<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MASSACHUSETTS RRB
SPECIAL PURPOSE TRUST BEC-1
(ISSUER OF SECURITIES)
BEC FUNDING LLC
(DEPOSITOR OF THE TRUST DESCRIBED HEREIN)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF FORMATION)
<TABLE>
<S> <C>
DELAWARE 04-3454484
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
BEC FUNDING LLC
800 BOYLSTON STREET, 35TH FLOOR
BOSTON, MASSACHUSETTS 02199
TELEPHONE: (617) 369-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROBERT J. WEAFER, JR.
BEC FUNDING LLC
800 BOYLSTON STREET, 35TH FLOOR
BOSTON, MASSACHUSETTS 02199
TELEPHONE: (617) 369-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
HEMMIE CHANG, ESQ. STANLEY KELLER, ESQ. ERIC TASHMAN, ESQ.
ROPES & GRAY PALMER & DODGE LLP BROWN & WOOD LLP
ONE INTERNATIONAL PLACE ONE BEACON STREET 555 CALIFORNIA STREET
BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02108 SAN FRANCISCO, CALIFORNIA 94104
(617) 951-7000 (617) 573-0100 (415) 772-1200
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING
TITLE OF SECURITIES TO BE REGISTERED REGISTERED(2) AGGREGATE PRICE PER UNIT PRICE(2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rate Reduction Certificates... $1,000,000 100%(1) $1,000,000
- ---------------------------------------------------------------------------------------------------------------
Notes...... $1,000,000 (2) (2)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------
- --------------------------------------------------------------
AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED REGISTRATION FEE
- --------------------------------------------------------------
<S> <C>
Rate Reduction Certificates... $278
- --------------------------------------------------------------
Notes...... None
- --------------------------------------------------------------
- --------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) No additional consideration will be paid by the purchasers of the Rate
Reduction Certificates for the Notes that secure the Rate Reduction
Certificates.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
Subject to Completion. Dated [ ], 1999.
Prospectus Supplement to Prospectus dated [ ], 1999.
$[ ]
MASSACHUSETTS RRB
SPECIAL PURPOSE TRUST BEC-1
ISSUER OF THE CERTIFICATES
[LIST CLASSES]
BEC FUNDING LLC
ISSUER OF THE NOTES
BOSTON EDISON COMPANY
SELLER AND SERVICER
- --------------------------------------------------------------------------------
Each Certificate represents an interest in the related class of BEC Funding LLC
Notes, which are owned by the Trust.
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN, OR AN OBLIGATION OF, THE
COMMONWEALTH OF MASSACHUSETTS, ANY GOVERNMENTAL AGENCY, AUTHORITY OR
INSTRUMENTALITY OF THE COMMONWEALTH OR BOSTON EDISON COMPANY OR ANY OF ITS
AFFILIATES. NONE OF THESE ENTITIES OR THE TRUST WILL GUARANTEE OR INSURE THE
CERTIFICATES, THE NOTES OR THE PROPERTY SECURING THE NOTES.
SEE "RISK FACTORS" BEGINNING ON PAGE 18 OF THE PROSPECTUS TO READ ABOUT FACTORS
YOU SHOULD CONSIDER BEFORE BUYING THE CERTIFICATES.
The Certificates have no trading market.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING DISCOUNTS PROCEEDS
TO PUBLIC AND COMMISSIONS TO TRUST
--------- ---------------------- --------
<S> <C> <C> <C>
Per Class [ ] Certificate................................ % % %
[Add other classes]
Total.................................................... $ $ $
</TABLE>
The initial public offering price set forth above does not include accrued
interest, if any. Interest on the Certificates will accrue from ,
1999 and must be paid by the purchaser if the Certificates are delivered after
, 1999.
- --------------------------------------------------------------------------------
The underwriters expect to deliver the Certificates through the facilities of
The Depository Trust Company against payment in New York, New York on [ ],
1999.
LEHMAN BROTHERS GOLDMAN, SACHS & CO.
PROSPECTUS SUPPLEMENT DATED [ ], 1999.
- --------------------------------------------------------------------------------
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES NOR IS IT SEEKING AN OFFER
TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
- --------------------------------------------------------------------------------
<PAGE> 3
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk Factors................................................ S-3
Description of the Certificates............................. S-3
Description of the Notes.................................... S-3
Transition Property......................................... S-6
Underwriting................................................ S-7
Ratings..................................................... S-8
PROSPECTUS
Available Information....................................... 2
Reports to Holders.......................................... 2
Incorporation of Documents by Reference..................... 2
Prospectus Summary.......................................... 5
Risk Factors................................................ 18
Energy Deregulation and New Massachusetts
Market Structure.......................................... 27
Description of the Transition Property...................... 29
The Trust................................................... 37
The Agencies................................................ 38
The Note Issuer............................................. 39
The Seller and Servicer..................................... 41
Servicing................................................... 46
Description of the Notes.................................... 53
Description of the Certificates............................. 63
Federal Income Tax Consequences............................. 72
State Taxation.............................................. 77
ERISA Considerations........................................ 77
Use of Proceeds............................................. 79
Plan of Distribution........................................ 80
Legal Matters............................................... 80
</TABLE>
----------------------------
Through and including , 1999 (the 90th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
<PAGE> 4
This prospectus supplement is part of the prospectus and does not contain
all of the information that you should know about this offering. You will find
additional information in the prospectus. You should read both this prospectus
supplement and the prospectus in full before buying the Certificates. The Trust
cannot sell the Certificates to you until you receive both documents.
Neither The Commonwealth of Massachusetts nor any governmental agency,
authority or instrumentality of The Commonwealth nor Boston Edison Company or
any of its affiliates will have any obligation with respect to the Certificates,
the Notes or the property securing the Notes, except as described in the
prospectus.
Neither the full faith and credit nor the taxing power of The Commonwealth
of Massachusetts nor any political subdivision, agency, authority or
instrumentality of The Commonwealth is pledged to the payment of principal of,
or interest on, the Certificates or the Notes, or the payments securing the
Notes. Furthermore, neither The Commonwealth of Massachusetts nor any political
subdivision, agency, authority or instrumentality of The Commonwealth will
appropriate any funds for the payment of any of the Certificates or the Notes.
No dealer, salesperson, or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the securities offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
----------------------------
S-2
<PAGE> 5
RISK FACTORS
You should consider carefully the risks of investing in the Certificates.
The section entitled "Risk Factors," which begins on page 18 of the prospectus,
discusses material risks of investing in the Certificates.
DESCRIPTION OF THE CERTIFICATES
The Trust will issue the Massachusetts RRB Special Purpose Trust BEC-1 Rate
Reduction Certificates in minimum denominations of $1,000 and in integral
multiples of that amount. The Certificates will consist of [ ] classes, in
the initial principal amounts and bearing the interest rates and having the
scheduled final distribution dates and final termination dates set forth below:
<TABLE>
<CAPTION>
SCHEDULED
INITIAL CERTIFICATE FINAL FINAL
PRINCIPAL INTEREST DISTRIBUTION TERMINATION
CLASS AMOUNT RATE DATE DATE
- ----- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
</TABLE>
The scheduled final distribution date for a class of Certificates is the
date by which the Trust expects to distribute in full all interest on and
principal of that class of Certificates. The final termination date for a class
of Certificates is the legal maturity date of that class. The failure to
distribute principal of any class of Certificates in full by the final
termination date for that class is an event of default, and the Certificate
Trustee may, and upon the written direction of the holders of at least a
majority in principal amount of all outstanding Certificates shall, declare the
unpaid principal amount of all outstanding Notes and accrued interest to be due
and payable. See "Description of the Certificates -- Events of Default" in the
prospectus.
DISTRIBUTIONS OF INTEREST
Interest on each class of Certificates will accrue from its issuance date
at the interest rate set forth in the table above. Beginning [October 15, 1999],
the Trust is required to distribute interest semiannually on [October 15 and
April 15] (or, if any distribution date is not a business day, the following
business day) of each year. On each distribution date, the Certificate Trustee
will distribute interest to the extent paid on the related class of Notes to the
holders of each class of Certificates as of the close of business on the record
date. The record date for any distribution of interest on and principal of the
Certificates will be the business day immediately before the distribution date.
Each distribution date will also be a payment date for interest on and principal
of the Notes.
DISTRIBUTIONS OF PRINCIPAL
On each distribution date, the Certificate Trustee will distribute
principal as paid on the related class of Notes to the holders of each class of
Certificates as of the close of business on the record date.
DESCRIPTION OF THE NOTES
BEC Funding LLC (the "Note Issuer") will issue and sell the BEC Funding LLC
Notes to the Trust in exchange for the proceeds from the sale of the
Certificates by the Trust. Each class of Notes secures the payment of the
related class of Certificates and has the same principal balance, interest rate,
amortization schedule and legal maturity date as its related class of
Certificates.
S-3
<PAGE> 6
The Notes will consist of [ ] classes, in the initial principal amounts
and bearing the interest rates and having the scheduled maturity dates and final
maturity dates set forth below:
<TABLE>
<CAPTION>
INITIAL NOTE SCHEDULED FINAL
PRINCIPAL INTEREST MATURITY MATURITY
CLASS AMOUNT RATE DATE DATE
- ----- --------- -------- --------- --------
<S> <C> <C> <C> <C>
</TABLE>
The scheduled maturity date for a class of Notes is the date by which the
Note Issuer expects to distribute in full all interest on and principal of that
class of Notes. The final maturity date for a class of Notes is the legal
maturity date of that class.
INTEREST
Interest on each class of Notes will accrue from its issuance date at the
interest rate set forth above. Beginning [October 15, 1999], the Note Issuer is
required to pay interest semiannually on [October 15 and April 15] (or, if any
payment date is not a business day, the following business day) of each year, to
the persons in whose names the Notes are registered at the close of business on
the record date. The record date will be the business day immediately before the
payment date. The Note Issuer will pay interest on the Notes prior to paying
principal of the Notes. See "Description of the Notes -- Allocations and
Payments" in the prospectus.
On each payment date with respect to the Notes, the Note Issuer will pay
interest as follows:
- if a payment default shall have occurred, any unpaid interest payable on
any prior payment dates, together with interest on any unpaid interest;
and
- accrued interest on the principal balance of the applicable class of
Notes as of the close of business on the preceding payment date, after
giving effect to all payments of principal made on the preceding payment
date.
The Note Trustee will distribute interest pro rata to each class of Notes
based on the outstanding principal amount of that class and the applicable
interest rate. The Note Issuer will calculate interest on the basis of a 360-day
year of twelve 30-day months.
PRINCIPAL
The Note Issuer will pay any principal on each payment date as follows:
(1) to the holders of the [ ] Notes, until the principal balance of
that class has been reduced to zero;
(2) [Add other classes]
The Note Issuer will not, however, pay principal on a payment date on any
class of Notes if making the payment would reduce the principal balance of a
class to an amount lower than that specified in the expected amortization
schedule for that class on that payment date. If an event of default with
respect to the Notes has occurred and is continuing, the Note Trustee may
declare the unpaid principal amount of all outstanding Notes and accrued
interest to be due and payable. Principal will be payable at the Corporate Trust
Office of the Note Trustee in [ ], or at the office or agency of the Note
Trustee maintained in [ ].
S-4
<PAGE> 7
The following expected amortization schedule sets forth the scheduled
outstanding principal balance for each class of Notes on each payment date,
after giving effect to the payments made on the payment date. In preparing the
following table, we have assumed, among other things, that:
- the Certificates are issued on [ ];
- payments on the Certificates are made on each distribution date,
commencing [October 15, 1999];
- the servicing fee equals 0.05 percent of the initial principal amount of
the Notes;
- there are no net earnings on amounts on deposit in the collection
account;
- operating expenses, the administration fee (which will be $[ ]
payable semiannually) and amounts owed to the Note Trustee, the Delaware
Trustee and the Certificate Trustee are in the aggregate $[ ] per
[ ], and these amounts are payable in arrears; and
- payments in respect of the property securing the Notes are received as
expected.
EXPECTED AMORTIZATION SCHEDULE
OUTSTANDING PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PAYMENT CLASS
DATE [ ] TOTAL
------- ------- -------
<S> <C> <C>
</TABLE>
We cannot assure you that the principal balances of the classes of Notes
and the related classes of Certificates will be reduced at the rates indicated
in the table above. The actual rates of reduction in class principal balances
may be slower than those indicated in the table.
COLLECTION ACCOUNT AND SUBACCOUNTS
The Note Trustee will establish a collection account to hold amounts
remitted by the servicer of the property securing the Notes. The collection
account will consist of four subaccounts:
- a general subaccount;
- a reserve subaccount;
- an overcollateralization subaccount; and
- a capital subaccount.
Withdrawals from and deposits to these subaccounts will be made as described
under "Description of the Notes -- Allocations and Payments" in the prospectus.
S-5
<PAGE> 8
OVERCOLLATERALIZATION AMOUNT
The Note Trustee will collect amounts in respect of the property securing
the Notes in excess of that necessary to pay interest on and principal of the
Notes and related fees and expenses, which are intended to enhance the
likelihood that payments on the Notes will be made on a timely basis. These
amounts will fund the required overcollateralization amount. The
overcollateralization amount for the Notes will be $[ ], which is 0.50
percent of the initial principal amount of the Notes. The Note Trustee will
collect the overcollateralization amount ratably over the life of the
Certificates in equal increments of $[ ] and will deposit these amounts
on each payment date into the overcollateralization subaccount as set forth
below:
REQUIRED OVERCOLLATERALIZATION LEVEL SCHEDULE
<TABLE>
<CAPTION>
REQUIRED REQUIRED
PAYMENT OVERCOLLATERALIZATION PAYMENT OVERCOLLATERALIZATION
DATE LEVEL DATE LEVEL
- ------- --------------------- -------- ---------------------
<S> <C> <C> <C>
</TABLE>
OTHER CREDIT ENHANCEMENT
CAPITAL SUBACCOUNT. Before or upon the issuance of the Notes, Boston
Edison Company ("Boston Edison") will contribute capital of $[ ] to the
Note Issuer. This amount is equal to 0.50 percent of the initial principal
amount of the Notes and is the capital level required to be maintained with
respect to the Notes. The Note Trustee will deposit the capital into the capital
subaccount.
RESERVE SUBACCOUNT. The Note Trustee will allocate to the reserve
subaccount any amounts remitted to the collection account in excess of amounts
necessary to:
- pay fees and expenses related to the servicing and retirement of the
Notes and Certificates;
- pay interest on and principal of the Notes;
- fund the capital subaccount to the required capital level; and
- fund the overcollateralization subaccount to the required
overcollateralization level.
The Note Trustee will draw on amounts in the reserve subaccount, to the extent
amounts available in the general subaccount are insufficient to pay the amounts
listed above.
TRANSITION PROPERTY
The Notes are secured primarily by the transition property, which is the
right to receive and collect all revenues arising from the charge established to
recover reimbursable transition costs amounts. This charge, known as the RTC
Charge, is a portion, which may become all, of Boston Edison's transition
charge, which is a usage-based, per kilowatt-hour charge payable by all classes
of retail users of Boston Edison's distribution system within its geographic
service territory as in effect on July 1, 1997.
As of the date of this prospectus supplement, the RTC Charge is expected to
be approximately [ ] cents per kilowatt-hour.
S-6
<PAGE> 9
UNDERWRITING
The Note Issuer, Boston Edison, the Trust and the underwriters for the
offering named below have entered into an underwriting agreement and a pricing
agreement with respect to the Certificates. Subject to conditions in the
underwriting agreement, each underwriter has severally agreed to purchase the
respective principal amount of Certificates indicated in the following table.
<TABLE>
<CAPTION>
NAME CLASS[ ] TOTAL
- ---- -------- -------
<S> <C> <C>
Lehman Brothers Inc. .......................................
Goldman, Sachs & Co. .......................................
</TABLE>
Certificates sold by the underwriters to the public will be initially
offered at the initial public offering prices set forth on the cover of this
prospectus supplement. The Trust has been advised that the underwriters propose
initially to offer the Certificates to dealers at the initial public offering
prices, less a selling concession not to exceed the percentage of the
Certificate denomination set forth below, and that the underwriters may allow
and such dealers may reallow a discount not to exceed the percentage of the
Certificate denomination set forth below:
<TABLE>
<CAPTION>
CLASS SELLING CONCESSION REALLOWANCE DISCOUNT
- ----- ------------------ --------------------
<S> <C> <C>
Class [ ]...................................................
[Add other classes].........................................
</TABLE>
After the initial public offering, the public offering prices, selling
concessions and reallowance discounts may change as a result of market trading.
The Certificates are a new issue of securities with no established trading
market. The Trust has been advised by the underwriters that the underwriters
intend to make a market in the Certificates but are not obligated to do so and
may discontinue market making at any time without notice. No assurance can be
given as to the ability of holders of the Certificates to resell the
Certificates.
In connection with the offering, the underwriters may purchase and sell
Certificates in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater principal
amount of Certificates than they are required to purchase in the offering.
Stabilizing transactions consist of bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the Certificates while
the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because these underwriters have repurchased Certificates
sold by or for the account of an underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the Certificates. As a result, the price of the
Certificates may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These activities may be effected in the
over-the-counter market or otherwise.
The Note Issuer estimates that its share of the total expenses of the
offering, excluding underwriting discounts and commissions, will be
approximately $[ ].
The Note Issuer and Boston Edison have agreed to indemnify the several
underwriters, the Massachusetts Development Finance Agency, the Massachusetts
Health and Educational Facilities Authority and the Trust against certain
liabilities, including liabilities under the Securities Act of 1933.
S-7
<PAGE> 10
RATINGS
[Insert minimum required rating from nationally recognized statistical
rating organizations.] Each nationally recognized statistical rating
organization that rates the Certificates will give each class of Notes the same
rating as the related class of Certificates.
S-8
<PAGE> 11
SUBJECT TO COMPLETION. DATED [ ], 1999.
PROSPECTUS
MASSACHUSETTS RRB
SPECIAL PURPOSE TRUST BEC-1
ISSUER OF THE CERTIFICATES
RATE REDUCTION CERTIFICATES
ISSUABLE IN CLASSES
BEC FUNDING LLC
ISSUER OF THE NOTES
BOSTON EDISON COMPANY
SELLER AND SERVICER
- --------------------------------------------------------------------------------
The Trust may sell one or more classes of Certificates, as described in the
prospectus supplement. Each Certificate represents an interest in the related
class of BEC Funding LLC Notes. The assets of the Trust will consist solely of
the Notes.
SEE "RISK FACTORS" BEGINNING ON PAGE 18 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING THE CERTIFICATES.
The Certificates have no trading market.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
- --------------------------------------------------------------------------------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN, OR AN OBLIGATION OF, THE
COMMONWEALTH OF MASSACHUSETTS, ANY GOVERNMENTAL AGENCY, AUTHORITY OR
INSTRUMENTALITY OF THE COMMONWEALTH OR BOSTON EDISON COMPANY OR ANY OF ITS
AFFILIATES. NONE OF THESE ENTITIES OR THE TRUST WILL GUARANTEE OR INSURE THE
CERTIFICATES, THE NOTES OR THE PROPERTY SECURING THE NOTES.
NEITHER THE COMMONWEALTH OF MASSACHUSETTS NOR ANY GOVERNMENTAL AGENCY, AUTHORITY
OR INSTRUMENTALITY OF THE COMMONWEALTH NOR BOSTON EDISON COMPANY OR ANY OF ITS
AFFILIATES WILL HAVE ANY OBLIGATION WITH RESPECT TO THE CERTIFICATES, THE NOTES
OR THE PROPERTY SECURING THE NOTES, EXCEPT AS DESCRIBED IN THIS PROSPECTUS.
NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE COMMONWEALTH OF
MASSACHUSETTS NOR ANY POLITICAL SUBDIVISION, AGENCY, AUTHORITY OR
INSTRUMENTALITY OF THE COMMONWEALTH IS PLEDGED TO THE PAYMENT OF PRINCIPAL OF,
OR INTEREST ON, THE CERTIFICATES OR THE NOTES, OR THE PAYMENTS SECURING THE
NOTES. FURTHERMORE, NEITHER THE COMMONWEALTH OF MASSACHUSETTS NOR ANY POLITICAL
SUBDIVISION, AGENCY, AUTHORITY OR INSTRUMENTALITY OF THE COMMONWEALTH WILL
APPROPRIATE ANY FUNDS FOR THE PAYMENT OF ANY OF THE CERTIFICATES OR NOTES.
THE TRUST CANNOT SELL THE CERTIFICATES TO YOU UNTIL YOU RECEIVE BOTH THIS
PROSPECTUS AND THE PROSPECTUS SUPPLEMENT.
[ ]
- --------------------------------------------------------------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES NOR IS IT SEEKING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
- --------------------------------------------------------------------------------
<PAGE> 12
AVAILABLE INFORMATION
BEC Funding LLC (the "Note Issuer") has filed a registration statement
relating to the Certificates and the Notes with the Securities and Exchange
Commission. This prospectus is a part of the registration statement. This
prospectus, together with the prospectus supplement, describes the material
terms of each material document filed as an exhibit to the registration
statement. This prospectus and the prospectus supplement do not, however,
contain all of the information contained in the registration statement and
related exhibits. You can inspect the registration statement and the related
exhibits 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. You
may obtain copies of the registration statement and related exhibits at the
above locations at prescribed rates. You may obtain information on the operation
of the public reference facilities by calling the Commission at 1-800-SEC-0330.
You can also inspect information filed electronically with the Commission,
including reports and proxy and information statements, at the Commission's site
on the World Wide Web at http://www.sec.gov.
The Note Issuer will file annual, quarterly and special reports and other
information with the Securities and Exchange Commission. The Note Issuer may
stop filing periodic reports with the Commission at the beginning of any fiscal
year following the issuance of the Certificates if there are fewer than 300
holders of the Certificates.
REPORTS TO HOLDERS
During any period when the Trust issues the Certificates in book-entry
form, Boston Edison Company, acting as the servicer of the property securing the
Notes, or a successor servicer, will provide periodic reports concerning the
Certificates. You may obtain copies of the periodic reports upon request from
your broker or dealer. If you are the registered holder of the Certificates, you
will receive the reports from the Certificate Trustee. See "Description of the
Notes -- Reports to Noteholders" and "Description of the Certificates -- Reports
to Certificateholders."
INCORPORATION OF DOCUMENTS BY REFERENCE
All reports and other documents filed by the Note Issuer with the
Securities and Exchange Commission after the date of this prospectus and prior
to the termination of this offering will be incorporated by reference in this
prospectus and considered to be part of this prospectus. Any statement in this
prospectus or in the prospectus supplement, or in a document incorporated or
deemed to be incorporated by reference, will be deemed to be modified or
superseded if the Note Issuer files a document that modifies that statement. Any
statement as modified or superseded shall constitute a part of this prospectus
or the prospectus supplement.
You can request from the Note Issuer a free copy of any document
incorporated by reference in the registration statement (except exhibits) by
writing to BEC Funding LLC at 800 Boylston Street, 35th Floor, Boston
Massachusetts 02199, or by calling (617) 369-6000.
2
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
AVAILABLE INFORMATION................. 2
REPORTS TO HOLDERS.................... 2
INCORPORATION OF DOCUMENTS BY
REFERENCE........................... 2
PROSPECTUS SUMMARY.................... 5
RISK FACTORS.......................... 18
ENERGY DEREGULATION AND NEW
MASSACHUSETTS MARKET STRUCTURE...... 27
Statutory Overview.................. 27
Settlement Agreement................ 27
Exit Charge......................... 28
Reconciliation...................... 28
Third Party Billing Options......... 29
Federal Initiatives................. 29
DESCRIPTION OF THE TRANSITION
PROPERTY............................ 29
Financing Order and Issuance Advice
Letter........................... 29
Transition Property................. 30
Transition Charge................... 30
Adjustments to the RTC Charge....... 32
Pledge by The Commonwealth of
Massachusetts.................... 33
Sale and Assignment of Transition
Property......................... 33
Seller Representations and
Warranties and Repurchase
Obligation....................... 33
Bankruptcy and Creditors' Rights
Issues........................... 36
THE TRUST............................. 37
THE AGENCIES.......................... 38
THE NOTE ISSUER....................... 39
Officers and Directors.............. 39
THE SELLER AND SERVICER............... 41
Boston Edison Revenues, Customer
Base and Energy Consumption...... 41
Estimated Consumption and Estimated
Variance......................... 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Billing and Collections............. 43
Year 2000 Computer Issue............ 45
SERVICING............................. 46
Servicing Procedures................ 46
Servicing Standards and Covenants... 46
Remittances to Collection Account... 47
Servicing Compensation.............. 47
Third Party Suppliers............... 47
Servicer Representations and
Warranties....................... 48
Statements by Servicer.............. 49
Evidence as to Compliance........... 50
Matters Regarding the Servicer...... 50
Servicer Defaults................... 51
Rights Upon Servicer Default........ 51
Waiver of Past Defaults............. 52
Successor Servicer.................. 52
Amendment........................... 52
DESCRIPTION OF THE NOTES.............. 53
Security............................ 53
Collection Account.................. 53
Interest and Principal.............. 54
Optional Redemption................. 55
Mandatory Redemption................ 55
Overcollateralization Subaccount.... 55
Capital Subaccount.................. 56
Reserve Subaccount.................. 56
Allocations and Payments............ 56
Actions by Noteholders.............. 58
Note Events of Default; Rights Upon
Note Event Of Default............ 58
Covenants of the Note Issuer........ 60
Reports to Noteholders.............. 62
Annual Compliance Statement......... 62
DESCRIPTION OF THE CERTIFICATES....... 63
</TABLE>
3
<PAGE> 14
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Payments and Distributions.......... 63
Voting of the Certificates.......... 64
Events of Default................... 65
Redemption.......................... 67
Reports to Certificateholders....... 67
Supplemental Certificate
Indentures....................... 67
List of Certificateholders.......... 68
Registration and Transfer of the
Certificates..................... 68
Book-Entry Registration and
Definitive Certificates.......... 68
FEDERAL INCOME TAX CONSEQUENCES....... 72
General............................. 72
Treatment of the Certificates....... 73
Taxation of U.S.
Certificateholders............... 73
Sale or Other Taxable Disposition of
Certificates..................... 75
Non-U.S. Certificateholders......... 75
Information Reporting and Backup
Withholding...................... 76
STATE TAXATION........................ 77
</TABLE>
<TABLE>
<CAPTION>
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ERISA CONSIDERATIONS.................. 77
USE OF PROCEEDS....................... 79
PLAN OF DISTRIBUTION.................. 80
LEGAL MATTERS......................... 80
</TABLE>
4
<PAGE> 15
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. Because this
is a summary, it does not contain all of the information that may be important
to you. You should read both this prospectus and the prospectus supplement
before you buy the Certificates.
Transaction Overview............ Massachusetts law permits electric
companies, such as Boston Edison Company
("Boston Edison"), to recover the costs of
investments and obligations that cannot be
recouped through market-based rates in a
competitive electricity generation market.
These costs are known as "transition costs."
An electric company recovers transition
costs through a charge called a "transition
charge" that is assessed on the company's
ratepayers. Massachusetts law permits
special purpose entities formed by electric
companies to issue securities secured by the
right to receive a portion, which may become
all, of the revenues arising from the
transition charge, if doing so would save
money for the electric company's ratepayers.
Boston Edison will sell the "transition
property" to the Note Issuer in exchange for
the proceeds from the sale of the Notes. The
transition property is the right to revenues
arising from a portion, which may become
all, of the transition charge included in
the bills of all classes of retail users of
Boston Edison's distribution system within
its geographic service territory as in
effect on July 1, 1997 (the "Customers").
See "Description of the Transition
Property."
The Note Issuer will sell the Notes to the
Trust in exchange for the proceeds from the
sale of the Certificates. The Trust, whose
sole assets are the Notes, will sell the
Certificates to the underwriters named in
the prospectus supplement.
Each class of Certificates represents an
undivided beneficial interest in the related
class of Notes and the proceeds of the
Notes.
The Notes will be secured primarily by the
transition property.
5
<PAGE> 16
- -------------------------------------------------------------------------------
The following diagram shows the parties to the transactions related to this
offering and summarizes their roles and their relationships to each other:
[The omitted graphic reflects the various
parties to the transaction, their
roles and their contractual relationships
to various other parties.]
- -------------------------------------------------------------------------------
6
<PAGE> 17
- -------------------------------------------------------------------------------
Risk Factors.................... You should consider, among other things, the
following material risks of investing in the
Certificates. These risks may delay the
distribution of interest on and principal of
the Certificates or cause you to suffer a
loss on your investment.
- Payments on the Notes are the sole source
of distributions on the Certificates.
- There may be challenges that attempt to
limit, alter or amend either the
Massachusetts Department of
Telecommunications and Energy's order
creating the transition property or the
provisions of Chapter 164 of the
Massachusetts Acts of 1997 that make the
order irrevocable.
- Revenues from the transition property may
not be sufficient to pay required
distributions on the Certificates if the
servicer of the transition property
inaccurately forecasts electricity
consumption or underestimates
delinquencies or charge-offs.
- The charge assessed to ratepayers to
collect amounts sufficient to pay required
distributions on the Certificates may not
exceed Boston Edison's transition charge
then in effect.
- If there is an event of default on the
Notes and the Certificates, the Note
Trustee is unlikely to be able to resell
the transition property.
- If Boston Edison were to cease servicing
the transition property, it may be
difficult to find a suitable successor
servicer.
- If Boston Edison were to become a debtor
in a bankruptcy case, a court may hold
that the transition property is Boston
Edison's property and may be reached by
its creditors.
For a more detailed discussion of the
material risks of investing in the
Certificates, you should carefully read the
discussion under "Risk Factors," which
begins on page 18.
Seller and Servicer............. Boston Edison will sell the transition
property to the Note Issuer. In its capacity
as the seller of the transition property, we
refer to Boston Edison as the "Seller."
Boston Edison will also act as the initial
servicer of the transition property. In its
capacity as the
- -------------------------------------------------------------------------------
7
<PAGE> 18
- -------------------------------------------------------------------------------
servicer of the transition property, we
refer to Boston Edison as the "Servicer."
Boston Edison is a an electric company that
primarily distributes electric energy to
retail customers in the City of Boston and
39 surrounding cities and towns.
See "The Seller and Servicer."
Issuer of Certificates.......... Massachusetts RRB Special Purpose Trust
BEC-1.
The Massachusetts Development Finance Agency
and the Massachusetts Health and Educational
Facilities Authority have formed the Trust.
The Trust is not an agency, authority or
instrumentality of The Commonwealth of
Massachusetts. See "The Trust."
Agencies........................ The Massachusetts Development Finance Agency
and the Massachusetts Health and Educational
Facilities Authority. See "The Agencies."
Certificate Trustee............. [ ].
Delaware Trustee................ [ ].
The Certificates................ Massachusetts RRB Special Purpose Trust
BEC-1 Rate Reduction Certificates.
The Trust may issue the Certificates in one
or more classes under the Certificate
Indenture between the Trust and the
Certificate Trustee. Each class of
Certificates will represent fractional
undivided beneficial interests in the
related class of Notes and the proceeds of
that class of Notes. Holders of each class
of Certificates will receive payments
received by the Trust on the related class
of Notes. These payments will be the only
source of distributions on a class of
Certificates. The Notes will be secured
primarily by the transition property owned
by the Note Issuer.
The Certificates may include two or more
classes that differ as to their interest
rate and the timing, priority and amount of
distributions of interest or principal or
other terms. All Certificates of the same
class will be identical in all respects
except for their denominations.
