating Agency or
any Holder, solely to address changes to the Servicer's method of calculating
IFC Payments received as a result of changes to the Servicer's current
computerized customer information system, as contemplated by Schedule 6
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to Annex I hereto; PROVIDED that any such amendment shall not have a material
adverse effect on the Holders.
SECTION 8.02. MAINTENANCE OF RECORDS. The Servicer shall maintain
accounts and records as to the Intangible Transition Property accurately and in
accordance with its standard accounting procedures and in sufficient detail to
permit reconciliation between IFC Payments received by the Servicer and IFC
Collections from time to time deposited in the Collection Account.
SECTION 8.03. NOTICES. All demands, notices and communications upon or to
the Servicer, the Grantee, the Note Issuer, the Indenture Trustee or the Rating
Agencies under this Agreement shall be in writing and personally delivered, sent
by overnight mail or sent by telecopy or other similar form of rapid
transmission, and shall be deemed to have been duly given upon receipt (a) in
the case of the Servicer, to Commonwealth Edison Company, 10 South Dearborn
Street, 37th Floor, Chicago, Illinois 60603; (b) in the case of the Grantee, to
ComEd Funding, LLC, c/o Commonwealth Edison Company, 10 South Dearborn Street,
37th Floor, Chicago, Illinois 60603, (c) in the case of the Note Issuer, to
ComEd Transitional Funding Trust, c/o First Union Trust Company, National
Association, as Delaware Trustee, One Rodney Square, 920 King Street, 1st
Floor, Wilmington, Delaware 19801, Attn: Corporate Trust Administration, (d) in
the case of the Indenture Trustee, at the Corporate Trust office, (e) in the
case of Moody's, to Moody's Investors Service, Inc., ABS Monitoring Department,
99 Church Street, New York, New York 10007, (f) 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, (g) in the
case of Fitch IBCA, to Fitch IBCA, Inc., One State Street Plaza, New York, NY
10004, Attention ABS Surveillance, or (h) in the case of Duff & Phelps, to Duff
& Phelps Credit Rating Co., 17
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State Street, 12th Floor, New York, NY 10004, Attention: Asset-Backed
Monitoring Group, or as to each of the foregoing, at such other address as
shall be designated by written notice to the other parties.
SECTION 8.04. ASSIGNMENT. Notwithstanding anything to the contrary
contained herein, except as provided in Section 6.03 and as provided in the
provisions of this Agreement concerning the resignation of the Servicer, this
Agreement may not be assigned by the Servicer.
SECTION 8.05. LIMITATIONS ON RIGHTS OF OTHERS. The provisions of this
Agreement are solely for the benefit of the Servicer and the Grantee and, to the
extent provided herein or in the Basic Documents, the Note Issuer, the Indenture
Trustee and the Holders, and nothing in this Agreement, whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Intangible Transition Property or under or in
respect of this Agreement or any covenants, conditions or provisions contained
herein.
SECTION 8.06. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 8.07. SEPARATE COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 8.08. HEADINGS. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
SECTION 8.09. GOVERNING LAW. This Agreement shall be construed in
accordance with
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the laws of the State of Illinois, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
shall be determined in accordance with such laws.
SECTION 8.10. ASSIGNMENTS TO NOTE ISSUER AND INDENTURE TRUSTEE. The
Servicer acknowledges and consents to the assignment of any or all of the
Grantee's rights and obligations hereunder to the Note Issuer pursuant to the
Sale Agreement, and the collateral assignment of any or all of the Note Issuer's
rights and obligations hereunder to the Indenture Trustee pursuant to the
Indenture. The Servicer agrees that the Note Issuer and the Indenture Trustee,
as assignees, shall, subject to the terms of the Basic Documents, have the right
to enforce this Agreement on behalf of the Holders and to exercise directly all
of the Grantee's rights and remedies under this Agreement (including without
limitation, the right to give or withhold any consents or approvals of the
Grantee to be given or withheld hereunder). After the Grantee transfers its
rights and obligations hereunder to the Note Issuer pursuant to the Sale
Agreement, any duty the Servicer owes to the Grantee and the Note Issuer
hereunder shall be fully performed if such duty is performed for the benefit of
the Note Issuer alone. The Note Issuer and the Indenture Trustee on behalf of
the Holders shall all be expressly deemed third-party beneficiaries of this
Agreement.
SECTION 8.11. NONPETITION COVENANTS. Notwithstanding any prior termination
of this Agreement or the Indenture, but subject to the ICC's right to order the
sequestration and payment of revenues arising with respect to the Intangible
Transition Property notwithstanding any bankruptcy, reorganization or other
insolvency proceedings with respect to the debtor, pledgor or transferor of the
Intangible Transition Property pursuant to any applicable Funding Order or other
applicable law, the Servicer shall not, prior to the date which is one year and
one day after the termination of the Indenture, acquiesce, petition or otherwise
invoke or cause the Grantee,
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the Note Issuer or the Delaware Trustee to invoke or join with them in
provoking the process of any court or governmental authority for the purpose
of commencing or sustaining a case against the Grantee, the Note Issuer or
the Delaware Trustee 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 Grantee, the Note
Issuer or the Delaware Trustee or any substantial part of the property of the
Grantee, the Note Issuer or the Delaware Trustee, or ordering the winding up
or liquidation of the affairs of the Grantee, the Note Issuer or the
Delaware Trustee.
