<PAGE>
As filed with the Securities and Exchange Commission on October 23, 1998
Registration No. 333-60907
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
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)
DELAWARE 36-4239488
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 OF COMMONWEALTH EDISON COMPANY, THE SOLE MEMBER OF
COMED FUNDING, LLC
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. Feldkamp, Esq. Kevin J. Hochberg, Esq. Daniel C. Bird, Esq.
Foley & Lardner Sidley & Austin Winston & Strawn
330 North Wabash Avenue, One First National Plaza 35 W. Wacker Drive
Suite 3300 Chicago, Illinois 60603 Chicago, Illinois 60601
Chicago, Illinois 60611 (312) 853-2085 (312) 558-7446
(312) 755-1900
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. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transitional Funding Trust Notes $1,000,000 100% $1,000,000 $295
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Estimated solely for the purpose of calculating the registration fee.
--------------------------
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>
SUBJECT TO COMPLETION, DATED ______________ , 1998
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED ____________, 1998
COMED TRANSITIONAL FUNDING TRUST
$____________ TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998
$ ________ Class A-1 ____% Notes $ ________ Class A-4 ____% Notes
$ ________ Class A-2 ____% Notes $ ________ Class A-5 ____% Notes
$ ________ Class A-3 ____% Notes $ ________ Class A-6 ____% Notes
$ ________ Class A-7 ____ % Notes
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 27 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>
Price to Underwriting Proceeds to
Public(1) Discounts(2) 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.
--------------------------
[UNDERWRITERS]
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 ______, __________, _________ and
_____________ 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-25 herein and which begins on page 118 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-25 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>
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
S-4
<PAGE>
and future claims, demands, causes and choses
in action in respect of any or all of the
foregoing; and all payments on or under
and all proceeds in respect of any or all
of the foregoing.
The 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 27 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.
S-5
<PAGE>
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 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
S-6
<PAGE>
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 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").
S-7
<PAGE>
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,
including an assumption that the Notes
will bear interest at a rate of 7.5% per
annum, 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.
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:
IFC
IFC CUSTOMER CLASS CHARGES
(CENTS PER KWH)
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
S-8
<PAGE>
Over 100 to and including
1,000 kW Demand
Over 1,000 to and including
10,000 kW Demand
Over 10,000 kW Demand
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 [_________,
___________, ________ and ________]
(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 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."
S-9
<PAGE>
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 the Class
A-1 Notes, until the Class Principal
Balance thereof has been reduced to
S-10
<PAGE>
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 Overcollaterali-
zation Amount established in connection with
the issuance of the Offered Notes will be
[$__________], which is 0.50 percent of the
initial aggregate Class Principal Balance for
all of the Offered
S-11
<PAGE>
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
S-12
<PAGE>
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 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
S-13
<PAGE>
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 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.
S-14
<PAGE>
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.
S-15
<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-16
<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 $750,000 per quarter, (d) there are no net earnings
on amounts on deposit in the Collection Account, (e) Operating Expenses,
Quarterly Administration Fees, and amounts owed to the Indenture Trustee, the
Delaware Trustee and the Indenture Trustee are in the aggregate [$________] 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>
SERIES 1998
DATE CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 CLASS A-6 CLASS A-7 TOTAL
- ---- --------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series
Issuance
Date $________
</TABLE>
[INFORMATION TO BE PROVIDED]
There can be no assurance that the Class Principal Balances of the Offered
Notes will be reduced as indicated in the foregoing table, and the actual
<PAGE>
CAPITAL SUBACCOUNT. Prior to or upon the issuance of the Offered Notes,
the Grantee will transfer capital to the Trust in the amount of [$__________]
, 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.
S-19
<PAGE>
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, including an assumption that
the Notes will bear interest at a rate of 7.5% per annum, 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 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
S-20
<PAGE>
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 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.
S-21
<PAGE>
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 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
[cad 157]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) because neither the Trust nor the Grantee will
elect to be classified as an association taxable as a corporation for federal
income tax purposes, the Offered Notes will be obligations of ComEd for
federal income tax purposes.] See "Material United States Federal Tax
Consequences" in the Prospectus.
S-22
<PAGE>
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.
S-23
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Trust has agreed to sell to each of the Underwriters named
below (the "Underwriters"), and each of the Underwriters, for whom
____________________, ________________ and ________________ 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 s Notes Notes Notes Notes
- ------------------- --------- --------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $ $
--------- --------- ---------- ----------- ---------- ----------- ----------
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.
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.
S-24
<PAGE>
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.
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-25
<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-9
Administration Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Book-Entry Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
Capital Subaccount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Class Principal Balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
ComEd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Customers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Delaware Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
DTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
Final Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
General Subaccount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Grantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Indenture Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Note Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Offered Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Original Note Principal Balance. . . . . . . . . . . . . . . . . . . . . . . . . S-5
Overcollateralization Amount . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
Overcollateralization Subaccount . . . . . . . . . . . . . . . . . . . . . . . . S-11
Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Rating Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
Reconciliation Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
Reconciliation Payment Date. . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
</TABLE>
S-26
<PAGE>
<TABLE>
<CAPTION>
DEFINED
DEFINED TERM ON PAGE
- ------------- ----------
<S> <C>
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Required Overcollateralization Level . . . . . . . . . . . . . . . . . . . . . . S-12
Reserve Subaccount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Scheduled Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Series Issuance Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
Specified Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
True-Up Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
True-Up Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
</TABLE>
(THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)
S-27
<PAGE>
SUBJECT TO COMPLETION, DATED , 1998
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 $ 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 27 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 118 herein for the location of the definitions of
capitalized terms that appear in this Prospectus.
, 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
2
<PAGE>
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.
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
3
<PAGE>
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 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.
CAUTIONARY STATEMENT FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The disclosures in this Prospectus set forth in "The Servicer -- Year 2000
Issues," in the final sentence of the seventh paragraph of "Risk Factors --
Reduction in Amount of Revenue from Applicable Rates" and in the third paragraph
of "Electric Industry Restructuring in Illinois -- Competitive Services" contain
forward-looking statements.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION........................................................................................2
REPORTS TO HOLDERS...........................................................................................3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..............................................................3
PROSPECTUS SUPPLEMENT........................................................................................3
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995...........................................................................................4
TABLE OF CONTENTS............................................................................................5
PROSPECTUS SUMMARY...........................................................................................8
RISK FACTORS................................................................................................27
Uncertainties Associated with Unusual Asset Type......................................................27
Legal Challenges which Could Adversely Affect Noteholders.............................................27
Possible Payment Delays or Losses as a Result of Amendment or Repeal of Amendatory Act or Breach of
State Pledge.......................................................................................28
Limit on Amount of Intangible Transition Property Available to Pay Notes..............................29
Potential Servicing Issues............................................................................30
Uncertainties Related to the Electric Industry Generally..............................................32
Uncertainties Caused by Changing Regulatory and Legislative Environment...............................34
Reduction in Amount of Revenue From Applicable Rates..................................................34
Bankruptcy and Creditors' Rights Issues...............................................................37
Nature of the Notes...................................................................................40
ELECTRIC INDUSTRY RESTRUCTURING IN ILLINOIS.................................................................43
General...............................................................................................43
Amendatory Act Overview...............................................................................43
Transition Charges....................................................................................43
Transition Period.....................................................................................45
Alternative Retail Electric Suppliers.................................................................46
Competitive Services..................................................................................46
Instrument Funding Charges; Private Contracts.........................................................46
Federal Initiatives; Increased Competition............................................................47
DESCRIPTION OF THE INTANGIBLE TRANSITION PROPERTY...........................................................48
Creation of Intangible Transition Property Under the Funding Law......................................48
Limitations on the Amounts of Transitional Funding Instruments, Intangible Transition Property and
Instrument Funding Charges Which Can Be Authorized; Permitted Use of Proceeds......................49
Imposition and Collection of Instrument Funding Charges; Adjustments Thereto..........................51
Transitional Funding Order Issued at the Request of ComEd.............................................52
Transactions Pursuant to the Transitional Funding Orders..............................................53
Nonbypassable IFC Charges.............................................................................53
Adjustments to the IFC Charges........................................................................54
Sale and Assignment of Intangible Transition Property.................................................55
Grant Agreement.......................................................................................57
Representations and Warranties of ComEd...............................................................57
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Covenants of ComEd....................................................................................59
Amendment of Grant Agreements.........................................................................60
Indemnification Obligations of ComEd..................................................................61
Sale Agreement........................................................................................61
Representations And Warranties of Grantee.............................................................62
Covenants of the Grantee..............................................................................63
Amendment of Sale Agreements..........................................................................65
Indemnification Obligations of the Grantee............................................................66
CERTAIN PAYMENT, WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS.............................................67
THE TRUST...................................................................................................68
THE GRANTEE.................................................................................................70
Managers..............................................................................................70
THE SERVICER................................................................................................72
General...............................................................................................72
ComEd Customer Base, Electric Energy Consumption and Base Rates.......................................72
Forecasting Electricity Consumption...................................................................75
Forecast Variance.....................................................................................75
Credit Policy; Billing; Collections; Restoration of Service...........................................76
Loss and Delinquency Experience.......................................................................78
Delinquencies.........................................................................................80
Year 2000 Issues......................................................................................81
SERVICING...................................................................................................82
Servicing Procedures..................................................................................82
Servicing Standards and Covenants.....................................................................83
Remittances to Collection Account.....................................................................83
No Servicer Advances..................................................................................84
Servicing Compensation................................................................................85
Alternative Retail Electric Suppliers and Other Third-Party Collectors................................85
Servicer Representations and Warranties...............................................................86
Statements by Servicer................................................................................86
Evidence as to Compliance.............................................................................86
Certain Matters Regarding the Servicer................................................................87
Servicer Defaults.....................................................................................87
Rights upon Servicer Default..........................................................................88
Waiver of Past Defaults...............................................................................88
Successor Servicer....................................................................................88
Amendment.............................................................................................89
Termination...........................................................................................89
DESCRIPTION OF THE NOTES....................................................................................90
General...............................................................................................90
Interest and Principal................................................................................91
Payments on the Notes.................................................................................91
Floating Rate Notes...................................................................................92
No Third-Party Credit Enhancement.....................................................................92
Registration and Transfer of the Notes................................................................92
Book-Entry Registration...............................................................................93
Definitive Notes......................................................................................95
Optional Redemption...................................................................................96
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Conditions of Issuance of Additional Series and Acquisition of Subsequent Intangible Transition
Property...........................................................................................96
List of Noteholders...................................................................................97
SECURITY FOR THE NOTES......................................................................................98
General...............................................................................................98
Pledge of Note Collateral.............................................................................98
Security Interest in Note Collateral..................................................................98
Description of Indenture Accounts.....................................................................99
Allocations; Payments................................................................................101
State Pledge.........................................................................................102
Reports to Noteholders...............................................................................103
Supplemental Indentures..............................................................................103
Certain Covenants of the Delaware Trustee and the Trust..............................................104
Events of Default; Rights Upon Event of Default......................................................105
Actions by Noteholders...............................................................................107
Annual Compliance Statement..........................................................................107
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES............................................................108
Tax Consequences to United States Noteholders........................................................108
Tax Consequences to Non-United States Noteholders....................................................109
Backup Withholding and Information Reporting.........................................................111
ERISA CONSIDERATIONS.......................................................................................114
USE OF PROCEEDS............................................................................................116
PLAN OF DISTRIBUTION.......................................................................................116
RATINGS....................................................................................................117
LEGAL MATTERS..............................................................................................117
EXPERTS....................................................................................................117
INDEX OF PRINCIPAL DEFINITIONS.............................................................................118
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 118
sets forth the pages on which the definitions of certain principal terms appear.