The Notes....................... BEC Funding LLC Notes.
Each class of Notes and the related class of
Certificates will have the same aggregate
principal
- -------------------------------------------------------------------------------
8
<PAGE> 19
- -------------------------------------------------------------------------------
amount and interest rate, as described in
the prospectus supplement.
See "Description of the Notes."
Note Issuer..................... BEC Funding LLC.
The assets of the Note Issuer will consist
primarily of the transition property.
Note Trustee.................... [ ].
Transition Costs................ Chapter 164 of the Massachusetts Acts of
1997 (the "Statute") seeks to deregulate and
create competition in the power generation
portion of the Massachusetts electric
industry and, possibly in the future, in the
distribution of electricity. The Statute
contemplates that customers of an electric
company may contract with third party
suppliers of electricity. Because of the
creation of a newly-competitive electricity
generation market, Boston Edison and other
Massachusetts electric companies may not be
able to recover all the costs of their
investments and obligations. Third party
suppliers of electricity may be able to
offer electricity at lower rates and
therefore effectively prevent Boston Edison
from recovering these transition costs
through market-based rates assessed to
ratepayers.
RTC Charge...................... Boston Edison has obtained from the
Massachusetts Department of
Telecommunications and Energy, which
regulates electric companies in
Massachusetts, an order designating the
transition costs and approving the costs of
issuing, servicing and retiring the Notes
and the Certificates to be financed through
this transaction. This order is known as a
"financing order." To enable Boston Edison
to recover its transition costs and
associated costs, the financing order
authorizes the use of a portion, which may
be adjusted to be all, of Boston Edison's
transition charge to recover reimbursable
transition costs amounts as specified in the
financing order (the "RTC Charge").
The RTC Charge is nonbypassable in that
Customers must pay it whether or not they
purchase electricity from Boston Edison or a
third party supplier of electricity, and
whether or not their distribution system is
being operated by Boston Edison or a
successor distribution company.
The financing order requires Boston Edison
to submit a notification letter, which is
referred to as
- -------------------------------------------------------------------------------
9
<PAGE> 20
an issuance advice letter, before closing
the sale. The issuance advice letter will
establish the initial RTC Charge. See
"Description of the Transition
Property -- Financing Order and Issuance
Advice Letter."
Transition Property............. The transition property is a property right
created under Massachusetts law that is the
right to receive and collect all revenues
arising from the RTC Charge.
Adjustments to the RTC Charge... The Servicer will calculate and set the RTC
Charge at least annually at a level
estimated to generate sufficient revenues:
- to pay fees and expenses related to the
servicing and retirement of the Notes and
Certificates;
- to pay interest on the Notes;
- to pay principal of each class of Notes
according to its expected amortization
schedule; and
- to fund the overcollateralization
subaccount to the required
overcollateralization level and to
replenish the capital subaccount to the
required capital level.
Adjustments to the RTC Charge are limited by
Boston Edison's maximum permitted transition
charge. The transition charge may not exceed
3.35 cents/kilowatt-hour or, subject to
further action by the Massachusetts
Department of Telecommunications and Energy,
such lesser maximum transition charge that
would permit Boston Edison to meet the
inflation adjusted rate reduction for its
retail customers required by the Statute.
Upon the issuance of the Certificates,
Boston Edison's transition charge is
expected to be[ ] cents/kilowatt-hour.
This includes a projected RTC Charge of
[ ] cents/kilowatt-hour.
The Servicer will base adjustments to the
RTC Charge upon updated assumptions as to
various factors, including electricity usage
by Customers and the rate of delinquencies
and charge-offs. These adjustments will
continue until interest on and principal of
all classes of Notes and related classes of
Certificates have been paid or distributed
in full. See "Description of the Transition
Property -- Adjustments to the RTC Charge."
The Servicer will file a request referred to
as a true-up advice letter, annually before
the anniversary date of the financing order,
for an increase or
10
<PAGE> 21
decrease in the RTC Charge. The Servicer may
also file true-up advice letters more
frequently at its option to adjust the RTC
Charge. In addition, the Servicer may file a
non-routine true-up advice letter to revise
its method for calculating the RTC Charge.
See "Description of the Transition
Property -- Adjustments to the RTC Charge."
Commonwealth Pledge............. The Commonwealth of Massachusetts has
pledged and agreed with the Note Issuer, the
Trust and the Certificateholders that it
will not alter the provisions of the Statute
that make the RTC Charge irrevocable and
binding or limit or alter the transition
property or the financing order until the
Certificates are fully paid and discharged.
Issuance of New Certificates by
a Separate Trust................ A separate trust may issue new certificates,
secured by related notes that are in turn
secured by the right to receive the
remaining portion of Boston Edison's
transition charge. Additional issuances of
certificates may adversely affect the
Certificates, because if collections of the
transition charge are not sufficient to pay
interest on and principal of all outstanding
certificates, the Certificates will share
collections of the transition charge with
the new certificates. As a result, the
Certificates will only receive their pro
rata portion of the collections, based on
the RTC Charge attributable to the related
notes. If new certificates were not sold,
the Certificates would be able to collect
more of Boston Edison's transition charge
through periodic adjustments of the RTC
Charge. The Seller has covenanted in the
transition property sale agreement not to
sell other transition property to secure
another issuance of notes and, in turn,
certificates if it would cause the then
existing ratings on the Certificates to be
downgraded.
Interest........................ Interest on each class of Certificates will
accrue at the interest rate specified in the
prospectus supplement. The Certificate
Trustee will distribute interest accrued on
each class of Certificates on each
distribution date, to the extent of interest
paid on the related class of Notes.
Principal....................... The Certificate Trustee will distribute
principal of each class of Certificates in
the amounts and on the distribution dates
specified in the prospectus supplement, but
only to the extent of principal paid on the
related class of Notes. See "Description of
11
<PAGE> 22
the Notes -- Allocations and Payments" and
"Description of the Certificates -- Payments
and Distributions." The prospectus
supplement will set forth a schedule of the
expected amortization of principal of each
class of Certificates.
On any payment date, the Note Issuer will
pay principal of the Notes only until the
outstanding principal balances of the
various classes of Notes have been reduced
to the principal balances specified for such
classes in the expected amortization
schedule. If cash is not available, however,
the Certificate Trustee will pay principal
of a class of Certificates later than set
forth in the expected amortization schedule.
If an event of default under the Certificate
Indenture has occurred and is continuing
with respect to any class of Certificates,
the Certificate Trustee may, and upon the
written direction of the holders of at least
a majority in principal amount of the
outstanding Certificates will, declare the
unpaid principal amount of the outstanding
Notes and accrued interest to be due and
payable. See "Description of the
Certificates -- Events of Default."
Optional Redemption............. The Note Issuer may redeem the Notes and
cause the Trust to redeem the Certificates
on any payment date if the outstanding
principal balance of the Notes (after giving
effect to payments that would otherwise be
made on a payment date) is less than five
percent of the initial principal balance of
the Notes. See "Description of the
Certificates -- Redemption."
Mandatory Redemption............ If the Seller is required to, or elects to,
repurchase the transition property under the
circumstances described under "Description
of the Transition Property -- Seller
Representations and Warranties and
Repurchase Obligation," the Note Issuer will
be required to redeem the Notes on or before
the fifth business day following the date of
repurchase and the Trust will be required to
redeem the Certificates on the same day.
Collection Account and
Subaccounts................... The Note Issuer will establish a collection
account to hold payments in respect of the
RTC Charge. The collection account will
consist of four subaccounts:
- a general subaccount;
- a reserve subaccount;
12
<PAGE> 23
- --------------------------------------------------------------------------------
- an overcollateralization subaccount for
the overcollateralization amount; and
- a capital subaccount for capital
contributions to the Note Issuer.
All amounts in the collection account not
allocated to any other subaccount will be
allocated to the general subaccount.
Withdrawals from and deposits to these
subaccounts will be made as described under
"Description of the Notes -- Allocations and
Payments."
Overcollateralization
Subaccount.................... The Note Trustee will collect the
overcollateralization amount specified in
the prospectus supplement to enhance the
likelihood that payments on the Notes will
be made on a timely basis.
The Note Trustee will hold the
overcollateralization amount for all classes
of Certificates in the overcollateralization
subaccount. The overcollateralization amount
will be available to pay any periodic
shortfalls in amounts available to pay the
fees and expenses of servicing and retiring
the Notes and the Certificates and to make
scheduled payments on the Notes after
withdrawals from the general subaccount and
reserve subaccount.
Capital Subaccount.............. Prior to or upon the issuance of the Notes,
Boston Edison will contribute capital to the
Note Issuer in the amount specified in the
prospectus supplement. The Note Issuer will
deposit the capital into the capital
subaccount. The Note Trustee will draw on
amounts in the capital subaccount to the
extent amounts available in the general
subaccount, the reserve subaccount and the
overcollateralization subaccount are
insufficient to pay the fees and expenses of
servicing and retiring the Notes and the
Certificates and to make scheduled payments
on the Notes. If the Note Trustee uses
amounts on deposit in the capital
subaccount, on subsequent payment dates the
capital subaccount will be replenished to
the extent the Servicer remits RTC Charge
amounts in excess of amounts required to pay
amounts having a higher priority of payment.
See "Description of the Notes -- Allocations
and Payments."
Reserve Subaccount.............. The Note Trustee will allocate to the
reserve subaccount any amounts remitted to
the collection account in excess of amounts
necessary to:
- --------------------------------------------------------------------------------
13
<PAGE> 24
- --------------------------------------------------------------------------------
- pay fees and expenses related to the
servicing and retirement of the Notes and
Certificates;
- pay interest on and principal of the
Notes;
- fund the capital subaccount to the
required capital level; and
- fund the overcollateralization subaccount
to the required overcollateralization
level.
The Note Trustee will draw on amounts in the
reserve subaccount, to the extent amounts
available in the general subaccount are
insufficient to pay the amounts listed
above.
Collections; Allocations;
Distributions................. Starting with the first deemed collection
date after the closing, the Servicer will
remit daily to the collection account an
amount equal to the actual RTC Charges
billed, less an allowance for estimated
charge-offs, within [ ] business days after
the day payments in respect of the RTC
Charge are deemed to be collected. See
"Servicing -- Remittances to Collection
Account."
On each payment date, or for any amount
payable under clauses (1) through (4) below,
on any business day, the Note Trustee will
allocate amounts in the collection account,
including net earnings on these amounts
(other than on amounts in the capital
subaccount), to the following:
(1) all amounts owed by the Note Issuer or
the Trust to the Note Trustee, the
Delaware Trustee and the Certificate
Trustee will be paid;
(2) the servicing fee and all unpaid
servicing fees from any prior payment
dates will be paid to the Servicer;
(3) the administration fee and all unpaid
administration fees from any prior
payment dates will be paid to the Note
Issuer's administrator;
(4) so long as no event of default has
occurred or would be caused by payment,
all other fees, expenses and
indemnities payable by the Note Issuer
will be paid to the persons entitled
thereto, provided that the total amount
paid since the previous payment date
- --------------------------------------------------------------------------------
14
<PAGE> 25
- --------------------------------------------------------------------------------
and on the current payment date may not, in the aggregate, exceed
$[ ];
(5) first, any overdue semiannual interest
and second, semiannual interest will be
transferred to the Certificate Trustee,
as Noteholder, for distribution to the
Certificateholders;
(6) first, funds necessary to pay any
principal in default or on the final
maturity date of a class of Notes and
second, principal based on priorities
described in the prospectus supplement
will be transferred to the Certificate
Trustee, as Noteholder, for
distribution to the applicable
Certificateholders according to the
expected amortization schedule for each
class;
(7) unpaid operating expenses and
indemnities payable by the Note Issuer
will be paid to the persons entitled
thereto;
(8) allocate to the capital subaccount the
amount, if any, by which the capital
subaccount needs to be funded to equal
the required capital level as of a
payment date;
(9) allocate to the overcollateralization
subaccount the amount, if any, by which
the overcollateralization subaccount
needs to be funded to equal the
required overcollateralization level as
of a payment date;
(10) the balance, if any, will be allocated
to the reserve subaccount for
distribution on subsequent payment
dates; and
(11) following the repayment of all Notes
and Certificates, the balance, if any,
will be released to the Note Issuer.
If on any payment date, or for any amounts
payable under clauses (1) through (4) above,
on any business day, funds on deposit in the
general subaccount are insufficient to make
the transfers contemplated by clauses (1)
through (7) above, the Note Trustee will
first, draw from amounts on deposit in the
reserve subaccount, second, draw from
amounts on deposit in the
overcollateralization subaccount and third,
draw from amounts on deposit in the capital
subaccount, up to the amount of the
shortfall, in order to make the transfers
- --------------------------------------------------------------------------------
15
<PAGE> 26
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 (8) and (9)
above, the Note Trustee will draw from
amounts on deposit in the reserve subaccount
to make the required transfers. See
"Description of the Notes--Allocations and
Payments."
The following diagram provides a general summary of the flow of funds from
the Customers through the Servicer to the collection account, and the various
allocations from the collection account:
[The omitted graphic depicts the flow of funds
from the Customers through the Servicer to the collection
account, and the various allocations from the collection account.]
16
<PAGE> 27
- --------------------------------------------------------------------------------
Servicing....................... The Servicer will service and manage the
transition property and receive payments in
respect of the RTC Charge in the same manner
that it services bill collections for its
own account and the accounts it services for
others, if any.
Servicing Compensation.......... The Servicer will be entitled to receive an
annual servicing fee in an amount equal to:
- 0.05 percent of the initial principal
balance of the Notes for so long as the
Servicer bills the RTC Charge concurrently
with other charges for services; or
- up to 1.25 percent of the initial
principal balance of the Notes if the RTC
Charge is being billed separately to
Customers.
The Note Trustee will pay the servicing fee
semiannually on each payment date.
Tax Status of the
Certificates.................... The Seller has received a ruling from the
Internal Revenue Service holding that the
Notes are obligations of the Seller for
federal income tax purposes. For federal
income tax purposes, the Trust will be
treated as a "grantor trust", and thus not
taxable as a corporation, and each class of
Certificates will be treated as representing
ownership of a fractional undivided
beneficial interest in the related class of
Notes. Interest and original issue discount,
if any, on the Certificates, and any gain on
the sale of the Certificates, generally will
be included in gross income of
Certificateholders for federal income tax
purposes. See "Federal Income Tax
Consequences." Interest on the Certificates
and any profit on the sale of the
Certificates are exempt from Massachusetts
personal income taxes, and the Certificates
are exempt from Massachusetts personal
property taxes. See "State Taxation."
ERISA Considerations............ Any employee benefit plan, collective
investment fund, insurance company general
or separate account, or other plan or
arrangement that is subject to the Employee
Retirement Income Security Act of 1974
("ERISA") or Section 4975 of the Internal
Revenue Code of 1986 (the "Code"), should
carefully review with its legal advisers
whether the purchase or holding of any class
of Certificates by the entity could give
rise to a transaction prohibited or not
otherwise permissible under ERISA or the
Code. See "ERISA Considerations."
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17
<PAGE> 28
RISK FACTORS
You should consider carefully the following factors before you decide
whether to buy the Certificates:
CERTIFICATEHOLDERS COULD EXPERIENCE PAYMENT DELAYS OR LOSSES AS A RESULT OF
LIMITED SOURCES OF PAYMENT FOR THE CERTIFICATES AND LIMITED CREDIT ENHANCEMENT.
You could experience payment delays or losses on the Certificates because
payments on the Notes are the sole source of distributions on the Certificates.
The Notes are the sole assets of the Trust. The transition property and the
other Note collateral, which is expected to be of relatively small value, are in
turn the only sources of payments on the Notes.
There will be no forms of credit enhancement for the Certificates except
for the right to adjust the RTC Charge and amounts held in the
overcollateralization subaccount, capital subaccount and reserve subaccount. We
do not anticipate that the Certificates will have the benefit of any liquidity
facility or of any third-party credit enhancement, such as guarantees, letters
of credit or insurance.
If distributions are not made on the Certificates in a timely manner as a
result of nonpayment of the related Notes, the holders of at least a majority of
the outstanding principal amount of the Certificates may direct the Certificate
Trustee to bring an action against the Note Issuer to foreclose upon the
transition property and the other Note collateral securing the Notes. There is
not likely to be a market, however, for the sale of the transition property and
the other Note collateral.
CERTIFICATEHOLDERS COULD EXPERIENCE PAYMENT DELAYS OR LOSSES AS A RESULT OF
AMENDMENT, REPEAL OR INVALIDATION OF THE STATUTE OR BREACH OF THE COMMONWEALTH
PLEDGE.
Although, under the Statute, The Commonwealth of Massachusetts has pledged
that it will not alter the provisions of the Statute that make the RTC Charge
irrevocable and binding, or limit or alter the transition property or the
financing order, it is possible that actions could be taken to alter the
transition property or the financing order.
Under Massachusetts law, citizens have the ability to submit laws enacted
by the Massachusetts legislature for approval or rejection directly by the
voters by means of referendum petitions. In November 1998, the voters approved
the Statute by referendum. Massachusetts law does not provide for any additional
referendum on the Statute.
In addition, under Massachusetts law, citizens have the ability to propose
laws (and constitutional amendments) for approval or rejection by the voters by
means of initiative petitions. Generally, any matter that is a proper subject of
legislation can become the subject of an initiative. Among other procedural
requirements, in order to qualify for submission to the electorate, an
initiative petition must be submitted to the Massachusetts Attorney General
signed by more than three percent of the total number of votes cast for governor
in the preceding election. Among other matters, the Attorney General must
certify that the initiative petition is not substantially the same as any
measure which has been qualified for submission or submitted to the voters at
either of the two preceding biennial state elections. The initiative petition
becomes law if it is approved by voters equal in number to at least thirty
percent of the total number of ballots cast in the election and also by a
majority of voters voting on the petition.
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<PAGE> 29
We are not aware of any proposed or pending initiative petition or of any
proposed or pending legislation in the Massachusetts legislature that would
affect any of the provisions of the Statute other than bills proposing technical
corrections, and we are not aware of any pending suit that challenges any of the
provisions of the Statute, relating to the issuance by the Massachusetts
Department of Telecommunications and Energy of a financing order, the creation
or characterization of the transition property or the issuance of "electric rate
reduction bonds," such as the Certificates.
In the opinion of Palmer & Dodge LLP, counsel to the Trust, under
applicable constitutional principles relating to the impairment of contracts,
The Commonwealth of Massachusetts could not repeal or amend the Statute, either
by means of the legislative process or the voter initiative process, or take or
refuse to take any action required under its pledge described above if the
repeal or amendment or the action or inaction would substantially impair the
rights of the owners of the transition property or the Certificateholders,
absent a demonstration by The Commonwealth of Massachusetts that a "great public
calamity" justifies a contractual impairment.
There have been numerous cases in which legislative or popular concerns
with the burden of taxation or governmental charges have led to adoption of
legislation reducing or eliminating taxes or charges that supported bonds or
other contractual obligations entered into by public instrumentalities. Courts
have not considered these concerns by themselves to provide sufficient
justification for a substantial impairment of the pledged security provided by
the taxes or governmental charges for the bonds or obligations. Based upon the
case law referred to above (which, however, does not address directly the
Certificates and the pledge described above), it would appear unlikely that The
Commonwealth of Massachusetts could reduce, modify or alter the transition
property, or take or refuse to take any action with respect to the transition
property in a manner that would substantially impair the rights of the owners of
the transition property or the Certificateholders.
Nonetheless, we cannot assure you that a repeal or amendment of the Statute
will not be adopted or sought or that any action or refusal to act by The
Commonwealth of Massachusetts will not occur, any of which may constitute a
violation of the Commonwealth's pledge with the owners of the transition
property and the Certificateholders. If a violation of this pledge occurred,
costly and time consuming litigation might ensue. Any litigation might adversely
affect the price of the Certificates and your ability to resell the Certificates
and might delay the timing of distributions on the Certificates. Moreover, given
the lack of controlling judicial precedent directly addressing the Certificates
and the Commonwealth's pledge, we cannot predict the outcome of any litigation
with certainty, and, accordingly, you could experience a delay in receipt of
distributions on or incur a loss on your investment in the Certificates.
If a court were to determine that the relevant provisions of the Statute or
the financing order are unlawful, invalid or unenforceable in whole or in part,
it could adversely affect the validity of the Certificates or the Trust's
ability to make distributions on the Certificates, and would not trigger any
requirement to repurchase the Notes or indemnify you. In either case, you could
suffer a loss on your investment in the Certificates.
SHORTFALL IN RTC CHARGE PAYMENTS AS A RESULT OF INACCURATE FORECASTING OR
UNANTICIPATED DELINQUENCIES COULD LEAD TO PAYMENT DELAYS OR LOSSES.
Because the RTC Charge is assessed based on kilowatt-hours of electricity
consumed by Customers, a shortfall of payments in respect of the RTC Charge
could result if the
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Servicer inaccurately forecasts electricity consumption or underestimates
Customer delinquencies or charge-offs when setting the RTC Charge. A shortfall
could cause distributions on the Certificates to be made later than expected or
not at all. As a result, principal of the Certificates may not be paid according
to the expected amortization schedule, which would lengthen the weighted average
life of the Certificates. In addition, a change in energy consumption by
Customers may also result in principal of the Certificates not being paid by the
final maturity date of the Certificates or not being paid at all. For the same
reasons, payments of interest on the Certificates could also be delayed or not
made.
Inaccurate forecasting of electricity consumption by the Servicer could
result from, among other things:
- warmer winters or cooler summers, resulting in less electricity
consumption than forecasted;
- general economic conditions being worse than expected, causing Customers
to migrate from Boston Edison's or a successor distribution company's
service territory or reduce their electricity consumption;
- the occurrence of a natural disaster, such as a hurricane or blizzard,
unexpectedly disrupting electrical service and reducing consumption;
- problems with energy generation, transmission or distribution resulting
from a change in the market structure of the electric industry;
- large Customers ceasing business or departing Boston Edison's or a
successor distribution company's service territory;
- Customers consuming less electricity because of increased conservation
efforts; or
- large Customers switching to self-generation or co-generation of electric
power without being required to pay an exit charge to mitigate the
revenues lost by their reduced consumption of electricity delivered by
Boston Edison or a successor distribution company. See "Energy
Deregulation and New Massachusetts Market Structure."
Inaccurate forecasting of delinquencies or charge-offs by the Servicer
could result from, among other things:
- unexpected deterioration of the economy or the occurrence of a natural
disaster, causing greater charge-offs than expected or forcing Boston
Edison or a successor distribution company to grant additional payment
relief to more Customers;
- a change in law that makes it more difficult for Boston Edison or a
successor distribution company to disconnect nonpaying Customers, or that
requires Boston Edison or a successor distribution company to apply more
lenient credit standards in accepting Customers; or
- the introduction into the energy markets of less creditworthy third party
energy suppliers who collect and remit payments in respect of the RTC
Charge to the Servicer on behalf of Customers.
CAP ON RTC CHARGE MAY LEAD TO INSUFFICIENT REVENUES TO MAKE PAYMENTS.
You may experience payment delays or defaults on the Certificates because
the Servicer will not be able to increase the RTC Charge above Boston Edison's
maximum
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permitted transition charge. The transition charge may not exceed 3.35
cents/kilowatt-hour or, subject to further action by the Department, such lesser
maximum transition charge that would permit Boston Edison to meet the inflation
adjusted rate reduction for its retail customers required by the Statute. Upon
the issuance of the Certificates, Boston Edison's transition charge is expected
to be [ ] cents/kilowatt-hour. This includes a projected RTC Charge of
[ ] cents/kilowatt-hour.
The financing order provides that the transition charge will not be reduced
below the RTC Charge, subject to the required rate reduction under the Statute
and the transition charge cap of 3.35 cents/kilowatt-hour. If the RTC Charge
needs to be increased above the transition charge then in effect, the filing of
a true-up advice letter with the Department to increase the RTC Charge will also
effect an increase in the transition charge, subject to the limits described
above.
The Statute provides that Boston Edison must meet the required rate
reduction on or before September 1, 1999 and that the rate reduction, subject to
adjustment up or down for inflation, will remain in effect through December 31,
2004. If Boston Edison's rates, including the transition charge, exceed the
maximum total rate permitted during the required rate reduction period, then the
transition charge may be reduced to the extent necessary to achieve the required
rate reduction. See "Description of the Transition Property -- Transition
Charge."
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LIMITED RIGHTS AND REMEDIES MAY IMPAIR ABILITY TO REALIZE ON COLLATERAL
If there is an event of default on the Notes and the Note Trustee elects to
foreclose on the transition property, the Note Trustee is unlikely to be able to
resell the transition property because of its unique nature. In addition,
although the Seller is required to repurchase the transition property for a
price equal to the outstanding principal amount of the Notes and accrued
interest under the limited circumstances described in "Description of the
Transition Property -- Seller Representations and Warranties and Repurchase
Obligation," we cannot assure you that the Seller would be able to repurchase
the transition property if it were required to do so.
The requirement to repurchase the transition property would arise if, among
other things, there has been a breach of the Seller's representations and
warranties as of the closing date that:
- the financing order is in full force and effect and the issuance advice
letter has been filed in accordance with the financing order;
- the Certificateholders are entitled to the protections of the Statute
and, accordingly, the financing order is not revocable by the
Massachusetts Department of Telecommunications and Energy; or
- the transition property constitutes a property right,
but only if a breach continues beyond a 90-day grace period and has a material
adverse effect on Certificateholders. See "Description of the Transition
Property -- Seller Representations and Warranties and Repurchase Obligation."
The Seller will not be in breach of the representations and warranties in
the sale agreement as a result of a change in law by legislative enactment,
constitutional amendment or initiative petition. A repeal of the Statute, an
amendment voiding the transition property or the adoption of a federal statute
prohibiting the recovery of transition costs are examples of changes in law. If
any change in law were to occur, the Servicer, on behalf of the
Certificateholders, would be required to bring legal action, at the Note
Issuer's expense, seeking to overturn the change.
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ADDITIONAL ISSUANCES OF CERTIFICATES MAY AFFECT PAYMENTS ON OUTSTANDING
CERTIFICATES.
The terms of any new issuance of certificates secured by the remaining
portion of Boston Edison's transition charge will not be subject to the prior
review or consent of Certificateholders. The Seller has, however, covenanted in
the transition property sale agreement not to sell other transition property to
secure another issuance of notes and, in turn, another issuance of certificates
if it would cause the then existing ratings on the Certificates to be
downgraded. Nevertheless, the issuance of other certificates might delay or
reduce the distributions that Certificateholders receive on the Certificates
because the revenues arising from Boston Edison's transition charge will be
shared among the various issuances of certificates. As a result, the Servicer
may not ultimately be able to increase the RTC Charge for the Certificates to
generate revenues sufficient to pay the fees and expenses of servicing and
retiring the Notes and the Certificates and interest on and principal of the
Certificates.
PROBLEMS WITH THE SERVICING OF TRANSITION PROPERTY MAY CAUSE PAYMENT DELAYS OR
LOSSES.
CHANGE IN SERVICER MAY LEAD TO PAYMENT DELAYS OR LOSSES.
If, as a result of insolvency or liquidation or otherwise, Boston Edison
were to cease servicing the transition property, determining any adjustments to
the RTC Charge or collecting payments in respect of the RTC Charge, it may be
difficult to find a suitable successor Servicer. As a result, the timing of
recovery of payments in respect of the RTC Charge could be delayed. The Note
Issuer will rely on the Servicer to determine any adjustments to the RTC Charge
and for Customer billing and collection. Any successor Servicer may have less
experience than Boston Edison and less capable forecasting, billing and
collection systems than those employed by Boston Edison. Given the complexity of
the tasks to be performed by the Servicer and the expertise required, a
successor Servicer may experience difficulties in collecting payments in respect
of the RTC Charge and determining appropriate adjustments to the RTC Charge.
The servicing fee would likely increase if the Note Issuer were to engage a
successor Servicer. In addition, any successor Servicer under current law may
not be able to invoke the remedy of shutting off service to a Customer for
nonpayment of the RTC Charge and thus may experience higher delinquencies. Also,
a change in the Servicer will cause payment instructions to change, which may
lead to a period of disruption in which Customers continue to remit payment
according to the former payment instructions, resulting in delays in collection
that could result in payment delays on the Certificates.
BILLING OF THE RTC CHARGE BY THIRD PARTY SUPPLIERS MAY CAUSE DELAYS IN
REMITTANCES.
When a third party supplier bills, collects and remits the RTC Charge to
the Servicer, there is a greater risk that the Servicer will receive payments in
respect of the RTC Charge later than it otherwise would. A third party supplier
is an entity that supplies energy to Customers and has contracted with the
Servicer to bill and collect the RTC Charge. The risk of nonpayment due to
default, bankruptcy or insolvency of the third party supplier holding the funds
will increase the longer that the delay in receipt of payment lasts. Third party
supplier billing also places increased information requirements on the Servicer.
The Servicer has the responsibility of accounting for payments in respect of the
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RTC Charge due to Certificateholders regardless of which entity bills Customers
for the RTC Charge.
Any third party supplier that bills and collects payments in respect of the
RTC Charge will be required to pay these amounts, regardless of whether payments
are received from Customers, within 15 days after the Servicer's bill to the
third party supplier. The third party supplier will, in effect, replace the
Customer as the obligor with respect to these amounts, and the Servicer, on
behalf of the Note Issuer, will have no right to collect the payments in respect
of the RTC Charge from the Customer. Therefore, the Servicer will be relying on
the credit of the third party supplier, rather than on the credit of the
Customers. In addition, to the extent that a few third party suppliers bill and
collect the RTC Charge, the Note Issuer may be relying on a small number of
third party suppliers, rather than a large number of Customers, to remit
payments in respect of the RTC Charge. In this case, a default in the remittance
of payments in respect of the RTC Charge by a single third party supplier that
bills and collects the RTC Charge from a large number of Customers may adversely
affect the timing of distributions on the Certificates. See "Servicing -- Third
Party Suppliers."
Neither Boston Edison nor the Servicer will pay any shortfalls resulting
from the failure of any third party supplier to remit payments in respect of the
RTC Charge to the Servicer. Although the Servicer will take into account revenue
shortfalls arising from a default by a third party supplier when periodically
adjusting the RTC Charge, any shortfalls that occur may cause delays in
distributions on the Certificates.
POSSIBLE PAYMENT DELAYS MAY RESULT FROM YEAR 2000 COMPUTER ISSUE.
The year 2000 computer issue could cause significant delays in
distributions to Certificateholders. The year 2000 computer issue is the result
of computer programs that were written using two digits rather than four to
define an applicable year. Boston Edison uses various software applications and
embedded chip technology that could be affected by the year 2000 computer issue.
If computer programs with date-sensitive functions are not year 2000 compliant,
they may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in system failures or miscalculations causing disruptions of
operations. Possible disruptions to Boston Edison's operations, include, among
other things, the inability of Boston Edison, as Servicer, to bill and collect
the RTC Charge, and the inability of Boston Edison to meter electricity usage.
In addition, the year 2000 computer issue could cause Boston Edison or its
suppliers to fail to deliver electricity. In that event, revenues arising from
the RTC Charge may decrease because the RTC Charge is calculated based on
electricity usage by Customers. This also could result in delays in
distributions on the Certificates. See "The Seller and Servicer -- Year 2000
Computer Issue."
BANKRUPTCY AND CREDITORS' RIGHTS ISSUES
BANKRUPTCY OF SELLER COULD DELAY OR REDUCE PAYMENTS ON CERTIFICATES AND
ADVERSELY AFFECT THE ABILITY TO RESELL TRANSITION PROPERTY.