SECTION 8.12. LIMITATION OF LIABILITY. It is expressly understood and
agreed by the parties hereto that (a) this Agreement is acknowledged and
accepted by First Union Trust Company, National Association ("First Union"), not
individually or personally but solely as Delaware Trustee on behalf of the Note
Issuer, and by Harris Trust and Savings Bank ("Harris"), not individually or
personally but solely as Indenture Trustee on behalf of the Holders, in each
case in the exercise of the powers and authority conferred and vested in it, (b)
the representations, undertakings and agreements herein made by the Delaware
Trustee on behalf of the Note Issuer, and by the Indenture Trustee on behalf of
the Holders, are made and intended not as personal representations, undertakings
and agreements by First Union and Harris, respectively, but are made and
intended for the purpose of binding only the Note Issuer and the Holders,
respectively, (c) nothing herein contained shall be construed as creating any
liability on First Union or Harris, individually or personally, to perform any
covenant either expressed or implied contained herein, except in their
respective capacities as Delaware Trustee and Indenture Trustee, all such
liability, if any, being expressly waived by the parties who are signatories to
this Agreement and by any Person claiming by, through or under such parties and
(d) under no circumstances shall First Union or Harris, be personally liable for
the payment of any indebtedness or expenses of the Note
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Issuer or the Holders, respectively, or be personally liable for the breach
or failure of any obligation, representation, warranty or covenant made or
undertaken by the Delaware Trustee or the Indenture Trustee, respectively,
under this Agreement; PROVIDED, HOWEVER, that this provision shall not
protect First Union or Harris against any liability that would otherwise be
imposed by reason of willful misconduct, bad faith or gross negligence in the
performance of their respective duties under this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.
COMED FUNDING, LLC
By:________________________
Name:
Title:
COMMONWEALTH EDISON COMPANY
By:________________________
Name:
Title:
Acknowledged and Accepted:
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, not in
its individual capacity but solely as
Delaware Trustee on behalf of
ComEd Transitional Funding Trust
By:______________________
Name:
Title:
HARRIS TRUST AND SAVINGS BANK,
not in its individual capacity but solely as
Indenture Trustee
By:______________________
Name:
Title:
52
<PAGE>
EXHIBIT 10.3
ANNEX I
TO
SERVICING AGREEMENT
The Servicer agrees to comply with the following servicing procedures:
SECTION 1. DEFINITIONS.
(a) Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Agreement.
(b) Whenever used in this Annex I, the following words and phrases shall
have the following meanings:
"AGGREGATE REMITTANCE AMOUNT" has the meaning set forth in Section
6(e) of this Annex I.
"APPLICABLE MDMA" means with respect to each Customer, the meter data
management agent providing meter reading services for that Customer's account.
"BILLED IFCS" means the amounts of IFCs billed to Customers, whether
billed directly to such Customers by the Servicer or indirectly through an
Applicable ARES pursuant to Consolidated ARES Billing.
"BUDGET BILLING PLAN" means a levelized payment plan offered by the
Servicer which, if elected by a Customer, provides for level monthly charges to
such Customer on its Bills which are calculated by estimating, on an annual
basis, the amount that the Customer would pay during the next twelve months
(based on the Customer's actual usage during the prior twelve months) and then
charging the Customer 1/12th of that amount for each of the next twelve months,
with an annual reconciliation pursuant to which the payments made by such
Customer during the preceding twelve months are reconciled with the amount owed
by such Customer for actual usage during the same period, and the Customer is
given a credit or billed for the difference, as appropriate, based on such
reconciliation; PROVIDED, that, commencing in the first quarter of 1999, the
Budget Billing Plan will be modified to provide for level monthly charges to be
calculated by estimating, on a semi-annual or quarterly basis, the amount that
the Customer would pay during the next twelve months (based on the Customer's
actual usage during the prior twelve months) and then charging the Customer
1/12th of that amount for each month until the next such estimation, with an
annual reconciliation pursuant to which the payments made by such Customer
during the preceding twelve months are reconciled with the amount owed by such
Customer for actual usage during the same period, and the Customer is given a
credit or billed for the difference, as appropriate, based on such
reconciliation, subject to an option, on such terms as
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the Servicer may offer to Customers, to pay such bill or receive such credit
through an increase or reduction to the level monthly payments for the next
twelve months.
"CLOSING BILL" means the final bill issued to a Customer at the time
service is terminated.
"CONSOLIDATED ARES BILLING" means the billing option available to
Customers served by an ARES pursuant to which such ARES will be responsible for
billing and collecting all charges to Customers electing such billing option,
including the IFCs, all in accordance with applicable ICC Regulations.
"ESTIMATION TEMPLATE" means the template shown on SCHEDULE 6 to this
Annex I, which template is used to calculate the IFC Payments estimated to have
been received by the Servicer during any Collection Period.
"IFC CUSTOMER CLASS" means the separate classes of Customers for IFC
billing purposes set forth in any Tariffs.
"NET IFC WRITE-OFFS" means, for any Billing Period, an amount equal to
the product of (i) Net Write-Offs for such period times (ii) a fraction, the
numerator of which equals total billed IFCs attributable to the Billing Period
which occurred five Collection Periods prior to such Billing Period and the
denominator of which equals total billed revenues attributable to such fifth
preceding Billing Period.
"NET WRITE-OFF PERCENTAGE" for any Billing Period means the number
(expressed as a percent) equal to: (i) the amount of Net Write-Offs for such
Billing Period, divided by (ii) the total billed revenues attributable to the
Billing Period which occurred five Collection Periods prior to such Billing
Period.
"NET WRITE-OFFS" means, for any Billing Period, the amount of bills
that were written off the Servicer's books during such period as uncollectible
in accordance with its customary practices, net of recoveries received during
such Billing Period in respect of any bills written off during any previous
Billing Period.
"SERVICER POLICIES AND PRACTICES" means, with respect to the
Servicer's duties under this Annex I, the policies and practices of the Servicer
applicable to such duties that the Servicer follows with respect to comparable
assets that it services for itself.