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).
8
<PAGE>
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 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
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<PAGE>
Intangible Transition Property -- Adjustments
to the IFC Charges" over the term of each
Series of Notes.
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.
PARTIES TO TRANSACTION
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Grant of rights in, to and
under Intangible Transition
- ----------------- Property, pursuant to ----------------------------- Parties to Trust Indenture governing
ILLINOIS Transitional Funding Order GRANTEE issuance of Notes: Notes secured by
COMMERCE --------------------------------- ComEd Funding, LLC Intangible Transition Property and
COMMISSION - Sole Member: Commonwealth substantially all other assets
- ----------------- Edison Company of Trust ------------
---------------------------- ------------------------ INDENTURE
- ----------------- TRUSTEE
COMMONWEALTH Assignment of all right, title ------------
EDISON ------------------------------------- and interest in Intangible
COMPANY Net proceeds from sale of Notes in Transition Property and the
- ----------------- consideration of receipt by other Note Collateral in
Grantee of Intangible Transition exchange for net proceeds of Sale of Notes for
Property the Notes cash, pursuant to
Underwriting
--------------------------------- Agreement -------------
TRUST UNDERWRITERS
ComEd Transitional -------------
- --------------------- Funding Trust Sale of
SERVICER - Delaware Trustee Notes
Commonwealth Edison ------------------------------------- - Beneficiary Trustees for Cash
Company Servicing of Intangible Transition --------------------------------- -------------
- --------------------- Property for servicing fee, INVESTORS
pursuant to Servicing Agreement Parties to Swap -------------
Agreement
- --------------------- -----------------------------
ADMINISTRATOR SWAP
Commonwealth Edison ------------------------------------------ COUNTERPARTY
Company Administration of Trust and Grantee (To be named, if any)
- --------------------- for administration fee, pursuant to -----------------------------
Administration Agreement
</TABLE>
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 27.
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."
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<PAGE>
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.
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 to
the Trust.
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, together with the
Beneficiary Trustees, 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, together with the
Delaware Trustee, manage the Trust pursuant to
the Trust Agreement.
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 any
Swap Agreement entered into with respect to
the issuance of any Floating Rate Notes) due
on
11
<PAGE>
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.
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
12
<PAGE>
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
13
<PAGE>
Intangible Transition Property and the vesting
thereof in the Grantee. Although it is
anticipated that all 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
14
<PAGE>
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 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
15
<PAGE>
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 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 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.
16
<PAGE>
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 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 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.
17
<PAGE>
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 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
18
<PAGE>
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 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
19
<PAGE>
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 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,
then, as the sole and exclusive remedy for
such breach, 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.
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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 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 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
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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 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
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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 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 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 unless the Servicer fails to
meet the Remittance Conditions, in which case
the Servicer will, within two Servicer
Business Days of
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receipt, remit all IFC Payments to the
Collection Account. 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 degree of care and
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<PAGE>
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."
25
<PAGE>
ALLOCATIONS AND DISTRIBUTIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ---------------
CUSTOMERS ------------ --------------
AND THIRD PARTY SERVICER COLLECTION
COLLECTORS, Payment to Servicer ------------ Remittance of IFC ACCOUNT
INCLUDING ARES of IFC Charges Payments, net of --------------
- ---------------- Excesss Remittance or Quarterly application of amounts in
Remittance Shortfall Collection Account (including net
earnings thereon), as follows:
- --------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6) (7) (8)
DELAWARE SERVICER: ADMINISTRATOR: TRUST: NOTE HOLDER: TRUST: CAPITAL OVERCOLLATERALIZATION
TRUSTEE AND Servicing Fee Quarterly Other Operating - Quarterly Interest Unpaid Operating SUBACCOUNT: SUBACCOUNT:
INDENTURE Administration Fee Expenses - Principal following Expenses Up to Required Up to Required
TRUSTEE (no default) Event of Default Capital Level Overcollateralization
Fees and expenses or on Final Maturity Level
Date
- Scheduled
Payments
-------------------------------------------------------------------------------------
(10) (9)
RESERVE SUBACCOUNT: TRUST:
All remaining amounts for distribution - Up to net earnings on amounts in Collection
on subsequent Payment Dates Account
</TABLE>
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 Charges by ARES and
other third-party collection agents, the ICC
will approve certain procedures in each
Transitional Funding Order
26
<PAGE>
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.
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<PAGE>
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 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.
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<PAGE>
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 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.
29
<PAGE>
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.
30
<PAGE>
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 would remain
enforceable against ComEd in the event of a judicial invalidation of the
Amendatory Act unless a specific order 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, re-open 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 a substantial 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 suject 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.
31
<PAGE>
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 materially 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 reduce, postpone,
impair or terminate the Intangible Transition Property or related
Transitional Funding Order except to the extent that the State of Illinois is
able to demonstrate that an impairment is necessary to advance a significant
and legitimate public purpose.
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, so long as the relevant Transitional Funding Order is in
effect, 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 (each such
action, 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 thereform; 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.
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<PAGE>
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.
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
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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."
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
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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
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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
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
Except as described under "Servicing -- Remittances to Collection Account,"
on each 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 will 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
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 is faced with the task of addressing the ability of computer hardware
and software to handle the date change on
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January 1, 2000. See "The Servicer -- Year 2000 Issues." ComEd is in the
final stages of implementing a new computerized billing system which it
believes is Year 2000 compliant. Nonetheless, 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. The date change issues could
also affect usage if there are problems with the generation or distribution
of electricity. There is no way to predict the impact of the date change
issue, but if there are significant interruptions of service to Customers or
significant business interruptions in general caused by date change issues,
there could be significant delays in IFC Collections and, therefore, in
payments to Noteholders.
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. 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.
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.
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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
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
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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. 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.
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 one of the bills, H.R.
1230, 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.
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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 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.
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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 until no later than December
31, 2008. There can be no assurances that the ICC will grant any such request
for extension of this
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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.
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
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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 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 or the Grantee
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 or Grantee bankruptcy proceeding, the mere
fact of a ComEd or Grantee 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 and the Grantee 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 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 and the Grantee will also
represent and warrant 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
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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 and the Grantee 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 and the Grantee 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. 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 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 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. 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 proceeds of Intangible Transition
Property. If a court were to adopt any of
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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 or the Grantee 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 or the Grantee, then the Indenture
Trustee, as trustee for the Noteholders, would be an unsecured creditor of ComEd
or the Grantee, 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 or the Grantee'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 or the Grantee is the debtor in a bankruptcy
case, if a court were to accept the arguments of a creditor of ComEd or the
Grantee that Intangible Transition Property comes 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 came
into existence may have priority over the Trust's interest in such Intangible
Transition Property, 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.
For so long as the Servicer either (a) maintains a short-term debt rating of
at least "____" by Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P"), and "____" by Moody's Investors Service, Inc. ("Moody's"), or (b)
meets certain other financial conditions (collectively, the "Remittance
Conditions"), the Servicer is entitled to commingle IFC Payments with its own
funds until the relevant 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.
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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 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
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 --
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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 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
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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 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
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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.
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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 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
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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 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
customers' 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
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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 "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.
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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 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.
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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, 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, except as expressly modified by the provisions specified in such
contracts for the fiscal year ending December 31, 1997. Each of these
contracts provides that, except as expressly modified by the provisions
specified in such contracts, 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
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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 non-bypassable 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 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
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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 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
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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 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
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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 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,
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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 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.
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"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. 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
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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.
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
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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 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.
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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. 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.
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;
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(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 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,
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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 reduce, postpone, impair or
terminate the related Intangible Transition Property or the related
Transitional Funding Order (except to the extent that the State of
Illinois were to demonstrate that an impairment was 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
(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,
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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 Grantj
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 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.
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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, except with respect to taxes, not make any statement or reference in
respect of the Intangible Transition Property that is inconsistent with the
ownership interest of the Grantee;
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(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, 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
materially and 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,
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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 and
(ii) 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 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); (b) any
and all liabilities, obligations, losses, claims, actions, suits, damages,
payments, and reasonable costs or expenses, of any kind whatsoever that may be
imposed on, incurred by or asserted against any such person as a result of
ComEd's willful misconduct, bad faith or gross negligence in the performance of
(or reckless disregard of) its duties or observance of its covenants under each
Grant Agreement, or (c) ComEd's breach of any of its representations or
warranties contained in each 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).
Notwithstanding the foregoing, but subject to ComEd's covenant to fully
preserve, maintain and protect the interests of the Grantee in the Intangible
Transition Property, 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 each Grant Agreement.
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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.
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;
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(iii) the State of Illinois may not reduce, postpone, impair or
terminate the related Intangible Transition Property or the related
Transitional Funding Order (except to the extent that the State of
Illinois were to demonstrate that an impairment was 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 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;
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(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;
(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;
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(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,
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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;
(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
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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.
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); (b) any
and all liabilities, obligations, losses, claims, actions, suits, damages,
payments, and reasonable costs or expenses, of any kind whatsoever that may be
imposed on, incurred by or asserted against any such person as a result of the
Grantee's willful misconduct, bad faith or gross negligence in the performance
of (or reckless disregard of) its duties or observance of its covenants under
each Sale Agreement, or (c) the Grantee's breach of any of its representations
or warranties contained in each 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 corporate 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. 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
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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.
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
negligent failure to act; (3) such Trustee's own willful misconduct; or (4) the
inaccuracy of any representation or warranty made by such Trustee in its
individual capacity to the Grantee. The Trust Agreement also provides that the
Servicer shall indemnify each of the Delaware Trustee, the Beneficiary Trustee
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 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, the Trust may not file a voluntary petition for
relief under the Bankruptcy Code or under any other federal or state bankruptcy
or insolvency law, nor may the Grantee, Delaware Trustee or any Beneficiary
Trustee take such action on behalf of the Trust, prior to one year after the
termination of the Trust.
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.
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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.
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 56 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.
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<PAGE>
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 the
Grantee's Management Committee. 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.