If the Seller were to become a debtor in a bankruptcy case, and a creditor
or bankruptcy trustee of the Seller or the Seller itself as debtor in possession
were to take the position that the transition property constituted property of
the Seller's bankruptcy estate, and a court were to adopt this position, then
delays or reductions in payments on the Certificates could result. For example,
a creditor or bankruptcy trustee of the Seller or the Seller itself as debtor in
possession might argue that the sale of the transition property to
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the Note Issuer was a loan to the Note Issuer from the Seller, secured by a
pledge of the transition property. Regardless of any adverse determination in a
Seller bankruptcy proceeding, the mere fact of a Seller bankruptcy proceeding
could have an adverse effect on the resale market for the Certificates and the
market value of the Certificates.
Because the RTC Charge is a usage-based charge, if the Seller were to
become the debtor in a bankruptcy case, a creditor of, or a bankruptcy trustee
for, the Seller, or the Seller itself as debtor in possession could argue that
the Note Issuer should pay a portion of the costs of the Seller associated with
the generation, transmission or distribution of the electricity the price of
which gave rise to the payments in respect of the RTC Charge that are used to
make distributions on the Certificates. If a court were to adopt this position,
the amounts paid to the Note Trustee, and thus to the holders of the
Certificates, could be reduced.
Regardless of whether the Seller is the debtor in a bankruptcy case, if a
court were to accept the arguments of a creditor of the Seller that transition
property comes into existence only as Customers use electricity, a tax,
government or other lien on property of the Seller arising before the transition
property came into existence may have priority over the Note Issuer's interest
in the transition property, which could reduce the amounts distributed to
Certificateholders. See "Description of the Transition Property--Bankruptcy and
Creditors' Rights Issues".
BANKRUPTCY OF THE SERVICER OR A THIRD PARTY SUPPLIER COULD ALSO DELAY OR REDUCE
PAYMENTS.
The bankruptcy or insolvency of the Servicer or a third party supplier
could result in delays or reductions in distributions on the Certificates. Each
of the Servicer and any third party supplier will remit payments in respect of
the RTC Charge out of its general funds and will not segregate these amounts
from its general funds. In the event of a bankruptcy of the Servicer or a third
party supplier, the Note Trustee likely will not have a perfected interest in
commingled funds and the inclusion of the commingled funds in the bankruptcy
estate of the Servicer or third party supplier may result in delays in
distributions on the Certificates. Furthermore, if the Servicer is in
bankruptcy, it may stop performing its functions as Servicer and it may be
difficult to find a third party to act as successor Servicer. See "-- Problems
with the servicing of transition property may cause payment delays or
losses -- changes in Servicer may lead to payment delays or losses."
POSSIBLE FEDERAL PREEMPTION OF THE STATUTE MAY PROHIBIT RECOVERY OF THE RTC
CHARGE.
Federal preemption of the Statute could prevent Certificateholders from
receiving distributions on the Certificates, and cause a loss on their
investment in the Certificates. The Massachusetts electric industry is subject
to federal law and to regulation by the Federal Energy Regulatory Commission. In
the past, bills have been introduced in Congress to prohibit the recovery of
charges similar to the RTC Charge. Although Congress has not enacted any law
that would prohibit the recovery of charges similar to the RTC Charge, it may do
so in the future. Enactment of a federal law prohibiting the recovery of charges
similar to the RTC Charge might have the effect of preempting the Statute and
thereby prohibiting the recovery of the RTC Charge, which would cause delays and
losses on the payment of the Certificates.
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NATURE OF THE CERTIFICATES
RESALE MARKET IS LIMITED.
We cannot assure you that you will be able to resell the Certificates or
that a trading market for the Certificates will develop or, if one does develop,
that it will continue for the life of the Certificates. We do not expect to list
the Certificates on any securities exchange.
HIGH RATINGS DO NOT MEAN THAT PAYMENTS WILL BE MADE ON TIME.
You should understand that the ratings of the Certificates issued by
nationally recognized statistical rating organizations address only the
likelihood of the ultimate distribution of principal by the legal maturity date
and the timely distribution of interest on the Certificates. A rating is not an
indication that these rating organizations believe that principal payments are
likely to be distributed on time according to the expected amortization
schedule. You should not rely on ratings for that purpose.
POSSIBILITY OF EARLY REDEMPTION MAY LEAD TO LOWER RETURN ON INVESTMENT.
The Note Issuer has the option to redeem all of the outstanding Notes on
any payment date if, after giving effect to the payments that would otherwise be
made on that payment date, the outstanding principal balance of the Notes would
be less than five percent of the initial principal balance of the Notes. In
addition, the Note Issuer may be required to redeem the Notes if the Seller is
required to repurchase the transition property as a result of a breach of the
Seller's representations and warranties in the sale agreement as described under
"Description of the Transition Property -- Seller Representations and Warranties
and Repurchase Obligation." Redemption of the Notes will require the Certificate
Trustee to redeem the Certificates. Redemption will cause the Certificates to be
retired earlier than would otherwise be expected. We cannot predict whether the
Note Issuer will redeem the Notes, or whether you will be able to receive an
equivalent rate of return upon reinvestment of the proceeds arising from any
redemption.
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ENERGY DEREGULATION AND NEW MASSACHUSETTS MARKET STRUCTURE
The electric utility industry is experiencing intensifying competitive
pressures in the electricity generation market. Historically, electric utilities
operated as regulated monopolies in their service territories and were the
primary suppliers of electricity. In Massachusetts, the Massachusetts Department
of Telecommunications and Energy (formerly the Department of Public Utilities)
set electric companies' rates based upon their costs of providing services and
allowing for a reasonable return on their prudent capital investments. Changes
to the traditional legal and regulatory framework and market structure are
occurring at both the state and federal levels.
STATUTORY OVERVIEW
At the state level, we expect that the Massachusetts electric industry will
change dramatically in the near future because of the enactment of the Statute
and the completion of related restructuring settlement agreements between the
Department and Massachusetts electric companies. The Statute was enacted in
November 1997 and established a comprehensive framework for the restructuring of
the Massachusetts electric industry. The Statute required that on or before
January 1, 1998, electric companies file a plan for restructuring their
operations to allow for retail competition in electricity generation supply. See
"-- Settlement Agreement."
Under the Statute, approval of an electric company's restructuring plan
permits an electric company to recover transition costs through a transition
charge, which is a separate charge assessed to ratepayers based on consumption
of electricity. Generally, transition costs consist of the costs of prudently
incurred investments and obligations that an electric company may not be able to
recover through market-based rates in a competitive electricity generation
market. The Statute requires that an electric company take reasonable steps to
mitigate to the maximum extent possible the total amount of its transition
costs. Approval of a restructuring plan by the Department means, among other
things, that the Department has found reasonable mitigation of transition costs
by the electric company submitting the plan. The Statute also permits an
electric company to cause a special purpose entity to issue securities, such as
the Certificates, secured by the revenues arising from a portion, which may
become all, of its transition charge, if doing so will result in savings to
ratepayers.
The Statute also contemplates that an electric company's customers will be
permitted to contract with third party suppliers of electricity and that the
company will continue to distribute electricity whether generated by itself or a
third party supplier on a regulated basis. The Statute provides that retail
customers may choose their electricity supplier as of March 1, 1998. Customers
who do not choose another electricity supplier may continue to buy electricity
from the utility.
SETTLEMENT AGREEMENT
In January 1998, the Department determined that Boston Edison's
restructuring settlement agreement substantially complied with the provisions of
the Statute. The settlement agreement provides for, among other things, an
accounting of Boston Edison's transition costs, efforts to mitigate the
transition costs and rates for Boston Edison's electricity generation,
transmission, distribution and other services. To meet rate reduction
requirements in its settlement agreement and to mitigate the amount of its
transition costs, Boston Edison has divested its fossil generating assets and
its nuclear generation assets. As part of its settlement agreement, Boston
Edison's rates include a transition charge designed to recover its transition
costs.
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EXIT CHARGE
Although the RTC Charge is nonbypassable, meaning that Customers must pay
it whether or not they purchase energy from Boston Edison or a third party
supplier of energy, and whether or not their distribution system is being
operated by Boston Edison or a successor distribution company, Customers may
reduce their electricity usage through the use of on-site generation or
cogeneration equipment. As a result, revenues generated by the RTC Charge may
decrease. The Statute contemplates that a Customer that reduces purchases of
electricity through the operation of, or purchases from operators of, on-site
generation or cogeneration equipment may be required to pay an exit charge. The
Servicer would remit to the Note Trustee a pro rata portion of the exit charge
based on the amount attributable to the RTC Charge. However, a Customer will not
be subject to an exit charge if:
- the Customer provided less than or equal to ten percent of the annual
gross revenues collected by Boston Edison (or a successor distribution
company) in the year prior to the Customer leaving the distribution
system; provided, that if two or more Customers who, at any time within a
36-month period, leave the distribution system, represent together the
aggregate of greater than or equal to more than ten percent of the annual
gross revenues collected by Boston Edison (or a successor distribution
company) in the year prior to exit from the distribution system, these
Customers will be subject to an exit charge based upon that portion of
the annual gross revenues that is above ten percent;
- the Customer reduces purchases through the operation of, or purchases
from, on-site renewable energy technologies, fuel cells or cogeneration
equipment with a combined heat and power system efficiency of at least
50%; or
- the Customer reduces purchases through the operation of, or purchases
from, an on-site generation or cogeneration facility of 60 kilowatts or
less.
Any exit charge may be equal to but no greater than the expected value of
the transition charge payments the Customer would have paid but for the
operation of on-site generation or cogeneration equipment. If the Department
determines that on-site generation and cogeneration activities will cause a
decrease in future purchases of electricity and transition charge payments and
that a decrease will have a significant adverse impact on electric bills to be
paid by other customers in Boston Edison's or a successor distribution company's
service territory during the remaining period of transition cost recovery, then
the Department may order an exit charge to be paid upon terms and criteria as it
determines, notwithstanding the exceptions listed above.
RECONCILIATION
The Statute also provides that the Department will review, at intervals of
not less than every 18 months from the date of the financing order, each
financing order creating an irrevocable right for an electric company to recover
a portion, which may become all, of its transition charge to pay interest on and
principal of electric rate reduction bonds, such as the Certificates. The review
will be limited to a comparison of assumed transition costs based on assumed
mitigation to the actual transition costs determined through actual mitigation.
If the amount of transition costs authorized to be recovered through a financing
order exceeds the actual amount of those transition costs, then the electric
company will pay ratepayers with a uniform rate credit based on usage that in
total equals the amount of the excess. The financing order provides that any
reconciliation or adjustment will not affect the RTC Charge.
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THIRD PARTY BILLING OPTIONS
The Statute authorizes and directs the Department to commence an
investigation and study of consolidated billing options starting on or after
January 1, 2000. The investigation would consider the manner in which metering,
meter maintenance and testing, customer billing and information services have
been provided by distribution companies, such as Boston Edison, since March 1,
1998 to analyze and determine, among other things, whether those services should
be unbundled from other distribution services and provided through a competitive
market. The study would also include an investigation and review of whether the
exclusivity of electric company distribution service territories should be
terminated or altered in any manner. If the Department determines that those
services should be unbundled and subject to competition, or that territorial
exclusivity should be terminated or altered in any manner, the Department must,
no later than January 1, 2001, file its recommendations, along with drafts of
legislation necessary to implement its recommendations, with the Massachusetts
legislature. The Department's financing order issued to Boston Edison provides
credit and remittance criteria for third party suppliers to accommodate the
billing of the RTC Charge by third party suppliers. A third party supplier is an
entity that supplies energy to Customers and has contracted with the Servicer to
bill and collect the RTC Charge. See "Risk Factors -- Problems with the
servicing of transition property may cause payment delays or losses -- Billing
of the RTC Charge by third party suppliers may cause delays in remittances."
FEDERAL INITIATIVES
In addition to the changes occurring in the Massachusetts market and
regulatory environment discussed throughout this section, federal legislative
efforts may also significantly alter the national market for electricity. For
example, at the federal level, the National Energy Policy Act of 1992 was
designed to increase competition in the wholesale electric generation market by
easing regulatory restrictions on producers of wholesale power and by
authorizing the Federal Energy Regulatory Commission to mandate access to
electric transmission systems by wholesale power generators. See "Risk
Factors -- Possible federal preemption of the Statute may prohibit recovery of
the RTC Charge."
DESCRIPTION OF THE TRANSITION PROPERTY
The Statute and Boston Edison's restructuring settlement agreement with the
Massachusetts Department of Telecommunications and Energy permit Boston Edison
to recover transition costs through the assessment of a transition charge,
subject to a duty to mitigate its transition costs. Examples of transition costs
include the costs of electricity generation facilities, power purchase contracts
with third-party generators of electricity and regulatory assets. Regulatory
assets reflect incurred costs that otherwise would have been expensed, but have
been capitalized because those costs probably would have been recovered in
future rates under the traditional ratemaking structure.
FINANCING ORDER AND ISSUANCE ADVICE LETTER
The Statute authorizes the Department to issue a financing order, which is
a regulatory order that approves the amount of Boston Edison's transition costs
that it is permitted to finance through the issuance of electric rate reduction
bonds, such as the Certificates. On December 3, 1998, Boston Edison filed its
application for a financing order with the Department. The Department issued a
financing order dated [March ], 1999,
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which authorizes the issuance of up to [ ] aggregate principal amount
of the Certificates, subject to Boston Edison demonstrating savings to
ratepayers.
The financing order, together with the issuance advice letter, establishes,
among other things, the RTC Charge, to recover reimbursable transition costs
amounts specified in the financing order. The RTC Charge is nonbypassable in
that Customers must pay it whether or not they purchase energy from Boston
Edison or a third party supplier of energy, and whether or not their
distribution system is being operated by Boston Edison or a successor
distribution company. The Statute provides that the right to collect payments
based on the RTC Charge is a property right which may be pledged, assigned or
sold in connection with the issuance of the Certificates. Under the Statute and
the financing order, the owner of the transition property is entitled to assess
the RTC Charge until it has received payments from Customers sufficient to
retire all outstanding Notes and Certificates and to pay fees and expenses of
servicing and retiring the Notes and the Certificates. The RTC Charge, as
adjusted from time to time, is a portion, which may become all, of the
transition charge and will be expressed as an amount per kilowatt-hour of
electricity usage by a Customer. The RTC Charge will not be separately
identified on Customer bills, although Customer bills will note that a portion
of the transition charge has been sold to the Note Issuer.
The financing order requires the Seller to submit an issuance advice letter
relating to the Certificates to the Department. The issuance advice letter will
establish the initial RTC Charge and become effective upon filing with the
Department. The financing order permits the Servicer to file requests, referred
to as true-up advice letters, to adjust up or down the RTC Charge at various
times, to enhance the likelihood of retirement of each class of Certificates on
a timely basis. See "-- Adjustments to the RTC Charge."
TRANSITION PROPERTY
The transition property is a property right consisting of the right, title
and interest to all revenues, collections, claims, payments, money or proceeds
of or arising from the RTC Charge. The Notes will be secured by the transition
property, as well as the other Note collateral described under "Description of
the Notes -- Security."
TRANSITION CHARGE
The transition charge is designed to recover on a fully reconciling basis
all of Boston Edison's transition costs. The transition charge is the rate
mechanism through which Boston Edison is allowed to recover its transition
costs. It is determined according to the methodology specified in Boston
Edison's settlement agreement and subsequent proceedings before the Department
under that settlement agreement. The transition charge may increase or decrease
as a result of the variable component described below, but may not exceed 3.35
cents/kilowatt-hour under the settlement agreement or, subject to further action
by the Department, such lesser maximum transition charge that would permit
Boston Edison to meet the inflation adjusted rate reduction for its retail
customers required by the Statute. The RTC Charge is a portion, which may become
all, of the transition charge, established by the financing order to recover
reimbursable transition costs amounts specified in the order. See "Risk Factors
- -- Cap on RTC Charge may lead to insufficient revenues to make payments."
The Statute provides that Boston Edison must meet the required rate
reduction on or before September 1, 1999 and that the rate reduction, subject to
adjustment up or down for inflation, will remain in effect through December 31,
2004. If Boston Edison's rates, including the transition charge, exceed the
maximum total rate permitted during the
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<PAGE> 41
required rate reduction period, then the transition charge may be reduced to the
extent necessary to achieve the required rate reduction.
The transition charge consists of both a fixed and variable component. The
fixed component consists of the portion of the transition costs whose amounts
have been set at the time of the settlement agreement or in subsequent
proceedings. In general, the dollar amounts of the fixed component do not
change. The following are examples of transition costs included in the fixed
component of the transition charge:
- the net balance of Boston Edison's unrecovered investment in its fossil
generation assets and related regulatory assets;
- the retail share of the net balance of Boston Edison's unrecovered
investment in the Pilgrim nuclear power station and related regulatory
assets; and
- the prefunded balance of Boston Edison's portion of the decommissioning
trust being transferred to the buyer in connection with the sale of the
Pilgrim nuclear power station.
The financing order authorizes the recovery of the fixed component through the
RTC Charge.
The variable component consists of the portion of the transition costs the
amount of which have been estimated in the settlement agreement. The amounts in
the variable component will be reconciled to the actual amounts and will vary
over time. The following are examples of transition costs included in the
variable component of the transition charge:
- Pilgrim nuclear power station fixed operating costs;
- above-market payments to power suppliers under Boston Edison's long-term
power purchase contracts;
- above-market fuel transportation costs;
- employee retraining and severance costs;
- damages, costs, or net recoveries from claims associated with Boston
Edison's generating business that accrued prior to sale that were not
assigned to the buyers; and
- payments by Boston Edison in lieu of property taxes to the Town of
Plymouth, Massachusetts to compensate the town for the loss of property
tax revenues.
The transition charge may increase or decrease while the Certificates are
outstanding because the amount of the variable component will fluctuate. In
addition, Boston Edison will make payments to the Town of Plymouth and for
employee retraining and severance costs the amounts of which cannot be estimated
at this time. These payments will constitute transition costs and will increase
the transition charge.
The financing order provides that the transition charge will not be reduced
below the RTC Charge, subject to the lower of the required rate reduction under
the Statute and the transition charge cap of 3.35 cents/kilowatt-hour. If the
RTC Charge needs to be increased above the transition charge then in effect, the
filing of a true-up advice letter
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<PAGE> 42
with the Department to increase the RTC Charge will also effect an increase in
the transition charge, subject to the limits described above.
ADJUSTMENTS TO THE RTC CHARGE
Initially and during the life of the Certificates, at least annually the
Servicer will calculate and set the RTC Charge at a level estimated to generate
revenues sufficient to pay fees and expenses of servicing and retiring the Notes
and the Certificates, to pay interest on and principal of the Certificates and
to fund and replenish other subaccounts as required for the upcoming year. The
Servicer will increase or decrease the RTC Charge over the life of the
Certificates as a result of several factors, including:
- changes in electricity sales forecasts;
- changes in payment patterns and charge-off experience (including defaults
by third party suppliers);
- changes in any ongoing fees, costs and expenses related to the Notes and
the Certificates; and
- unpaid interest on or deferred principal of the Notes.
The adjustments to the RTC Charge will continue until all interest on and
principal of all classes of Notes and related classes of Certificates have been
paid or distributed in full.
The RTC Charge will be a portion (which may be adjusted to be all) of
Boston Edison's transition charge. As a result, the RTC Charge may be limited by
Boston Edison's maximum permitted transition charge, which in no event may
exceed 3.35 cents/kilowatt-hour or, subject to further action by the Department,
such lesser maximum transition charge that would permit Boston Edison to meet
the inflation adjusted rate reduction for its retail customers required by the
Statute. Therefore, the Servicer may not always be able to increase the RTC
Charge to meet anticipated payments of interest on and principal of the
Certificates and as a result distributions on the Certificates may be delayed or
you may suffer a loss on your investment.
The financing order provides that the Servicer will file true-up advice
letters periodically as follows:
- the Servicer will file a routine true-up advice letter with the
Department annually prior to each anniversary of the financing order,
with resulting adjustments up or down to the RTC Charge to become
effective on the first day of the next succeeding calendar month, or the
date as may be specified in the true-up advice letter, so long as the
effective date is at least 15 days after the filing of the true-up advice
letter;
- the Servicer may file a routine true-up advice letter with the Department
at other times, with resulting adjustments up or down to the RTC Charge
to become effective on the first day of the next succeeding calendar
month, or the date as may be specified in the true-up advice letter, so
long as the effective date is at least 15 days after the filing of the
true-up advice letter; and
- the Servicer will file a non-routine true-up advice letter with the
Department if the method it uses to calculate the RTC Charge requires
modifications to more accurately project and generate adequate revenues,
with the modifications to become effective upon review and approval by
the Department within 60 days after filing.
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<PAGE> 43
True-up advice letters will take into account amounts available in the general
subaccount and reserve subaccount, and amounts necessary to fund the
overcollateralization subaccount and to replenish the capital subaccount to
their required levels, in addition to amounts payable on the Notes and the
Certificates and related fees and expenses.
PLEDGE BY THE COMMONWEALTH OF MASSACHUSETTS
The Commonwealth of Massachusetts has pledged and agreed with the Note
Issuer, the Trust and the Certificateholders that it will not alter the
provisions of the Statute that make the RTC Charge irrevocable and binding or
limit or alter the transition property or the financing order until the
Certificates are fully paid and discharged.
SALE AND ASSIGNMENT OF TRANSITION PROPERTY
The Seller has agreed in the transition property sale agreement not to sell
transition property to secure another issuance of notes, and, in turn,
certificates, if it would cause the then existing ratings on the Certificates to
be downgraded.
On the issuance date of the Certificates, the Seller will sell and assign
to the Note Issuer, without recourse, its entire interest in the transition
property. The Note Issuer will apply the net proceeds from the sale of the Notes
to purchase the transition property. The Seller's financial statements will
indicate that it is not the owner of the transition property, and for financial
reporting and tax purposes the Seller will treat the Notes as representing debt
of the Seller.
SELLER REPRESENTATIONS AND WARRANTIES AND REPURCHASE OBLIGATION
In the transition property sale agreement, the Seller will represent and
warrant to the Note Issuer, as of the closing date, among other things, that:
(a) the information describing the Seller in "The Seller and Servicer"
section of the prospectus is correct in all material respects;
(b) the Seller has transferred the transition property, free and clear of
all security interests, liens, charges and encumbrances (other than
those created by Section 1H(e) of Chapter 164 of the Massachusetts
General Laws and those in favor of the Note Issuer);
(c) the transition property has been validly transferred and sold to the
Note Issuer and all filings (including filings with the Massachusetts
Department of Telecommunications and Energy under the Statute)
necessary in any jurisdiction to give the Note Issuer an ownership
interest in the transition property have been made (subject to any lien
created by Section 1H(e) of Chapter 164 of the Massachusetts General
Laws);
(d) under the laws of The Commonwealth of Massachusetts (including the
Statute) and the United States in effect on the closing date:
- the financing order pursuant to which the transition property has been
created is in full force and effect;
- the Certificateholders are entitled to the protections of the Statute
and, accordingly, the financing order is not revocable by the
Department;
- The Commonwealth of Massachusetts may not alter the provisions of the
Statute that make the RTC Charge irrevocable and binding, limit or
alter the transition property, the financing order and all rights
thereunder, in a manner that would substantially impair the rights of
Certificateholders, absent a demonstration by The Commonwealth of
Massachusetts that a "great public
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<PAGE> 44
calamity" justifies a contractual impairment, until the Certificates, together
with accrued interest, are fully met and discharged;
- the process by which the financing order was adopted and approved, and
the financing order and issuance advice letter, comply with all
applicable laws, rules and regulations;
- the issuance advice letter has been filed in accordance with the
financing order;
- the Department may not, either by rescinding, altering or amending the
financing order, in any way reduce or impair the value of the
transition property either directly or indirectly by taking
reimbursable transition costs amounts into account when setting other
rates for the Seller, in a manner that would substantially impair the
rights of Certificateholders, absent a demonstration by The
Commonwealth of Massachusetts that a "great public calamity" justifies
a contractual impairment, until the Certificates, together with
accrued interest, are fully met and discharged; and
- no approval or filing with any other governmental body is required in
connection with the creation of the transition property, except those
that have been obtained or made;
(e) based on information available to the Seller on the closing date, the
assumptions used in calculating the initial RTC Charge are reasonable
and are made in good faith;
(f) upon the effectiveness of the issuance advice letter:
- all of the transition property constitutes an existing property right;
- the transition property consists of the right, title and interest in
and to all revenues, collections, claims, payments, money, or proceeds
of or arising from the RTC Charge, as adjusted from time to time, and
all rights to obtain adjustments to the RTC Charge pursuant to the
financing order; and
- the owner of the transition property is legally entitled to collect
payments in respect of the RTC Charge in the aggregate sufficient to
pay the interest on and principal of the Notes, to pay the fees and
expenses of servicing the Notes and the Certificates and to fund the
overcollateralization subaccount to the required overcollateralization
level until the Notes and the Certificates are paid in full.
(g) the Seller is a corporation duly organized, validly existing and in
good standing under the laws of The Commonwealth of Massachusetts, with
corporate power and authority to own its properties as owned on the
closing date and to conduct its business as conducted by it on the
closing date and to execute, deliver and perform the terms of the sale
agreement;
(h) the execution, delivery and performance of the sale agreement have been
duly authorized by all necessary corporate action on the part of the
Seller;
(i) the sale agreement constitutes a legal, valid and binding obligation of
the Seller, enforceable against it in accordance with its terms,
subject to applicable insolvency, reorganization, moratorium,
fraudulent transfer and other laws relating to or affecting creditors'
rights generally from time to time in effect and to general principles
of equity, regardless of whether considered in a proceeding in equity
or law;
(j) the consummation of the transactions contemplated by the sale agreement
do not conflict with the Seller's articles of organization or by-laws
or any material agreement to which the Seller is a party or bound,
result in the creation or
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<PAGE> 45
imposition of any lien upon the Seller's properties pursuant to the
terms of a material agreement (other than any that may be granted under
the transaction documents) or violate any existing law or any existing
order, rule or regulation applicable to the Seller;
(k) no governmental approvals, authorizations or filings are required for
the Seller to execute, deliver and perform its obligations under the
sale agreement except those which have previously been obtained or
made; and
(l) except as disclosed to the Note Issuer, no court or administrative
proceeding is pending and, to the Seller's knowledge, no court or
administrative proceeding is threatened and, to the Seller's knowledge,
no investigation is pending or threatened:
- asserting the invalidity of, or seeking to prevent the consummation of
the transactions contemplated by, the sale agreement;
- seeking a determination that might materially and adversely affect the
performance by the Seller of its obligations under the sale agreement;
or
- which might adversely affect the federal or state income tax
classification of the Notes or the Certificates as debt.
Notwithstanding the above, the Seller makes no representation or warranty
that any amounts actually collected in respect of the RTC Charge will in fact be
sufficient to meet payment obligations on the Notes or that assumptions made in
calculating the RTC Charge will in fact be realized.
If either a court of competent jurisdiction shall by final order determine
or the Seller shall admit that, as of the closing date, there existed a breach
by the Seller of any representation specified in clause (d) or clause (f) above
that has a material adverse effect on the Certificateholders, the Seller will be
obligated to repurchase the transition property from the Note Issuer at a
purchase price equal to the outstanding principal amount of the Notes and all
accrued and unpaid interest, excluding any premium or penalty of any kind (the
"Repurchase Price"); provided, however, that the Seller shall not be obligated
to repurchase the transition property if:
(a) within 90 days after the date of determination or admission of breach,
the breach is cured or the Seller takes remedial action such that there
is not and will not be a material adverse effect on the
Certificateholders as a result of the breach; and
(b) the Seller either:
- if the Seller had, immediately prior to the date of determination of
breach, a long term debt rating of at least "A3" by Moody's Investors
Service, Inc. and "BBB" by Standard & Poor's or the equivalent by each
of the other nationally recognized statistical rating organizations,
enters into a binding agreement with the Note Issuer to pay any
amounts necessary so that all interest payments due on the Notes
during the 90-day period will be paid in full; or
- if the Seller does not have such long term debt ratings immediately
prior to the breach, and, within two business days after the date of
determination of breach, deposits an amount in escrow with the Note
Trustee sufficient to pay all interest payments, taking into account
amounts available in the collection account, which will become due on
the Notes during the 90-day period.
Any escrowed amounts will be used by the Note Trustee to make interest payments
if there are not sufficient funds otherwise available. The sale agreement
provides that any change in the law by legislative enactment, constitutional
amendment or initiative petition
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<PAGE> 46
that renders any of the representations and warranties untrue would not
constitute a breach under the sale agreement.
If either a court of competent jurisdiction shall by final order determine
or the Seller shall admit that, as of the closing date, there existed a breach
by the Seller of any other representation or warranty specified in clauses (b),
(c), (g), (h), (i) or (j) above that has a material adverse effect on the
Certificateholders, if, within 90 days after the date of determination or
admission of breach, the breach has not been cured and the Seller has not taken
remedial action such that there is not and will not be a material adverse effect
on the Certificateholders as a result of the breach, then the Seller shall be
required to repurchase the transition property for the Repurchase Price. Upon
the payment by the Seller of the Repurchase Price, no person or entity shall
have any other claims, rights or remedies against the Seller under, arising from
or with respect to the sale agreement, except for the indemnity rights of the
indemnified persons described below. In the event of a breach of any
representation or warranty in the sale agreement other than those that trigger
the Seller's repurchase obligation, the Seller shall be required to indemnify,
defend and hold harmless the Note Issuer and its assignees against any costs,
expenses, losses, claims, damages and liabilities incurred as a result of the
breach; provided, however, the Seller may, at its election and in full
satisfaction of its indemnity obligation, repurchase the transition property at
the Repurchase Price, in which case no person or entity shall have any claims,
rights or remedies against the Seller under, arising from or with respect to the
sale agreement, except for the indemnity rights of the indemnified persons
described below. The remedies provided for in the sale agreement are the Note
Issuer's sole and exclusive remedies against the Seller for breach of its
representations and warranties in the sale agreement. In addition, the Seller
shall indemnify and hold harmless the Note Trustee, the Delaware Trustee, the
Certificate Trustee, the Agencies and any of their respective affiliates,
officers, directors, employees and agents (the "indemnified persons") against
any expenses (including legal fees and expenses), losses, claims, taxes, damages
and liabilities incurred by any of the indemnified persons as a result of a
breach by the Seller of its representations and warranties in the sale
agreement, except to the extent of amounts either resulting from the willful
misconduct or gross negligence of the indemnified person or resulting from a
breach of a representation or warranty made by the indemnified person in the
transaction documents that gives rise to the Seller's breach.
The Seller will also agree to take any legal or administrative action,
including defending against or instituting and pursuing legal actions, as may be
reasonably necessary to protect the Note Issuer and the Certificateholders from
claims, state actions or other actions or proceedings of third parties which, if
successfully pursued would result in a breach of any representation described
above. The Seller will also agree that it will not at any time assert any
security interest, lien, charge or encumbrance against or with respect to the
transition property.
BANKRUPTCY AND CREDITORS' RIGHTS ISSUES
The Seller will represent and warrant in the sale agreement that the
transfer of the transition property to the Note Issuer is a valid sale and
assignment of the transition property from the Seller to the Note Issuer. The
Seller will also represent and warrant that it will take the appropriate actions
under the Statute to perfect this sale. The Statute provides that the
transactions described in the sale agreement shall constitute a sale of the
transition property to the Note Issuer, and the Seller and the Note Issuer will
treat the transactions as a sale under applicable law, although for financial
reporting and federal income tax purposes the transactions will be treated as
debt of the Seller.