"VARIABLES" means the following variables underlying the Monthly
Collections Curves, each of which may be calculated in accordance with
applicable Servicer Policies and Practices:
(i) Billed IFCs collected during the Billing Period of issuance;
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(ii) Billed IFCs collected during the first Billing Period after the
Billing Period of issuance;
(iii) Billed IFCs collected during the second Billing Period after
the Billing Period of issuance;
(iv) Billed IFCs collected during the third Billing Period after the
Billing Period of issuance;
(v) Billed IFCs collected during the fourth Billing Period after the
Billing Period of issuance; and
(vi) the estimated Net Write-Off Percentage.
SECTION 2. DATA ACQUISITION.
(a) INSTALLATION AND MAINTENANCE OF METERS. Except to the extent that an
ARES is responsible for such services pursuant to an ARES Service Agreement, the
Servicer shall cause to be installed, replaced and maintained meters in such
places and in such condition as will enable the Servicer to obtain usage
measurements for each Customer at least once every Billing Period.
(b) METER READING. At least once each Billing Period, the Servicer shall
obtain usage measurements from the Applicable MDMA for each Customer; PROVIDED,
HOWEVER, that the Servicer may determine any Customer's usage on the basis of
estimates in accordance with applicable ICC Regulations.
(c) COST OF METERING. Neither the Grantee nor the Note Issuer shall be
obligated to pay any costs associated with the metering duties set forth in this
Section 2, including, but not limited to, the costs of installing, replacing and
maintaining meters, nor shall the Grantee or the Note Issuer be entitled to any
credit against the Servicing Fee for any cost savings realized by the Servicer
or any ARES as a result of new metering and/or billing technologies.
SECTION 3. USAGE AND BILL CALCULATION.
The Servicer shall obtain a calculation of each Customer's usage (which may
be based on data obtained from such Customer's meter read or on usage estimates
determined in accordance with applicable ICC Regulations) at least once each
Billing Period and shall determine therefrom each Customer's individual IFCs to
be included on such Customer's Bill; PROVIDED, HOWEVER, that in the case of
Customers served by an ARES under the Consolidated ARES Billing option, the
Applicable ARES, rather than the Servicer, may determine such Customers'
individual IFCs to be included on such Customer's Bills based on billing factors
provided by the Servicer, and, in such
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case, the Servicer shall deliver to the Applicable ARES such billing factors
as are necessary for the Applicable ARES to calculate such Customers'
respective IFCs as such charges may change from time to time pursuant to the
Reconciliation or True-Up Adjustments. To the extent that current billing
information for any IFC Customer Class is not available for the applicable
Billing Period, the Servicer shall estimate Billed IFCs for such Billing
Period based on such IFC Customer Class's usage in the same Billing Period of
the preceding year (adjusted for normal growth and unusual weather) and shall
include such estimated amounts in the Monthly Collections Curves for such
Billing Period; provided, however, that the Servicer shall use the actual
Billed IFCs for the relevant Billing Period in calculating any Remittance
Shortfall or Excess Remittance relating to such Billing Period, even though
the actual Bills reflecting such Billed IFCs may have been issued in a later
Billing Period.
SECTION 4. BILLING.
The Servicer shall implement the IFCs as of the Closing Date and shall
thereafter bill each Customer or the Applicable ARES for the respective
Customer's outstanding current and past due IFCs accruing through December 31,
2008, or such longer period during which the Notes may remain outstanding, all
in accordance with the following:
(a) FREQUENCY OF BILLS; BILLING PRACTICES. In accordance with the
Servicer's then-existing Servicer Policies and Practices for its own charges, as
such Servicer Policies and Practices may be modified from time to time, the
Servicer shall generate and issue a Bill to each Customer, or, in the case of a
Customer who has elected Consolidated ARES Billing, to the Applicable ARES, for
such Customer's respective IFCs once every applicable Billing Period, at the
same time, with the same frequency and on the same Bill as that containing the
Servicer's own charges to such Customer or ARES, as the case may be. In the
event that the Servicer makes any material modification to these practices, it
shall notify the Grantee, the Note Issuer, the Indenture Trustee, and the Rating
Agencies prior to the effectiveness of any such modification; PROVIDED, HOWEVER,
that the Servicer may not make any modification that will materially adversely
affect the Holders.
(b) FORMAT.
(i) Each Bill to a Customer shall contain the charge corresponding to
the respective IFCs owed by such Customer for the applicable Billing Period.
The IFCs and related credits shall each appear as a separate line-item on each
Bill.
(ii) In the case of each Customer that has elected Consolidated ARES
Billing, the Servicer shall deliver to the Applicable ARES itemized charges for
such Customer setting forth such Customer's IFCs and related credits, each as a
separate line-item.
(iii) The Servicer shall conform to such requirements in respect
of the format, structure and text of Bills delivered to Customers and ARES as
applicable ICC Regulations shall
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from time to time prescribe. To the extent that Bill format, structure and
text are not prescribed by the Public Utilities Act or by applicable ICC
Regulations, the Servicer shall, subject to clauses (i) and (ii) above,
determine the format, structure and text of all Bills in accordance with its
reasonable business judgment, its Servicer Policies and Practices with
respect to its own charges and prevailing industry standards.
(c) ALLOCATIONS OF IFCS. IFCs and related credits shall be deducted from
all amounts constituting Applicable Rates and from all charges to Customers from
which IFCs must be deducted pursuant to the Funding Orders, whether or not such
Applicable Rates or charges are computed on a cents per kilowatt hours basis,
according to some other usage-based calculation, on a fixed basis, or in any
other fashion or by any combination of the foregoing. If the IFCs calculated
for any Customer for any Billing Period exceeds the amount of its otherwise
Applicable Rates, then the Bill to such Customer shall reflect an IFC and
related credit each equal to the total amount of such Applicable Rates.