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<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 25 -- 0.4
Traffic Signal 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 Service Accounts billed under Rate 24 -- 0.7
Water-Supply and Sewage Pumping
Service
----------------------------------------- --------------------------------------- ---------------------
----------------------------------------- --------------------------------------- ---------------------
In Lieu of Demand Non-residential in lieu of demand 1.9
accounts
----------------------------------------- --------------------------------------- ---------------------
----------------------------------------- --------------------------------------- ---------------------
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------- --------------------------------------- ---------------------
Percentage of
1996 Base Rate
IFC Customer Class Description Revenues(1)
----------------------------------------- --------------------------------------- ---------------------
----------------------------------------- --------------------------------------- ---------------------
<S> <C> <C>
0 to and including 100 kW Demand Non-residential accounts with highest 13.2
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 highest 23.2
Demand billing demand during previous
billing year over 100 to and
including 1,000 kW
----------------------------------------- --------------------------------------- ---------------------
----------------------------------------- --------------------------------------- ---------------------
Over 1,000 to and including 10,000 kW Non-residential accounts with highest 14.9
Demand billing demand during previous
billing year over 1,000 to and
including 10,000 kW
----------------------------------------- --------------------------------------- ---------------------
----------------------------------------- --------------------------------------- ---------------------
Over 10,000 kW Demand Non-residential accounts with highest 4.9
billing demand during previous
billing year over 10,000 kW
----------------------------------------- --------------------------------------- ---------------------
</TABLE>
<PAGE>
(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.
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 10,693
Small commercial and 23,463 24,320 25,313 25,131 26,038 12,693
industrial
Large commercial and 22,917 23,450 23,777 23,896 24,253 11,957
industrial
Public authorities 6,741 6,885 7,158 7,336 7,387 3,580
Electric railroads 405 397 390 424 423 184
---------- ---------- ---------- ---------- ---------- ----------
Total 74,344 76,428 79,941 79,097 80,465 39,107
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Billed Revenues (millions):
Residential $ 2,341 $ 2,274 $ 2,621 $ 2,542 $ 2,574 $ 1,204
Small commercial and 1,963 1,917 2,074 2,114 2,167 1,018
industrial
Large commercial and 1,438 1,381 1,426 1,446 1,475 688
industrial
Public authorities 474 453 487 503 510 241
Electric railroads 27 26 27 29 30 14
---------- ---------- ---------- ---------- ---------- ----------
Gross Total $ 6,243 $ 6,051 $ 6,635 $ 6,634 $ 6,756 $ 3,165
Provisions for
revenue refunds(3) (1,282) (16) (46)
---------- ---------- ---------- ---------- ---------- ----------
Net Total $ 4,961 $ 6,035 $ 6,635 $ 6,634 $ 6,710 $ 3,165
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
83
<PAGE>
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
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 283,764 286,793 288,848 289,803 291,143
industrial
Large commercial and 1,503 1,528 1,539 1,550 1,566
industrial
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>
<TABLE>
<CAPTION>
Average Billed Revenue Per 1993 1994 1995 1996 1997 1998(2)
Kilowatt-Hour:
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Residential 11.21(cent) 10.60(cent) 11.22(cent) 11.36(cent) 11.47(cent) 11.24(cent)
(excluding light bulb
service)
Small commercial and 8.36(cent) 7.88(cent) 8.19(cent) 8.41(cent) 8.32(cent) 8.02(cent)
industrial
Large commercial and 6.27(cent) 5.89(cent) 6.00(cent) 6.05(cent) 6.08(cent) 5.75(cent)
industrial
Public authorities 7.03(cent) 6.57(cent) 6.80(cent) 6.86(cent) 6.90(cent) 6.72(cent)
Electric railroads 6.81(cent) 6.60(cent) 6.90(cent) 7.00(cent) 7.16(cent) 7.38(cent)
</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 $3,277.3 million for the year 1997 and the six months ended June
30, 1998, respectively, and for electricity sales of 79,825 million
kilowatt-hours and 39,773 million kilowatt-hours for the year 1997 and the
six months ended June 30, 1998, respectively.
(2) Data is available for January 1, 1998 through June 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 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
-------------------------------------------------------------- ------------------------------------
-------------------------------------------------------------- ------------------------------------
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
Average Revenue in
Cents Per Kilowatt-Hour
IFC Customer Class For Fully-Bundled Services(1)
-------------------------------------------------------------- ------------------------------------
-------------------------------------------------------------- ------------------------------------
<S> <C>
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.
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.
85
<PAGE>
<TABLE>
<CAPTION>
Annual Forecast Variances
Electricity Sales (millions of 1993 1994 1995 1996 1997(1)
kilowatt-hours):
- ---------------------------------------------- ---------- --------- ---------- ---------- ---------
Residential
<S> <C> <C> <C> <C> <C>
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%
Electricity Sales (millions of
kilowatt-hours):
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%.
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
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<PAGE>
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.
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
87
<PAGE>
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 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.
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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 $1,204
Small commercial and industrial 1,963 1,917 2,074 2,114 2,167 1,018
Large commercial and industrial 1,438 1,381 1,426 1,446 1,475 688
Public authorities 474 453 487 503 510 241
Electric railroads 27 26 27 29 30 14
------------ ------------ ------------ ---------- ------------ -----------
Gross Total $6,243 $6,051 $6,635 $6,634 $6,756 $3,165
Provisions for revenue refunds(3) (1,282) (16) - - (46)
------------ ------------ ------------ ---------- ------------ -----------
Net Total $4,961 $6,035 $6,635 $6,634 $6,710 $3,165
------------ ------------ ------------ ---------- ------------ -----------
------------ ------------ ------------ ---------- ------------ -----------
</TABLE>
Net Write-Offs(4)
(in millions)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998(2)
------------- ------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Residential $21.6 $17.9 $17.8 $28.1 $34.6 $13.0
Small commercial and industrial 7.1 6.0 6.5 9.1 9.7 5.7
Large commercial and industrial 2.0 2.8 1.6 3.0 2.2 1.4
Public authorities 0.0 0.1 0.2 0.2 0.3 0.2
Electric railroads - - - - - -
------------ ------------ ------------ ---------- ------------ -----------
------------ ------------ ------------ ---------- ------------ -----------
Total $30.7 $26.8 $26.1 $40.4 $46.8 $20.3
------------ ------------ ------------ ---------- ------------ -----------
</TABLE>
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 $3,277.3 million for the year 1997 and the six months ended June
30, 1998, respectively, and for electricity sales of 79,825 million
kilowatt-hours and 39,773 million kilowatt-hours for the year 1997 and the
six months ended June 30, 1998, respectively.
(2) Data is available for January 1, 1998 through June 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
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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.
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 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 June 30, 1998.
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
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aggressive collection of deposits on commercial customers, fewer discretionary
deferred payment plans and an increased level of disconnection of service.
Year 2000 Issues
[To be provided by amendment.]
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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.
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 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 or supplement to 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
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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."
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;
provided, however, that 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 shall not act
to excuse any breach of any covenant by the Servicer under the Servicing
Agreement.
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 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 or gross negligence
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 to the Collection Account on the Servicer
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Business Day immediately preceding the tenth day of each month (each such
monthly date, a "Remittance Date"), all IFC Payments received by the Servicer
during the immediately preceding Billing Period (the "Monthly IFC Amount")
unless the Servicer fails to meet the Remittance Conditions, in which case the
Servicer will, within two Servicer Business Days of receipt (each, a "Daily
Remittance Date"), remit all IFC Payments to the 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 standards set forth
above.
Beginning with the Remittance Date following the end of the seventh (7th)
Billing Period after the related Series Issuance Date and on every 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 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
Remittance Date and each 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 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.
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
revenues 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.
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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 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
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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. 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."
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 each Remittance Date, 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 Remittance Date. In
addition, the Servicer will prepare, and the Indenture Trustee
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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 [____________] of each year, beginning [____________, 1999], a statement
as to compliance by the Servicer during the preceding twelve months ended
[____________] 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 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
[____________] of each year, commencing [____________, 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 [____________] (or in the case of the first
such certificate, the period from the Closing Date to [____________, 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 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.
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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 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 Grantee, with the Trust'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
Grantee 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 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
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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.
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
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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 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
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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."
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.
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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.
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
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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.
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
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currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator"), under contract with Euroclear
Clearance System S.C., a Belgian cooperative corporation (the "Cooperative").
All operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the Cooperative. The Cooperative establishes policy for
Euroclear on behalf of Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers and dealers and other
professional financial intermediaries. Indirect access to Euroclear is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation that is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of Euroclear and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific securities to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
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 Income Tax Consequences" herein. CEDEL or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a 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.
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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.
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 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;
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(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;
(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 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
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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 or the Grantee."
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.
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 account for the
Overcollateralization Amount with respect to each Series of Notes (the
"Overcollateralization
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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), which (i) 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, 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 to the Collection Account, on each Remittance Date,
IFC Payments as 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
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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.
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;
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(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 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.
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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.
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 Income
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
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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.
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
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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 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.
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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; (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, then, as the
sole and exclusive remedy for such breach, 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
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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.
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
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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 anytime, and any such change may be applied retroactively. Because
individual circumstances may differ, each prospective purchaser of a Note is
strongly urged to consult its own tax advisor with respect to its particular tax
situation and the particular tax effects of any state, local, non-United States
or other tax laws and possible changes in the tax laws. 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) because neither the
Trust nor the Grantee will elect to be classified as an association taxable as a
corporation for federal income tax purposes, the Notes will be obligations of
ComEd. 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 discussion assumes that, based on such
ruling or tax opinion, 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
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Floating Rate Notes, the Floating Rate Notes will qualify as "variable
rate debt instruments" as defined in Treasury Regulation ss.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 above
(hereinafter,
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"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 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
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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 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.
122
<PAGE>
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 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
123
<PAGE>
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.
124
<PAGE>
ERISA CONSIDERATIONS
ERISA and/or Section 4975 of the Code impose certain requirements on
employee benefit plans and certain other plans and arrangements, including
individual retirement accounts and annuities, Keogh plans and certain collective
investment funds or insurance company general or separate accounts in which such
plans, accounts or arrangements are invested, that are subject to the fiduciary
responsibility and prohibited transaction provisions of ERISA and/or Section
4975 of the Code (collectively, "Plans"), and on persons who are fiduciaries
with respect to Plans, in connection with the investment of assets that are
treated as "plan assets" of any Plan for purposes of applying Title I of ERISA
and Section 4975 of the Code ("Plan Assets"). ERISA imposes on Plan fiduciaries
certain general fiduciary requirements, including those of investment prudence
and diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. Generally, any person who has
discretionary authority or control respecting the management or disposition of
Plan Assets, and any person who provides investment advice with respect to Plan
Assets for a fee or other consideration, is a fiduciary with respect to such
Plan Assets.
ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving Plan Assets and persons who have certain specified relationships to a
Plan or its Plan Assets ("parties in interest" under ERISA and "disqualified
persons" under the Code (collectively, "Parties in Interest")), unless a
statutory or administrative exemption is available. Parties in Interest and Plan
fiduciaries that participate in a prohibited transaction may be subject to
penalties imposed under ERISA and/or excise taxes imposed pursuant to Section
4975 of the Code, unless a statutory or administrative exemption is available.
These prohibited transactions generally are set forth in Section 406 of ERISA
and Section 4975 of the Code.
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 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.
125
<PAGE>
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 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.
126
<PAGE>
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.
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.
127
<PAGE>
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.
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.