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<PAGE> 47
The Seller and the Note Issuer have taken steps to reduce the risk that in
the event the Seller or an affiliate of the Seller were to become the debtor in
a bankruptcy case, a court would order that the assets and liabilities of the
Note Issuer be substantively consolidated with those of the Seller or an
affiliate. These steps include the fact that the Note Issuer is a separate,
special purpose limited liability company, the organizational documents of which
provide that it shall not commence a voluntary bankruptcy case without the
unanimous affirmative vote of all of its directors, including two directors
independent of the Seller. Nonetheless, these steps may not be completely
effective, and thus if the Seller or an affiliate of the Seller were to become a
debtor in a bankruptcy case, a court may order that the assets and liabilities
of the Note Issuer be consolidated with those of the Seller or an affiliate,
thus resulting in delays or reductions in distributions on the Certificates.
Other factors that may tend to support consolidation include the ownership of
the Note Issuer by the Seller, the designation of officers or employees of the
Seller as directors, other than independent directors, of the Note Issuer and
the existence of indemnities by the Seller in respect of some liabilities of the
Note Issuer.
Should the transfer of the transition property to the Note Issuer be
recharacterized as a borrowing by the Seller, the Statute provides that there is
a perfected first priority statutory lien on the transition property that
secures all obligations to the Certificateholders. In addition, in the sale
agreement, the Seller grants to the Note Issuer a security interest in the
transition property and covenants that it will take appropriate actions to
perfect the security interest, although the Seller takes the position that it
has no rights in the transition property to which a security interest could
attach.
Under the Statute and the financing order, upon the effective date of the
issuance advice letter, the transition property identified in the issuance
advice letter constitutes a property right that continuously exists as property
for all purposes. Nonetheless, if the Seller were to become the debtor in a
bankruptcy case, a creditor of, or a bankruptcy trustee for, the Seller, or the
Seller itself as debtor in possession, may attempt to take the position that,
because the payments based on the RTC Charge are usage-based charges, transition
property comes into existence only as Customers use electricity. If a court were
to adopt this position, we cannot assure you that either the statutory lien
created by the Statute or the security interest granted in the sale agreement
would be valid in respect of electricity consumed after the commencement of a
bankruptcy case by or against the Seller. If a court were to determine that the
transition property has not been sold to the Note Issuer, and that the statutory
lien created by the Statute and the security interest granted in the sale
agreement are invalid with respect to payments in respect of the RTC Charge that
become collectible as a result of the consumption of electricity consumed after
the commencement of a bankruptcy case of the Seller, then the Certificate
Trustee, as Noteholder and for the benefit of holders of the Certificates, would
be an unsecured creditor of the Seller, and delays or reductions in
distributions on the Certificates could result. Whether or not the court
determined that the transition property had been sold to the Note Issuer, the
court may rule that any payments in respect of the RTC Charge that become
collectible as a result of the consumption of electricity after the commencement
of the Seller's bankruptcy cannot be transferred to the Note Trustee or the
Certificate Trustee, thus resulting in delays or reductions of distributions on
the Certificates.
THE TRUST
The Massachusetts Development Finance Agency and the Massachusetts Health
and Educational Facilities Authority will form the Trust prior to the offering
of the Certificates specifically for the purpose of acquiring the Notes from the
Note Issuer. The Trust will be
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<PAGE> 48
a Delaware business trust. The Massachusetts Development Finance Agency, the
Massachusetts Health and Educational Facilities Authority and [ ],
a [Delaware banking corporation], acting as the Delaware Trustee, not acting in
its individual capacity but acting as trustee on behalf of Certificateholders,
will enter into a Declaration of Trust (the "Declaration of Trust") to form the
Trust. The Trust will not be an agency or instrumentality of The Commonwealth of
Massachusetts. The Trust will have no assets other than the Notes. The
Declaration of Trust will not permit the Trust to engage in any activities other
than holding the Notes, issuing the Certificates, acting as paying agent and
engaging in other related activities.
Each class of Certificates will represent a fractional undivided beneficial
interest in the related class of Notes, including all amounts due and to become
due under the related class of Notes, and will represent the right to receive
the payments on the related class of Notes. See "Description of the
Certificates -- Payments and Distributions."
The Note Issuer, the Massachusetts Development Finance Agency, the
Massachusetts Health and Educational Facilities Authority, the Delaware Trustee
and the Certificate Trustee will enter into a fee and indemnity agreement under
which the Note Issuer will pay the Delaware Trustee's and the Certificate
Trustee's reasonable compensation and reasonable fees and expenses. The fee and
indemnity agreement will further provide that the Note Issuer will indemnify the
Delaware Trustee, the Certificate Trustee, the Massachusetts Development Finance
Agency and the Massachusetts Health and Educational Facilities Authority for,
and hold them harmless against, any loss, liability or expense incurred by them
arising from the failure of the Note Issuer to perform its obligations under
various transaction documents.
The fiscal year of the Trust will be the calendar year.
As of the date of this prospectus, the Trust has not carried on any
business activities and has no operating history. Because the Trust does not
have any operating history, we have not included any financial statements or
related information for the Trust.
THE AGENCIES
The Massachusetts Development Finance Agency is a body politic and
corporate and a public instrumentality of The Commonwealth of Massachusetts. It
is responsible for providing bond issuance, lending and real estate development
services to promote economic development throughout Massachusetts. This agency
was formally created in September 1998 by a legislative merger of the former
Massachusetts Industrial Finance Agency and the Massachusetts Government Land
Bank. The Massachusetts Health and Educational Facilities Authority is an
independent public authority created by the Massachusetts legislature in 1968 to
assist nonprofit health, educational and cultural institutions to borrow funds
at tax-exempt rates, providing access to low-cost capital for those
institutions.
The Statute contemplates state sponsorship of individual utility rate
reduction bond issuances through the Massachusetts Development Finance Agency
and the Massachusetts Health and Educational Facilities Authority. These state
entities have participated in the structuring of the transaction relating to the
issuance of the Certificates and related matters.
The Certificates do not represent an interest in, or an obligation of, The
Commonwealth of Massachusetts, any governmental agency, authority or
instrumentality of The Commonwealth or Boston Edison Company or any of its
affiliates. None of these
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<PAGE> 49
entities or the Trust will guarantee or insure the Certificates, the Notes or
the property securing the Notes.
Neither The Commonwealth of Massachusetts nor any governmental agency,
authority or instrumentality of The Commonwealth nor Boston Edison Company or
any of its affiliates will have any obligation with respect to the Certificates,
the Notes or the property securing the Notes, except as described in this
prospectus.
Neither the full faith and credit nor the taxing power of The Commonwealth
of Massachusetts nor any political subdivision, agency, authority or
instrumentality of The Commonwealth is pledged to the payment of principal of,
or interest on, the Certificates or the Notes, or the payments securing the
Notes. Furthermore, neither The Commonwealth of Massachusetts nor any political
subdivision, agency, authority or instrumentality of The Commonwealth will
appropriate any funds for the payment of any of the Certificates or the Notes.
THE NOTE ISSUER
The Note Issuer is a limited liability company organized under the laws of
the State of Delaware. The Seller is the sole member of the Note Issuer. The
principal executive office of the Note Issuer is located at 800 Boylston Street,
35th Floor, Boston, Massachusetts 02199. The telephone number of the Note Issuer
is (617)369-6000. The Seller organized the Note Issuer for the limited purpose
of holding and servicing the Transition Property and issuing Notes secured by
the Transition Property and the other Note collateral and related activities.
The Note Issuer's organizational documents restrict it from engaging in other
activities. The assets of the Note Issuer will consist primarily of the
Transition Property and the other Note collateral. In addition, the Note
Issuer's organizational documents require it to operate in a manner intended to
reduce the likelihood that it would be consolidated in the Seller's bankruptcy
estate if the Seller becomes subject to a bankruptcy proceeding.
The Note Issuer is a recently formed entity and, as of the date of this
prospectus, has not carried on any business activities and has no operating
history. We have included audited financial statements of the Note Issuer as an
exhibit to this prospectus.
OFFICERS AND DIRECTORS
The directors of the Note Issuer oversee the management of its property and
business. The following is a list of the officers and directors of the Note
Issuer:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----------------------------------
<S> <C> <C>
James J. Judge.......... 43 Director
Robert J. Weafer,
Jr. .................. 52 President, Director
Emilie G. O'Neil........ 38 Vice President, Treasurer, Director
Theodora S. Convisser... 51 Secretary
[ ]... [ ] Director
[ ]... [ ] Director
</TABLE>
All of the Note Issuer's officers and directors, other than those directors
who are independent of Boston Edison and its affiliates, have served in their
capacities since February , 1999. The officers and directors will devote such
time as is necessary to the affairs of the Note Issuer. The Note Issuer will
have sufficient officers, directors and employees to carry on its business.
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<PAGE> 50
Robert J. Weafer, Jr. is President and a Director of the Note Issuer. Mr.
Weafer has been the Vice President -- Finance and Controller of Boston Edison
since 1995, and he has been a Vice President, the Controller and the Chief
Accounting Officer of Boston Edison since 1991.
James J. Judge is a Director of the Note Issuer. Mr. Judge has served as
Senior Vice President -- Corporate Services and Treasurer of Boston Edison since
1995. Previously, Mr. Judge served Boston Edison as Assistant Treasurer from
1989 to 1995 and as Director of Corporate Planning from 1993 to 1995.
Emilie G. O'Neil is Vice President, Treasurer and a Director of the Note
Issuer. Ms. O'Neil has been the Manager of Corporate Finance for Boston Edison
since 1991.
Theodora S. Convisser is the Secretary of the Note Issuer. Ms. Convisser
has served as the Clerk of Boston Edison since 1986 and as Assistant General
Counsel since 1984.
[Insert biographies of independent directors]
The Note Issuer will not compensate its officers and will not compensate
its directors, other than the two directors that are independent of Boston
Edison and its affiliates, for their services on behalf of the Note Issuer. The
initial annual compensation for each of the independent directors will be
$[ ]. Any officer will serve at the discretion of the Note Issuer's
directors. The Note Issuer's organizational documents provide that it will
indemnify its officers and directors against liabilities incurred in connection
with their services on behalf of the Note Issuer.
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<PAGE> 51
THE SELLER AND SERVICER
Boston Edison was incorporated under Massachusetts law in 1886. Boston
Edison is an electric company primarily engaged in the business of supplying
electricity at retail to an area of approximately 590 square miles, including
the City of Boston and 39 surrounding cities and towns. In 1998, Boston Edison
served an average of approximately 660,000 customers. Boston Edison comprises
the major portion of the assets and revenues of BEC Energy, its parent holding
company.
As an investor-owned electric company, Boston Edison is regulated by the
Massachusetts Department of Telecommunications and Energy and the Federal Energy
Regulatory Commission. The Seller is also regulated by the Nuclear Regulatory
Commission with respect to its ownership of nuclear generation assets.
BOSTON EDISON REVENUES, CUSTOMER BASE AND ENERGY CONSUMPTION
Several factors influence the number of Boston Edison's retail customers
and their electric energy consumption. One such factor is the general economic
climate in Boston Edison's service territory, which affects migration of
residential, commercial and industrial customers into or out of the service
territory. Another factor influencing sales of electricity is temperature.
Boston Edison's electricity sales are typically higher in the winter and summer
when heating or cooling demands are highest than in the spring and fall when
temperatures tend to be more moderate. The level of business activity of
commercial and industrial customers also tends to influence their electricity
consumption. Other factors affecting the electricity consumption of retail
customers, primarily over the longer term, include the availability of more
energy-efficient appliances and other products and retail customers' ability to
acquire these products.
The table below sets forth Boston Edison's total billed retail revenues
from retail sales of electrical energy for the years 1994 to 1998:
BILLED RETAIL REVENUES
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Billed Retail
Revenues ($ in
000's):
Residential.......... 425,591 441,088 454,393 473,450 437,032
Commercial........... 760,010 804,378 824,862 880,959 828,182
Industrial........... 142,538 147,739 148,111 148,453 135,951
Street Lighting...... 23,487 24,167 24,431 24,811 22,742
--------- --------- --------- --------- ---------
Total...... 1,351,626 1,417,372 1,451,797 1,527,673 1,423,907
</TABLE>
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<PAGE> 52
The table below sets forth the number of Boston Edison's retail customers
by class for the years 1994-1998:
RETAIL CUSTOMERS
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Average Number of Retail
Customers:
Residential................. 570,340 569,710 572,816 576,576 576,535
Commercial.................. 80,756 79,313 79,964 81,006 78,835
Industrial.................. 1,634 1,599 1,552 1,527 1,492
Street lighting............. 2,951 3,094 3,131 3,219 3,144
------- ------- ------- ------- -------
Total............. 655,681 653,716 657,463 662,328 660,006
</TABLE>
The table below sets forth Boston Edison's billed retail energy sales for
the years 1994 to 1998:
BILLED RETAIL ENERGY SALES (GIGAWATT-HOURS)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Billed Retail Energy Sales
(Gigawatt-hours):
Residential................. 3,524 3,516 3,590 3,590 3,624
Commercial.................. 7,451 7,578 7,798 8,038 8,267
Industrial.................. 1,537 1,534 1,539 1,474 1,493
Street lighting............. 131 132 131 131 132
------- ------- ------- ------- -------
Total............. 12,643 12,760 13,058 13,233 13,516
</TABLE>
ESTIMATED CONSUMPTION AND ESTIMATED VARIANCE
Boston Edison's calculation of the initial RTC Charge and subsequent
adjustments are based on electricity sales estimates. The Servicer will use
these estimates to calculate and set the RTC Charge at a level intended to
generate revenues sufficient to pay interest on and principal of the
Certificates, to pay fees and expenses of servicing and retiring the Notes and
the Certificates, to replenish the capital subaccount and to fund the
overcollateralization amount.
Boston Edison conducts sales estimate variance analyses on a regular basis
to monitor the accuracy of energy estimates against recorded consumption. The
table below presents the estimates of Boston Edison's billed retail energy sales
in gigawatt-hours for the years 1994 through 1998. There are 1,000,000
kilowatt-hours in a gigawatt-hour. Each estimate was made in the prior year. For
example, the 1994 estimate of 12,678 gigawatt-hours was prepared in 1993.
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<PAGE> 53
ANNUAL ESTIMATED VARIANCES
BILLED RETAIL ENERGY SALES (GIGAWATT-HOURS)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Estimate......................... 12,678 12,732 12,635 13,152 13,427
Actual........................... 12,643 12,760 13,058 13,233 13,516
Variance......................... -35 28 423 81 89
Percentage Variance.............. -0.28% 0.22% 3.24% 0.61% 0.66%
</TABLE>
Actual usage depends on several factors, including temperatures and
economic conditions. For example, while Boston Edison's methodology for
estimating usage assumes normal conditions, abnormally hot summers can add an
extra 1.5 to 2.5% in electricity sales. Regional economic conditions can also
affect sales as retail customers curb electricity usage to save money,
businesses close and retail customers migrate from Boston Edison's service
territory. Accordingly, variations in conditions will affect the accuracy of any
estimate.
BILLING AND COLLECTIONS
CREDIT POLICY
Boston Edison's credit and collections policies are subject to regulation
by the Massachusetts Department of Telecommunications and Energy. Under the
Department's regulations, Boston Edison is obligated to provide service to all
customers within its service territory.
Upon application for service, the identification and credit standing of all
residential customers is verified through the use of a major credit-reporting
bureau. In instances where nonresidential customers do not meet minimum credit
standards, credit must be established. This can be done through providing a
security deposit (normally twice the average monthly bill), furnishing a surety
bond and/or a bank letter of credit. The Department does not permit Boston
Edison to obtain security deposits from its residential customers.
According to the Department's regulations, Boston Edison may refuse to
provide service, at any location, to an applicant who is indebted to it for any
service previously furnished to the applicant. Boston Edison will commence
service, however, if a reasonable payment plan for the indebtedness is first
made between a residential applicant and Boston Edison, and it may likewise
commence service for an industrial or commercial applicant.
BILLING PROCESS
Boston Edison bills its customers once every 26 to 34 days, with
approximately an equal number of bills being distributed each business day. For
the year ending December 31, 1998, Boston Edison mailed out an average of 33,000
bills on each business day to customers in its various customer categories.
Approximately 7,200 residential and small business customers, which
constitute approximately one percent of Boston Edison's retail customers, choose
to be billed using Boston Edison's budget billing program. For these customers
Boston Edison determines and bills a monthly budget amount based on the last
twelve months of billing history for each account. The budget amount is
recalculated each March and September, if necessary.
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<PAGE> 54
Overpayments or underpayments for actual usage during the prior year are
reconciled on each customer's September bill.
For accounts with potential billing errors exception reports are generated
for manual review. This review examines accounts that have abnormally high or
low bills, potential meter-reading errors and possible meter malfunctions.
COLLECTION PROCESS
Boston Edison receives the majority of its payments via the U.S. mail;
however, other payment options are also available. These options include
electronic payments, electronic fund transfers, as well as direct payment at
Boston Edison's payment agency network and field office locations.
In general, Boston Edison's collection process begins when balances are
unpaid for 45 days or more from the billing date. At that time Boston Edison
begins collection activities ranging from delinquency notice mailings, to
telephone calls, to personal collection and ending with electricity shut-off.
Boston Edison also uses collection agencies and legal collection experts as
needed throughout this process.
RESTORATION OF SERVICE
Before restoring service that has been shut-off for non-payment, Boston
Edison has the right to require the payment of all of the following charges:
- amounts owing on an account including the amount of any past-due balance
for charges for which Boston Edison may disconnect service if they are
unpaid and legal noticing requirements were met prior to service
termination, the current billing and a credit deposit, if applicable;
- any miscellaneous charges associated with the reconnection of service
(i.e., reconnection charges, field collection charges and/or returned
check charges);
- 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
- any unpaid closing bills from other accounts in the name of the customer
of record.
LOSS EXPERIENCE
The following table sets forth information relating to Boston Edison's
annual net charge-offs for retail customers for the years 1994 to 1998:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Annual Net Charge-
Offs ($):.......... $14,797,853 $14,241,497 $14,168,852 $14,640,534 $15,093,674
Percentage of Billed
Revenues:.......... 1.1% 1.0% 1.0% 1.0% 1.1%
</TABLE>
Boston Edison determines a customer's account to be inactive (or finaled)
on the date:
- the customer gives notice requesting discontinuance of service,
- a new customer applies for service at a location where the customer of
record has not yet discontinued service, or
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<PAGE> 55
- the customer's service has been shut off due to non-payment.
Boston Edison's policy is to charge-off a finaled account to bad debt
expense 120 days after the date the account is determined to be finaled if
payment has not been received.
DAYS REVENUE OUTSTANDING
The following table sets forth information relating to the average number
of days retail customer bills remain outstanding:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average number of days
outstanding........... 46 46 46 44 45
</TABLE>
YEAR 2000 COMPUTER ISSUE
The year 2000 computer issue is the result of computer programs that were
written using two digits rather than four to define an applicable year. If
computer programs with date-sensitive functions are not year 2000 compliant,
they may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in system failures or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions and engage in other normal business activities. Boston Edison has a
year 2000 program in place that has been addressing the risk of non-compliant
internal business software, internal non-business software and embedded chip
technology and external noncompliance of third parties.
Boston Edison's plan addressing the year 2000 computer issue includes
modification of applications and replacement of systems that are not year 2000
compliant. For each system designated as "critical" (defined as being necessary
to safely provide a reliable flow of electricity), Boston Edison's year 2000
program includes system testing and a contingency plan. Plans have been
developed in conjunction with available national and regional guidance and are
based on system emergency plans which were developed and successfully tested
over the last several years.
As part of the year 2000 program, significant suppliers, service providers
and other vendors were contacted to determine year 2000 readiness. Many third
parties have noted that they are already year 2000 compliant or in the process
of becoming compliant. In addition to the risk faced from its dependence on
other third party suppliers, Boston Edison has a risk that power will not be
available from the New England Power Pool (NEPOOL) for purchase and distribution
to its customers should NEPOOL fail to resolve its year 2000 issues as planned.
NEPOOL transmits electricity to a number of New England based electric
companies. To mitigate this risk, efforts are being coordinated with NEPOOL to
establish inter-utility testing guidelines to determine year 2000 readiness.
Boston Edison is also a participant in the NEPOOL/ISO New England Year 2000
Joint Oversight Committee which has been given responsibility for the
operational reliability of NEPOOL.
Boston Edison believes that its year 2000 program remains on schedule with
anticipated completion in the third quarter of 1999. Boston Edison believes,
however, it is not possible to determine with complete certainty that all
potential year 2000 problems have been identified or will be corrected because
of the complexity and pervasiveness of the issue.
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<PAGE> 56
SERVICING
SERVICING PROCEDURES
The Servicer, on behalf of the Note Issuer, will manage, service and
administer, and bill and collect payments in respect of, the transition property
according to the terms of the servicing agreement between the Servicer and the
Note Issuer. The Servicer's duties will include responding to inquiries of
Customers and the Massachusetts Department of Telecommunications and Energy with
respect to the transition property and the RTC Charge, calculating electricity
usage, accounting for collections, furnishing periodic reports and statements to
the Note Issuer, the Note Trustee and the Certificate Trustee and periodically
adjusting the RTC Charge.
In addition, the Servicer will take legal or administrative actions,
including defending against or instituting and pursuing legal actions and
appearing or testifying in hearings or similar proceedings, as may be reasonably
necessary to block or overturn any attempts to cause a repeal of, modification
of or supplement to the Statute or the financing order or the rights of holders
of transition property by legislative enactment, initiative petition or
constitutional amendment that would be adverse to Certificateholders. The cost
of any action will be payable from the RTC Charges as an expense of the Note
Issuer.
SERVICING STANDARDS AND COVENANTS
The servicing agreement will require the Servicer, in servicing and
administering the transition property, to employ or cause to be employed
procedures and exercise or cause to be exercised the same care it customarily
employs and exercises in servicing and administering bill collections for its
own account and for others.
Consistent with the foregoing, the Servicer may in its own discretion waive
any late payment charge or any other fee or charge relating to delinquent
payments, if any, and may waive, vary or modify any terms of payment of any
amounts payable by a Customer, in each case, if the waiver or action:
- would comply with the Servicer's customary practices or those of any
successor Servicer with respect to comparable assets that it services for
itself and for others;
- would not materially adversely affect the Certificateholders; and
- would comply in all material respects with applicable law.
In addition, the Servicer may write off any amounts that it deems uncollectible
according to its customary practices.
In the servicing agreement, the Servicer will covenant that, in servicing
the transition property it will:
- manage, service, administer and make collections in respect of the
transition property with reasonable care and in compliance with
applicable law, including all applicable guidelines of the Massachusetts
Department of Telecommunications and Energy, using the same degree of
care and diligence that the Servicer exercises with respect to bill
collections for its own account and for others;
- follow customary standards, policies and procedures for the industry in
performing its duties as Servicer;
- use all reasonable efforts, consistent with its customary servicing
procedures, to enforce, and maintain rights in respect of, the transition
property;
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<PAGE> 57
- comply in all material respects with laws applicable to and binding on it
relating to the transition property; and
- submit at least annually a true-up advice letter to the Department
seeking an adjustment, if any, of the RTC Charge.
REMITTANCES TO COLLECTION ACCOUNT
The Servicer will remit daily to the Note Trustee an amount equal to the
actual RTC Charges billed, less an allowance for estimated RTC Charge
charge-offs, within [ ] business days after the day payments in respect of the
RTC Charge are deemed to be collected. The deemed collection date for payments
in respect of the RTC Charge payments will be the weighted average number of
days, based on Boston Edison's historical collections experience, that a monthly
bill for services remains outstanding before payment. Currently, Boston Edison
estimates the deemed collection date to occur, on average, 45 days after the
date RTC Charges are billed. The Servicer expects to review the deemed
collection date not less than annually and may adjust the deemed collection date
based on actual payment patterns.
Each year, the Servicer will reconcile remittances of estimated payments in
respect of the RTC Charge with the Note Trustee to more accurately reflect the
amount of billed RTC Charges that should have been remitted, based on the actual
system-wide charge-off percentage, as reduced for estimates of partially paid
bills (which are deemed to have paid the RTC Charge in full). To the extent the
remittances of estimated payments in respect of the RTC Charge exceed the actual
payments in respect of the RTC Charge collected by the Servicer, the Servicer
will be entitled to receive a payment from the Note Trustee in an amount equal
to the excess remittance, or to withhold the excess amount from any subsequent
remittance to the Note Trustee. To the extent the remittances of estimated
payments in respect of the RTC Charge are less than the actual payments in
respect of the RTC Charge collected, the Servicer will remit the amount of the
shortfall to the Note Trustee on the next remittance date following the
determination. Although the Servicer will remit estimated payments in respect of
the RTC Charge to the Note Trustee, the Servicer is not obligated to make any
payments on the Notes or the Certificates.
SERVICING COMPENSATION
The Servicer will be entitled to receive an annual servicing fee in an
amount equal to:
- 0.05 percent of the initial principal amount of the Notes for so long as
the Servicer bills the RTC Charge concurrently with other charges for
services; or
- up to 1.25 percent of the initial principal balance of the Notes if the
RTC Charge is being billed separately to Customers.
The Note Trustee will pay the servicing fee semiannually (together with any
portion of the servicing fee that remains unpaid from prior payment dates) to
the extent of available funds prior to the distribution of any amounts in
respect of interest on and principal of the Notes. See "Description of the
Notes -- Allocations and Payments."
THIRD PARTY SUPPLIERS
As part of the deregulation of the Massachusetts electric industry, the
Statute contemplates that electricity metering and billing services may be
unbundled from distribution services. See "Energy Deregulation and New
Massachusetts Market Structure -- Third Party Billing Options." As a result,
third party suppliers may bill, collect and
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<PAGE> 58
remit the RTC Charge in the future. When a third party supplier bills, collects
and remits billed amounts in respect of the RTC Charge, there is a greater risk
that the Servicer will receive payments in respect of the RTC Charge later than
it otherwise would. The greater the delay in receipt of payment, the larger the
amount of payments subject to the risk of non-payment due to default, bankruptcy
or insolvency of the third party supplier holding the funds. Third party
supplier billing also places increased information requirements on the Servicer.
The Servicer will have the responsibility of accounting for payments in respect
of the RTC Charge due to Certificateholders regardless of which entity provides
a Customer's electric power.
Any third party supplier that bills and collects the RTC Charge will be
required to pay all amounts in respect of the RTC Charge billed by the third
party supplier, regardless of whether payments are received from Customers,
within 15 days of the Servicer's bill to the third party supplier for amounts in
respect of the RTC Charge. The third party supplier will, in effect, replace the
Customer as the obligor with respect to these amounts, and the Servicer, on
behalf of the Note Issuer, will have no right to collect payments in respect of
the RTC Charge from the Customer.
To mitigate the risks associated with a third party supplier, if and so
long as a third party supplier does not maintain at least a 'BBB' (or the
equivalent) long-term unsecured credit rating from Moody's Investors Service,
Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc., a
third party supplier will be required to maintain with the Servicer, or as
directed by the Servicer, a deposit or comparable security equal to one month's
maximum estimated collections of payments in respect of the RTC Charge, as
agreed upon by the Servicer and the third party supplier. In the event of a
default in the remittance of payments in respect of the RTC Charge by a third
party supplier, the Servicer will take these amounts into account in adjusting
the RTC Charge. The Servicer will also have access to information from the third
party supplier regarding kilowatt-hour billing and electricity usage by
Customers to provide proper reporting and to fulfill its obligations under the
servicing agreement. The Servicer will be entitled, within seven days after a
default by a third party supplier in remitting to the Servicer any amounts in
respect of the RTC Charge, to assume responsibility for billing the RTC Charge
to the Customers of the third party supplier or to assign that responsibility to
a third party.
Neither Boston Edison nor the Servicer will pay any shortfalls resulting
from the failure of any third party supplier to remit payments in respect of the
RTC Charge to the Servicer. The true-up adjustment mechanism for the RTC Charge,
as well as the overcollateralization amount and the amounts deposited in the
capital subaccount, are intended to mitigate the risk of shortfalls. Any
shortfalls that occur will delay the distribution of interest on and principal
of the Certificates.
SERVICER REPRESENTATIONS AND WARRANTIES
In the servicing agreement, the Servicer will represent and warrant to the
Note Issuer, as of the closing of the issuance of the Certificates, among other
things, that:
- the Servicer is a corporation duly organized and in good standing under
the laws of The Commonwealth of Massachusetts, with power and authority
to own its properties as owned by it on the issuance date and to conduct
its business as its business is conducted by it on the issuance date and
to execute, deliver and carry out the terms of the servicing agreement;
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<PAGE> 59
- the execution, delivery and carrying out of the terms of the servicing
agreement have been duly authorized by all necessary corporate action on
the part of the Servicer;
- the servicing agreement constitutes a legal, valid and binding obligation
of the Servicer, enforceable against it in accordance with its terms,
subject to insolvency, reorganization, moratorium, fraudulent transfer
and other laws relating to or affecting creditors' rights generally from
time to time in effect and to general principles of equity, regardless of
whether considered in a proceeding in equity or at law;
- the consummation of the transactions contemplated by the servicing
agreement does not conflict with the Servicer's articles of organization
or by-laws or any material agreement to which the Servicer is a party or
bound, result in the creation or imposition of any lien upon the
Servicer's properties pursuant to a material agreement or violate in any
material respect any existing law or any existing order, rule or
regulation applicable to the Servicer;
- the Servicer has all material licenses necessary for it to perform its
obligations under the servicing agreement;
- 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
- except as disclosed to the Note Issuer, no court or administrative
proceeding is pending and, to the Servicer's knowledge, no court or
administrative proceeding is threatened and, to the Seller's knowledge,
no investigation is pending or threatened, asserting the invalidity of,
or seeking to prevent the consummation of the transactions contemplated
by, the servicing agreement or seeking a determination that might
materially and adversely affect the performance by the Servicer of its
obligations under the servicing agreement.
In the event of willful misconduct or gross negligence by the Servicer
under the servicing agreement or in the event of the Servicer's breach in any
material respect of any of the representations and warranties in the preceding
paragraph, as determined by a final order of a court of competent jurisdiction
or by admission of the Servicer, the Servicer will indemnify, defend and hold
harmless the Note Issuer against any costs, expenses, losses, claims, damages
and liabilities incurred as a result of these events; provided, however, that
the Servicer shall not be liable for any costs, expenses, losses, claims,
damages or liabilities resulting from the willful misconduct or gross negligence
of the Note Issuer; and, provided, further, that the Servicer shall not be
liable for any costs, expenses, losses, claims, damages or liabilities,
regardless of when incurred, after the Notes and the Certificates have been
discharged in full.
STATEMENTS BY SERVICER
On or before [ ] of each year, the Servicer will prepare and
furnish annually to the Note Trustee, the Certificate Trustee and the Note
Issuer a statement for the previous year setting forth either the amount of any
excess payments in respect of the RTC Charge remitted by the Servicer to the
Note Trustee or the amount of any shortfall in remittances.
In addition, the Servicer will prepare, and the Note Trustee will furnish
to the Noteholders on each payment date the semiannual Servicer's certificate
described under
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<PAGE> 60
"Description of the Notes -- Reports to Noteholders." The Servicer will also
prepare and the Certificate Trustee will furnish to the Certificateholders on a
distribution date the report described under "Description of the
Certificates -- Reports to Certificateholders."