(d) DELIVERY. The Servicer shall deliver all Bills to Customers (i) by
United States Mail in such class or classes as are consistent with the Servicer
Policies and Practices followed by the Servicer with respect to its own charges
to its customers or (ii) by any other means, whether electronic or otherwise,
that the Servicer may from time to time use to present its own charges to its
customers. In the case of Customers that have elected Consolidated ARES
Billing, the Servicer shall deliver all Bills to the Applicable ARES by such
means as are prescribed by applicable ICC Regulations, or if not prescribed by
applicable ICC Regulations, by such means as are mutually agreed upon by the
Servicer and the Applicable ARES and are consistent with ICC Regulations. The
Servicer or an ARES, as applicable, shall pay from its own funds all costs of
issuance and delivery of all Bills, including but not limited to printing and
postage costs as the same may increase or decrease from time to time.
SECTION 5. CUSTOMER SERVICE FUNCTIONS.
The Servicer shall handle all Customer inquiries and other Customer service
matters according to the same procedures it uses to service Customers with
respect to its own charges.
SECTION 6. COLLECTIONS; PAYMENT PROCESSING; REMITTANCE.
(a) COLLECTION EFFORTS, POLICIES, PROCEDURES.
(i) The Servicer shall use reasonable efforts to collect all Billed
IFCs from Customers and Third-Party Collectors (including ARES) as and when the
same become due and shall follow such collection procedures as it follows with
respect to comparable assets that it services for itself or others, including
with respect to the following:
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(A) The Servicer shall prepare and deliver overdue notices to
Customers and ARES in accordance with applicable ICC Regulations
and Servicer Policies and Practices.
(B) The Servicer shall apply late payment charges to outstanding
Customer and ARES balances in accordance with applicable ICC
Regulations. All late payment charges and interest collected
shall be payable to and retained by the Servicer as a component
of its compensation under the Agreement, and the Note Issuer
shall have no right to share in the same.
(C) The Servicer shall deliver verbal and written final notices of
delinquency and possible disconnection in accordance with
applicable ICC Regulations and Servicer Policies and Practices.
(D) The Servicer shall adhere to and carry out disconnection policies
in accordance with the Public Utilities Act and applicable ICC
Regulations and Servicer Policies and Practices.
(E) The Servicer may employ the assistance of collection agents to
collect any past-due IFCs in accordance with applicable ICC
Regulations and Servicer Policies and Practices and the Tariffs.
(F) The Servicer shall apply Customer and ARES deposits to the
payment of delinquent accounts in accordance with applicable ICC
Regulations and Servicer Policies and Practices and according to
the priorities set forth in Section 6(b)(ii), (iii) and (iv) of
this Annex I.
(ii) The Servicer shall not waive any late payment charge or any other
fee or charge relating to delinquent payments, if any, or waive, vary or modify
any terms of payment of any amounts payable by a Customer, in each case unless
such waiver or action: (A) would be in accordance with the Servicer's customary
practices or those of any successor Servicer with respect to comparable assets
that it services for itself and for others; (B) would not materially adversely
affect the rights of the Holders; and (C) would comply with applicable law;
PROVIDED, HOWEVER, that notwithstanding anything in the Agreement or this Annex
I to the contrary, the Servicer is authorized to write off any Billed IFCs, in
accordance with its Servicer Policies and Practices, that have remained
outstanding for 180 days or more.
(iii) The Servicer shall accept payment from Customers and
Third-Party Collectors in respect of Billed IFCs in such forms and methods
and at such times and places as it accepts for payment of its own charges.
The Servicer shall accept payment from ARES in respect of Billed IFCs in such
forms and methods and at such times and places as the Servicer and each ARES
shall mutually agree in accordance with applicable ICC Regulations and the
Servicer shall give prompt written notice to the Rating Agencies of any such
agreements.
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(b) PAYMENT PROCESSING; ALLOCATION; PRIORITY OF PAYMENTS.
(i) The Servicer shall post all payments received to Customer
accounts as promptly as practicable, and, in any event, substantially all
payments shall be posted no later than five Servicer Business Days after
receipt.
(ii) Subject to clause (iii) below, the Servicer shall apply payments
received to each Customer's or Applicable ARES' account in proportion to the
charges contained on the outstanding Bill to such Customer or Applicable ARES.
(iii) Any amounts collected by the Servicer that represent partial
payments of the total Bill to a Customer or ARES shall be allocated as
follows: (A) first to amounts owed to the Note Issuer and ComEd (excluding
any late fees and interest charges), regardless of age, pro rata in
proportion to their respective percentages of the total amount of their
combined outstanding charges on such Bill; then (B) all late charges shall be
allocated to ComEd.
(iv) The Servicer shall hold all over-payments for the benefit of the
Note Issuer and ComEd and shall apply such funds to future Bill charges in
accordance with clauses (ii) and (iii) above as such charges become due.
(v) For Customers on a Budget Billing Plan, the Servicer shall treat
IFC Payments received from such Customers as if such Customers had been billed
for their respective IFCs in the absence of the Budget Billing Plan; partial
payment of a Budget Billing Plan payment shall be allocated according to clause
(iii) above and overpayment of a Budget Billing Plan payment shall be allocated
according to clause (iv) above.
(c) ACCOUNTS; RECORDS.
The Servicer shall maintain accounts and records as to the Intangible
Transition Property accurately and in accordance with its standard accounting
procedures and in sufficient detail (i) to permit reconciliation between
payments or recoveries with respect to the Intangible Transition Property and
the amounts from time to time remitted to the Collection Account in respect of
the Intangible Transition Property and (ii) to permit the IFC Collections held
by the Servicer to be accounted for separately from the funds with which they
may be commingled, so that the dollar amounts of IFC Collections commingled with
the Servicer's funds may be properly identified and traced.