128
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
Defined
Defined Term on Page
<S> <C>
1997 Final Regulations..........................................................................................110
Act...............................................................................................................8
Adjustments..................................................................................................16, 54
Administration Agreement.........................................................................................10
Administrator....................................................................................................10
Amendatory Act....................................................................................................8
Amendatory Tariff................................................................................................17
Annual Accountant's Report.......................................................................................87
Applicable Rates.............................................................................................14, 52
Basic Documents.................................................................................................105
Beneficiary Trustee..............................................................................................11
Billing Period...................................................................................................84
Book-Entry Note..................................................................................................24
Business Day.....................................................................................................92
Capital Subaccount..........................................................................................20, 100
Cede.............................................................................................................24
CEDEL............................................................................................................93
CEDEL Participants...............................................................................................94
Class............................................................................................................11
Code.............................................................................................................25
Collection Account...............................................................................................99
ComEd.............................................................................................................8
Cooperative......................................................................................................95
Customers........................................................................................................14
Daily Remittance Date............................................................................................84
Debt Service Billing Requirement.................................................................................54
Debt Service Requirement.........................................................................................54
Definitive Notes.................................................................................................95
Delaware Trustee.................................................................................................11
Depositaries.....................................................................................................93
Downgrade Event..................................................................................................42
DTC...........................................................................................................3, 24
Eligible Institution............................................................................................100
Eligible Investments............................................................................................100
ERISA............................................................................................................25
Euroclear........................................................................................................93
Euroclear Operator...............................................................................................95
Euroclear Participants...........................................................................................94
Event of Default............................................................................................19, 105
Excess Remittance................................................................................................84
Exchange Act......................................................................................................3
Excluded Amounts.............................................................................................15, 53
</TABLE>
129
<PAGE>
<TABLE>
<S> <C>
Exemptions......................................................................................................114
Expected Amortization Schedule...................................................................................18
FDIC............................................................................................................100
FERC.............................................................................................................33
Final Maturity Date..........................................................................................17, 90
Financial Institution...........................................................................................110
Floating Rate Notes..............................................................................................12
Funding Law.......................................................................................................8
General Subaccount...........................................................................................20, 99
Grant Agreement...................................................................................................8
Grantee..........................................................................................................10
ICC...............................................................................................................8
IFC Charges......................................................................................................14
IFC Collections..................................................................................................11
IFC Customer Class...............................................................................................72
IFC Payments.................................................................................................14, 52
IFC Tariff........................................................................................................9
Indenture....................................................................................................11, 90
Indenture Trustee................................................................................................13
Independent Managers.............................................................................................71
Indirect Participant.............................................................................................24
Initial Intangible Transition Property...........................................................................55
Initial TFO......................................................................................................52
Intangible Transition Property...................................................................................14
Lost Revenue Recoveries..........................................................................................84
Monthly IFC Amount...............................................................................................83
Monthly Servicer's Statement.....................................................................................86
Moody's..........................................................................................................39
New Notes....................................................................................................20, 96
Non-United States Noteholder....................................................................................109
Note Collateral..................................................................................................98
Note Interest Rate...............................................................................................90
Noteholders..................................................................................................3, 108
Notes.............................................................................................................8
Operating Expenses...............................................................................................11
Overcollateralization Amount................................................................................21, 100
Overcollateralization Subaccount.............................................................................20, 99
Participants.....................................................................................................24
Parties in Interest.............................................................................................114
Payment Date.....................................................................................................17
Plan Asset Regulations..........................................................................................114
Plan Assets.....................................................................................................114
Plans...........................................................................................................114
PTCE............................................................................................................114
</TABLE>
130
<PAGE>
<TABLE>
<S> <C>
Quarterly Administration Fee....................................................................................102
Quarterly Interest..............................................................................................102
Rating Agency....................................................................................................13
Rating Agency Condition..........................................................................................90
Reconciled Billing Period........................................................................................84
Reconciliation Payment Date..................................................................................16, 54
Record Date......................................................................................................17
Redetermined IFC Payments........................................................................................84
Remittance Conditions............................................................................................39
Remittance Date..................................................................................................83
Remittance Shortfall.............................................................................................84
Remitted IFC Payments............................................................................................84
Reporting Customer Class.........................................................................................72
Required Capital Level......................................................................................21, 101
Required Overcollateralization Level........................................................................21, 101
Reserve Subaccount...........................................................................................20, 99
Rules............................................................................................................94
S&P..............................................................................................................39
Sale Agreement....................................................................................................8
Scheduled Maturity Date......................................................................................17, 90
Scheduled Payment............................................................................................18, 91
Series...........................................................................................................11
Series Issuance Date.........................................................................................22, 83
Servicer.........................................................................................................10
Servicer Business Day............................................................................................77
Servicer Defaults................................................................................................87
Servicing Agreement...............................................................................................9
Servicing Fee....................................................................................................24
Servicing Standard...............................................................................................22
Specified Payments................................................................................................9
State Pledge.....................................................................................................17
Subsequent Intangible Transition Property........................................................................55
Subsequent Transfer Date.........................................................................................55
Successor Servicer...............................................................................................88
Swap Agreement................................................................................................9, 92
Terms and Conditions.............................................................................................95
TIN.............................................................................................................112
Transitional Funding Order...................................................................................13, 52
True-Up Payment Date.........................................................................................16, 54
Trust............................................................................................................11
Trust Agreement..................................................................................................11
UCC..............................................................................................................39
Unicom...........................................................................................................10
United States Noteholder........................................................................................108
Utilities.........................................................................................................8
</TABLE>
131
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
FINANCIAL STATEMENTS:
Report of Independent Public Accountants . . . . . . . . . . . . . . . . .F-2
Statement of Operations. . . . . . . . . . . . . . . . . . . . . . . . . .F-3
Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-4
Statement of Changes in Member's Equity. . . . . . . . . . . . . . . . . .F-5
Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . .F-6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . .F-7
</TABLE>
F-1
<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-2
<PAGE>
COMED FUNDING, LLC
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JULY 21, 1998) TO JULY 31, 1998
<TABLE>
<S> <C>
Revenues $ -
------------
Expenses:
Administration and General $ 16,000
------------
Net Loss $(16,000)
------------
------------
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THIS STATEMENT.
F-3
<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-4
<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-5
<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:
Net Loss $ (16,000)
Net Effect on Cash Flow of Change in Receivables (1,000)
---------------
$ (17,000)
---------------
Cash Flows From Investing Activities:
Equity Contribution in ComEd Transitional Funding Trust $ -
---------------
Cash Flows From Financing Activities:
Equity Contribution from Commonwealth Edison Company $ 17,000
---------------
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-6
<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.
F-7
<PAGE>
COMED FUNDING, LLC
NOTES TO FINANCIAL STATEMENTS (Continued)
(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.
(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.
(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
F-8
<PAGE>
COMED FUNDING, LLC
NOTES TO FINANCIAL STATEMENTS (Concluded)
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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-15
Description of the Intangible Transition Property...... S-19
The Servicer........................................... S-21
Servicing.............................................. S-21
Material United States Federal Tax Consequences........ S-21
Underwriting........................................... S-23
Ratings................................................ S-24
Legal Matters.......................................... S-24
Index of Principal Definitions......................... S-25
Prospectus
Available Information.................................. 2
Reports to Holders..................................... 3
Incorporation of Certain Documents by Reference........ 3
Prospectus Supplement.................................. 3
Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform
Act of 1995............................................ 4
Table of Contents...................................... 5
Prospectus Summary..................................... 8
Risk Factors........................................... 27
Electric Industry Restructuring in Illinois............ 43
Description of the Intangible Transition Property...... 48
Certain Payment, Weighted Average Life and
Yield Considerations................................. 67
The Trust.............................................. 68
The Grantee............................................ 70
The Servicer........................................... 72
Servicing.............................................. 82
Description of the Notes............................... 90
Security for the Notes................................. 98
Material United States Federal Tax Consequences........ 108
ERISA Considerations................................... 114
Use of Proceeds........................................ 116
Plan of Distribution................................... 116
Ratings................................................ 117
Legal Matters.......................................... 117
Experts................................................ 117
Index of Principal Definitions......................... 118
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.
$--------------
COMMONWEALTH EDISON COMPANY
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
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
[UNDERWRITERS]
--------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Insurance and Distribution.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee.......................... $295
Blue sky fees and expenses............................................. *
Printing and engraving expenses........................................ *
Accountants' fees and expenses......................................... *
Trustees' fees and expenses............................................ *
Legal fees and expenses................................................ *
Rating Agency fees..................................................... *
Miscellaneous fees and expenses ....................................... *
----
Total................................................ $ *
----
----
</TABLE>
- ----------
All of the fees, costs and expenses set forth above will be paid by the
Trust.
*To be provided by amendment.
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.
II-1
<PAGE>
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 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
------ -------------------
<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 Form of Trust Agreement.
**4.2 Form of Transitional Funding Trust Note.
**4.3 Form of Indenture.
*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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------ -------------------
<S> <C>
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.
*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.
24.1 Power of Attorney (included on page II-5).
**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>
- ----------
*To be filed by amendment.
**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
II-3
<PAGE>
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, 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 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 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. 1 of the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on this 23rd day of October, 1998.
COMED FUNDING, LLC
By: /s/ Ruth Ann M. Gillis
------------------------------
Ruth Ann M. Gillis, Manager
By: /s/ Patricia L. Kampling
------------------------------
Patricia L. Kampling, Manager
By: /s/ John C. Bukovski
------------------------------
John C. Bukovski, Manager
By: /s/ Andrew L. Stidd
------------------------------
Andrew L. Stidd, Manager
By: /s/ Kevin P. Burns
------------------------------
Kevin P. Burns, Manager
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears above constitutes and appoints Ruth Ann M. Gillis as his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and any Registration Statement filed
pursuant to Rule 462(b) of the Securities Act prepared in connection therewith,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Exhibit Description Number
- ------ ------------------- ----------
<S> <C> <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 Form of Trust Agreement.
**4.2 Form of Transitional Funding Trust Note.
**4.3 Form of Indenture.
*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.
*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.
24.1 Power of Attorney (included on page II-5).
**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>
- ----------
*To be filed by amendment.
**Previously filed.
II-6
<PAGE>
EXHIBIT 3.1
CERTIFICATE
OF FORMATION
AMENDED AND RESTATED CERTIFICATE OF FORMATION
OF
COMED FUNDING, LLC
This Amended and Restated Certificate of Formation of ComEd
Funding, LLC (the "LLC"), dated October 21, 1998, is being duly executed and
filed by Teresa Wilton Harmon, as an authorized person, to amend and restate
the Certificate of Formation of a limited liability company under the
Delaware Limited Liability Company Act (6 Del. C. Section 18-101 ET SEQ.)
(the "Act"). The LLC was originally formed pursuant to a Certificate of
Formation filed July 20, 1998, which Certificate of Formation is hereby
amended and restated in its entirety.
FIRST. The name of the limited liability company is ComEd Funding,
LLC.
SECOND. The address of the registered office of the LLC in the
State of Delaware is c/o The Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
IN WITNESS WHEREOF, the undersigned has executed this Amended and
Restated Certificate of Formation as of the date first above written.