EVIDENCE AS TO COMPLIANCE
The servicing agreement will provide that a firm of independent public
accountants, at the Note Issuer's expense, will furnish to the Note Issuer, the
Note Trustee and the Certificate Trustee on or before [March 31] of each year,
beginning [March 31, 2000], a statement as to compliance by the Servicer with
standards relating to the servicing of the Transition Property during the
preceding twelve months ended [December 31] (or preceding period since the
closing date of the issuance of the Certificates in the case of the first
statement). This report will state that the accounting firm has performed agreed
upon procedures in connection with the Servicer's compliance with the servicing
procedures of the servicing agreement, identifying the results of the procedures
and including any exceptions noted. The report will also indicate that the
accounting firm providing the report is independent of the Servicer within the
meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants.
The servicing agreement will also provide for delivery to the Note Issuer,
the Note Trustee and the Certificate Trustee, on or before [March 31] of each
year, commencing [March 31, 2000], of a certificate signed by an officer of the
Servicer stating that the Servicer has fulfilled its obligations under the
servicing agreement throughout the preceding twelve months ended [December 31]
(or preceding period since the closing date of the sale in the case of the first
certificate) or, if there has been a default in the fulfillment of any
obligation under the servicing agreement, describing each default. The Servicer
has agreed to give the Note Issuer, the Note Trustee and the Certificate Trustee
notice of Servicer defaults under the servicing agreement.
You may obtain copies of the statements and certificates by sending a
written request addressed to the Certificate Trustee.
MATTERS REGARDING THE SERVICER
The servicing agreement will provide that Boston Edison may not resign from
its obligations and duties as Servicer thereunder, except upon either:
- a determination that Boston Edison's performance of its duties is no
longer permissible under applicable law; or
- notice from the nationally recognized statistical rating organizations
rating the Certificates that Boston Edison's resignation will not result
in a reduction or withdrawal of the then current ratings on any class of
Certificates and consent of the Massachusetts Department of
Telecommunications and Energy.
No resignation of the initial Servicer will become effective until a successor
Servicer has assumed Boston Edison's servicing obligations and duties under the
servicing agreement.
The servicing agreement will further provide that neither the Servicer nor
any of its directors, officers, employees, and agents will be liable to the Note
Issuer, the Note Trustee, the Trust, the Noteholders, the Certificate Trustee,
the Delaware Trustee, the Certificateholders or any other person or entity,
except as provided under the servicing agreement, for taking any action or for
refraining from taking any action under the servicing agreement or for errors in
judgment; provided, however, that neither the Servicer nor any such person or
entity will be protected against any liability that would otherwise be
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<PAGE> 61
imposed by reason of willful misconduct or gross negligence in the performance
of duties. In addition, the servicing agreement will provide that the Servicer
is under no obligation to appear in, prosecute, or defend any legal action,
except as provided in the servicing agreement at the Note Issuer's expense.
Under the circumstances specified in the servicing agreement, any entity
into which the Servicer may be merged or consolidated, or any entity resulting
from any merger or consolidation to which the Servicer is a party, or any entity
succeeding to the business of the Servicer or with respect to its obligations as
Servicer, which corporation or other entity in each of the foregoing cases
assumes the obligations of the Servicer, will be the successor of the Servicer
under the servicing agreement.
SERVICER DEFAULTS
Servicer defaults under the servicing agreement will include, among other
things:
- any failure by the Servicer to remit payments in respect of the RTC
Charge into the collection account as required under the servicing
agreement, which failure continues unremedied for two business days after
written notice from the Note Issuer or the Note Trustee is received by
the Servicer;
- any failure by the Servicer duly to observe or perform in any material
respect any other covenant or agreement in the servicing agreement, which
failure materially and adversely affects the rights of Noteholders and
which continues unremedied for 60 days after the giving of notice of a
failure (a) to the Servicer by the Note Issuer or the Note Trustee or (b)
to the Servicer by holders of Notes evidencing not less than 25 percent
in principal amount of the outstanding Notes;
- any representation or warranty made by the Servicer in the servicing
agreement shall prove to have been incorrect in a material respect when
made, which has a material adverse effect on 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 Note Issuer or the Note
Trustee; and
- events of bankruptcy, insolvency, receivership or liquidation of the
Servicer.
RIGHTS UPON SERVICER DEFAULT
In the event of a Servicer default that remains unremedied, either the Note
Trustee or holders of Notes evidencing not less than 25 percent in principal
amount of then outstanding Notes may terminate all the rights and obligations of
the Servicer (other than the Servicer's indemnity obligation) under the
servicing agreement, whereupon a successor Servicer appointed by the Note
Trustee will succeed to all the responsibilities, duties and liabilities of the
Servicer under the servicing agreement. In addition, upon a Servicer default,
each of the following shall be entitled to apply to the Massachusetts Department
of Telecommunications and Energy for sequestration and payment of revenues
arising with respect to the transition property:
- the Certificateholders and the Certificate Trustee as beneficiary of any
statutory lien permitted by the Statute;
- the Note Issuer or its assignees; or
- pledgees or transferees, including transferees under the Statute of the
transition property.
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<PAGE> 62
If, however, a bankruptcy trustee or similar official has been appointed for the
Servicer, and no Servicer default other than an appointment of a bankruptcy
trustee or similar official has occurred, that trustee or official may have the
power to prevent the Note Trustee or the Noteholders from effecting a transfer
of servicing. The Note Trustee may appoint, or petition a court of competent
jurisdiction for the appointment of, a successor Servicer which satisfies
criteria specified by the nationally recognized statistical rating organizations
rating the Certificates. The Note Trustee may make arrangements for compensation
to be paid to the successor Servicer.
WAIVER OF PAST DEFAULTS
Holders of Notes evidencing at least a majority in principal amount of the
then outstanding Notes, 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 remittances to the
collection account under the servicing agreement. The servicing agreement
provides that no 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, the servicing agreement will require the Servicer to
cooperate with the Note Issuer, the Note Trustee and the successor Servicer in
terminating the Servicer's rights and responsibilities under the servicing
agreement, including the transfer to the successor Servicer of all cash amounts
then held by the Servicer for remittance or subsequently acquired. The servicing
agreement will provide that the Note Issuer shall be liable for its reasonable
costs and expenses incurred in transferring servicing responsibilities (which
shall not include any set-up costs for the successor) to the successor Servicer.
AMENDMENT
The servicing agreement may be amended by the parties thereto, without the
consent of the Noteholders or the Certificateholders, but with the consent of
the Note Trustee, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of that agreement or of modifying in
any manner the rights of the Noteholders or the Certificateholders, provided
that the action will not, as certified in a certificate of an officer of the
Servicer delivered to the Note Trustee and the Note Issuer, materially and
adversely affect the interest of any Noteholder or any Certificateholder. The
servicing agreement may also be amended by the Servicer and the Note Issuer with
the consent of the Note Trustee and the holders of Notes evidencing at least a
majority in principal amount of the then outstanding Notes for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the agreement or of modifying in any manner the rights of the
Noteholders or the Certificateholders; provided that an amendment of the
provisions of the servicing agreement relating to the Servicer's remittance and
RTC Charge adjustment obligations will not result in a reduction or withdrawal
of the then existing rating of the Certificates by a nationally recognized
statistical rating organization that rates the Certificates.
Each nationally recognized statistical rating organization that rates the
Certificates will be given 10 business days' prior notice of any amendment to
any of the Note Indenture and the other financing documents relating to the
issuance of the Notes and Certificates. Each rating organization will also
receive a copy of any notice, filing or report distributed
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by the Servicer, the Note Issuer's independent accountants, the Note Issuer, the
Note Trustee or the Certificate Trustee.
DESCRIPTION OF THE NOTES
The Note Issuer will issue the Notes to the Trust under the terms of a Note
Indenture between the Note Issuer and [ ], a [national banking association],
acting as the Note Trustee. Each class of Notes will be in an aggregate
principal amount equal to the initial aggregate principal amount of the related
class of Certificates. The following summary describes the material terms and
provisions of the Note Indenture. The particular terms of the Notes of any class
will be established in the Note Indenture. This summary is not complete. You
should read this summary together with the prospectus supplement and the terms
and provisions of the Note Indenture, a form of which is filed as an exhibit to
the registration statement relating to this prospectus, prior to buying the
Certificates.
The Note Issuer may issue the Notes in one or more classes. All Notes of
the same class will be identical in all respects except for their denominations.
The Note Issuer may not issue any additional Notes under the Note Indenture.
SECURITY
To secure the payment of interest on and principal of the Notes, the Note
Issuer will grant to the Note Trustee a security interest in all of the Note
Issuer's right, title and interest in and to:
- the transition property;
- the transition property sale agreement;
- the transition property servicing agreement;
- the collection account and all amounts or investment property on deposit
in the collection account;
- all other property of whatever kind owned from time to time by the Note
Issuer;
- 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
- all proceeds in respect of any or all of the foregoing.
The security interest will not cover, however, the following:
- amounts in the collection account released as permitted under the Note
Indenture including net investment earnings on the capital subaccount
that have been released to the Note Issuer by the Note Trustee under the
terms of the Note Indenture; and
- proceeds from the sale of the Notes required to pay costs of issuance
with respect to the Notes and the Certificates.
We refer to the assets in which the Note Issuer will grant the Note Trustee a
security interest as the "Note collateral."
COLLECTION ACCOUNT
The Note Issuer will establish, in the name of the Note Trustee, a
segregated identifiable account with an eligible institution (as described in
the next paragraph). The
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Note Trustee will hold the collection account for the benefit of the
Noteholders. The collection account will consist of four subaccounts:
- a general subaccount;
- a reserve subaccount;
- an overcollateralization subaccount for the overcollateralization amount;
and
- a capital subaccount for capital contributions to the Note Issuer.
All amounts in the collection account not allocated to any other subaccount will
be allocated to the general subaccount. Unless the context indicates otherwise,
all references to the collection account include each of the four subaccounts.
An "eligible institution" means (a) the corporate trust department of the
Note Trustee or (b) a depository institution organized under the laws of the
United States of America or any state or the District of Columbia (or any
domestic branch of a foreign bank), which has either a long-term unsecured debt
rating of 'AA' by Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P"), and 'Aa2' by Moody's Investors Service, Inc. ("Moody's") or 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 S&P
and Moody's and whose deposits are insured by the Federal Deposit Insurance
Corporation.
Funds in the collection account may be invested in any of the following:
- direct obligations of, or obligations fully and unconditionally
guaranteed as to timely payment by, the United States of America;
- demand deposits, time deposits, certificates of deposit or bankers'
acceptances of eligible institutions;
- commercial paper (other than commercial paper issued by Boston Edison)
having, at the time of investment, a rating in the highest rating
category from each of S&P and Moody's;
- money market funds which have the highest rating from each of S&P and
Moody's;
- repurchase obligations with respect to any security that is a direct
obligation of, or fully guaranteed by, the United States of America or
its approved agencies or instrumentalities, entered into with depository
institutions; or
- any other investment permitted by each of S&P and Moody's,
in each case which mature on or before the business day preceding the next
payment date. We refer to each of the investments listed above as the "eligible
investments." The Note Trustee will have access to the collection account for
the purpose of making deposits and withdrawals under the Note Indenture.
INTEREST AND PRINCIPAL
Interest will accrue on the principal balance of a class of Notes at the
per annum rate specified in the prospectus supplement and will be payable on the
payment dates specified in the prospectus supplement. Collections with respect
to the RTC Charge held by the Note Trustee in the general subaccount and any
amounts that are available in the reserve subaccount, the overcollateralization
subaccount and capital subaccount will be used to make interest payments to the
Noteholders of each class on each payment date.
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Principal of each class of Notes will be payable in the amounts and on the
payment dates specified in the prospectus supplement to the extent of available
cash, and subject to the other limitations described below. The prospectus
supplement will set forth the expected amortization schedule for the various
classes of Notes. On any payment date, the Note Issuer will pay principal of a
class of Notes only until the outstanding principal balance of that class has
been reduced to the principal balance specified in the expected amortization
schedule.
However, if insufficient collections with respect to the RTC Charge are in
the collection account on any payment date, principal of any class of Notes may
be paid later than expected. The entire unpaid principal amount of the Notes
will be due and payable on the date on which a Note event of default has
occurred and is continuing, if the Note Trustee or the holders of at least a
majority in principal amount of the outstanding Notes have declared the Notes to
be immediately due and payable. See "-- Note Events of Default; Rights Upon Note
Event of Default."
OPTIONAL REDEMPTION
The Note Issuer may redeem the Notes, at its option, on any payment date
and cause the Trust to redeem the Certificates on any payment date if the
outstanding principal balance of the Notes (after giving effect to payments that
would otherwise be made on that payment date) is less than five percent of the
initial principal balance of the Notes. Upon redemption, the Note Issuer will
pay the outstanding principal amount of the Notes and accrued but unpaid
interest thereon as of the redemption date. Unless otherwise specified in the
prospectus supplement, the Note Issuer will give notice of the redemption 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 redemption date.
MANDATORY REDEMPTION
If the Seller is required to, or elects to, repurchase the transition
property as described under "Description of the Transition Property -- Seller
Representations and Warranties and Repurchase Obligation," the Note Issuer will
be required to redeem the Notes on or before the fifth business day following
the date of repurchase.
OVERCOLLATERALIZATION SUBACCOUNT
The Note Trustee will collect amounts in respect of the transition property
in excess of that necessary to pay interest on and principal of the Notes and
related fees and expenses, which are intended to enhance the likelihood that
payments on the Notes will be made in a timely manner. The Servicer will
calculate and set the RTC Charge at a level that is intended to collect the
overcollateralization amount ratably over the life of the Notes according to a
schedule set forth in the prospectus supplement.
On each payment date, all payments in respect of the RTC Charge remitted to
the collection account will be deposited in the respective subaccounts,
including the overcollateralization subaccount, as described under "--
Allocations and Payments." Amounts in the overcollateralization subaccount will
be invested in eligible investments.
The Servicer will, through a separate non-cash memorandum account, account
for and ultimately credit to ratepayers, any amounts remaining in the collection
account after the Certificates are paid in full, such as any
overcollateralization amounts, including interest earnings. These amounts will
be released to the Note Issuer upon retirement of the
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Certificates. These amounts will inure to the benefit of ratepayers through a
credit to their transition charge or if there is no transition charge, through a
credit to other rates.
CAPITAL SUBACCOUNT
Before or upon the issuance of the Notes, Boston Edison will contribute
capital to the Note Issuer in the amount specified in the prospectus supplement.
The Note Trustee will deposit the capital into the capital subaccount. On each
payment date, the Note Trustee will draw on amounts in the capital subaccount,
if any, to the extent amounts available in the general subaccount, the reserve
subaccount and the overcollateralization subaccount are insufficient to make
scheduled payments on the Notes and pay fees and expenses. Deposits to the
capital subaccount will be made as described under "-- Allocations and
Payments." Amounts in the capital subaccount will be invested in eligible
investments. Boston Edison will be entitled to the earnings on amounts in the
capital subaccount.
RESERVE SUBACCOUNT
The Note Trustee will allocate to the reserve subaccount any amounts
remitted to the collection account in excess of amounts necessary to:
- pay fees and expenses related to the servicing and retirement of the
Notes;
- pay interest on and principal of the Notes;
- fund the capital subaccount up to the required capital level; and
- fund the overcollateralization subaccount up to the required
overcollateralization level.
The Note Trustee will draw on amounts in the reserve subaccount, to the extent
amounts available in the general subaccount are insufficient to pay the amounts
listed above. Amounts in the reserve subaccount will be invested in eligible
investments.
ALLOCATIONS AND PAYMENTS
On any business day upon which the Note Trustee receives a written request
from the Note Issuer's administrator stating that any fees, costs, expenses and
indemnities payable by the Note Issuer, as described in clauses (1) through (4)
below, will become due and payable prior to the next succeeding payment date,
and setting forth the amount and nature of the expense, as well as any
supporting documentation that the Note Trustee may reasonably request, the Note
Trustee, upon receipt of the information, will make payment of the expense on or
before the date the payment is due from amounts on deposit in the general
subaccount, the reserve subaccount, the overcollateralization subaccount and the
capital subaccount, in that order and only to the extent required to make the
payment.
On each payment date, or for any amount payable under clauses (1) through
(4) below, on any business day, the Note Trustee will apply, all amounts on
deposit in the collection account, including net earnings on those amounts
(other than on amounts in the capital subaccount) to pay the following amounts
in the following priority:
(1) all amounts owed by the Note Issuer or the Trust to the Note Trustee,
the Delaware Trustee and the Certificate Trustee will be paid;
(2) the servicing fee and all unpaid servicing fees from any prior payment
dates will be paid to the Servicer;
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(3) the administration fee and all unpaid administration fees from prior
payment dates will be paid to the Note Issuer's administrator;
(4) so long as no event of default has occurred or would be caused by a
payment, all other fees, expenses and indemnities payable by the Note
Issuer will be paid to the persons entitled thereto, provided that the
total amount paid since the previous payment date and on the current
payment date may not, in the aggregate, exceed $[ ];
(5) first, any overdue interest after a payment default (together with, to
the extent lawful, interest on overdue interest at the applicable Note
interest rate) and second, interest currently due and payable will be
transferred to the Certificate Trustee, as Noteholder, for distribution
to the Certificateholders;
(6) first, funds necessary to pay any principal payable as a result of a
Note event of default or on the final maturity date of a class of Notes
and second, principal based on priorities described in the prospectus
supplement will be transferred to the Certificate Trustee, as
Noteholder, for distribution to the applicable Certificateholders
according to the expected amortization schedule for each class;
(7) unpaid operating expenses and indemnities payable by the Note Issuer
will be paid to the persons entitled thereto;
(8) allocate to the capital subaccount the amount, if any, by which the
capital subaccount needs to be funded to equal the required capital
level as of a payment date;
(9) allocate to the overcollateralization subaccount the amount, if any, by
which the overcollateralization subaccount needs to be funded to equal
the required overcollateralization level as of a payment date;
(10) the balance, if any, will be allocated to the reserve subaccount for
distribution on a subsequent payment date; and
(11) following the repayment of all Notes and Certificates, the balance, if
any, will be released to the Note Issuer.
If on any payment date, or for any amounts payable under clauses (1)
through (4) above, on any business day, funds on deposit in the general
subaccount are insufficient to make the transfers contemplated by clauses (1)
through (7) above, the Note Trustee will:
- first, draw from amounts on deposit in the reserve subaccount;
- second, draw from amounts on deposit in the overcollateralization
subaccount; and
- third, draw from amounts on deposit in the capital subaccount,
up to the amount of the shortfall, in order to make the transfers described
above. In addition, if on any payment date funds on deposit in the general
subaccount are insufficient to make the transfers described in clauses (8) and
(9) above, the Note Trustee will draw from amounts on deposit in the reserve
subaccount to make the required transfers. If on any payment date funds on
deposit in the collection account are insufficient to make the transfers
contemplated by clause (5) above, the Note Trustee will allocate the funds in
the collection account among the classes pro rata, as specified in the
prospectus supplement.
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ACTIONS BY NOTEHOLDERS
The Certificate Trustee, on behalf of the Trust as sole initial holder of
the Notes, has the right to vote and give consents and waivers in respect of
modifications to any class of Notes and to the provisions of other agreements
under the Note Indenture. Subject to exceptions, the holders of a majority of
the outstanding principal amount of the Notes shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Note Trustee, or exercising any trust or power conferred on the Note Trustee
under the Note Indenture, provided that:
- the direction shall not be in conflict with any rule of law or with the
Note Indenture;
- other than in the case of a default in the payment of any principal or
redemption price or a default in the payment of interest on any Note, any
direction to the Note Trustee to sell or liquidate the Note collateral
shall be by the holders of 100% of the outstanding principal amount of
the Notes;
- if the Note Trustee elects to maintain possession of the Note collateral
in compliance with the Note Indenture, then any direction to the Note
Trustee by holders of Notes representing less than 100% of the
outstanding principal amount of the Notes to sell or liquidate the Note
collateral shall be of no force and effect; and
- the Note Trustee may take any other action deemed proper by the Note
Trustee that is not inconsistent with the direction.
NOTE EVENTS OF DEFAULT; RIGHTS UPON NOTE EVENT OF DEFAULT
An event of default with respect to the Notes is defined in the Note
Indenture as being:
- a default in the payment of interest on any Note that is not cured within
five business days after the payment date;
- a default in the payment of the then unpaid principal of any Note on the
final maturity date;
- a default in the payment of the redemption price for any Note on a
redemption date;
- a default in the observance or performance in any material respect of any
covenant or agreement of the Note Issuer made in the Note Indenture, and
which continues unremedied for 30 days after notice is given to the Note
Issuer by the Note Trustee or to the Note Issuer and the Note Trustee by
the holders of at least 25 percent in principal amount of the Notes then
outstanding;
- any representation or warranty made by the Note Issuer in the Note
Indenture or in any certificate delivered by the Note Issuer in
connection with the Note Indenture proving to have been incorrect in a
material respect when made and which continues unremedied for a period of
30 days after notice is given to the Note Issuer by the Note Trustee or
to the Note Issuer and the Note Trustee by the holders of at least 25
percent in principal amount of the Notes then outstanding; or
- events of bankruptcy, insolvency, receivership or liquidation of the Note
Issuer.
If a Note event of default should occur and be continuing with respect to
the Notes, the Note Trustee or holders of not less than a majority in principal
amount of the Notes
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then outstanding may declare the Notes to be immediately due and payable. Under
circumstances set forth in the Note Indenture, the holders of a majority in
principal amount of Notes then outstanding may rescind the declaration.
If the Notes have been declared to be due and payable following a Note
event of default, the Note Trustee may, in its discretion, either sell the
transition property or elect to maintain possession of the transition property
and continue to apply payments in respect of the RTC Charge remitted to the Note
Trustee as if there had been no declaration of acceleration. We expect that
there will be a limited resale market, if any, for the transition property
following a foreclosure because of the unique nature of the transition property
as an asset and other factors discussed in this prospectus.
In addition, the Note Trustee is prohibited from selling the transition
property following a Note event of default, other than a default in the payment
of any principal or redemption price or a default in the payment of interest on
any Note, unless:
- the holders of all the outstanding Notes consent to the sale;
- the proceeds of the sale are sufficient to pay in full the accrued
interest on and the principal of the outstanding Notes; or
- the Note Trustee determines that the proceeds of the transition property
would not be sufficient on an ongoing basis to make all payments on the
Notes as those payments would have become due if the Notes had not been
declared due and payable, and the Note Trustee obtains the consent of the
holders of 66 2/3 percent of the outstanding amount of the Notes.
Subject to the provisions of the Note Indenture relating to the duties of
the Note Trustee, in case a Note event of default occurs and is continuing, the
Note Trustee will be under no obligation to exercise any of the rights or powers
under the Notes at the request or direction of any of the holders of Notes if
the Note Trustee reasonably believes it will not be adequately indemnified
against the costs, expenses and liabilities that it might incur in complying
with the request. Subject to provisions for indemnification and limitations
contained in the Note Indenture, the holders of a majority in principal amount
of the outstanding Notes will have the right to direct the time, method and
place of conducting any proceeding or any remedy available to the Note Trustee
and the holders of a majority in principal amount of the outstanding Notes may,
in some cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Note Indenture that cannot be modified without the consent of
all of the holders of the outstanding Notes of all classes affected.
No holder of any Note will have the right to institute any proceeding with
respect to the Notes, unless:
- the holder previously has given to the Note Trustee written notice of a
continuing event of default;
- the holders of not less than 25 percent in principal amount of the
outstanding Notes have made written request of the Note Trustee to
institute the proceeding in its own name as Note Trustee;
- the holder or holders have offered the Note Trustee reasonable indemnity;
- the Note Trustee has failed for 60 days to institute a proceeding; and
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- no direction inconsistent with the written request has been given to the
Note Trustee during the 60-day period by the holders of a majority in
principal amount of the outstanding Notes.
In addition, the Servicer will covenant that it will not at any time
institute against the Note Issuer or the Trust any bankruptcy, reorganization or
other proceeding under any federal or state bankruptcy or similar law.
COVENANTS OF THE NOTE ISSUER
The Note Issuer may not consolidate with or merge into any other entity,
unless:
- the entity formed by or surviving a consolidation or merger of the Note
Issuer is organized under the laws of the United States, any state or the
District of Columbia;
- the entity expressly assumes by an indenture supplemental to the Note
Indenture the Note Issuer's obligation to make due and punctual payments
upon the Notes and the performance or observance of every agreement and
covenant of the Note Issuer under the Note Indenture;
- no event of default will have occurred and be continuing immediately
after the merger or consolidation of the Note Issuer;
- the transaction will not result in a reduction or withdrawal of the then
current ratings on any class of Notes or Certificates;
- the Note Issuer has received an opinion of counsel to the effect that the
consolidation or merger would have no material adverse tax consequence to
the Note Issuer, the Trust, any Noteholder or any Certificateholder and
the consolidation or merger complies with the Note Indenture and all
conditions precedent relating to the transaction have been complied with;
and
- any action as is necessary to maintain the lien and security interest
created by the Note Indenture will have been taken.
The Note Issuer may not convey or transfer any of its properties or assets
to any person or entity, unless:
(a) the person or entity acquiring the properties and assets:
- is a United States citizen or an entity organized under the laws of
the United States, any state or the District of Columbia;
- expressly assumes by an indenture supplemental to the Note Indenture
the Note Issuer's obligation to make due and punctual payments upon
the Notes and the performance or observance of every agreement and
covenant of the Note Issuer under the Note Indenture;
- expressly agrees by a supplemental indenture that all right, title and
interest so conveyed or transferred will be subject and subordinate to
the rights of Noteholders;
- unless otherwise expressly waived by the Note Issuer, expressly agrees
to indemnify, defend and hold harmless the Note Issuer against and
from any loss, liability or expense arising under or related to the
Note Indenture and the Notes; and
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- expressly agrees by means of a supplemental indenture that the person
(or if a group of persons, then one specified person) shall make all
filings with the Securities and Exchange Commission (and any other
appropriate person) required by the Securities Exchange Act of 1934 in
connection with the Notes;
(b) no event of default under the Note Indenture will have occurred and be
continuing immediately after the transaction;
(c) the transaction will not result in a reduction or withdrawal of the
then current ratings on any class of Certificates;
(d) the Note Issuer has received an opinion of counsel to the effect that
the transaction will not have any material adverse tax consequence to the Note
Issuer, the Trust, any Noteholder or any Certificateholder and the conveyance or
transfer complies with the Note Indenture and all conditions precedent relating
to the transaction have been complied with; and
(e) any action as is necessary to maintain the lien and security interest
created by the Note Indenture shall have been taken.
The Note Issuer will not, among other things:
- except as expressly permitted by the Note Indenture, sell, transfer,
exchange or otherwise dispose of any of the assets of the Note Issuer,
unless directed to do so by the Note Trustee;
- 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 Internal Revenue Code of 1986) or assert any claim against any
present or former Noteholder because of the payment of taxes levied or
assessed upon any part of the Note collateral;
- terminate its existence, dissolve or liquidate in whole or in part;
- permit the validity or effectiveness of the Note Indenture to be
impaired;
- permit the lien of the Note Indenture to be amended, hypothecated,
subordinated, terminated or discharged or permit any person to be
released from any covenants or obligations with respect to the Notes
except as may be expressly permitted by the Note Indenture;
- permit any lien, charge, excise, claim, security interest, mortgage or
other encumbrance, other than the lien and security interest created by
the Note Indenture or the statutory lien under the Statute, to be created
on or extend to or otherwise arise upon or burden the Note collateral or
any part of it or any interest in it or the proceeds from it; or
- subject to the statutory lien under the Statute, permit the lien of the
Note Indenture not to constitute a valid first priority security interest
in the Note collateral.
The Note Issuer may not engage in any business other than financing,
purchasing, owning and managing the transition property in the manner
contemplated by the Note Indenture and the other financing documents relating to
the issuance of the Notes and Certificates and related activities. The Note
Issuer will not issue, incur, assume, guarantee or otherwise become liable for
any indebtedness except for the Notes.
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The Note Issuer will not, except for any eligible investments as
contemplated by the Note Indenture and the other financing documents relating to
the issuance of the Notes and Certificates, make any loan or advance or credit
to, or guarantee, endorse or otherwise become contingently liable in connection
with the obligations, stocks or dividends of, or own, purchase, repurchase or
acquire (or agree contingently to do so) any stock, obligations, assets or
securities of, or any other interest in, or make any capital contribution to,
any other person. The Note Issuer will not, other than expenditures in an annual
amount not to exceed $[25,000], make any expenditure (by long-term or operating
lease or otherwise) for capital assets (either real or personal property). The
Note Issuer will not, directly or indirectly, make payments to or distributions
from the collection account except in compliance with the Note Indenture and the
other financing documents relating to the issuance of the Notes and the
Certificates.
The Note Issuer will not make any payments, distributions or dividends to
any owner of beneficial interests in the Note Issuer in respect of the
beneficial interests in the Note Issuer unless no Note event of default shall
have occurred and be continuing and any distributions do not cause the book
value of the remaining equity in the Note Issuer to decline below 0.50 percent
of the initial principal amount of the Notes outstanding under the Note
Indenture.
The Note Issuer will deliver to, among others, the Note Trustee and the
Certificate Trustee the annual accountant's certificates, compliance
certificates, reports regarding distributions and statements to Noteholders and
the Certificateholders required by the servicing agreement.
REPORTS TO NOTEHOLDERS
With respect to the Notes, on or prior to each payment date, the Servicer
will prepare and provide to the Note Issuer, the Note Trustee and the
Certificate Trustee a statement to be delivered to the Noteholders on the
payment date. With respect to the Notes, each statement will include (to the
extent applicable) the following information as to the Notes with respect to a
payment date or the period since the previous payment date, as applicable:
- the amount of the distribution to Noteholders allocable to principal;
- the amount of the distribution to Noteholders allocable to interest;
- the outstanding principal balance of the Notes, after giving effect to
payments allocated to principal reported above; and
- the difference, if any, between the outstanding principal balance of the
Notes and the principal amount scheduled to be outstanding on a payment
date according to the expected amortization schedule.
The Note Trustee will deliver to each holder of the Notes information in
the Note Trustee's possession that may be required to enable the holder to
prepare its federal and state income tax returns. See "Federal Income Tax
Consequences" and "State Taxation."
ANNUAL COMPLIANCE STATEMENT
The Note Issuer will file annually with the Note Trustee, the Certificate
Trustee, the Agencies and the nationally recognized statistical rating
organizations rating the Certificates a written statement as to whether it has
fulfilled its obligations under the Note Indenture.
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DESCRIPTION OF THE CERTIFICATES
The Trust will issue the Certificates under the Certificate Indenture
between the Trust and [ ], a [national banking association],
acting as the Certificate Trustee. The following summary describes the material
terms and provisions of the Certificate Indenture. The particular terms of the
Certificates of any class will be established in the Certificate Indenture. This
summary is not complete. You should read this summary together with the
prospectus supplement and the terms and provisions of the Certificate Indenture,
a form of which is filed as an exhibit to the registration statement relating to
this prospectus, before buying the Certificates.
Each class of Certificates will represent a fractional undivided beneficial
interest in the related class of Notes and the proceeds thereof. Each
Certificate will be issued in the minimum denominations specified in the
prospectus supplement. The Trust may not issue any additional Certificates under
the Certificate Indenture.
Each class of Certificates will bear interest at the rate per annum borne
by the related class of Notes. See "Description of the Notes -- Interest and
Principal." Payments of interest and principal made in respect of any class of
Notes are required to be passed through to holders of the related class of
Certificates at the times and in the manner described below. See "-- Payments
and Distributions" below and "Description of the Notes -- Interest and
Principal."