(d) INVESTMENT OF IFC PAYMENTS RECEIVED.
Prior to remittance on the applicable Monthly Remittance Date (or, to
the extent remittances are required more frequently under the Indenture, prior
to each Daily Remittance) the Servicer may invest IFC Payments received at its
own risk and for its own benefit, and such investments and, so long as the
Servicer complies with its obligations under the immediately
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preceding section (c), such funds shall not be required to be segregated from
the other investment and funds of the Servicer.
(e) CALCULATION OF COLLECTIONS; DETERMINATION OF AGGREGATE REMITTANCE
AMOUNT.
(i) On or before each Monthly Remittance Date, the Servicer shall
calculate, in accordance with SCHEDULE 6, the total IFC Payments estimated to
have been received by the Servicer from or on behalf of Customers during the
prior Collection Period in respect of all previously Billed IFCs, increased or
decreased, as applicable, from and after the end of the seventh Billing Period
before such Monthly Remittance Date, by (A) the amount of any Remittance
Shortfall calculated for such Monthly Remittance Date or (B) the amount of any
Excess Remittance calculated for such Monthly Remittance Date or (C) to the
extent not included in Billed IFCs described above, the amount of any Allocable
IFC Revenue Amounts (collectively, the "AGGREGATE REMITTANCE AMOUNT"); PROVIDED,
however, that, (i) to the extent Daily Remittances are required under the
Servicing Agreement, the Servicer (x) shall include in the Daily Remittance on
each Servicer Business Day an amount equal to the total IFC Payments estimated
to be received during the then current Collection Period based on the Monthly
Collections Curve divided by the number of Servicer Business Days in such
Collection Period, (y) shall calculate, on a monthly basis no later than ___
Servicer Business Days on or before each Monthly Remittance Date, the total IFC
Payments estimated to have been received by the Servicer since the previous
Monthly Remittance Date in respect of all previously Billed IFCs, and (z) any
decreases under clause (A) above or increases under clause (B) above shall be
included only in the Aggregate Remittance Amount distributed on any Monthly
Remittance Date and (ii) no Excess Remittance shall be withdrawn from the
Collection Account if such withdrawal would cause the amounts on deposit in the
General Subaccount or the Reserve Subaccount to be insufficient for the payment
of the next installment of interest on the Notes.
(ii) On or before each Reconciliation Adjustment Date and on or before
the date of any required True-Up Adjustment, in accordance with Section 4.01(b)
of the Agreement, the Servicer shall, in a timely manner so as to perform all
required calculations under such Section 4.01(b), update the Variables
underlying the Monthly Collections Curve in SCHEDULE 6 and shall revise such
curve to reflect the updated Variables.
(iii) The Servicer, the Grantee and the Note Issuer as its assignee
acknowledge that the Servicer has undertaken to make certain changes to its
current computerized customer information system, which changes, when
functional, would affect the Servicer's method of calculating the IFC
Payments estimated to have been received by the Servicer during each
Collection Period as set forth in Schedule 6 hereto. Should these changes to
the computerized customer information system become functional during the
term of the Agreement, the Servicer, the Grantee and the Note Issuer agree
that they shall review the procedures used to calculate the IFC Payments
estimated to have been received, as set forth on Schedule 6, in light of the
capabilities of such new system and shall amend this Annex I in writing to
make such
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modifications and/or substitutions to such procedures and to clause (ii)
above as may be appropriate in the interests of efficiency, accuracy, cost
and/or system capabilities; provided, however, that the Servicer may not make
any modification or substitution that will materially adversely affect the
Noteholders. As soon as practicable, and in no event later than 60 Business
Days after the date on which all Customer accounts are being billed under
such new system, the Servicer shall notify the Grantee, the Note Issuer, the
Indenture Trustee and the Rating Agencies of the same.
(iv) All calculations of collections, each update of the Variables and
any changes in procedures used to calculate the IFC Payments pursuant to this
Section 6(e) shall be made in good faith, and in the case of any update pursuant
to clause (ii) or any change in procedures pursuant to clause (iii), in a manner
reasonably intended to provide estimates and calculations that are at least as
accurate as those that would be provided on the Closing Date utilizing the
initial Variables and procedures.
(f) ALLOCABLE IFC REVENUE AMOUNTS
(i) The Servicer shall monitor ComEd's receipt of any fixed payments
of transition charges under Section 16-108(h) of the Public Utilities Act, and
shall, concurrently with such receipt, set aside and allocate for the benefit of
the Grantee and the Note Issuer, as proceeds of the Intangible Transition
Property, an amount with respect to each Customer equal to the product of (a)
the IFC which is then in effect for such Customer at the time of receipt TIMES
(b) the total number of kilowatt hours utilized to compute the amount of such
fixed transition charges.
(ii) The Servicer shall monitor ComEd's receipt of any revenues
derived from condemnation proceedings or FERC stranded cost recoveries or any
other amounts which reflect compensation for lost revenues which would otherwise
have been attributable to Applicable Rates (collectively, "LOST REVENUE
RECOVERIES"), and shall, concurrently with the receipt thereof, set aside and
allocate for the benefit of the Grantee and the Note Issuer, as proceeds of the
Intangible Transition Property, an amount equal to (a) the total dollar amount
of such Lost Revenue Recoveries TIMES (b) a fraction, (1) the numerator of which
equals the weighted average of the IFCs applicable to all classes of Customers
the revenues from which are included in the calculation of such Lost Revenue
Recoveries and (2) the denominator of which equals the weighted average of the
Applicable Rates charged to such Customers, with such weighted averages to be in
each case calculated based on the respective IFCs and Applicable Rates
applicable to such classes for the most recent calendar year then ended.