/s/ Teresa Wilton Harmon
---------------------------------------
Teresa Wilton Harmon
Authorized Person
<PAGE>
EXHIBIT 3.2
LIMITED LIABILITY COMPANY
AGREEMENT
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
OF
COMED FUNDING, LLC
A DELAWARE LIMITED LIABILITY COMPANY
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
(this "Agreement") of ComEd Funding, LLC, a Delaware limited liability company
(the "Company"), is made and entered into as of October 21, 1998, by
Commonwealth Edison Company, an Illinois corporation, as the sole member of the
Company (the "Sole Member"). Pursuant to Section 18-201(d) of the Act (as
defined herein) this Agreement shall be effective as of October 21, 1998.
WHEREAS, the Sole Member has caused to be filed a Certificate of
Formation with the Secretary of State of the State of Delaware (the "Secretary")
to organize the Company under and pursuant to the Act (as herein defined) and
has entered into a Limited Liability Company Agreement to set forth certain
rights, powers and interests of the Sole Member and to provide for the
management of the business and operations of the Company;
WHEREAS, in accordance with the Act and in connection with the
filing of an Amended and Restated Certificate of Formation, the Sole Member
desires to enter into this Agreement to amend and restate the terms of the
Limited Liability Company Agreement and to set forth the respective rights,
powers and interests of the Sole Member with respect to the Company and its
Membership Interest therein and to provide for the management of the business
and operations of the Company.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the Sole
Member, intending to be legally bound, hereby agrees as follows:
<PAGE>
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. Except as otherwise herein expressly
provided, the following terms and phrases shall have the meanings as set
forth below:
"ACT" shall mean the Delaware Limited Liability Company
Act, 6 Del. C. Sections 18-101 ET SEQ., as the same may hereafter be amended
from time to time.
"AFFILIATE" shall mean, when used with reference to a
specific Person, any other Person that, directly or indirectly, through one
or more intermediaries, Controls, is Controlled by or is under common Control
with such specific Person.
"AGREEMENT" shall mean this instrument comprising the
Amended and Restated Limited Liability Company Agreement of the Company, as
amended, modified, supplemented or restated from time to time in accordance
with this Agreement.
"BANKRUPTCY" means, with respect to any Person (as defined
in Section 18-101(12) of the Act), if such Person (i) makes an assignment for
the benefit of creditors, (ii) files a voluntary petition in bankruptcy, (iii)
is adjudged a bankrupt or insolvent, or has entered against it an order for
relief, in any bankruptcy or insolvency proceeding, (iv) files a petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law
or regulation, (v) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against it in any
proceeding of this nature, or (vi) seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of the Person or of all or any
substantial part of its properties, or if 120 days after the commencement of any
proceeding against the Person seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law
or regulation, if the proceeding has not been dismissed, or if within 90 days
after the appointment without such Person's consent or acquiescence of a
trustee, receiver or liquidator of such Person or of all or any substantial part
of its properties, the appointment is not vacated or stayed, or within 90 days
after the expiration of any such stay, the appointment is not vacated. The
foregoing definition of "Bankruptcy" is intended to replace and shall supersede
and replace the definition of "Bankruptcy" set forth in Sections 18-101(1) and
18-304 of the Act.
"BASIC DOCUMENTS" shall mean all agreements, instruments
and other documents entered into from time to time by the Company in
connection with the acquisition and sale of intangible transition property
under the Funding Law, and the issuance of transitional funding instruments
by the Company or by any assign of such intangible transition property
including, but not limited to, any Agreement Relating to Grant of Intangible
Transition Property, any Intangible Transition Property Sale Agreement, the
Intangible Transition Property Servicing Agreement, any
2
<PAGE>
Declaration of Trust, the Administration Agreement and all other documents
and certificates delivered in connection therewith.
"BUSINESS DAY" shall mean any day that is not a Saturday,
Sunday or a day on which banking institutions in the State of Illinois or the
State of New York or the Depository Trust Company are authorized or obligated by
law or executive order to close.
"CAPITAL CONTRIBUTION" shall mean, with respect to the Sole
Member, the amount of cash and the initial value of any Contributed Property
(net of liabilities to which such property is subject).
"CERTIFICATE" shall mean the Amended and Restated
Certificate of Formation of the Company filed with the Secretary on October 21,
1998 as described in Section 2.1, and as further amended, modified,
supplemented, or restated from time to time.
"COMPANY" shall have the meaning assigned to such term
in the preamble hereto.
"COMED AFFILIATED GROUP" shall mean the Sole Member,
Unicom Corporation, an Illinois corporation and any Affiliate of such
companies (other than the Company).
"CONTRIBUTED PROPERTY" shall mean any property or other
assets, in such form as may be permitted by the Act, but excluding cash,
contributed or deemed contributed to the Company with respect to the
Membership Interest held by the Sole Member.
"CONTROL" shall mean any of the following: (a) in the
case of a corporation, ownership, directly or through ownership of other
Entities, of at least ten percent (10%) of all the voting stock (exclusive of
stock which is voting only as required by applicable law or in the event of
nonpayment of dividends and pays dividends only on a nonparticipating basis
at a fixed or floating rate); (b) in the case of any other Entity, ownership,
directly or through ownership of other Entities, of at least ten percent
(10%) of all of the beneficial equity interests therein, (calculated by a
method that excludes from equity interests, ownership interests that are
nonvoting (except as required by applicable law or in the event of nonpayment
of dividends or distributions) and pay dividends or distributions only on a
non-participating basis at a fixed or floating rate); (c) in any case, the
ability, whether by the direct or indirect ownership of shares or other
equity interests, by contract or otherwise, to elect a majority of the
directors of a corporation, to select the managing partner of a partnership,
to select a manager of a limited liability company, or otherwise to select,
or have the power to remove and then select, a majority of those Persons
exercising governing authority over an Entity or to exercise governing
authority over an Entity; (d) in the case of a limited partnership, being the
sole general partner, any of the general partners to the extent each has
equal management control and authority, or the managing general partner or
managing general partners thereof; (e) in the case of a limited liability
company that has one or more managers, being a manager; or (f) in the case of
a trust, being trustee thereof or any Person having the right to select any
such trustee.
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"ENTITY" shall mean any general partnership, limited
partnership, limited liability company, corporation, joint venture,
foundation, trust, business trust, real estate investment trust or
association.
"EVENT OF BANKRUPTCY" shall mean, with respect to any
Person, that such Person shall (A) institute proceedings to be adjudicated
bankrupt or insolvent, (B) consent to the institution of bankruptcy or
insolvency proceedings against it, (C) file a petition seeking or consent to
reorganization or relief under any applicable federal or state law relating
to bankruptcy, (D) consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of such Person or
a substantial part of its property, (E) make a general assignment for the
benefit of creditors or (F) admit in writing its inability to pay its debts
generally as they become due.
"FUNDING LAW" shall mean the Electric Utility
Transitional Funding Law of 1997, 220 ILCS 5/18-101 ET SEQ.
"GAAP" shall mean generally accepted accounting
principles in effect in the United States from time to time.
"INDEPENDENT MANAGER" shall mean a natural person who is
familiar with and has experience with asset securitization and is not at the
time of appointment, has not been at any time preceding such appointment and
is not during the term of such appointment (other than as incidental to such
person's role as Independent Manager): (i) a member, stockholder, partner,
director, manager, officer or employee of any member of the ComEd Affiliated
Group; (ii) a customer, supplier or other person who derives more than ten
percent (10%) of its purchases or revenues from its activities with the
Company or any member of the ComEd Affiliated Group; or (iii) a member of the
family of any such member, stockholder, partner, director, manager, officer,
employee, customer or supplier.
"INTANGIBLE TRANSITION PROPERTY" shall have the meaning
specified in Section 2.3.
"MANAGEMENT AGREEMENT" shall mean the agreement of the
members of the Management Committee in the form attached hereto as Exhibit B.
The Management Agreement shall be deemed incorporated into, and part of, this
Agreement.
"MANAGEMENT COMMITTEE" shall mean a committee composed of
not less than three nor more than five individuals, at least two of whom at all
times upon or prior to the acquisition by the Company of Intangible Transition
Property must qualify as an Independent Manager. At all times after the
acquisition by the Company of Intangible Transition Property, the Company shall
be without authority to take the actions specified herein as requiring the vote
or consent of the Management Committee absent the currently effective
appointment of two Independent Managers to the Management Committee.
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"MANAGER" shall mean a member of the Management
Committee.
"MEMBER" shall mean a member of the Company.
"MEMBERSHIP INTEREST" shall mean, with respect to the
Sole Member, the limited liability company interest of the Sole Member in the
Company.
"NET CASH FLOWS" shall mean the excess of revenue over
expenses less any reserves the Management Committee considers appropriate or
necessary for the conduct of business.
"PERSON" shall mean any natural person or Entity.
"SALE AGREEMENTS" shall have the meaning specified in
Section 2.3.
"SECRETARY" shall have the meaning assigned to such term in
the first recital of this Agreement.
"SOLE MEMBER" shall have the meaning assigned to such term
in the preamble hereto.
ARTICLE 2
FORMATION AND BUSINESS OF THE COMPANY
2.1 FORMATION. The Company has been organized as a Delaware
limited liability company under and pursuant to the Act by filing on July 21,
1998 a Certificate of Formation with the Secretary as required by the Act by
Teresa W. Harmon, as an authorized person under the Act and by filing on October
21, 1998 an Amended and Restated Certificate of Formation with the Secretary in
accordance with the Act by Teresa W. Harmon, as an authorized person under the
Act. Upon the filing of the Amended and Restated Certificate of Formation with
the Secretary, Teresa W. Harmon's powers as an authorized person shall cease and
thereafter, the Sole Member shall be the authorized person of the Company. To
the extent that the rights or obligations of the Sole Member are different by
reason of any provision of this Agreement than they would be in the absence of
such provision, this Agreement shall, to the extent permitted by the Act,
control.
2.2 NAME. The name of the Company shall be "ComEd Funding,
LLC." The business of the Company may be conducted under that name or, upon
compliance with applicable laws, any other name that the Sole Member deems
appropriate or advisable. The Sole Member shall cause to be filed any
fictitious name certificates and similar filings, and any amendments thereto
that the Management Committee considers appropriate or advisable.
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2.3 PURPOSE. The purpose for which the Company is formed is
limited solely to:
(a) acquire, own, hold, administer, service or enter into
agreements regarding the receipt and servicing of "intangible transition
property" as such term is defined in the Funding Law as of the date
hereof ("INTANGIBLE TRANSITION PROPERTY"), along with certain other
related assets;
(b) manage, sell, assign, pledge, collect amounts due on or
otherwise deal with the intangible transition property and related assets
to be so acquired in accordance with the terms of the "Sale Agreements"
as defined below;
(c) enter into, perform and comply with one or more sale
agreements, assignment agreements, or other agreements providing for the
sale of the aforementioned intangible transition property and related
assets (collectively, the "SALE AGREEMENTS") and to enter into, perform
and comply with such servicing agreements, interest rate swap agreements,
administration agreements, collection account agreements and other
similar agreements as may be necessary or desirable in connection with
such Sale Agreements;
(d) enter into, perform and comply with one or more
declarations of trust related to the creation of one or more Delaware
business trusts to be formed in connection with the transactions
contemplated by the Sale Agreements and to execute any registration
statement, offering document or related agreements or disclosures related
to the issuance of transitional funding instruments or other instruments
by such trusts; and
(e) engage in any lawful act or activity and to exercise any
powers permitted to limited liability companies formed under the laws of
the State of Delaware that, in either case, are incidental to and
necessary, suitable or convenient for the accomplishment of the above-
mentioned purposes.
The Company shall not engage in any activity other than in connection
with the foregoing or other than as required or authorized by the terms of any
Sale Agreements or other agreement referenced above. The Company shall have all
powers reasonably necessary or convenient to effect the foregoing purposes,
including all powers granted under the Act. The Company, and the Sole Member or
any Manager, including the Independent Managers, on behalf of the Company, may
enter into and perform the Basic Documents and all documents, agreements,
certificates or financing statements contemplated thereby or related thereto,
all without any further act, vote or approval of any Member, Manager or other
person or entity, notwithstanding any other provision of this Agreement, the
Act, or other applicable law, rule or regulation. The authorization set forth
in the preceding sentence shall not be deemed a restriction on the power and
authority of the Sole Member or any Manager, including the Independent Managers,
to enter into other agreements or documents on behalf of the Company.
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2.4 PRINCIPAL OFFICE. The location of the principal place
of business of the Company shall be at such location as shall be selected
from time to time by the Sole Member.
2.5 REGISTERED AGENT AND REGISTERED OFFICE. The registered
agent of the Company shall be the initial registered agent named in the
Certificate or such other Person or Persons as the Sole Member may designate
from time to time in the manner provided by the Act. The registered office
of the Company required by the Act to be maintained in the State of Delaware
shall be the initial registered office named in the Certificate or such other
office (which need not be a place of business of the Company) as the Sole
Member may designate from time to time in the manner provided by the Act.
2.6 SEPARATE EXISTENCE. The Company, and the Sole Member
and the Management Committee on behalf of the Company, shall:
(i) Maintain in full effect its existence, rights and
franchises as a limited liability company under the laws of the State of
Delaware and 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 Agreement and each other
instrument or agreement necessary or appropriate to the proper
administration hereof and to permit and effectuate the undertakings
contemplated hereby.
(ii) Maintain with commercial banking institutions its own
deposit account or accounts separate from those of any Affiliate of the
ComEd Affiliated Group.
(iii) Ensure that, to the extent that it shares the same officers
or other employees with its Sole Member or any Affiliate of the ComEd
Affiliated Group, 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.
(iv) Pay all of its operating expenses incurred by it from the
assets of the Company, and ensure that, to the extent that it jointly
contracts with its Sole Member or any Affiliate of the ComEd Affiliated
Group 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.
(v) Maintain a principal executive and administrative office
through which its business is conducted separate from those of its Sole
Member and any Affiliate of the ComEd Affiliated Group. To the extent
that the Company and its Sole Member or any Affiliate of the ComEd
Affiliated Group 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.
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(vi) Observe all necessary, appropriate and customary
formalities, including, but not limited to, holding all regular and
special Members' meetings, and meetings of the Company's Management
Committee, appropriate to authorize all action on behalf of the Company,
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.
(vii) At all times vest the management of the Company in the
Management Committee and, from and after the entry into any Sale
Agreement and the acquisition of any Intangible Transition Property,
ensure that its Management Committee shall at all times include at least
two Independent Managers.
(viii) Refrain from commingling its assets with those of the Sole
Member or any member of the ComEd Affiliated Group (except as
contemplated by any Sale Agreement and any servicing or administration
agreements entered into in connection therewith).
(ix) Act solely in its own name and through its own authorized
managers and agents, and no Affiliate of the ComEd Affiliated Group shall
be appointed to act as agent of the Company, except as expressly
contemplated by the Basic Documents.
(x) Ensure that no Affiliate of the ComEd Affiliated Group
shall advance funds to the Company, or otherwise guaranty debts of, the
Company, except as provided in the Basic Documents; PROVIDED, HOWEVER,
that any Affiliate of the ComEd Affiliated Group may provide funds to the
Company in connection with the initial capitalization of the Company or
as thereafter permitted by the Basic Documents with any subsequent
capitalization.
(xi) Not enter into any guaranty, or otherwise become liable,
with respect to any obligation of any Affiliate of the ComEd Affiliated
Group and not hold itself out, or permit itself to be held out, as having
agreed to pay or as being liable for the debts of ComEd or any other
member of the ComEd Affiliated Group.
(xii) Comply with all restrictions on its business and operations
as set forth in the Section 2.3.
2.7 LIMITATION ON CERTAIN ACTIVITIES. Notwithstanding any
other provisions of this Agreement, the Company, and the Sole Member or
Management Committee on behalf of the Company, shall not:
(i) engage in any business or activity other than as set forth
in Article 2 hereof;
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(ii) without the affirmative vote of its Sole Member and the
affirmative vote of all of the Managers, initiate any Event of Bankruptcy with
respect to the Company or take any company action in furtherance of any such
Event of Bankruptcy;
(iii) merge or consolidate with any other corporation, company,
or entity or, except to the extent permitted by each Sale Agreement, sell all or
substantially all of its assets or acquire all or substantially all of the
assets or capital stock or other ownership interest of any other corporation,
company or entity;
(iv) incur any indebtedness or assume or guarantee any
indebtedness of any person (other than the indebtedness incurred under the
Sale Agreements); or
(v) to the fullest extent permitted by law, without the
affirmative vote of its Member and the affirmative vote of all Managers,
execute any dissolution, liquidation, or winding up of the Company.
To the fullest extent permitted by applicable law, including without limitation
Section 18-1101(c) of the Act, the fiduciary duty of each Manager, including the
Independent Managers, in respect of any decision on any matter referred to in
this Section 2.7 shall be owed solely to the Company (including its creditors)
and not to the Sole Member or any other holders of equity interest in the
Company as may exist at such time.
2.8 NO STATE LAW PARTNERSHIP. No provisions of this Agreement
(including, without limitation, the provisions of Article 6) shall be deemed or
construed to constitute a partnership (including, without limitation, a limited
partnership) or joint venture, or the Sole Member a partner or joint venturer of
or with any Manager or the Company, for any purposes.
2.9 ADDRESS OF THE SOLE MEMBER. The address of the Sole Member
is set forth on EXHIBIT A, as amended from time to time, attached hereto and
made a part hereof.
ARTICLE 3
TERM
3.1 COMMENCEMENT. The Company's term commenced upon the filing
of the Certificate with the Secretary on July 21, 1998. The existence of the
Company as a separate legal entity shall continue until the cancellation of the
Certificate as provided in the Act.
3.2 CONTINUATION. Notwithstanding any provision of this
Agreement, the Bankruptcy of the Sole Member will not cause the Sole Member to
cease
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to be a Member of the Company, and upon the occurrence of such an event,
the business of the Company shall continue without dissolution. Notwithstanding
any other provision of this Agreement, the Sole Member waives any right it might
have under Section 18-801(b) of the Act to agree in writing to dissolve the
Company upon the occurrence of the Bankruptcy of the Member or the occurrence of
any other event which under the Act would otherwise cause the Sole Member to
cease to be a Member of the Company.
ARTICLE 4
CAPITAL CONTRIBUTIONS
4.1 CAPITAL CONTRIBUTION. The Sole Member has made an initial
capital contribution of $1,000. The Sole Member may be required or shall be
permitted to contribute additional Capital Contributions in cash or property to
the Company on such terms and conditions as may be agreed to by the Sole Member
from time to time. The amounts so contributed by the Sole Member shall be
credited to the Sole Member's capital account, as provided in Section 4.2 below.
The Sole Member shall have a Membership Interest of one hundred percent (100%)
of the Company.
4.2 CAPITAL ACCOUNT. The Company shall establish an individual
Capital Account for the Sole Member.
4.3 NO INTEREST ON OR RETURN OF CAPITAL CONTRIBUTION. The Sole
Member shall not be entitled to interest on its Capital Contribution or Capital
Account. Except as provided herein or by law, the Sole Member shall have no
right to demand or receive the return of its Capital Contribution.
ARTICLE 5
ALLOCATIONS; BOOKS
5.1 ALLOCATIONS OF INCOME AND LOSS.
(a) BOOK ALLOCATIONS. The net income and net loss of the
Company shall be allocated entirely to the Sole Member.
(b) TAX ALLOCATIONS. Because the Company is not making
(and will not make) an election to be treated as an association taxable as a
corporation under Section 301.7701-3(a) of the U.S. Treasury Regulations, and
because the Company is a business entity that has a single owner and is not a
corporation, it shall be disregarded as an entity separate from its owner for
federal income tax purposes under Section 301.7701-3(b)(1) of the U.S. Treasury
Regulations. Accordingly, all items of income, gain, loss, deduction and credit
of the Company for all taxable periods will be treated for federal income tax
purposes, and for state and local income and other tax purposes to the
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extent permitted by applicable law, as realized or incurred directly by the
Sole Member. To the extent not so permitted, all items of income, gain,
loss, deduction and credit of the Company shall be allocated entirely to the
Sole Member.
5.2 BOOKS OF ACCOUNT. At all times during the continuance of
the Company, the Company shall maintain or cause to be maintained full, true,
complete and correct books of account in accordance with GAAP, using the fiscal
year and taxable year of the Sole Member. In addition, the Company shall keep
all records required to be kept pursuant to the Act.
5.3 DISTRIBUTIONS. The Company may distribute all or any
portion of Net Cash Flows to the Sole Member upon the unanimous vote of the
Management Committee; provided that the Management Committee shall not authorize
such distributions more frequently than monthly. Notwithstanding any provision
to the contrary contained in this Agreement, the Company shall not be required
to make a distribution to any Member on account of its interest in the Company
if such distribution would violate Section 18-607 of the Act or any other
applicable law or any Basic Documents.
ARTICLE 6
MANAGEMENT OF THE COMPANY
6.1 MANAGEMENT OF COMPANY. Except as otherwise provided in
this Agreement, the property and business of the Company shall be controlled and
managed by the Management Committee; PROVIDED, however, that except as otherwise
provided in this Agreement, the Sole Member acting alone can bind or execute any
instrument on behalf of the Company, and may sign all checks, drafts, and other
instruments obligating the Company to pay money. Notwithstanding the last
sentence of Section 18-402 of the Act, except as provided in this Agreement, a
Manager may not bind the Company. Prior to the entry into any Sale Agreement
and the acquisition of any Intangible Transition Property, the Sole Member shall
appoint two Independent Managers. In the event that an Independent Manager
withdraws, resigns or is removed as Independent Manager, the Sole Member shall
appoint, as soon as reasonably practicable, a successor Independent Manager.
The Company shall pay the Independent Managers annual fees totaling not less
than $3,500 per year. Each Manager, including each Independent Manager, is
hereby deemed to be a "manager" within the meaning of Section 18-101(10) of the
Act.
6.2 WITHDRAWAL OF MANAGER. Notwithstanding anything herein to
the contrary, no Independent Manager may withdraw or resign as a Manager of the
Company without the consent of the Sole Member.
6.3 DUTIES OF MANAGERS. To the fullest extent permitted by
applicable law, including without limitation Section 18-1101(c) of the Act, the
fiduciary duty of each Manager,
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including the Independent Managers, in respect of any decision on any matter
referred to in Section 2.7 shall be owed solely to the Company (including its
creditors) and not to the Member or any other holders of equity interest in
the Company as may exist at such time. Each Manager shall execute and
deliver the Management Agreement.
6.4 REMOVAL OF MANAGERS. A Manager (including the Independent
Managers) may be removed at any time, with or without cause, upon the written
election of the Sole Member.
6.5 QUORUM: ACTS OF THE MANAGEMENT COMMITTEE. At all meetings
of the Management Committee, a majority of the Managers shall constitute a
quorum for the transaction of business and, except as otherwise provided in any
other provision of this Agreement, the act of a majority of the Managers present
at any meeting at which there is a quorum shall be the act of the Management
Committee. If a quorum shall not be present at any meeting of the Management
Committee, the Managers present at such meeting may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present. Any action required or permitted to be taken at any
meeting of the Management Committee or any committee thereof may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken shall be signed by the
Managers having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting. Unless otherwise
provided in the Agreement, on any matter that is to be voted on by Managers, the
Managers may vote in person or by proxy.
6.6 OFFICERS. The Sole Member may, from time to time as it
deems advisable, appoint officers of the Company (the "Officers") and assign in
writing titles (including, without limitation, President, Vice President,
Secretary, and Treasurer) to any such person. Unless the Sole Member decides
otherwise, if the title is one commonly used for officers of a business
corporation formed under the Delaware General Corporation Law the assignment of
such title shall constitute the delegation to such person of the authorities and
duties that are normally associated with that office. Any delegation pursuant
to this Section 6.6 may be revoked at any time by the Sole Member. The Officers
shall be those individuals listed on Schedule 6.6 from time to time attached
hereto. The Sole Member may revise Schedule 6.6 in its sole discretion at any
time.
ARTICLE 7
DISSOLUTION, LIQUIDATION AND WINDING-UP
7.1 DISSOLUTION. The Company shall be dissolved and its
affairs shall be wound up upon the occurrence of the earliest of the following
events:
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(a) subject to Section 2.7, the election to dissolve the
Company made in writing by the Sole Member and each Manager, including without
limitation the Independent Managers, as permitted by the Basic Documents;
(b) the sale or other disposition of all or
substantially all of the assets of the Company in accordance with the Basic
Documents;
(c) the occurrence of any event that causes the last
remaining Member of the Company to cease to be a Member of the Company unless
the business of the Company is continued without dissolution in a manner
permitted by the Act; or
(d) the entry of a decree of judicial dissolution of the
Company pursuant to Section 18-802 of the Act.
7.2 ACCOUNTING. In the event of the dissolution, liquidation
and winding-up of the Company, a proper accounting shall be made of the Capital
Account of the Sole Member and of the net income or net loss of the Company from
the date of the last previous accounting to the date of dissolution.
7.3 CERTIFICATE OF CANCELLATION. As soon as possible following
the occurrence of any of the events specified in Section 7.1 and the completion
of the winding up of the Company, the person or entity winding up the business
and affairs of the Company shall cause to be executed a Certificate of
Cancellation of the Certificate in such form as shall be prescribed by the
Secretary and file the Certificate of Cancellation of the Certificate as
required by the Act.
7.4 WINDING UP. Upon the occurrence of any event specified in
Section 7.1, the Company shall continue solely for the purpose of winding up its
affairs in an orderly manner, liquidating its assets, and satisfying the claims
of its creditors. The Sole Member shall be responsible for overseeing the
winding up and liquidation of the Company, shall take full account of the
liabilities of the Company and its assets, shall either cause its assets to be
sold or distributed, and if sold as promptly as is consistent with obtaining the
fair market value thereof, shall cause the proceeds therefrom, to the extent
sufficient therefor, to be applied and distributed as provided in Section 7.6.
7.5 ORDER OF PAYMENT OF LIABILITIES UPON DISSOLUTION. After
determining that all known debts and liabilities of the Company, including all
contingent, conditional or unmatured liabilities of the Company, in the process
of winding-up, including, without limitation, debts and liabilities to the Sole
Member in the event it is a creditor of the Company to the extent otherwise
permitted by law, have been paid or adequately provided for, the remaining
assets shall be distributed in cash or in kind to the Sole Member.
7.6 LIMITATIONS ON PAYMENTS MADE IN DISSOLUTION. Except as
otherwise specifically provided in this Agreement, the Sole Member shall only be
entitled to look solely to the
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assets of Company for the return of its positive Capital Account balance and
shall have no recourse for its Capital Contribution and/or share of net
income (upon dissolution or otherwise) against any Manager or the Management
Committee.
7.7 LIMITATION ON LIABILITY. Except as otherwise provided by
the Act, the debts, obligations and liabilities of the Company, whether arising
in contract, tort or otherwise, shall be solely the debts, obligations and
liabilities of the Company, and no Member or Manager shall be obligated
personally for any such debt, obligation or liability of the Company solely by
reason of being a Member or a Manager.
ARTICLE 8
TRANSFER AND ASSIGNMENT
8.1. TRANSFER OF MEMBERSHIP INTERESTS.
(a) The Sole Member may transfer its Membership Interest, but
the transferee shall not be admitted as a Member except in accordance with
SECTION 8.2. Until the transferee is admitted as a Member, the Sole Member
shall continue to be the sole member of the Company and to be entitled to
exercise any rights or powers of a Member of the Company with respect to the
Membership Interest transferred.
(b) Any purported transfer of any Membership Interest in
violation of the provisions of this Agreement shall be wholly void and shall
not effectuate the transfer contemplated thereby. Notwithstanding anything
contained herein to the contrary, the Sole Member may not transfer any
Membership Interest in violation of any provision of this Agreement or in
violation of any applicable Federal or state securities laws.
8.2. ADMISSION OF TRANSFEREE AS MEMBER. A transferee of a
Membership Interest desiring to be admitted as a Member must execute a
counterpart of, or an agreement adopting, this Agreement and shall not be
admitted without the unanimous affirmative vote of the Management Committee,
which vote must include the affirmative vote of the Independent Managers.
Upon admission of the transferee as a Member, the transferee shall have, to
the extent of the Membership Interest transferred, the rights and powers and
shall be subject to the restrictions and liabilities of the Sole Member under
this Agreement and the Act. The transferee shall also be liable, to the
extent of the Membership Interest transferred, for the unfulfilled
obligations, if any, of the transferor Member to make Capital Contributions,
but shall not be obligated for liabilities unknown to the transferee at the
time such transferee was admitted as a Member and that could not be
ascertained from this Agreement. Whether or not the transferee of a
Membership Interest becomes a Member, the Sole Member is not released from
any liability to the Company under this Agreement or the Act.
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ARTICLE 9
GENERAL PROVISIONS
9.1 NOTICES. All notices, offers or other communications
required or permitted to be given pursuant to this Agreement shall be in
writing and may be personally served or sent by United States mail and shall
be deemed to have been given when delivered in person or three business days
after deposit in United States mail, registered or certified, postage
prepaid, and properly addressed, by or to the appropriate party. For
purposes of this Section 9.1, the addresses of the parties hereto shall be as
set forth on EXHIBIT A hereto. The address of any party hereto may be changed
by a notice in writing given in accordance with the provisions of this
Section 9.1.
9.2 CONTROLLING LAW. This Agreement and all questions
relating to its validity, interpretation, performance and enforcement
(including, without limitation, provisions concerning limitations of
actions), shall be governed by and construed in accordance with the laws of
the State of Delaware, notwithstanding any conflict-of-laws doctrines of such
state or other jurisdiction to the contrary.
9.3 EXECUTION OF COUNTERPARTS. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be
an original as against any party whose signature appears thereon, and all of
which shall together constitute one and the same instrument. This Agreement
shall become binding when one or more counterparts hereof, individually or
taken together, shall bear the signatures of all of the parties reflected
hereon as the signatories.
9.4 SEVERABILITY. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that for
any reason any other or others of them may be invalid or unenforceable in
whole or in part.
9.5 ENTIRE AGREEMENT. This Agreement contains the entire
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or
written, except as herein contained.
9.6 AMENDMENTS TO ORGANIZATIONAL DOCUMENTS.
(a) The power to alter, amend or repeal this Agreement shall be
only on the consent of the Sole Member, PROVIDED, that the Company shall not
adopt a new Limited Liability Company Agreement or alter, amend or repeal any
provision of Sections 2.3, 2.6, 2.7, 3.2, 6.2, 7.1, 8.2 , 9.6 and 9.11 of this
Agreement without the unanimous affirmative vote of the Management Committee,
which vote must include the affirmative vote of the Independent Managers.
(b) The Company's power to alter, amend or repeal the Certificate
shall be vested in the Sole Member.
15
<PAGE>
Upon obtaining the approval of any amendment, supplement or restatement as to
the Certificate, the Company shall cause a Certificate of Amendment or
Amended and Restated Certificate to be prepared, executed and filed in
accordance with the Act.
9.7 PARAGRAPH HEADINGS. The paragraph headings in this
Agreement are for convenience and they form no part of this Agreement and
shall not affect its interpretation.
9.8 GENDER, ETC. Words used herein, regardless of the
number and gender specifically used, shall be deemed and construed to include
any other number, singular or plural, and any other gender, masculine,
feminine or neuter, as the context indicates is appropriate. The term
"including" shall mean "including, but not limited to."
9.9 NUMBER OF DAYS. In computing the number of days (other
than Business Days) for purposes of this Agreement, all days shall be
counted, including Saturdays, Sundays and holidays; PROVIDED, HOWEVER, that
if the final day of any time period falls on a Saturday, Sunday or holiday on
which national banks are or may elect to be closed, then the final day shall
be deemed to be the next day which is not a Saturday, Sunday or such holiday.
9.10 ASSURANCES. The Sole Member shall hereafter execute and
deliver such further instruments and do such further acts and things as may
be reasonably required or useful to carry out the intent and purpose of this
Agreement and as are not inconsistent with the terms hereof.
9.11 ENFORCEMENT BY INDEPENDENT MANAGERS. Notwithstanding
any other provision of this Agreement, the Sole Member agrees that this
Agreement, (including without limitation, Sections 2.3, 2.6, 2.7, 3.2, 6.2,
7.1, 8.2, 9.6 and 9.11) constitutes a legal, valid and binding agreement of
the Sole Member, and is enforceable against the Sole Member by the
Independent Managers in accordance with its terms. The Independent Managers
are intended beneficiaries of this Agreement.
ARTICLE 10
INDEMNIFICATION
10.1 INDEMNIFICATION. Subject to Section 10.3 of this Article,
the Company shall, to the fullest extent permitted by law, 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
Company) by reason of the fact that he is or was a manager, officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
manager, director, officer, employee or agent of
16
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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
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
10.2 INDEMNIFICATION FOR SUITS BY OR IN RIGHT OF COMPANY.
Subject to Section 10.3 of this Article, the Company shall, to the fullest
extent permitted by law, indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Company to procure a judgment in its favor by
reason of the fact that he is or was a manager, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a manager,
director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the Company unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
10.3 AUTHORIZATION. Any indemnification under this Article
(unless ordered by a court) shall be made by the Company only as authorized in
the specific case upon a determination that indemnification of the manager,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 10.1 or Section 10.2, of
this Article, as the case may be. Such determination shall be made (i) by
independent legal counsel in a written opinion or (ii) by the Sole Member. To
the extent, however, that a manager, officer, employee or agent of the Company
has been successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case.
10.4 GOOD FAITH. For purposes of any determination under Section
10.3 of this Article, a person shall be deemed to have acted in good faith and
in a manner he/she reasonably believed to be in or not opposed to the best
interests of the Company, or, with respect to any criminal action or proceeding,
to have had no reasonable cause to believe his/her conduct was unlawful, if the
action is based on the records or books of account of the Company or another
enterprise, or on
17
<PAGE>
information supplied to him by the officers of the Company or another
enterprise in the course of their duties, or on the advice of legal counsel
for the Company or another enterprise or on information or records given or
reports made to the Company or another enterprise by an independent certified
public accountant or by an appraiser or other expert selected with reasonable
care by the Company or another enterprise. The term "another enterprise" as
used in this Section 10.4 shall mean any other Company or any partnership,
joint venture, trust or other enterprise of which such person is or was
serving at the request of the Company as a manager, director, officer,
employee or agent. The provisions of this Section 10.4 shall not be deemed
to be exclusive or to limit in any way the circumstances in which a person
may be deemed to have met the applicable standard of conduct set forth in
Sections 10.1 or 10.2 of this Article, as the case may be.
10.5 COURT ACTION. Notwithstanding any contrary determination
in the specific case under Section 10.3 of this Article, and notwithstanding
the absence of any determination thereunder, any manager, officer, employee
or agent may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under
Sections 10.1 and 10.2 of this Article. The basis of such indemnification by
a court shall be a determination by such court that indemnification of the
manager, officer, employee or agent is proper in the circumstances because he
has met the applicable standards of conduct set forth in Section 10.1 and
10.2 of this Article, as the case may be. Notice of any application for
indemnification pursuant to this Section 10.5 shall be given to the Company
promptly upon the filing of such application.
10.6 EXPENSES. Expenses incurred in defending or
investigating a threatened or pending action, suit or proceeding may be paid
by the Company in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the manager,
officer, employee or agent to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Company as
authorized in this Article.
10.7 NON-EXCLUSIVITY. The indemnification and advancement of
expenses provided by or granted pursuant to this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement,
contract, vote or pursuant to the direction (howsoever embodied) of any court
of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Company that indemnification of the persons specified
in Sections 10.1 and 10.2 of this Article shall be made to the fullest extent
permitted by law. The provisions of this Article shall not be deemed to
preclude the indemnification of any person who is not specified in Section
10.1 or 10.2 of this Article but who the Company has the power of obligation
to indemnify under the provisions of the Act, or otherwise.
10.8 INSURANCE. The Company may purchase and maintain
insurance on behalf of any person who is or was a manager, officer, employee
or agent of the Company, or is or was serving at the request of the Company
as a manager, director, officer, employee or agent of another company,
partnership, joint venture, trust or other enterprise against any liability
asserted against him/her and incurred by him/her in any such capacity, or
arising out of his/her status as such, whether or not the
18
<PAGE>
Company would have the power or the obligation to indemnify him/her against
such liability under the provisions of this Article.
10.9 CONSOLIDATION/MERGER. For purposes of this Article,
references to "the Company" shall include, in addition to the resulting
Company, any constituent Company (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had the power and authority to indemnify its managers,
directors, officers, and employees or agents, so that any person who is or
was a manager, director, officer, employee or agent of such constituent
Company, or is or was serving at the request of such constituent Company as a
manager, director, officer, employee or agent of another Company,
partnership, joint venture, trust or other enterprise, shall stand in the
same position under the provisions of this Article with respect to the
resulting or surviving Company as he would have with respect to such
constituent Company if its separate existence had continued.
10.10 HEIRS, EXECUTORS, AND ADMINISTRATORS. The
indemnification and advancement of expenses provided by, or granted pursuant
to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a manager, director,
office, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
[Remainder of page intentionally left blank]
19
<PAGE>
IN WITNESS WHEREOF, the Sole Member hereto has executed this
Agreement or caused this Agreement to be executed on its behalf as of the
date first above written.
COMMONWEALTH EDISON COMPANY
By: /s/ Ruth Ann M. Gillis
----------------------------------------
Name: Ruth Ann M. Gillis
Title: Vice President and Treasurer
20
<PAGE>
SCHEDULE 6.6
OFFICERS
NONE
21
<PAGE>
EXHIBIT A
NOTICE ADDRESS OF SOLE MEMBER
<TABLE>
<CAPTION>
NAME OF MEMBER NOTICE ADDRESS
- -------------- --------------
<S> <C>
Commonwealth Edison Company 10 South Dearborn Street, 37th Floor
Chicago, Illinois 60603
Attn: Treasury Department
</TABLE>
22
<PAGE>
EXHIBIT B
MANAGEMENT AGREEMENT
October __, 1998
ComEd Funding, LLC
c/o Commonwealth Edison Company
10 South Dearborn Street
37th Floor
Chicago, Illinois 60603
Re: Management Agreement --
ComEd Funding, LLC
-----------------------
Ladies and Gentlemen:
For good and valuable consideration, each of the undersigned
persons, who have been designated as members of the management committee of
ComEd Funding, LLC, a Delaware limited liability company (the "Company"), in
accordance with the Amended and Restated Limited Liability Company Agreement
of the Company, dated as of October 21, 1998, as it may be amended or
restated from time to time (the "LLC Agreement"), hereby agree:
1. To accept such person's rights and authority as a member of
the Management Committee (as defined in the LLC Agreement) under the LLC
Agreement and to perform and discharge such person's duties and obligations as a
member of the Management Committee under the LLC Agreement and agrees that such
rights, authority, duties and obligations under the LLC Agreement shall continue
until such person's successor as a member of the Management Committee is
designated or until such person's resignation or removal as a member of the
Management Committee in accordance with the LLC Agreement. A member of the
Management Committee is designated as a "manager" of the Company within the
meaning of the Delaware Limited Liability Company Act.
2. THIS MANAGEMENT AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AND ALL
RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
23
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Management
Agreement as of the day and year first above written.
___________________________________
Name:
__________________________________
Name:
___________________________________
Name:
___________________________________
Name:
___________________________________
Name:
24
<PAGE>
EXHIBIT 5.2
FORM OF LEGAL OPINION
SIDLEY & AUSTIN
One First National Plaza
Chicago, Illinois 60603
[Date]
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 filed, and
Amendment No. 1 thereto to be filed (such Registration Statement, as amended
by said Amendment No. 1 and any subsequent amendments, being referred to
herein as the "REGISTRATION STATEMENT") , by ComEd Funding, LLC ("FUNDING"),
a Delaware limited liability company and the depositor for 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"), relating to the registration of $1,000,000 of
Transitional Funding Trust Notes (the "NOTES") of the Trust to be offered
from time to time as described in the form of the prospectus (the
"PROSPECTUS") included as 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")
pursuant to a Trustee's Issuance Certificate or Series Supplement (as such
terms are defined in the Indenture) dated as of a date prior to the date of
the delivery of the Notes.
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 such records, documents and questions of law, and
satisfied ourselves as to such matters of fact, as we have considered
relevant and necessary as a basis for this opinion. 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 for all matters of Delaware law relevant to our
opinions expressed in this letter.
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
<PAGE>
ComEd Funding, LLC
ComEd Transitional Funding Trust
[Date]
Page 2
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 Trust shall have
been organized as a Delaware business trust entity in accordance with the
provisions of the Delaware Business Trust Act and the Declaration of Trust
for the Trust shall have been executed and delivered by First Union Trust
Company, National Association and the Beneficiary Trustees named therein;
(iv) the Agreement relating to Grant of Intangible Transition Property shall
have been executed and delivered by Commonwealth Edison Company, an Illinois
corporation ("COMED") and Funding; (v) the Intangible Transition Property
Sale Agreement shall have been executed and delivered by the Trust and
Funding; (vi) the Intangible Transition Property Servicing Agreement shall
have been executed and delivered by Funding and ComEd; (vii) the Trust shall
have duly authorized the issuance and sale of the Notes, as contemplated by
the Registration Statement and the Indenture; (viii) 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 or Series
Supplement; (ix) 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
(x) the transactions shall otherwise have been carried out on the basis set
forth in the Registration Statement and in conformity with the
authorizations, approvals, consents or exemptions under the securities laws
of various states and other jurisdictions of the United States and the
authorizations contained in the Order dated July 21, 1998, issued by the
Illinois Commerce Commission in Docket No. 98-0319.
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,
<PAGE>
ComEd Funding, LLC
ComEd Transitional Funding Trust
[Date]
Page 3
<PAGE>
EXHIBIT 8.1
FORM OF LEGAL OPINION
[SIDLEY & AUSTIN LETTERHEAD]
[Date]
Commonwealth Edison Company
Ten South Dearborn Street
37th Floor
Chicago, IL 60603
Ladies and Gentlemen:
Reference is made to Amendment No. 1 to the Registration Statement
on Form S-3 filed with the Securities and Exchange Commission by Commonwealth
Edison Company (the "Company") on October_______ 1998, Registration Number
333-60907, and to the prospectus (the "Prospectus") included in such
Registration Statement relating to the issuance of up to $1,000,000 of
Transitional Funding Trust Notes, Series 1998 (the "Notes").
We are special counsel to the Company in connection with the
issuance of the Notes. The statements in the Prospectus under the heading
"Material United States Federal Tax Consequences," to the extent they
constitute discussion of matters of federal tax law or legal conclusions with
respect thereto, have been prepared or reviewed by us and, in our opinion,
are correct in all material respects. In rendering this opinion, we have
relied without independent investigation on the description of the Notes set
forth in the Prospectus. We hereby consent to the reference to this Firm in
the Prospectus and to the filing of this opinion as an exhibit to the
Registration Statement.
<PAGE>
[Date]
Page 2
We assume no obligation to update or supplement this letter or the
Prospectus 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>
EXHIBIT 23.3
FORM S-3 FILE NO. 333-60907
CONSENT OF WINSTON & STRAWN
We consent to the reference to our firm in the cover page of this
registration statement on Form S-3 and under the caption "Legal Matters."
WINSTON & STRAWN
Chicago, Illinois
October 23, 1998
<PAGE>
EXHIBIT 23.4
FORM S-3 FILE NO. 333-60907
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in
this Form S-3 Registration Statement of our report dated August 3, 1998. We
also hereby consent to all references to our Firm included in this Form S-3
Registration Statement.
ARTHUR ANDERSON LLP
Chicago, Illinois
October 23, 1998