PAYMENTS AND DISTRIBUTIONS
The Certificate Trustee is scheduled to receive payments of interest on and
principal of the Notes on each payment date. The Note Trustee will make payments
on the Notes on any payment date as described under "Description of the Notes --
Allocations and Payments."
The Certificate Trustee will distribute on each distribution date to the
holders of each class of Certificates all payments of interest on and principal
of the related class of Notes, other than payments received following a payment
default in respect of a class of Notes, the receipt of which is confirmed by the
Certificate Trustee by 1:00 p.m. New York City time on a distribution date or,
if receipt is confirmed after 1:00 p.m. New York City time on a distribution
date, then on the following business day. Each distribution, other than the
final distribution with respect to any Certificate, will be made by the
Certificate Trustee to the holders of record of the Certificates of the
applicable class on the record date for a distribution date. If a payment of
principal or interest with respect to any class of the Notes, other than a
payment received following a payment default in respect of a class of Notes, is
not received by the Certificate Trustee on a distribution date but is received
within five days thereafter, it will be distributed to the holders of record on
the date receipt is confirmed by the Certificate Trustee, if receipt is
confirmed by the Certificate Trustee by 1:00 p.m. New York City time or, if
receipt is confirmed after 1:00 p.m. New York City time, then on the following
business day. If payment is received by the Certificate Trustee after the
five-day period, it will be treated as a payment received following a payment
default in respect of a class of Notes and distributed as described below.
Any payment received by the Certificate Trustee following a payment default
in respect of any class of Notes ("Special Payments") will be distributed on the
later of the date receipt is confirmed by the Certificate Trustee and the date
on which any Special Payment is scheduled to be distributed by the Certificate
Trustee (a "Special Distribution Date"). However, in the case of any Special
Payment receipt of which is confirmed after
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1:00 p.m. New York City time, a Special Payment will be distributed on the
following business day. The Certificate Trustee will mail notice to the holders
of record of Certificates of the applicable class as of the most recent record
date not less than 20 days prior to the Special Distribution Date on which any
Special Payment is scheduled to be distributed in respect of Certificates of a
class stating the anticipated Special Distribution Date. Each distribution of
any Special Payment will be made by the Certificate Trustee on the Special
Distribution Date to the holders of record of the Certificates of a class as of
the most recent record date. See "-- Events of Default" below.
The Certificate Indenture requires the Certificate Trustee to establish and
maintain, for the Trust, and on behalf of the Certificateholders, one or more
non-interest bearing certificate accounts for the deposit of payments on the
Notes. The Certificate Trustee is required to deposit any payments received by
it with respect to the Notes in the certificate account. The Certificate Trustee
will distribute all amounts so deposited to holders of the Certificates on a
distribution date or a Special Distribution Date, as appropriate, unless a
different date for distribution of the amount is specified in the Certificate
Indenture.
At a time, if any, as the Certificates are issued in registered form and
not to the Depository Trust Company ("DTC") or its nominee, distributions by the
Certificate Trustee from the certificate account with respect to the
Certificates on a distribution date or a Special Distribution Date will be made
by check mailed to each holder of record of a Certificate on the applicable
record date at its address appearing on the register maintained with respect to
the Certificates, or, upon application by a holder of any Certificates in the
principal amount of $1,000,000 or more to the Certificate Trustee not later than
the applicable record date, by wire transfer to an account maintained by the
payee in New York, New York. The final distribution for the Certificates,
however, will be made only upon presentation and surrender of the Certificates
at the office or agency of the Certificate Trustee specified in the notice given
by the Certificate Trustee of the final distribution. The Certificate Trustee
will mail notice of the final distribution to the Certificateholders, specifying
the date set for the final distribution and the amount of the final
distribution.
If any Special Distribution Date or other date specified in this prospectus
for distribution of any distributions to Certificateholders is not a business
day, distributions scheduled to be made on a Special Distribution Date or other
date may be made on the following business day and no interest shall accrue upon
the distribution during the intervening period.
VOTING OF THE CERTIFICATES
The nominee for DTC as sole initial holder of the Certificates, has the
right to vote and give consents and waivers relating to any modifications to any
class of Certificates. Subject to exceptions, the holders of at least a majority
of the outstanding principal amount of the Certificates shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Certificate Trustee, or exercising any trust or power conferred
on the Certificate Trustee under the Certificate Indenture, including any right
of the Certificate Trustee as holder of the Notes, in each case unless a
different percentage is specified in the Certificate Indenture; provided,
however, that, among other things:
- the direction shall not be in conflict with any rule of law or with the
Certificate Indenture and would not involve the Certificate Trustee in
personal liability or expense;
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- the Certificate Trustee shall not have determined that the action so
directed would be unjustly prejudicial to the Certificateholders not
taking part in the direction; and
- the Certificate Trustee may take any other action deemed proper by the
Certificate Trustee that is not inconsistent with the direction.
If the Certificate Trustee is required to seek instructions from the holders of
the Certificates with respect to any action or vote, the Certificate Trustee
will take the action or vote for or against any proposal in proportion to the
principal amount of the Certificates taking the corresponding position.
EVENTS OF DEFAULT
An event of default with respect to the Certificates under the Certificate
Indenture is defined as the occurrence and continuance of a Note event of
default. For a description of the Note events of default, see "Description of
the Notes -- Note Events of Default; Rights Upon Note Event of Default."
The Certificate Indenture provides that, if a Note event of default shall
have occurred and is continuing, the Certificate Trustee may and, upon the
written direction of holders representing not less than a majority of the
outstanding principal amount of the Certificates, shall vote all the Notes in
favor of declaring the unpaid principal amount of the Notes and accrued interest
to be due and payable. In addition, the Certificate Indenture provides that, if
a Note event of default shall have occurred and is continuing, the Certificate
Trustee may and, upon the written direction of holders representing not less
than a majority of the outstanding principal amount of the Certificates, shall
vote all the Notes in favor of directing the Note Trustee as to the time, method
and place of conducting any proceeding for any remedy available to the Note
Trustee, including the sale of any or all of the Notes, without recourse to or
warranty by the Certificate Trustee or any Certificateholder, to any person or
entity, or of exercising any trust or power conferred on the Note Trustee under
the Note Indenture.
Notwithstanding the foregoing, the Certificate Trustee may, but shall not
be obligated to, refrain, in its sole discretion, from liquidating any Notes if
the Certificate Trustee determines that amounts receivable from the Note
collateral with respect to the applicable class of Notes will be sufficient to
pay (a) all interest on and principal of that class of Notes according to its
terms without regard to any declaration of acceleration and (b) all sums due to
the Certificate Trustee and any other administrative expenses specified in the
Certificate Indenture.
In addition, the Certificate Trustee is prohibited from selling any Notes
following Note events of default, other than payment defaults, unless (x) the
Certificate Trustee determines that the amounts receivable from the Note
collateral are not sufficient to pay in full the principal of and accrued
interest on the Notes and to pay all sums due to the Certificate Trustee and
other administrative expenses specified in the Certificate Indenture and the
Certificate Trustee obtains the written consent of holders of Certificates
representing 66 2/3 percent of the outstanding principal amount of Certificates
or (y) the Certificate Trustee obtains the written consent of holders of 100
percent of the outstanding principal amount of Certificates. Any proceeds
received by the Certificate Trustee upon any sale will be deposited in the
certificate account and will be distributed to the Certificateholders on a
Special Distribution Date.
If a breach by The Commonwealth of Massachusetts of its pledge under the
Statute has occurred, then the Certificate Trustee, in its own name and as
trustee of an express
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trust, as holder of the Notes, shall be, to the extent permitted by state and
federal law, entitled and empowered to institute any suits, actions or
proceedings at law, in equity or otherwise, to enforce the pledge and to collect
any monetary damages as a result of a breach, and may prosecute any such suit,
action or proceeding to final judgment or decree.
Any funds (a) representing payments received with respect to Notes in
default, (b) representing the proceeds from the sale by the Certificate Trustee
of any Notes or (c) otherwise arising from a Certificate event of default, held
by the Certificate Trustee in the certificate account shall, to the extent
practicable, be invested and reinvested by the Certificate Trustee in eligible
investments permitted under the Certificate Indenture maturing in not more than
60 days or a lesser time as is required for the distribution of any funds on a
Special Distribution Date, pending the distribution of the funds to
Certificateholders as described in this prospectus.
The Certificate Indenture provides that, with respect to the Certificates
of any class, within 30 days after the occurrence of any event that is, or after
notice or lapse of time or both would become, a Certificate event of default
with respect to a class of Certificates (a "Default"), the Certificate Trustee
will give to the Trust, Note Trustee and the Certificateholders notice,
transmitted by mail, of all uncured or unwaived Defaults known to it. Except in
the case of a Default relating to the payment of principal of or interest on any
of the Notes, however, the Certificate Trustee will be protected in withholding
notice if in good faith it determines that the withholding of notice is in the
interests of the Certificateholders.
The Certificate Indenture contains a provision entitling the Certificate
Trustee to be indemnified by the Certificateholders before proceeding to
exercise any right or power under the Certificate Indenture at the request or
direction of Certificateholders.
In some cases, the holders of Certificates representing not less than a
majority of the outstanding principal amount of the Certificates may waive any
Certificate event of default and thereby annul any previous direction given by
the Certificate Trustee with respect thereto, except a default:
- in the deposit or distribution of any payment on the Notes or Special
Payment required to be made with respect to any class of Certificates;
- in the payment of principal of or interest on any of the Notes; or
- in respect of any covenant or provision of the Certificate Indenture that
cannot be modified or amended without the consent of the holders of each
Certificate affected by a default.
Upon this direction, the Certificate Trustee shall vote a corresponding
percentage of the Notes in favor of the waiver. The Notes provide that, with
some exceptions, the holders of not less than a majority of the outstanding
principal amount of the Notes may waive any Note event of default or any event
that is, or after notice or passage of time, or both, would be, a Note event of
default.
The Trust may hold two or more classes of Notes, each of which may have a
different interest rate, a different or potentially different schedule for the
repayment of principal and different rights in the security for the Notes.
Accordingly, the Certificateholders of one class may have divergent or
conflicting interests from the Certificateholders of other classes. As a result,
the Note Trustee and the Certificate Trustee may be required to seek the
appointment of additional trustee(s) to represent the interests of one or more
classes with divergent or conflicting interests.
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REDEMPTION
The Trust will redeem the Certificates if the Notes are redeemed. The Trust
will give notice of redemption to each Certificateholder to be redeemed by
first-class mail, postage prepaid, mailed not less than five days nor more than
25 days prior to the redemption date.
REPORTS TO CERTIFICATEHOLDERS
On each distribution date, Special Distribution Date or any other date
specified in the Certificate Indenture for distribution of any payments with
respect to any class of Certificates, the Certificate Trustee will include with
each distribution a statement setting forth the following information, in each
case, to the extent received by the Certificate Trustee from the Note Trustee,
no later than two business days prior to a distribution date, Special
Distribution Date or other date specified herein for distribution:
- the amount of the distribution to Certificateholders allocable to
principal and interest, in each case per $[1,000] original principal
amount of each class of Certificates;
- the aggregate outstanding principal balance of the Certificates, after
giving effect to distributions allocated to principal reported above; and
- the difference, if any, between the aggregate outstanding principal
balance of the Certificates and the principal amount scheduled to be
outstanding on a distribution date according to the expected amortization
schedule.
So long as the Note Trustee and the Certificate Trustee are the same, the Note
Trustee will agree to prepare and provide the statements to the Certificate
Trustee.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Notes, the Certificate Trustee
will mail to each person or entity who at any time during a calendar year has
been a Certificateholder and received any distribution on the Certificates, a
statement containing information for the purposes of a Certificateholder's
preparation of federal and state income tax returns. See "Federal Income Tax
Consequences" and "State Taxation."
SUPPLEMENTAL CERTIFICATE INDENTURES
The Certificate Trustee and the Delaware Trustee, on behalf of the Trust,
will, from time to time, and without the consent of the Certificateholders,
enter into one or more agreements supplemental to the Certificate Indenture to:
- add to the covenants of the Trust for the benefit of the
Certificateholders, or to surrender any right or power in the Certificate
Indenture conferred upon the Trust;
- correct or supplement any provision in the Certificate Indenture or in
any supplemental certificate indenture that may be defective or
inconsistent with any other provision in the Certificate Indenture or in
any supplemental agreement or to make any other provisions with respect
to matters or questions arising under the Certificate Indenture; provided
that any such action shall not adversely affect in any material respect
the interests of the Certificateholders;
- cure any ambiguity or correct any mistake; or
- qualify, if necessary, the Certificate Indenture, including any
supplemental certificate indenture, under the Trust Indenture Act of
1939.
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In addition, the Certificate Trustee and the Delaware Trustee will, with
the consent of Certificateholders holding not less than a majority of the
outstanding principal amount of the Certificates of all affected classes, enter
into one or more certificate indentures supplemental to the Certificate
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 Certificate
Indenture. However, no supplemental certificate indenture may, among other
things, without the consent of each Certificateholder affected thereby:
- change any date of payment on any Certificate, or change the place of
payment where, or the currency in which, any Certificate is payable, or
impair the right to sue for the enforcement of any payment or
distribution on or after the distribution date, Special Distribution Date
or other date specified in the prospectus;
- permit the disposition of any Note held by the Trust except as permitted
by the Certificate Indenture, or otherwise deprive any Certificateholder
of the benefit of the ownership of the related Notes held by the Trust;
- modify the provisions in the Certificate Indenture relating to amendments
with the consent of Certificateholders, except to increase the percentage
vote necessary to approve amendments or to add further provisions which
cannot be modified or waived without the consent of all
Certificateholders; or
- adversely affect the status of the Trust as a grantor trust not taxable
as a corporation for federal income tax purposes.
Promptly following the execution of any amendment to the Certificate Indenture
(other than an amendment described in the preceding paragraph), the Certificate
Trustee will furnish written notice of the substance of an amendment to each
Certificateholder.
LIST OF CERTIFICATEHOLDERS
Upon written request of any Certificateholder or group of
Certificateholders of record holding Certificates evidencing not less than ten
percent of the outstanding principal amount of the Certificates, the Certificate
Trustee will give a Certificateholder or Certificateholders access during
business hours to the current list of Certificateholders for purposes of
communicating with other Certificateholders with respect to their rights under
the Certificate Indenture.
Neither the Declaration of Trust nor the Certificate Indenture provides for
any annual or other meetings of Certificateholders.
REGISTRATION AND TRANSFER OF THE CERTIFICATES
If so specified in the prospectus supplement, the Certificates will be
issued in definitive form and will be transferable and exchangeable at the
office of the registrar identified in the prospectus supplement. No service
charge will be made for any registration or transfer of the Certificates, but
the owner may be required to pay a sum sufficient to cover any tax or other
governmental charge.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
One or more classes of the Certificates will be issued as book-entry
Certificates, and these classes will be represented by one or more Certificates
registered in the name of a nominee for the depository, DTC.
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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 Uniform Commercial Code and a "clearing
agency" registered under the provisions of Section 17A of the Securities
Exchange Act. DTC was created to hold securities for its participating
organizations ("Participants") and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in their accounts, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include other organizations.
Indirect access to the DTC system also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Investors that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
book-entry Certificates may do so only through Participants and Indirect
Participants. In addition, these investors ("Beneficial Owners") will receive
all distributions on the book-entry Certificates through DTC and its
Participants. Under a book-entry format, Beneficial Owners will receive payments
after a distribution date because, while payments are required to be forwarded
to Cede & Co., as nominee for DTC ("Cede"), on a distribution date, DTC will
forward the payments to its Participants which thereafter will be required to
forward them to Indirect Participants or Beneficial Owners. The only registered
Certificateholder will be Cede, as nominee of DTC, and the Beneficial Owners
will not be recognized by the Certificate Trustee as Certificateholders under
the Certificate Indenture. Beneficial Owners will be permitted to exercise the
rights of Certificateholders under the Certificate Indenture, only indirectly
through the Participants who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the book-entry Certificates and is
required to receive and transmit distributions of interest on and principal of
the book-entry Certificates. Participants and Indirect Participants with which
Beneficial Owners have accounts with respect to the book-entry Certificates
similarly are required to make book-entry transfers and receive and transmit the
payments on behalf of their respective Beneficial Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and banks, the ability of a Beneficial Owner to
pledge its interest in the book-entry Certificates to persons or entities that
do not participate in the DTC system, or otherwise take actions in respect of
its interest in the book-entry Certificates, may be limited due to the lack of a
physical certificate evidencing its interest.
DTC has advised the Certificate Trustee that it will take any action
permitted to be taken by a Certificateholder under the Certificate Indenture
only at the direction of one or more Participants to whose account with DTC
interests in the book-entry Certificates are credited.
Cedel Bank, societe anonyme ("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 certificates. Transactions may be
settled in CEDEL in any of 28 currencies, including United States dollars. CEDEL
provides to its CEDEL Participants, among other things,
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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 other organizations and may include the underwriters.
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.
The Euroclear System 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 certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in Euroclear
in any of 32 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. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium office
(the "Euroclear Operator" or "Euroclear"), 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
the Euroclear System on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the underwriters.
Indirect access to the Euroclear System 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 which 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 the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Certificates held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in compliance with the relevant system's rules and procedures.
These distributions will be subject to tax reporting in compliance with relevant
United States tax laws and regulations. See "Federal Income Tax Consequences."
CEDEL will take any other action permitted to be taken by a Certificateholder
under the Certificate Indenture on behalf of a CEDEL
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Participant and the Euroclear Operator will take any other action permitted to
be taken by a Certificateholder under the Certificate Indenture on behalf of an
Euroclear Participant only under its relevant rules and procedures and subject
to its depositary's ability to effect these actions on its behalf through DTC.
Cede, as nominee for DTC, will hold the Certificates. CEDEL will hold
omnibus positions in the Certificates on behalf of the CEDEL Participants and
Euroclear will hold omnibus positions in the Certificates on behalf of the
Euroclear Participants, in each case through customers' securities accounts in
their names on the books of their respective depositaries, which in turn will
hold positions in customers' securities accounts in the depositaries' names on
the books of DTC.
Transfers between the Participants will comply with DTC rules. Transfers
between CEDEL Participants and Euroclear Participants will comply with their
applicable 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
Participants or Euroclear Participants, on the other, will be effected in DTC
under DTC rules on behalf of the relevant European international clearing system
by its depositary; however, these cross-market transactions will require
delivery of instructions to the relevant European international clearing system
by the counterparty in the system according to its rules and procedures and
within its established deadlines. 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 securities in DTC, and making or receiving
payment under normal procedures for same-day funds settlement applicable to DTC.
CEDEL Participants and Euroclear Participants may not deliver instructions
directly to their depositaries.
Because of time zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a Participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and the credit or any transactions in the
securities settled during the processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on that business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a 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.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of securities among participants of DTC, CEDEL
and Euroclear, they are under no obligation to perform or continue to perform
these procedures and these procedures may be discontinued at any time.
If any of DTC, Cedel or Euroclear should discontinue its services, the
Certificate Trustee would seek an alternative depository, if available, or cause
the issuance of definitive certificates to the owners of Certificates or their
nominees in the manner described below.
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Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Beneficial Owners or their nominees
("Definitive Certificates"), rather than to DTC or its nominee only if:
- the DTC advises the Certificate Trustee in writing that DTC is no longer
willing or able to properly discharge its responsibilities as depository
with respect to the Certificates and the Certificate Trustee is unable to
locate a qualified successor; or
- after the occurrence of an event of default under the Certificate
Indenture, holders of Certificates representing not less than 50 percent
of the outstanding principal amount of Certificates advise DTC in writing
that the continuation of a book-entry system through DTC is no longer in
the best interests of Certificateholders.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of definitive certificates for the Beneficial Owners.
Upon surrender by DTC of the certificate or certificates representing the
book-entry Certificates, together with instructions for reregistration, the
Certificate Trustee will issue (or cause to be issued) to the Beneficial Owners
identified in the instructions the definitive certificates to which they are
entitled, and thereafter the Certificate Trustee will recognize the holders of
the Definitive Certificates as Certificateholders under the Certificate
Indenture.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of material federal income tax
consequences relating to the purchase, ownership and disposition of the
Certificates, and is based on the opinion of Palmer & Dodge LLP. This discussion
summarizes the opinion of Palmer & Dodge LLP, subject to the qualifications set
forth in this discussion or in that opinion. This discussion is based on current
provisions of the Internal Revenue Code of 1986 (the "Code"), currently
applicable Treasury regulations, and judicial and administrative rulings and
decisions. Legislative, judicial or administrative changes could alter or modify
the statements and conclusions set forth in this discussion. Any legislative,
judicial or administrative changes or new interpretations may be retroactive and
could affect tax consequences to Certificateholders.
This discussion applies to Certificateholders who acquire the Certificates
at original issue for cash equal to the issue price of those Certificates and
hold the Certificates as capital assets. This discussion does not address all of
the tax consequences relevant to a particular Certificateholder in light of that
Certificateholder's circumstances, and some Certificateholders may be subject to
special tax rules and limitations not discussed below (e.g., life insurance
companies, tax-exempt organizations, financial institutions, dealers in
securities, S corporations, taxpayers subject to the alternative minimum tax
provisions of the Code, broker-dealers, and persons who hold the Certificates as
part of a hedge, straddle, "synthetic security", or other integrated investment,
risk reduction or constructive sale transaction). This discussion also does not
address the tax consequences to nonresident aliens, foreign corporations,
foreign partnerships or foreign trusts that are subject to U.S. federal income
tax on a net basis on income with respect to a Certificate because that income
is effectively connected with the conduct of a U.S. trade or business. Those
holders generally are taxed in a manner similar to U.S. Certificateholders (as
defined below); however, special rules not applicable to U.S. Certificateholders
may apply. In addition,
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except as described below, this discussion does not address any tax consequences
under state, local or foreign tax laws. CONSEQUENTLY, YOU ARE URGED TO CONSULT
YOUR TAX ADVISER TO DETERMINE THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND
ANY OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
CERTIFICATES.
For purposes of this discussion, "U.S. Person" means:
- a citizen or resident of the United States;
- a corporation (or entity treated as a corporation for tax purposes)
created or organized in the United States, or under the laws of the
United States or of any state (including the District of Columbia);
- a partnership (or entity treated as a partnership for tax purposes)
organized in the United States, or under the laws of the United States or
of any state (including the District of Columbia) unless provided
otherwise by future Treasury regulations;
- an estate the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source; or
- a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S.
Persons have the authority to control all substantial decisions of the
trust.
Notwithstanding the last clause of the preceding sentence, to the extent
provided in Treasury regulations, some trusts in existence on August 20, 1996,
and treated as U.S. Persons prior to that date, may elect to continue to be
treated for federal income tax purposes as U.S. Persons. The term "U.S.
Certificateholder" means any beneficial owner of a Certificate that is a U.S.
Person. The term "non-U.S. Certificateholder" means a beneficial owner of a
Certificate that is not a U.S. Certificateholder.
This discussion assumes that each Certificate is issued in registered form.
Moreover, this discussion assumes that any original issue discount on the
Certificates (i.e., any excess of the stated redemption price at maturity of the
Certificate over its issue price) is less than a statutory minimum amount (i.e.,
0.25 percent of its stated redemption price at maturity multiplied by the
Certificate's weighted average maturity), all within the meaning of the original
issue discount regulations.
TREATMENT OF THE CERTIFICATES
The Seller has received a ruling from the Internal Revenue Service holding
that the Notes are obligations of the Seller for federal income tax purposes.
Palmer & Dodge LLP will opine that the Trust will not be a business entity
classified as a corporation or a publicly traded partnership treated as a
corporation, but will be treated as a grantor trust. For tax purposes the Trust
will be treated as a partnership, and therefore not subject to tax at the entity
level. Further, Palmer & Dodge LLP will opine that each class of Certificates
will evidence ownership of a fractional undivided beneficial interest in the
related class of Notes.
TAXATION OF U.S. CERTIFICATEHOLDERS
PAYMENTS OF INTEREST
Assuming, according to Palmer & Dodge LLP's opinion, that the Certificates
represent ownership of the related Notes for federal income tax purposes, stated
interest on the Certificates will be taxable as ordinary interest income when
received or accrued by
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U.S. Certificateholders under their method of accounting. Generally, interest
received on the Certificates will constitute "investment income" for purposes of
limitations of the Code concerning the deductibility of investment interest
expense.
ORIGINAL ISSUE DISCOUNT
As noted above, this discussion assumes that any original issue discount on
the Certificates is less than the statutory minimum amount. Accordingly, unless
a special election is made to treat all interest on a Certificate as original
issue discount, any original issue discount generally will be taken into income
by a U.S. Certificateholder as gain from the retirement of a Certificate (as
described below under "-- Sale or Other Taxable Disposition of Certificates")
ratably as principal payments are made on the Certificates.
MARKET DISCOUNT AND PREMIUM
If a U.S. Certificateholder purchases (including a purchase at original
issuance for a price less than the issue price) a Certificate for an amount that
is less than the principal balance of the Certificate, the difference, unless it
is less than a statutory minimum amount, will be treated as "market discount."
The market discount will generally be treated as accruing ratably on the
Certificate during the period from the date of acquisition to the maturity date
of the Certificate, unless the U.S. Certificateholder makes an election to
accrue the market discount on a constant yield to maturity basis. The U.S.
Certificateholder will be required to treat any principal payment on, or any
gain realized on the sale, exchange, retirement or other disposition of the
Certificate as ordinary income to the extent of the lesser of:
- the amount of the payment or gain; or
- the market discount which is treated as having accrued on the Certificate
at the time of the payment or disposition and which has not previously
been included in income.
In addition, a U.S. Certificateholder may be required to defer the deduction of
all or a portion of the interest paid or accrued on any indebtedness incurred or
maintained to purchase or carry a Certificate with market discount, until the
maturity of the Certificate or its earlier disposition in a taxable transaction.
In the alternative, a U.S. Certificateholder may elect to include market
discount in income currently as it accrues on either a ratable or semiannual
compounding basis, in which case the rules described above will not apply. The
election to include market discount in income as it accrues will apply to all
market discount instruments acquired by the U.S. Certificateholder on or after
the first day of the taxable year to which the election applies and may not be
revoked without the consent of the Internal Revenue Service. Generally,
currently included market discount is treated as ordinary interest for United
States federal income tax purposes.
A U.S. Certificateholder who purchases a Certificate for an amount that is
less than the principal balance of the Certificate will be treated as acquiring
the Certificate with "market discount," unless the difference between the
purchase price and the principal balance of the Certificate is less than a
statutory minimum account.
A purchaser who acquires a Certificate at a premium (i.e., at a purchase
price in excess of the principal balance) may elect to offset the premium
against interest income on the Certificate on a constant yield to maturity
basis. Any premium so amortized will reduce the adjusted basis of the
Certificate. If the Certificate is redeemed before maturity
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<PAGE> 85
for a price less than the adjusted basis of the Certificate, a U.S.
Certificateholder will be allowed an ordinary loss deduction for the unamortized
premium. An election to amortize bond premium applies to all bonds acquired by a
U.S. Certificateholder on or after the first day of the taxable year to which
the election applies and can be revoked only with the consent of the Internal
Revenue Service.
SALE OR OTHER TAXABLE DISPOSITION OF CERTIFICATES
Upon the sale, exchange, redemption, retirement or other taxable
disposition of a Certificate, a U.S. Certificateholder generally will recognize
gain or loss equal to the difference between (a) the amount of cash and the fair
market value of any other property received (other than amounts attributable to,
and taxable as, accrued stated interest) and (b) the U.S. Certificateholder's
adjusted tax basis in the Certificate. The adjusted tax basis in the Certificate
generally will equal its cost, increased by any original issue discount or
market discount included in income with respect to the Certificate prior to its
disposition and reduced by any payments reflecting principal or original issue
discount previously received with respect to the Certificate and any amortized
bond premium. Subject to the market discount rules, gain or loss generally will
be capital gain or loss if the Certificate was held as a capital asset.
NON-U.S. CERTIFICATEHOLDERS
In general, a non-U.S. Certificateholder will not be subject to U.S.
federal income or withholding tax on interest (including original issue
discount) on a Certificate unless:
- the non-U.S. Certificateholder is a controlled foreign corporation that
is related to the Seller through stock ownership;
- the non-U.S. Certificateholder is a bank which receives interest as
described in Code Section 881(c)(3)(A); or
- the non-U.S. Certificateholder actually or constructively owns 10% or
more of the total combined voting power of all classes of stock of the
Seller entitled to vote.
In order for interest payments to qualify for the exemption from U.S. taxation
described above, the last U.S. Person in the chain of payment prior to payment
to a non-U.S. Certificateholder (the "Withholding Agent") must have received (in
the year in which a payment of interest or principal occurs or in either of the
two preceding years) a statement that:
- is signed by the non-U.S. Certificateholder under penalty of perjury;
- certifies that the non-U.S. Certificateholder is not a U.S. Person; and
- provides the name and address of the non-U.S. Certificateholder.
The statement may be made on a Form W-8 or substantially similar substitute
form, and the non-U.S. Certificateholder must inform the Withholding Agent of
any change in the information on the statement within 30 days of the change. If
a Certificate is held through a securities clearing organization or other
financial institutions, the organization or institution may provide a signed
statement to the Withholding Agent certifying under penalties of perjury that
the Form W-8 (or suitable substitute) has been received by it from the
Certificateholder or from another qualifying financial institution. However, in
that case, the signed statement must be accompanied by a copy of the Form W-8 or
substitute form provided by the non-U.S. Certificateholder to the organization
or institution holding the Certificate on behalf of the non-U.S.
Certificateholder.
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<PAGE> 86
Generally, any gain or income realized by a non-U.S. Certificateholder upon
the sale, exchange, redemption, retirement or other disposition of a Certificate
(other than gain attributable to accrued interest or original issue discount,
which is addressed above) will not be subject to U.S. federal income tax,
provided that in the case of a Certificateholder who is an individual, that
Certificateholder is not present in the United States for 183 or more days
during the taxable year in which a disposition of a Certificate occurs.
Exceptions may be applicable, and non-U.S. Certificateholders should consult a
tax adviser regarding the tax consequences of a disposition of a Certificate.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Some Certificateholders may be subject to backup withholding at the rate of
31% with respect to interest (including original issue discount) and proceeds
received upon the disposition of a Certificate. Generally, backup withholding
will apply if the Certificateholder fails to provide identifying information
(such as the payee's taxpayer identification number) in the manner required, or
if the payee has failed to report properly the receipt of reportable interest or
dividend payments and the Internal Revenue Service has notified the payor that
backup withholding is required. Some Certificateholders (including, among
others, corporations and some tax-exempt organizations) generally are not
subject to backup withholding.
Backup withholding and information reporting generally will not apply to a
Certificate issued in registered form that is beneficially owned by a non-U.S.
Certificateholder if the certification of non-U.S. status is provided to the
Withholding Agent as described above in "-- Non-U.S. Certificateholders,"
provided that the payor does not have actual knowledge that the
Certificateholder is a U.S. Person. The Withholding Agent may be required to
report annually to the Internal Revenue Service and to each non-U.S.
Certificateholder the amount of interest paid to, and the tax withheld, if any,
with respect to each non-U.S. Certificateholder.
If payments of principal and interest are made to the beneficial owner of a
Certificate by or through the foreign office of a custodian, nominee or other
agent of that beneficial owner, or if the proceeds of the sale of Certificates
are made to the beneficial owner of a Certificate through a foreign office of a
"broker" (as defined in the pertinent Treasury regulations), the proceeds will
not be subject to backup withholding (absent actual knowledge that the payee is
a U.S. Person). Information reporting (but not backup withholding) will apply,
however, to a payment by a foreign office of a custodian, nominee, agent or
broker that:
- is a U.S. Person;
- is a controlled foreign corporation for U.S. federal income tax purposes;
or
- derives 50% or more of its gross income from the conduct of a U.S. trade
or business for a specified three-year period, unless the broker has in
its records documentary evidence that the holder is a non-U.S.
Certificateholder and other conditions are met (including that the broker
has no actual knowledge that the Certificateholder is a U.S.
Certificateholder) or the Certificateholder otherwise establishes an
exemption.
Payment through the U.S. office of a custodian, nominee, agent or broker is
subject to both backup withholding at a rate of 31% and information reporting,
unless the Certificateholder certifies that it is a non-U.S. Person under
penalties of perjury or otherwise establishes an exemption.
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<PAGE> 87
Any amounts withheld under the backup withholding rules from a payment to a
Certificateholder would be allowed as a refund or a credit against that
Certificateholder's U.S. federal income tax, provided that the required
information is furnished to the Internal Revenue Service.
Regulations regarding the withholding and information reporting rules
discussed above were issued by the Treasury Department in October 1997. In
general, the regulations did not significantly alter the substantive withholding
and information reporting requirements but rather unified the prior
certification procedures and forms and clarified reliance standards. In
addition, the regulations permit the shifting of primary responsibility for
withholding to financial intermediaries acting on behalf of beneficial owners.
The regulations are generally effective for payments made after December 31,
1999, subject to transition rules. Under the regulations, new forms generally
will have to be solicited from U.S. Certificateholders earlier than replacements
for expiring existing forms otherwise would have been solicited. You should
consult your tax adviser with respect to the impact, if any, of the regulations.
STATE TAXATION
In the opinion of Palmer & Dodge LLP, interest on the Certificates and any
profit on the sale of the Certificates are exempt from Massachusetts personal
income taxes, and the Certificates are exempt from Massachusetts personal
property taxes. Palmer & Dodge LLP has not opined and will not opine as to other
Massachusetts tax consequences arising with respect to the Certificates. You
should be aware, however, that the Certificates are included in the measure of
Massachusetts estate and inheritance taxes and the Certificates and the interest
on the Certificates are included in the measure of Massachusetts corporate
excise and franchise taxes. This discussion does not address the taxation of the
Trust or the tax consequences of the purchase, ownership or disposition of the
Certificates under any state or local tax law other than that of The
Commonwealth of Massachusetts. You should consult your tax adviser regarding
state and local tax consequences.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974 ("ERISA") and/or
Section 4975 of the Code impose restrictions and requirements on employee
benefit plans and other plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and some collective investment funds and
insurance company general or separate accounts in which the assets of those
plans, accounts or arrangements ("Plan Assets") are invested (collectively,
"Plans"), and on persons who are fiduciaries with respect to Plans in connection
with the investment of Plan Assets. Generally, any person who has discretionary
authority or control with respect to 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 those
Plan Assets. For those Plans that are subject to ERISA, ERISA imposes on Plan
fiduciaries specific fiduciary responsibilities, including investment prudence,
diversification and investing according to the documents governing the Plan.
PROHIBITED TRANSACTIONS
ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving Plan Assets and persons who have specified relationships to a Plan or
Plan Assets ("parties
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in interest" under ERISA and "disqualified persons" under the Code
(collectively, "Parties in Interest")), unless a statutory or administrative
exemption applies. 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 under Section 4975 of the Code. These prohibited
transactions generally are set forth in Section 406 of ERISA and Section 4975 of
the Code.
Some governmental and church plans are not subject to ERISA or Section 4975
of the Code. These plans are, therefore, not subject to the prohibited
transaction provisions described above. If a plan is exempt from taxation under
Section 501(a) of the Code as a plan described in Section 401(a) of the Code,
however, it is subject to loss of tax exemption if it engages in a prohibited
transaction described in Section 503 of the Code.
Any fiduciary or other Plan investor considering whether to purchase the
Certificates on behalf of a Plan or with Plan Assets should determine whether
the purchase is consistent with its fiduciary duties and whether the purchase
would constitute or result in a non-exempt prohibited transaction under ERISA
and/or Section 4975 of the Code because any of Boston Edison, the Certificate
Trustee, the underwriters or any of their affiliates is a Party in Interest with
respect to the investing Plan and may be deemed to be benefiting from the
issuance of the Certificates. In particular, the Certificates may not be
purchased with Plan Assets if any of Boston Edison, the Certificate Trustee, the
underwriters or any of their affiliates:
- has investment or administrative discretion with respect to the Plan
Assets used to effect the purchase;
- has authority or responsibility to give, or regularly gives, investment
advice with respect to the Plan Assets, for a fee and under an agreement
or understanding that the advice will serve as a primary basis for
investment decisions with respect to the Plan Assets, and will be based
on the particular investment needs of the Plan; or
- unless exemptive relief applies under a Department of Labor Prohibited
Transaction Exemption, is an employer maintaining or contributing to the
Plan.
Each purchaser of the Certificates will be deemed to have represented and
warranted that its purchase of the Certificates or any interest in the
Certificates does not violate the limitations described above.
PLAN ASSET REGULATION
The Certificates are likely to be treated as "equity interests" in the
Trust under a regulation (the "Plan Asset Regulation") issued by the Department
of Labor, which provides that beneficial interests in a trust are equity
interests. Generally, the Plan Asset Regulation provides that if Plans acquire a
"significant" equity interest in an entity, the entity may be considered to hold
Plan Assets. Therefore, if the Certificates are purchased with Plan Assets, the
assets of the Trust may be deemed Plan Assets of the investing Plans which, in
turn, would subject the Trust and its assets to the fiduciary responsibility
provisions of ERISA and the prohibited transaction provisions of ERISA and
Section 4975 of the Code. Even though only minimal administrative activity is
expected at the Trust level, it is likely that the Trust will interact with
Boston Edison, the Certificate Trustee, the underwriters and their affiliates.
If any of Boston Edison, the Certificate Trustee, the underwriters or any of
their affiliates is a Party in Interest to a Plan that purchases Certificates,
violations of the prohibited transaction rules could occur at the Trust level,
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unless a statutory or administrative exemption applies or an exception applies
under the Plan Asset Regulation.
Before purchasing any Certificates, a Plan fiduciary, other Plan investor
or Party in Interest should consider whether a prohibited transaction might
arise by reason of any relationship between the investing Plan and any of Boston
Edison, the Certificate Trustee, the underwriters or any of their affiliates.
The Department of Labor has issued some class exemptions that may afford
exemptive relief for otherwise prohibited transactions arising from the purchase
or holding of the Certificates, including Department of Labor Prohibited
Transaction Exemptions 96-23 (Class Exemption for Plan Asset Transactions
Determined by In-House Investment Managers); 95-60 (Class Exemption for Certain
Transactions Involving Insurance Company General Accounts); 91-38 (Class
Exemption for Certain Transactions Involving Bank Collective Investment Funds);
90-1 (Class Exemption for Certain Transactions Involving Insurance Company
Pooled Separate Accounts); and 84-14 (Class Exemption for Plan Assets
Transactions Determined by Independent Qualified Professional Asset Managers). A
purchaser of the Certificates should be aware, however, that even if the
conditions specified in one or more of the above exemptions are met, the scope
of the relief provided by the exemption might not cover all acts which might be
construed as prohibited transactions.
Plans would not have a "significant" equity interest in the Trust, and
application of the Plan Assets Regulation would be avoided, if Benefit Plan
Investors (as defined in the Plan Asset Regulation) own less than 25% of each
class of equity in the Trust. However, there is no commitment to limit purchases
of Certificates by Benefit Plan Investors in this manner.
CONCLUSION
In light of the foregoing, Plan fiduciaries or other Plan investors
considering whether to purchase the Certificates with Plan Assets of any Plan
and Parties in Interest should consult their own legal advisors regarding
whether the Trust assets would be considered Plan Assets, the consequences that
would apply if the Trust assets were considered Plan Assets, and the
availability of exemptive relief from the prohibited transaction rules or an
exception under the Plan Asset Regulation. Fiduciaries and other Plan investors
should also consider the fiduciary standards under ERISA or other applicable law
in the context of the Plan's particular circumstances before authorizing an
investment of Plan Assets in the Certificates. Among other factors, fiduciaries
and other Plan investors should consider whether the investment:
- satisfies the diversification requirement of ERISA or other applicable
law;
- complies with the Plan's governing instruments; and
- is prudent in light of the "Risk Factors" and other factors discussed in
this prospectus.
USE OF PROCEEDS
The Trust will use the net proceeds received from the sale of the
Certificates to purchase the Notes from the Note Issuer. The Note Issuer will
use the net proceeds from the sale of the Notes to purchase the transition
property from the Seller and to pay the costs of issuing the Notes and the
Certificates. The Seller will use the net proceeds from the sale of the
transition property for general corporate purposes and to repay outstanding debt
and reduce the amount of outstanding equity.
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PLAN OF DISTRIBUTION
The Trust may sell the Certificates to or through the underwriters named in
the prospectus supplement by a negotiated firm commitment underwriting and
public reoffering by the underwriters or such other underwriting arrangement as
may be specified in the prospectus supplement or the Trust may offer or place
the Certificates either directly or through agents. The Note Issuer and the
Trust intend that Certificates will be offered through these various methods
from time to time and that offerings may be made concurrently through more than
one of these methods or that an offering of the Certificates may be made through
a combination of these methods.
The distribution of Certificates may be effected 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 prevailing market
prices or in negotiated transactions or otherwise at varying prices to be
determined at the time of sale.
In connection with the sale of the Certificates, underwriters or agents may
receive compensation in the form of discounts, concessions or commissions.
Underwriters may sell Certificates to dealers at prices less a concession.
Underwriters may allow, and the dealers may reallow, a concession to other
dealers. Underwriters, dealers and agents that participate in the distribution
of the Certificates may be deemed to be underwriters and any discounts or
commissions received by them from the Trust and any profit on the resale of the
Certificates by them may be deemed to be underwriting discounts and commissions
under the Securities Act. We will identify any such underwriters or agents, and
describe any such compensation we give them, in the prospectus supplement.
LEGAL MATTERS
Certain legal matters relating to the Notes will be passed upon by Ropes &
Gray, Boston, Massachusetts, counsel to the Seller and the Note Issuer. Certain
legal matters relating to the Certificates and certain federal and state income
tax consequences of the issuance of the Certificates will be passed upon by
Palmer & Dodge LLP, Boston, Massachusetts, counsel to the Trust, and Krokidas &
Bluestein LLP, Boston, Massachusetts, co-counsel to the Trust. Certain legal
matters relating to the Certificates will be passed upon by [ ],
Wilmington, Delaware, Delaware counsel to the Trust, and by Brown & Wood LLP,
San Francisco, California, counsel to the Underwriters.
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[Watermark Globe logo]
$[ ]
MASSACHUSETTS RRB
SPECIAL PURPOSE TRUST BEC-1
ISSUER OF THE CERTIFICATES
[LIST CLASSES]
BEC FUNDING LLC
ISSUER OF NOTES
BOSTON EDISON COMPANY
SELLER AND SERVICER
----------------
PROSPECTUS SUPPLEMENT
----------------
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
<PAGE> 92
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All amounts shown are estimates, except
the Securities and Exchange Commission registration fee.
ITEM AMOUNT
---- -------
Securities and Exchange Commission Registration Fee... $
Blue Sky Fees and Expenses............................
Printing and Engraving Expenses.......................
Trustees' Fees and Expenses...........................
Accountants' Fees and Expenses........................
Legal Fees and Expenses...............................
Rating Agency Fees....................................
Public Agency Fees....................................
Miscellaneous Fees and Expenses.......................
-------
Total....................................... $
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 18-108 of the Delaware Limited Liability Company Act provides that
subject to such standards and restrictions, if any, as are set forth in its
limited liability company agreement, a limited liability company may and has the
power to indemnify and hold harmless any member or other person from and against
any and all claims and demands whatsoever.
Sections 10.01 and 10.02 of the Limited Liability Company Agreement of the
Note Issuer provide that, to the fullest extent permitted by applicable law, the
Note Issuer 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 (including
actions by or in the right of the Note Issuer to procure a judgment in its
favor) by reason of the fact that he is or was a director, manager, officer,
employee or agent of the Note Issuer, or is or was serving at the request of the
Note Issuer 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,
proceeding or in enforcing such person's right to indemnification hereunder, 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 Note Issuer, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful, provided 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 Note Issuer 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
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liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the Court of
Chancery or such other court shall deem proper. 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 that he reasonably
believed to be in or not opposed to the best interests of the Note Issuer, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
Section 67 of the Massachusetts Business Corporation Law provides that a
corporation may indemnify its directors, officers, employees and other agents
and persons who serve at its request as directors, officers, employees or other
agents of another organization to the extent specified in the corporation's
Articles of Organization, or in a Bylaw or vote adopted by a majority of the
stockholders.
BEC Funding LLC has directors' and officers' liability insurance policies
in force insuring directors and officers of BEC Funding LLC.
Under Section 9 of its Bylaws, Boston Edison Company indemnifies, to the
extent legally permissible, each of its directors and officers (including
persons who serve at its request as directors, officers or trustees of another
organization in which it has any interest, as a shareholder, creditor or
otherwise) against all liabilities and expenses, including amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and counsel
fees, reasonably incurred by such person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which such person may be involved or with which such person may be
threatened, while in office or thereafter, by reason of such person's being or
having been such a director, officer or trustee, except with respect to any
matter as to which such person shall have been adjudicated in any proceeding not
to have acted in good faith in the reasonable belief that his or her action was
in the best interests of the corporation. The Note Issuer believes that the
officers and the non-independent directors of the Note Issuer are serving at the
request of Boston Edison Company and are therefore entitled to such indemnity
from Boston Edison Company.
Boston Edison Company has directors' and officers' liability insurance
policies in force insuring directors and officers of Boston Edison Company and
its subsidiaries.
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Formation of the Registrant.
3.2 Limited Liability Company Agreement of the Registrant.
4.1 Form of Note Indenture.*
4.2 Form of Certificate Indenture.*
4.3 Form of Declaration of Trust.*
4.4 Form of Note.*
4.5 Form of Rate Reduction Certificate.*
II-2
<PAGE> 94
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
5.1 Opinion of Ropes & Gray with respect to legality of the
Notes.*
5.2 Opinion of [ ] with respect to legality of the
Rate Reduction Certificates.*
8.1 Opinion of Palmer & Dodge LLP with respect to federal and
state tax matters and certain constitutional law matters.*
8.2 Internal Revenue Service Ruling.*
10.1 Form of Transition Property Purchase and Sale Agreement.*
10.2 Form of Transition Property Servicing Agreement.*
10.3 Form of Note Purchase Agreement.*
10.4 Form of Administration Agreement.*
10.5 Form of Fee and Indemnity Agreement.*
23.1 Consent of Ropes & Gray (contained in its opinion to be
filed as Exhibit 5.1).*
23.2 Consent of Palmer & Dodge LLP (contained in its opinion to
be filed as Exhibit 8.1).*
23.3 Consent of PricewaterhouseCoopers LLP.*
25.1 [Statement of Eligibility and Qualification of Note Trustee
on Form T-1.*]
25.2 [Statement of Eligibility and Qualification of Certificate
Trustee on Form T-1.*]
27.1 Financial Data Schedule.*
99.1 Application for Financing Order.
99.2 Form of Financing Order.*
99.3 Form of Issuance Advice Letter.*
- --------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant, on behalf of Massachusetts RRB Special Purpose
Trust BEC-1 (the "Trust"), hereby undertakes as follows:
(a)(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a twenty percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement; and (iii) to include any material
information with respect to the plan of distribution not previously disclosed in
the Registration Statement or any material change to such information in the
Registration Statement; provided, however, that (a)(1)(i) and (a)(1)(ii) will
not apply if the
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<PAGE> 95
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 appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering hereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities registered which remain unsold at the termination of the
offering.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934), with respect to the Trust that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 15
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by its is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes 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 thereof.
II-4
<PAGE> 96
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, The Commonwealth of Massachusetts, on this
18th day of March, 1999.
BEC FUNDING LLC,
as Registrant
By: EMILIE G. O'NEIL
--------------------------------------
Name: Emilie G. O'Neil
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
ROBERT J. WEAFER, JR. President and Director (principal March 18, 1999
- ------------------------------------------ executive officer)
Robert J. Weafer, Jr.
EMILIE G. O'NEIL Vice President, Treasurer and March 18, 1999
- ------------------------------------------ Director (principal financial and
Emilie G. O'Neil accounting officer)
JAMES JUDGE Director March 18, 1999
- ------------------------------------------
James Judge
</TABLE>
II-5
<PAGE> 97
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Formation of the Registrant
3.2 Limited Liability Company Agreement of the Registrant
99.1 Application for Financing Order
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF FORMATION
OF
BEC FUNDING LLC
1. The name of the limited liability company is BEC Funding LLC.
2. The address of its registered office in the State of Delaware is
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 Certificate of
Formation this 29th day of January, 1999.
/s/ William M. Shields
----------------------
Name: William M. Shields
Title: Authorized Person
<PAGE> 1
Exhibit 3.2
LIMITED LIABILITY COMPANY AGREEMENT
OF
BEC FUNDING LLC
Dated as of March 10, 1999
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I.
DEFINITIONS.............................................................4
Section 1.01. DEFINITIONS......................................4
ARTICLE II.
FORMATION AND BUSINESS OF THE COMPANY...................................8
Section 2.01. FORMATION........................................8
Section 2.02. NAME.............................................8
Section 2.03. PRINCIPAL OFFICE.................................8
Section 2.04. REGISTERED AGENT AND REGISTERED OFFICE...........8
Section 2.05. PURPOSE..........................................8
Section 2.06. SEPARATE EXISTENCE..............................10
Section 2.07. LIMITATION ON CERTAIN ACTIVITIES................12
Section 2.08. NO STATE LAW PARTNERSHIP........................12
Section 2.09. ADDRESS OF THE SOLE MEMBER......................13
ARTICLE III.
TERM...................................................................13
Section 3.01. COMMENCEMENT....................................13
Section 3.02. CONTINUATION....................................13
ARTICLE IV.
CAPITAL CONTRIBUTIONS..................................................13
Section 4.01. CAPITAL CONTRIBUTION............................13
Section 4.02. CAPITAL ACCOUNT.................................13
Section 4.03. INTEREST ON AND RETURN OF CAPITAL ACCOUNT.......13
ARTICLE V.
ALLOCATIONS; BOOKS.....................................................14
Section 5.01. ALLOCATIONS OF INCOME AND LOSS..................14
Section 5.02. BOOKS OF ACCOUNT................................14
Section 5.03. DISTRIBUTIONS...................................14
ARTICLE VI.
MANAGEMENT OF THE COMPANY..............................................14
Section 6.01. MANAGEMENT OF COMPANY...........................14
<PAGE> 3
Section 6.02. WITHDRAWAL OF DIRECTOR..........................15
Section 6.03. DUTIES OF DIRECTORS.............................15
Section 6.04. REMOVAL OF DIRECTORS............................15
Section 6.05. QUORUM: ACTS OF THE MANAGEMENT COMMITTEE........15
Section 6.06. OFFICERS........................................16
ARTICLE VII.
DISSOLUTION, LIQUIDATION AND WINDING-UP................................16
Section 7.01. DISSOLUTION.....................................16
Section 7.02. ACCOUNTING......................................16
Section 7.03. CERTIFICATE OF CANCELLATION.....................16
Section 7.04. WINDING UP......................................16
Section 7.05. ORDER OF PAYMENT OF LIABILITIES UPON
DISSOLUTION.....................................17
Section 7.06. LIMITATIONS ON PAYMENTS MADE IN DISSOLUTION.....17
ARTICLE VIII.
TRANSFER AND ASSIGNMENT................................................17
Section 8.01. TRANSFER OF MEMBERSHIP INTERESTS................17
Section 8.02. ADMISSION OF TRANSFEREE AS MEMBER...............18
ARTICLE IX.
GENERAL PROVISIONS.....................................................18
Section 9.01. NOTICES.........................................18
Section 9.02. CONTROLLING LAW.................................18
Section 9.03. EXECUTION OF COUNTERPARTS.......................18
Section 9.04. SEVERABILITY....................................18
Section 9.05. ENTIRE AGREEMENT................................19
Section 9.06. AMENDMENTS TO ORGANIZATIONAL DOCUMENTS..........19
Section 9.07. PARAGRAPH HEADINGS..............................19
Section 9.08. GENDER, ETC.....................................19
Section 9.09. LIMITED LIABILITY...............................19
Section 9.10. ASSURANCES......................................19
Section 9.11. ENFORCEMENT BY INDEPENDENT DIRECTOR.............20
Section 9.12. WAIVER OF PARTITION; NATURE OF INTEREST.........20
ARTICLE X.
INDEMNIFICATION........................................................20
Section 10.01. INDEMNIFICATION.................................20
Section 10.02. INDEMNIFICATION FOR SUITS BY OR IN
RIGHT OF COMPANY................................21
Section 10.03. AUTHORIZATION...................................21
<PAGE> 4
Section 10.04. GOOD FAITH......................................21
Section 10.05. COURT ACTION....................................22
Section 10.06. EXPENSES........................................22
Section 10.07. NON-EXCLUSIVITY.................................22
Section 10.08. INSURANCE.......................................22
Section 10.09. CONSOLIDATION/MERGER............................23
Section 10.10. HEIRS, EXECUTORS, AND ADMINISTRATORS............23
SCHEDULE 6.06
OFFICERS...............................................................25
EXHIBIT A
NOTICE ADDRESS OF SOLE MEMBER..........................................26
<PAGE> 5
LIMITED LIABILITY COMPANY AGREEMENT
OF
BEC FUNDING LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement") of BEC
Funding LLC, a Delaware limited liability company (the "Company"), is made and
is effective as of March 10, 1999, by Boston Edison Company, a Massachusetts
corporation, as the sole member of the Company (the "Sole Member").
WHEREAS, the Sole Member has caused to be filed a Certificate of
Formation with the Secretary of State of Delaware (the "Secretary") to organize
the Company under and pursuant to the Act (as herein defined) and desires to
enter into this Agreement to set forth the 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:
ARTICLE I.
DEFINITIONS
Section 1.01. 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, Del. Code Ann.
tit. 6, ss. 18-101 et seq. (1998), as the same may hereafter be amended from
time to time.
"ADMINISTRATION AGREEMENT" shall mean the Administration Agreement to be
entered into by the Sole Member, as Administrator, and the Company, as amended
and supplemented 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 the Limited Liability Company Agreement of the
Company, as amended, modified, supplemented or restated from time to time in
accordance with the terms hereof.
-5-
<PAGE> 6
"BANKRUPTCY" means, with respect to any Person, 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, 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" means, collectively, the Transition Property Purchase &
Sale Agreement, the Indenture, the Trust Agreement, the Servicing Agreement, the
Administration Agreement, the Certificate Indenture and the Note Purchase
Agreement.
"BEC AFFILIATED GROUP" shall mean the Sole Member, BEC Energy, a
Massachusetts Voluntary Association, and any Affiliate of such companies (other
than the Company).
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on
which banking institutions or trust companies in New York, New York or Boston,
Massachusetts are authorized or obligated by law, regulation or executive order
to remain closed.
"CAPITAL CONTRIBUTION" shall mean, with respect to the Sole Member, the
amount of cash and the value of any property contributed to the Company.
"CERTIFICATE" shall mean the Certificate of Formation of the Company filed
with the Secretary on January 29, 1999 as described in Section 2.01 and as
amended, modified, supplemented, or restated from time to time.
"CERTIFICATE INDENTURE" shall mean the Certificate Indenture to be entered
into by the Trust, as Certificate Issuer, and a certificate trustee, as the same
may be amended, supplemented or modified from time to time.
"COMPANY" shall have the meaning assigned to such term in the preamble
hereto.
"CONTROL" shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through ownership of voting
-6-
<PAGE> 7
securities or general partnership or manager interests, by contract or
otherwise. "Controls" and "Controlled" shall have correlative meanings. Without
limiting the generality of the foregoing, a Person shall be deemed to Control
any other Person in which it owns, directly or indirectly, a majority of the
ownership interests.
"DIRECTOR" shall mean a member of the Management Committee.
"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 (i) institute proceedings to be adjudicated bankrupt or insolvent,
(ii) consent to the institution of bankruptcy or insolvency proceedings against
it, (iii) file a petition seeking or consenting to reorganization or relief
under any applicable federal or state law relating to bankruptcy, (iv) 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, (v) make a general assignment for the benefit of creditors or (vi)
admit in writing its inability to pay its debts generally as they become due.
"GAAP" shall mean generally accepted accounting principles in effect in the
United States from time to time.
"INDENTURE" shall mean that certain Indenture to be entered into between
the Company, as Note Issuer, and a note trustee, as amended, supplemented or
modified from time to time.
"INDEPENDENT DIRECTOR" 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 Director): (i) a member, stockholder, partner, director, manager,
officer or employee of any member of the BEC 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
BEC Affiliated Group; (iii) a member of the family of any such member,
stockholder, partner, director, manager, officer, employee, customer or
supplier; or (iv) a trustee in bankruptcy for any member of the BEC Affiliated
Group.
"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 at least three
and no more than five Directors, at least two of whom at all times upon and
after the acquisition by the Company of Transition Property must qualify as
Independent Directors. At all times after the
-7-
<PAGE> 8
acquisition by the Company of 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 at
least two Independent Directors to the Management Committee.
"MEMBERSHIP INTEREST" shall mean the limited liability company interest of
the Sole Member in the Company.
"NOTE PURCHASE AGREEMENT" shall mean the Note Purchase Agreement to be
entered into by the Company and the trust created under the Trust Agreement, as
amended and supplemented from time to time.
"NOTES" shall mean the notes of the Company at any time issued pursuant to
the Indenture or any indenture supplemental thereto.
"OFFICER" shall mean an officer of the Company as appointed and serving in
accordance with Section 6.06.
"PERSON" shall mean any natural person or Entity.
"SALE AGREEMENTS" shall have the meaning specified in Section 2.05.
"SECRETARY" shall have the meaning assigned to such term in the first
recital of this Agreement.
"SERVICING AGREEMENT" shall mean that certain Transition Property Servicing
Agreement to be entered into by the Sole Member, as Servicer, and the Company,
as Note Issuer, as amended and supplemented from time to time.
"SOLE MEMBER" shall have the meaning assigned to such term in the preamble
hereto.
"STATUTE" means Chapter 164 of the Massachusetts Acts of 1997, entitled An
Act Relative to Restructuring the Electric Utility Industry in the Commonwealth,
Regulating the Provision of Electricity and Other Services, and Promoting
Enhanced Consumer Protections Therein.
"TRANSITION PROPERTY" shall mean the property to be transferred to the
Company pursuant to the Transition Property Purchase & Sale Agreement.
"TRANSITION PROPERTY PURCHASE & SALE AGREEMENT" shall mean the Transition
Property Purchase & Sale Agreement to be entered into by the Company and the
Sole Member, as amended and supplemented from time to time.
"TRUST" shall mean the Massachusetts RRB Special Purpose Trust BEC.
-8-
<PAGE> 9
"TRUST AGREEMENT" shall mean the Declaration of Trust for the Trust,
entered or to be entered into by the Massachusetts Development Finance Agency,
the Massachusetts Health and Educational Facilities Authority and a Delaware
trustee, as the same may be amended and supplemented from time to time.
ARTICLE II.
FORMATION AND BUSINESS OF THE COMPANY
Section 2.01. FORMATION. The Company has been organized as a Delaware
limited liability company under and pursuant to the Act by the filing of the
Certificate with the Secretary by William M. Shields, as an "authorized person"
under the Act. Upon the filing of the Certificate with the Secretary, another
certificate to qualify the Company to do business in The Commonwealth of
Massachusetts, and an application for a Federal Tax Identification Number, his
powers as an "authorized person" ceased, and each Officer, acting singly,
thereupon became and shall continue as a designated "authorized person" of the
Company. An Officer shall execute, deliver and file any other certificates (and
any amendments and/or restatements thereof) necessary for the Company to qualify
to do business in any jurisdiction in which the Company may wish to conduct
business. 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.
Section 2.02. NAME. The name of the Company shall be "BEC 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.
Section 2.03. PRINCIPAL OFFICE. The location of the principal place of
business of the Company shall be at such location as shall be provided from time
to time by the Administrator under the Administration Agreement.
Section 2.04. 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.
Section 2.05. PURPOSE. The Company is intended to qualify as a "financing
entity" as defined in Section 1H(a) of the Statute. As such, the purpose for
which the Company is formed is limited solely to the following activities:
(a) to acquire, own, hold, administer, service, and enter into agreements
regarding the receipt and servicing of the Transition Property, along with
certain other related assets;
-9-
<PAGE> 10
(b) to enter into, perform and comply with the Transition Property Purchase
& Sale Agreement, assignment agreements, or other agreements providing for the
purchase of the Transition Property, any future "transition property" (as such
term is defined in the Statute), and related assets by the Company
(collectively, the "Sale Agreements"); and to enter into, perform and comply
with such servicing agreements, administration agreements, collection account
agreements and other similar agreements as may be necessary or desirable in
connection with such Sale Agreements;
(c) to issue, sell, authorize and deliver the Notes and other evidences of
indebtedness and to enter into any agreement or document providing for the
authorization, issuance, sale and delivery of the Notes;
(d) to manage, collect amounts due on, sell, exchange, assign, pledge,
encumber, or otherwise deal with all or any part of the Transition Property and
its other assets and property, and, in connection therewith, to accept, collect,
hold, sell, exchange or otherwise dispose of evidences of indebtedness or other
property received pursuant thereto, including the encumbrance of all of the
Transition Property and its other assets as collateral security;
(e) to invest proceeds from the Transition Property and its other assets
and any capital and income of the Company in accordance with the Basic Documents
or as otherwise determined by the Management Committee and not inconsistent with
this Agreement or the Basic Documents;
(f) to execute any registration statement, offering document or related
agreements or disclosures related to the issuance of electric rate reduction
bonds or other instruments secured by the Transition Property; and
(g) to 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
Agreement 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 any Officer or Director,
including any Independent Director, on behalf of the Company, may enter into the
Basic Documents and perform their respective obligations under 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 the Sole Member, the Management Committee, any Director 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
-10-
<PAGE> 11
and authority of any Officer or Director, including any Independent Director, to
enter into other agreements or documents on behalf of the Company, to the extent
permitted hereunder.
Section 2.06. 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) Hold itself out to the public and all other persons as a legal entity
separate from the Sole Member at all times, and correct any known
misunderstandings regarding its separate identity.
(iii) Maintain with commercial banking institutions its own deposit account
or accounts separate from those of any member of the BEC Affiliated Group.
(iv) Maintain an arm's length relationship with its Affiliates and the BEC
Affiliated Group.
(v) Ensure that, to the extent that it shares the same officers or other
employees with the Sole Member or any member of the BEC 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.
(vi) 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 the
Sole Member or any member of the BEC 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.
(vii) Maintain a principal executive and administrative office through
which its business is conducted separate from those of the Sole Member and any
Affiliate of the BEC Affiliated Group. To the extent that the Company and the
Sole Member or any Affiliate of the BEC 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.
(viii) Observe all necessary, appropriate and customary formalities,
including, but not limited to, holding all regular and special meetings
including meetings of the
-11-
<PAGE> 12
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.
(ix) Cause to have prepared and filed its own tax returns, if any, as may
be required under applicable law, to the extent (1) not part of a consolidated
group filing a consolidated return or returns or (2) not treated as a division
for tax purposes of another taxpayer, and pay any taxes so required to be paid
under applicable law.
(x) 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 Transition Property, ensure that its Management Committee
shall at all times include at least two Independent Directors.
(xi) Refrain from commingling its assets with those of the Sole Member or
any member of the BEC Affiliated Group (except as contemplated by any Sale
Agreement, or any servicing agreement or administration agreement entered into
in connection therewith).
(xii) Refrain from making any loan or advance to, owning, or acquiring any
stock or securities of any Person, including the Sole Member, except as
permitted in the Basic Documents.
(xiii) Act solely in its own name and through its own Officers and agents,
and no member of the BEC Affiliated Group shall be appointed to act as agent of
the Company, except as expressly contemplated by the Basic Documents.
(xiv) Ensure that no member of the BEC 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 prior to the acquisition by the
Company of any Transition Property any member of the BEC Affiliated Group may
lend or provide funds to the Company in connection with the initial
capitalization or organization of the Company or, thereafter as permitted by the
Basic Documents, with any subsequent capitalization.
(xv) Not enter into any guaranty, or otherwise become liable, with respect
to any obligation of any member of the BEC 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 the Sole Member or any other member of the BEC Affiliated
Group.
(xvi) Comply with all restrictions on its business and operations as set
forth in Sections 2.05 and 2.07.
-12-
<PAGE> 13
Section 2.07. 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;
(ii) without the affirmative vote of the Sole Member and the affirmative
vote of all of the Directors, including the Independent Directors, 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) form, acquire or hold any subsidiary (whether corporate, partnership,
limited liability company or other);
(v) incur any indebtedness (other than the indebtedness incurred under the
Basic Documents), assume or guarantee any indebtedness of any other Person or
pledge its assets for the benefit of any other Person (other than the pledge of
assets contemplated by the Basic Documents); or
(vi) to the fullest extent permitted by law, without the affirmative vote
of the Sole Member and the affirmative vote of all Directors, including the
Independent Directors, execute any dissolution, liquidation, or winding up of
the Company.
Section 2.08. 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 Director or the Company, for any purposes.
Section 2.09. 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.
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<PAGE> 14
ARTICLE III.
TERM
Section 3.01. COMMENCEMENT. The Company's term commenced upon the filing of
the Certificate with the Secretary on January 29, 1999. The existence of the
Company as a separate legal entity shall continue until the cancellation of the
Certificate as provided in the Act.
Section 3.02. CONTINUATION. Notwithstanding any provision of this
Agreement, a Bankruptcy of the Sole Member will not cause the Sole Member to
cease to be a member of the Company, and upon the occurrence of such an event,
the business of the Company shall continue without dissolution. 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 a Bankruptcy of the Sole 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 IV.
CAPITAL CONTRIBUTIONS
Section 4.01. CAPITAL CONTRIBUTION. The Sole Member may be required or
shall be permitted to make 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 4.02 below. The Sole
Member shall have a Membership Interest of one hundred percent (100%) of the
Company.
Section 4.02. CAPITAL ACCOUNT. The Company shall establish an individual
Capital Account for the Sole Member (the "Capital Account").
Section 4.03. INTEREST ON AND RETURN OF CAPITAL ACCOUNT. The Sole Member
shall be entitled to interest on its Capital Contribution to the extent
permitted in the Indenture and the Basic Documents.
ARTICLE V.
ALLOCATIONS; BOOKS
Section 5.01. ALLOCATIONS OF INCOME AND LOSS.
(a) BOOK ALLOCATIONS. The net income and net loss of the Company shall be
allocated entirely to the Capital Account of the Sole Member.
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(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 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.
Section 5.02. 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.
Section 5.03. DISTRIBUTIONS. The Company may make distributions to the Sole
Member from time to time upon the unanimous vote of the Management Committee.
Notwithstanding any provision to the contrary contained in this Agreement, the
Company shall not be required to make a distribution to the Sole 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 of the Basic
Documents.
ARTICLE VI.
MANAGEMENT OF THE COMPANY
Section 6.01. 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 Officers 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
Director may not bind the Company. Prior to the entry into any Sale Agreement
and the acquisition of any Transition Property, the Sole Member shall appoint
two Independent Directors. In the event that an Independent Director withdraws,
resigns or is removed as Independent Director, the Sole Member shall appoint, as
soon as reasonably practicable, a successor Independent Director. The Company
shall pay each Independent Director an annual fee totaling not less than
$1,000 per year. Each Director, including each Independent Director, is hereby
deemed to be a "manager" within the meaning of Section 18-101(10) of the Act.
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Section 6.02. WITHDRAWAL OF DIRECTOR. Notwithstanding anything herein to
the contrary, an Independent Director may not withdraw or resign as a Director
of the Company without the consent of the Sole Member.
Section 6.03. DUTIES OF DIRECTORS. To the fullest extent permitted by
applicable law, including without limitation Section 18-1101(c) of the Act, the
fiduciary duty of the Directors, including the Independent Directors, in respect
of any decision on any matter referred to in this Agreement shall be owed solely
to the Company (including its creditors) and not to the Sole Member or any other
holder of an equity interest in the Company as may exist at such time. Each
Director shall execute and deliver the Management Agreement.
Section 6.04. REMOVAL OF DIRECTOR. A Director (including the Independent
Director) may be removed at any time, with or without cause, upon the written
election of the Sole Member.
Section 6.05. QUORUM: ACTS OF THE MANAGEMENT COMMITTEE. At all meetings of
the Management Committee, a majority of the Directors shall constitute a quorum
for the transaction of business and, except as otherwise provided in any other
provision of this Agreement, the act of a majority of the Directors present at
any meeting at which there is a quorum shall be the act of the Management
Committee. If a quorum shall not be present at any meeting of the Management
Committee, the Directors present at such meeting may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present. The Directors may participate in meetings of the
Management Committee by means of telephone conference or similar communications
equipment that allows all persons participating in the meeting to hear each
other, and such participation in a meeting shall constitute presence in person
at the meeting. If all the participants are participating by telephone
conference or similar communications equipment, the meeting shall be deemed to
be held at the principal place of business of the Company. 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 Directors 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 Directors, the Directors may vote in person or by proxy.
Section 6.06. 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 6.06 may be revoked at any time by the Sole Member. The Officers
shall be those individuals listed on Schedule 6.06 from
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time to time attached hereto. The Sole Member may revise Schedule 6.06 in its
sole discretion at any time.
ARTICLE VII.
DISSOLUTION, LIQUIDATION AND WINDING-UP
Section 7.01. DISSOLUTION. The Company shall be dissolved and its affairs
shall be wound up upon the occurrence of the earliest of the following events:
(a) subject to Section 2.07, the election to dissolve the Company made in
writing by the Sole Member and each Director, including without limitation each
Independent Director, as permitted by the Basic Documents;
(b) the occurrence of any event that causes the Sole 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
(c) the entry of a decree of judicial dissolution of the Company pursuant
to Section 18-802 of the Act.
Section 7.02. 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.
Section 7.03. CERTIFICATE OF CANCELLATION. As soon as possible following
the occurrence of any of the events specified in Section 7.01 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.
Section 7.04. WINDING UP. Upon the occurrence of any event specified in
Section 7.01, 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 7.06.
Section 7.05. 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
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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.
Section 7.06. LIMITATIONS ON PAYMENTS MADE IN DISSOLUTION. Except as
otherwise specifically provided in this Agreement, the Sole Member shall be
entitled to look solely to the assets of the 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 Director or the Management Committee.
ARTICLE VIII.
TRANSFER AND ASSIGNMENT
Section 8.01. 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
8.02. 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 the Sole Member 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.
Section 8.02. 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 Directors. 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. Notwithstanding anything in this Agreement to the
contrary, any successor to the Sole Member by merger or consolidation in
compliance with the Basic Documents shall, without further act, be the Sole
Member hereunder, and such merger or consolidation shall not constitute a
transfer for purposes of this Agreement.
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ARTICLE IX.
GENERAL PROVISIONS
Section 9.01. NOTICES. All notices or other communications required or
permitted to be delivered pursuant to this Agreement shall be in writing and may
be personally delivered, mailed or sent by telephonic facsimile or other similar
form of rapid transmission, and shall be deemed to have been duly given upon
receipt by the appropriate party at its address 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 9.01.
Section 9.02. 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.
Section 9.03. 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.
Section 9.04. 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.
Section 9.05. 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.
Section 9.06. AMENDMENTS TO ORGANIZATIONAL DOCUMENTS.
(a) This Agreement may not be altered, amended or repealed except pursuant
to a written agreement executed and delivered by the Sole Member.
Notwithstanding the preceding sentence, the Company shall not adopt a new
Limited Liability Company Agreement or alter, amend or repeal any provision of
Sections 1.01 (including the definition of "Independent Director"), 2.05, 2.06,
2.07, 3.02, 6.02, 7.01, 8.02 , 9.06 and 9.11 of this Agreement without the
unanimous affirmative vote of the Management Committee, which vote must include
the affirmative vote of each Independent Director.
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(b) The Company's power to alter, amend or repeal the Certificate shall be
vested in the Sole Member.
Upon obtaining the approval of any amendment, supplement or restatement of 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.
Section 9.07. 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.
Section 9.08. 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."
Section 9.09. LIMITED LIABILITY. Except as otherwise expressly provided by
the Act, the debts, obligations and liabilities of the Company, whether arising
in contract, tort or otherwise, shall be the debts, obligations and liabilities
solely of the Company, and neither the Sole Member nor any Director or Officer
shall be obligated personally for any such debt, obligation or liability of the
Company solely by reason of being the Sole Member or a Director or Officer of
the Company. To the extent permitted by applicable law, no Director or Officer
shall be personally liable to the Company for monetary damages for breach of the
duty of care as an Officer or a Director for any act taken or omission made in
good faith and without willful misconduct.
Section 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.
Section 9.11. ENFORCEMENT BY INDEPENDENT DIRECTOR. Notwithstanding any
other provision of this Agreement, the Sole Member agrees that this Agreement,
(including without limitation, Sections 2.05, 2.06, 2.07, 3.02, 6.02, 7.01,
8.02, 9.06 and 9.11) constitutes a legal, valid and binding agreement of the
Sole Member, and is enforceable against the Sole Member by the Independent
Directors in accordance with its terms. The Independent Directors are intended
beneficiaries of this Agreement.
Section 9.12. WAIVER OF PARTITION; NATURE OF INTEREST. Except as otherwise
expressly provided in this Agreement, to the fullest extent permitted by law,
the Sole Member hereby irrevocably waives any right or power that the Sole
Member might have to cause the Company or any of its assets to be partitioned,
to cause the appointment of a receiver for all or any portion of the assets of
the Company, to compel any sale of all or any portion of the assets of the
Company pursuant to any applicable law or to file a complaint or to institute
any proceeding at law or in equity to cause the dissolution, liquidation,
winding up or termination of the Company. The Sole
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Member shall not have any interest in any specific assets of the Company, and
the Sole Member shall not have the status of a creditor with respect to any
distribution pursuant to Section 5.3 hereof. The interest of the Sole Member in
the Company is personal property.
ARTICLE X.
INDEMNIFICATION
Section 10.01. INDEMNIFICATION. Subject to Section 10.03 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 director, 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), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit,
proceeding or in enforcing such person's right to indemnification hereunder, 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.
Section 10.02. INDEMNIFICATION FOR SUITS BY OR IN RIGHT OF COMPANY. Subject
to Section 10.03 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 director, 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 or enforcing such person's right to
indemnification hereunder, 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 as the Court of Chancery or such other court shall deem proper.
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Section 10.03. 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 10.01 or Section 10.02, 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.
Section 10.04. GOOD FAITH. For purposes of any determination under Sections
10.03 or 9.09 of this Agreement, a person shall be deemed to have acted in good
faith and in a manner he 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 conduct was unlawful, if his
action is based on the records or books of account of the Company or another
enterprise, or on 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 10.04 shall mean any corporation, partnership, limited liability
company, 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 10.04 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
10.01 or 10.02 of this Article, as the case may be.
Section 10.05. COURT ACTION. Notwithstanding any contrary determination in
the specific case under Section 10.03 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 10.01 and
10.02 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 10.01 and 10.02 of this
Article, as the case may be. Notice of any application for indemnification
pursuant to this Section 10.05 shall be given to the Company promptly upon the
filing of such application.
Section 10.06. 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
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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.
Section 10.07. 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 10.01 and
10.02 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 10.01 or 10.02 of this Article but
who the Company has the power or obligation to indemnify under the provisions of
the Act, or otherwise.
Section 10.08. 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 Company would have the power or the
obligation to indemnify him against such liability under the provisions of this
Article.
Section 10.09. CONSOLIDATION/MERGER. For purposes of this Article,
references to "the Company" shall include, in addition to the Company, any
constituent company (including any constituent of a constituent) absorbed in a
consolidation or merger that, 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.
Section 10.10. HEIRS, EXECUTORS, AND ADMINISTRATORS. The indemnification
and advancement of expenses provided by, or granted pursuant to, this Article
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]
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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.
BOSTON EDISON COMPANY
By: /s/ EMILIE G. O'NEIL
-------------------------
Name: Emilie G. O'Neil
Title: Manager-Corporate
Finance
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SCHEDULE 6.06
OFFICERS
Robert Weafer, Jr. President, Treasurer
Emilie O'Neil Vice President
Theodora Convisser Secretary
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EXHIBIT A
NOTICE ADDRESS OF SOLE MEMBER
NAME OF MEMBER NOTICE ADDRESS
Boston Edison Company 800 Boylston Street
Boston, MA 02199
Attn: Corporate Finance
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EXHIBIT B
MANAGEMENT AGREEMENT
[ ], 1999
BEC Funding LLC
800 Boylston Street, 35th Floor
Boston, MA 02119
Re: Management Agreement -- BEC 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 BEC Funding LLC,
a Delaware limited liability company (the "Company"), in accordance with the
Limited Liability Company Agreement of the Company, dated as of [ ], 1999,
as it may be amended or restated from time to time (the "LLC Agreement"), hereby
agrees:
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,
to perform and discharge such person's duties and obligations as a member of the
Management Committee under the LLC Agreement, and 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.
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IN WITNESS WHEREOF, the undersigned have executed this Management Agreement
as of the day and year first above written.
----------------------------------
Name:
----------------------------------
Name:
----------------------------------
Name:
----------------------------------
Name:
----------------------------------
Name:
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Exhibit 99.1
THE COMMONWEALTH OF MASSACHUSETTS
DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY
- -------------------------
)
BOSTON EDISON COMPANY )
- ------------------------)
DOCKET NO. DTE 98 - 118
APPLICATION FOR APPROVAL OF RATE REDUCTION BONDS
Boston Edison Company ("Boston Edison") hereby petitions the Department of
Telecommunications and Energy (the "Department") for a financing order (the
"Financing Order") approving the issuance of electric rate reduction bonds
("RRBs"), pursuant to the Restructuring Settlement Agreement approved by the
Department in Docket DPU 96-23 (the "Settlement Agreement") and pursuant to
M.G.L. c.164, secs. 1G and 1H. The Financing Order will provide for: (a) the
securitization (as such term is used in M.G.L. c.164, secs. 1G and 1H) through
RRBs of reimbursable transition costs amounts of approximately $730 million
represented by the fixed component of the transition charge (which includes the
net balance of Boston Edison's Pilgrim unrecovered plant balances and related
regulatory assets and the unrecovered prefunded balance of Boston Edison's
portion of the decommissioning fund being transferred to buyer in connection
with the divestiture of Pilgrim Nuclear Power Station and associated generation
assets ("Pilgrim")), the municipal contract customers' portion of such balances
(plus any additional transition costs arising in connection with the Pilgrim
divestiture), and the transaction costs of issuing RRBs and providing any credit
enhancement as described below; (b) the organization and capitalization of one
or more special purpose entities (each, an
<PAGE> 2
"SPE") to which the transition property will be sold; (c) the establishment of a
portion of Boston Edison's access charges ("RTC Charges") as transition property
from which RRBs to be issued will be repaid; and (d) the servicing of RTC
Charges by Boston Edison, as the initial servicer for the transition property
("Servicer"), or any successor Servicer, under a servicing agreement (the
"Servicing Agreement").
In support of this Petition, Boston Edison states as follows:
1 The Applicant, Boston Edison, is a Massachusetts corporation authorized to
generate, transmit, purchase, sell and distribute electricity. Boston
Edison is an electric company as defined in M.G.L. c.164, ss. 1 and serves
retail electric customers in Massachusetts.
2 On November 25, 1997, Governor Cellucci signed into law Chapter 164 of the
Acts of 1997 which provides for electric companies to securitize a portion
of their transition costs through the issuance of RRBs to provide savings
to ratepayers.
3 In a separate application being filed contemporaneously herewith, Boston
Edison is seeking approval of its divestiture of Pilgrim, which will
establish the net balance of the Pilgrim unrecovered plant balances and
related regulatory assets and the unrecovered prefunded balance of the
decommissioning fund being transferred to buyer in connection with the
divestiture (collectively, the "Pilgrim unrecovered balances") and any
additional transition costs arising in connection with the Pilgrim
divestiture, in accordance with the Settlement Agreement and mitigation
requirements of M.G.L. c.164, ss. 1G(d)(4).
4 Boston Edison, together with other electric companies, has been working
with the staffs of the Massachusetts Development Finance Agency and
Massachusetts Health and Educational Facilities Authority (together, the
"Agencies") to develop the structure for
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the proposed securitization and the process for approval by the Department.
The Agencies have had the opportunity to review and comment on this
Application and the exhibits hereto.
5 RRBs will be issued to securitize the reimbursable transition costs amounts
represented by the fixed component of the transition charge (which includes
the Pilgrim unrecovered balances), any additional transition costs arising
in connection with the Pilgrim divesture, the related transaction costs and
credit enhancement (including an overcollateralization account and
additional capitalization and liquidity reserves, if any). Boston Edison
currently estimates the initial principal amount of RRBs to be issued will
be approximately $730 million, subject to adjustment based on the timing of
the closing of the Pilgrim divestiture, the actual transaction costs
(including any credit enhancement), additional transition costs arising in
connection with the Pilgrim divestiture, prevailing market conditions,
input from nationally recognized statistical rating organizations (the
"rating agencies") selected by Boston Edison and approved by the Agencies
to assign credit ratings to the RRBs, tax authorities and underwriters or
changes in the proposed transaction not now anticipated by Boston Edison.
6 In the Settlement Agreement and subsequent filings pursuant thereto, the
Department has or will have approved Boston Edison's retail distribution
rates, including its transition charge (referred to as the access charge in
the Settlement Agreement) to recover on a fully reconciling basis all of
Boston Edison's transition costs including the reimbursable transition
costs amounts being securitized.
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7 The issuance of RRBs will reduce the carrying charge for such amounts. By
so reducing the carrying charge, Boston Edison customers will realize net
savings, reflected in lower transition charges, than would be required to
recover the approved transition costs if the Financing Order was not
adopted.
8 Boston Edison will form one or more SPEs, wholly owned by Boston Edison.
Each SPE will be bankruptcy-remote, in that its activities will be limited
to ownership of the transition property and issuance of notes (the "SPE
Debt Securities"), and restrictions will be imposed on its ability to
commence a bankruptcy case or other insolvency proceeding. Boston Edison
will capitalize each SPE in an amount anticipated to be approximately 0.50%
of the initial principal balance of RRBs, as may be adjusted at the time of
issuance based on tax authority or rating agency requirements. Such funds
will be used to pay debt service and related fees and expenses in the event
of a shortfall in RTC Charge collections.
9 Boston Edison will sell the transition property to an SPE in a transaction
which, under M.G.L. c.164, ss. 1H, will be intended and treated as a legal
true sale and absolute transfer to such SPE notwithstanding any contrary
treatment of such transfer for accounting, tax or other purposes.
10 Upon the effective date of the Financing Order there shall exist a
statutory first priority lien on all transition property then existing or
thereafter arising pursuant to the terms of the Financing Order and as
provided in M.G.L. c.164, ss. 1H(e). Such lien shall secure all
obligations, then existing or subsequently arising, for the benefit of the
holders of SPE Debt Securities and RRBs, the trustee or representative for
such holders, each SPE and
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special purpose trust and shall arise by operation of law automatically
without any action on the part of Boston Edison or any other person.
11 An SPE will then issue SPE Debt Securities to a special purpose trust
established by the Agencies. SPE Debt Securities will be non-recourse to
Boston Edison and its assets, secured by all of the assets of such SPE
including, without limitation, the transition property, the rights of such
SPE under the transaction documents such as the purchase agreement by which
such SPE acquires the transition property, the Servicing Agreement by which
Boston Edison, or any successor Servicer, acts as Servicer for the
transition property, an administration agreement, the collection account
and any other accounts of such SPE contained in such SPE's collection
account including an overcollateralization account and reserve account,
investment earnings (other than earnings on the capital account, which
earnings are to be returned as a distribution of capital to Boston Edison)
on amounts held by such SPE and the capital of such SPE.
12 RRBs are expected to be pass-through certificates representing undivided
beneficial interests in SPE Debt Securities. The form, interest rate,
repayment schedule, classes, number and determination of credit ratings and
other characteristics of RRBs will be determined at the time of pricing
based on then-current market conditions.
13 The special purpose trust will transfer the proceeds from RRBs to an SPE,
as consideration for SPE Debt Securities and the SPE will then transfer
such proceeds to Boston Edison as consideration for the transition
property.
14 RRBs will not be obligations of Boston Edison nor will they be secured by a
pledge of the general credit, full faith or taxing power of The
Commonwealth of Massachusetts or
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any agency or subdivision of the Commonwealth in accordance with M.G.L.
c.164,ss. 1H(b)(4). RRBs will be repaid through the collection of RTC
Charges from all retail users, without regard to class, of Boston Edison's
distribution system within the geographic service territory as in effect on
July 1, 1997 by Boston Edison and any successor distribution companies,
which may include third party suppliers or successor Servicers. The RTC
Charge will be a usage based component of the transition charge on each
retail user's monthly bill until the RRBs, together with all interest,
fees, costs and expenses, are discharged in full. While not separately
identified on each retail user's monthly bill, each monthly bill will note
that the RTC Charge, as a component of the transition charge, is being
collected on behalf of an SPE, as owner of the transition property.
15 M.G.L. c.164, ss. 1H(b)(3) provides that the Financing Order and the
reimbursable transition costs amounts shall be irrevocable, and the
Department (or any successor thereto) shall not have authority to revalue
or revise for ratemaking purposes the reimbursable transition costs
amounts, or determine that such reimbursable transition costs amounts or
RTC Charges are unjust or unreasonable, or in any way reduce or impair the
value of transition property either directly or indirectly by taking into
account RTC Charges when setting rates for Boston Edison, nor should the
amount of revenues arising with respect thereto be subject to reduction,
impairment, postponement or termination.
16 Pursuant to M.G.L. c.164, ss. 1H(b)(3) the Commonwealth has pledged and
agreed with the owners of transition property and holders of RRBs that the
Commonwealth will not (i) alter the provisions of M.G.L. c.164 which make
the RTC Charges imposed by the
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Financing Order irrevocable and binding or (ii) limit or alter the
reimbursable transition costs amounts, transition property, the Financing
Order and all rights thereunder until RRBs and any interest thereon are
fully discharged.
17 Boston Edison will file an initial RTC Charge in an issuance advice letter
upon final determination of all terms of RRBs after each series or class of
RRBs is priced, but prior to the date such RRBs are issued. The transition
charge will also be adjusted in revised tariffs to reflect the Pilgrim
divestiture and the issuance of RRBs. The RTC Charge shall be established
at an initial level (and at different levels during specified periods over
the life of RRBs) intended to provide for the full recovery of payments of
interest and principal on RRBs, in accordance with the expected
amortization schedule determined at the time of offering, any credit
enhancement and any ongoing related fees, costs and expenses, based upon
assumptions including sales forecasts, payment and charge-off patterns and
lags between RTC Charge billing and collection by the Servicer.
18 The level of RTC Charge may differ for specified periods during the term of
the RRBs due to several factors, including changes in the principal balance
of RRBs, changes in the weighted average interest cost of RRBs as the
relative principal balance outstanding changes, the impact of the
variability of energy sales, changes in payment and charge-off patterns,
and changes in ongoing fees, costs and expenses of RRBs.
19 In order to minimize the impact of variability in energy sales, changes in
payment and charge-off patterns, collections on the payment of principal,
interest, fees, costs and expenses on RRBs and the maintenance of credit
enhancement, and to maintain actual principal amortization in accordance
with the expected amortization schedule, Boston
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Edison proposes to adjust the RTC Charge, up or down, by an RTC Charge
adjustment mechanism in accordance with M.G.L. c.164, ss. 1H(b)(5) and the
methodology described in EXHIBIT BE-3.
20 Through the transfer of the related transition property to an SPE, such SPE
will obtain the right and the obligation to assess and collect RTC Charges.
On behalf of such SPE, Boston Edison will initially act as the Servicer for
the transition property and Boston Edison, or any successor Servicer, will
be responsible for calculating, billing, collecting, and remitting RTC
Charges from all retail users of Boston Edison's distribution system within
the geographic service territory as in effect on July 1, 1997. Boston
Edison will carry out billing, collection and remittance activities both as
Servicer with respect to RTC Charges, and as principal with respect to its
own charges to be paid by such customers.
21 In consideration for its servicing responsibilities, Boston Edison or any
successor Servicer will receive a periodic servicing fee which will be
recovered through RTC Charges as described in EXHIBIT BE-3. In the event of
a failure of any customer to pay RTC Charges, Boston Edison, as initial
Servicer (or any successor Servicer, to the extent permitted by
Massachusetts law and applicable regulations), is authorized to shut-off
power of such customer in accordance with Massachusetts law and applicable
regulations, at the direction of Boston Edison or any successor Servicer.
22 Initially, Boston Edison will act as Servicer, although a successor
Servicer may perform these functions in the future. Any successor Servicer
will have the same rights and obligations with respect to the RTC Charges
as Boston Edison as initial Servicer under the Financing Order and M.G.L.
c.164, secs. 1G and 1H.
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23 Boston Edison expects to implement with the Department's guidance and
approval, certain policies and procedures designed to ensure that the
credit ratings of RRBs will not be reduced or withdrawn due to the
existence of any third party supplier. The policies and procedures
described in the prefiled testimony in EXHIBIT BE-2 will help retain the
quality of RTC Charge billings, collections and remittances.
24 Boston Edison expects to use the proceeds from the sale of transition
property, net of transaction costs, for the following purposes: (a) to
return the securitized portion of the Pilgrim and fossil unrecovered plant
balances and related regulatory assets; (b) to fund the unrecovered
prefunded balance of the securitized portion of the decommissioning fund
and any additional transition costs arising in connection with the Pilgrim
divestiture; and (c) to provide any credit enhancement required for the
RRBs. Boston Edison may apply such proceeds to the reduction of its
capitalization and for general corporate purposes.
THEREFORE, Boston Edison respectfully petitions the Department:
1. TO GRANT ANY AND ALL AUTHORIZATIONS THAT MAY BE REQUIRED UNDER
MASSACHUSETTS LAW, INCLUDING, WITHOUT LIMITATION, APPROVAL AND
AUTHORIZATION IN THE FINANCING ORDER PURSUANT TO THE SETTLEMENT AGREEMENT
AND M.G.L. c.164, SS.1H, FOR THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED BY THE ISSUANCE OF RRBS AND RELATED MATTERS, INCLUDING WITHOUT
LIMITATION: (a) THE SECURITIZATION THROUGH RRBS OF THE
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REIMBURSABLE TRANSITION COSTS AMOUNTS OF APPROXIMATELY $730 MILLION
REPRESENTED BY THE FIXED COMPONENT OF THE TRANSITION CHARGE (WHICH INCLUDES
THE NET BALANCE OF BOSTON EDISON'S PILGRIM UNRECOVERED PLANT BALANCES AND
RELATED REGULATORY ASSETS AND THE UNRECOVERED BALANCE OF BOSTON EDISON'S
PORTION OF THE PREFUNDED DECOMMISSIONING BEING TRANSFERRED TO BUYER IN
CONNECTION WITH THE DIVESTITURE OF PILGRIM), THE MUNICIPAL CONTRACT
CUSTOMERS' PORTION OF SUCH BALANCES (PLUS ANY ADDITIONAL TRANSITION COSTS
ARISING IN CONNECTION WITH THE PILGRIM DIVESTITURE), AND THE TRANSACTION
COSTS OF ISSUING RRBS AND PROVIDING ANY CREDIT ENHANCEMENT; (b) THE
ORGANIZATION AND CAPITALIZATION OF EACH SPE TO WHICH THE TRANSITION
PROPERTY WILL BE SOLD; (c) THE ESTABLISHMENT AND ADJUSTMENT FROM TIME TO
TIME OF RTC CHARGES FROM WHICH RRBS TO BE ISSUED WILL BE REPAID; AND (d)
THE SERVICING OF RTC CHARGES BY BOSTON EDISON, AS INITIAL SERVICER, OR ANY
SUCCESSOR SERVICER UNDER THE SERVICING AGREEMENT.
2. TO FIND AN EXEMPTION in the public interest from each of (a) the
competitive bidding requirements of M.G.L. c.164, ss. 15 and (b) the par
value debt issuance requirements of M.G.L. c.164 ss. 15(a) in connection
with the sale of RRBs and to grant each such exemption.
3. TO FIND SAVINGS TO RATEPAYERS, REFLECTED IN LOWER TRANSITION CHARGES, THAN
WOULD BE REQUIRED TO RECOVER THE APPROVED
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TRANSITION COSTS IF THE FINANCING ORDER WAS NOT ADOPTED IN ACCORDANCE WITH
M.G.L. c.164, secs. 1G(d)(4) and 1H(b)(2).
4. TO MAKE SUCH OTHER FINDINGS AND ISSUE SUCH OTHER ORDERS AS SET FORTH IN THE
DRAFT FINANCING ORDER ATTACHED HERETO IN THE FORM OF EXHIBIT BE-1.
5. TO GRANT SUCH OTHER AND FURTHER ORDERS AND APPROVALS AS THE DEPARTMENT MAY
DEEM NECESSARY OR PROPER IN THE CIRCUMSTANCES.
BOSTON EDISON SUBMITS FOR THE DEPARTMENT'S CONSIDERATION A DRAFT FINANCING
ORDER ATTACHED TO THIS APPLICATION AS EXHIBIT BE-1. BOSTON EDISON ALSO SUBMITS
THE PREPARED TESTIMONY IN THE FOLLOWING EXHIBITS:
I. EXHIBIT BE-2 PREFILED TESTIMONY OF ELLIOT M. ALCHEK;
II. EXHIBIT BE-3 PREFILED TESTIMONY OF EMILIE G. O'NEIL; AND
III. EXHIBIT BE-4 PREFILED TESTIMONY OF GEOFFREY O. LUBBOCK.
Respectfully submitted,
BOSTON EDISON COMPANY
by its attorneys,
/s/ WILLIAM S. STOWE
--------------------
William S. Stowe
Catherine J. Keuthen
800 Boylston Street
Boston, MA 02199
(617) 424-2544
(617) 424-2733 (fax)
Of Counsel:
Hemmie Chang
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David A. Fine
Roscoe Trimmier, Jr.
Colleen M. Granahan
Ropes & Gray
One International Place
Boston, Massachusetts 02110
(617) 951-7000
(617) 951-7050 (fax)
December 2, 1998
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