(iii) All amounts set aside pursuant this Section 6(f) shall
constitute Allocable IFC Revenue Amounts, shall comprise part of the Intangible
Transition Property, shall be included in the Aggregate Remittance Amount and
shall be remitted to the Indenture Trustee in accordance with the other
provisions of this Servicing Agreement and the Indenture.
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(g) REMITTANCES.
(i) The Note Issuer shall cause to be established the Collection
Account in the name of the Indenture Trustee in accordance with the Indenture.
(ii) The Servicer shall make remittances to the Collection Account in
accordance with Section 6.11 of the Agreement.
(iii) In the event of any change of account or change of institution
affecting the Collection Account, the Note Issuer shall provide written
notice thereof to the Servicer by the earlier of: (A) five Business Days from
the effective date of such change, or (B) five Business Days prior to the
next Monthly Remittance Date.
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SCHEDULE 6
TO ANNEX I
COMPUTATION OF AGGREGATE REMITTANCE AMOUNT
Subject to Section 6(e)(iii), the following model shall be used to determine the
IFC Payments estimated to have been received by the Servicer during each
Collection Period.
I. ASSUMPTIONS
A. The IFCs implemented with respect to a given Series or Class of Notes shall
go into effect on the Series Issuance Date for such Series or Class of
Notes.
B. The IFCs (and corresponding credit) for each Series or Class of Notes will
be levied on all electricity usage recorded on Bills issued on or after the
applicable Series Issuance Date whether or not a portion of such
electricity usage was actually incurred prior to the Series Issuance Date
for such Series or Class of Notes, but excluding Bills issued in respect of
Billing Periods prior to the Billing Period in which such Series Issuance
Date occurs.
C. Customer billing occurs in cycles of approximately 21 Business Days, 12
times each year.
D. The pattern of collections has not varied materially over the last five
years.
E. The initial Monthly Collections Curve (i.e. collection amounts for each
month) for each of the 13 IFC Customer Classes is based on a statistically
valid sample of customer billing data from each of the 13 IFC Customer
Classes between July 1996 and June 1997.
F. Initially, each month has an estimated incremental collection percentage
shown in Figure 1 below.
G. The Variables underlying the Monthly Collections Curves will be reviewed
annually and revised as necessary to reflect updated data, including
changes in the degree to which Customers are billed indirectly by an
Applicable ARES and/or such Applicable ARES are obligated to pay directly
on behalf of end-user Customers.
H. The Monthly Collections Curves will be calculated on the assumption that
Bills not yet collected during the last Billing Period of calculation for
the curves have in fact been collected during such last Billing Period
except to the extent of Net Write Offs for such Billing Period.
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MONTHLY COLLECTIONS CURVE
The initial Monthly Collections Curve for each IFC Customer Class is shown below
in Figure 1.
<TABLE>
<CAPTION>
IFC Customer Billing Collection Periods
Class Period After Billing Period
------------ --------- --------------------------------
<S> <C> <C> <C> <C> <C>
1 2 3 4
--------------------------------------------
Residential - No Space Heat A(1) B(1) C(1) D(1) E(1)
Residential - Space Heat A(2) B(2) C(2) D(2) E(2)
Standby Service A(3) B(3) C(3) D(3) E(3)
Interruptible Service A(4) B(4) C(4) D(4) E(4)
Street Lighting - Fixture Based Rates A(5) B(5) C(5) D(5) E(5)
Street Lighting - Dusk to Dawn and Traffic Signal A(6) B(6) C(6) D(6) E(6)
Railroads A(7) B(7) C(7) D(7) E(7)
Water-Supply and Sewage Pumping Service A(8) B(8) C(8) D(8) E(8)
In Lieu of Demand A(9) B(9) C(9) D(9) E(9)
0 to and including 100 kWh Demand A(10) B(10) C(10) D(10) E(10)
Over 100 to and including 1,000 kWh Demand A(11) B(11) C(11) D(11) E(11)
Over 1,000 to and including 10,000 kWh Demand A(12) B(12) C(12) D(12) E(12)
Over 10,000 kWh Demand A(13) B(13) C(13) D(13) E(13)
</TABLE>
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II. ESTIMATION TEMPLATE
Where:
M(n) = the Collection Period corresponding to the current Billing
Period
X(n) = IFC Charges billed during the Billing Period n periods prior
to the current Billing Period
A = percentage collected during M(n) of the total Billed IFCs
billed during the current Billing Period
B = percentage collected during M(n) of the total Billed IFCs
billed during the Billing Period prior to the current
Billing Period
C = percentage collected during M(n) of the total Billed IFCs
billed during the Billing Period two periods prior to the
current Billing Period
D = percentage collected during M(n) of the total Billed IFCs
billed during the Billing Period three periods prior to the
current Billing Period
E = percentage collected during M(n) of the total Billed IFCs
billed during the Billing Period four periods prior to the
current Billing Period
Then:
IFC Payments estimated to have been received during a Collection
Period (prior to any adjustments for a Remittance Shortfall or Excess
Remittance) equal Z, as shown in the Estimation Template below.
I-6-3
<PAGE>
ESTIMATION TEMPLATE
IFC PAYMENTS ESTIMATED TO HAVE BEEN RECEIVED
BY THE SERVICER DURING THE COLLECTION PERIOD OF M(N)
<TABLE>
<CAPTION>
FOR EACH IFC CUSTOMER CLASS:
COLLECTION BILLED IFC ESTIMATED
PERCENT CHARGES COLLECTIONS
(S) (T) (S x T)
<S> <C> <C>
E X(4) (E)(X(4))
D X(-3) (D)(X(3))
C X(-2) (C)(X(2))
B X(1) (B)(X(1))
A X(0) (A)(X(0))
----------------------
TOTAL: Z
IFC Customer Class
----------------------
----------------------
</TABLE>
13
ESTIMATED IFC PAYMENTS = SUM Z(IFC Customer Class n) = Z(i)
[s]
where "i" is the IFC Customer
I-6-4
<PAGE>
EXHIBIT 10.5
REMEDIATION AGREEMENT
REMEDIATION AGREEMENT, dated as of December ____, 1998 (as amended,
restated, supplemented or otherwise modified from time to time, this
"AGREEMENT") is made by Commonwealth Edison Company, an Illinois corporation
("COMED") in favor of the "Holders" (as defined below) and Harris Trust and
Savings Bank, an Illinois banking corporation, not in its individual capacity
but solely in its capacity as Indenture Trustee (the "INDENTURE TRUSTEE") under
the Indenture (as defined below).
WITNESSETH
WHEREAS, pursuant to that certain Indenture dated as of the date
hereof, between ComEd Transitional Funding Trust (the "NOTE ISSUER") and the
Indenture Trustee (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "INDENTURE"), the Note Issuer will be
issuing certain Notes, to be supported by certain assets vested in ComEd
Funding, LLC (the "GRANTEE") and assigned by the Grantee to the Note Issuer, all
as more particularly described in that certain Agreement Relating to Grant of
Intangible Transition Property (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "GRANT AGREEMENT") by
and between ComEd and the Grantee dated as of December ___, 1998 and that
certain Intangible Transition Property Sale Agreement (as the same may be
amended, restated, supplemented or otherwise modified from time to time, the
"SALE AGREEMENT") by and between the Grantee and the Note Issuer, dated as of
December ___, 1998; and
WHEREAS, the proceeds of the Notes are being paid to ComEd in
connection with certain transactions contemplated by Article XVIII of the Public
Utilities Act and the issuance of the Notes is therefore of direct and tangible
benefit to ComEd;
NOW, THEREFORE, in order to induce the Holders to purchase the Notes,
and to provide further assurance to such Holders that all proceeds of the assets
which are intended to be vested in the Grantee and assigned to the Note Issuer
to support the payment of the Notes will in fact be paid to the Indenture
Trustee to pay the Notes, ComEd hereby agrees, for the direct benefit of the
Holders, and not by way of assignment of any rights under the Grant Agreement,
as follows:
SECTION 1. DEFINED TERMS. (a) Capitalized terms used herein and not
otherwise defined herein have the meanings assigned to them in the Indenture.
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<PAGE>
(b) Non-capitalized terms used herein which are defined in the Public
Utilities Act shall, as the context requires, have the meanings assigned to such
terms in the Public Utilities Act, but without giving effect to amendments to
the Public Utilities Act after the date hereof which have a material adverse
effect on the Indenture Trustee or the Holders.
(c) All terms defined in this Agreement shall have the defined
meaning when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(d) The words "hereof," "herein," "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any particular provision of this Agreement; and the term "including"
shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter forms of such terms.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF COMED.
(a) ComEd is duly organized and validly existing as a corporation in
good standing under the laws of the State of Illinois, with the power and
authority to own its properties and to conduct its business as such properties
are currently owned and such business is presently conducted and to enter into
this Agreement.
(b) ComEd has the requisite power and authority to execute and
deliver this Agreement and to carry out its terms and the execution, delivery
and performance of this Agreement have been duly authorized by ComEd by all
necessary corporate action.
(c) This Agreement constitutes a legal, valid and binding obligation
of ComEd enforceable against ComEd in accordance with its terms, subject to
applicable insolvency, reorganization, moratorium, fraudulent transfer and other
similar laws relating to or affecting creditors' rights generally from time to
time in effect and to general principles of equity (including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing), regardless of whether considered in a proceeding in equity or at law.
(d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not (i) conflict with,
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time) a default under, the Articles of
Incorporation or by-laws of ComEd, or any indenture, agreement or other
instrument to which ComEd is a party or by which it is bound; (ii) result in the
creation or imposition of any Lien upon any of its properties pursuant to the
terms of any such indenture, agreement or other instrument; or (iii) violate any
law or any order, rule or regulation applicable to ComEd of any
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<PAGE>
court or of any Federal or state regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over ComEd or its
properties.
(e) Upon the effectiveness of the 1998 Initial Tariff: (i) all of the
1998 Transition Property constitutes a current property right vested in the
Grantee; (ii) the 1998 Transition Property includes, without limitation, (A) the
right, title and interest in the IFCs authorized under the 1998 Funding Order,
as adjusted from time to time, (B) the right, title and interest in all
revenues, collections, claims, payments, money or proceeds of or arising from
the IFCs set forth in the 1998 Initial Tariff, and (C) all rights to obtain
adjustments to the IFCs pursuant to the 1998 Funding Order; and (iii) the Note
Issuer is entitled to impose and collect the IFCs described in the 1998 Funding
Order and the 1998 Initial Tariff in an aggregate amount equal to the principal
amount of the Notes, all interest thereon, all amounts required to be deposited
in the Reserve Subaccount, the Overcollateralization Subaccount and (to the
extent payable from the proceeds of the IFCs) the Capital Subaccount, and all
related fees, costs and expenses in respect of the Notes until they have been
paid in full, subject only to the $6.323 billion limitation set forth in the
1998 Funding Order as to the maximum dollar amount of 1998 Transition Property
created thereunder.
(f) To the fullest extent permitted by the Funding Law and all other
applicable law, the 1998 Transition Property and the right to impose and collect
IFCs contemplated thereunder constitute current property rights of the Grantee
and its assigns, including the Note Issuer and its assigns (including the
Indenture Trustee on behalf of the Holders), which property has been placed
beyond the reach of ComEd and its creditors, as in a true sale, and which
property rights may not be limited, altered, impaired, reduced or otherwise
terminated by any subsequent actions of ComEd or any third party and which
shall, to the full extent permitted by law, be enforceable against ComEd, its
successors and assigns, and all other third parties (including judicial lien
creditors) claiming an interest therein by or through ComEd or its successors
and assigns.
SECTION 3. COVENANTS OF COMED. So long as any of the Notes are
outstanding, ComEd will take any and all actions reasonably necessary to
preserve the rights of Holders with respect to payments on the Notes out of the
amounts represented by IFCs or their equivalent, including, but not limited to,
(i) making appropriate filings with the State of Illinois, the ICC or other
regulatory bodies to defend, preserve and create on behalf of Holders the right
to receive payments as provided in the Notes, (ii) defending against or
instituting and pursuing legal actions and appearing or testifying at hearings
or similar proceedings, as may be necessary to block or overturn any attempts to
cause a repeal of, modification of or supplement to or judicial invalidation of
the Amendatory Act or any Funding Order or the rights of the Holders by
legislative enactment or otherwise that would be adverse to the Grantee, the
Note Issuer or any Holders, (iii) continuing to deduct and pay over to the
Indenture Trustee for the benefit of the Holders, all IFCs and IFC Payments or
equivalent revenues received by ComEd notwithstanding any declaration of
invalidity of the Amendatory Act, the Funding Law, the Funding Order and/or the
Grant Agreement, and (iv) making any and all payments required to be made by
ComEd under
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<PAGE>
the Basic Documents for the benefit of the Holders and the Indenture Trustee
notwithstanding any declaration of invalidity described above.
SECTION 4. NATURE OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties set forth in SECTION 2 of this Agreement, insofar
as they involve conclusions of law, are made not on the basis that ComEd
purports to be a legal expert or to be rendering legal advice, but rather to
reflect the parties' good faith understanding of the legal basis on which the
parties are entering into this Agreement and the other Basic Documents and the
basis on which the Holders are purchasing the Notes, and to reflect the parties'
agreement that, if such understanding turns out to be incorrect or inaccurate,
ComEd will be obligated to indemnify the Holders on account of any such
inaccuracy.
SECTION 5. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, COMED. Any Person (a) into which ComEd may be merged or
consolidated, (b) which may result from any merger or consolidation to which
ComEd shall be a party or (c) which may succeed to the properties and assets of
ComEd substantially as a whole, which Person in any of the foregoing cases
executes an agreement of assumption to perform every obligation of ComEd
hereunder, shall be the successor to ComEd under this Agreement without further
act on the part of any of the parties to this Agreement.
SECTION 6. AMENDMENTS. This Agreement may, with the prior written
consent of the Rating Agencies and written notice to the Indenture Trustee, be
amended in writing from time to time by ComEd; PROVIDED that, unless the Rating
Agency Condition has been satisfied with respect to such amendment, this
Agreement may not be so amended except with the prior written consent of the
Indenture Trustee and Holders holding not less than a majority of the
Outstanding Amount of the Notes of all Series. Promptly after the execution of
any such amendment or consent, ComEd shall furnish a copy of such amendment or
consent to the Grantee, the Note Issuer and each of the Rating Agencies. It
shall not be necessary for the consent of the Rating Agencies or the Holders
pursuant to this Section to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall approve
the substance thereof.
SECTION 7. NOTICES. All demands, notices and communications upon or
to ComEd or the Indenture Trustee shall be in writing, personally delivered,
mailed or sent by facsimile or other similar form of rapid transmission, and
shall be deemed to have been duly given upon receipt (a) in the case of ComEd,
to Commonwealth Edison Company, 10 South Dearborn Street, 37th Floor, Chicago,
Illinois 60603 and (b) in the case of the Indenture Trustee, at the Corporate
Trust Office, or as to each of the foregoing, at such other address as shall be
designated by written notice to the other party.
SECTION 8. ASSIGNMENT. Notwithstanding anything to the contrary
contained herein, except as provided in Section 6, this Agreement may not be
assigned by ComEd.
4
<PAGE>
SECTION 9. LIMITATIONS ON RIGHTS OF OTHERS. The provisions of this
Agreement are solely for the benefit of the Indemnmified Parties and nothing in
this Agreement, whether express or implied, shall be construed to give to any
other Person (including, without limitation, the Grantee or the Note Issuer) any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any covenants, conditions or provisions contained herein.
SECTION 10. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 11. SEPARATE COUNTERPARTS. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 12. HEADINGS. The headings of the various Sections herein
are for convenience of reference only and shall not define or limit any of the
terms or provisions hereof.
SECTION 13. INTEGRATION. This Agreement represents the agreement of
ComEd with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by ComEd relative to the subject
matter hereof not expressly set forth or referred to herein.
SECTION 14. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Illinois, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 15. HOLDERS AS THIRD PARTY BENEFICIARIES. ComEd and the
Indenture Trustee agree that (i) the Holders are direct and express third-party
beneficiaries of the provisions of this Agreement and (ii) the Indenture Trustee
is authorized to enforce the terms and provisions of this Agreement on behalf
of, and for the benefit of, the Holders.
SECTION 16. REPRESENTATIONS, WARRANTIES AND INDEMNITIES TO SURVIVE.
The agreements, representations, warranties, indemnities and other statements
of ComEd or its officers set forth in or made pursuant to this Agreement will
remain in full force and effect and will survive (a) the grant of the 1998
Transition Property and the issuance and delivery of the Notes and (b) the
termination, cancellation or invalidity of the Amendatory Act, the Funding Law,
any Funding Order or the Grant Agreement.
* * * * *
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.
COMMONWEALTH EDISON
COMPANY
By: ___________________________
Name:
Title:
HARRIS TRUST AND SAVINGS BANK,
not in its individual capacity, but
solely in its capacity as INDENTURE
TRUSTEE under the Indenture
By: ____________________________
Name:
Title:
