<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): July 29, 1999
------------------------------
BOSTON EDISON COMPANY
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Massachusetts 1-2301 04-1278810
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
800 Boylston Street, Boston, MA 02199
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER: (617) 424-2000
-------------------------------------------------
N/A
- --------------------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
1
<PAGE> 2
ITEM 5. OTHER EVENTS
On July 29, 1999, BEC Funding LLC, a subsidiary of Boston Edison Company,
closed the sale of $725 million of notes to Massachusetts RRB Special Purpose
Trust BEC-1, a special purpose trust. The trust in turn sold $725 million of
rate reduction bonds to the public. The notes were issued in five classes with
varying maturities. The bonds were issued in five identical classes with
identical maturities.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) NOT APPLICABLE
(B) NOT APPLICABLE
(C) EXHIBITS:
10.13 Underwriting Agreement
10.14 Transition Property Purchase and Sale Agreement
10.15 Transition Property Servicing Agreement
10.16 Administration Agreement
10.17 Limited Liability Company Agreement of BEC Funding LLC
99.4 Note Indenture
99.5 Certificate Indenture
99.6 Declaration of Trust
99.7 Notes
99.8 Rate Reduction Certificates
99.9 Note Purchase Agreement
99.10 Fee and Indemnity Agreement
99.11 Issuance Advice Letter
99.12 Certificate of Formation of BEC Funding LLC
99.13 Financing Order
2
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Boston Edison Company
Date: August 13, 1999 By: /s/ Robert J. Weafer, Jr.
------------------------------------
Name: Robert J. Weafer, Jr.
Title: Vice President - Finance,
Controller and Chief
Accounting Officer
3
<PAGE> 4
EXHIBIT INDEX
The following designated exhibits are filed herewith:
10.13 Underwriting Agreement
10.14 Transition Property Purchase and Sale Agreement
10.15 Transition Property Servicing Agreement
10.16 Administration Agreement
10.17 Limited Liability Company Agreement of BEC Funding LLC
99.4 Note Indenture
99.5 Certificate Indenture
99.6 Declaration of Trust
99.7 Notes
99.8 Rate Reduction Certificates
99.9 Note Purchase Agreement
99.10 Fee and Indemnity Agreement
99.11 Issuance Advice Letter
99.12 Certificate of Formation of BEC Funding LLC
99.13 Financing Order
4
<PAGE> 1
EXECUTION COPY
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
RATE REDUCTION CERTIFICATES
BEC FUNDING LLC
BOSTON EDISON COMPANY
UNDERWRITING AGREEMENT
New York, New York
July 22, 1999
To the Representatives named in Schedule I
hereto of the Underwriters named in
Schedule II hereto
Ladies and Gentlemen:
1. Introduction. Massachusetts RRB Special Purpose Trust BEC-1, a
Delaware business trust to be formed (the "Trust"), will sell to the
underwriters named in Schedule II hereto (the "Underwriters"), for whom you (the
"Representatives") are acting as representatives, the principal amount of
Massachusetts RRB Special Purpose Trust BEC-1 Rate Reduction Certificates
identified in Schedule I hereto (the "Certificates"). If the firm or firms
listed in Schedule I hereto include only the firm or firms listed in Schedule II
hereto, then the terms "Underwriters" and "Representatives," as used herein,
shall each be deemed to refer to such firm or firms.
The Trust will be formed pursuant to a Declaration of Trust to be dated
prior to the Closing Date (as hereinafter defined) (the "Declaration of Trust"),
by The Bank of New York (Delaware), as Delaware Trustee (the "Delaware
Trustee"), and the Massachusetts Development Finance Agency and the
Massachusetts Health and Educational Facilities Authority (each an "Agency,"
and, collectively, the "Agencies"), acting jointly as settlors thereunder
pursuant to Chapter 164 of the Massachusetts Acts of 1997 (the "Statute"). The
Certificates will be issued pursuant to a Certificate Indenture dated as of July
29, 1999 (the "Certificate Indenture"), between the Trust, the Delaware Trustee
and The Bank of New York, as Certificate Trustee (the "Certificate Trustee").
The assets of the Trust will consist solely of the BEC Funding LLC Notes (the
"Notes"), issued by BEC Funding LLC, a Delaware limited liability company (the
"Note
<PAGE> 2
Issuer"), and the payments received with respect thereto. The Notes will be
issued pursuant to a Note Indenture dated as of July 29, 1999 (the "Note
Indenture"), between the Note Issuer and The Bank of New York, as Note Trustee
(the "Note Trustee"), and purchased by the Trust pursuant to a Note Purchase
Agreement dated as of July 29, 1999 (the "Note Purchase Agreement"), between the
Note Issuer and the Trust. Each Class of Certificates will correspond to a Class
of Notes and will represent fractional undivided beneficial interests in such
underlying Class of Notes and the proceeds thereof. The Notes will be secured
primarily by, and will be payable from, the Transition Property described in the
Issuance Advice Letter. Such Transition Property will be sold to the Note Issuer
by Boston Edison Company, a Massachusetts corporation (the "Company"), pursuant
to a Transition Property Purchase and Sale Agreement dated as of July 29, 1999
(the "Sale Agreement"), between the Company, as Seller, and the Note Issuer. The
Transition Property will be serviced pursuant to a Transition Property Servicing
Agreement dated as of July 29, 1999 (as amended and supplemented from time to
time, the "Servicing Agreement"), between the Company, as Servicer, and the Note
Issuer.
Capitalized terms used and not otherwise defined herein shall have the
respective meanings given to them in the Note Indenture.
2. Representations and Warranties.
(a) Each of the Company and the Note Issuer represents and warrants
to, and agrees with, each Underwriter as set forth below in this Section
2(a). Certain terms used in this Section 2(a) are defined in paragraph
(iii) below.
(i) If the offering of the Certificates is a Delayed Offering
(as specified in Schedule I hereto), paragraph (a) below is
applicable and, if the offering of the Certificates is a Non-Delayed
Offering (as so specified), paragraph (b) below is applicable.
(1) The Note Issuer, the Notes and the Certificates meet the
requirements for the use of Form S-3 under the Securities
Act of 1933 (the "Act"), and the Note Issuer has filed with
the Securities and Exchange Commission (the "SEC") a
registration statement (file number 333-74671) on such Form,
including a basic prospectus, for registration under the Act
of the offering and sale of the Certificates. The Note
Issuer may have filed one or more amendments thereto, and
may have used a Preliminary Final Prospectus, each of which
has previously been furnished to you. Such registration
statement, as so amended, and in the form heretofore
delivered to you, has become effective. The offering of the
Certificates is a Delayed Offering and, although the Basic
Prospectus may not include all the information with respect
to the Certificates and the offering thereof required by the
Act and
2
<PAGE> 3
the rules thereunder to be included in the Final Prospectus,
the Basic Prospectus includes all such information required
by the Act and the rules thereunder to be included therein
as of the Effective Date. The Note Issuer will next file
with the SEC pursuant to Rules 415 and 424(b)(2) or (5) a
final supplement to the form of prospectus included in such
registration statement relating to the Certificates and the
offering thereof. As filed, such final prospectus supplement
shall include all required information with respect to the
Certificates and the offering thereof and, except to the
extent the Representatives shall agree in writing to a
modification, shall be in all substantive respects in the
form furnished to you prior to the Execution Time or, to the
extent not completed at the Execution Time, shall contain
only such specific additional information and other changes
(beyond that contained in the Basic Prospectus and any
Preliminary Final Prospectus) as the Note Issuer has advised
you, prior to the Execution Time, will be included or made
therein.
(2) The Note Issuer, the Notes and the Certificates meet the
requirements for the use of Form S-3 under the Act and the
Note Issuer has filed with the SEC a registration statement
(file number 333-74671) on such Form, including a basic
prospectus, for registration under the Act of the offering
and sale of the Certificates. The Note Issuer may have filed
one or more amendments thereto, including a Preliminary
Final Prospectus, each of which has previously been
furnished to you. The Note Issuer will next file with the
SEC either (x) a final prospectus supplement relating to the
Certificates in accordance with Rules 430A and 424(b)(1) or
(4), or (y) prior to the effectiveness of such registration
statement, an amendment to such registration statement,
including the form of final prospectus supplement. In the
case of clause (x), the Note Issuer has included in such
registration statement, as amended at the Effective Date,
all information (other than Rule 430A Information) required
by the Act and the rules thereunder to be included in the
Final Prospectus with respect to the Certificates and the
offering thereof. As filed, such final prospectus supplement
or such amendment and form of final prospectus supplement
shall contain all Rule 430A Information, together with all
other such required information, with respect to the
Certificates and the offering thereof and, except to the
extent the Representatives shall agree in writing to a
modification, shall be in all substantive respects in the
form furnished to you prior to the Execution Time or, to the
extent not completed at the Execution Time, shall contain
only such specific additional information and other changes
(beyond that contained in the Basic Prospectus and any
Preliminary Final Prospectus) as the
3
<PAGE> 4
Note Issuer has advised you, prior to the Execution Time,
will be included or made therein.
(ii) On the Effective Date, the Registration Statement did or
will, and when the Final Prospectus is first filed (if required) in
accordance with Rule 424(b) and on the Closing Date, the Final
Prospectus (and any supplement thereto) will, comply in all material
respects with the applicable requirements of the Act, the Securities
Exchange Act of 1934 (the "Exchange Act") and the Trust Indenture
Act of 1939 (the "Trust Indenture Act") and the respective rules
thereunder; on the Effective Date, the Registration Statement did
not or will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; on
the Effective Date and on the Closing Date the Note Indenture and
the Certificate Indenture did or will comply in all material
respects with the requirements of the Trust Indenture Act and the
rules and regulations thereunder; and, on the Effective Date, the
Final Prospectus, if not filed pursuant to Rule 424(b), did not or
will not, and on the date of any filing pursuant to Rule 424(b) and
on the Closing Date, the Final Prospectus (together with any
supplement thereto) will not, include any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that
neither the Note Issuer nor the Company makes any representations or
warranties as to (i) that part of the Registration Statement which
shall constitute the Statements of Eligibility and Qualification
(Forms T-1) under the Trust Indenture Act of the Note Trustee and
the Certificate Trustee or (ii) the information contained in or
omitted from the Registration Statement or the Final Prospectus (or
any supplement thereto) in reliance upon and in conformity with
information furnished in writing to the Note Issuer by or on behalf
of any Underwriter through the Representatives specifically for
inclusion in the Registration Statement or the Final Prospectus (or
any supplement thereto). No stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for
that purpose have been instituted.
(iii) The terms which follow, when used in this Agreement, shall
have the meanings indicated. The term "the Effective Date" shall
mean each date that the Registration Statement and any
post-effective amendment or amendments thereto became or become
effective and each date after the date hereof on which a document
incorporated by reference in the Registration Statement is filed.
"Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto. "Basic Prospectus"
shall mean the prospectus referred to in paragraph (a)(i) above
contained in the Registration Statement at the Effective Date
including, in the case of a Non-Delayed Offering, any Preliminary
Final Prospectus. "Preliminary Final Prospectus" shall mean any
preliminary prospectus supplement to the Basic Prospectus which
describes the Certificates and the offering thereof and is used
prior to filing of the Final Prospectus. "Final
4
<PAGE> 5
Prospectus" shall mean the prospectus supplement relating to the
Certificates that is first filed pursuant to Rule 424(b) after the
Execution Time, together with the Basic Prospectus or, if, in the
case of a Non-Delayed Offering, no filing pursuant to Rule 424(b) is
required, shall mean the form of final prospectus relating to the
Certificates, including the Basic Prospectus, included in the
Registration Statement at the Effective Date. "Registration
Statement" shall mean the registration statement referred to in
paragraph (a)(i) above, including all incorporated documents,
exhibits and financial statements, as amended at the Execution Time
(or, if not effective at the Execution Time, in the form in which it
shall become effective) and, in the event any post-effective
amendment thereto becomes effective prior to the Closing Date (as
hereinafter defined), shall also mean such registration statement as
so amended. Such term shall include any Rule 430A Information deemed
to be included therein at the Effective Date as provided by Rule
430A. "Rule 415," "Rule 424," "Rule 430A" and "Regulation S-K" refer
to such rules or regulation under the Act. "Rule 430A Information"
means information with respect to the Certificates and the offering
thereof permitted to be omitted from the Registration Statement when
it becomes effective pursuant to Rule 430A. Any reference herein to
the Registration Statement, the Basic Prospectus, any Preliminary
Final Prospectus or the Final Prospectus shall be deemed to refer to
and include the documents incorporated by reference therein pursuant
to Item 12 of Form S-3 which were filed under the Exchange Act on or
before the Effective Date of the Registration Statement or the issue
date of the Basic Prospectus, any Preliminary Final Prospectus or
the Final Prospectus, as the case may be; and any reference herein
to the terms "amend," "amendment" or "supplement" with respect to
the Registration Statement, the Basic Prospectus, any Preliminary
Final Prospectus or the Final Prospectus shall be deemed to refer to
and include the filing of any document under the Exchange Act after
the Effective Date of the Registration Statement or the issue date
of the Basic Prospectus, any Preliminary Final Prospectus or the
Final Prospectus, as the case may be, deemed to be incorporated
therein by reference. A "Non-Delayed Offering" shall mean an
offering of Certificates which is intended to commence promptly
after the effective date of a registration statement, with the
result that, pursuant to Rules 415 and 430A, all information (other
than Rule 430A Information) with respect to the Certificates so
offered must be included in such registration statement at the
effective date thereof. A "Delayed Offering" shall mean an offering
of Certificates pursuant to Rule 415 which does not commence
promptly after the effective date of a registration statement, with
the result that only information required pursuant to Rule 415 need
be included in such registration statement at the effective date
thereof with respect to the Certificates so offered. Whether the
offering of the Certificates is a Non-Delayed Offering or a Delayed
Offering shall be set forth in Schedule I hereto.
3. Purchase and Sale. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Trust
will sell to each Underwriter, and each Underwriter agrees, severally and not
jointly, to purchase from the Trust, at the
5
<PAGE> 6
purchase price for each class of Certificates set forth in Schedule II hereto,
the respective principal amount of each class of Certificates set forth opposite
the name of each Underwriter on Schedule II hereto. Simultaneously with the
execution and delivery of this Agreement, and as a condition precedent to the
effectiveness of this Agreement, the Agencies will deliver to the Company, the
Note Issuer and the Representatives an executed copy of the certificate attached
hereto as Appendix A.
4. Delivery and Payment. Delivery of and payment for the
Certificates shall be made at 9:00 AM Eastern Standard Time on July 29, 1999 (or
such later date not later than five business days after such specified date as
the Representatives shall designate), which date and time may be postponed by
agreement between the Representatives and the Note Issuer or as provided in
Section 9 hereof (such date and time of delivery and payment for the
Certificates being herein called the "Closing Date"). Delivery of the
Certificates shall be made to the Representatives for the respective accounts of
the several Underwriters against payment by the several Underwriters through the
Representatives of the purchase price thereof to the Trust by wire transfer of
immediately available funds in U.S. dollars. Delivery of the Certificates shall
be made at such location as the Representatives shall reasonably designate at
least one business day in advance of the Closing Date. The Certificates to be so
delivered shall be initially represented by Certificates registered in the name
of Cede & Co., as nominee of The Depository Trust Company ("DTC"). The interests
of beneficial owners of the Certificates will be represented by book entries on
the records of DTC and participating members thereof. Definitive Certificates
will be available only under limited circumstances described in the Final
Prospectus.
The Trust will have the Certificates available for inspection,
checking and packaging by the Representatives in New York, New York, not later
than 1:00 PM on the business day prior to the Closing Date.
5. Covenants.
(a) Covenants of the Note Issuer. The Note Issuer covenants and
agrees with the several Underwriters that:
(i) The Note Issuer will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and
any amendment thereto, to become effective. Prior to the termination
of the offering of the Certificates, the Note Issuer will not file
any amendment of the Registration Statement or supplement (including
the Final Prospectus or any Preliminary Final Prospectus) to the
Basic Prospectus unless the Note Issuer has furnished you a copy for
your review prior to filing and will not file any such proposed
amendment or supplement to which you reasonably object. Subject to
the foregoing sentence, the Note Issuer will cause the Final
Prospectus, properly completed in a form approved by you, and any
supplement thereto to be filed with the SEC pursuant to the
applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the
Representatives of such timely filing. The Note Issuer will promptly
advise the Representatives (i) when the Registration
6
<PAGE> 7
Statement, if not effective at the Execution Time, and any amendment
thereto, shall have become effective, (ii) when the Final
Prospectus, and any supplement thereto, shall have been filed with
the SEC pursuant to Rule 424(b), (iii) when, prior to termination of
the offering of the Certificates, any amendment to the Registration
Statement shall have been filed or become effective, (iv) of any
request by the SEC for any amendment of the Registration Statement
or supplement to the Final Prospectus or for any additional
information, (v) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and
(vi) of the receipt by the Note Issuer of any notification with
respect to the suspension of the qualification of the Certificates
for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose. The Note Issuer will use its best
efforts to prevent the issuance of any such stop order and, if
issued, to obtain as soon as possible the withdrawal thereof.
(ii) If, at any time when a prospectus relating to the
Certificates is required to be delivered under the Act, any event
occurs as a result of which the Final Prospectus as then
supplemented would include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements
therein in the light of the circumstances under which they were made
not misleading, or if it shall be necessary to amend the
Registration Statement or supplement the Final Prospectus to comply
with the Act or the Exchange Act or the respective rules thereunder,
the Note Issuer promptly will (i) prepare and file with the SEC,
subject to the second sentence of paragraph (a) of this Section 5,
an amendment or supplement which will correct such statement or
omission or effect such compliance and (ii) supply any supplemented
Prospectus to you in such quantities as you may reasonably request.
(iii) As soon as practicable, the Note Issuer will use its
reasonable efforts to cause the Trust to make generally available to
the Certificateholders and the Representatives an earnings statement
or statements of the Trust which will satisfy the provisions of
Section 11(a) of the Act and Rule 158 under the Act.
(iv) The Note Issuer will furnish to the Representatives and
counsel for the Underwriters, without charge, copies of the
Registration Statement (including exhibits thereto) and, so long as
delivery of a prospectus by an Underwriter or dealer may be required
by the Act, as many copies of any Preliminary Final Prospectus and
the Final Prospectus and any supplement thereto as the
Representatives may reasonably request. The Note Issuer shall
furnish or cause to be furnished to the Representatives copies of
all reports on Form SR required by Rule 463 under the Act. The Note
Issuer will pay the expenses of printing or other production of all
documents relating to the offering.
(v) The Note Issuer will arrange for the qualification of the
Certificates for sale under the laws of such jurisdictions as the
Representatives may
7
<PAGE> 8
designate, will maintain such qualifications in effect so long as
required for the distribution of the Certificates and will arrange
for the determination of the legality of the Certificates for
purchase by institutional investors; provided, however, that in no
event shall the Note Issuer be obligated to qualify to do business
in any jurisdiction where it is not now so qualified or to take any
action that would subject it to service of process in suits, other
than those arising out of the offering or sale of the Certificates,
in any jurisdiction where it is not now so subject.
(vi) Until 90 days after the date hereof, the Note Issuer will
not, without the written consent of the Representatives, offer, sell
or contract to sell, or otherwise dispose of, directly or
indirectly, or announce the offering of, any asset-backed securities
of a trust or other special purpose vehicle (other than the Notes
and the Certificates).
(vii) For a period from the date of this Agreement until the
retirement of the Certificates or until such time as the
Underwriters shall cease to maintain a secondary market in the
Certificates, whichever occurs first, the Note Issuer will deliver
to the Representatives the annual statements of compliance and the
annual independent auditor's servicing reports furnished to the Note
Issuer or the Note Trustee pursuant to the Servicing Agreement or
the Note Indenture, as applicable, as soon as such statements and
reports are furnished to the Note Issuer or the Note Trustee.
(viii) So long as any of the Certificates are outstanding, the
Note Issuer will furnish to the Representatives (i) as soon as
available, a copy of each report of the Note Issuer or the Trust
filed with the SEC under the Exchange Act, or mailed to
Certificateholders, (ii) a copy of any filings with the
Massachusetts Department of Transportation and Energy ("DTE")
pursuant to the Financing Order, including, but not limited to, any
Advice Letters, and (iii) from time to time, any information
concerning the Company, the Note Issuer or the Trust, as the
Representatives may reasonably request.
(ix) To the extent, if any, that any rating necessary to satisfy
the condition set forth in Section 6(r) of this Agreement is
conditioned upon the furnishing of documents or the taking of other
actions by the Note Issuer on or after the Closing Date, the Note
Issuer shall furnish such documents and take such other actions.
(b) Covenants of the Company. The Company covenants and agrees with
the several Underwriters that, to the extent that the Note Issuer has
not already performed such act pursuant to Section 5(a):
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and
any amendment thereto, to become effective. The Company will use its
best efforts to prevent the issuance
8
<PAGE> 9
by the SEC of any stop order suspending the effectiveness of the
Registration Statement and, if issued, to obtain as soon as possible
the withdrawal thereof.
(ii) The Company will cause the proceeds from the sale of the
Transition Property to be applied for the purposes described in the
Prospectus under the caption "Use of Proceeds."
(iii) Until 90 days after the date hereof, the Company will not,
without the written consent of the Representatives, offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly,
or announce the offering of, any asset-backed securities of a trust
or other special purpose vehicle (other than the Notes and the
Certificates).
(iv) So long as any of the Certificates are outstanding and the
Company is the Servicer, the Company will furnish to the
Representatives (i) as soon as available, a copy of each report of
the Trust filed with the SEC under the Exchange Act, or mailed to
Certificateholders, (ii) a copy of any filings with the DTE pursuant
to the Financing Order, including, but not limited to, any Advice
Letters, and (iii) from time to time, any information concerning the
Company, the Note Issuer or the Trust, as the Representatives may
reasonably request.
(v) To the extent, if any, that any rating necessary to satisfy
the condition set forth in Section 6(r) of this Agreement is
conditioned upon the furnishing of documents or the taking of other
actions by the Company on or after the Closing Date, the Company
shall furnish such documents and take such other actions.
(vi) If, at any time when a prospectus relating to the
Certificates is required to be delivered under the Act, any event
occurs as a result of which the Final Prospectus as then
supplemented would include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements
therein in the light of the circumstances under which they were made
not misleading, or if it shall be necessary to amend the
Registration Statement or supplement the Final Prospectus to comply
with the Act or the Exchange Act or the respective rules thereunder,
the Company at the Note Issuer's expense promptly will (i) prepare
and file with the SEC, subject to the second sentence of paragraph
(a) of this Section 5, an amendment or supplement which will correct
such statement or omission or effect such compliance and (ii) supply
any supplemented Prospectus to you in such quantities as you may
reasonably request.
6. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters to purchase the Certificates shall be subject to
the accuracy of the representations and warranties on the part of the Note
Issuer and the Company contained herein as of the Execution Time and the Closing
Date and on the part of the Company contained in Article III of the Sale
Agreement and in Section 6.01 of the Servicing Agreement as of the Closing Date,
to the accuracy of the statements of the Note Issuer, the Company and the Trust
made in any certifi-
9
<PAGE> 10
cates pursuant to the provisions hereof, to the performance by the Note Issuer,
the Company and the Trust of their obligations hereunder to be performed on or
prior to the Closing Date and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Representatives agree in writing to a
later time, the Registration Statement will become effective not later
than (i) 6:00 PM Eastern Standard Time, on the date of determination of
the public offering price, if such determination occurred at or prior to
3:00 PM Eastern Standard Time on such date, or (ii) 12:00 Noon Eastern
Standard Time on the business day following the day on which the public
offering price was determined, if such determination occurred after 3:00
PM Eastern Standard Time on such date; if filing of the Final
Prospectus, or any supplement thereto, is required pursuant to Rule
424(b), the Final Prospectus, and any such supplement, shall have been
filed in the manner and within the time period required by Rule 424(b);
and no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose
shall have been instituted or threatened.
(b) The Representatives shall have received opinions of counsel for
the Company, portions of which may be delivered by Ropes & Gray, outside
counsel for the Company, and portions of which may be delivered by
in-house counsel for the Company, each dated the Closing Date, in form
and substance reasonably satisfactory to the Representatives, to the
effect that:
(i) the Company is a validly existing corporation in good
standing under the laws of the jurisdiction in which it is chartered
or organized and has all requisite corporate power and authority to
own its properties, conduct its business as presently conducted and
execute, deliver and perform its obligations under this Agreement,
the Sale Agreement and the Servicing Agreement;
(ii) the Sale Agreement and the Servicing Agreement have been
duly authorized, executed and delivered, and constitute legal, valid
and binding instruments enforceable against the Company in
accordance with their terms (subject, as to enforcement of remedies,
to applicable bankruptcy, reorganization, insolvency, moratorium or
other laws or equitable principles affecting creditors' rights
generally from time to time in effect);
(iii) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or
governmental agency, authority or body or any arbitrator involving
the Company or any of its subsidiaries of a character required to be
disclosed in the Registration Statement which is not adequately
disclosed in the Final Prospectus, and there is no franchise,
contract or other document of a character required to be described
in the Registration Statement or Final Prospectus, or to be filed as
an exhibit, which is not described or filed as required;
10
<PAGE> 11
(iv) this Agreement has been duly authorized, executed and
delivered by the Company;
(v) no consent, approval, authorization or order of any court or
governmental agency or body is required to be obtained by the
Company for the consummation of the transactions contemplated
herein, except such as have been obtained under the Statute, the DTE
Regulations (as defined in Section 1.01 of the Servicing Agreement)
and the Act and such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and distribution of
the Certificates by the Underwriters and such other approvals
(specified in such opinion) as have been obtained;
(vi) neither the execution and delivery of this Agreement, the
Sale Agreement, the Servicing Agreement, the Administration
Agreement nor the consummation of the transactions contemplated by
this Agreement, the Sale Agreement, the Servicing Agreement or the
Administration Agreement nor the fulfillment of the terms of this
Agreement, the Sale Agreement, the Servicing Agreement or the
Administration Agreement by the Company, will (A) conflict with,
result in any breach of any of the terms or provisions of, or
constitute (with or without notice or lapse of time) a default under
the articles of incorporation, bylaws or other organizational
documents of the Company, or conflict with or breach any of the
material terms or provisions of, or constitute (with or without
notice or lapse of time) a default under, any indenture, material
agreement or other material instrument filed as an Exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, (B) result in the creation or imposition of any
lien upon any properties of the Company pursuant to the terms of any
such indenture, agreement or other instrument (other than as
contemplated by the Basic Documents and Section 1H(e) of the
Statute), or (C) violate any Massachusetts or federal law or any
order, rule or regulation applicable to the Company of any
Massachusetts or federal court or regulatory body, administrative
agency or other governmental instrumentality having jurisdiction
over the Company, or any of its properties; and
(vii) upon the delivery of the fully executed Sale Agreement to
the Note Issuer and the payment of the purchase price of the
Transition Property by the Note Issuer to the Seller pursuant to the
Sale Agreement, then (A) the transfer of the Transition Property by
the Seller to the Note Issuer pursuant to the Sale Agreement conveys
the Seller's right, title and interest in the Transition Property to
the Note Issuer and will be treated under the laws of The
Commonwealth of Massachusetts as an absolute transfer of all of the
Seller's right, title, and interest in the Transition Property,
other than for federal and state income tax purposes, (B) such
transfer of the Transition Property is perfected, (C) such transfer
has priority over any other assignment of the Transition Property,
and (D) the Transition Property is free and clear of all liens
created prior to its transfer to the Note Issuer pursuant to the
Sale Agreement.
11
<PAGE> 12
In rendering such opinion, such counsel may rely (A) as to matters involving
the application of laws of any jurisdiction other than The Commonwealth of
Massachusetts or the United States, to the extent deemed proper and
specified in such opinion, upon the opinion of other counsel of good
standing believed to be reliable and who are satisfactory to counsel for the
Underwriters and (B) as to matters of fact, to the extent deemed proper, on
certificates of responsible officers of the Company. References to the Final
Prospectus in this paragraph (b) include any supplements thereto at the
Closing Date.
(c) The Representatives shall have received opinions of counsel for the
Note Issuer, portions of which may be delivered by Ropes & Gray, outside
counsel for the Note Issuer, and portions of which may be delivered by
in-house counsel for the Note Issuer, and portions of which may be delivered
by Richards, Layton & Finger, P.A., special Delaware counsel for the Note
Issuer, each dated the Closing Date, in form and substance reasonably
satisfactory to the Representatives, to the effect that:
(i) the Note Issuer has been duly formed and is validly existing in
good standing as a limited liability company under the laws of the State
of Delaware, with all necessary limited liability company power and
authority to execute, deliver and perform its obligations under this
Agreement, the Sale Agreement, the Servicing Agreement, the Note
Indenture, the Note Purchase Agreement, the Administration Agreement,
the Fee and Indemnity Agreement and the Notes;
(ii) the Sale Agreement, the Servicing Agreement, the Note
Indenture, the Note Purchase Agreement, the Administration Agreement and
the Fee and Indemnity Agreement have been duly authorized, executed and
delivered, and constitute legal, valid and binding instruments
enforceable against the Note Issuer in accordance with their terms
(subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other laws or equitable
principles affecting creditors' rights generally from time to time in
effect); and the Notes have been duly authorized and executed, and when
authenticated in accordance with the provisions of the Note Indenture
and delivered to and paid for by the Trust in accordance with the terms
of the Note Purchase Agreement, will constitute legal, valid and binding
obligations of the Note Issuer entitled to the benefits of the Note
Indenture (subject, as to enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium or other laws or
equitable principles affecting creditors' rights generally from time to
time in effect);
(iii) to the extent described in the Final Prospectus, the Sale
Agreement, the Servicing Agreement, the Note Indenture, the Note
Purchase Agreement, the Administration Agreement, the Fee and Indemnity
Agreement and the Notes conform to the descriptions thereof contained
therein;
12
<PAGE> 13
(iv) the Note Indenture has been duly qualified under the Trust
Indenture Act;
(v) to the knowledge of such counsel, after having made inquiry of
officers of the Note Issuer, but without having made any other
investigation, there is no pending or threatened action, suit or
proceeding before any court or governmental agency, authority or body or
any arbitrator involving the Note Issuer, or challenging the Notes, the
Financing Order or the collection of the RTC Charge or the use and
enjoyment of transition property under the Statute of a character
required to be disclosed in the Registration Statement which is not
adequately disclosed in the Final Prospectus, and there is no franchise,
contract or other document relating to the Note Issuer, the Notes or the
Financing Order of a character required to be described in the
Registration Statement or Final Prospectus, or to be filed as an
exhibit, which is not described or filed as required; and the statements
included in the Final Prospectus under the headings "Energy Deregulation
and New Massachusetts Market Structure" (to the extent the Statute is
described), "Description of the Transition Property," "The Note Issuer,"
"Servicing" (to the extent the Servicing Agreement is described) and
"Description of the Notes," and under the subheading "Bankruptcy and
Creditors' Rights Issues" under the caption "Risk Factors," to the
extent that they constitute matters of Massachusetts, Delaware or
federal law or legal conclusions with respect thereto, fairly summarize
the matters described therein;
(vi) the Registration Statement has become effective under the Act;
any required filing of the Basic Prospectus, any Preliminary Final
Prospectus and the Final Prospectus, and any supplements thereto,
pursuant to Rule 424(b) have been made in the manner and within the time
period required by Rule 424(b); to the knowledge of such counsel, no
stop order suspending the effectiveness of the Registration Statement
has been issued, no proceedings for that purpose have been instituted or
threatened, and the Registration Statement and the Final Prospectus
(other than (A) the information contained under the captions "The
Trust," "The Agencies," "Federal Income Tax Consequences" and "State
Taxation," and to the extent statements contained under the subheadings
"Legislative actions" and "Court decisions" under the caption "Risk
Factors" represent the opinions of Palmer & Dodge LLP, or (B) the
financial statements and other financial, numerical, statistical and
quantitative information contained in the Final Prospectus as to which
such counsel need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act, the Exchange Act
and the Trust Indenture Act and the respective rules thereunder; and
such counsel shall confirm, on the basis of certain assumptions, that at
the Effective Date no facts have come to such counsel's attention which
would cause such counsel to believe that the Registration Statement
contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading or that the Final Prospectus as of its
13
<PAGE> 14
date and the Closing Date includes any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading (other than (A) the information contained under the
captions "The Trust," "The Agencies," "Federal Income Tax Consequences"
and "State Taxation," and to the extent statements contained under the
subheadings "Legislative actions" and "Court decisions" under the
caption "Risk Factors" represent the opinions of Palmer & Dodge LLP, or
(B) the financial statements and other financial, numerical, statistical
and quantitative information contained in the Final Prospectus as to
which such counsel need express no opinion);
(vii) this Agreement has been duly authorized, executed and
delivered by the Note Issuer;
(viii) no consent, approval, authorization or order of any
Massachusetts, Delaware or federal court or governmental agency or body
is required to be obtained by the Note Issuer for the issuance of the
Notes or the consummation by the Note Issuer of the transactions
contemplated herein, except such as have been obtained under the
Statute, the DTE Regulations and the Act and such as may be required
under the blue sky laws of any jurisdiction in connection with the
purchase and distribution of the Certificates by the Underwriters and
such other approvals (specified in such opinion) as have been obtained;
(ix) neither the execution and delivery of this Agreement, Sale
Agreement, the Servicing Agreement, the Note Indenture, the Note
Purchase Agreement, the Administration Agreement or the Fee and
Indemnity Agreement, nor the issue and sale of the Notes, nor the
consummation of the transactions contemplated by this Agreement, Sale
Agreement, the Servicing Agreement, the Note Indenture, the Note
Purchase Agreement, the Administration Agreement or the Fee and
Indemnity Agreement, nor the fulfillment of the terms of this Agreement,
Sale Agreement, the Servicing Agreement, the Note Indenture, the Note
Purchase Agreement, the Administration Agreement or the Fee and
Indemnity Agreement by the Note Issuer, will (A) conflict with, result
in any breach of any of the terms or provisions of, or constitute (with
or without notice or lapse of time) a default under the Limited
Liability Company Agreement of the Note Issuer, or conflict with or
breach any of the material terms or provisions of, or constitute (with
or without notice or lapse of time) a default under, any indenture,
agreement or other instrument known to such counsel and to which the
Note Issuer is a party or by which the Note Issuer is bound, (B) result
in the creation or imposition of any lien upon any properties of the
Note Issuer pursuant to the terms of any such indenture, agreement or
other instrument (other than as contemplated by the Basic Documents and
Section 1H(e) of the Statute), or (C) violate any Massachusetts,
Delaware or federal law or any order, rule or regulation applicable to
the Note Issuer of any Massachusetts, Delaware or federal
14
<PAGE> 15
court, regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Note Issuer, or any of its
properties;
(x) Upon the giving of value by the Note Trustee to the Note Issuer
with respect to the Collateral, (I) the Note Indenture creates in favor
of the Note Trustee a security interest in the rights of the Note Issuer
in the Collateral, (II) such security interest is valid against the Note
Issuer (subject to the rights of any third parties holding security
interests in such Collateral perfected in the manner described in
Sections 1H(d) and (e) of the Statute), and has attached and (III) such
security interest is perfected; and
(xi) the Note Issuer is not an "investment company" or under the
"control" of an "investment company" as such terms are defined under the
Investment Company Act of 1940, as amended.
In rendering such opinion, such counsel may rely (A) as to matters involving
the application of laws of any jurisdiction other than The Commonwealth of
Massachusetts, the State of Delaware or the United States, to the extent
deemed proper and specified in such opinion, upon the opinion of other
counsel of good standing believed to be reliable and who are satisfactory to
counsel for the Underwriters and (B) as to matters of fact, to the extent
deemed proper, on certificates of responsible officers of the Note Issuer
and public officials. References to the Final Prospectus in this paragraph
(c) include any supplements thereto at the Closing Date.
(d) The Representatives shall have received opinions of counsel for the
Trust and the Agencies, portions of which may be delivered by Palmer & Dodge
LLP or Krokidas & Bluestein LLP, both co-special counsel for the Trust and
the Agencies, and portions of which may be delivered by Richards, Layton &
Finger, P.A., special Delaware counsel for the Trust, each dated the Closing
Date, in form and substance reasonably satisfactory to the Representatives,
to the effect that:
(i) the Declaration of Trust, the Certificate Indenture and the
Certificates conform in all material respects with the descriptions
thereof contained in the Final Prospectus under the headings "The Trust"
and "Description of the Certificates" (other than matters regarding DTC,
CEDEL and Euroclear, as to which we express no opinion) and in the
Prospectus Summary under the headings "The Certificates," "Issuer of
Certificates," "Interest" and "Principal";
(ii) the Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act
(being Chapter 38 of Title 12 of the Delaware Code, 12 Del.C., Section
3801 et seq.,);
(iii) each of the Agencies is a duly created and validly existing
body politic and corporate and a public instrumentality of The
Commonwealth of Massachusetts with the necessary power, authority and
legal right to execute,
15
<PAGE> 16
deliver and perform all of its obligations under the Declaration of
Trust and the issuance resolution of such Agency;
(iv) the Declaration of Trust has been duly authorized, executed and
delivered by the Agencies and, assuming the due authorization, execution
and delivery thereof by the Delaware Trustee, constitutes a legal, valid
and binding instrument enforceable against the Agencies in accordance
with its terms, except as enforcement thereof may be subject to or
limited by bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance or other laws relating to or affecting the
enforcement of creditors' rights generally, and except as limited by
general equitable principles (regardless of whether such enforceability
is considered in a proceeding in equity or at law);
(v) the Certificate Indenture has been duly authorized, executed and
delivered by the Delaware Trustee on its own behalf and separately on
behalf of the Trust and, assuming the due authorization, execution and
delivery thereof by the Certificate Trustee and the Delaware Trustee,
constitutes a legal, valid and binding instrument, enforceable against
the Trust in accordance with its terms, except as enforcement thereof
may be subject to or limited by bankruptcy, insolvency, moratorium,
reorganization, fraudulent conveyance or other similar laws relating to
or affecting the enforcement of creditors' rights generally, and except
as limited by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law);
(vi) the Certificates have been duly authorized and executed and,
when authenticated in accordance with the provisions of the Certificate
Indenture and delivered to and paid for by the Underwriters pursuant to
this Agreement, (A) the Certificates will be duly issued in conformity
with the Statute, (B) the Certificates will constitute valid, fully paid
and non-accessible undivided beneficial interests in the Trust, (C) the
Certificateholders will be entitled to the benefits of the Certificate
Indenture, (D) the Certificates will constitute "electric rate reduction
bonds" under Section 1H of the Statute and (E) the Certificateholders
will be entitled to the rights and benefits afforded under the Statute;
(vii) the Note Purchase Agreement has been duly authorized, executed
and delivered by the Delaware Trustee on behalf of the Trust and,
assuming due authorization, execution and delivery thereof by BEC
Funding LLC, constitutes a legal, valid and binding instrument,
enforceable against the Trust in accordance with its terms, except as
enforcement thereof may be subject to or limited by bankruptcy,
insolvency, moratorium, reorganization, fraudulent conveyance or other
similar laws relating to or affecting the enforcement of creditors'
rights generally, and except as limited by general equitable principles
(regardless of whether such enforceability is considered in a proceeding
in equity or at law);
16
<PAGE> 17
(viii) the issuance resolutions of the Agencies have been duly and
validly adopted by the Agencies in compliance with all applicable laws
and are in full force and effect;
(ix) pursuant to the issuance resolutions of the Agencies, the
Agencies have validly authorized and approved the formation of the
Trust, the issuance of the Certificates and all other transactions and
actions contemplated by the Basic Documents or required to be taken by
the Agencies as conditions precedent to the issuance of the
Certificates; such authorizations and approvals are valid and in full
force and effect;
(x) the Certificate Indenture has been duly qualified under the
Trust Indenture Act of 1939, as amended;
(xi) the statements included in the Final Prospectus under the
headings "The Trust," "The Agencies" and "Description of the
Certificates" fairly summarize the matters described therein (other than
matters related to DTC, CEDEL or Euroclear, as to which we express no
opinion) and the statements included or incorporated in the Final
Prospectus under the headings "Federal Income Tax Consequences," "State
Taxation" and "ERISA Considerations," and under the following
subheadings of the caption "Risk Factors": "Legislative actions" and
"Court decisions," to the extent that they constitute matters of
Massachusetts, Delaware or federal law or legal conclusions with respect
thereto, provide a fair and accurate summary of such law or conclusions;
(xii) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator challenging the validity or
enforceability of the issuance resolutions of the Agencies or actions
taken by the Agencies in connection therewith or otherwise involving the
Agencies or relating to the Certificates or the Trust of a character
required to be described in the Registration Statement or Final
Prospectus, or to be filed as an exhibit, which is not described or
filed as required;
(xiii) to the knowledge of such counsel, the Registration Statement
and the Final Prospectus (other than (A) the financial statements and
other financial, numerical, statistical and quantitative information
contained therein, (B) information contained under the captions "The
Note Issuer" and "The Seller and Servicer," (C) information regarding
DTC, CEDEL and Euroclear and (D) the statement of eligibility of the
Trustee on Form T-l and the documents incorporated by reference therein,
as to which such counsel shall not be required to make any statement or
express any opinion) comply as to form in all material respects with the
applicable requirements of the Act, the Exchange Act and the Trust
Indenture Act and the respective rules thereunder, and such counsel
shall confirm, on the basis of certain assumptions, that at the
Effective Date no facts
17
<PAGE> 18
have come to such counsel's attention which would cause such counsel to
believe that the Registration Statement (other than (A) the financial
statements and other financial, numerical, statistical and quantitative
information contained therein, (B) information contained under the
captions "The Note Issuer" and "The Seller and Servicer," (C)
information regarding DTC, CEDEL and Euroclear and (D) the statement of
eligibility of the Trustee on Form T-l and the documents incorporated by
reference therein, as to which such counsel shall not be required to
make any statement or express any opinion) contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading or that the Final Prospectus (other than (A) the
financial statements and other financial, numerical, statistical and
quantitative information contained therein, (B) information contained
under the captions "The Note Issuer" and "The Seller and Servicer," (C)
information regarding DTC, CEDEL and Euroclear and (D) the statement of
eligibility of the Trustee on Form T-l and the documents incorporated by
reference therein, as to which such counsel shall not be required to
make any statement or express any opinion) as of its date and the
Closing Date contained or contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(xiv) no consent, approval, authorization or order of any court or
governmental agency or body is required to be obtained by the Delaware
Trustee, the Certificate Trustee or the Trust under Massachusetts,
Delaware or federal law for the issuance of the Certificates by the
Trust, except such as have been obtained under the Statute, the DTE
Regulations and the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Certificates by the Underwriters and such other
approvals (specified in such opinion) as have been obtained;
(xv) neither the execution and delivery of the Certificate
Indenture, nor the issuance and sale of the Certificates, nor the
consummation of the transactions contemplated by this Agreement or the
Certificate Indenture, nor the fulfillment of the terms of this
Agreement or the Certificate Indenture by the Trust will (A) conflict
with, result in any breach of any of the terms or provisions of, or
constitute (with or without notice or lapse of time) a default under the
Certificate of Trust or Declaration of Trust or other procedural
documents of the Trust, or conflict with or breach any of the material
terms or provisions of, or constitute (with or without notice or lapse
of time) a default under, any indenture, agreement or other instrument
known to such counsel and to which the Trust is a party or by which the
Trust is bound, (B) result in the creation or imposition of any lien
upon any properties of the Trust pursuant to the terms of any such
indenture, agreement or other instrument (except as contemplated by the
Basic Documents or created pursuant to the Statute), or (C) violate any
Massachusetts, Delaware or federal law, order, rule or regulation
applicable to the Trust of any Massachusetts,
18
<PAGE> 19
Delaware or federal court, state regulatory body, administrative agency
or other governmental instrumentality having jurisdiction over the
Trust, or any of its properties;
(xvi) neither the execution and delivery of the Declaration of Trust
and the certificate the form of which is attached hereto as Appendix A,
nor the consummation of the transactions contemplated by the Declaration
of Trust and the certificate the form of which is attached hereto as
Appendix A, nor the fulfillment of the terms of the Declaration of Trust
and the certificate the form of which is attached hereto as Appendix A,
by the Agencies will (A) conflict with, result in any breach of any of
the terms or provisions of, or constitute (with or without notice or
lapse of time) a default under the bylaws or procedural documents of the
Agencies, or conflict with or breach any of the material terms or
provisions of, or constitute (with or without notice or lapse of time) a
default under, any indenture, agreement or other instrument known to
such counsel and to which the Agencies are parties or by which the
Agencies are bound, (B) result in the creation or imposition of any lien
upon any properties of the Agencies pursuant to the terms of any such
indenture, agreement or other instrument (except as contemplated by the
Basic Documents or created pursuant to the Statute), or (C) violate any
Massachusetts or federal law, order, rule or regulation applicable to
the Agencies of any Massachusetts or federal court or of any federal or
Massachusetts state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Agencies, or
any of their properties; and
(xvii) the Trust is not an "investment company" or under the
"control" of an "investment company" as such terms are defined under the
Investment Company Act of 1940, as amended.
In rendering such opinion, such counsel may (A) rely as to matters involving
the application of laws of any jurisdiction other than The Commonwealth of
Massachusetts, the State of Delaware or the United States, to the extent
deemed proper and specified in such opinion, upon the opinion of other
counsel of good standing believed to be reliable and who are satisfactory to
counsel for the Underwriters, (B) as to matters relating to actions taken by
the Company, the Note Issuer, the Note Trustee, the DTE and the Servicer,
assume such matters which are the subject of opinions rendered by counsel to
such parties hereunder or under the Basic Documents, and (C) rely as to
matters of fact, to the extent deemed proper, on certificates of authorized
representatives of the Trust, the Agencies and public officials. References
to the Final Prospectus in this paragraph (d) include any supplements
thereto at the Closing Date.
(e) The Representatives shall have received an opinion of Winthrop
Stimson Putnam & Roberts, counsel to the Note Trustee, dated the Closing
Date, in form and substance reasonably satisfactory to the Representatives,
to the effect that:
19
<PAGE> 20
(i) the Note Trustee is validly existing as a state banking
institution in good standing under the laws of the State of New York;
(ii) the Note Indenture has been duly authorized, executed and
delivered, and constitutes a legal, valid and binding instrument
enforceable against the Note Trustee in accordance with its terms
(subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws or
equitable principles affecting creditors' rights generally from time to
time in effect); and
(iii) the Notes have been duly authenticated by the Note Trustee.
(f) The Representatives shall have received an opinion of Winthrop
Stimson Putnam & Roberts, counsel to the Certificate Trustee, dated the
Closing Date, in form and substance reasonably satisfactory to the
Representatives, to the effect that:
(i) the Certificate Trustee is validly existing as a state banking
institution in good standing under the laws of the State of New York;
(ii) the Certificate Indenture has been duly authorized, executed
and delivered by the Certificate Trustee and constitutes a legal, valid
and binding instrument enforceable against the Certificate Trustee in
accordance with its terms (subject, as to enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws or equitable principles affecting creditors' rights
generally from time to time in effect); and
(iii) the Certificate Trustee has duly authenticated and delivered
the Certificates issued on the Closing Date on behalf of the Trust;
(g) The Representatives shall have received an opinion of Richards,
Layton & Finger, P.A., counsel to the Delaware Trustee, dated the Closing
Date, in form and substance reasonably satisfactory to the Representatives,
to the effect that:
(i) the Delaware Trustee is duly incorporated and is validly
existing as a banking corporation in good standing under the laws of the
State of Delaware, with full corporate trust power and authority to
enter into and perform its obligations under the Declaration of Trust,
and under the Note Purchase Agreement and the Certificate Indenture on
behalf of the Trust; and
(ii) the Declaration of Trust, the Certificate Indenture and the
Note Purchase Agreement (on behalf of the Trust) have been duly
authorized, executed and delivered by the Delaware Trustee, and
constitute legal, valid and binding instruments enforceable against the
Delaware Trustee in accordance with their terms (subject, as to
enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws or equitable principles
affecting creditors' rights generally from time to time in effect);
20
<PAGE> 21
(iii) the Delaware Trustee has duly executed the Certificates issued
on the Closing Date on behalf of the Trust;
(h) The Representatives shall have received from Brown & Wood LLP,
counsel for the Underwriters, such opinion or opinions, dated the Closing
Date, with respect to the issuance and sale of the Notes and the
Certificates, the Note Indenture, the Certificate Indenture, the
Registration Statement, the Final Prospectus (together with any supplement
thereto) and other related matters as the Representatives may reasonably
require, and the Company, the Note Issuer and the Trust shall have furnished
to such counsel such documents as they request for the purpose of enabling
them to pass upon such matters.
(i) The Representatives shall have received a certificate of the Note
Issuer, signed by an officer of the Note Issuer, dated the Closing Date, to
the effect that the signer of such certificate has carefully examined the
Registration Statement, the Final Prospectus, any supplement to the Final
Prospectus and this Agreement and that:
(i) the representations and warranties of the Note Issuer in this
Agreement and in the Note Indenture are true and correct in all material
respects on and as of the Closing Date with the same effect as if made
on the Closing Date, and the Note Issuer has complied with all the
agreements and satisfied all the conditions on its part to be performed
or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the Note Issuer's knowledge, threatened; and
(iii) since the dates as of which information is given in the Final
Prospectus (exclusive of any supplement thereto), there has been no
material adverse change in (x) the condition (financial or other),
earnings, business or properties of the Note Issuer, whether or not
arising from transactions in the ordinary course of business, or (y) the
Transition Property, except as set forth in or contemplated in the Final
Prospectus (exclusive of any supplement thereto).
(j) The Representatives shall have received a certificate of the
Company, signed by an executive officer of the Company, dated the Closing
Date, to the effect that the signers of such certificate have carefully
examined the Registration Statement, the Final Prospectus, any supplement to
the Final Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement, the Sale Agreement and the Servicing Agreement are true and
correct in all material respects on and as of the Closing Date with the
same effect as if made on the Closing Date, and the Company has complied
with all the agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to the Closing Date;
21
<PAGE> 22
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the Company's knowledge, threatened; and
(iii) since the dates as of which information is given in the Final
Prospectus (exclusive of any supplement thereto), there has been no
material adverse change in (x) the condition (financial or other),
earnings, business or properties of the Company and its subsidiaries
taken as a whole, whether or not arising from transactions in the
ordinary course of business, or (y) the Transition Property, except as
set forth in or contemplated in the Final Prospectus (exclusive of any
supplement thereto).
(k) At the Closing Date, PricewaterhouseCoopers LLP shall have furnished
to the Representatives (i) a letter or letters (which may refer to letters
previously delivered to one or more of the Representatives), dated as of the
Closing Date, in form and substance satisfactory to the Representatives,
confirming that they are independent accountants within the meaning of the
Act and the Exchange Act and the respective applicable published rules and
regulations thereunder and stating in effect that they have performed
certain specified procedures as a result of which they determined that
certain information of an accounting, financial or statistical nature (which
is limited to accounting, financial or statistical information derived from
the general accounting records of the Company and the Note Issuer) set forth
in the Registration Statement and the Final Prospectus, including
information specified by the Underwriters and set forth under the captions
"Prospectus Summary," "Description of the Transition Property," "The Seller
and Servicer," "Description of the Notes" and "Description of the
Certificates" in the Final Prospectus, agrees with the accounting records of
the Company and the Note Issuer, excluding any questions of legal
interpretation, and (ii) the opinion or certificate, dated as of the Closing
Date, in form and substance satisfactory to the Representatives, satisfying
the requirements of Section 2.10(7) of the Note Indenture.
References to the Final Prospectus in this paragraph (k) include any
supplement thereto at the date of the letter.
In addition, at the Execution Time, PricewaterhouseCoopers LLP shall
have furnished to the Representatives a letter or letters, dated as of the
Execution Time, in form and substance satisfactory to the Representatives,
to the effect set forth above.
(l) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Final Prospectus (exclusive of any supplement
thereto), there shall not have been any change, or any development involving
a prospective change, in or affecting either (i) the business, properties or
financial condition of the Company or the Note Issuer or (ii) the Transition
Property, the Notes, the Certificates, the Financing Order or the Statute,
the effect of which is, in the judgment of the Representatives, so material
and adverse as to make it impractical or inadvisable to proceed with the
offering or delivery of the Notes
22
<PAGE> 23
or the Certificates as contemplated by the Registration Statement (exclusive
of any amendment thereof) and the Final Prospectus (exclusive of any
supplement thereto).
(m) The Representatives shall have received on the Closing Date an
opinion letter or letters of Ropes & Gray, counsel to the Company and the
Note Issuer, dated the Closing Date, in form and substance reasonably
satisfactory to the Representatives, (i) with respect to the
characterization of the transfer of the Transition Property by the Company
to the Note Issuer as a "true sale" for bankruptcy purposes and (ii) to the
effect that a court would not order the substantive consolidation of the
assets and liabilities of the Note Issuer with those of the Company in the
event of a bankruptcy, reorganization or other insolvency proceeding
involving the Company.
(n) The Representatives shall have received on the Closing Date an
opinion letter of Palmer & Dodge LLP, special counsel to the Agencies and
the Trust, dated the Closing Date, in form and substance reasonably
satisfactory to the Representatives, to the effect that a court would not
order the substantive consolidation of the assets and liabilities of the
Agencies with those of the Trust.
(o) The Representatives shall have received on the Closing Date an
opinion letter or letters of counsel for the Company, portions of which may
be delivered by Ropes & Gray, outside counsel for the Company, and portions
of which may be delivered by in-house counsel for the Company, each dated
the Closing Date, in form and substance reasonably satisfactory to the
Representatives, to the effect that: (i) the Financing Order has been duly
issued and authorized by the DTE and the Financing Order, giving effect to
the Issuance Advice Letter, is effective; (ii) in reliance on the opinion of
Krokidas & Bluestein LLP that the Certificates are "electric rate reduction
bonds" under Section 1H(a) of the Statute, as of the issuance of the
Certificates, the Certificates are entitled to the protections provided in
Sections 1H(b)(3) and 1H(c)(4) of the Statute; (iii) the Financing Order is
no longer subject to appeal by any person in state courts of The
Commonwealth of Massachusetts; and (iv) the Servicer is authorized to file
periodic RTC Charge adjustments to the extent necessary to ensure the timely
recovery of revenues sufficient to provide for the payment of an amount
equal to the sum of the periodic RRB payment requirements for the upcoming
year, which includes indemnity obligations under the Basic Documents.
(p) The Representatives shall have received on the Closing Date an
opinion letter or letters of Palmer & Dodge LLP, special counsel for the
Agencies and the Trust, dated the Closing Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that any state
action (whether by legislative, DTE, citizen initiative or otherwise) to
revoke or limit the Financing Order, the Issuance Advice Letter, the
Transition Property or the RTC Charge in a manner which would substantially
impair the rights of Certificateholders would be subject to a successful
constitutional contracts clause defense.
23
<PAGE> 24
(q) The Representatives shall have received on the Closing Date an
opinion letter or letters of Richards, Layton & Finger, P.A., special
Delaware counsel to the Note Issuer, dated the Closing Date, in form and
substance reasonably satisfactory to the Representatives, to the effect
that: (i) if properly presented to a Delaware court, a Delaware court
applying Delaware law, would conclude that (x) in order for a person to file
a voluntary bankruptcy petition on behalf of the Note Issuer, the
affirmative vote of the Note Issuer's Sole Member and the affirmative vote
of all of the Directors (including the Independent Directors), as provided
in Section 2.07(ii) of the LLC Agreement of the Note Issuer, is required,
and (y) such provision, contained in Section 2.07(ii) of the LLC Agreement,
that requires the affirmative vote of the Note Issuer's Sole Member and the
affirmative vote of all of the Directors (including the Independent
Directors) in order for a person to file a voluntary bankruptcy petition on
behalf of the Note Issuer, constitutes a legal, valid and binding agreement
of the Sole Member and is enforceable against the Sole Member, in accordance
with its terms; and (ii) the LLC Agreement constitutes a legal, valid and
binding agreement of the Sole Member thereunder, and is enforceable against
the Sole Member in accordance with its terms.
(r) The Notes and the Certificates shall have been rated in the highest
long-term rating category by each of the Rating Agencies.
(s) On or prior to the Closing Date, the Note Issuer shall have
delivered to the Representatives evidence, in form and substance reasonably
satisfactory to the Representatives, that appropriate filings have been or
are being made in accordance with the Statute and other applicable law
reflecting the grant of a security interest by the Note Issuer in the
Collateral to the Note Trustee.
(t) On or prior to the Closing Date, the Note Issuer shall have
delivered to the Representatives evidence, in form and substance
satisfactory to the Representatives, of the DTE's issuance of the Financing
Order relating to the Transition Property and the Issuance Advice Letter.
(u) Prior to the Closing Date, the Note Issuer, the Company and the
Trust shall have furnished to the Representatives such further information,
certificates, opinions and documents as the Representatives may reasonably
request.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
Underwriters, this Agreement and all obligations of the Underwriters hereunder
may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancellation shall be given to the Note Issuer
and the Trust in writing or by telephone or electronic mail confirmed in
writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Ropes & Gray, Boston, Massachusetts, on the Closing
Date.
24
<PAGE> 25
7. Expenses. Upon the sale of the Certificates, the Note Issuer
will pay or cause to be paid all costs and expenses incident to the performance
of the obligations of the Company, the Note Issuer, the Trust and the
Underwriters hereunder and the Agencies under the Basic Documents, including,
without limiting the generality of the foregoing, all costs, taxes and expenses
incident to the issue and delivery of the Certificates to the Underwriters, all
fees, disbursements and expenses of the Company's, the Note Issuer's, the
Trust's, the Agencies' and the Underwriters' counsel and accountants, all costs
and expenses incident to the preparation, printing and filing of the
Registration Statement (including all exhibits thereto), any preliminary
prospectus, the Basic Prospectus, any Preliminary Final Prospectus, the Final
Prospectus and any amendments thereof or supplements thereto, all costs and
expenses incurred in connection with blue sky qualifications, examining the
legality of the Certificates for the investment and the rating of the
Certificates, all costs and expenses of the Note Trustee, the Certificate
Trustee and the Delaware Trustee, all costs and expenses incurred in the
acquisition or preparation of documents required to be delivered by the Company,
the Note Issuer, the Trust or the Agencies in connection with the closing of the
transactions contemplated hereby, all costs and expenses required in connection
with any filing with the National Association of Securities Dealers in
connection with the transactions contemplated hereby, and all costs and expenses
of the printing and distribution of all documents in connection with the
Certificates.
If the sale of the Certificates provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 6 hereof is not satisfied, because of any termination pursuant to
Section 10 hereof or because of any refusal, inability or failure on the part of
the Company, the Note Issuer or the Trust to perform any agreement herein or
comply with any provision hereof other than by reason of a default (including
under Section 9) by any of the Underwriters, the Company and the Note Issuer
will, jointly and severally, reimburse the Underwriters upon demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by the Underwriters in connection with the
proposed purchase and sale of the Certificates.
8. Indemnification and Contribution.
(a) The Company and the Note Issuer will, jointly and severally,
indemnify and hold harmless each Underwriter, the Trust and the Agencies,
the directors, officers, members, employees and agents of each Underwriter,
the Trust and the Agencies and each person who controls any Underwriter, the
Trust and the Agencies within the meaning of either the Act or the Exchange
Act against any and all losses, claims, damages or liabilities, joint or
several, to which they or any of them may become subject under the Act, the
Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement for the registration of the
Certificates as originally filed or in any amendment thereof, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
any untrue statement or alleged untrue statement of a material fact
contained in the Basic Prospectus, any
25
<PAGE> 26
Preliminary Final Prospectus or the Final Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and will reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that
neither the Company nor the Note Issuer will be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or
is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Note Issuer or the Company by or
on behalf of any Underwriter through the Representatives specifically for
inclusion therein. This indemnity agreement will be in addition to any
liability which the Company and the Note Issuer may otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, the Note Issuer, the Trust and the Agencies, each of their
directors, each of their officers (if any) who signs the Registration
Statement, and each person who controls the Company or the Note Issuer
within the meaning of either the Act or the Exchange Act, to the same extent
as the foregoing indemnity from the Company and the Note Issuer to each
Underwriter, but only with reference to written information relating to such
Underwriter furnished to the Note Issuer or the Company by or on behalf of
such Underwriter through the Representatives specifically for inclusion in
the documents referred to in the foregoing indemnity. This indemnity
agreement will be in addition to any liability which any Underwriter may
otherwise have. The Note Issuer, the Company and the Agencies acknowledge
that the statements set forth in the last paragraph of the cover page, under
the heading "Underwriting" or "Plan of Distribution" in any Preliminary
Final Prospectus or the Final Prospectus constitute the only information
furnished in writing by or on behalf of the several Underwriters for
inclusion in the documents referred to in the foregoing indemnity, and you,
as the Representatives, confirm that such statements are correct.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party
(i) will not relieve it from liability under paragraph (a) or (b) above
unless and to the extent it did not otherwise learn of such action and such
failure results in the forfeiture by the indemnifying party of substantial
rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than
the indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in
which case the indemnifying party shall not thereafter be responsible for
the fees and expenses of any
26
<PAGE> 27
separate counsel retained by the indemnified party or parties except as set
forth below); provided, however, that such counsel shall be reasonably
satisfactory to the indemnified party. Notwithstanding the indemnifying
party's election to appoint counsel to represent the indemnified party in an
action, the indemnified party shall have the right to employ separate
counsel (including local counsel), and the indemnifying party shall bear the
reasonable fees, costs and expenses of such separate counsel if (i) the use
of counsel chosen by the indemnifying party to represent the indemnified
party would present such counsel with a conflict of interest, (ii) the
actual or potential defendants in, or targets of, any such action include
both the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a
reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying party will
not, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional
release of each indemnified party from all liability arising out of such
claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company, the Note Issuer and the
Underwriters agree to contribute to the aggregate losses, claims, damages
and liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending same) (collectively "Losses") to
which the Company, the Note Issuer and one or more of the Underwriters may
be subject in such proportion as is appropriate to reflect the relative
benefits received by the Company, Note Issuer and the Underwriters,
respectively, from the offering of the Certificates and the Notes; provided,
however, that in no case shall any Underwriter (except as may be provided in
any agreement among underwriters relating to the offering of the
Certificates) be responsible for any amount in excess of the underwriting
discount or commission applicable to the Certificates purchased by such
Underwriter hereunder. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the Company, the Note
Issuer and the Underwriters shall contribute in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company, the Note Issuer and of the Underwriters in connection
with the statements or omissions which resulted in such Losses as well as
any other relevant equitable considerations. Benefits received by the Note
Issuer shall be deemed to be equal to the total net proceeds from the
offering (before deducting expenses) of the Certificates (which shall be
equal to the net proceeds from the sale of the Notes to the Trust (before
deducting expenses)), and benefits received by the Underwriters shall be
27
<PAGE> 28
deemed to be equal to the total underwriting discounts and commissions, in
each case as set forth on the cover page of the Final Prospectus. Relative
fault shall be determined by reference to whether any alleged untrue
statement or omission relates to information provided by the Company, the
Note Issuer or the Underwriters. The Company, the Note Issuer and the
Underwriters agree that it would not be just and equitable if contribution
were determined by pro rata allocation or any other method of allocation
which does not take account of the equitable considerations referred to
above. Notwithstanding the provisions of this paragraph, no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 8, each
person who controls an Underwriter within the meaning of either the Act or
the Exchange Act and each director, officer, employee and agent of an
Underwriter shall have the same rights to contribution as such Underwriter,
and each person who controls the Note Issuer or the Company within the
meaning of either the Act or the Exchange Act, each officer of the Note
Issuer or the Company who shall have signed the Registration Statement and
each director of the Note Issuer or the Company shall have the same rights
to contribution as the Note Issuer or the Company, subject in each case to
the applicable terms and conditions of this paragraph. The Underwriters'
obligations in this paragraph to contribute are several in proportion to
their respective underwriting obligations and not joint.
9. Default by an Underwriter. If any one or more Underwriters
shall fail to purchase and pay for any of the Certificates agreed to be
purchased by such Underwriter or Underwriters hereunder the Representatives may
in their discretion arrange for the Underwriters or another party or other
parties to purchase such Certificates on the terms contained herein. If within
36 hours after such default by any Underwriter the Representatives do not
arrange for the purchase of such Certificates, the nondefaulting Underwriters
shall be obligated severally to take up and pay for (in the respective
proportions which the amount of Certificates set forth opposite the names of all
the remaining Underwriters) the Certificates which the defaulting Underwriter or
Underwriters agreed but failed to purchase; provided, however, that in the event
that the aggregate amount of Certificates which the defaulting Underwriter or
Underwriters agreed but failed to purchase shall exceed 10% of the aggregate
amount of Certificates set forth in Schedule II hereto, the nondefaulting
Underwriters shall have the right to purchase all, but shall not be under any
obligation to purchase any, of the Certificates, and if such nondefaulting
Underwriters do not purchase all the Certificates, this Agreement will terminate
without liability to any nondefaulting Underwriter, the Note Issuer or the
Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
seven days, as the Representatives shall determine in order that the required
changes in the Registration Statement and the Final Prospectus or in any other
documents or arrangements may be effected. Nothing contained in this Agreement
shall relieve any defaulting Underwriter of its liability, if any, to the Note
Issuer and the Company and any nondefaulting Underwriter for damages occasioned
by its default hereunder.
10. Termination. This Agreement shall be subject to termination
in the absolute discretion of the Representatives, by notice given to the
Company, the Note Issuer and
28
<PAGE> 29
the Agencies prior to delivery of and payment for the Certificates, if prior to
such time there shall have occurred (i) any change, or any development involving
a prospective change, in or affecting (A) the business, properties or financial
condition of the Company or the Note Issuer, (B) the Transition Property, the
Notes, the Certificates, the Financing Order or the Statute, the effect of
which, in the judgment of the Representatives, materially impairs the investment
quality of the Certificates or makes it impractical or inadvisable to market the
Certificates; (ii) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange; (iii) a suspension or material
limitation in trading in the securities of the Company; (iv) a general
moratorium on commercial banking activities shall have been declared either by
Federal, New York state or Massachusetts state authorities or (v) any outbreak
or escalation of hostilities involving the United States or the declaration by
the United States of a national emergency or war the effect of which on
financial markets is such as to make it, in the judgment of the Representatives,
impracticable or inadvisable to proceed with the offering or delivery of the
Certificates as contemplated by the Final Prospectus (exclusive of any
supplement thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, the Note Issuer or its officers and of the Underwriters
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or of the Company, the Note Issuer or any of the officers, directors or
controlling persons referred to in Section 8 hereof, and will survive delivery
of and payment for the Certificates. The provisions of Sections 7 and 8 hereof
shall survive the termination or cancellation of this Agreement.
12. Notices. All communications hereunder shall be in English and
in writing, and any such notice, direction, consent or waiver may be given by
United States mail, courier service, facsimile transmission or electronic mail
(confirmed by telephone, United States mail or courier service in the case of
notice by facsimile transmission or electronic mail) or any other customary
means of communication, and any such notice, direction, consent or waiver shall
be effective when delivered, or if mailed, three days after deposit in the
United States mail with proper postage for ordinary mail prepaid, and if sent to
the Representatives, to them at the address specified in Schedule I hereto; and
if sent to the Company, to it at Boston Edison Company, 800 Boylston Street,
Boston, Massachusetts 02199, Attention: Manager, Corporate Finance; and if sent
to the Note Issuer, to it at BEC Funding LLC, 800 Boylston Street, 35th Floor,
Boston, Massachusetts 02199, Attention: President; and if sent to the Agencies,
to each at Massachusetts Development Finance Agency, 75 Federal Street, Boston,
Massachusetts 02110, Attention: General Counsel, and Massachusetts Health and
Educational Facilities Authority, 99 Summer Street, 10th Floor, Boston,
Massachusetts 02110, Attention: General Counsel. The parties hereto, by notice
to the others, may designate additional or different addresses for subsequent
communications.
13. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 8 hereof,
and no other person will have any right or obligation hereunder.
29
<PAGE> 30
14. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York.
15. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be deemed an original, which taken together
shall constitute one and the same instrument.
16. Miscellaneous. Time shall be of the essence of this
Agreement. As used herein, the term "business day" shall mean any day when the
SEC's office in Washington, D.C. is open for business.
17.
30
<PAGE> 31
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Company, the Note Issuer and the several Underwriters.
Very truly yours,
BOSTON EDISON COMPANY
By: /s/ R.J. Weafer, Jr.
----------------------------------------------
Name: R.J. Weafer, Jr.
Title: Vice President - Finance and Controller
BEC FUNDING LLC
By: /s/ Emilie G. O'Neil
----------------------------------------------
Name: Emilie G. O'Neil
Title: Vice President and Treasurer
CONFIRMED AND ACCEPTED
on behalf of each of the Underwriters
LEHMAN BROTHERS INC.
By: /s/ Lehman Brothers Inc.
------------------------
(Lehman Brothers Inc.)
GOLDMAN, SACHS & CO.
By: /s/ Goldman, Sachs & Co.
------------------------
(Goldman, Sachs & Co.)
S-1
<PAGE> 32
SCHEDULE I TO THE
UNDERWRITING AGREEMENT
Underwriting Agreement dated July 22, 1999
Registration Statement No. 333-74671
Representative(s):
Lehman Brothers Inc.
Three World Financial Center
200 Vesey Street
New York, New York 10285
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Title: Massachusetts RRB Special Purpose Trust BEC-1
$725,000,000 Rate Reduction Certificates
Principal amount, Price to Public, Underwriting Discounts and Commissions and
Proceeds to Trust:
<TABLE>
<CAPTION>
TOTAL SCHEDULED
PRINCIPAL UNDERWRITING FINAL FINAL
AMOUNT OF PRICE TO DISCOUNTS AND PROCEEDS TO DISTRIBUTION TERMINATION
CLASS PUBLIC COMMISSIONS TRUST DATE DATE
--------------- --------------- ------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
PER CLASS A-1 $108,500,000.00 99.97799% .24046% 99.73753% 3/15/01 3/15/03
CERTIFICATE
PER CLASS A-2 $170,609,837.00 99.97574% .35000% 99.62574% 9/15/03 9/15/05
CERTIFICATE
PER CLASS A-3 $103,390,163.00 99.97469% .43000% 99.54469% 3/15/05 3/15/07
CERTIFICATE
PER CLASS A-4 $170,875,702.00 99.97071% .48000% 99.49071% 9/15/07 9/15/09
CERTIFICATE
PER CLASS A-5 $171,624,298.00 99.93977% .55000% 99.38977% 3/15/10 3/15/12
CERTIFICATE
--------------- --------------- ------------- ---------------
TOTAL $725,000,000.00 $724,755,142.35 $3,066,750.00 $721,688,392.35
</TABLE>
<PAGE> 33
Original Issue Discount (if any): $244,857.65
Redemption provisions: Optional Redemption and Mandatory Redemption as
set forth in Article X of the Note Indenture
Closing Date, Time and Location: July 29, 1999
9:00 a.m., Eastern Standard Time
Boston, Massachusetts
Type of Offering: Delayed Offering
<PAGE> 34
SCHEDULE II TO THE
UNDERWRITING AGREEMENT
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF CERTIFICATES TO BE PURCHASED
---------------------------------------------------------------------------------------
UNDERWRITERS Class A-1 Class A-2 Class A-3 Class A-4 Class A-5
Certificates Certificates Certificates Certificates Certificates TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Lehman Brothers Inc. $ 48,825,000 $ 76,774,427 $ 46,525,573 $ 76,894,066 $ 77,230,934 $326,250,000
Goldman, Sachs & Co. $ 48,825,000 $ 76,774,427 $ 46,525,573 $ 76,894,066 $ 77,230,934 $326,250,000
Banc One Capital Markets, Inc. $ 1,085,000 $ 1,706,098 $ 1,033,902 $ 1,708,757 $ 1,716,243 $ 7,250,000
BancBoston Robertson Stephens Inc. $ 1,085,000 $ 1,706,098 $ 1,033,902 $ 1,708,757 $ 1,716,243 $ 7,250,000
Bear, Stearns & Co. Inc. $ 1,085,000 $ 1,706,098 $ 1,033,902 $ 1,708,757 $ 1,716,243 $ 7,250,000
BNY Capital Markets, Inc. $ 1,085,000 $ 1,706,098 $ 1,033,902 $ 1,708,757 $ 1,716,243 $ 7,250,000
CIBC World Markets Corp. $ 1,085,000 $ 1,706,098 $ 1,033,902 $ 1,708,757 $ 1,716,243 $ 7,250,000
Merrill Lynch, Pierce, Fenner &
Smith Incorporated $ 1,085,000 $ 1,706,098 $ 1,033,902 $ 1,708,757 $ 1,716,243 $ 7,250,000
PaineWebber Incorporated $ 1,085,000 $ 1,706,098 $ 1,033,902 $ 1,708,757 $ 1,716,243 $ 7,250,000
Prudential Securities Incorporated $ 1,085,000 $ 1,706,098 $ 1,033,902 $ 1,708,757 $ 1,716,243 $ 7,250,000
Salomon Smith Barney Inc. $ 1,085,000 $ 1,706,098 $ 1,033,902 $ 1,708,757 $ 1,716,243 $ 7,250,000
State Street Capital Markets, LLC $ 1,085,000 $ 1,706,098 $ 1,033,902 $ 1,708,757 $ 1,716,243 $ 7,250,000
------------ ------------ ------------ ------------ ------------ ------------
TOTAL ............................ $108,500,000 $170,609,837 $103,390,163 $170,875,702 $171,624,298 $725,000,000
============ ============ ============ ============ ============ ============
</TABLE>
<PAGE> 35
APPENDIX A to the
Underwriting Agreement
CERTIFICATE OF THE AGENCIES PURSUANT
TO FINANCING ORDER APPROVING FINAL TERMS AND
CONDITIONS OF BEC FUNDING LLC NOTES AND MASSACHUSETTS
RRB SPECIAL PURPOSE TRUST BEC-1 RATE REDUCTION CERTIFICATES
Pursuant to order number 24 of the Financing Order, the Massachusetts
Development Finance Agency and the Massachusetts Health and Educational
Facilities Authority (collectively, the "Agencies"), hereby approve the final
terms and conditions of the BEC Funding LLC Notes (the "Notes") and the
Massachusetts RRB Special Purpose Trust BEC-1 Rate Reduction Certificates (the
"Certificates"), as set forth in the underwriting agreement dated as of July 22,
1999 by and among BEC Funding LLC, Boston Edison Company and Lehman Brothers
Inc. and Goldman, Sachs & Co., as representatives (the "Representatives") of the
Underwriters named therein (the "Underwriting Agreement").
In furtherance of this approval, the Agencies shall cause the
Massachusetts RRB Special Purpose Trust BEC-1 to be formed as a Delaware
business trust (the "Trust") prior to the Closing Date, and to issue the
Certificates and otherwise comply with the terms and conditions of the
Underwriting Agreement.
BEC Funding LLC, Boston Edison Company and the Representatives are
entitled to rely on this certificate as if this certificate were a part of, and
the Agencies were parties to, the Underwriting Agreement.
Capitalized terms used herein and not otherwise defined shall have the
meaning set forth in the Underwriting Agreement.
Dated: July 22, 1999
MASSACHUSETTS DEVELOPMENT FINANCE AGENCY
By:
-----------------------------------------------------
Name:
Title:
Massachusetts Health and EducationAL Facilities Authority
By:
-----------------------------------------------------
Name:
Title:
<PAGE> 1
TRANSITION PROPERTY PURCHASE AND SALE AGREEMENT
between
BEC FUNDING LLC
Note Issuer
and
BOSTON EDISON COMPANY
Seller
Dated as of July 29, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I. DEFINITIONS...........................................................................................1
Section 1.01. Definitions........................................................................1
ARTICLE II. CONVEYANCE OF TRANSITION PROPERTY....................................................................5
Section 2.01. Conveyance of Transition Property..................................................5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER............................................................6
Section 3.01. Organization and Good Standing.....................................................6
Section 3.02. Due Qualification..................................................................6
Section 3.03. Power and Authority................................................................6
Section 3.04. Binding Obligation. ...............................................................7
Section 3.05. No Violation.......................................................................7
Section 3.06. No Proceedings.....................................................................7
Section 3.07. Approvals..........................................................................7
Section 3.08. The Transition Property. ..........................................................8
Section 3.09. Limitations on Representations and Warranties......................................9
ARTICLE IV. COVENANTS OF THE SELLER.............................................................................10
Section 4.01. Corporate Existence...............................................................10
Section 4.02. No Liens..........................................................................10
Section 4.03. Delivery of Collections...........................................................10
Section 4.04. Notice of Liens...................................................................10
Section 4.05. Compliance with Law...............................................................10
Section 4.06. Covenants Related to Notes and Transition Property................................11
Section 4.07. Protection of Title...............................................................11
Section 4.08. Nonpetition Covenants.............................................................12
Section 4.09. Taxes.............................................................................12
Section 4.10. Additional Sales of Transition Property...........................................12
ARTICLE V. THE SELLER...........................................................................................13
Section 5.01. Liability of Seller; Indemnities..................................................13
Section 5.02. Merger or Consolidation of, or Assumption of the Obligations of,
Seller.............................................................................................16
Section 5.03. Limitation on Liability of Seller and Others......................................17
ARTICLE VI. MISCELLANEOUS PROVISIONS............................................................................17
Section 6.01. Amendment.........................................................................17
Section 6.02. Notices...........................................................................18
Section 6.03. Assignment........................................................................19
Section 6.04. Limitations on Rights of Third Parties............................................20
Section 6.05. Severability......................................................................20
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Section 6.06. Separate Counterparts.............................................................20
Section 6.07. Headings..........................................................................20
Section 6.08. Governing Law.....................................................................20
Section 6.09. Assignment to Note Trustee........................................................20
</TABLE>
-ii-
<PAGE> 4
This TRANSITION PROPERTY PURCHASE AND SALE AGREEMENT, dated as of July
29, 1999, is between BEC Funding LLC, a Delaware limited liability company (the
"Note Issuer"), and Boston Edison Company, a Massachusetts corporation (together
with its successors in interest to the extent permitted hereunder, the
"Seller").
RECITALS
WHEREAS, the Note Issuer desires to purchase the Transition Property
(as defined herein) created pursuant to the Statute and the Financing Order
(each as defined herein); and
WHEREAS, the Seller is willing to sell the Transition Property to the
Note Issuer.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS
Section 1.01. Definitions. Whenever used in this Agreement, the
following words and phrases shall have the following meanings:
"Administration Agreement" means the Administration Agreement dated as
of July 29, 1999 between Boston Edison Company, as Administrator, and the Note
Issuer, as amended and supplemented from time to time.
"Agencies" means, collectively, the Massachusetts Development Finance
Agency and the Massachusetts Health and Educational Facilities Authority.
"Agreement" means this Transition Property Purchase and Sale Agreement,
as amended and supplemented from time to time.
"Back-Up Security Interest" has the meaning specified in Section 2.01.
"Basic Documents" means, collectively, this Agreement, the Note
Indenture, the Declaration of Trust, the Certificate Indenture, the Servicing
Agreement, the Administration Agreement, the Note Purchase Agreement, the
Underwriting Agreement and the Fee and Indemnity Agreement.
"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, Boston,
Massachusetts or Wilmington, Delaware are authorized or obligated by law,
regulation or executive order to remain closed.
-1-
<PAGE> 5
"Certificate Indenture" means the Certificate Indenture dated as of
July 29, 1999, between the Certificate Issuer and the Certificate Trustee, as
amended and supplemented from time to time.
"Certificate Trustee" means the Person acting as trustee under the
Certificate Indenture.
"Certificateholders" has the meaning specified in Section 1.01(a) of
the Certificate Indenture.
"Certificates" means the Massachusetts RRB Special Purpose Trust BEC-1
Rate Reduction Certificates issued under the Certificate Indenture.
"Closing Date" means July 29, 1999.
"Collection Account" has the meaning specified in Section 8.02(a) of
the Note Indenture.
"Corporate Trust Office" has the meaning specified in Section 1.01(a)
of the Note Indenture.
"Customers" means all classes of retail users of the Seller's
distribution system within its geographic service territory as in effect on July
1, 1997.
"Date of Breach" means, with respect to the repurchase obligation
specified in Section 5.01(b), the date of breach of a representation or warranty
that triggers such repurchase obligation.
"Declaration of Trust" means the Declaration of Trust dated as of July
28, 1999, among the Agencies and the Delaware Trustee, as amended and
supplemented from time to time.
"Delaware Trustee" means the Person acting as trustee under the
Declaration of Trust.
"DTE" means the Massachusetts Department of Telecommunications and
Energy and any successor thereto.
"DTE Regulations" has the meaning specified in Section 1.01 of the
Servicing Agreement.
"Duff & Phelps" means Duff & Phelps Credit Rating Co. or its successor.
"Fee and Indemnity Agreement" means the fee and indemnity agreement
dated as of July 29, 1999 among the Note Issuer, the Delaware Trustee, the
Certificate Trustee, the Trust and the Agencies.
-2-
<PAGE> 6
"Financing Order" means the order of the DTE, DTE-98-118, issued on
April 2, 1999, as further clarified by the Order on the Massachusetts
Development Finance Agency's and Massachusetts Health and Educational Facilities
Authority's Motion for Clarification dated May 21, 1999.
"Fitch IBCA" means Fitch IBCA, Inc. or its successor.
"Indemnified Person" has the meaning specified in Section 5.01(h).
"Issuance Advice Letter" means the initial Issuance Advice Letter,
dated July 28, 1999, filed with the DTE by the Seller pursuant to the Financing
Order.
"Lien" means a security interest, lien, charge, pledge or encumbrance
of any kind.
"Losses" has the meaning specified in Section 5.01(e).
"Moody's" means Moody's Investors Service, Inc. or its successor.
"Note Indenture" means the Note Indenture dated as of July 29, 1999,
between the Note Issuer and the Note Trustee, as amended and supplemented from
time to time.
"Note Issuer" has the meaning set forth in the preamble of this
Agreement.
"Note Purchase Agreement" means the Note Purchase Agreement dated as of
July 29, 1999 between the Note Issuer and the Trust, as amended and supplemented
from time to time.
"Note Register" has the meaning specified in Section 2.05 of the Note
Indenture.
"Note Trustee" means the Person acting as trustee under the Note
Indenture.
"Noteholder" or "Holder" means the Person in whose name a Note is
registered on the Note Register.
"Notes" means the BEC Funding LLC Notes issued under the Note
Indenture.
"Officer's Certificate" means a certificate signed by the chairman of
the board, the chief executive officer, the president, the vice chairman of the
board, any vice president, the treasurer, any assistant treasurer, the clerk,
any assistant clerk, the controller or the finance manager of the Seller.
"Operating Expense" has the meaning specified in Section 1.01(a) of the
Note Indenture.
-3-
<PAGE> 7
"Opinion of Counsel" means one or more written opinions of counsel who
may be an employee of or counsel to the party providing such opinion of counsel,
which counsel shall be reasonably acceptable to the party receiving such opinion
of counsel.
"Outstanding Amount" has the meaning specified in Section 1.01(a) of
the Note Indenture.
"Overcollateralization Subaccount" has the meaning specified in Section
8.02(a) of the Note Indenture.
"Person" means any individual, corporation, limited liability company,
estate, partnership, joint venture, association, joint stock company, trust
(including any beneficiary thereof), unincorporated organization or government
or any agency or political subdivision thereof.
"Rating Agencies" means, collectively, S&P, Moody's, Fitch IBCA and
Duff & Phelps.
"Repurchase Date" means the date that is five Business Days after the
date that is (i) if the terms of Section 5.01(b)(i)(A) and Section
5.01(b)(i)(B)(2) are applicable, two Business Days after the Date of Breach if
the Seller fails to make the deposit required by Section 5.01(b)(i)(B)(2) or 90
days after the Date of Breach if the Seller makes the deposit required by
Section 5.01(b)(i)(B)(2); (ii) if the terms of Section 5.01(b)(ii) are
applicable, 90 days after the Date of Breach; and (iii) if the terms of Section
5.01(b)(i)(A) and Section 5.01(b)(i)(B)(1) are applicable, 90 days after the
Date of Breach.
"Required Overcollateralization Level" has the meaning specified in
Section 1.01(a) of the Note Indenture.
"Repurchase Price" has the meaning specified in Section 5.01(b)(i).
"RTC Charge" means the portion (which may become all) of the Seller's
Transition Charge designated pursuant to the Financing Order as the RTC Charge,
as the same may be adjusted from time to time as provided in the Financing
Order, and may in the future include a pro rata component of any exit fee
collected pursuant to Section 1G(g) of Chapter 164 of the Massachusetts General
Laws.
"RTC Charge Collections" has the meaning specified in Section 1.01 of
the Servicing Agreement.
"Seller" has the meaning set forth in the preamble of this Agreement.
"Servicer Default" means an event specified in Section 7.01 of the
Servicing Agreement.
-4-
<PAGE> 8
"Servicing Agreement" means the Transition Property Servicing Agreement
dated as of July 29, 1999 between Boston Edison Company, as Servicer, and the
Note Issuer, as amended and supplemented from time to time.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw Hill Companies, Inc. or its successor.
"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 Charge" means the "access charge" as defined in Boston
Edison Company's Restructuring Settlement Agreement, D.P.U. Docket Nos. 96-100
and 96-23 and subsequent filings with the DTE pursuant thereto.
"Transition Property" means the transition property that exists under
paragraph 7 of the Financing Order.
"Trust" or "Certificate Issuer" means Massachusetts RRB Special Purpose
Trust BEC-1, a Delaware business trust.
"Underwriting Agreement" means the Underwriting Agreement dated as of
July 22, 1999 among Boston Edison Company, the Note Issuer and the underwriters
named therein.
Section 1.02. Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(b) The words "hereof," "herein," "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any particular provision of this Agreement; Section, Schedule and
Exhibit references contained in this Agreement are references to Sections,
Schedules and Exhibits in or to this Agreement unless otherwise specified; and
the term "including" shall mean "including without limitation".
(c) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms.
ARTICLE II. CONVEYANCE OF TRANSITION PROPERTY
Section 2.01. Conveyance of Transition Property. In consideration of
the Note Issuer's delivery to or upon the order of the Seller of $724,755,142
net of underwriting discounts and
-5-
<PAGE> 9
other fees and expenses, the Seller does hereby irrevocably sell, transfer,
assign, set over and otherwise convey to the Note Issuer, WITHOUT RECOURSE OR
WARRANTY, except as specifically set forth herein, all right, title and interest
of the Seller in and to the Transition Property (such sale, transfer,
assignment, setting over and conveyance of the Transition Property includes, to
the fullest extent permitted by the Statute, the assignment of all revenues,
collections, claims, payments, money or proceeds of or arising from the RTC
Charge pursuant to the Financing Order). Such sale, transfer, assignment,
setting over and conveyance is hereby expressly stated to be a sale and,
pursuant to Section 1H(f)(1) of Chapter 164 of the Massachusetts General Laws,
shall be treated as an absolute transfer of all of the Seller's right, title and
interest in (as in a true sale), and not as a pledge or other financing of, the
Transition Property. If such sale, transfer, assignment, setting over and
conveyance is held by any court of competent jurisdiction not to be a true sale
as provided in Section 1H(f)(1) of Chapter 164 of the Massachusetts General
Laws, then such sale, transfer, assignment, setting over and conveyance shall be
treated as the creation of a security interest in the Transition Property and,
without prejudice to its position that it has absolutely transferred all of its
rights in the Transition Property to the Note Issuer, the Seller hereby grants a
security interest in the Transition Property to the Note Issuer (the "Back-Up
Security Interest").
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER
Subject to Section 3.09 hereof, the Seller makes the following
representations and warranties, as of the Closing Date, on which the Note Issuer
has relied in acquiring the Transition Property.
Section 3.01. Organization and Good Standing. The Seller is duly
organized and validly existing as a corporation in good standing under the laws
of The Commonwealth of Massachusetts, with the requisite corporate power and
authority to own its properties as such properties are currently owned and to
conduct its business as such business is now conducted by it, and has the
requisite corporate power and authority to own the Transition Property.
Section 3.02. Due Qualification. The Seller is duly qualified to do
business as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals, in all jurisdictions in which the ownership or
lease of property or the conduct of its business shall require such
qualifications, licenses or approvals (except where the failure to so qualify or
obtain such licenses and approvals would not be reasonably likely to have a
material adverse effect on the Seller's business, operations, assets, revenues
or properties).
Section 3.03. Power and Authority. The Seller has the requisite
corporate power and authority to execute and deliver this Agreement and to carry
out its terms; and the execution, delivery and performance of this Agreement
have been duly authorized by all necessary corporate action on the part of the
Seller.
-6-
<PAGE> 10
Section 3.04. Binding Obligation. This 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' or
secured parties' rights generally from time to time in effect and to general
principles of equity (including concepts of materiality, reasonableness, good
faith and fair dealing), regardless of whether considered in a proceeding in
equity or at law.
Section 3.05. No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do not:
(i) conflict with or result in any breach of any of the terms and provisions of,
nor constitute (with or without notice or lapse of time) a default under, the
articles of organization or by-laws of the Seller, or any material indenture,
agreement or other instrument to which the Seller is a party or by which it is
bound; (ii) result in the creation or imposition of any Lien upon any of the
Seller's properties pursuant to the terms of any such indenture, agreement or
other instrument (other than any Lien that may be granted under the Basic
Documents or any Lien created pursuant to Section 1H(e) of Chapter 164 of the
Massachusetts General Laws); or (iii) violate any existing law or any existing
order, rule or regulation applicable to the Seller of any court or of any
federal or state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Seller or its properties.
Section 3.06. No Proceedings. There are no proceedings pending and, to
the Seller's knowledge, there are no proceedings threatened and, to the Seller's
knowledge, there are no investigations pending or threatened, before any court,
federal or state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Seller or its properties involving
or relating to the Seller or the Note Issuer or, to the Seller's knowledge, any
other Person: (i) asserting the invalidity of this Agreement, any of the other
Basic Documents, the Notes or the Certificates, (ii) seeking to prevent the
issuance of the Notes or the Certificates or the consummation of any of the
transactions contemplated by this Agreement or any of the other Basic Documents,
(iii) seeking any determination or ruling that might materially and adversely
affect the performance by the Seller of its obligations under, or the validity
or enforceability of, this Agreement, any of the other Basic Documents, the
Notes or the Certificates or (iv) seeking to adversely affect the federal or
state income tax classification of the Notes or the Certificates as debt.
Section 3.07. Approvals. No approval, authorization, consent, order or
other action of, or filing with, any court, federal or state regulatory body,
administrative agency or other governmental instrumentality is required in
connection with the execution and delivery by the Seller of this Agreement, the
performance by the Seller of the transactions contemplated hereby or the
fulfillment by the Seller of the terms hereof, except those that have been
obtained or made and those that the Seller, in its capacity as Servicer under
the Servicing Agreement, is required to make in the future pursuant to the
Servicing Agreement.
-7-
<PAGE> 11
Section 3.08. The Transition Property.
(a) Title. It is the intention of the parties hereto that the transfer
and assignment herein contemplated constitute a sale of the Transition Property
from the Seller to the Note Issuer and that no interest in, or title to, the
Transition Property shall be part of the Seller's estate in the event of the
filing of a bankruptcy petition by or against the Seller under any bankruptcy
law. No portion of the Transition Property has been sold, transferred, assigned
or pledged by the Seller to any Person other than the Note Issuer. On the
Closing Date, immediately upon the sale hereunder, the Seller has transferred,
sold and conveyed the Transition Property to the Note Issuer, free and clear of
all Liens, except for any Lien created pursuant to Section 1H(e) of Chapter 164
of the Massachusetts General Laws and any Lien that may be granted under the
Basic Documents, and pursuant to Section 1H(f)(1) of Chapter 164 of the
Massachusetts General Laws such transfer shall be treated as an absolute
transfer of all of the Seller's right, title and interest (as in a true sale),
and not as a pledge or other financing of, the Transition Property.
(b) Transfer Filings. On the Closing Date, immediately upon the sale
hereunder, the Transition Property has been validly transferred and sold to the
Note Issuer, the Note Issuer shall own all such Transition Property free and
clear of all Liens (except for any Lien created pursuant to Section 1H(e) of
Chapter 164 of the Massachusetts General Laws and any Lien that may be granted
under the Basic Documents) and all filings to be made by the Seller (including
filings with the DTE under the Statute) necessary in any jurisdiction to give
the Note Issuer an ownership interest (subject to any Lien created pursuant to
Section 1H(e) of Chapter 164 of the Massachusetts General Laws and any Lien that
may be granted under the Basic Documents) in the Transition Property have been
made. No further action is required to maintain such ownership interest (subject
to any Lien created pursuant to Section 1H(e) of Chapter 164 of the
Massachusetts General Laws and any Lien that may be granted under the Basic
Documents). Filings have also been made to the extent required by Massachusetts
General Laws Chapter 106, Sections 9-403(2)-(3), 9-306, 9-402(7) and 9-103 to
perfect the Back-Up Security Interest granted by the Seller to the Note Issuer
(subject to any Lien created pursuant to Section 1H(e) of Chapter 164 of the
Massachusetts General Laws and any Lien that may be granted under the Basic
Documents).
(c) Financing Order and Issuance Advice Letter; Other Approvals. On the
Closing Date, under the laws of The Commonwealth of Massachusetts and the United
States in effect on the Closing Date, (i) the Financing Order pursuant to which
the Transition Property has been created is in full force and effect; (ii) the
Certificateholders are entitled to the protections of the Statute and,
accordingly, the Financing Order is not revocable by the DTE; (iii) 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 or the Financing Order, and all rights thereunder, in a manner that
would substantially impair the rights of the Certificateholders, absent a
demonstration by The Commonwealth of Massachusetts that an impairment is
narrowly-tailored and is necessary to advance an important public interest, such
as a "great public calamity" until the Certificates, together with interest
thereon, are fully met and
-8-
<PAGE> 12
discharged; (iv) the DTE 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 an impairment is
narrowly-tailored and is necessary to advance an important public interest,
such as a "great public calamity", until the Certificates, together with
interest thereon, are fully met and discharged; (v) the process by which the
Financing Order was adopted and approved, and the Financing Order and Issuance
Advice Letter themselves, comply with all applicable laws, rules and
regulations; (vi) the Issuance Advice Letter has been filed in accordance with
the Financing Order; and (vii) no other approval, authorization, consent, order
or other action of, or filing with, any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality is required in
connection with the creation or sale of the Transition Property, except those
that have been obtained or made.
(d) Assumptions. On the Closing Date, based upon the 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.
Notwithstanding the foregoing, the Seller makes no representation or warranty
that the assumptions used in calculating such RTC Charge will in fact be
realized.
(e) Creation of Transition Property. Upon the effectiveness of the
Financing Order and the Issuance Advice Letter: (i) all of the Transition
Property constitutes an existing property right; (ii) the Transition Property
includes 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 pursuant to the Financing Order, and all rights to
obtain adjustments to the RTC Charge pursuant to the Financing Order; and (iii)
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, to replenish the Capital Subaccount to the Required Capital
Level and to fund the Overcollateralization Subaccount to the Required
Overcollateralization Level until the Notes and the Certificates are paid in
full. Notwithstanding the foregoing, 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 with respect to the Notes and
the Certificates.
(f) Prospectus. As of the date hereof, the information describing the
Seller in "The Seller and Servicer" section of the prospectus dated July 26,
1999 offering the Notes and the Certificates is correct in all material
respects.
Section 3.09. Limitations on Representations and Warranties. Without
prejudice to any of the other rights of the parties, the Seller will not be in
breach of any representation or warranty as a result of a change in law by means
of a legislative enactment, constitutional amendment or
-9-
<PAGE> 13
voter initiative. Notwithstanding anything to the contrary in this Agreement,
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 with respect to the Notes and the Certificates or that the
assumptions used in calculating the RTC Charge will in fact be realized nor
shall the Seller be obligated to reduce, or accept a reduction of, any rates or
charges to which it would otherwise be entitled in respect of services rendered
or to be rendered to Customers in order to permit the payment of the RTC Charge.
ARTICLE IV. COVENANTS OF THE SELLER
Section 4.01. Corporate Existence. So long as any of the Notes are
outstanding, the Seller (a) will keep in full force and effect its existence,
rights and franchises as a corporation under the laws of the jurisdiction of its
organization and (b) will obtain and preserve its qualification to do business,
in each case to the extent that in each such jurisdiction such existence or
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the other Basic Documents to which the Seller
is a party and each other instrument or agreement necessary or appropriate to
the proper administration of this Agreement and the transactions contemplated
hereby.
Section 4.02. No Liens. Except for the conveyances hereunder or any
Lien under Section 1H(e) of Chapter 164 of the Massachusetts General Laws or for
the benefit of the Note Issuer, the Seller will not sell, pledge, assign or
transfer, or grant, create, or incur any Lien on, any of the Transition
Property, or any interest therein, and the Seller shall defend the right, title
and interest of the Note Issuer and the Note Trustee in, to and under the
Transition Property against all claims of third parties claiming through or
under the Seller. Boston Edison Company, in its capacity as Seller, will not at
any time assert any Lien against, or with respect to, any of the Transition
Property.
Section 4.03. Delivery of Collections. If the Seller receives any
payments in respect of the RTC Charge or the proceeds thereof when it is not
acting as the Servicer, the Seller agrees to pay to the Servicer all payments
received by it in respect thereof as soon as practicable after receipt thereof
by it.
Section 4.04. Notice of Liens. The Seller shall notify the Note Issuer
and the Note Trustee promptly after becoming aware of any Lien on any of the
Transition Property, other than the conveyances hereunder, any Lien under the
Basic Documents or any Lien under Section 1H(e) of Chapter 164 of the
Massachusetts General Laws or for the benefit of the Note Issuer.
Section 4.05. Compliance with Law. The Seller hereby agrees to comply
with its organizational and governing documents and all laws, treaties, rules,
regulations and determinations of any governmental instrumentality applicable to
it, except to the extent that failure to so comply would not adversely affect
the Note Issuer's or the Note Trustee's interests in the Transition Property or
under any of the other Basic Documents to which the Seller is party or
-10-
<PAGE> 14
the Seller's performance of its obligations hereunder or under any of the other
Basic Documents to which it is party.
Section 4.06. Covenants Related to Notes and Transition Property.
(a) So long as any of the Notes are outstanding, the Seller shall treat
the Notes as debt of the Note Issuer and not of the Seller, except for financial
accounting or tax reporting purposes.
(b) So long as any of the Notes are outstanding, the Seller shall
indicate in its financial statements that it is not the owner of the Transition
Property.
(c) So long as any of the Notes or Certificates are outstanding, the
Seller shall not own or purchase any Notes or Certificates.
(d) The Seller agrees that, upon the sale by the Seller of the
Transition Property to the Note Issuer pursuant to this Agreement, (i) to the
fullest extent permitted by law, including applicable DTE Regulations, the Note
Issuer shall have all of the rights originally held by the Seller with respect
to the Transition Property, including the right (subject to the terms of the
Servicing Agreement) to exercise any and all rights and remedies to collect any
amounts payable by any Customer in respect of the Transition Property,
notwithstanding any objection or direction to the contrary by the Seller and
(ii) any payment by any Customer to the Note Issuer shall discharge such
Customer's obligations in respect of the Transition Property to the extent of
such payment, notwithstanding any objection or direction to the contrary by the
Seller.
(e) So long as any of the Notes are outstanding, (i) the Seller shall
not make any statement or reference in respect of the Transition Property that
is inconsistent with the ownership interest of the Note Issuer (other than for
financial accounting or tax reporting purposes), and (ii) the Seller shall not
take any action in respect of the Transition Property except solely in its
capacity as the Servicer thereof pursuant to the Servicing Agreement or as
otherwise contemplated by the Basic Documents.
Section 4.07. Protection of Title. The Seller shall execute and file
such filings, including filings with the DTE pursuant to the Statute and Uniform
Commercial Code continuation statements, and cause to be executed and filed such
filings, all in such manner and in such places as may be required by law fully
to preserve, maintain and protect the ownership interest of the Note Issuer in
the Transition Property, including all filings required under the Statute
relating to the transfer of the ownership interest in the Transition Property by
the Seller to the Note Issuer and the continued perfection of such ownership
interest. The Seller shall deliver (or cause to be delivered) to the Note Issuer
file-stamped copies of, or filing receipts for, any document filed as provided
above, as soon as available following such filing. The Seller shall institute
any action or proceeding necessary to compel performance by the DTE or The
Commonwealth of Massachusetts of any of their obligations or duties under the
Statute or the Financing Order, and the Seller agrees to take such legal or
administrative actions, including
-11-
<PAGE> 15
defending against or instituting and pursuing legal actions and appearing or
testifying at hearings or similar proceedings, as may be reasonably necessary to
protect the Note Issuer, the Noteholders, the Certificateholders and the
Agencies from claims, state actions or other actions or proceedings of third
parties which, if successfully pursued, would result in a breach of any
representation set forth in Article III. The costs of any such actions or
proceedings shall be payable from RTC Charge Collections as an Operating Expense
in accordance with the priorities set forth in Section 8.02(d) of the Note
Indenture. The Seller's obligations pursuant to this Section 4.07 shall survive
and continue notwithstanding the fact that the payment of Operating Expenses
pursuant to Section 8.02(d) of the Note Indenture may be delayed (it being
understood that the Seller may be required to advance its own funds to satisfy
its obligations hereunder).
Section 4.08. Nonpetition Covenants. Notwithstanding any prior
termination of this Agreement or the Note Indenture, but subject to the DTE's
right to order the sequestration and payment of revenues arising with respect to
the Transition Property notwithstanding any bankruptcy, reorganization or other
insolvency proceedings with respect to the Seller pursuant to Section 1H(d)(5)
of the Statute, the Seller shall not, prior to the date which is one year and
one day after the termination of the Note Indenture, petition or otherwise
invoke or cause the Note Issuer to invoke the process of any court or government
authority for the purpose of commencing or sustaining a case against the Note
Issuer under any Federal or state bankruptcy, insolvency or similar law,
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official of the Note Issuer or any substantial part of the
property of the Note Issuer, or ordering the winding up or liquidation of the
affairs of the Note Issuer.
Section 4.09. Taxes. So long as any of the Notes are outstanding, the
Seller shall, and shall cause each of its subsidiaries to, pay all material
taxes, assessments and governmental charges imposed upon it or any of its
properties or assets or with respect to any of its franchises, business, income
or property before any penalty accrues thereon if the failure to pay any such
taxes, assessments and governmental charges would, after any applicable grace
periods, notices or other similar requirements, result in a lien on the
Transition Property; provided that no such tax need be paid if the Seller or one
of its subsidiaries is contesting the same in good faith by appropriate
proceedings promptly instituted and diligently conducted and if the Seller or
such subsidiary has established appropriate reserves as shall be required in
conformity with generally accepted accounting principles.
Section 4.10. Additional Sales of Transition Property. So long as any
of the Notes are outstanding, the Seller shall not sell any transition property
(as defined in the Statute) to secure another issuance of electric rate
reduction bonds (as defined in the Statute) if it would cause the then existing
ratings on the Certificates from the Rating Agencies to be downgraded.
Section 4.11. Issuance Advice Letter. The Seller hereby agrees not to
withdraw the filing of the Issuance Advice Letter with the DTE.
-12-
<PAGE> 16
ARTICLE V. THE SELLER
Section 5.01. Liability of Seller; Indemnities.
(a) The Seller shall be liable in accordance herewith only to the
extent of the obligations specifically undertaken by the Seller under this
Agreement.
(b) (i) In the event of a breach by the Seller of any representation
and warranty specified in Sections 3.08(c) or 3.08(e) that has a material
adverse effect on the Certificateholders, the Seller shall repurchase the
Transition Property from the Note Issuer at a purchase price equal to the then
outstanding principal amount of the Notes and all accrued and unpaid interest
thereon, excluding any premium or penalty of any kind (the "Repurchase Price"),
as of the Repurchase Date; provided, however, that the Seller shall not be
obligated to repurchase the Transition Property if (A) within 90 days after the
date of occurrence thereof such breach is cured or the Seller takes remedial
action such that there is not and will not be a material adverse effect on the
Certificateholders as a result of such breach and (B) either (1) if the Seller
had, immediately prior to the breach, a long term debt rating of at least "A3"
by Moody's and "BBB" by S&P or the equivalent of "BBB" by any other Rating
Agency, and the Seller enters into a binding agreement with the Note Issuer to
pay any amounts necessary so that all interest payments due on the Notes during
such 90-day period will be paid in full, or (2) if the Seller does not have such
long term debt ratings, the Seller deposits, within two Business Days after such
breach, an amount in escrow with the Note Trustee sufficient, taking into
account amounts on deposit in the Collection Account which will be available for
such purpose, to pay all interest payments which will become due on the Notes
during such 90-day period.
(ii) In the event of a breach by the Seller of any
representation and warranty specified in Sections 3.01, 3.03, 3.04, 3.05,
3.08(a) or 3.08(b) that has a material adverse effect on the Certificateholders,
if within 90 days after the date of occurrence thereof such breach has not been
cured or the Seller has not taken remedial action such that there is not and
will not be a material adverse effect on the Certificateholders as a result of
such breach, then the Seller shall repurchase the Transition Property from the
Note Issuer for the Repurchase Price on the Repurchase Date.
(iii) Notwithstanding any other provision of this Agreement,
upon the payment by the Seller of the Repurchase Price pursuant to this Section
5.01(b), neither the Note Issuer nor any other Person shall have any other
claims, rights or remedies against the Seller under, arising from or with
respect to this Agreement, except as set forth in Section 5.01(h).
(c) The Seller shall indemnify the Note Issuer, the Note Trustee, the
Certificate Trustee, the Delaware Trustee, the Agencies, the Certificate Issuer,
the Noteholders and the Certificateholders for, and defend and hold harmless
each such Person from and against, any and all taxes (other than taxes imposed
on Noteholders or Certificateholders solely as a result of their
-13-
<PAGE> 17
ownership of Notes or Certificates, respectively) that may at any time be
imposed on or asserted against any such Person under existing law as of the
Closing Date as a result of the sale of the Transition Property to the Note
Issuer, including any sales, gross receipts, general corporation, tangible
personal property, privilege or license taxes; provided, however, that the
Noteholders and the Certificateholders shall be entitled to enforce their rights
against the Seller under this Section 5.01(c) solely through a cause of action
brought for their benefit by the Note Trustee or the Certificate Trustee, as the
case may be.
(d) The Seller shall indemnify the Note Issuer, the Note Trustee, the
Certificate Trustee, the Delaware Trustee, the Agencies, the Certificate Issuer,
the Noteholders and the Certificateholders for, and defend and hold harmless
each such Person from and against, any and all taxes that may be imposed on or
asserted against any such Person under existing law as of the Closing Date as a
result of the issuance and sale by the Note Issuer of the Notes, the issuance
and sale by the Trust of the Certificates or the other transactions contemplated
herein, including any sales, gross receipts, general corporation, tangible
personal property, privilege or license taxes; provided, however, that the
Noteholders and the Certificateholders shall be entitled to enforce their rights
against the Seller under this Section 5.01(d) solely through a cause of action
brought for their benefit by the Note Trustee or the Certificate Trustee, as the
case may be. The Seller shall be reimbursed for any payments under this Section
5.01(d) from RTC Charge Collections as an Operating Expense in accordance with
the priorities set forth in Section 8.02(d) of the Note Indenture.
(e) The Seller shall indemnify the Note Issuer, the Noteholders and the
Certificateholders for, and defend and hold harmless each such Person from and
against, any and all liabilities, obligations, losses, actions, suits, claims,
damages, payments, costs or expenses of any kind whatsoever (collectively,
"Losses") that may be imposed on, incurred by or asserted against each such
Person as a result of (i) the Seller's willful misconduct or gross negligence in
the performance of its duties or observance of its covenants under this
Agreement, or (ii) the Seller's breach in any material respect of any of its
representations and warranties contained in this Agreement (other than the
representations and warranties specified in Sections 3.01, 3.03, 3.04, 3.05,
3.08(a), 3.08(b), 3.08(c) or 3.08(e), the breach of which are subject to the
repurchase obligation set forth in Section 5.01(b)), except in the case of both
clauses (i) and (ii) to the extent of Losses either resulting from the willful
misconduct or gross negligence of such indemnified person or resulting from a
breach of a representation and warranty made by such indemnified person in any
of the Basic Documents that gives rise to the Seller's breach; provided,
however, that the Noteholders and the Certificateholders shall be entitled to
enforce their rights against the Seller under this indemnification solely
through a cause of action brought for their benefit by the Note Trustee or the
Certificate Trustee, as the case may be; provided, further, that the Seller may,
at its election and in full satisfaction of its obligations under this Section
5.01(e), repurchase the Transition Property at the Repurchase Price, in which
case neither the Note Issuer nor any other Person shall have any other claims,
rights or remedies against the Seller under, arising from or with respect to
this Agreement, except as set forth in Section 5.01(h).
-14-
<PAGE> 18
(f) Indemnification under Sections 5.01(c), 5.01(d), 5.01(e) and
5.01(h) shall include reasonable fees and out-of-pocket expenses of
investigation and litigation (including reasonable attorneys' fees and
expenses), except as otherwise provided in this Agreement.
(g) Without prejudice to any of the other rights of the parties, the
Seller will not be in breach of any representation or warranty as a result of a
change in law by means of a legislative enactment, constitutional amendment or
voter initiative. Notwithstanding anything to the contrary in this Agreement,
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 with respect to the Notes and the Certificates or that the
assumptions used in calculating the RTC Charge will in fact be realized nor
shall the Seller be obligated to reduce, or accept a reduction of, any rates or
charges to which it would otherwise be entitled in respect of services rendered
or to be rendered to customers in order to permit the payment of the RTC Charge.
(h) The Seller shall indemnify and hold harmless the Note Trustee, the
Delaware Trustee, the Certificate Trustee, the Certificate Issuer, the Agencies
and any of their respective affiliates, officers, directors, employees and
agents (each an "Indemnified Person") against any and all Losses incurred by any
of such Indemnified Persons as a result of (i) the Seller's willful misconduct
or gross negligence in the performance of its duties or observance of its
covenants under this Agreement or (ii) the Seller's breach in any material
respect of any of its representations and warranties contained in this
Agreement, except in the case of both clauses (i) and (ii) to the extent of
Losses either resulting from the willful misconduct or gross negligence of such
Indemnified Person or resulting from a breach of a representation or warranty
made by such Indemnified Person in any of the Basic Documents that gives rise to
the Seller's breach. The Seller shall not be required to indemnify an
Indemnified Person for any amount paid or payable by such Indemnified Person in
the settlement of any action, proceeding or investigation without the written
consent of the Seller, which consent shall not be unreasonably withheld.
Promptly after receipt by an Indemnified Person of notice of its involvement in
any action, proceeding or investigation, such Indemnified Person shall, if a
claim for indemnification in respect thereof is to be made against the Seller
under this Section 5.01(h), notify the Seller in writing of such involvement.
Failure by an Indemnified Person to so notify the Seller shall relieve the
Seller from the obligation to indemnify and hold harmless such Indemnified
Person under this Section 5.01(h) only to the extent that the Seller suffers
actual prejudice as a result of such failure. With respect to any action,
proceeding or investigation brought by a third party for which indemnification
may be sought under this Section 5.01(h), the Seller shall be entitled to assume
the defense of any such action, proceeding or investigation. Upon assumption by
the Seller of the defense of any such action, proceeding or investigation, the
Indemnified Person shall have the right to participate in such action or
proceeding and to retain its own counsel. The Seller shall be entitled to
appoint counsel of the Seller's choice at the Seller's expense to represent the
Indemnified Person in any action, proceeding or investigation for which a claim
of indemnification is made against the Seller under this Section 5.01(h) (in
which case the Seller shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by
-15-
<PAGE> 19
the Indemnified Person except as set forth below); provided, however, that such
counsel shall be reasonably satisfactory to the Indemnified Person.
Notwithstanding the Seller's election to appoint counsel to represent the
Indemnified Person in an action, proceeding or investigation, the Indemnified
Person shall have the right to employ separate counsel (including local
counsel), and the Seller shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the Seller to
represent the Indemnified Person would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the Indemnified Person and the Seller and the Indemnified
Person shall have reasonably concluded that there may be legal defenses
available to it that are different from or additional to those available to the
Seller, (iii) the Seller shall not have employed counsel reasonably satisfactory
to the Indemnified Person to represent the Indemnified Person within a
reasonable time after notice of the institution of such action or (iv) the
Seller shall authorize the Indemnified Person to employ separate counsel at the
expense of the Seller. Notwithstanding the foregoing, the Seller shall not be
obligated to pay for the fees, costs and expenses of more than one separate
counsel for the Indemnified Persons other than local counsel. The Seller will
not, without the prior written consent of the Indemnified Person, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought under this Section 5.01(h) (whether or not the
Indemnified Person is an actual or potential party to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of the Indemnified Person from all liability arising out of such claim, action,
suit or proceeding.
(i) The remedies of the Note Issuer, the Noteholders and the
Certificateholders provided in this Agreement are each such Person's sole and
exclusive remedies against the Seller for breach of its representations and
warranties in this Agreement.
(j) For purposes of this Section 5.01, the term "Agencies" shall
include the Executive Office for Administration and Finance of The Commonwealth
of Massachusetts.
Section 5.02. Merger or Consolidation of, or Assumption of the
Obligations of, Seller. Any Person (a) into which the Seller may be merged or
consolidated, (b) that may result from any merger or consolidation to which the
Seller shall be a party or (c) that may succeed to the properties and assets of
the Seller substantially as a whole, which Person in any of the foregoing cases
executes an agreement of assumption to perform every obligation of the Seller
hereunder, shall be the successor to the Seller under this Agreement without
further act on the part of any of the parties to this Agreement; provided,
however, that (i) if the Seller is the Servicer, no Servicer Default, and no
event which, after notice or lapse of time, or both, would become a Servicer
Default shall have occurred and be continuing, (ii) the Seller shall have
delivered to the Note Issuer and the Note Trustee an Officers' Certificate
stating that such consolidation, merger or succession and such agreement of
assumption comply with this Section and that all conditions precedent, if any,
provided for in this Agreement relating to such transaction have been complied
with, (iii) the Seller shall have delivered to the Note Issuer and the Note
Trustee an Opinion of Counsel either (A) stating that, in the opinion of such
counsel, all filings to be made by the
-16-
<PAGE> 20
Seller, including filings with the DTE pursuant to the Statute, have been
executed and filed that are necessary to fully preserve and protect the interest
of the Note Issuer in the Transition Property and reciting the details of such
filings, or (B) stating that, in the opinion of such counsel, no such action
shall be necessary to preserve and protect such interests and (iv) the Rating
Agencies shall have received prior written notice of such transaction. When any
Person acquires the properties and assets of the Seller substantially as a whole
and becomes the successor to the Seller in accordance with the terms of this
Section 5.02, then upon satisfaction of all of the other conditions of this
Section 5.02, the Seller shall automatically and without further notice be
released from all of its obligations hereunder.
Section 5.03. Limitation on Liability of Seller and Others. The Seller
and any director, officer, employee or agent of the Seller may rely in good
faith on the advice of counsel or on any document of any kind, prima facie
properly executed and submitted by any Person, respecting any matters arising
hereunder.
ARTICLE VI. MISCELLANEOUS PROVISIONS
Section 6.01. Amendment. This Agreement may be amended by the Seller
and the Note Issuer, with ten Business Days' prior written notice given to the
Rating Agencies and the prior written consent of the Note Trustee, but without
the consent of any of the Noteholders, to cure any ambiguity, to correct or
supplement any provisions in this Agreement or for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions in
this Agreement or of modifying in any manner the rights of the Noteholders;
provided, however, that such action shall not, as evidenced by an Officer's
Certificate delivered to the Note Issuer and the Note Trustee, adversely affect
in any material respect the interests of any Noteholder.
This Agreement may also be amended from time to time by the Seller and
the Note Issuer, with ten Business Days' prior written notice given to the
Rating Agencies and the prior written consent of the Note Trustee and the prior
written consent of the Holders of Notes evidencing not less than a majority of
the Outstanding Amount of the Notes affected thereby, for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Agreement or of modifying in any manner the rights of the Noteholders.
It shall not be necessary for the consent of Noteholders pursuant to
this Section to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof.
Prior to the execution of any amendment to this Agreement, the Note
Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating
that the execution of such amendment is authorized or permitted by this
Agreement. The Note Trustee may, but shall not be obligated to, enter into any
such amendment which affects the Note Trustee's own rights, duties or immunities
under this Agreement or otherwise.
-17-
<PAGE> 21
Section 6.02. Notices. Unless otherwise specifically provided herein,
all notices, directions, consents and waivers required under the terms and
provisions of this Agreement shall be in English and in writing, and any such
notice, direction, consent or waiver may be given by United States mail, courier
service, facsimile transmission or electronic mail (confirmed by telephone,
United States mail or courier service in the case of notice by facsimile
transmission or electronic mail) or any other customary means of communication,
and any such notice, direction, consent or waiver shall be effective when
delivered, or if mailed, three days after deposit in the United States mail with
proper postage for ordinary mail prepaid:
(a) if to the Seller, to
Boston Edison Company
800 Boylston Street
Boston, MA 02199
Attention: Manager, Corporate Finance
Facsimile: (617) 424-3204
Telephone: (617) 424-2000
(b) if to the Note Issuer, to
BEC Funding LLC
800 Boylston Street, 35th Floor
Boston, MA 02199
Attention: President
Facsimile: (617) 424-2605
Telephone: (617) 369-6000
(c) if to the Note Trustee, to
The Bank of New York
101 Barclay Street, Floor 12 East
New York, NY 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
(d) if to Moody's, to
Moody's Investors Service, Inc.
99 Church Street
-18-
<PAGE> 22
New York, NY 10007
Attention: ABS Monitoring Department
Facsimile: (212) 553-0573
Telephone: (212) 553-3686
(e) if to S&P, to
Standard & Poor's
55 Water Street, 40th Floor
New York, NY 10041
Attention: Asset Backed Surveillance Department
Facsimile: (212) 438-2655
Telephone: (212) 438-2000
(f) if to Fitch IBCA, to
Fitch IBCA, Inc.
One State Street Plaza
New York, NY 10004
Attention: ABS Surveillance
Facsimile: (212) 908-0355
Telephone: (212) 908-0500
(g) if to Duff & Phelps, to
Duff & Phelps Credit Rating Co.
17 State Street, 12th Floor
New York, NY 10004
Attention: Asset-Backed Monitoring Group
Facsimile: (212) 908-0222
Telephone: (212) 908-0200
(h) if to the Agencies, to:
Massachusetts Development Finance Agency
75 Federal Street
Boston, MA 02110
Attention: General Counsel
Facsimile: (617) 727-8741
-19-
<PAGE> 23
Telephone: (617) 451-2477
and
Massachusetts Health and Educational Facilities Authority
99 Summer Street, 10th Floor
Boston, MA 02110
Attention: General Counsel
Facsimile: (617) 737-8366
Telephone: (617) 737-8377
(i) if to the Certificate Issuer, to:
The Bank of New York (Delaware), as Delaware Trustee for
Massachusetts RRB Special Purpose Trust BEC-1
c/o The Bank of New York
101 Barclay Street, Floor 12 East
New York, NY 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
(with copies to the Agencies at the addresses listed herein)
(j) as to each of the foregoing, at such other address as shall be
designated by written notice to the other parties.
Section 6.03. Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Section 5.02, this Agreement may not be
assigned by the Seller.
Section 6.04. Limitations on Rights of Third Parties. The provisions of
this Agreement are solely for the benefit of the Seller, the Note Issuer, the
Noteholders, the Certificateholders, the Note Trustee, the Certificate Trustee,
the Delaware Trustee, the Agencies, the Certificate Issuer and the other Persons
expressly referred to herein, and such Persons shall have the right to enforce
the relevant provisions of this Agreement, except that the Noteholders and the
Certificateholders shall be entitled to enforce their rights against the Seller
under this Agreement solely through a cause of action brought for their benefit
by the Note Trustee or the Certificate Trustee, as the case may be. Nothing in
this Agreement, whether express or implied, shall be construed to give to any
other Person any legal or equitable right, remedy or claim in the Transition
Property or under or in respect of this Agreement or any covenants, conditions
or provisions contained herein.
-20-
<PAGE> 24
Section 6.05. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 6.06. Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 6.07. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
Section 6.08. Governing Law. This Agreement shall be construed in
accordance with the laws of The Commonwealth of Massachusetts, without reference
to its conflict of law provisions, and the obligations, rights and remedies of
the parties hereunder shall be determined in accordance with such laws.
Section 6.09. Assignment to Note Trustee. The Seller hereby
acknowledges and consents to any mortgage, pledge, assignment and grant of a
security interest by the Note Issuer to the Note Trustee pursuant to the Note
Indenture for the benefit of the Noteholders of all right, title and interest of
the Note Issuer in, to and under the Transition Property and the proceeds
thereof and the assignment of any or all of the Note Issuer's rights and
obligations hereunder to the Note Trustee.
-21-
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have caused this Transition
Property Purchase and Sale Agreement to be duly executed by their respective
officers as of the day and year first above written.
BEC FUNDING LLC,
Note Issuer
By: /s/ Emilie G. O'Neil
-------------------------------------
Name: Emilie G. O'Neil
Title: Vice President and Treasurer
BOSTON EDISON COMPANY,
Seller
By: /s/ R. J. Weafer, Jr.
-------------------------------------
Name: Robert J. Weafer, Jr.
Title: Vice President - Finance and
Controller
S-1
<PAGE> 1
Execution Copy
BEC FUNDING LLC,
as Note Issuer
and
BOSTON EDISON COMPANY,
as Servicer
TRANSITION PROPERTY SERVICING AGREEMENT
Dated as of July 29, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. DEFINITIONS...........................................................................................1
Section 1.01 Definitions...................................................................1
Section 1.02 Other Definitional Provisions.................................................6
ARTICLE II. APPOINTMENT AND AUTHORIZATION........................................................................7
Section 2.01 Appointment of Servicer; Acceptance of Appointment............................7
Section 2.02 Authorization.................................................................7
Section 2.03 Dominion and Control Over the Transition Property.............................7
ARTICLE III. BILLING SERVICES....................................................................................8
Section 3.01 Duties of Servicer............................................................8
Section 3.02 Servicing and Maintenance Standards...........................................9
Section 3.03 Certificate of Compliance.....................................................9
Section 3.04 Annual Report by Independent Public Accountants..............................10
ARTICLE IV. SERVICES RELATED TO PERIODIC ADJUSTMENTS;
REMITTANCES AND RECONCILIATIONS....................................................................10
Section 4.01 Periodic Adjustments.........................................................10
Section 4.02 Limitation of Liability......................................................12
Section 4.03 Remittances; Reconciliations.................................................13
ARTICLE V. THE TRANSITION PROPERTY..............................................................................14
Section 5.01 Custody of Transition Property Records.......................................14
Section 5.02 Duties of Servicer as Custodian..............................................14
Section 5.03 Instructions; Authority to Act...............................................15
Section 5.04 Effective Period and Termination.............................................16
Section 5.05 Monitoring of Third-Party Suppliers..........................................16
Section 5.06 Monitoring and Collecting Exit Charges.......................................16
ARTICLE VI. THE SERVICER........................................................................................16
Section 6.01 Representations and Warranties of Servicer...................................16
Section 6.02 Indemnities of Servicer......................................................18
Section 6.03 Limitation on Liability of Servicer and Others...............................20
Section 6.04 Merger or Consolidation of, or Assumption of the Obligations of,
Servicer.......................................................................................20
Section 6.05 Boston Edison Company Not to Resign as Servicer..............................21
Section 6.06 Servicing Compensation.......................................................21
Section 6.07 Compliance with Applicable Law...............................................22
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Section 6.08 Access to Certain Records and Information Regarding Transition
Property.......................................................................................22
Section 6.09 Appointments.................................................................22
Section 6.10 No Servicer Advances.........................................................23
Section 6.11 Maintenance of Operations....................................................23
ARTICLE VII. DEFAULT............................................................................................23
Section 7.01 Servicer Default.............................................................23
Section 7.02 Appointment of Successor.....................................................24
Section 7.03 Waiver of Past Defaults......................................................25
Section 7.04 Notice of Servicer Default...................................................25
ARTICLE VIII. MISCELLANEOUS PROVISIONS..........................................................................25
Section 8.01 Amendment....................................................................26
Section 8.02 Maintenance of Accounts and Records..........................................26
Section 8.03 Notices......................................................................27
Section 8.04 Assignment...................................................................29
Section 8.05 Limitations on Rights of Third Parties.......................................29
Section 8.06 Severability.................................................................29
Section 8.07 Separate Counterparts........................................................30
Section 8.08 Headings.....................................................................30
Section 8.09 Governing Law................................................................30
Section 8.10 Assignment to Note Trustee...................................................30
Section 8.11 Nonpetition Covenants........................................................30
</TABLE>
ii
<PAGE> 4
EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Exhibit A Form of Certificate of Compliance
Exhibit B Form of Routine True-Up Letter
Exhibit C Form of Monthly Servicer Certificate
Exhibit D Form of Semiannual Servicer Certificate
Exhibit E Form of Annual Reconciliation
Schedule 4.01(a) Expected Amortization Schedule
ANNEXES
Annex I Servicing Procedures
Schedule A to Annex I Additional Servicing Procedures Applicable to TPSs
</TABLE>
-iii-
<PAGE> 5
This TRANSITION PROPERTY SERVICING AGREEMENT, dated as of July 29,
1999, is between BEC Funding LLC, a Delaware limited liability company (the
"Note Issuer"), and Boston Edison Company, a Massachusetts corporation.
RECITALS
WHEREAS, pursuant to the Statute and the Financing Order, the Seller
and the Note Issuer are concurrently entering into the Sale Agreement pursuant
to which the Seller is selling to the Note Issuer the Transition Property
created pursuant to the Statute and the Financing Order.
WHEREAS, in connection with its ownership of the Transition Property
and in order to collect the RTC Charge, the Note Issuer desires to engage the
Servicer to carry out the functions described herein. The Servicer currently
performs similar functions for itself with respect to its own charges to its
customers and for others. In addition, the Note Issuer desires to engage the
Servicer to act on its behalf in obtaining Periodic Adjustments from the DTE.
The Servicer desires to perform all of these activities on behalf of the Note
Issuer.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS
Section 1.01 Definitions. Whenever used in this Agreement, the
following words and phrases shall have the following meanings:
"Advice Letter" means any filing made with the DTE by the Servicer on
behalf of the Note Issuer to set or adjust the RTC Charge, including the
Issuance Advice Letter, a Routine Anniversary True-Up Letter, a Routine True-Up
Letter or a Non-Routine True-Up Letter.
"Agreement" means this Transition Property Servicing Agreement,
together with all Exhibits, Schedules and Annexes hereto, as the same may be
amended and supplemented from time to time.
"Annual Accountant's Report" has the meaning set forth in Section 3.04.
"Applicable TPS" means, with respect to each Customer, the TPS, if any,
billing the RTC Charge to that Customer.
"Bills" means each of the regular monthly bills, summary bills and
other bills issued to Customers or TPSs by Boston Edison Company on its own
behalf and in its capacity as Servicer.
"Certificate of Compliance" has the meaning set forth in Section 3.03.
1
<PAGE> 6
"Closing Date" means July 29, 1999.
"Customers" means all classes of retail users of the Seller's
distribution system within its geographic service territory as in effect on July
1, 1997.
"Declaration of Trust" means the Declaration of Trust dated as of July
28, 1999 by The Bank of New York (Delaware), a Delaware banking corporation, as
Delaware Trustee, the Massachusetts Development Finance Agency and the
Massachusetts Health and Educational Facilities Authority, as the same may be
amended and supplemented from time to time.
"Deemed RTC Charge Payments" means the payments in respect of the RTC
Charge, which are deemed to have been received by the Servicer, directly or
indirectly (including through a TPS), from or on behalf of Customers, calculated
in accordance with Annex I hereto.
"DTE" means the Massachusetts Department of Telecommunications and
Energy and any successor thereto.
"DTE Regulations" means all regulations, rules, tariffs and laws
applicable to public utilities or TPSs, as the case may be, and promulgated by,
enforced by or otherwise within the jurisdiction of the DTE.
"Estimated RTC Charge Payments" means the estimated payments in respect
of the RTC Charge, which are deemed to have been received by the Servicer,
directly or indirectly (including through a TPS), from or on behalf of
Customers, calculated in accordance with Annex I hereto.
"Expected Amortization Schedule" means Schedule 4.01(a) hereto.
"Financing Order" means the order of the DTE, DTE-98-118, issued on
April 2, 1999, as further clarified by the Order on the Massachusetts
Development Finance Agency's and Massachusetts Health and Educational Facilities
Authority's Motion for Clarification dated May 21, 1999.
"Financing Order Anniversary Date" means April 2 of each year.
"Insolvency Event" means, with respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable Federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or ordering the
winding-up or liquidation of such Person's affairs, and such decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; or (b)
the commencement by such Person of a voluntary case under any applicable Federal
or state bankruptcy, insolvency or other similar law now or hereafter in effect,
or the consent by
2
<PAGE> 7
such Person to the entry of an order for relief in an involuntary case under any
such law, or the consent by such Person to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for such Person or for any substantial part of its property,
or the making by such Person of any general assignment for the benefit of
creditors, or the failure by such Person generally to pay its debts as such
debts become due.
"Issuance Advice Letter" means the initial Issuance Advice Letter,
dated July 28, 1999, filed with the DTE pursuant to the Financing Order.
"Lien" means a security interest, lien, charge, pledge or encumbrance
of any kind.
"Losses" has the meaning assigned to that term in Section 6.02(b).
"Monthly Servicer Certificate" has the meaning assigned to that term in
Section 4.01(d)(ii).
"Non-Routine Periodic Adjustment" has the meaning set forth in Section
4.01(c)(i).
"Non-Routine True-Up Letter" means an Advice Letter filed with the DTE
in accordance with the Financing Order with respect to any Non-Routine Periodic
Adjustment, pursuant to which the related Non-Routine Periodic Adjustment will
become effective within 60 days after filing of the Non-Routine True-Up Letter,
subject to the review and approval of the DTE.
"Note Indenture" means the Note Indenture dated as of July 29, 1999,
between the Note Issuer and the Note Trustee, as the same may be amended and
supplemented from time to time.
"Note Issuer" has the meaning set forth in the preamble to this
Agreement.
"Officer's Certificate" means a certificate of the Servicer signed by a
Responsible Officer.
"Opinion of Counsel" means one or more written opinions of counsel who
may be an employee of or counsel to the party providing such opinion(s) of
counsel, which counsel shall be reasonably acceptable to the party receiving
such opinion(s) of counsel.
"Periodic Adjustment" means each adjustment to the RTC Charge made
pursuant to the terms of the Financing Order and in accordance with Section 4.01
hereof.
"Principal Balance" means, as of any Payment Date, the sum of the
outstanding principal amount of the Notes.
3
<PAGE> 8
"Projected Principal Balance" means, as of any Payment Date, the sum of
the projected outstanding principal amount of the Notes for such Payment Date
set forth in the Expected Amortization Schedule.
"Reconciliation Period" means the twelve-month period commencing on
January 1 of each year and ending on December 31 of each year; provided,
however, that the initial Reconciliation Period shall commence on the Closing
Date and end on December 31, 1999.
"Remittance" means each remittance hereunder of Estimated RTC Charge
Payments by the Servicer to the Note Trustee.
"Remittance Date" means each Servicer Business Day on which a
Remittance is to be made by the Servicer pursuant to Section 4.03.
"Remittance Excess" means the amount, if any, calculated for a
particular Reconciliation Period, by which all RTC Charge Collections during
such Reconciliation Period exceed Deemed RTC Charge Payments during such
Reconciliation Period.
"Remittance Period" means the twelve-month period commencing on March 1
of each year and ending on the last day of February of each year; provided,
however, that the initial Remittance Period shall commence on the Closing Date
and end on February 29, 2000.
"Remittance Shortfall" means the amount, if any, calculated for a
particular Reconciliation Period, by which Deemed RTC Charge Payments during
such Reconciliation Period exceed RTC Charge Collections during such
Reconciliation Period.
"Required Debt Service" means, for any Remittance Period, the total
dollar amount calculated by the Servicer in accordance with Section 4.01(b)(i)
as necessary to be remitted to the Collection Account during such Remittance
Period (after giving effect to (a) the allocation and distribution of amounts on
deposit in the Reserve Subaccount at the time of calculation and which are
available for payments on the Notes, (b) any shortfalls in Required Debt Service
for any prior Remittance Period, (c) the required payment or credit of any
Remittance Excess or Remittance Shortfall during such Remittance Period and (d)
any Remittances based upon the RTC Charge in effect in the prior Remittance
Period that are expected to be realized in such Remittance Period) in order to
ensure that, as of the Payment Date immediately following the end of such
period, (i) all accrued and unpaid interest on the Notes then due shall have
been paid in full, (ii) the Principal Balance of the Notes is equal to the
Projected Principal Balance of the Notes for that Payment Date, (iii) the
balance on deposit in the Capital Subaccount equals the aggregate Required
Capital Level, (iv) the balance on deposit in the Overcollateralization
Subaccount equals the aggregate Required Overcollateralization Level and (v) all
other fees, expenses and indemnities due and owing and required or allowed to be
paid under Section 8.02 of the Note Indenture as of such date shall have been
paid in full; provided, however, that, with respect to any Periodic Adjustment
occurring after the last Scheduled Maturity Date for any
4
<PAGE> 9
Notes, the Required Debt Service shall be calculated to ensure that sufficient
amounts will be collected to retire such Notes in full as of the earlier of (x)
the next Payment Date and (y) the Final Maturity Date for such Notes.
"Responsible Officer" means the chief executive officer, the president,
the vice chairman of the board, any vice president, the treasurer, any assistant
treasurer, the clerk, any assistant clerk, the controller or the finance manager
of the Servicer.
"Retirement of the Notes" means the day on which the final payment is
made to the Note Trustee in respect of the last outstanding Note.
"Routine Anniversary True-Up Letter" means a Routine True-Up Letter
filed with the DTE prior to the Financing Order Anniversary Date in respect of
an annual Periodic Adjustment. The Routine Anniversary True-Up Letter will
become effective on the first calendar day of the next succeeding calendar month
after filing, or such date as may be specified in such Routine Anniversary
True-Up Letter, so long as such effective date is at least 15 days after the
filing of such Routine Anniversary True-Up Letter.
"Routine True-Up Letter" means an Advice Letter filed with the DTE in
respect of a Periodic Adjustment, substantially in the form of Exhibit B hereto.
The Routine True-Up Letter will become effective on the first calendar day of
the next succeeding calendar month after filing, or such date as may be
specified in such Routine True-Up Letter, so long as such effective date is at
least 15 days after the filing of such Routine True-Up Letter.
"RTC Charge" means the portion (which may become all) of the Seller's
Transition Charge designated pursuant to the Financing Order as the RTC Charge,
as the same may be adjusted from time to time as provided in the Financing
Order.
"RTC Charge Collections" means the Estimated RTC Charge Payments
remitted to the Collection Account.
"Sale Agreement" means the Transition Property Sale Agreement dated as
of July 29, 1999, between Boston Edison Company, as Seller, and the Note Issuer,
as the same may be amended and supplemented from time to time.
"Seller" means Boston Edison Company, a Massachusetts corporation, and
its permitted successors and assigns under the Sale Agreement.
"Semiannual Servicer Certificate" has the meaning assigned to that term
in Section 4.01(d)(iii).
"Servicer" means Boston Edison Company, as the servicer of the
Transition Property, or each successor (in the same capacity) pursuant to
Section 6.04 or 7.02.
5
<PAGE> 10
"Servicer Business Day" means any Business Day on which the Servicer's
offices in The Commonwealth of Massachusetts are open for business.
"Servicer Default" means an event specified in Section 7.01.
"Servicing Fee" has the meaning set forth in Section 6.06(a).
"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.
"Termination Notice" has the meaning assigned to that term in Section
7.01.
"TPS" means a third party supplier of energy who has entered into a TPS
Service Agreement with the Servicer.
"TPS Service Agreement" means an agreement between a third party
supplier of energy and the Servicer pursuant to which such third party supplier
of energy bills and collects the RTC Charge to and from Customers in accordance
with DTE Regulations, the Financing Order and the guidelines described in
Schedule A to Annex I.
"Transition Charge" means the "access charge" as defined in Boston
Edison Company's Restructuring Settlement Agreement, D.P.U. Docket Nos. 96-100
and 96-23 and subsequent filings with the DTE pursuant thereto.
"Transition Property" means the transition property that exists under
Order 7 of the Financing Order and is sold by the Seller to the Note Issuer
under the Sale Agreement.
"Transition Property Records" has the meaning assigned to that term in
Section 5.01.
"Weighted Average Days Outstanding" means the weighted average number
of days Boston Edison Company's monthly retail customer bills remain outstanding
during the calendar year immediately preceding the calculation thereof pursuant
to Section 4.01(b)(i). For all purposes of this Agreement, the calculation of
Weighted Average Days Outstanding pursuant to Section 4.01(b)(i) shall become
effective on April 1 of each year. The initial Weighted Average Days Outstanding
shall be 45 days until updated pursuant to Section 4.01(b)(i) of this Agreement.
Section 1.02 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined
herein have the meanings assigned to them in the Note Indenture.
6
<PAGE> 11
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein.
(c) The words "hereof," "herein," "hereunder" and words of
similar import, when used in this Agreement, shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement; Section, Schedule, Exhibit and Annex references contained in
this Agreement are references to Sections, Schedules, Exhibits and
Annexes in or to this Agreement unless otherwise specified; and the
term "including" shall mean "including without limitation."
(d) The definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter forms of such terms.
ARTICLE II. APPOINTMENT AND AUTHORIZATION
Section 2.01 Appointment of Servicer; Acceptance of Appointment.
Subject to Section 6.05 and Article 7, the Note Issuer hereby appoints the
Servicer, and the Servicer hereby accepts such appointment, to perform the
Servicer's obligations pursuant to this Agreement on behalf of and for the
benefit of the Note Issuer or any assignee thereof in accordance with the terms
of this Agreement and applicable law. This appointment and the Servicer's
acceptance thereof may not be revoked except in accordance with the express
terms of this Agreement.
Section 2.02 Authorization. With respect to all or any portion of the
Transition Property, the Servicer shall be, and hereby is, authorized and
empowered by the Note Issuer to (a) execute and deliver, on behalf of itself
and/or the Note Issuer, as the case may be, any and all instruments, documents
or notices, and (b) on behalf of itself and/or the Note Issuer, as the case may
be, make any filing and participate in proceedings of any kind with any
governmental authorities, including with the DTE. The Note Issuer shall execute
and/or furnish the Servicer with such documents as have been prepared by the
Servicer for execution by the Note Issuer, and with such other documents as may
be in the Note Issuer's possession, as the Servicer may determine to be
necessary or appropriate to enable it to carry out its servicing and
administrative duties hereunder. Upon the Servicer's written request, the Note
Issuer shall furnish the Servicer with any powers of attorney or other documents
necessary or appropriate to enable the Servicer to carry out its duties
hereunder.
Section 2.03 Dominion and Control Over the Transition Property.
Notwithstanding any other provision herein, the Note Issuer shall have dominion
and control over the Transition Property, and the Servicer, in accordance with
the terms hereof, is acting solely as the servicing agent and custodian for the
Note Issuer with respect to the Transition Property and the Transition Property
Records. The Servicer shall not take any action that is not authorized by this
7
<PAGE> 12
Agreement or that shall impair the rights of the Note Issuer in the Transition
Property, in each case unless such action is required by applicable law.
ARTICLE III. BILLING SERVICES
Section 3.01 Duties of Servicer. The Servicer, as agent for the Note
Issuer, shall have the following duties:
(a) Duties of Servicer Generally.
(i) General Duties. The Servicer's duties in general
shall include management, servicing and administration of the
Transition Property; obtaining meter reads, calculating
electricity usage (including usage by Customers of any TPS),
billing, collection and posting of all payments in respect of
the Transition Property; responding to inquiries by Customers,
the DTE, or any federal, local or other state governmental
authorities with respect to the Transition Property;
delivering Bills to Customers and TPSs, investigating and
handling delinquencies, processing and depositing collections
and making periodic remittances; furnishing periodic reports
to the Note Issuer, the Note Trustee, the Certificate Trustee
and the Rating Agencies; and taking all necessary action in
connection with Periodic Adjustments as set forth herein.
Certain of the duties set forth above may be performed by TPSs
pursuant to TPS Service Agreements. Without limiting the
generality of this Section 3.01(a)(i), in furtherance of the
foregoing, the Servicer hereby agrees that it shall also have,
and shall comply with, the duties and responsibilities
relating to data acquisition, usage and bill calculation,
billing, customer service functions, collection, payment
processing and remittance set forth in Annex I hereto.
(ii) DTE Regulations Control. Notwithstanding
anything to the contrary in this Agreement, the duties of the
Servicer set forth in this Agreement shall be qualified in
their entirety by any DTE Regulations as in effect at the time
such duties are to be performed.
(b) Reporting Functions.
(i) Annual Reconciliation Report. The Servicer shall
deliver an annual written reconciliation report substantially
in the form of Exhibit E hereto as required by Section 4.03(b)
hereof.
(ii) Notification of Laws and Regulations. The
Servicer shall promptly notify the Note Issuer, the Note
Trustee, the Certificate Trustee and the Rating Agencies in
writing of any laws or DTE Regulations hereafter promulgated
that
8
<PAGE> 13
have a material adverse effect on the Servicer's ability to
perform its duties under this Agreement.
(iii) Other Information. Upon the reasonable request
of the Note Issuer, the Note Trustee, the Certificate Trustee,
or any Rating Agency, the Servicer shall provide to such Note
Issuer, Note Trustee, Certificate Trustee, or the Rating
Agencies, as the case may be, any public financial information
in respect of the Servicer, or any material information
regarding the Transition Property to the extent it is
reasonably available to the Servicer, as may be reasonably
necessary and permitted by law for the Note Issuer, the Note
Trustee, the Certificate Trustee, or the Rating Agencies to
monitor the Servicer's performance hereunder.
(iv) Preparation of Reports to be Filed with the SEC.
The Servicer shall prepare any reports required to be filed by
the Note Issuer or the Certificate Issuer under the securities
laws, including a copy of each Semiannual Servicer Certificate
described in Section 4.01(d)(iii), the annual Certificate of
Compliance described in Section 3.03 and the Annual
Accountant's Report described in Section 3.04.
Section 3.02 Servicing and Maintenance Standards. On behalf of the Note
Issuer, the Servicer shall (a) manage, service, administer and make collections
in respect of the Transition Property with reasonable care and in accordance
with applicable law, including all applicable DTE Regulations and guidelines,
using the same degree of care and diligence that the Servicer exercises with
respect to similar assets for its own account and, if applicable, for others;
(b) follow customary standards, policies and procedures for the industry in
performing its duties as Servicer; (c) use all reasonable efforts, consistent
with its customary servicing procedures, to bill and collect the RTC Charge; (d)
file Uniform Commercial Code continuation statements to maintain the perfected
security interest of the Note Trustee in the Transition Property and (e) comply
in all material respects with all laws and regulations applicable to and binding
on it relating to the Transition Property. The Servicer shall follow such
customary and usual practices and procedures as it shall deem necessary or
advisable in its servicing of all or any portion of the Transition Property,
which, in the Servicer's judgment, may include the taking of legal action, at
the Note Issuer's expense.
Section 3.03 Certificate of Compliance. The Servicer shall deliver to
the Note Issuer, the Note Trustee, the Certificate Trustee and the Rating
Agencies on or before March 31 of each year, commencing March 31, 2000 to and
including the March 31 succeeding the Retirement of the Notes, an Officer's
Certificate substantially in the form of Exhibit A hereto (a "Certificate of
Compliance"), stating that: (i) a review of the activities of the Servicer
during the twelve months ended the preceding December 31 (or, in the case of the
first Certificate of Compliance to be delivered on or before March 31, 2000, the
period of time from the date of this Agreement until December 31, 1999) and of
its performance under this Agreement has been made under such Responsible
Officer's supervision, and (ii) to such Responsible Officer's knowledge, based
on
9
<PAGE> 14
such review, the Servicer has fulfilled all of its material obligations in all
material respects under this Agreement throughout such twelve months (or, in the
case of the Certificate of Compliance to be delivered on or before March 31,
2000, the period of time from the date of this Agreement until December 31,
1999), or, if there has been a default in the fulfillment of any such material
obligation, specifying each such material default known to such Responsible
Officer and the nature and status thereof.
Section 3.04 Annual Report by Independent Public Accountants.
(a) The Servicer, at the Note Issuer's expense, shall cause a
firm of independent certified public accountants (which may provide
other services to the Servicer) to prepare, and the Servicer shall
deliver to the Note Issuer, the Note Trustee, the Certificate Trustee
and the Rating Agencies, a report addressed to the Servicer (the
"Annual Accountant's Report"), which may be included as part of the
Servicer's customary auditing activities, for the information and use
of the Note Issuer, the Note Trustee, the Certificate Trustee and the
Rating Agencies, on or before March 31 each year, beginning March 31,
2000 to and including the March 31 succeeding the Retirement of the
Notes, to the effect that such firm has performed certain procedures,
agreed between the Servicer and such accountants, in connection with
the Servicer's compliance with its obligations under this Agreement
during the preceding twelve months ended December 31 (or, in the case
of the first Annual Accountant's Report to be delivered on or before
March 31, 2000, the period of time from the date of this Agreement
until December 31, 1999), identifying the results of such procedures
and including any exceptions noted.
(b) The Annual Accountant's Report shall also indicate that
the accounting firm providing such report is independent of the
Servicer within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountants.
ARTICLE IV. SERVICES RELATED TO PERIODIC ADJUSTMENTS;
REMITTANCES AND RECONCILIATIONS
Section 4.01 Periodic Adjustments. From time to time, until the
Retirement of the Notes, the Servicer shall identify the need for Periodic
Adjustments and shall take all reasonable action to obtain and implement such
Periodic Adjustments, all in accordance with the following:
(a) Expected Amortization Schedule. The Expected Amortization
Schedule is attached hereto as Schedule 4.01(a).
(b) Routine Periodic Adjustments and Yearly Filings.
10
<PAGE> 15
(i) Routine Anniversary Periodic Adjustments and
Filings. For the purpose of preparing a Routine Anniversary
True-Up Letter, the Servicer shall: (A) update the assumptions
underlying the calculation of the RTC Charge, including energy
usage volume, the rate of charge-offs and estimated expenses
and fees of the Note Issuer and the Certificate Issuer to the
extent not fixed, in each case for the Remittance Period
beginning on March 1 of such year; (B) update the calculation
of Weighted Average Days Outstanding; (C) determine the
Required Debt Service for such Remittance Period based upon
such updated assumptions; and (D) determine the RTC Charge to
be charged during such Remittance Period based upon such
Required Debt Service. The Servicer shall file a Routine
Anniversary True-Up Letter with the DTE no later than March 15
of each year.
(ii) Routine Periodic Adjustments. The Servicer shall
file a Routine True-Up Letter at least 15 days before the end
of any calendar quarter or Payment Date at such times as it
may reasonably determine to meet the Required Debt Service for
the then current Remittance Period.
(iii) The Servicer shall take all reasonable actions
and make all reasonable efforts to secure any Periodic
Adjustments.
(c) Non-Routine Periodic Adjustments.
(i) Whenever the Servicer determines that the
existing model for calculating the RTC Charge should be
amended or revised, subject to the consent of the Note Issuer
under the conditions set forth in Section 3.18 of the Note
Indenture, the Servicer shall file a Non-Routine True-Up
Letter with the DTE designating the adjustments to such model
and any corresponding adjustments to the RTC Charge
(collectively, a "Non-Routine Periodic Adjustment"), subject
to the review and approval of the DTE pursuant to the
Financing Order.
(ii) The Servicer shall take all reasonable actions
and make all reasonable efforts to secure any Non-Routine
Periodic Adjustments.
(iii) The Servicer shall implement any resulting
adjustments to the model and any resulting revised RTC Charge
as of the effective date of the Non- Routine True-Up Letter.
(d) Reports.
(i) Notification of Advice Letter Filings and
Periodic Adjustments. Whenever the Servicer files an Advice
Letter with the DTE, the Servicer shall send a copy of such
filing to the Note Issuer, the Note Trustee, the Certificate
11
<PAGE> 16
Trustee and the Rating Agencies concurrently therewith. If any
Periodic Adjustment requested in any such Advice Letter filing
does not become effective on the applicable date as provided
by the Financing Order, the Servicer shall notify the Note
Issuer, the Note Trustee, the Certificate Trustee and the
Rating Agencies by the end of the second Servicer Business Day
after such applicable date.
(ii) Monthly Servicer Certificate. So long as any
Notes are outstanding, not later than fifteen (15) days after
the end of each month after the Certificates are issued
(excluding July, 1999), or if such day is not a Servicer
Business Day, the next succeeding Servicer Business Day, the
Servicer shall deliver a written report substantially in the
form of Exhibit C hereto (the "Monthly Servicer Certificate")
to the Note Issuer, the Note Trustee, the Certificate Trustee
and the Rating Agencies.
(iii) Semiannual Servicer Certificate. So long as any
Notes are outstanding, not later than the Servicer Business
Day immediately preceding each Payment Date, the Servicer
shall deliver a written report substantially in the form of
Exhibit D hereto (the "Semiannual Servicer Certificate") to
the Note Issuer, the Note Trustee, the Certificate Trustee and
the Rating Agencies.
(iv) TPS Reports. The Servicer shall provide to the
Rating Agencies, upon request, any publicly available reports
filed by the Servicer with the DTE (or otherwise made publicly
available by the Servicer) relating to TPSs and any other
non-confidential and non-proprietary information relating to
TPSs reasonably requested by the Rating Agencies.
Section 4.02 Limitation of Liability.
(a) The Note Issuer and the Servicer expressly agree and
acknowledge that:
(i) In connection with any Periodic Adjustment, the
Servicer is acting solely in its capacity as the servicing
agent hereunder.
(ii) Neither the Servicer nor the Note Issuer shall
be responsible in any manner for, and shall have no liability
whatsoever as a result of, any action, decision, ruling or
other determination made or not made, or any delay (other than
any delay resulting from the Servicer's failure to file the
applications required by Section 4.01 in a timely and correct
manner or other material breach by the Servicer of its duties
under this Agreement that materially and adversely affects the
Periodic Adjustments), by the DTE in any way related to the
Transition Property or in connection with any Periodic
Adjustment or Non-Routine Periodic Adjustment, the subject of
any filings under Section 4.01, any proposed Periodic
12
<PAGE> 17
Adjustment or Non-Routine Periodic Adjustment, or the approval
of the RTC Charge and the adjustments thereto.
(iii) The Servicer shall have no liability whatsoever
relating to the calculation of the RTC Charge and the
adjustments thereto (including any Non- Routine Periodic
Adjustment), including as a result of any inaccuracy of any of
the assumptions made in such calculation regarding expected
energy usage volume, the rate of charge-offs, estimated
expenses and fees of the Note Issuer and the Certificate
Issuer, so long as the Servicer has not acted in a grossly
negligent manner in connection therewith, nor shall the
Servicer have any liability whatsoever as a result of any
Person, including the Noteholders or the Certificateholders,
not receiving any payment, amount or return anticipated or
expected in respect of any Note or Certificate generally,
except only to the extent that the Servicer is liable under
Section 6.02 of this Agreement.
(b) Notwithstanding the foregoing, this Section 4.02 shall not
relieve the Servicer of any liability under Section 6.02 for any
misrepresentation by the Servicer under Section 6.01 or for any breach
by the Servicer of its obligations under this Agreement.
Section 4.03 Remittances; Reconciliations.
(a) Subject to Section 4.03(b) below, on each Servicer
Business Day commencing 45 days after the date of this Agreement, the
Servicer shall cause to be made within two (2) Servicer Business Days
of deemed receipt a wire transfer of immediately available funds to the
General Subaccount of the Collection Account in an amount equal to the
Estimated RTC Charge Payments (as calculated in accordance with Annex I
hereto) received on such day and on any prior day that was not a
Servicer Business Day for which a Remittance has not previously been
made (taking into account the Weighted Average Days Outstanding in
effect from time to time). Prior to or simultaneous with each
Remittance to the General Subaccount of the Collection Account pursuant
to this Section, the Servicer shall provide written notice to the Note
Trustee of each such Remittance (including the exact dollar amount to
be remitted).
(b) On or before each March 1, the Servicer shall calculate
the amount of any Remittance Shortfall or Remittance Excess
attributable to the prior Reconciliation Period and (A) if a Remittance
Shortfall exists, the Servicer shall make a supplemental wire transfer
of immediately available funds to the General Subaccount of the
Collection Account on the next Servicer Business Day following such
calculation in the amount of such Remittance Shortfall, or (B) if a
Remittance Excess exists, the Servicer may elect to either reduce the
amount of Remittances to be made to the Note Issuer on succeeding
Servicer Business Days or receive a payment or payments on succeeding
Payment Dates from the Note Issuer equal to the amount of such
Remittance Excess until the balance of
13
<PAGE> 18
the Remittance Excess has been reduced to zero. The Servicer shall
deliver a written report setting forth in reasonable detail the
calculation of any Remittance Excess or Remittance Shortfall to the
Note Issuer, the Note Trustee, the Certificate Trustee and the Rating
Agencies.
(c) The Servicer agrees and acknowledges that it will remit
Estimated RTC Charge Payments in accordance with this Section 4.03
without any surcharge, fee, offset, charge or other deduction except
(i) as set forth in Section 4.03(b) above and (ii) for late fees
permitted by Section 6.06.
ARTICLE V. THE TRANSITION PROPERTY
Section 5.01 Custody of Transition Property Records. To assure uniform
quality in servicing the Transition Property and to reduce administrative costs,
the Note Issuer hereby revocably appoints the Servicer, and the Servicer hereby
accepts such appointment, to act as the agent of the Note Issuer and the Note
Trustee as custodian of any and all documents and records that the Servicer
shall keep on file, in accordance with its customary procedures, relating to the
Transition Property, including copies of the Financing Order and Advice Letters
relating thereto and all documents filed with the DTE in connection with any
Periodic Adjustment or Non- Routine Periodic Adjustment and computational
records relating thereto (collectively, the "Transition Property Records"),
which are hereby constructively delivered to the Note Trustee, as pledgee of the
Note Issuer with respect to all Transition Property.
Section 5.02 Duties of Servicer as Custodian.
(a) Safekeeping. The Servicer shall hold the Transition
Property Records on behalf of the Note Issuer and maintain such
accurate and complete accounts, records and computer systems pertaining
to the Transition Property Records on behalf of the Note Issuer and the
Note Trustee as shall enable the Note Issuer to comply with this
Agreement and the Note Indenture. In performing its duties as custodian
the Servicer shall act with reasonable care, using that degree of care
and diligence that the Servicer exercises with respect to comparable
assets that the Servicer services for itself or, if applicable, for
others. The Servicer shall promptly report to the Note Issuer and the
Note Trustee any failure on its part to hold the Transition Property
Records and maintain its accounts, records and computer systems as
herein provided and promptly take appropriate action to remedy any such
failure. Nothing herein shall be deemed to require an initial review or
any periodic review by the Note Issuer or the Note Trustee of the
Transition Property Records. The Servicer's duties to hold the
Transition Property Records on behalf of the Note Issuer set forth in
this Section 5.02, to the extent such Transition Property Records have
not been previously transferred to a successor Servicer pursuant to
Article VII, shall terminate one year and one day after the earlier of
the date on which (i)
14
<PAGE> 19
the Servicer is succeeded by a successor Servicer in accordance with
Article VII hereof and (ii) no Notes are outstanding.
(b) Maintenance of and Access to Records. The Servicer shall
maintain at all times records and accounts that permit the Servicer to
identify RTC Charges billed. The Servicer shall maintain the Transition
Property Records in Boston, Massachusetts or at such other office as
shall be specified to the Note Issuer and the Note Trustee by written
notice at least 30 days prior to any change in location. The Servicer
shall make available for inspection to the Note Issuer and the Note
Trustee or their respective duly authorized representatives, attorneys
or auditors the Transition Property Records at such times during normal
business hours as the Note Issuer or the Note Trustee shall reasonably
request and which do not unreasonably interfere with the Servicer's
normal operations. Nothing in this Section 5.02(b) shall affect the
obligation of the Servicer to observe any applicable law (including any
DTE Regulations) prohibiting disclosure of information regarding the
Customers, and the failure of the Servicer to provide access to such
information as a result of such obligation shall not constitute a
breach of this Section 5.02(b).
(c) Release of Documents. Upon instruction from the Note
Trustee in accordance with the Note Indenture, the Servicer shall
release any Transition Property Records to the Note Trustee, the Note
Trustee's agent or the Note Trustee's designee, as the case may be, at
such place or places as the Note Trustee may designate, as soon as
practicable.
(d) Defending Transition Property Against Claims. The
Servicer, on behalf of the Noteholders and the Certificateholders,
shall institute any action or proceeding necessary to compel
performance by the DTE or The Commonwealth of Massachusetts of any of
their obligations or duties under the Statute, the Financing Order or
any Advice Letter, and the Servicer agrees to take such legal or
administrative actions, including defending against or instituting and
pursuing legal actions and appearing or testifying at hearings or
similar proceedings, as may be 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, voter
initiative or constitutional amendment that would be adverse to
Certificateholders. The costs of any such action shall be payable from
RTC Charge Collections as an Operating Expense in accordance with the
priorities set forth in Section 8.02(d) of the Note Indenture. The
Servicer's obligations pursuant to this Section 5.02 shall survive and
continue notwithstanding the fact that the payment of Operating
Expenses pursuant to Section 8.02(d) of the Note Indenture may be
delayed (it being understood that the Servicer may be required to
advance its own funds to satisfy its obligations hereunder).
Section 5.03 Instructions; Authority to Act. For so long as any Notes
remain outstanding, the Servicer shall be deemed to have received proper
instructions with respect to the
15
<PAGE> 20
Transition Property Records upon its receipt of written instructions signed by a
Responsible Officer (as defined in the Note Indenture) of the Note Trustee.
Section 5.04 Effective Period and Termination. The Servicer's
appointment as custodian shall become effective as of the Closing Date and shall
continue in full force and effect until terminated pursuant to this Section
5.04. If any Servicer shall resign as Servicer in accordance with the provisions
of this Agreement or if all of the rights and obligations of any Servicer shall
have been terminated under Section 7.01, the appointment of such Servicer as
custodian shall terminate upon appointment of a successor Servicer, subject to
the approval of the DTE, and acceptance by such successor Servicer of such
appointment.
Section 5.05 Monitoring of Third-Party Suppliers. From time to time,
until the Retirement of the Notes, the Servicer shall, using the same degree of
care and diligence that it exercises with respect to payments owed to it for its
own account, implement such procedures and policies as are necessary to properly
enforce the obligations of each TPS to remit RTC Charges, in accordance with the
terms and provisions of the Financing Order, the TPS Service Agreement and
Schedule A to Annex I hereto.
Section 5.06 Monitoring and Collecting Exit Charges. The Servicer
shall, using the same degree of care and diligence that it exercises with
respect to payments owed to it for its own account, bill and collect any exit
charges to which it may be entitled pursuant to Section 1G(g) of Chapter 164 of
the Massachusetts General Laws, and shall remit that portion of the exit charges
representing (or allocable to) the RTC Charge together with the Estimated RTC
Charge Payments for a particular billing date.
ARTICLE VI. THE SERVICER
Section 6.01 Representations and Warranties of Servicer. The Servicer
makes the following representations and warranties, as of the Closing Date, on
which the Note Issuer is deemed to have relied in entering into this Agreement
relating to the servicing of the Transition Property.
(a) Organization and Good Standing. The Servicer is duly
organized and validly existing as a corporation in good standing under
the laws of The Commonwealth of Massachusetts, with the requisite
corporate power and authority to own its properties as such properties
are currently owned and to conduct its business as such business is now
conducted by it, and has the requisite corporate power and authority to
service the Transition Property and to hold the Transition Property
Records as custodian.
(b) Due Qualification. The Servicer is duly qualified to do
business as a foreign corporation in good standing, and has obtained
all necessary licenses and approvals, in all jurisdictions in which the
ownership or lease of property or the conduct
16
<PAGE> 21
of its business (including the servicing of the Transition Property as
required by this Agreement) shall require such qualifications, licenses
or approvals (except where the failure to so qualify or obtain such
licenses and approvals would not be reasonably likely to have a
material adverse effect on the Servicer's business, operations, assets,
revenues or properties or adversely affect the servicing of the
Transition Property).
(c) Power and Authority. The Servicer has the requisite
corporate power and authority to execute and deliver this Agreement and
to carry out its terms; and the execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate
action on the part of the Servicer.
(d) Binding Obligation. This Agreement constitutes a legal,
valid and binding obligation of the Servicer 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 (including concepts of materiality,
reasonableness, good faith and fair dealing), regardless of whether
considered in a proceeding in equity or at law.
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof
do not: (i) conflict with or result in any breach of any of the terms
and provisions of, nor constitute (with or without notice or lapse of
time) a default under, the articles of organization or by-laws of the
Servicer, or any material indenture, agreement or other instrument to
which the Servicer is a party or by which it is bound; (ii) result in
the creation or imposition of any Lien upon any of the Servicer's
properties pursuant to the terms of any such indenture, agreement or
other instrument; nor violate any existing law or any existing order,
rule or regulation applicable to the Servicer of any court or of any
federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Servicer or
its properties, so as to adversely affect the Servicer, the Noteholders
or the Certificateholders.
(f) No Proceedings. There are no proceedings pending and, to
the Servicer's knowledge, there are no proceedings threatened and, to
the Servicer's knowledge, there are no investigations pending or
threatened, before any court, federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Servicer or its properties involving or relating
to the Servicer or the Note Issuer or, to the Servicer's knowledge, any
other Person: (i) asserting the invalidity of this Agreement; (ii)
seeking to prevent the consummation of any of the transactions
contemplated by this Agreement; or (iii) seeking any determination or
ruling that might materially and adversely affect the performance by
the Servicer of its obligations under, or the validity or
enforceability of, this Agreement.
17
<PAGE> 22
(g) Approvals. No approval, authorization, consent, order or
other action of, or filing with, any court, federal or state regulatory
body, administrative agency or other governmental instrumentality is
required in connection with the execution and delivery by the Servicer
of this Agreement, the performance by the Servicer of the transactions
contemplated hereby or the fulfillment by the Servicer of the terms
hereof, except those that have been obtained or made and those that the
Servicer is required to make in the future pursuant to Article III or
IV hereof.
Section 6.02 Indemnities of Servicer.
(a) The Servicer shall be liable in accordance herewith only
to the extent of the obligations specifically undertaken by the
Servicer and as expressly provided under this Section 6.02.
(b) The Servicer shall indemnify the Note Issuer, the
Noteholders and the Certificateholders for, and defend and hold
harmless each such Person from and against, any and all liabilities,
obligations, losses, damages, payments, claims, costs or expenses of
any kind whatsoever (collectively, "Losses") that may be imposed on,
incurred by or asserted against any such Person as a result of (i) the
Servicer's willful misconduct or gross negligence in the performance of
its duties or observance of its covenants under this Agreement
(including the Servicer's willful misconduct or gross negligence
relating to the maintenance and custody by the Servicer, as custodian,
of the Transition Property Records) or (ii) the Servicer's breach in
any material respect of any of its representations or warranties in
this Agreement; provided, however, that the Servicer shall not be
liable for any Losses resulting from the willful misconduct or gross
negligence of any such indemnified person; and, provided, further, that
the Noteholders and the Certificateholders shall be entitled to enforce
their rights and remedies against the Servicer under this Section
6.02(b) solely through a cause of action brought for their benefit by
the Note Trustee or the Certificate Trustee, as the case may be; and;
provided, further, that the Servicer shall not be liable for any
Losses, regardless of when incurred, after the Notes and the
Certificates have been paid in full, except as provided in Section
6.02(c).
(c) The Servicer shall indemnify and hold harmless the Note
Trustee, the Delaware Trustee, the Certificate Trustee, the Certificate
Issuer and the Agencies and any of their respective affiliates,
officers, directors, employees and agents (each an "Indemnified
Person") for, and defend and hold harmless each such Person from and
against, any and all Losses imposed on, incurred by or asserted against
any of such Indemnified Persons as a result of: (i) the Servicer's
willful misconduct or gross negligence in the performance of its duties
or observance of its covenants under this Agreement (including the
Servicer's willful misconduct or gross negligence relating to the
maintenance and custody by the Servicer, as custodian, of the
Transition Property Records) or (ii) the Servicer's breach in any
material respect of any of its representations
18
<PAGE> 23
or warranties in this Agreement; provided, however, that the Servicer
shall not be liable for any Losses resulting from the willful
misconduct or gross negligence of such Indemnified Person or resulting
from a breach of a representation or warranty made by such Indemnified
Person in any of the Basic Documents that gives rise to the Servicer's
breach. The Servicer shall not be required to indemnify an Indemnified
Person for any amount paid or payable by such Indemnified Person in the
settlement of any action, proceeding or investigation without the
written consent of the Servicer, which consent shall not be
unreasonably withheld. Promptly after receipt by an Indemnified Person
of notice of its involvement in any action, proceeding or
investigation, such Indemnified Person shall, if a claim for
indemnification in respect thereof is to be made against the Servicer
under this Section 6.02(c), notify the Servicer in writing of such
involvement. Failure by an Indemnified Person to so notify the Servicer
shall relieve the Servicer from the obligation to indemnify and hold
harmless such Indemnified Person under this Section 6.02(c) only to the
extent that the Servicer suffers actual prejudice as a result of such
failure. With respect to any action, proceeding or investigation
brought by a third party for which indemnification may be sought under
this Section 6.02(c), the Servicer shall be entitled to assume the
defense of any such action, proceeding or investigation. Upon
assumption by the Servicer of the defense of any such action,
proceeding or investigation, the Indemnified Person shall have the
right to participate in such action or proceeding and to retain its own
counsel. The Servicer shall be entitled to appoint counsel of the
Servicer's choice at the Servicer's expense to represent the
Indemnified Person in any action, proceeding or investigation for which
a claim of indemnification is made against the Servicer under this
Section 6.02(c) (in which case the Servicer shall not thereafter be
responsible for the fees and expenses of any separate counsel retained
by the Indemnified Person except as set forth below); provided,
however, that such counsel shall be reasonably satisfactory to the
Indemnified Person. Notwithstanding the Servicer's election to appoint
counsel to represent the Indemnified Person in an action, proceeding or
investigation, the Indemnified Person shall have the right to employ
separate counsel (including local counsel), and the Servicer shall bear
the reasonable fees, costs and expenses of such separate counsel if (i)
the use of counsel chosen by the Servicer to represent the Indemnified
Person would present such counsel with a conflict of interest, (ii) the
actual or potential defendants in, or targets of, any such action
include both the Indemnified Person and the Servicer and the
Indemnified Person shall have reasonably concluded that there may be
legal defenses available to it that are different from or additional to
those available to the Servicer, (iii) the Servicer shall not have
employed counsel reasonably satisfactory to the Indemnified Person to
represent the Indemnified Person within a reasonable time after notice
of the institution of such action or (iv) the Servicer shall authorize
the Indemnified Person to employ separate counsel at the expense of the
Servicer. Notwithstanding the foregoing, the Servicer shall not be
obligated to pay for the fees, costs and expenses of more than one
separate counsel for the Indemnified Persons other than local counsel.
The Servicer will not, without the prior written consent of the
Indemnified Person, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim,
19
<PAGE> 24
action, suit or proceeding in respect of which indemnification may be
sought under this Section 6.02(c) (whether or not the Indemnified
Person is an actual or potential party to such claim or action) unless
such settlement, compromise or consent includes an unconditional
release of the Indemnified Person from all liability arising out of
such claim, action, suit or proceeding.
(d) Indemnification under Sections 6.02(b) and 6.02(c) shall
include reasonable fees and out-of-pocket expenses of investigation and
litigation (including reasonable attorneys' fees and expenses), except
as otherwise provided in this Agreement.
(e) For purposes of Section 6.02(b) and 6.02(c), in the event
of the termination of the rights and obligations of Boston Edison
Company (or any successor thereto pursuant to Section 6.04) as Servicer
pursuant to Section 7.01, or a resignation by such Servicer pursuant to
this Agreement, such Servicer shall be deemed to be the Servicer
pending appointment of a successor Servicer pursuant to Section 7.02.
(f) For purposes of this Section 6.02, the term "Agencies"
shall include the Executive Office for Administration and Finance of
The Commonwealth of Massachusetts.
Section 6.03 Limitation on Liability of Servicer and Others. Except as
otherwise provided under this Agreement, neither the Servicer nor any of the
directors, officers, employees or agents of the Servicer shall be liable to the
Note Issuer or any other Person for any action taken or for refraining from the
taking of any action pursuant to this Agreement or for errors in judgment;
provided, however, that this provision shall not protect the Servicer or any
director, officer, employee or agent of the Servicer against any liability that
would otherwise be imposed by reason of willful misconduct or gross negligence
in the performance of duties under this Agreement. The Servicer and any
director, officer, employee or agent of the Servicer may rely in good faith on
the advice of counsel reasonably acceptable to the Note Trustee or on any
document of any kind, prima facie properly executed and submitted by any Person,
respecting any matters arising under this Agreement.
Except as provided in this Agreement, the Servicer shall not be under
any obligation to appear in, prosecute or defend any legal action relating to
the Transition Property.
Section 6.04 Merger or Consolidation of, or Assumption of the
Obligations of, Servicer. Any Person (a) into which the Servicer may be merged
or consolidated, (b) which may result from any merger or consolidation to which
the Servicer shall be a party or (c) which may succeed to the properties and
assets of the Servicer substantially as a whole, which Person in any of the
foregoing cases executes an agreement of assumption to perform every obligation
of the Servicer hereunder, shall be the successor to the Servicer under this
Agreement without further act on the part of any of the parties to this
Agreement; provided, however, that (i) immediately after giving
20
<PAGE> 25
effect to such transaction, no Servicer Default and no event which, after notice
or lapse of time, or both, would become a Servicer Default shall have occurred
and be continuing, (ii) the Servicer shall have delivered to the Note Issuer and
the Note Trustee an Officers' Certificate stating that such consolidation,
merger or succession and such agreement of assumption comply with this Section
and that all conditions precedent provided for in this Agreement relating to
such transaction have been complied with, (iii) the Servicer shall have
delivered to the Note Issuer and the Note Trustee an Opinion of Counsel either
(A) stating that, in the opinion of such counsel, all statutory filings to be
made by the Servicer, including filings with the DTE pursuant to the Statute,
have been executed and filed that are necessary to preserve and protect fully
the interests of the Note Issuer in the Transition Property and reciting the
details of such filings or (B) stating that, in the opinion of such counsel, no
such action shall be necessary to preserve and protect such interests and (iv)
the Rating Agencies shall have received prior written notice of such
transaction. When any Person acquires the properties and assets of the Servicer
substantially as a whole and becomes the successor to the Servicer in accordance
with the terms of this Section 6.04, then upon satisfaction of all of the other
conditions of this Section 6.04, the Servicer shall automatically and without
further notice be released from all its obligations hereunder.
Section 6.05 Boston Edison Company Not to Resign as Servicer. Subject
to the provisions of Section 6.04, Boston Edison Company shall not resign from
the obligations and duties hereby imposed on it as Servicer under this Agreement
except upon either (a) a determination that the performance of its duties under
this Agreement shall no longer be permissible under applicable law or (b)
satisfaction of the following: (i) the Rating Agency Condition shall have been
satisfied (except that with respect to Moody's it shall be sufficient to provide
ten days prior notice) and (ii) the DTE shall have approved such resignation.
Notice of any such determination permitting the resignation of Boston Edison
Company shall be communicated to the Note Issuer, the Note Trustee, the
Certificate Trustee and the Rating Agencies at the earliest practicable time
(and, if such communication is not in writing, shall be confirmed in writing at
the earliest practicable time) and any such determination that the performance
of Boston Edison Company's duties under this Agreement shall no longer be
permissible under applicable law shall be evidenced by an Opinion of Counsel to
such effect delivered by Boston Edison Company to the Note Issuer, the Note
Trustee and the Certificate Trustee concurrently with or promptly after such
notice. No such resignation shall become effective until a successor Servicer
shall have assumed the responsibilities and obligations of Boston Edison Company
in accordance with Section 7.02.
Section 6.06 Servicing Compensation.
(a) In consideration for its services hereunder, until the
Retirement of the Notes, the Servicer shall receive an annual fee (the
"Servicing Fee") in an amount equal to (i) five one-hundredth of one
percent (0.05%) of the initial principal balance of the Notes for so
long as Boston Edison Company or any successor Servicer bills the RTC
Charge concurrently with other charges for services or (ii) up to one
and one-quarter percent (1.25%) of the initial principal balance of the
Notes if the RTC Charge is being
21
<PAGE> 26
billed separately to Customers (which amount shall be determined by a
separate agreement between the Note Issuer and the Servicer). The
Servicing Fee shall be payable in semiannual installments on each
Payment Date. The Servicer also shall be entitled to retain as
additional compensation (i) any interest earnings on Estimated RTC
Charge Payments deemed received by the Servicer and invested by the
Servicer pursuant to Section 6(c) of Annex I hereto prior to remittance
to the Collection Account and (ii) all late payment charges, if any,
collected from Customers or TPSs.
(b) The Servicing Fee set forth in Section 6.06(a) above and
expenses provided for in Section 6.06(c) below shall be paid to the
Servicer by the Note Trustee, on each Payment Date in accordance with
the priorities set forth in Section 8.02(d) of the Note Indenture, by
wire transfer of immediately available funds from the Collection
Account to an account designated by the Servicer. Any portion of the
Servicing Fee not paid on such date shall be added to the Servicing Fee
payable on the subsequent Payment Date.
(c) The Note Issuer shall pay all expenses incurred by the
Servicer in connection with its activities hereunder (including any
fees to and disbursements by accountants, counsel, or any other Person,
any taxes imposed on the Servicer (other than taxes based on the
Servicer's net income) and any expenses incurred in connection with
reports to Noteholders and Certificateholders, subject to the
priorities set forth in Section 8.02(d) of the Note Indenture).
Section 6.07 Compliance with Applicable Law. The Servicer covenants and
agrees, in servicing the Transition Property, to comply in all material respects
with all laws applicable to, and binding upon, the Servicer and relating to such
Transition Property the noncompliance with which would have a material adverse
effect on the value of the Transition Property; provided, however, that the
foregoing is not intended to, and shall not, impose any liability on the
Servicer for noncompliance with any law that the Servicer is contesting in good
faith in accordance with its customary standards and procedures.
Section 6.08 Access to Certain Records and Information Regarding
Transition Property. The Servicer shall provide to the Noteholders, the Note
Trustee and the Certificate Trustee access to the Transition Property Records in
such cases where the Noteholders, the Note Trustee and the Certificate Trustee
shall be required by applicable law to be provided access to such records.
Access shall be afforded without charge, but only upon reasonable request and
during normal business hours at the respective offices of the Servicer. Nothing
in this Section shall affect the obligation of the Servicer to observe any
applicable law (including any DTE Regulation) prohibiting disclosure of
information regarding the Customers, and the failure of the Servicer to provide
access to such information as a result of such obligation shall not constitute a
breach of this Section.
22
<PAGE> 27
Section 6.09 Appointments. The Servicer may at any time appoint any
Person to perform all or any portion of its obligations as Servicer hereunder;
provided, however, that the Rating Agency Condition shall have been satisfied in
connection therewith (except that with respect to Moody's it shall be sufficient
to provide ten days prior notice); and, provided, further, that the Servicer
shall remain obligated and be liable under this Agreement for the servicing and
administering of the Transition Property in accordance with the provisions
hereof without diminution of such obligation and liability by virtue of the
appointment of such Person and to the same extent and under the same terms and
conditions as if the Servicer alone were servicing and administering the
Transition Property; and, provided, further, however, that nothing herein
(including the Rating Agency Condition) shall preclude the execution by the
Servicer of a TPS Service Agreement with any TPS pursuant to applicable DTE
Regulations. Notwithstanding anything to the contrary in this Agreement, the
parties hereto acknowledge and agree that the initial Servicer has appointed
Cash Management Services to process U.S. mail payments from Customers and that
such appointment is hereby permitted hereunder. The fees and expenses of any
such Person shall be as agreed between the Servicer and such Person from time to
time and none of the Note Issuer, the Note Trustee, the Noteholders or any other
Person shall have any responsibility therefor or right or claim thereto. Any
such appointment shall not constitute a Servicer resignation under Section 6.05.
Section 6.10 No Servicer Advances. Except with respect to Remittances
of Estimated RTC Charge Payments, the Servicer shall not make any advances of
interest on or principal of the Notes or the Certificates.
Section 6.11 Maintenance of Operations. The Servicer agrees to continue
to operate its distribution system to provide service to its customers so long
as it is acting as the Servicer under this Agreement.
ARTICLE VII. DEFAULT
Section 7.01 Servicer Default. If any one of the following events (each
a "Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to remit to the Collection
Account on behalf of the Note Issuer any required Remittance that shall
continue unremedied for a period of five (5) Business Days after
written notice of such failure is received by the Servicer from the
Note Issuer or the Note Trustee; or
(b) any failure on the part of the Servicer duly to observe or
to perform in any material respect any other covenants or agreements of
the Servicer set forth in this Agreement, which failure shall (a)
materially and adversely affect the rights of the Noteholders or
Certificateholders and (ii) continue unremedied for a period of 60 days
after the date on which written notice of such failure, requiring the
same to be remedied, shall have been given (A) to the Servicer by the
Note Issuer or (B) to the Servicer by the
23
<PAGE> 28
Note Trustee or by the Holders of Notes evidencing not less than 25
percent of the Outstanding Amount of the Notes; or
(c) any representation or warranty made by the Servicer in
this Agreement shall prove to have been incorrect in any material
respect when made, which has a material adverse effect on the
Noteholders or Certificateholders and which material adverse effect
continues unremedied for a period of 60 days after written notice of
such failure is received by the Servicer from the Note Issuer or the
Note Trustee; or
(d) an Insolvency Event occurs with respect to the Servicer;
then, and in each and every case, so long as the Servicer Default shall
not have been remedied, either the Note Trustee, or the Holders of
Notes evidencing not less than 25 percent of the Outstanding Amount of
the Notes, by notice then given in writing to the Servicer (and to the
Note Trustee if given by the Noteholders) (a "Termination Notice") may
terminate all the rights and obligations (other than the obligations
set forth in Section 6.02 hereof) of the Servicer under this Agreement.
In addition, upon a Servicer Default described in Section 7.01(a), each
of the following shall be entitled to apply to the DTE for
sequestration and payment of revenues arising with respect to the
Transition Property: (1) the Certificateholders and the Certificate
Trustee as beneficiary of any statutory lien permitted by the Statute;
(2) the Note Issuer or its assignees; (3) the Certificate Issuer or (4)
pledgees or transferees, including transferees under Section 1H(f) of
the Statute, of the Transition Property. On or after the receipt by the
Servicer of a Termination Notice, and subject to the approval of the
DTE, all authority and power of the Servicer under this Agreement,
whether with respect to the Notes, the Transition Property, the RTC
Charge or otherwise, shall, without further action, pass to and be
vested in such successor Servicer as may be appointed under Section
7.02; and, without limitation, the Note Trustee is hereby authorized
and empowered to execute and deliver, on behalf of the predecessor
Servicer, as attorney-in-fact or otherwise, any and all documents and
other instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such Termination
Notice, whether to complete the transfer of the Transition Property
Records and related documents, or otherwise. The predecessor Servicer
shall cooperate with the successor Servicer, the Note Issuer and the
Note Trustee in effecting the termination of the responsibilities and
rights of the predecessor Servicer under this Agreement, including the
transfer to the successor Servicer for administration by it of all cash
amounts that shall at the time be held by the predecessor Servicer for
remittance, or shall thereafter be received by it with respect to the
Transition Property or the RTC Charge. In case a successor Servicer is
appointed as a result of a Servicer Default, all reasonable costs and
expenses (including reasonable attorneys' fees and expenses) incurred
in connection with transferring the Transition Property Records to the
successor Servicer and amending this Agreement to reflect such
succession as Servicer pursuant to this Section shall be paid by the
predecessor Servicer upon presentation of reasonable documentation of
such costs and expenses.
24
<PAGE> 29
Section 7.02 Appointment of Successor.
(a) Upon the Servicer's receipt of a Termination Notice
pursuant to Section 7.01 or the Servicer's resignation or removal in
accordance with the terms of this Agreement, the predecessor Servicer
shall continue to perform its functions as Servicer under this
Agreement, and shall be entitled to receive the requisite portion of
the Servicing Fee and reimbursement of expenses as provided herein,
until a successor Servicer shall have assumed in writing the
obligations of the Servicer hereunder as described below. In the event
of the Servicer's termination hereunder, the Note Issuer shall appoint,
subject to the approval of the DTE, a successor Servicer with the Note
Trustee's prior written consent thereto (which consent shall not be
unreasonably withheld), and the successor Servicer shall accept its
appointment by a written assumption in form reasonably acceptable to
the Note Issuer and the Note Trustee. If within 30 days after the
delivery of the Termination Notice, the Note Issuer shall not have
obtained such a new Servicer, the Note Trustee may petition the DTE or
a court of competent jurisdiction to appoint a successor Servicer under
this Agreement. A Person shall qualify as a successor Servicer only if
(i) such Person is permitted under DTE Regulations to perform the
duties of the Servicer, (ii) the Rating Agency Condition shall have
been satisfied and (iii) such Person enters into a servicing agreement
with the Note Issuer having substantially the same provisions as this
Agreement.
(b) Upon appointment, the successor Servicer shall be the
successor in all respects to the predecessor Servicer and shall be
subject to all the responsibilities, duties and liabilities arising
thereafter relating thereto placed on the predecessor Servicer and
shall be entitled to the Servicing Fee and all the rights granted to
the predecessor Servicer by the terms and provisions of this Agreement.
Section 7.03 Waiver of Past Defaults. The Holders of Notes evidencing
not less than a majority of the Outstanding Amount of the Notes may, on behalf
of all Noteholders, waive in writing any default by the Servicer in the
performance of its obligations hereunder and its consequences, except a default
in making any required Remittances to the Collection Account in accordance with
this Agreement. Upon any such waiver of a past default, such default shall cease
to exist, and any Servicer Default arising therefrom shall be deemed to have
been remedied for every purpose of this Agreement. No such waiver shall extend
to any subsequent or other default or impair any right consequent thereto.
Section 7.04 Notice of Servicer Default. The Servicer shall deliver to
the Note Issuer, the Note Trustee, the Certificate Trustee, the Certificate
Issuer, the Agencies and the Rating Agencies, promptly after having obtained
knowledge thereof, but in no event later than five Business Days thereafter,
written notice in an Officers' Certificate of any event which with the giving of
notice or lapse of time, or both, would become a Servicer Default under Section
7.01(a) or (b).
25
<PAGE> 30
ARTICLE VIII. MISCELLANEOUS PROVISIONS
Section 8.01 Amendment. This Agreement may be amended in writing by the
Servicer and the Note Issuer with ten Business Days' prior written notice given
to the Rating Agencies and the prior written consent of the Note Trustee (which
consent shall not be unreasonably withheld), but without the consent of any of
the Noteholders, to cure any ambiguity, to correct or supplement any provisions
in this Agreement or for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions in this Agreement or of
modifying in any manner the rights of the Noteholders; provided, however, that
such action shall not, as evidenced by an Officer's Certificate delivered to the
Note Issuer and the Note Trustee, adversely affect in any material respect the
interests of any Noteholder or Certificateholder.
This Agreement may also be amended in writing from time to time by the
Servicer and the Note Issuer with ten Business Days' prior written notice given
to the Rating Agencies and the prior written consent of the Note Trustee (which
consent shall not be unreasonably withheld) and the prior written consent of the
Holders of Notes evidencing not less than a majority of the Outstanding Amount
of the Notes, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement or of modifying in
any manner the rights of the Noteholders; provided, however, that any amendment
of the provisions of Sections 4.01 or 4.03 of this Agreement shall satisfy the
Rating Agency Condition (except that with respect to Moody's it shall be
sufficient to provide ten days prior notice).
It shall not be necessary for the consent of Noteholders pursuant to
this Section to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof.
The Note Issuer shall promptly provide each of the Rating Agencies with
a copy of any amendment to this Agreement.
Prior to its consent to any amendment to this Agreement, the Note
Trustee shall be entitled to receive and conclusively rely upon an Opinion of
Counsel stating that such amendment is authorized or permitted by this
Agreement. The Note Trustee may, but shall not be obligated to, enter into any
such amendment which affects the Note Trustee's own rights, duties or immunities
under this Agreement or otherwise.
26
<PAGE> 31
Section 8.02 Maintenance of Accounts and Records.
(a) The Servicer shall maintain accounts and records as to the
Transition Property accurately and in accordance with its standard
accounting procedures and in sufficient detail to permit reconciliation
between RTC Charge Collections and Deemed RTC Charge Payments.
(b) The Servicer shall permit the Note Trustee and its agents
at any time during normal business hours, upon reasonable notice to the
Servicer and to the extent it does not unreasonably interfere with the
Servicer's normal operations, to inspect, audit and make copies of and
abstracts from the Servicer's records regarding the Transition Property
and the RTC Charge. Nothing in this Section 8.02(b) shall affect the
obligation of the Servicer to observe any applicable law (including any
DTE Regulation) prohibiting disclosure of information regarding the
Customers, and the failure of the Servicer to provide access to such
information as a result of such obligation shall not constitute a
breach of this Section 8.02(b).
Section 8.03 Notices. Unless otherwise specifically provided herein,
all notices, directions, consents and waivers required under the terms and
provisions of this Agreement shall be in English and in writing, and any such
notice, direction, consent or waiver may be given by United States mail, courier
service, facsimile transmission or electronic mail (confirmed by telephone,
United States mail or courier service in the case of notice by facsimile
transmission or electronic mail) or any other customary means of communication,
and any such notice, direction, consent or waiver shall be effective when
delivered, or if mailed, three days after deposit in the United States mail with
proper postage for ordinary mail prepaid:
(a) if to the Servicer, to
Boston Edison Company
800 Boylston Street
Boston, MA 02199
Attention: Manager, Corporate Finance
Facsimile: (617) 424-3204
Telephone: (617) 424-2000
(b) if to the Note Issuer, to
BEC Funding LLC
800 Boylston Street, 35th Floor
Boston, MA 02199
Attention: President
27
<PAGE> 32
Facsimile: (617) 424-2605
Telephone: (617) 369-6000
(c) if to the Note Trustee, to
The Bank of New York
101 Barclay Street, Floor 12 East
New York, NY 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
(d) if to Moody's, to
Moody's Investors Service, Inc.
99 Church Street
New York, NY 10007
Attention: ABS Monitoring Department
Facsimile: (212) 553-0573
Telephone: (212) 553-3686
(e) if to S&P, to
Standard & Poor's
55 Water Street, 40th Floor
New York, NY 10041
Attention: Asset Backed Surveillance Department
Facsimile: (212) 438-2655
Telephone: (212) 438-2000
(f) if to Fitch IBCA, to
Fitch IBCA, Inc.
One State Street Plaza
New York, NY 10004
Attention: ABS Surveillance
Facsimile: (212) 908-0355
Telephone: (212) 908-0500
28
<PAGE> 33
(g) if to Duff & Phelps, to
Duff & Phelps Credit Rating Co.
17 State Street, 12th Floor
New York, NY 10004
Attention: Asset-Backed Monitoring Group
Facsimile: (212) 908-0222
Telephone: (212) 908-0200
(h) if to the Agencies, to
Massachusetts Development Finance Agency
75 Federal Street
Boston, MA 02110
Attention: General Counsel
Facsimile: (617) 727-8741
Telephone: (617) 451-2477
and
Massachusetts Health and Educational Facilities Authority
99 Summer Street, 10th Floor
Boston, MA 02110
Attention: General Counsel
Facsimile: (617) 737-8366
Telephone: (617) 737-8377
(i) if to the Certificate Issuer, to:
The Bank of New York (Delaware), as Delaware Trustee for
Massachusetts RRB Special Purpose Trust BEC-1
c/o The Bank of New York
101 Barclay Street, Floor 12 East
New York, NY 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
(with copies to the Agencies at the addresses listed herein)
29
<PAGE> 34
(j) as to each of the foregoing, at such other address as
shall be designated by written notice to the other parties.
Section 8.04 Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Section 6.04 and as provided in the
provisions of this Agreement concerning the resignation of the Servicer, this
Agreement may not be assigned by the Servicer.
Section 8.05 Limitations on Rights of Third Parties. The provisions of
this Agreement are solely for the benefit of the Servicer, the Note Issuer, the
Noteholders, the Certificateholders, the Note Trustee, the Certificate Trustee,
the Delaware Trustee, the Agencies, the Certificate Issuer and the other Persons
expressly referred to herein and such Persons shall have the right to enforce
the relevant provisions of this Agreement, except that the Noteholders and the
Certificateholders shall be entitled to enforce their rights against the
Servicer under this Agreement solely through a cause of action brought for their
benefit by the Note Trustee or the Certificate Trustee, as the case may be.
Nothing in this Agreement, whether express or implied, shall be construed to
give to any other Person any legal or equitable right, remedy or claim in the
Transition Property or under or in respect of this Agreement or any covenants,
conditions or provisions contained herein.
Section 8.06 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 8.07 Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 8.08 Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
Section 8.09 Governing Law. This Agreement shall be construed in
accordance with the substantive laws of The Commonwealth of Massachusetts,
without giving effect to its conflict of law or other principles that would
cause the application of the laws of another jurisdiction, and the obligations,
rights and remedies of the parties hereunder shall be determined in accordance
with such laws.
Section 8.10 Assignment to Note Trustee. The Servicer hereby
acknowledges and consents to the collateral assignment of any or all of the Note
Issuer's rights and obligations hereunder to the Note Trustee for the benefit of
the holders of the Notes and to the further assignment of the Note Trustee's
rights and obligations under the Note Indenture to the Certificate Trustee for
the benefit of the holders of the Certificates.
30
<PAGE> 35
Section 8.11 Nonpetition Covenants. Notwithstanding any prior
termination of this Agreement or the Note Indenture, but subject to the DTE's
right to order the sequestration and payment of revenues arising with respect to
the Transition Property notwithstanding any bankruptcy, reorganization or other
insolvency proceedings with respect to the debtor, pledgor or transferor of the
Transition Property pursuant to Sections 1H(d)(5) and 1H(e) of the Statute, the
Servicer shall not, prior to the date which is one year and one day after the
termination of the Note Indenture with respect to the Note Issuer, petition or
otherwise invoke or cause the Note Issuer or the Trust to invoke the process of
any court or governmental authority for the purpose of commencing or sustaining
a case against the Note Issuer or the Trust under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the Note
Issuer or the Trust or any substantial part of the property of the Note Issuer
or the Trust, or ordering the winding up or liquidation of the affairs of the
Note Issuer or the Trust.
31
<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have caused this Transition
Property Servicing Agreement to be duly executed by their respective officers as
of the day and year first above written.
BEC FUNDING LLC,
Note Issuer
By: /s/ Emilie G.O'Neil
-------------------------------------
Name: Emilie G. O'Neil
Title: Vice President and Treasurer
BOSTON EDISON COMPANY,
Servicer
By: /s/ R. J. Weafer, Jr.
-------------------------------------
Name: Robert J. Weafer, Jr.
Title: Vice President - Finance and
Controller
S-1
<PAGE> 37
EXHIBIT A
CERTIFICATE OF COMPLIANCE
The undersigned hereby certifies that he/she is the duly elected and
acting [________] of Boston Edison Company, as servicer (the "Servicer") under
the Transition Property Servicing Agreement, dated as of July 29, 1999 (the
"Servicing Agreement"), between the Servicer and BEC Funding LLC (the "Note
Issuer"), and further certifies on behalf of the Servicer that:
1. A review of the activities of the Servicer and of its performance
under the Servicing Agreement during the [twelve] months ended December 31,
[___] has been made under the supervision of the undersigned pursuant to Section
3.03 of the Servicing Agreement; and
2. To the undersigned's knowledge, based on such review, the Servicer
has fulfilled all of its material obligations in all material respects under the
Servicing Agreement throughout the [twelve] months ended December 31, [___],
except as listed on Annex A hereto.
Executed as of this _______ day of ___________ .
By:
-------------------------------------
Name:
Title:
<PAGE> 38
ANNEX A TO EXHIBIT A
LIST OF SERVICER DEFAULTS
Nature of Default Status
<PAGE> 39
EXHIBIT B
FORM OF ROUTINE TRUE-UP LETTER
[Date]
ADVICE ____________
DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY (THE "DEPARTMENT") OF THE
COMMONWEALTH OF MASSACHUSETTS
SUBJECT: Periodic RTC Charge True-Up Mechanism Advice Filing
Pursuant to D.T.E. Docket No. 98-118 (the "Financing Order"), Boston Edison
Company ("Boston Edison") as servicer of the RRBs or any successor Servicer and
on behalf of the trustee as assignee of the special purpose entity (the "SPE")
may apply for adjustment to the RTC Charge on each anniversary of the date of
the Financing Order and at such additional intervals as may be provided for in
the Financing Order. Any capitalized terms not defined herein shall have the
meanings ascribed thereto in the Financing Order.
PURPOSE
This filing establishes the revised RTC Charge to be assessed and collected from
all classes of retail users of Boston Edison's distribution system within the
geographic service territory as in effect on July 1, 1997, whether or not energy
is purchased from Boston Edison or any TPS, and whether or not such distribution
system is being operated by Boston Edison or a successor distribution company.
The RTC Charge is a usage-based component of the transition charge on each
retail user's monthly bill and may include in the future a component of any exit
fee collected pursuant to G.L. c. 164, Section 1G(g) until the Total RRB Payment
Requirements are discharged in full. In the Financing Order, the Department
authorized Boston Edison to file Routine True-Up Letters prior to each
anniversary of the date of the Financing Order and at such additional intervals,
if necessary, as provided for in the Financing Order. Boston Edison, or a
successor Servicer, is authorized to file periodic RTC Charge adjustments to the
extent necessary to ensure the timely recovery of revenues sufficient to provide
for the payment of an amount equal to the sum of the Periodic RRB Payment
Requirements (as defined in the Financing Order) for the upcoming year, which
may include indemnity obligations of the SPE in the RRB transaction documents
for SPE officers and directors, trustee fees, liabilities of the special purpose
trust and liabilities to the underwriters related to the underwriting of the
RRBs. Routine True-Up Letter filings are those where Boston Edison uses the
methodology approved by the Department in the Financing Order to adjust upward
or downward the existing RTC Charge. Using the methodology approved by the
Department in the Financing Order, this filing modifies the variables used in
the RTC Charge calculation and provides the resulting modified RTC Charge. Table
I shows the revised assumptions for each of the variables used in calculating
the
<PAGE> 40
RTC Charge for retail users. The assumptions underlying the current RTC Charges
were filed in an Issuance Advice Letter, dated July 28, 1999.
Table I below shows the current assumptions for each of the variables used in
the RTC Charge calculation.
TABLE I
INPUT VALUES FOR RTC CHARGE
a) Most recent RRB payment date for which payment data is available
("Measure Date"):
b) Last RRB payment date related to this remittance period ("Target
Date"):
c) Annual ongoing transaction expenses to be paid through Target Date: d)
Unpaid ongoing transaction expenses following payments on Measure Date:
e) Required annual overcollateralization amount:
f) Overcollateralization account deficiency following payments on Measure
Date:
g) Capital account deficiency following payments on Measure Date:
h) Expected annual RRB principal payments through Target Date:
i) Unpaid RRB principal payments following payments on Measure Date:
j) Interest payments on outstanding principal to be paid through Target
Date:
k) Unpaid interest following payments on Measure Date:
l) Total annual revenue requirement (sum of c. through k. above):
m) Amounts on deposit in reserve account following payments on Measure
Date:
n) Collections expected to be realized in this remittance period from
prior RTC Charge:
o) Required Debt Service (l. - m. - n.):
p) KWh consumption on which RTC Charge is expected to be billed and
collected in this remittance period:
q) Adjusted RTC Charge for retail users ((cent)/kWh) (o. / p.):
TABLE II
INPUT VALUES FOR WEIGHTED AVERAGE DAYS SALES OUTSTANDING
a) Weighted Average Days Sales Outstanding ("WAD"):
b) WAD: Percent of billed amounts collected in current month:
c) WAD: Percent of billed amounts collected in second month after billing:
d) WAD: Percent of billed amounts collected in third month after billing:
e) WAD: Percent of billed amounts collected in fourth month after billing:
f) WAD: Percent of billed amounts collected in fifth month after billing:
g) Annual charge-offs for most recent reconciliation period:
<PAGE> 41
EFFECTIVE DATE
In accordance with the Financing Order, Routine True-Up Letters for annual RTC
Charge adjustments shall be filed prior to the anniversary of the Financing
Order or more frequently, if necessary, with the resulting changes to be
effective no sooner than 15 days after the filing of this Routine True-Up
Letter. No resolution by the Department is required. Therefore, these RTC
Charges shall be effective as of _______________.
NOTICE
Copies of this filing are being furnished to the parties on the attached service
list. Notice to the public is hereby given by filing and keeping this filing
open for public inspection at Boston Edison's corporate headquarters.
<PAGE> 42
EXHIBIT C
FORM OF MONTHLY SERVICER CERTIFICATE
Pursuant to Section 4.01(d)(ii) of the Transition Property Servicing
Agreement, dated as of July 29, 1999 (the "Agreement"), between Boston Edison
Company, as servicer (the "Servicer") and BEC Funding LLC, the Servicer does
hereby certify as follows:
Capitalized terms used herein have their respective meanings as set
forth in the Agreement.
For the Monthly Period:_____________
1. BILLINGS:
a) Monthly kWh Consumption:
b) Applicable RTC Charge:
c) Total RTC Charge Amount Billed this Month:
d) Cumulative RTC Charge Amount Billed this Remittance Period:
2. REMITTANCES:
a) Total Amount Remitted this Month:
b) Cumulative Amount Remitted this Remittance Period:
3. DRAWS ON SUBACCOUNTS:
a) Reserve Subaccount Draw Amount this Month:
b) Cumulative Reserve Subaccount Draw Amount this Remittance Period (net
of funding):
c) Overcollateralization Subaccount Draw Amount this Month:
d) Cumulative Overcollateralization Subaccount Draw Amount this Remittance
Period (net of funding):
e) Capital Subaccount Draw Amount this Month:
f) Cumulative Capital Subaccount Draw Amount this Remittance Period (net
of funding):
Executed as of this _____________ day of ___________.
BOSTON EDISON COMPANY
as Servicer
By:
-----------------------
Name:
Title:
<PAGE> 43
EXHIBIT D
FORM OF SEMIANNUAL SERVICER CERTIFICATE
Pursuant to Section 4.01(d)(iii) of the Transition Property Servicing
Agreement, dated as of July 29, 1999 (the "Agreement"), between Boston Edison
Company, as servicer and BEC Funding LLC, the Servicer does hereby certify, for
the Current Payment Date, as follows:
Capitalized terms used herein have their respective meanings as set
forth in the Agreement. References herein to certain sections and subsections
are references to the respective sections of the Agreement.
1. RTC CHARGE COLLECTIONS AND AGGREGATE AMOUNTS AVAILABLE FOR THE CURRENT
PAYMENT DATE:
i. Amount Remitted [Month] [Year]
ii. Amount Remitted [Month] [Year]
iii. Amount Remitted [Month] [Year]
iv. Amount Remitted [Month] [Year]
v. Amount Remitted [Month] [Year]
vi. Amount Remitted [Month] [Year]
vii. Amount Remitted [Month] [Year]
viii. Amount Remitted [Month] [Year]
ix. TOTAL AMOUNT REMITTED FOR THIS PERIOD (SUM OF I. THROUGH VIII.
ABOVE):
x. Net Earnings on Collection Account:
xi. Expenses Paid to Date:
xii. GENERAL SUBACCOUNT BALANCE (SUM OF IX. AND X. ABOVE MINUS
XI.):
xiii. Reserve Subaccount Balance
xiv. Overcollateralization Subaccount Balance xv. Capital
Subaccount Balance
xvi. COLLECTION ACCOUNT BALANCE (SUM OF XII. THROUGH XV. ABOVE):
2. OUTSTANDING PRINCIPAL BALANCE AS OF PRIOR PAYMENT DATE BY TRANCHE:
i. Class A-1 Principal Balance Outstanding Note/Certificate:
ii. Class A-2 Principal Balance Outstanding Note/Certificate:
iii. Class A-3 Principal Balance Outstanding Note/Certificate:
iv. Class A-4 Principal Balance Outstanding Note/Certificate:
v. Class A-5 Principal Balance Outstanding Note/Certificate:
vi. TOTAL NOTE/CERTIFICATE PRINCIPAL BALANCE:
<PAGE> 44
3. REQUIRED FUNDING/PAYMENTS AS OF CURRENT PAYMENT DATE:
a) PROJECTED PRINCIPAL BALANCES AND PAYMENTS
<TABLE>
<CAPTION>
Projected Semi-Annual
Principal Balance Principal Due
<S> <C> <C>
i. Class A-1 Note/Certificate
ii. Class A-2 Note/Certificate
iii. Class A-3 Note/Certificate
iv. Class A-4 Note/Certificate
v. Class A-5 Note/Certificate
vi. TOTAL PROJECTED PRINCIPAL AMOUNT:
</TABLE>
b) REQUIRED INTEREST PAYMENTS
<TABLE>
<CAPTION>
Note/Cert Days in Interest
Interest Rate Applicable Period Due
<S> <C> <C> <C>
i. Class A-1 Note/Certificate
ii. Class A-2 Note/Certificate
iii. Class A-3 Note/Certificate
iv. Class A-4 Note/Certificate
v. Class A-5 Note/Certificate
vi. TOTAL REQUIRED INTEREST AMOUNT:
</TABLE>
c) PROJECTED SUBACCOUNT PAYMENTS AND LEVELS
<TABLE>
<CAPTION>
Subaccount Projected Level Funding Required
<S> <C> <C>
i. Capital Subaccount:
ii. Overcollateralization Subaccount:
iii. TOTAL SUBACCOUNT PAYMENTS AND LEVELS:
</TABLE>
4. ALLOCATION OF REMITTANCES AS OF CURRENT PAYMENT DATE PURSUANT TO
SECTION 8.02(d) OF NOTE INDENTURE:
a) SEMIANNUAL EXPENSES
Net Expense Amount (Payable on Current Payment Date)
i. Note, Delaware and Certificate Trustee Fees and Expenses:
ii. Semiannual Servicing Fee:
iii. Semiannual Administration Fee:
iv. Operating Expenses (subject to $100,000 cap):
v. TOTAL EXPENSES:
<PAGE> 45
b) SEMIANNUAL INTEREST
<TABLE>
<CAPTION>
Per $1000 of Original
Aggregate Principal Amount
<S> <C> <C>
i. Class A-1 Note/Certificate
ii. Class A-2 Note/Certificate
Iii Class A-3 Note/Certificate
iv. Class A-4 Note/Certificate
v. Class A-5 Note/Certificate
vi. TOTAL SEMIANNUAL INTEREST:
</TABLE>
c) SEMIANNUAL PRINCIPAL
<TABLE>
<CAPTION>
Per $1000 of Original
Aggregate Principal Amount
<S> <C> <C>
i. Class A-1 Note/Certificate
ii. Class A-2 Note/Certificate
Iii Class A-3 Note/Certificate
iv. Class A-4 Note/Certificate
v. Class A-5 Note/Certificate
vi. TOTAL SEMIANNUAL PRINCIPAL:
</TABLE>
d) OTHER PAYMENTS
i. Operating Expenses (in excess of $100,000):
ii. Funding of Capital Subaccount (to required amount):
iii. Funding of Overcollateralization Subaccount (to required
level):
iv. Deposits to Reserve Subaccount:
v. Interest earnings on Capital Account Released to Note Issuer:
5. OUTSTANDING PRINCIPAL BALANCE AND COLLECTION ACCOUNT BALANCE AS OF
CURRENT PAYMENT DATE (AFTER GIVING EFFECT TO PAYMENTS TO BE MADE ON
SUCH DISTRIBUTION DATE):
a) PRINCIPAL BALANCE OUTSTANDING:
i. Class A-1 Principal Balance Outstanding Note/Certificate:
ii. Class A-2 Principal Balance Outstanding Note/Certificate:
iii. Class A-3 Principal Balance Outstanding Note/Certificate:
iv. Class A-4 Principal Balance Outstanding Note/Certificate:
v. Class A-5 Principal Balance Outstanding Note/Certificate:
vi. TOTAL NOTE/CERTIFICATE PRINCIPAL BALANCE:
<PAGE> 46
b) COLLECTION ACCOUNT BALANCES OUTSTANDING:
i. Capital Subaccount:
ii. Overcollateralization Subaccount:
iii. Reserve Subaccount:
iv. TOTAL SUBACCOUNT AMOUNT:
6. SUB-ACCOUNT DRAWS AS OF CURRENT PAYMENT DATE (IF APPLICABLE, PURSUANT
TO SECTION 8.02(e) OF NOTE INDENTURE):
i. Capital Subaccount:
ii. Overcollateralization Subaccount:
iii. Reserve Subaccount:
iv. TOTAL SUBACCOUNT DRAWS:
7. SHORTFALLS IN INTEREST AND PRINCIPAL PAYMENTS AS OF CURRENT PAYMENT
DATE (IF APPLICABLE):
a) SEMIANNUAL INTEREST SHORTFALL
i. Class A-1 Note/Certificate
ii. Class A-2 Note/Certificate
iii. Class A-3 Note/Certificate
iv. Class A-4 Note/Certificate
v. Class A-5 Note/Certificate
vi. TOTAL SEMIANNUAL INTEREST SHORTFALL:
b) SEMIANNUAL PRINCIPAL SHORTFALL
i. Class A-1 Note/Certificate
ii. Class A-2 Note/Certificate
iii. Class A-3 Note/Certificate
iv. Class A-4 Note/Certificate
v. Class A-5 Note/Certificate
vi. TOTAL SEMIANNUAL PRINCIPAL SHORTFALL:
8. SHORTFALLS IN REQUIRED SUBACCOUNT LEVELS AS OF CURRENT DISTRIBUTION
DATE:
i. Capital Subaccount:
ii. Overcollateralization Subaccount:
iii. TOTAL SUBACCOUNT SHORTFALLS:
<PAGE> 47
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Semiannual Servicer Certificate this ___ day of ____, ____.
BOSTON EDISON COMPANY, as Servicer
By:
-------------------------------------
Name:
Title:
<PAGE> 48
EXHIBIT E
FORM OF ANNUAL RECONCILIATION
Pursuant to Section 4.03(b) of the Transition Property Servicing
Agreement, dated as of July 29, 1999, between Boston Edison Company, as servicer
(the "Servicer") and BEC Funding LLC, the Servicer does hereby certify as
follows:
For the Reconciliation Period:_____________ to _____________
1. CALCULATION OF REMITTANCE SHORTFALL OR REMITTANCE EXCESS:
a) System-wide Billed Revenues:
b) System-wide Charge-Offs:
c) System-wide Charge-Off % (b / a):
d) RTC Charge-Off adjustment factor:
e) "Deemed Charge-Off Percent" (c x d):
f) "Estimated Charge-Off Percent":
g) kWh Consumption ([Jan. 1] to [Mar. 31]):
h) RTC Charge ([Jan. 1] to [Mar. 31]):
i) Billed RTC Charges ([Jan. 1] to [Mar. 31]) (g x h):
j) kWh Consumption ([Apr. 1] to [Dec. 31]):
k) RTC Charge ([Apr. 1] to [Dec. 31]):
l) Billed RTC Charges ([Apr. 1] to [Dec. 31]) (j x k):
m) Deemed RTC Charge Payments ([100% - e] x [i + l]):
n) Estimated RTC Charge Payments ([100% - f] x [i + l]):
o) Remittance Shortfall (m - n, if positive):
p) Remittance Excess (n - m, if positive):
Executed as of this _____________ day of ___________.
BOSTON EDISON COMPANY,
as Servicer
By:
-------------------------------------
Name:
Title:
<PAGE> 49
SCHEDULE 4.01(a)
Expected Amortization Schedule
Outstanding Principal Balance
<TABLE>
<CAPTION>
Date A-1 A-2 A-3 A-4 A-5
- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial $108,500,000 $170,609,837 $103,390,163 $170,875,702 $171,624,298
03/15/00 68,500,000 170,609,837 103,390,163 170,875,702 171,624,298
09/15/00 30,058,542 170,609,837 103,390,163 170,875,702 171,624,298
03/15/01 0 170,609,837 103,390,163 170,875,702 171,624,298
09/15/01 0 138,240,115 103,390,163 170,875,702 171,624,298
03/15/02 0 102,109,837 103,390,163 170,875,702 171,624,298
09/15/02 0 68,014,173 103,390,163 170,875,702 171,624,298
03/15/03 0 33,609,837 103,390,163 170,875,702 171,624,298
09/15/03 0 0 103,390,163 170,875,702 171,624,298
03/15/04 0 0 68,500,000 170,875,702 171,624,298
09/15/04 0 0 34,649,752 170,875,702 171,624,298
03/15/05 0 0 0 170,875,702 171,624,298
09/15/05 0 0 0 137,123,948 171,624,298
03/15/06 0 0 0 102,375,702 171,624,298
09/15/06 0 0 0 68,519,879 171,624,298
03/15/07 0 0 0 33,875,702 171,624,298
09/15/07 0 0 0 0 171,624,298
03/15/08 0 0 0 0 137,000,000
09/15/08 0 0 0 0 103,134,628
03/15/09 0 0 0 0 68,500,000
09/15/09 0 0 0 0 34,631,016
03/15/10 0 0 0 0 0
</TABLE>
<PAGE> 50
ANNEX I
SERVICING PROCEDURES
The Servicer agrees to comply with the following servicing procedures:
SECTION 1. DEFINITIONS
(a) Capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth in the Agreement.
(b) Whenever used in this Annex I, the following words and phrases
shall have the following meanings:
"Billed RTC Charges" means the dollar amounts billed to Customers or
the Applicable TPS in respect of the RTC Charge, whether billed to Customers or
the Applicable TPS by the Servicer or to Customers by a TPS pursuant to a TPS
Service Agreement.
"Deemed Charge-Off Percent" means the Servicer's actual system wide
charge-off percentage, as adjusted for estimates of partially paid bills (which
are deemed to have paid the RTC Charge in full).
"Estimated Charge-Off Percent" means the Servicer's good faith estimate
of the Deemed Charge-Off Percent.
"Servicer Policies and Practices" means, with respect to the Servicer's
duties under this Annex I, the policies and practices of the Servicer applicable
to such duties that the Servicer follows with respect to comparable assets that
it services for itself or others, as in effect from time to time and in
accordance with DTE Regulations. The Servicer shall provide ten days' prior
written notice to the Rating Agencies of any amendment to the Servicer Policies
and Practices that would adversely affect in any material respect the
Noteholders or Certificateholders.
SECTION 2. DATA ACQUISITION
(a) Installation and Maintenance of Meters. Except to the extent that a
TPS is responsible for such services pursuant to a TPS Service Agreement, the
Servicer shall cause to be installed, replaced and maintained meters in
accordance with the Servicer Policies and Practices.
(b) Meter Reading. In accordance with the Servicer Policies and
Practices, the Servicer shall obtain usage measurements for each Customer;
provided, however, that the Servicer may determine any Customer's usage on the
basis of estimates in accordance with applicable DTE Regulations; and, provided,
further, that the Servicer may obtain usage
1
<PAGE> 51
measurements from the Applicable TPS for Customers receiving meter reading
services from such TPS if the applicable TPS Service Agreement so provides.
(c) Cost of Metering. The Note Issuer shall not be obligated to pay any
costs associated with the metering duties set forth in this Section 2, including
the costs of installing, replacing and maintaining meters, nor shall the Note
Issuer be entitled to any credit against the Servicing Fee for any cost savings
realized by the Servicer or any TPS as a result of new metering and/or billing
technologies.
SECTION 3. USAGE AND BILL CALCULATION
The Servicer shall obtain a calculation of each Customer's usage (which
may be based on data obtained from such Customer's meter read or on usage
estimates determined in accordance with applicable DTE Regulations) in
accordance with the Servicer Policies and Practices and shall determine
therefrom Billed RTC Charges; provided, however, that in the case of Customers
served by a TPS pursuant to a TPS Service Agreement, the Servicer may obtain
usage measurements from the Applicable TPS for Customers receiving meter reading
services from such TPS if the applicable TPS Service Agreement so provides and
shall determine therefrom Billed RTC Charges.
SECTION 4. BILLING
(a) The Servicer shall implement the RTC Charge as of the Closing Date
and shall thereafter bill each Customer or the Applicable TPS for each
Customer's Billed RTC Charges in accordance with the provisions of this Section
4.
(b) Frequency of Bills; Billing Practices. In accordance with the
Servicer Policies and Practices, the Servicer shall generate and issue a Bill to
each Customer, or, in the case of a Customer who is being billed by a TPS, to
the Applicable TPS, with respect to such Customer's Billed RTC Charges. In the
event that the Servicer makes any material modification to the Servicer Policies
and Practices, it shall notify the Note Issuer, the Note Trustee, the
Certificate Trustee and the Rating Agencies as soon as practicable, and in no
event later than 60 Servicer Business Days after such modification goes into
effect; provided, however, that the Servicer may not make any modification that
will materially adversely affect the Certificateholders.
(c) Format.
(i) Each Bill to a Customer shall contain or be deemed to
contain a Transition Charge that shall include the RTC Charge owed by such
Customer for the applicable billing period.
2
<PAGE> 52
(ii) Each Bill in which the Transition Charge is listed as a
line item shall contain a statement (as a footnote) to the effect that all or a
portion of the Transition Charge is owned by the Note Issuer and not the Seller.
(iii) The Servicer shall conform to such requirements in
respect of the format, structure and text of Bills delivered to Customers and
TPSs as applicable DTE Regulations shall from time to time prescribe. To the
extent that Bill format, structure and text are not prescribed by applicable law
or by applicable DTE Regulations, the Servicer shall, subject to clauses (i) and
(ii) of this subsection (c), determine the format, structure and text of all
Bills in accordance with its reasonable business judgment, the Servicer Policies
and Practices and historical practice.
(d) Delivery. Except as provided in the next sentence, the Servicer
shall deliver all Bills to Customers (i) by United States mail in such class or
classes as are consistent with the Servicer Policies and Practices or (ii) by
any other means, whether electronic or otherwise, that the Servicer may from
time to time use in accordance with the Servicer Policies and Practices. In the
case of Customers that have elected to be billed by a TPS, the Servicer shall
deliver all Bills to the Applicable TPSs by such means as are mutually agreed
upon by the Servicer and the Applicable TPS in the TPS Service Agreement and
which are consistent with DTE Regulations. The Servicer or a TPS, as applicable,
shall pay from its own funds all costs of issuance and delivery of all Bills
that it renders, including printing and postage costs as the same may increase
or decrease from time to time.
SECTION 5. CUSTOMER SERVICE FUNCTIONS
The Servicer or a TPS to extent provided in the applicable TPS Service
Agreement shall handle all Customer inquiries and other Customer service matters
according to the Servicer Policies and Practices.
SECTION 6. COLLECTIONS; PAYMENT PROCESSING; REMITTANCE
(a) Collection Efforts, Policies, Procedures.
(i) The Servicer shall collect Billed RTC Charges from
Customers and TPSs as and when the same become due in accordance with such
collection procedures as it follows with respect to comparable assets that it
services for itself or others, including the following:
(A) The Servicer shall prepare and deliver overdue
notices to Customers and TPSs in accordance with applicable DTE Regulations and
the Servicer Policies and Practices.
(B) The Servicer shall deliver past-due and shut-off
notices in accordance with applicable DTE Regulations and the Servicer Policies
and Practices.
3
<PAGE> 53
(C) The Servicer shall adhere to and carry out
disconnection policies and termination of billing by a TPS pursuant to a TPS
Service Agreement in accordance with Sections 116, 124-124I of the Statute or
successor provisions, applicable DTE Regulations and the Servicer Policies and
Practices.
(D) The Servicer may employ the assistance of
collection agents in accordance with applicable DTE Regulations and the Servicer
Policies and Practices.
(E) The Servicer shall apply Customer and TPS
deposits to the payment of delinquent accounts in accordance with applicable DTE
Regulations and the Servicer Polices and Practices.
(ii) The Servicer shall not waive any late payment charge or
any other fee or charge relating to delinquent payments, if any, or waive, vary
or modify any terms of payment of any amounts payable by a Customer, in each
case unless such waiver or action: (A) would be in accordance with the Servicer
Policies and Practices and (B) would comply in all material respects with
applicable law.
(iii) The Servicer shall accept payment from Customers in
respect of Billed RTC Charges in such forms and methods and at such times and
places in accordance with the Servicer Policies and Practices. The Servicer
shall accept payment from TPSs in respect of Billed RTC Charges in such forms
and methods and at such times and places as the Servicer and each TPS shall
mutually agree in accordance with the applicable TPS Service Agreement and
applicable DTE Regulations.
(b) Payment Processing, Allocation, Priority of Payments. The Servicer
shall post all payments received to Customer or TPS accounts as promptly as
practicable, and, in any event, substantially all payments shall be posted no
later than two Servicer Business Days after receipt.
(c) Investment of Estimated RTC Charge Payments Received. Prior to
remittance on the applicable Remittance Date, the Servicer may invest Estimated
RTC Charge Payments at its own risk and for its own benefit, and such
investments and funds shall not be required to be segregated from the other
investments and funds of the Servicer. The Servicer shall be entitled to retain
as additional compensation any interest earnings on Estimated RTC Charge
Payments invested by it.
(d) Calculation of Estimated RTC Charge Payments and Deemed RTC Charge
Payments; Remittances. In accordance with Section 4.03(a) of the Agreement, the
Servicer shall remit to the Note Trustee for deposit in the Collection Account
an amount equal to the product of the Billed RTC Charges for a particular
billing date multiplied by one hundred percent less the Estimated Charge-Off
Percent. Such product shall constitute the amount of Estimated RTC Charge
Payments. Pursuant to Section 4.03(b) of the Agreement, on or before March 1 of
each
4
<PAGE> 54
year, the Servicer shall calculate the amount of Deemed RTC Charge Payments by
multiplying the Billed RTC Charges by one hundred percent less the Deemed
Charge-Off Percent.
(e) Remittances.
(i) The Note Issuer shall cause to be established the
Collection Account in the name of the Note Trustee in accordance with Section
8.02 of the Note Indenture.
(ii) The Servicer shall make or cause to be made Remittances
to the Collection Account in accordance with Section 4.03 of the Agreement.
(iii) Any change of account or change of institution affecting
the Collection Account shall not take effect until the Note Issuer has provided
at least fifteen (15) Servicer Business Days written notice thereof to the
Servicer.
SECTION 7. TPSs
In the event a TPS performs services pursuant to a TPS Service
Agreement, the Servicer shall comply with the procedures set forth in Schedule A
to this Annex I.
5
<PAGE> 55
SCHEDULE A
TO ANNEX I
Additional Servicing Procedures Applicable to TPSs
1. Establishing TPS Relationship
In addition to any actions required by the DTE or by applicable law,
for each TPS that is responsible for collecting Billed RTC Charges, the Servicer
shall take the following steps:
(a) Maintain adequate records of the payment arrangement
applicable to such TPS;
(b) Maintain copies of all Customer requests to convert to billing
by a TPS;
(c) Verify with the DTE that each TPS is licensed to supply
electricity in Massachusetts;
(d) Obtain information from the TPS including, but not limited to:
name, contact, address, telephone facsimile transmission
number and internet address;
(e) Maintain and update records of Customers to permit prompt
reversion to dual- billing;
(f) Maintain estimates of one month's maximum Estimated RTC Charge
Payments for each TPS required to post a bond, letter of
credit or cash deposit pursuant to the applicable TPS Service
Agreement; and
(g) Comply with credit conditions set out in the Financing Order
and applicable TPS Service Agreement.
2. Monitoring TPS Obligations
(a) The Servicer shall require each TPS to pay all undisputed and
all disputed Billed RTC Charges or make a financial
arrangement for such payment according to the applicable TPS
Service Agreement; and
(b) For all TPSs subject to any remittance option where such TPS
is liable for all amounts billed in respect of Customers
served thereby regardless of the amounts received therefrom,
the Servicer shall monitor payment compliance and take all
actions permitted by the DTE and the Financing Order in the
event of a default in payment.
3. Enforcing TPS Obligations
The Servicer shall promptly take all actions specified by the Financing
Order with respect to amounts not remitted to the Servicer in accordance with
the payment terms specified by the Financing Order, in addition to any other
remedies available at law.
6
<PAGE> 1
Execution Copy
ADMINISTRATION AGREEMENT
This Administration Agreement, dated as of July 29, 1999, is made by
and between BEC Funding LLC, a Delaware limited liability company (the "Note
Issuer"), and Boston Edison Company, a Massachusetts corporation, as
Administrator (the "Administrator").
RECITALS
A. WHEREAS, the Note Issuer is issuing the Notes pursuant to the Note
Indenture dated as of July 29, 1999 (as amended, modified or supplemented from
time to time in accordance with the provisions thereof, the "Note Indenture";
capitalized terms used herein and not defined herein shall have the meanings
assigned such terms in the Note Indenture), between the Note Issuer and The Bank
of New York, as Note Trustee (in such capacity, the "Note Trustee").
B. WHEREAS, the Note Issuer has entered into certain agreements in
connection with the issuance of the Notes, including (i) a Transition Property
Purchase and Sale Agreement dated as of July 29, 1999 (the "Sale Agreement"),
between the Note Issuer and Boston Edison Company, as Seller (in such capacity,
the "Seller"), (ii) a Transition Property Servicing Agreement dated as of July
29, 1999 (the "Servicing Agreement"), between the Note Issuer and Boston Edison
Company, as Servicer (in such capacity, the "Servicer"), (iii) an Underwriting
Agreement dated as of July 22, 1999 (the "Underwriting Agreement"), among the
Note Issuer, Boston Edison Company, and the Underwriters named therein, (iv) the
Note Indenture, (v) a Note Purchase Agreement dated as of July 29, 1999 (the
"Note Purchase Agreement") between the Note Issuer and The Bank of New York, as
Certificate Trustee (in such capacity, the "Certificate Trustee") and (vi) a Fee
and Indemnity Agreement dated as of July 29, 1999 (the "Fee Agreement") among
the Delaware Trustee, the Massachusetts Development Finance Agency, the
Massachusetts Health and Educational Facilities Authority, the Certificate
Trustee, the Note Issuer, and Massachusetts RRB Special Purpose Trust BEC-1 (the
"Trust") (the Sale Agreement, the Servicing Agreement, the Underwriting
Agreement, the Note Indenture, the Note Purchase Agreement and the Fee
Agreement, all as amended or modified from time to time, are hereinafter
referred to collectively as the "Related Agreements");
C. WHEREAS, pursuant to the Related Agreements, the Note Issuer is
required to perform certain duties in connection with the Notes and the
collateral therefor pledged pursuant to the Note Indenture (the "Collateral")
and to maintain its existence and comply with applicable laws;
D. WHEREAS, the Note Issuer has no employees, other than its officers,
and does not intend to hire any additional employees, and consequently desires
to have the Administrator perform certain duties of the Note Issuer referred to
in the preceding clause, and to provide such additional services consistent with
the terms of this Agreement and the Related Agreements as the Note Issuer may
from time to time request; and
<PAGE> 2
E. WHEREAS, the Administrator has the capacity to provide the services
and the facilities required hereby and is willing to perform such services and
provide such facilities for the Note Issuer on the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I.
Duties of Administrator
Section 1.01 Appointment of Administrator: Acceptance of Appointment.
The Note Issuer hereby appoints the Administrator, and the Administrator hereby
accepts such appointment, to perform the Administrator's obligations pursuant to
this Agreement on behalf of and for the benefit of the Note Issuer in accordance
with the terms of this Agreement and applicable law.
Section 1.02 Duties with Respect to the Related Agreements (a) The
Administrator agrees to perform all its duties as Administrator hereunder in
accordance with the terms of this Agreement and applicable law. In addition, the
Administrator shall consult with the Note Issuer regarding the Note Issuer's
duties under the Related Agreements. Unless otherwise notified in writing by the
Note Issuer, the Administrator shall prepare for execution by the Note Issuer,
or shall cause the preparation by other appropriate Persons of all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Note Issuer to prepare, file or deliver pursuant to any
Related Agreement. In furtherance of the foregoing, the Administrator shall take
all appropriate action that it is the duty of the Note Issuer to take pursuant
to the Note Indenture including, without limitation, such of the foregoing as
are required with respect to the following matters under the Note Indenture
(references are to sections of the Note Indenture):
(1) the preparation of or obtaining of the documents and
instruments required for authentication of the Notes, if any, and
delivery of the same to the Note Trustee (Section 2.03);
(2) the duty to keep the Note Register and to give the Note
Trustee notice of any appointment of a new Note Registrar and the
location, or change in location, of the Note Register (Section 2.05);
(3) the fixing or causing to be fixed of any special record
date and the notification of each affected Noteholder with respect to
special record dates, payment dates, and the amount of defaulted
interest (plus interest on such defaulted interest) to be paid, if any
(Section 2.08(c));
-2-
<PAGE> 3
(4) the preparation, obtaining or filing of the instruments,
opinions and certificates and other documents required for the release
of collateral (Section 2.11);
(5) the duty to cause newly appointed Paying Agents, if any,
to deliver to the Note Trustee the instrument specified in the Note
Indenture regarding funds held in trust (Section 3.03);
(6) the direction to Paying Agents to pay to the Note Trustee
all sums held in trust by such Paying Agents (Section 3.03);
(7) the preparation and filing of all documents and
instruments necessary to maintain the Note Issuer's existence, rights
and franchises as a limited liability company under the laws of the
State of Delaware (unless the Note Issuer becomes, or any successor
Note Issuer under the Note Indenture is or becomes, organized under the
laws of any other State or of the United States of America, in which
case the Administrator will prepare and file all documents and
instruments necessary to maintain such Note Issuer's existence, rights
and franchises under the laws of such other jurisdiction) (Section
3.04);
(8) the obtaining and preservation of the Note Issuer's
qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of the Note Indenture, the Notes, the Collateral and
each other instrument or agreement included in the Collateral (Section
3.04);
(9) the preparation of all supplements and amendments to the
Note Indenture, filings with the DTE pursuant to the Statute, financing
statements, continuation statements, instruments of further assurance
and other instruments, in accordance with Section 3.05 of the Note
Indenture, necessary to protect the Collateral (Section 3.05);
(10) the obtaining of the Opinions of Counsel and the delivery
of such Opinions of Counsel, in accordance with Section 3.06 of the
Note Indenture, as to the Collateral, and the annual delivery of the
Officer's Certificate and certain other statements, in accordance with
Section 3.09 of the Note Indenture, as to compliance with the Note
Indenture (Section 3.06 and 3.09);
(11) the identification to the Note Trustee in an Officer's
Certificate of any Person with whom the Note Issuer has contracted to
perform its duties under the Note Indenture (Section 3.07(b));
(12) the preparation and filing of all documents required
under the Statute relating to the transfer of the ownership or security
interest in the Transition Property (Section 3.07(i));
-3-
<PAGE> 4
(13) the annual preparation and delivery of an Officer's
Certificate to the Note Trustee, the Certificate Trustee, the Agencies
and the Rating Agencies as to compliance with conditions and covenants
under the Note Indenture (Section 3.09);
(14) the preparation and obtaining of documents and
instruments required for the release of the Note Issuer from its
obligations under the Note Indenture (Section 3.11(b));
(15) the delivery of notice to the Note Trustee and the Rating
Agencies of each Event of Default and each default by the Servicer or
Seller of its obligations under the Servicing Agreement or the Sale
Agreement, respectively (Sections 3.07(d) and 3.9);
(16) the preparation of an Officer's Certificate and
Independent Certificate relating to (i) the satisfaction and discharge
of the Note Indenture under Section 4.01 of the Note Indenture or (ii)
the exercise of the Legal Defeasance Option or the Covenant Defeasance
Option under Section 4.02 of the Note Indenture (Sections 4.01 and
4.02);
(17) the furnishing to the Note Trustee of (i) each Record
Date with respect to each Series and (ii) the names and addresses of
Noteholders during any period when the Note Trustee is not the Note
Registrar (Section 7.01);
(18) to the extent not required to be performed by the
Servicer, the preparation and, after execution by the Note Issuer, the
Delaware Trustee or the Certificate Trustee (as the case may be), the
filing with the SEC and the Note Trustee of the annual reports and of
the information, documents and other reports, including filings on
behalf of the Trust pursuant to the Certificate Indenture, the
Declaration of Trust or otherwise, required to be filed on a periodic
basis with, and summaries thereof as may be required by rules and
regulations prescribed by, the Commission and the transmission of such
summaries, as necessary, to the Noteholders (Sections 3.07(h) and
7.03);
(19) the notification of the Note Trustee if and when the
Notes are listed on any stock exchange (Section 7.04);
(20) the opening of one or more segregated trust accounts in
the Note Trustee's name, the preparation of Issuer Orders, and the
obtaining of Opinions of Counsel and the taking of all other actions
necessary with respect to investment and reinvestment of funds in the
Collection Account (Section 8.02 and 8.03);
(21) the preparation of Issuer Requests and Officers'
Certificates and the obtaining of an Opinion of Counsel and Independent
Certificates, if necessary, for the release of the Collateral (Section
8.04 and 8.05);
(22) the preparation of Issuer Orders and the obtaining of
Officers' Certificates with respect to the execution of supplemental
indentures (Sections 9.01 and 9.02);
-4-
<PAGE> 5
(23) the preparation of new Notes conforming to any
supplemental indenture (Section 9.04);
(24) the notification of the Note Trustee of any redemption of
the Notes (Sections 10.01 and 10.04);
(25) the preparation of all Officer's Certificates and
Independent Certificates with respect to any requests by the Note
Issuer to the Note Trustee to take any action under the Note Indenture
(Section 11.01(a));
(26) the preparation and delivery of Officers' Certificates
for the release of property from the lien of the Note Indenture
(Section 11.01(b));
(27) the notification of the Note Trustee of any notice
received by the Note Issuer from the Noteholders (Section 11.04); and
(28) the recording of the Note Indenture, if applicable, and
the obtaining of an Opinion of Counsel in connection therewith (Section
11.14).
(b) The Administrator shall also take all appropriate action
that it is the duty of the Note Issuer to take pursuant to the Underwriting
Agreement including, without limitation, the following matters (references are
to sections of the Underwriting Agreement):
(1) to the extent not already delivered, the delivery to the
Representatives and counsel for the Underwriters under the Underwriting
Agreement (the "Underwriters"), of copies of the Registration Statement
(as defined in the Underwriting Agreement) (Section 5(a)(iii));
(2) so long as delivery of a prospectus by an Underwriter or
dealer may be required by the Act, the delivery to the Representatives
and counsel for the Underwriters of as many copies of any Preliminary
Final Prospectus and the Final Prospectus and any supplement thereto as
the Representatives may reasonably request (Section 5(a)(iii));
(3) to the extent not required to be performed by the
Servicer, the preparation and, after execution by the Note Issuer, the
filing with the SEC of reports on Form SR as required by Rule 463 under
the Act, and the delivery of such reports on Form SR, as filed with the
Commission, to the Representatives (Section 5(a)(iii));
(4) the preparation and, after execution by the Note Issuer,
the filing of all documents and instruments necessary to qualify the
Certificates for sale under the laws of such jurisdictions as the
Representatives may designate, and the maintenance of such
qualifications in effect so long as required for the distribution of
the Certificates, subject to
-5-
<PAGE> 6
the qualifications, limitations and exceptions set forth in the
Underwriting Agreement (Section 5(a)(iv));
(5) the arrangement for the determination of the legality of
the Certificates for purchase by institutional investors (Section
5(a)(iv));
(6) to the extent not already performed by the Servicer, the
delivery to the Representatives of the annual statements of compliance
and the annual independent auditor's servicing reports furnished to the
Note Issuer or the Note Trustee pursuant to the Servicing Agreement or
the Note Indenture (Section 5(a)(vi));
(7) so long as any of the Certificates are outstanding, and
to the extent not already performed by the Servicer, the delivery to
the Representatives of (i) a copy of any filings with the DTE pursuant
to the Financing Order including, but not limited to, any Issuance
Advice Letters and (ii) from time to time, any information concerning
the Note Issuer to the extent readily available, that the
Representatives may reasonably request (Section 5(a)(vii)); and
(8) to the extent, if any, that any rating necessary to
satisfy the condition set forth in Section 6(r) of the Underwriting
Agreement is conditioned upon the furnishing of documents or the taking
of other actions by the Note Issuer on or after the Closing Date (as
defined in the Underwriting Agreement), the delivery of such documents
and the taking of such actions (Section 5(a)(viii)).
Section 1.03 Additional Duties. (a) In addition to the duties of the
Administrator set forth above, the Administrator shall perform such calculations
and shall prepare for execution by the Note Issuer or shall cause the
preparation by other appropriate persons of all such documents, reports,
filings, instruments, certificates and opinions as it shall be the duty of the
Note Issuer to prepare, file or deliver pursuant to the Related Agreements, and
at the request of the Note Issuer shall take all appropriate action that it is
the duty of the Note Issuer to take pursuant to the Related Agreements. Subject
to Section 5.01 of this Agreement, and in accordance with the directions of the
Note Issuer, the Administrator shall administer, perform or supervise the
performance of such other activities in connection with the Collateral and the
Related Agreements as are not covered by any of the foregoing provisions and as
are expressly requested by the Note Issuer and are reasonably within the
capability of the Administrator.
(b) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Administrator may enter into transactions
with or otherwise deal with any of its Affiliates; provided, however, that the
terms of any such transactions or dealings shall be, in the Administrator's
reasonable opinion, no less favorable to the Note Issuer than would be available
from unaffiliated parties.
-6-
<PAGE> 7
Section 1.04 Non-Ministerial Matters. (a) With respect to matters that
in the reasonable judgment of the Administrator are non-ministerial, the
Administrator shall not take any action unless the Administrator shall have
notified the Note Issuer of the proposed action and the Note Issuer shall have
consented. For the purpose of the preceding sentence, "non-ministerial matters"
shall include, without limitation:
(1) the amendment of, or any supplement to, the Note
Indenture;
(2) the initiation of any claim or lawsuit by the Note Issuer
and the compromise of any action, claim or lawsuit brought by or
against the Note Issuer (other than in connection with the collection
of the RTC Charge);
(3) the amendment, change or modification of the Related
Agreements;
(4) the appointment of successor Note Registrars, successor
Paying Agents and successor Note Trustees pursuant to the Note
Indenture or the appointment of successor Administrators or successor
Servicers, or the consent to the assignment by the Note Registrar,
Paying Agent or Note Trustee of its obligations under the Note
Indenture; and
(5) the removal of the Note Trustee.
(b) Notwithstanding anything to the contrary in this
Agreement, the Administrator shall not be obligated to, and hereby agrees that
it shall not, take any action that the Note Issuer directs the Administrator not
to take on its behalf.
Section 1.05 Records. The Administrator shall maintain appropriate
books of account and records relating to services performed hereunder, which
books of account and records shall be accessible for inspection by the Note
Issuer and the Note Trustee at any time during normal business hours.
ARTICLE II.
Facilities
Section 1.06 Facilities. During the term of this Agreement, the
Administrator shall make available to or provide the Note Issuer with such
facilities as are necessary to conduct the business of the Note Issuer and to
comply with the terms of the Related Agreements. Such facilities shall include
office space to serve as the principal place of business of the Note Issuer.
Initially such office space will be located at 800 Boylston Street, Floor 35,
Boston, Massachusetts 02199. All facilities provided to the Note Issuer
hereunder shall be provided without warranty of any kind.
-7-
<PAGE> 8
ARTICLE III.
Compensation
Section 3.01 Compensation. As compensation for the performance of the
Administrator's obligations under this Agreement, including the provision of
facilities pursuant to Section 2.01, the Administrator shall be entitled to a
fee of $37,500 for each semi-annual period, payable on the Payment Date as
defined in Section 1.01(a) of the Note Indenture. In addition, the Note Issuer
shall reimburse the Administrator for all filing fees and expenses, legal fees,
fees of outside auditors and other out-of-pocket expenses incurred by the
Administrator in the course of performing its duties hereunder. The
Administrator's compensation and other expenses payable hereunder shall be paid
from the Collection Account pursuant to Section 8.02(d) of the Note Indenture,
and the Administrator shall have no recourse against the Note Issuer for payment
of such amounts other than in accordance with Section 8.02 of the Note
Indenture.
ARTICLE IV.
Additional Information
Section 4.01 Additional Information To Be Furnished to Note Issuer. The
Administrator shall furnish to the Note Issuer from time to time such additional
information regarding the Collateral as the Note Issuer shall reasonably
request.
ARTICLE V.
Miscellaneous Provisions
Section 5.01 Independence of Administrator. For all purposes of this
Agreement, the Administrator shall be an independent contractor and shall not be
subject to the supervision of the Note Issuer with respect to the manner in
which it accomplishes the performance of its obligations hereunder. Unless
expressly authorized by the Note Issuer, the Administrator shall have no
authority to act for or represent the Note Issuer in any way and shall not
otherwise be deemed an agent of the Note Issuer.
Section 5.02 No Joint Venture. Nothing contained in this Agreement
shall (a) constitute the Administrator and the Note Issuer as members of any
partnership, joint venture, association, syndicate, unincorporated business or
other separate entity, (b) be construed to impose any liability as such on any
of them or (c) be deemed to confer on any of them any express, implied or
apparent authority to incur any obligation or liability on behalf of the others.
-8-
<PAGE> 9
Section 5.03 Other Activities of Administrator. Nothing herein shall
prevent the Administrator or its Affiliates from engaging in other businesses
or, in its sole discretion, from acting in a similar capacity as an
administrator for any other person or entity even though such person or entity
may engage in business activities similar to those of the Note Issuer.
Section 5.04 Term of Agreement: Resignation and Removal of
Administrator. (a) This Agreement shall continue in force for one year and one
day after the retirement of all Notes issued pursuant to the Note Indenture.
(b) Subject to Sections 5.04(e) and 5.04(f), the Administrator may
resign its duties hereunder by providing the Note Issuer with at least 60 days
prior written notice.
(c) Subject to Sections 5.04(e) and 5.04(f), the Note Issuer may remove
the Administrator without cause by providing the Administrator with at least 60
days prior written notice.
(d) Subject to Sections 5.04(e) and 5.04(f), at the sole option of the
Note Issuer, the Administrator may be removed immediately upon written notice of
termination from the Note Issuer to the Administrator if any of the following
events shall occur:
(1) the Administrator shall default in the performance of any
of its duties under this Agreement and, after notice of such default,
shall not cure such default within ten days (or, if such default is
curable but cannot be cured in such time, shall not give within ten
days such assurance of cure as shall be reasonably satisfactory to the
Note Issuer);
(2) a court having jurisdiction in the premises shall enter a
decree or order for relief, and such decree or order shall not have
been vacated within 60 days, in respect of the Administrator in any
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect or appoint a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official for the Administrator or any substantial part of its property
or order the winding-up or liquidation of its affairs; or
(3) the Administrator shall commence a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, shall consent to the entry of an order for relief
in an involuntary case under any such law, or shall consent to the
appointment of a receiver, liquidator, assignee, trustee, custodian,
sequestrator or similar official for the Administrator or any
substantial part of its property, shall consent to the taking of
possession by any such official of any substantial part of its
property, shall make any general assignment for the benefit of
creditors or shall fail generally to pay its debts as they become due.
-9-
<PAGE> 10
The Administrator agrees that if any of the events specified
in clause (2) or (3) of this Section shall occur, it shall give written notice
thereof to the Note Issuer and the Note Trustee within seven days after the
happening of such event.
(e) No resignation or removal of the Administrator pursuant to this
Section 5.04 shall be effective until (1) a successor Administrator shall have
been appointed by the Note Issuer and (2) such successor Administrator shall
have agreed in writing to be bound by the terms of this Agreement in the same
manner as the Administrator is bound hereunder.
(f) The appointment of any successor Administrator shall be effective
only after satisfaction of the Rating Agency Condition with respect to the
proposed appointment.
Section 5.05 Action upon Termination, Resignation or Removal. Promptly
upon the effective date of termination of this Agreement pursuant to Section
5.04(a) or the resignation or removal of the Administrator pursuant to Sections
5.04(b) or 5.04(c), respectively, the Administrator shall be entitled to be paid
all fees accruing to it and expenses accrued by it in the performance of its
duties hereunder through the date of such termination, resignation or removal,
to the extent permitted under Article III. The Administrator shall forthwith
upon such termination pursuant to Section 5.04(a) deliver to the Note Issuer all
property and documents of or relating to the Collateral then in the custody of
the Administrator. In the event of the resignation or removal of the
Administrator pursuant to Sections 5.04(b) or 5.04(c), respectively, the
Administrator shall cooperate with the Note Issuer and take all reasonable steps
requested to assist the Note Issuer in making an orderly transfer of the duties
of the Administrator.
Section 5.06 Notices. Unless otherwise specifically provided herein,
all notices, directions, consents and waivers required under the terms and
provisions of this Administration Agreement shall be in English and in writing,
and any such notice, direction, consent or waiver may be given by United States
mail, courier service, facsimile transmission or electronic mail (confirmed by
telephone, United States mail or courier service in the case of notice by
facsimile transmission or electronic mail) or any other customary means of
communication, and any such notice, direction, consent or waiver shall be
effective when delivered, or if mailed, three days after deposit in the United
States mail with proper postage for ordinary mail prepaid:
(a) if to the Note Issuer, to
BEC Funding LLC
800 Boylston Street, 35th Floor
Boston, MA 02199
Attention: President
Facsimile: (617) 424-2605
Telephone: (617) 369-6000
-10-
<PAGE> 11
(b) if to the Administrator, to
Boston Edison Company
800 Boylston Street
Boston, MA 02199
Attention: Manager, Corporate Finance
Facsimile: (617) 424-3204
Telephone: (617) 424-2000
(c) if to the Note Trustee, to
The Bank of New York
101 Barclay Street
Floor 12 East
New York, NY 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
or to such other address as any party shall have provided to the other parties
in writing. Any notice required to be in writing hereunder shall be deemed given
if such notice is mailed by certified mail, postage prepaid, telecopied or
hand-delivered to the address of such party as provided above, except that
notices to the Note Trustee are effective only upon receipt.
Section 5.07 Amendments. This Agreement may be amended in writing by
the Administrator and the Note Issuer with the written consent of the Note
Trustee, but without the consent of any of the Noteholders or
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions in this Agreement or for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions in this Agreement or
of modifying in any manner the rights of the Noteholders or the
Certificateholders; provided, however, that such action shall not, as evidenced
by an Officer's Certificate delivered to the Note Trustee, adversely affect in
any material respect the interests of any Noteholder or Certificateholder.
This Agreement may also be amended in writing from time to time by the
Administrator and the Note Issuer with the written consent of the Note Trustee
and the written consent of the Holders of Notes evidencing not less than a
majority of the Outstanding Amount of the Notes of all Series, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Noteholders or the Certificateholders; provided, however, that no such amendment
shall increase or reduce in any manner the amount of, or accelerate or delay the
timing of, RTC Charge Collections without the consent of the Holders of all the
outstanding Notes.
-11-
<PAGE> 12
Promptly after the execution of any such amendment and the requisite
consents, the Administrator shall furnish written notification of the substance
of such amendment to the Note Trustee and each of the Rating Agencies.
Approval by Noteholders of the substance of any proposed amendment or
consent shall constitute sufficient consent of the Noteholders pursuant to this
Section, and it shall not be necessary that Noteholders approve of the
particular form of any amendment or consent.
Prior to its consent to any amendment to this Agreement, the Note
Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating
that such amendment is authorized or permitted by this Agreement. The Note
Trustee may, but shall not be obligated to, enter into any such amendment which
affects the Note Trustee's own rights, duties or immunities under this Agreement
or otherwise.
Section 5.08 Successors and Assigns. This Agreement may not be assigned
by the Administrator unless such assignment is previously consented to in
writing by the Note Issuer and the Note Trustee and is subject to the
satisfaction of the Rating Agency Condition in respect thereof. An assignment
with such consent and satisfaction, if accepted by the assignee, shall bind the
assignee hereunder in the same manner as the Administrator is bound hereunder.
Notwithstanding the foregoing, this Agreement may be assigned by the
Administrator without the consent of the Note Issuer and the Note Trustee to a
corporation or other organization that is a successor (by merger, consolidation
or purchase of assets) to the Administrator, provided that such successor
organization executes and delivers to the Note Issuer and the Note Trustee an
agreement in which such corporation or other organization agrees to be bound
hereunder by the terms of said assignment in the same manner as the
Administrator is bound hereunder and the Rating Agency Condition is satisfied.
Subject to the foregoing, this Agreement shall bind any successors or assigns of
the parties hereto.
Section 5.09 Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Administrator, the Note Issuer, the
Trust, the Note Trustee, the Noteholders, the Certificate Trustee, the
Certificateholders, the Delaware Trustee and the Agencies. The Noteholders and
the Certificateholders shall be entitled to enforce their rights and remedies
against the Administrator under this agreement solely through a cause of action
brought for their benefit by the Note Trustee or the Certificate Trustee, as the
case may be, and nothing in this Agreement, whether express or implied, shall be
construed to give to any other Person any legal or equitable right, remedy or
claim in the Transition Property or under or in respect of this Agreement or any
covenants, conditions or provisions contained herein, except for the indemnities
specifically provided in Section 5.15. The Persons listed in this section as
having the benefit of this Agreement and the indemnified Persons listed in
Section 5.15 shall have rights of enforcement with respect this Agreement.
-12-
<PAGE> 13
Section 5.10 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT REFERENCE
TO ITS CONFLICT OF LAW PROVISIONS AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF
THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 5.11 Headings. The section headings hereof have been inserted
for convenience of reference only and shall not be construed to affect the
meaning, construction or effect of this Agreement.
Section 5.12 Counterparts. This Agreement may be executed in
counterparts, each of which when so executed shall together constitute but one
and the same agreement.
Section 5.13 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
Section 5.14 Nonpetition Covenants. Notwithstanding any prior
termination of this Agreement or the Note Indenture, but subject to the DTE's
right to order the sequestration and payment of revenues arising with respect to
the Transition Property notwithstanding any bankruptcy, reorganization or other
insolvency proceedings with respect to the Seller of the Transition Property
pursuant to Section 1H(d)(5) of the Statute, the Administrator shall not, prior
to the date which is one year and one day after the termination of the Note
Indenture with respect to the Note Issuer, petition or otherwise invoke or cause
the Note Issuer or the Trust to invoke the process of any court or government
authority for the purpose of commencing or sustaining a case against the Note
Issuer or the Trust under any Federal or state bankruptcy, insolvency or similar
law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Note Issuer or the Trust or any
substantial part of the property of the Note Issuer or the Trust, or ordering
the winding up or liquidation of the affairs of the Note Issuer or the Trust.
Section 5.15 Indemnification. The Administrator shall indemnify the
Note Issuer, the Note Trustee, the Delaware Trustee, the Certificate Trustee,
the Trust, the Agencies, and their respective officers, directors, managers,
employees and agents for, and defend and hold harmless each such Person from and
against, any and all liabilities, obligations, actions, suits, claims, losses,
damages, payments, costs or expenses of any kind whatsoever that may be imposed
on, incurred by or asserted against any such Person as a result of the
Administrator's willful misconduct or gross negligence in the performance of its
duties or observance of its covenants under this Agreement. The Noteholders and
the Certificateholders shall be entitled to enforce their rights and remedies
against the Administrator under this indemnification solely through a cause of
action brought for their benefit by the Note Trustee or the Certificate Trustee,
as the
-13-
<PAGE> 14
case may be. For the purposes of this Section 5.15, the term "Agencies" shall
include the Executive Office for Administration and Finance of The Commonwealth
of Massachusetts.
-14-
<PAGE> 15
IN WITNESS WHEREOF, the parties have caused this Administration
Agreement to be duly executed and delivered under seal as of the day and year
first above written.
BEC FUNDING LLC, as Note Issuer
By: /s/Emilie G. O'Neil
----------------------------------------
Name: Emilie G. O'Neil
Title: Vice President and Treasurer
BOSTON EDISON COMPANY, as Administrator
By: /s/ R. J. Weafer, Jr.
----------------------------------------
Name: Robert J. Weafer, Jr.
Title: Vice President - Finance and Controller
S-1
<PAGE> 1
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.
-13-
<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.
-14-
<PAGE> 15
(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.
-15-
<PAGE> 16
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
-16-
<PAGE> 17
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
-17-
<PAGE> 18
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.
-18-
<PAGE> 19
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.
-19-
<PAGE> 20
(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
-20-
<PAGE> 21
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.
-21-
<PAGE> 22
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
-22-
<PAGE> 23
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]
-23-
<PAGE> 24
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
-24-
<PAGE> 25
SCHEDULE 6.06
OFFICERS
Robert Weafer, Jr. President, Treasurer
Emilie O'Neil Vice President
Theodora Convisser Secretary
-25-
<PAGE> 26
EXHIBIT A
NOTICE ADDRESS OF SOLE MEMBER
NAME OF MEMBER NOTICE ADDRESS
Boston Edison Company 800 Boylston Street
Boston, MA 02199
Attn: Corporate Finance
-26-
<PAGE> 27
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.
-27-
<PAGE> 28
IN WITNESS WHEREOF, the undersigned have executed this Management Agreement
as of the day and year first above written.
----------------------------------
Name:
----------------------------------
Name:
----------------------------------
Name:
----------------------------------
Name:
----------------------------------
Name:
-28-
<PAGE> 1
EXECUTION COPY
BEC FUNDING LLC,
AS NOTE ISSUER
AND
THE BANK OF NEW YORK,
AS NOTE TRUSTEE
------------------------------
NOTE INDENTURE
DATED AS OF JULY 29, 1999
------------------------------
$725,000,000
BEC FUNDING LLC NOTES
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
ARTICLE I
Definitions and Incorporation by Reference
Section 1.01. Definitions............................................................................2
Section 1.02. Incorporation by Reference of Trust Indenture Act.....................................11
Section 1.03. Rules of Construction.................................................................11
ARTICLE II
The Notes
Section 2.01. Terms of the Notes....................................................................12
Section 2.02. Form..................................................................................14
Section 2.03. Execution, Authentication and Delivery................................................14
Section 2.04. Temporary Notes.......................................................................15
Section 2.05. Registration; Registration of Transfer and Exchange...................................15
Section 2.06. Mutilated, Destroyed, Lost or Stolen Notes............................................16
Section 2.07. Persons Deemed Owner..................................................................17
Section 2.08. Payment of Principal and Interest; Interest on Overdue Principal; Principal
and Interest Rights Preserved.........................................................17
Section 2.09. Cancellation..........................................................................18
Section 2.10. Authentication and Delivery of Notes..................................................18
Section 2.11. Release of Collateral.................................................................24
ARTICLE III
Covenants
Section 3.01. Payment of Principal and Interest.....................................................24
Section 3.02. Maintenance of Office or Agency.......................................................24
Section 3.03. Money for Payments To Be Held in Trust................................................24
Section 3.04. Existence.............................................................................26
Section 3.05. Protection of Collateral..............................................................26
Section 3.06. Opinions as to Collateral.............................................................27
Section 3.07. Performance of Obligations; Servicing; Commission Filings.............................27
Section 3.08. Negative Covenants....................................................................29
Section 3.09. Annual Statement as to Compliance.....................................................29
Section 3.10. Note Issuer May Consolidate, etc......................................................30
i
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 3.11. Successor or Transferee...............................................................32
Section 3.12. No Other Business.....................................................................32
Section 3.13. No Borrowing..........................................................................32
Section 3.14. Servicer's Obligations................................................................32
Section 3.15. No Additional Notes...................................................................32
Section 3.16. Guarantees, Loans, Advances and Other Liabilities.....................................32
Section 3.17. Capital Expenditures..................................................................32
Section 3.18. Non-Routine Periodic Adjustment.......................................................32
Section 3.19. Restricted Payments...................................................................32
Section 3.20. Notice of Events of Default...........................................................33
Section 3.21. Further Instruments and Acts..........................................................33
ARTICLE IV
Satisfaction and Discharge; Defeasance
Section 4.01. Satisfaction and Discharge of Note Indenture; Defeasance..............................33
Section 4.02. Conditions to Defeasance..............................................................35
Section 4.03. Application of Trust Money............................................................36
Section 4.04. Repayment of Moneys Held by Paying Agent..............................................36
ARTICLE V
Remedies
Section 5.01. Events of Default.....................................................................36
Section 5.02. Acceleration of Maturity; Rescission and Annulment....................................37
Section 5.03. Collection of Indebtedness and Suits for Enforcement by Note Trustee..................38
Section 5.04. Remedies; Priorities..................................................................40
Section 5.05. Optional Possession of the Collateral.................................................41
Section 5.06. Limitation of Suits...................................................................41
Section 5.07. Unconditional Rights of Noteholders To Receive Principal and Interest.................42
Section 5.08. Restoration of Rights and Remedies....................................................42
Section 5.09. Rights and Remedies Cumulative........................................................42
Section 5.10. Delay or Omission Not a Waiver........................................................43
Section 5.11. Control by Noteholders................................................................43
Section 5.12. Waiver of Past Defaults...............................................................43
Section 5.13. Undertaking for Costs.................................................................44
Section 5.14. Waiver of Stay or Extension Laws......................................................44
ii
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 5.15. Action on Notes.......................................................................44
Section 5.16. Performance and Enforcement of Certain Obligations....................................44
ARTICLE VI
The Note Trustee
Section 6.01. Duties of Note Trustee................................................................45
Section 6.02. Rights of Note Trustee................................................................46
Section 6.03. Individual Rights of Note Trustee.....................................................47
Section 6.04. Note Trustee's Disclaimer.............................................................47
Section 6.05. Notice of Defaults....................................................................47
Section 6.06. Reports by Note Trustee to Holders....................................................48
Section 6.07. Compensation and Indemnity............................................................48
Section 6.08. Replacement of Note Trustee...........................................................49
Section 6.09. Successor Note Trustee by Merger......................................................50
Section 6.10. Appointment of Co-Trustee or Separate Trustee.........................................50
Section 6.11. Eligibility; Disqualification.........................................................51
Section 6.12. Preferential Collection of Claims Against Note Issuer.................................52
Section 6.13. Representations and Warranties of Note Trustee........................................52
Section 6.14. Covenants of the Note Trustee.........................................................52
ARTICLE VII
Noteholders' Lists and Reports
Section 7.01. Note Issuer To Furnish Note Trustee Names and Addresses of Noteholders................53
Section 7.02. Preservation of Information; Communications to Noteholders............................53
Section 7.03. Reports by Note Issuer................................................................53
Section 7.04. Reports by Note Trustee...............................................................54
ARTICLE VIII
Accounts, Disbursements and Releases
Section 8.01. Collection of Money...................................................................54
Section 8.02. Collection Account....................................................................55
Section 8.03. General Provisions Regarding the Collection Account...................................57
Section 8.04. Release of Collateral.................................................................59
Section 8.05. Opinion of Counsel....................................................................59
iii
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 8.06. Reports by Independent Accountants....................................................59
ARTICLE IX
Supplemental Note Indentures
Section 9.01. Supplemental Note Indentures Without Consent of Noteholders...........................60
Section 9.02. Supplemental Note Indentures with Consent of Noteholders..............................61
Section 9.03. Execution of Supplemental Note Indentures.............................................63
Section 9.04. Effect of Supplemental Note Indenture.................................................63
Section 9.05. Conformity with Trust Indenture Act...................................................63
ARTICLE X
Redemption of Notes
Section 10.01. Optional Redemption by Note Issuer....................................................63
Section 10.02. Form of Optional Redemption Notice....................................................64
Section 10.03. Notes Payable on Optional Redemption Date or Payment Date.............................64
Section 10.04. Mandatory Redemption by Note Issuer...................................................64
Section 10.05. Form of Mandatory Redemption Notice...................................................65
Section 10.06. Notes Payable on Mandatory Redemption Date or Payment Date............................65
ARTICLE XI
Miscellaneous
Section 11.01. Compliance Certificates and Opinions, etc.............................................65
Section 11.02. Form of Documents Delivered to Note Trustee...........................................67
Section 11.03. Acts of Noteholders...................................................................68
Section 11.04. Notices...............................................................................68
Section 11.05. Notices to Noteholders; Waiver........................................................70
Section 11.06. Conflict with Trust Indenture Act.....................................................71
Section 11.07. Effect of Headings and Table of Contents..............................................71
Section 11.08. Successors and Assigns................................................................71
Section 11.09. Severability..........................................................................71
Section 11.10. Benefits of Note Indenture............................................................71
Section 11.11. Legal Holidays........................................................................72
Section 11.12. Governing Law.........................................................................72
Section 11.13. Counterparts..........................................................................72
Section 11.14. Recording of Note Indenture...........................................................72
iv
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 11.15. Trust Obligation......................................................................72
Section 11.16. No Recourse to Note Issuer............................................................72
Section 11.17. Inspection............................................................................72
SIGNATURE PAGE.........................................................................................S-1
SCHEDULE A -- Expected Amortization Schedule
SCHEDULE B -- Required Overcollateralization Level Schedule
EXHIBIT A-1 -- Form of Sale Agreement
EXHIBIT A-2 -- Form of Servicing Agreement
EXHIBIT B -- Form of Note
</TABLE>
v
<PAGE> 7
NOTE INDENTURE dated as of July 29, 1999, between BEC FUNDING LLC, a
Delaware limited liability company (the "Note Issuer"), and THE BANK OF NEW
YORK, a New York banking corporation, as trustee (the "Note Trustee").
RECITALS
The Note Issuer has duly authorized the execution and delivery of this
Note Indenture to provide for the issuance of its Notes with an aggregate
principal amount of $725,000,000 and the Note Issuer and the Note Trustee are
executing and delivering this Note Indenture in order to provide for the
issuance of the Notes.
GRANTING CLAUSE
The Note Issuer hereby Grants to the Note Trustee at the Issuance Date,
as Note Trustee for the benefit of the Holders of the Notes, all of the Note
Issuer's right, title and interest in and to (a) the Transition Property
transferred by the Seller to the Note Issuer pursuant to the Sale Agreement and
all proceeds thereof, (b) the Sale Agreement, (c) the Servicing Agreement, (d)
the Administration Agreement, (e) the Collection Account (including all
subaccounts thereof) and all amounts or investment property on deposit therein
or credited thereto from time to time, (f) all other property of whatever kind
owned from time to time by the Note Issuer, including accounts, general
intangibles, equipment and inventory, (g) the security interest with respect to
the Transition Property granted by the Seller to the Note Issuer in the Sale
Agreement, (h) all present and future claims, demands, causes and choses in
action in respect of any or all of the foregoing and all payments on or under
and all proceeds of every kind and nature whatsoever in respect of any or all of
the foregoing, including all proceeds of the conversion thereof, voluntary or
involuntary, into cash or other liquid property, all cash proceeds, accounts,
accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, insurance proceeds, condemnation awards, rights to payment of any and
every kind, and other forms of obligations and receivables, instruments and
other property which at any time constitute all or part of or are included in
the proceeds of any of the foregoing and (i) all proceeds of the foregoing
(collectively, the "Collateral"; it being understood that the following do not
constitute Collateral: (i) amounts required to be released pursuant to or
contemplated in the terms hereof, including net investment earnings on the
Capital Subaccount that are required to be released to the Note Issuer pursuant
to Article VIII and (ii) proceeds from the sale of the Notes required to pay
costs of issuance with respect to the Notes or the Certificates as set forth on
the flow of funds memorandum delivered on the Issuance Date (together with any
interest earnings thereon), it being understood that such amounts described in
clauses (i) and (ii) above shall not be subject to Section 3.16.
The foregoing Grant is made in trust to secure the payment of principal
of, interest on, and any other amounts (which shall include all amounts payable
to the Note Trustee, the Certificate Trustee and the Delaware Trustee under
this Note Indenture, the Certificate Indenture and the Fee and Indemnity
Agreement) owing in respect of, the Notes, equally and ratably without
prejudice, priority or distinction, except as expressly provided in this Note
Indenture, and to secure compliance with the provisions of this Note Indenture
with respect to the Notes, all as
<PAGE> 8
provided in this Note Indenture. This Note Indenture constitutes a security
agreement within the meaning of the UCC to the extent that, under Massachusetts
law, the provisions of the UCC are applicable hereto.
The Note Trustee, as trustee on behalf of the Holders of the Notes,
acknowledges such grant, accepts the trusts hereunder in accordance with the
provisions hereof and agrees to perform its duties herein required.
AND IT IS HEREBY COVENANTED, DECLARED AND AGREED between the parties
hereto that all Notes are to be issued, countersigned and delivered and that all
of the Collateral is to be held and applied, subject to the further covenants,
conditions, releases, uses and trusts hereinafter set forth, and the Note
Issuer, for itself and any successor, does hereby covenant and agree to and with
the Note Trustee and its successors in said trust, for the benefit of the
Holders, as follows:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. (a) Definitions. Except as otherwise specified herein
or as the context may otherwise require, the following terms have the respective
meanings set forth below for all purposes of this Note Indenture.
"Act" has the meaning specified in Section 11.03(a).
"Administration Agreement" means the Administration Agreement dated as
of July 29, 1999, between Boston Edison Company, as Administrator, and the Note
Issuer, as the same may be amended and supplemented from time to time.
"Administrator" means Boston Edison Company, a Massachusetts
corporation, or any successor Administrator under the Administration Agreement.
"Administration Fee" means the fee payable to the Administrator
pursuant to the Administration Agreement.
"Affiliate" means, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agencies" means collectively the Massachusetts Development Finance
Agency and the Massachusetts Health and Educational Facilities Authority.
2
<PAGE> 9
"Authorized Officer" means, with respect to the Note Issuer, any
officer of the Note Issuer who is authorized to act for the Note Issuer in
matters relating to the Note Issuer and who is identified on the list of
Authorized Officers delivered by the Note Issuer to the Note Trustee on the
Issuance Date (as such list may be modified or supplemented by the Note Issuer
from time to time thereafter).
"Basic Documents" means, collectively, this Note Indenture, the
Certificate Indenture, the Declaration of Trust, the Sale Agreement, the
Servicing Agreement, the Administration Agreement, the Note Purchase Agreement,
the Fee and Indemnity Agreement and the Underwriting Agreement.
"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, Boston,
Massachusetts or Wilmington, Delaware are authorized or obligated by law,
regulation or executive order to remain closed.
"Capital Subaccount" has the meaning set forth in Section 8.02(a).
"Certificate Issuer" has the meaning set forth in the Certificate
Indenture.
"Certificate Indenture" means the Certificate Indenture dated as of
July 29, 1999, between the Certificate Issuer, the Delaware Trustee and the
Certificate Trustee, as the same may be further amended and supplemented from
time to time.
"Certificate Trustee" means the Person acting as certificate trustee
under the Certificate Indenture.
"Certificates" has the meaning set forth in the Certificate Indenture.
"Class" means any one of the classes of Notes.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and Treasury Regulations promulgated thereunder.
"Collateral" has the meaning specified in the Granting Clause of this
Note Indenture.
"Collection Account" has the meaning specified in Section 8.02(a).
"Corporate Trust Office" means the principal office of the Note Trustee
at which at any particular time its corporate trust business shall be
administered, which office at the date of the execution of this Note Indenture
is located at 101 Barclay Street, Floor 12 East, New York, New York 10286,
Attention: Asset Backed Finance Unit, or at such other address as the Note
Trustee may designate from time to time by notice to the Noteholders and the
Note Issuer, or the principal corporate trust office of any successor Note
Trustee (the address of which the successor Note Trustee will notify the
Noteholders and the Note Issuer).
"Covenant Defeasance Option" has the meaning specified in Section
4.01(b).
3
<PAGE> 10
"Declaration of Trust" has the meaning set forth in the Certificate
Indenture.
"Default" means any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default.
"Delaware Trustee" means the Person acting as Delaware Trustee under
the Declaration of Trust and the Certificate Indenture.
"DTC Agreement" has the meaning set forth in the Certificate Indenture.
"DTE" means the Massachusetts Department of Telecommunications and
Energy and any successor thereto.
"Duff & Phelps" means Duff & Phelps Credit Rating Co. or its successor.
"Eligible Deposit Account" means either (a) a segregated trust account
with an Eligible Institution or (b) a segregated trust account with the
corporate trust department of a depository institution organized under the laws
of the United States of America or any one of the states thereof or the District
of Columbia (or any domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as any
of the securities of such depository institution shall have a credit rating from
each Rating Agency in one of its generic rating categories which signifies
investment grade.
"Eligible Institution" means (a) the corporate trust department of the
Note Trustee or (b) a depository institution organized under the laws of the
United States of America, any State or the District of Columbia (or any domestic
branch of a foreign bank), (i) which has either (A) a long-term unsecured debt
rating of AAA by Standard & Poor's and Aaa by Moody's or (B) a certificate of
deposit rating of A-1+ by Standard & Poor's and P-1 by Moody's, or any other
long-term, short-term or certificate of deposit rating acceptable to the Rating
Agencies and (ii) whose deposits are insured by the FDIC. If so qualified under
clause (b) above, the Note Trustee may be considered an Eligible Institution for
the purposes of clause (a) of the definition of Eligible Deposit Account.
"Eligible Investments" mean instruments or investment property
denominated in United States currency which evidence:
(a) direct obligations of, or obligations fully and
unconditionally guaranteed as to timely payment by, the United States
of America;
(b) demand deposits, time deposits, certificates of deposit or
bankers' acceptances of depository institutions meeting the
requirements of clause (b) of the definition of Eligible Institution;
(c) commercial paper (other than commercial paper of the
Seller) having, at the time of the investment or contractual commitment
to invest therein, a rating from each
4
<PAGE> 11
of the Rating Agencies from which a rating is available in the highest
investment category granted thereby;
(d) investments in money market funds having a rating from
each of the Rating Agencies from which a rating is available in the
highest investment category granted thereby (including funds for which
the Note Trustee or any of its Affiliates is investment manager or
advisor);
(e) repurchase obligations with respect to any security that
is a direct obligation of, or fully guaranteed by, the United States of
America or any agency or instrumentality thereof the obligations of
which are backed by the full faith and credit of the United States of
America, in either case entered into with depository institutions
meeting the requirements of clause (b) of the definition of Eligible
Institution;
(f) any other investment permitted by each of the Rating
Agencies; and
(g) The Bank of New York Deposit Reserve, an interest bearing
account of The Bank of New York,
in each case which mature on or before the Business Day preceding the next
Payment Date.
"Event of Default" has the meaning specified in Section 5.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expected Amortization Schedule" means, with respect to each Class of
Notes, the schedule attached as Schedule A hereto.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor.
"Fee and Indemnity Agreement" means the fee and indemnity agreement
dated as of July 29, 1999, among the Note Issuer, the Delaware Trustee, the
Certificate Trustee, the Certificate Issuer and the Agencies.
"Final Maturity Date" means, with respect to any Class of Notes, the
Final Maturity Date therefor, as specified in Section 2.01(b).
"Financial Asset" means a "financial asset" as defined in Section
8-102(a)(9) of the Mass. UCC.
"Fitch IBCA" means Fitch IBCA, Inc. or its successor.
"General Subaccount" has the meaning set forth in Section 8.02(a).
"Grant" means mortgage, pledge, collaterally assign and grant a lien
upon and a security interest pursuant to this Note Indenture. A Grant of the
Collateral or of any other agreement or
5
<PAGE> 12
instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including after an Event of
Default which is continuing the immediate and continuing right to claim for,
collect, receive and give receipt for payments in respect of the Collateral and
all other moneys payable thereunder, to give and receive notices and other
communications, to make waivers or other agreements, to exercise all rights and
options, to bring Proceedings in the name of the Granting party or otherwise and
generally to do and receive anything that the Granting party is or may be
entitled to do or receive thereunder or with respect thereto.
"Independent" means, when used with respect to any specified Person,
that the Person (a) is in fact independent of the Note Issuer, any other obligor
upon the Notes, the Seller, the Servicer and any Affiliate of any of the
foregoing Persons, (b) does not have any direct financial interest or any
material indirect financial interest in the Note Issuer, any such other obligor,
the Seller, the Servicer or any Affiliate of any of the foregoing Persons and
(c) is not connected with the Note Issuer, any such other obligor, the Seller,
the Servicer or any Affiliate of any of the foregoing Persons as an officer,
employee, promoter, underwriter, trustee, partner, director or person performing
similar functions.
"Independent Certificate" means a certificate or opinion to be
delivered to the Note Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.01, made by
an Independent appraiser or other expert appointed by an Issuer Order and
consented to by the Note Trustee, and such opinion or certificate shall state
that the signer has read the definition of "Independent" in this Note Indenture
and that the signer is Independent within the meaning thereof.
"Issuance Date" has the meaning set forth in Section 2.01(c)(i).
"Issuer Order" and "Issuer Request" means a written order or request
signed in the name of the Note Issuer by any one of its Authorized Officers and
delivered to the Note Trustee.
"Legal Defeasance Option" has the meaning specified in Section 4.01(b).
"Mandatory Redemption Date" has the meaning specified in Section 10.04.
"Mandatory Redemption Price" has the meaning specified in Section
10.04.
"Massachusetts UCC" means Mass. G.L. c.106.
"Minimum Denomination" means $1,000 or any integral multiple thereof.
"Moody's" means Moody's Investors Service Inc. or its successor.
"New York UCC" means N.Y. U.C.C. (McKinney 1991).
"Noteholder" or "Holder" means the Person in whose name a Note is
registered on the Note Register.
"Note Indenture" or "this Note Indenture" means this instrument as
originally executed and, as from time to time supplemented or amended by one or
more indentures supplemental
6
<PAGE> 13
hereto entered into pursuant to the applicable provisions hereof, as so
supplemented or amended, or both, and shall include the forms and terms of the
Notes established hereunder.
"Note Interest Rate" has the meaning specified in Section 2.01(b).
"Note Issuer" means the party named as such in this Note Indenture
until a successor replaces it and, thereafter, means the successor and, for
purposes of any provision contained herein and required by the Trust Indenture
Act, each other obligor on the Notes.
"Note Purchase Agreement" has the meaning set forth in the Certificate
Indenture.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.05.
"Notes" has the meaning specified in Section 2.01(a).
"Note Trustee" means The Bank of New York, a New York banking
corporation, as Note Trustee under this Note Indenture, or any successor Note
Trustee under this Note Indenture.
"Officer's Certificate" means a certificate signed by any Authorized
Officer of the Note Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.01, and delivered to
the Note Trustee.
"Operating Expenses" means all fees, costs and expenses of, and
indemnities owed by, the Note Issuer, including all amounts owed by the Note
Issuer to the Note Trustee, the Certificate Issuer, the Certificate Trustee, the
Delaware Trustee and the Agencies, the Servicing Fee, the Administration Fee,
any fees, costs and expenses payable or reimbursable by the Note Issuer to the
Administrator, Seller or Servicer and legal and accounting fees, costs and
expenses of the Note Issuer and the Certificate Issuer.
"Opinion of Counsel" means one or more written opinions of counsel who
may, except as otherwise expressly provided in this Note Indenture, be an
employee of or counsel to the Note Issuer and who shall be reasonably
satisfactory to the Note Trustee, and which opinion or opinions shall be
addressed to the Note Trustee, as trustee, shall comply with any applicable
requirements of Section 11.01, and shall be in form and substance reasonably
satisfactory to the Note Trustee.
"Optional Redemption Date" means the Payment Date specified by the Note
Issuer for the redemption of the Notes pursuant to Section 10.01.
"Optional Redemption Price" has the meaning specified in Section 10.01.
"Outstanding" means, as of the date of determination, all Notes
theretofore authenticated and delivered under this Note Indenture except:
(i) Notes theretofore cancelled by the Note Registrar or
delivered to the Note Registrar for cancellation;
7
<PAGE> 14
(ii) Notes or portions thereof the payment for which money in
the necessary amount has been theretofore deposited with the Note
Trustee or any Paying Agent in trust for the Holders of such Notes
(provided, however, that if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to this Note Indenture or
provision made therefor, reasonably satisfactory to the Note Trustee);
and
(iii) Notes in exchange for or in lieu of other Notes which
have been authenticated and delivered pursuant to this Note Indenture
unless proof satisfactory to the Note Trustee is presented that any
such Notes are held by a bona fide purchaser;
provided, however, that in determining whether the Holders of the requisite
Outstanding Amount of the Notes or any Class thereof have given any request,
demand, authorization, direction, notice, consent or waiver hereunder or under
any Basic Document, Notes owned by the Note Issuer, any other obligor upon the
Notes, the Seller or any Affiliate of any of the foregoing Persons shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Note Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Notes that the
Note Trustee actually knows to be so owned shall be so disregarded. Notes so
owned that have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Note Trustee the pledgee's right
so to act with respect to such Notes and that the pledgee is not the Note
Issuer, any other obligor upon the Notes, the Seller or any Affiliate of any of
the foregoing Persons.
"Outstanding Amount" means the aggregate principal amount of all Notes
or, if the context requires, all Notes of a Class, Outstanding at the date of
determination.
"Overcollateralization Subaccount" has the meaning specified in Section
8.02(a).
"Paying Agent" means the Note Trustee or any other Person that meets
the eligibility standards for the Note Trustee specified in Section 6.11 and is
authorized by the Note Issuer to make payment of principal of or interest on the
Notes on behalf of the Note Issuer.
"Payment Date" has the meaning specified in Section 2.01(c)(ii).
"Person" means any individual, corporation, limited liability company,
estate, partnership, joint venture, association, joint stock company, trust
(including any beneficiary thereof), unincorporated organization or government
or any agency or political subdivision thereof.
"Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.06 in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"Proceeding" means any suit in equity, action at law or other judicial
or administrative proceeding.
8
<PAGE> 15
"Projected Principal Balance" means, as of any Payment Date on any
Class of Notes, the projected outstanding principal amount of such Class of
Notes for such Payment Date set forth in the Expected Amortization Schedule.
"Rating Agency" means, collectively, Moody's, Standard & Poor's, Fitch
IBCA and Duff & Phelps. If no such organization or successor is any longer in
existence, "Rating Agency" shall be a nationally recognized statistical rating
organization or other comparable Person designated by the Note Issuer, notice of
which designation shall be given to the Note Trustee, the Certificate Trustee
and the Servicer.
"Rating Agency Condition" means, with respect to any action, that each
Rating Agency shall have been given ten days prior notice thereof and that each
of the Rating Agencies shall have notified the Servicer, the Note Issuer, the
Note Trustee, the Agencies and the Certificate Trustee in writing that such
action will not result in a reduction or withdrawal of the then current rating
by such Rating Agency of any Class of the Notes or any Class of the
Certificates.
"Record Date" means, with respect to a Payment Date, Optional
Redemption Date or Mandatory Redemption Date, the close of business on the last
day of the calendar month preceding the calendar month in which such Payment
Date, Optional Redemption Date or Mandatory Redemption Date occurs.
"Registered Holder" means the Person in whose name a Note is registered
on the Note Register on the applicable Record Date.
"Repurchase Date" has the meaning specified in the Sale Agreement.
"Required Capital Level" means, as of any Payment Date, .50 percent of
the initial principal amount of the Notes.
"Required Overcollateralization Level" means, as of any Payment Date,
the amount required to be on deposit in the Overcollateralization Subaccount as
specified in Schedule B hereto.
"Reserve Subaccount" has the meaning specified in Section 8.02(a).
"Responsible Officer" means any officer within the Corporate Trust
Office, including any Managing Director, Vice President, Assistant Vice
President, Secretary, Assistant Secretary or Assistant Treasurer or any other
officer of the Note Trustee customarily performing functions similar to those
performed by any of the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge and familiarity with the particular subject.
"Sale Agreement" means the Transition Property Purchase and Sale
Agreement dated as of July 29, 1999, between the Note Issuer and the Seller, in
the form of Exhibit A-1, as amended and supplemented from time to time.
9
<PAGE> 16
"Scheduled Maturity Date" means, with respect to any Class of Notes,
the Scheduled Maturity Date therefor, as specified in Section 2.01(b).
"Securities Account" means the Collection Account which shall be a
"securities account," as defined in Section 8-501 of the N.Y. UCC.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Intermediary" means the Note Trustee, acting as a
"securities intermediary," as defined in Section 8-102(a)(14) of the N.Y. UCC.
"Security Entitlement" means a "security entitlement" as defined in
Section 8-102(a)(17) of the N.Y. UCC.
"Semiannual Interest" has the meaning specified in Section 2.01(c)(iv).
"Semiannual Principal" means, with respect to any Payment Date on any
Class of Notes, the excess, if any, of the Outstanding Amount of such Class of
Notes over the outstanding principal balance of such Class of Notes specified
for such Payment Date in the Expected Amortization Schedule.
"Servicing Agreement" means the Transition Property Servicing Agreement
dated as of July 29, 1999, between the Note Issuer and the Servicer, in the form
of Exhibit A-2, as amended and supplemented from time to time.
"Standard & Poor's" means Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. or its successor.
"State" means any one of the 50 states of the United States of America
or the District of Columbia.
"Statute" means Chapter 164 of the Massachusetts Acts of 1997.
"Successor Servicer" has the meaning specified in Section 3.07(e).
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
on the date hereof, unless otherwise specifically provided.
"UCC" means, unless the context otherwise requires, the Uniform
Commercial Code, as in effect in the relevant jurisdiction, as amended from time
to time.
"Underwriting Agreement" means the Underwriting Agreement dated as July
22, 1999, among the Seller, the Note Issuer and Lehman Brothers Inc. and
Goldman, Sachs & Co., as the representatives of the several underwriters named
therein.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or
10
<PAGE> 17
instrumentality thereof) for the payment of which the full faith and credit of
the United States of America is pledged.
(b) Except as otherwise specified herein or as the context may
otherwise require, the following terms have the respective meanings set forth in
the Servicing Agreement as in effect on the Issuance Date for all purposes of
this Note Indenture, and the definitions of such terms are equally applicable
both to the singular and plural forms of such terms:
<TABLE>
<CAPTION>
Section of
Term Servicing Agreement
---- -------------------
<S> <C>
Advice Letter...................................................................... Section 1.01
Financing Order.................................................................... Section 1.01
Non-Routine Periodic Adjustment.................................................... Section 1.01
Principal Balance.................................................................. Section 1.01
RTC Charge......................................................................... Section 1.01
RTC Charge Collections............................................................. Section 1.01
Seller............................................................................. Section 1.01
Servicer........................................................................... Section 1.01
Servicer Default................................................................... Section 1.01
Servicing Fee...................................................................... Section 1.01
Transition Property................................................................ Section 1.01
</TABLE>
Section 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Note Indenture refers to a provision of the Trust Indenture Act,
the provision is incorporated by reference in and made a part of this Note
Indenture. The following Trust Indenture Act terms used in this Note Indenture
have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Note Indenture.
"indenture trustee" or "institutional trustee" means the Note Trustee.
"obligor" on the indenture securities means the Note Issuer and any
other obligor on the indenture securities.
All other Trust Indenture Act terms used in this Note Indenture that
are defined by the Trust Indenture Act, defined by Trust Indenture Act reference
to another statute or defined by Commission rule have the meanings assigned to
them by such definitions.
Section 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
11
<PAGE> 18
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the
plural include the singular;
(vi) the words "herein," "hereof," "hereunder" and other words
of similar import refer to this Note Indenture as a whole and not to
any particular Article, Section or other subdivision; and
(vii) all references in this Note Indenture to designated
"Articles," "Sections" and other subdivisions are to the designated
Articles, Sections and other subdivisions of this Note Indenture;
ARTICLE II
THE NOTES
Section 2.01. Terms of the Notes.
(a) Authorization; Designation. The issuance of the Notes in an
aggregate initial principal amount of $725,000,000 is hereby authorized and the
Notes shall be designated as the BEC Funding LLC Notes (the "Notes"), and
further denominated as Classes A-1 through A-5.
(b) Initial Principal Amount; Note Interest Rate; Scheduled Maturity
Date; Final Maturity Date. The Notes of each Class shall have the initial
principal amount, bear interest at the rates per annum and shall have Scheduled
Maturity Dates and Final Maturity Dates as set forth below:
12
<PAGE> 19
<TABLE>
<CAPTION>
Initial Principal Note Interest Scheduled
Class Amount Rate Maturity Date Final Maturity Date
----- ------ ---- ------------- -------------------
<S> <C> <C> <C> <C>
A-1 $108,500,000 5.99% 3/15/01 3/15/03
A-2 170,609,837 6.45 9/15/03 9/15/05
A-3 103,390,163 6.62 3/15/05 3/15/07
A-4 170,875,702 6.91 9/15/07 9/15/09
A-5 171,624,298 7.03 3/15/10 3/15/12
</TABLE>
The Note Interest Rate shall be computed on the basis of a 360-day year
of twelve 30-day months.
The Notes shall be issuable in not less than Minimum Denominations.
(c) Authentication Date; Payment Dates; Expected Amortization Schedule
for Principal; Semiannual Interest.
(i) Authentication Date. The Notes that are authenticated and
delivered by the Note Trustee to or upon the order of the Note Issuer
on July 29 1999 (the "Issuance Date") shall have as their date of
authentication July 29, 1999.
(ii) Payment Dates. The Payment Dates for the Notes shall be
September 15 and March 15 of each year or, if any such date is not a
Business Day, the next succeeding Business Day, commencing on March 15,
2000 and continuing until the earlier of repayment of the Notes in full
or the Final Maturity Date for Class A-5 of the Notes.
(iii) Expected Amortization Schedule for Principal. Unless an
Event of Default shall have occurred and be continuing and the unpaid
principal amount of all Notes and accrued interest thereon has been
declared to be due and payable, on each Payment Date, the Note Trustee
shall pay to the Noteholders of record as of the related Record Date
amounts payable pursuant to Section 8.02(d) as principal, in the
following order and priority: (1) to the holders of the Class A-1
Notes, until the Outstanding Amount of such Class of Notes thereof has
been reduced to zero; (2) to the holders of the Class A-2 Notes, until
the Outstanding Amount of such Class of Notes thereof has been reduced
to zero; (3) to the holders of the Class A-3 Notes, until the
Outstanding Amount of such Class of Notes thereof has been reduced to
zero; (4) to the holders of the Class A-4 Notes, until the Outstanding
Amount of such Class of Notes thereof has been reduced to zero; and (5)
to the holders of the Class A-5 Notes until the Outstanding Amount of
such Class of Notes thereof has been reduced to zero; provided,
however, that in no event shall a principal payment pursuant to this
Section 2.01(c)(iii) on any Class on a Payment Date be greater than the
amount that reduces the Outstanding Amount of such Class of Notes to
the amount specified in the Expected Amortization Schedule. Partial
payments
13
<PAGE> 20
of any scheduled amortization payment shall be allocated within any
Class of Notes pro rata.
(iv) Semiannual Interest. Semiannual Interest will be payable
on each Class of Notes on each Payment Date in an amount equal to
one-half of the product of (i) the applicable Note Interest Rate and
(ii) the Outstanding Amount of the related Class of Notes as of the
close of business on the preceding Payment Date after giving effect to
all payments of principal made to the Holders of the related Class of
Notes on such preceding Payment Date; provided, however, that with
respect to the initial Payment Date or, if no payment has yet been
made, interest on the outstanding principal balance will accrue from
and including the Issuance Date to, but excluding, that Payment Date.
Section 2.02. Form. The Notes and the Note Trustee's certificate of
authentication shall be in substantially the forms set forth in Exhibit B, with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Note Indenture and may have such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may, consistently herewith, be determined by the officers executing
such Notes, as evidenced by their execution of such Notes. Any portion of the
text of any Note may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Note.
The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the officers executing such Notes, as evidenced
by their execution of such Notes.
The terms of the Notes set forth in Exhibit B are part of the terms of
this Note Indenture.
Section 2.03. Execution, Authentication and Delivery. The Notes shall
be executed on behalf of the Note Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Note Issuer shall bind the Note Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Note Indenture, the Note Issuer may deliver Notes executed by the Note
Issuer to the Note Trustee pursuant to an Issuer Order for authentication; and
the Note Trustee shall authenticate and deliver such Notes as in this Note
Indenture provided and not otherwise.
No Note shall be entitled to any benefit under this Note Indenture or
be valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Note Trustee by the manual signature of one of its authorized
signatories, and such certificate upon any Note shall be conclusive evidence,
and the only evidence, that such Note has been duly authenticated and delivered
hereunder.
14
<PAGE> 21
Section 2.04. Temporary Notes. Pending the preparation of definitive
Notes, the Note Issuer may execute, and upon receipt of an Issuer Order the Note
Trustee shall authenticate and deliver, temporary Notes which are printed,
lithographed, typewritten, mimeographed or otherwise produced, of the tenor of
the definitive Notes in lieu of which they are issued and with such variations
not inconsistent with the terms of this Note Indenture as the officers executing
such Notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Note Issuer will cause definitive
Notes to be prepared without unreasonable delay. After the preparation of
definitive Notes, the temporary Notes shall be exchangeable for definitive Notes
upon surrender of the temporary Notes at the office or agency of the Note Issuer
to be maintained as provided in Section 3.02, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes, the Note Issuer
shall execute and the Note Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Notes of Minimum Denominations.
Until so exchanged, the temporary Notes shall in all respects be entitled to the
same benefits under this Note Indenture as definitive Notes.
Section 2.05. Registration; Registration of Transfer and Exchange. The
Note Issuer shall cause to be kept a register (the "Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Note Issuer
shall provide for the registration of Notes and the registration of transfers of
Notes. The Note Trustee shall be "Note Registrar" for the purpose of registering
Notes and transfers of Notes as herein provided. Upon any resignation of any
Note Registrar, the Note Issuer shall promptly appoint a successor or, if it
elects not to make such an appointment, assume the duties of Note Registrar.
If a Person other than the Note Trustee is appointed by the Note Issuer
as Note Registrar, the Note Issuer will give the Note Trustee prompt written
notice of the appointment of such Note Registrar and of the location, and any
change in the location, of the Note Register, and the Note Trustee shall have
the right to inspect the Note Register at all reasonable times and to obtain
copies thereof, and the Note Trustee shall have the right to rely upon a
certificate executed on behalf of the Note Registrar by a Responsible Officer
thereof as to the names and addresses of the Holders of the Notes and the
principal amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the office
or agency of the Note Issuer to be maintained as provided in Section 3.02, the
Note Issuer shall execute, and the Note Trustee shall authenticate and the
Noteholder shall obtain from the Note Trustee, in the name of the designated
transferee or transferees, one or more new Notes in any Minimum Denominations,
of a like Class and aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes in
any Minimum Denominations, of a like Class and aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Note Issuer shall execute, and the
Note Trustee shall authenticate and the Noteholder shall obtain from the Note
Trustee, the Notes which the Noteholder making the exchange is entitled to
receive.
15
<PAGE> 22
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Note Issuer, evidencing the same debt, and
entitled to the same benefits under this Note Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by (a) a written
instrument of transfer in form satisfactory to the Note Trustee duly executed by
the Holder thereof or such Holder's attorney duly authorized in writing, with
such signature guaranteed by an institution which is a member of one of the
following recognized Signature Guaranty Programs: (i) The Securities Transfer
Agent Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion
Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) in
such other guarantee program acceptable to the Note Trustee, and (b) such other
documents as the Note Trustee may require.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Note Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.04 not involving any transfer.
The preceding provisions of this Section notwithstanding, the Note
Issuer shall not be required to make and the Note Registrar need not register
transfers or exchanges of Notes selected for redemption or of any Note for a
period of 15 days preceding the due date for any payment with respect to the
Note.
Section 2.06. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Note Trustee, or the Note Trustee receives
evidence to its satisfaction of the destruction, loss or theft of any Note, and
(ii) there is delivered to the Note Trustee such security or indemnity as may be
required by it to hold the Note Issuer and the Note Trustee harmless, then, in
the absence of notice to the Note Issuer, the Note Registrar or the Note Trustee
that such Note has been acquired by a protected purchaser, the Note Issuer shall
execute and, upon its request, the Note Trustee shall authenticate and deliver,
in exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Note, a replacement Note of like Class, tenor and principal amount, bearing a
number not contemporaneously outstanding; provided, however, that if any such
destroyed, lost or stolen Note, but not a mutilated Note, shall have become or
within seven days shall be due and payable, or shall have been called for
redemption, instead of issuing a replacement Note, the Note Issuer may pay such
destroyed, lost or stolen Note when so due or payable or upon the Optional
Redemption Date or Mandatory Redemption Date, as applicable, without surrender
thereof. If, after the delivery of such replacement Note or payment of a
destroyed, lost or stolen Note pursuant to the proviso to the preceding
sentence, a protected purchaser of the original Note in lieu of which such
replacement Note was issued presents for payment such original Note, the Note
Issuer and the Note Trustee shall be entitled to recover such replacement Note
(or such payment) from the Person to whom it was delivered or any Person taking
such replacement Note from such Person to whom such replacement Note was
delivered or any assignee of such Person, except a protected purchaser, and
shall be entitled to recover upon the security or indemnity provided therefor to
the extent of any loss, damage, cost or expense incurred by the Note Issuer or
the Note Trustee in connection therewith.
16
<PAGE> 23
Upon the issuance of any replacement Note under this Section, the Note
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Note Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Note Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Note Indenture equally
and proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
Section 2.07. Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Note, the Note Issuer, the Note Trustee and any
agent of the Note Issuer or the Note Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of and interest on such
Note and for all other purposes whatsoever, whether or not such Note be overdue,
and neither the Note Issuer, the Note Trustee nor any agent of the Note Issuer
or the Note Trustee shall be affected by notice to the contrary.
Section 2.08. Payment of Principal and Interest; Interest on Overdue
Principal; Principal and Interest Rights Preserved.
(a) Any installment of interest or principal payable on any Note which
is punctually paid or duly provided for by the Note Issuer on the applicable
Payment Date shall be paid to the Person in whose name such Note (or one or more
Predecessor Notes) is registered on the Record Date for such Payment Date, by
check mailed first-class, postage prepaid to such Person's address as it appears
on the Note Register on such Record Date, except that with respect to Notes
registered on the Record Date in the name of the Certificate Trustee payments
will be made by wire transfer in immediately available funds to the account
designated by the Certificate Trustee and except for the final installment of
principal payable with respect to such Note on a Payment Date which shall be
payable as provided below. The funds represented by any such checks returned
undelivered shall be held in accordance with Section 3.03 hereof.
(b) The principal of each Note of each Class shall be paid, to the
extent funds are available therefor in the Collection Account, in installments
on each Payment Date specified in Section 2.01. Notwithstanding the foregoing,
the entire unpaid principal amount of the Notes shall be due and payable, if not
previously paid, on the date on which an Event of Default shall have occurred
and be continuing, if the Note Trustee or the Holders of the Notes representing
not less than a majority of the Outstanding Amount of the Notes have declared
the Notes to be immediately due and payable in the manner provided in Section
5.02. In such event, all payments of principal on the Notes shall be made pro
rata. The Note Trustee shall notify the Person in whose name a Note is
registered at the close of business on the Record Date preceding
17
<PAGE> 24
the Payment Date on which the Note Issuer expects that the final installment of
principal of and interest on such Note will be paid. Such notice shall be mailed
no later than five days prior to such final Payment Date and shall specify that
such final installment will be payable only upon presentation and surrender of
such Note and shall specify the place where such Note may be presented and
surrendered for payment of such installment. Notices in connection with
redemptions of Notes shall be mailed to Noteholders as provided in Section
10.02.
(c) If the Note Issuer defaults in a payment of interest on the Notes
when due, the Note Issuer shall be required to pay such defaulted interest (plus
interest on such defaulted interest at the applicable Note Interest Rate to the
extent lawful) to the Persons who are Noteholders on a subsequent special record
date, which date shall be at least five Business Days prior to the payment date.
The Note Issuer shall fix or cause to be fixed any such special record date and
payment date, and, at least 20 days before any such special record date, the
Note Issuer shall mail to each affected Noteholder a notice that states the
special record date, the payment date and the amount of defaulted interest (plus
interest on such defaulted interest) to be paid.
Section 2.09. Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Note Trustee, be delivered to the Note Trustee and shall
be promptly cancelled by the Note Trustee. The Note Issuer may at any time
deliver to the Note Trustee for cancellation any Notes previously authenticated
and delivered hereunder which the Note Issuer may have acquired in any manner
whatsoever, and all Notes so delivered shall be promptly cancelled by the Note
Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes
cancelled as provided in this Section, except as expressly permitted by this
Note Indenture. All cancelled Notes may be held or disposed of by the Note
Trustee in accordance with its standard retention or disposal policy as in
effect at the time.
Section 2.10. Authentication and Delivery of Notes. On the Issuance
Date, the Notes shall be executed by the Note Issuer and delivered to the Note
Trustee for authentication and thereupon the same shall be authenticated and
delivered by the Note Trustee upon Issuer Request and upon delivery by the Note
Issuer to the Note Trustee, and receipt by the Note Trustee, or the causing to
occur by the Note Issuer, of the following:
(1) Note Issuer Action. An Issuer Order authorizing and
directing the authentication and delivery of the Notes by the Note
Trustee and specifying the principal amount of Notes to be
authenticated.
(2) Authorizations.
(a) An Opinion of Counsel that no authorization,
approval or consent of any Massachusetts, Delaware or federal
governmental body or bodies at the time having jurisdiction in
the premises is required to be obtained by the Note Issuer for
the valid issuance, authentication and delivery of such Notes,
except for such registrations as are required under the blue
sky and securities laws of any State or such authorizations,
approvals or consents of governmental bodies that have been
obtained.
18
<PAGE> 25
(b) An Opinion of Counsel that no authorization,
approval or consent of any governmental body or bodies at the
time having jurisdiction in the premises is required for the
valid execution and delivery by the Note Issuer of each of the
Basic Documents to which the Note Issuer is a party, except
for such authorizations, approvals or consents of governmental
bodies that have been obtained.
(3) Authorizing Certificate. A certificate of an Authorized
Officer of the Note Issuer certifying that the Note Issuer has duly
authorized the execution and delivery of this Note Indenture and the
execution, authentication and delivery of the Notes.
(4) The Collateral. The Note Issuer shall have caused all
Collateral to have been Granted to the Note Trustee or, if requested by
the Note Trustee, its nominee and will have caused all related filings
with the DTE pursuant to the Statute, the Massachusetts UCC, the New
York UCC and such other filings in connection with such Grant to have
been duly made.
(5) Certificates of the Note Issuer and the Seller.
(a) An Officer's Certificate from the Note Issuer,
dated as of the Issuance Date:
(i) to the effect that the Note Issuer is
not in Default under this Note Indenture and that the
issuance of the Notes applied for will not result in
any Default or in any material breach of any of the
terms, conditions or provisions of or constitute a
default under any material indenture, mortgage, deed
of trust or other agreement or instrument to which
the Note Issuer is a party or by which it or its
property is bound or any order of any court or
administrative agency entered in any Proceeding to
which the Note Issuer is a party or by which it or
its property may be bound or to which it or its
property may be subject; and that all conditions
precedent provided in this Note Indenture relating to
the authentication and delivery of the Notes applied
for have been complied with;
(ii) all instruments furnished to the Note
Trustee pursuant to this Note Indenture conform to
the requirements set forth in this Note Indenture and
constitute all of the documents required to be
delivered hereunder for the Note Trustee to
authenticate and deliver the Notes applied for, and
all conditions precedent provided for in this Note
Indenture relating to the authentication and delivery
of the Notes have been complied with;
(iii) to the effect that the Note Issuer has
not assigned any interest or participation in the
Collateral except for the lien of this Note Indenture
and of the Statute; the Note Issuer has the power and
right to Grant the Collateral to the Note Trustee as
security hereunder; and the Note Issuer, subject to
the terms of this Note Indenture, has Granted to the
19
<PAGE> 26
Note Trustee all of its right, title and interest in
and to such Collateral free and clear of any lien,
mortgage, pledge, charge, security interest, adverse
claim or other encumbrance arising as a result of
actions of the Note Issuer or through the Note
Issuer, except the lien of this Note Indenture and of
the Statute;
(iv) to the effect that the Note Issuer has
appointed a firm of Independent certified public
accountants as contemplated in Section 8.06 hereof;
(v) to the effect that attached thereto are
duly executed, true and complete copies of the Sale
Agreement and the Servicing Agreement; and
(vi) stating that all filings with the DTE
pursuant to the Statute and all UCC financing
statements with respect to the Collateral which are
required to be filed by the terms of the Sale
Agreement, the Servicing Agreement or this Note
Indenture have been filed as required.
(b) An Officer's Certificate (as defined in the Sale
Agreement) from the Seller, dated as of the Issuance Date, to
the effect that (i) the representations and warranties set
forth in Article III of the Sale Agreement are true and
correct and (ii) the attached copies of the Financing Order
and Issuance Advice Letter creating the Transition Property
are true and correct.
(6) Opinion of Counsel. An Opinion of Counsel, portions of
which may be delivered by counsel for the Note Issuer, portions of
which may be delivered by counsel for the Seller and the Servicer, and
portions of which may be delivered by counsel for the Certificate
Issuer, dated the Issuance Date, in each case subject to the customary
exceptions, qualifications and assumptions contained therein, to the
collective effect that:
(a) the Note Indenture has been duly qualified under
the Trust Indenture Act;
(b) the Note Issuer has the limited liability company
power and authority to execute and deliver this Note Indenture
and to issue the Notes, and this Note Indenture and the Notes
have been duly authorized and the Note Issuer is duly formed
and is validly existing in good standing under the laws of the
jurisdiction of its organization;
(c) the Note Indenture has been duly authorized,
executed and delivered by the Note Issuer;
(d) the Notes applied for have been duly authorized
and executed and, when authenticated in accordance with the
provisions of the Note Indenture and delivered against payment
of the purchase price therefor, will constitute valid and
20
<PAGE> 27
binding obligations of the Note Issuer, entitled to the
benefits of the Note Indenture subject to bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer
and other laws relating to or affecting the rights of
creditors generally and general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law);
(e) this Note Indenture, the Sale Agreement, the
Servicing Agreement and the Fee and Indemnity Agreement are
valid and binding agreements of the Note Issuer, enforceable
in accordance with their respective terms, except as such
enforceability against the Note Issuer may be subject to
bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other laws relating to or affecting the rights of
creditors generally and general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law);
(f) (A) (i) under Section 1H(d)(1) of the Statute,
the provisions of this Note Indenture are sufficient to create
in favor of the Note Trustee a security interest in all right,
title and interest of the Note Issuer in the Transition
Property, (ii) the Financing Order authorizes the bondable
reimbursable transition costs amounts included in the
Transition Property, (iii) upon the giving of value by the
Note Trustee with respect to the aforesaid security interest
in Transition Property under this Note Indenture, the security
interest in Transition Property shall attach to the Transition
Property, (iv) financing statements which describe the
Transition Property by reference to the Financing Order have
been presented for filing, and all filing fees required in
connection therewith have been paid in accordance with article
9 of the Massachusetts UCC in the offices of the City Clerk of
Boston, Massachusetts and the Secretary of State of
Massachusetts, and (v) under Section 1H(d)(2) of the Statute,
such filings are sufficient to perfect the security interest
granted by this Note Indenture in the Transition Property,
which security interest is valid and enforceable against the
Note Issuer (subject to (x) the rights of any third parties
holding security interests in the Transition Property
perfected in the manner described in Sections 1H(d) and (e) of
the Statute prior to perfection by filing of the security
interest granted under this Note Indenture and (y) rights
arising under the first priority lien arising under Section
1H(e) of the Statute described in clause (B) of this Section
2.10(6)(f)); (B) (i) by operation of Section 1H(e) thereof,
the Statute creates, upon the effective date of the Financing
Order, a first priority lien in the Transition Property
securing all obligations, then existing or subsequently
arising, to the Certificateholders in respect of such
Certificates or to the Certificate Trustee in its capacity as
such, (ii) upon the effectiveness of the Financing Order, the
aforesaid first priority lien shall be valid, perfected and
enforceable against the Note Issuer and all third parties
without any further public notice, (iii) any financing
statement filed with respect to such first priority lien shall
be a protective filing under Section 1H(e) of the Statute, and
(iv) although the Statute and the Financing Order provide that
conflicting first priority liens on Transition Property
arising under Section 1H(e) of the Statute rank in
21
<PAGE> 28
order of time of perfection, the Financing Order does not
provide for any such conflicting first priority liens; and (C)
the provisions of this Note Indenture are sufficient to create
in favor of the Note Trustee a security interest under article
9 of the Massachusetts UCC in the right, title and interest of
the Note Issuer in respect of the Sale Agreement, the
Servicing Agreement, the Administration Agreement and all
accounts, general intangibles, equipment and inventory (the
"UCC Collateral") of the Note Issuer, (ii) upon the giving of
value by the Note Trustee with respect to the aforesaid
security interests in the Collateral under this Note
Indenture, the security interest in such UCC Collateral shall
attach to the UCC Collateral, (iii) financing statements which
describe the UCC Collateral have been presented for filing and
all filing fees required in connection therewith have been
paid in accordance with article 9 of the Massachusetts UCC in
the offices of the City Clerk of Boston, Massachusetts and the
Secretary of State of Massachusetts, (iv) such filings are
sufficient to perfect the security interest granted by this
Note Indenture in the UCC Collateral, which security interest
is valid and enforceable against the Note Issuer (subject to
the rights of any third parties holding security interests in
the UCC Collateral perfected in the manner described in
article 9 of the Massachusetts UCC prior to perfection by
filing of the security interest therein granted under this
Note Indenture);
(g) either (A) the Registration Statement covering
the Notes and the Certificates is effective under the
Securities Act and, to the best of such counsel's knowledge
and information, no stop order suspending the effectiveness of
such Registration Statement has been issued under the
Securities Act and no proceedings for that purpose have been
initiated or are pending or threatened by the Commission or
(B) the Notes and the Certificates are exempt from the
registration requirements under the Securities Act;
(h) the Note Issuer is not an "investment company" or
under the "control" of an "investment company" as such terms
are defined under the Investment Company Act of 1940, as
amended;
(i) the Sale Agreement is a valid and binding
agreement of the Seller enforceable against the Seller in
accordance with its terms except as such enforceability may be
subject to bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other laws relating to or affecting
the rights of creditors generally and general principles of
equity (regardless of whether such enforcement is considered
in a proceeding in equity or at law);
(j) the Servicing Agreement is a valid and binding
agreement of the Servicer enforceable against the Servicer in
accordance with its terms except as such enforceability may be
subject to bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other laws relating to or affecting
the rights of creditors generally and general principles of
equity (regardless of whether such enforcement is considered
in a proceeding in equity or at law);
22
<PAGE> 29
(k) upon the delivery of the fully executed Sale
Agreement to the Note Issuer and the payment of the purchase
price of the Transition Property by the Note Issuer to the
Seller pursuant to the Sale Agreement, then (I) the transfer
of the Transition Property by the Seller to the Note Issuer
pursuant to the Sale Agreement conveys the Seller's right,
title and interest in the Transition Property to the Note
Issuer and will be treated under the laws of The Commonwealth
of Massachusetts as an absolute transfer of all of the
Seller's right, title, and interest in the Transition
Property, other than for federal and state income and
franchise tax purposes, (II) such transfer of the Transition
Property is perfected, (III) such transfer has priority over
any other assignment of the Transition Property and (IV) the
Transition Property is free and clear of all liens created
prior to its transfer to the Note Issuer pursuant to the Sale
Agreement;
(l) (i) the Financing Order has been duly issued and
authorized by the DTE and the Financing Order, giving effect
to the Issuance Advance Letter, is effective; (ii) in reliance
on the opinion of Krokidas & Bluestein LLP that the
Certificates are "electric rate reduction bonds" under Section
1H(a) of the Statute, as of the issuance of the Certificates,
the Certificates are entitled to the protections provided in
Sections 1H(b)(3) and 1H(c)(4) of the Statute; (iii) the
Financing Order is no longer subject to appeal by any person
in state courts of The Commonwealth of Massachusetts; and (iv)
the Servicer is authorized to file periodic RTC Charge
adjustments to the extent necessary to ensure the timely
recovery of revenues sufficient to provide for the payment of
an amount equal to the sum of the periodic RRB payment
requirements for the upcoming year, which includes indemnity
obligations under the Basic Documents;
(m) any state action (whether by legislative, DTE,
citizen initiative or otherwise) to revoke or limit the
Financing Order, the Issuance Advice Letter, the Transition
Property or the RTC Charge in a manner which would
substantially impair the rights of Certificateholders would be
subject to a successful constitutional contracts clause
defense; and
(n) such other matters as the Note Trustee may
reasonably require.
(7) Accountant's Letter. A letter addressed to the Note Issuer
and the Note Trustee complying with the requirements of Section
11.01(a) hereof, of a firm of Independent certified public accountants
of recognized national reputation to the effect that (a) such
accountants are Independent with respect to the Note Issuer within the
meaning of the Note Indenture, and are independent public accountants
within the meaning of the standards of The American Institute of
Certified Public Accountants, and (b) with respect to the Collateral,
they have made certain specified recalculations of calculations and
information provided by the underwriters for the purpose of determining
that, based on certain specified assumptions used in calculating
estimated collections based on the initial RTC Charge, as of the
Issuance Date such estimated collections based on the initial RTC
Charge are sufficient to pay (a) assumed Operating Expenses when
23
<PAGE> 30
incurred, plus (b) the Overcollateralization Amount set forth in the
Final Prospectus (as such term is defined in the Underwriting
Agreement), plus (c) interest on the Notes at their respective Note
Interest Rates when due as set forth in the Final Prospectus, plus (d)
principal of the Notes in accordance with the Expected Amortization
Schedule set forth in the Final Prospectus and found the calculations
to be mathematically correct.
(8) Rating Agency Condition. The Note Trustee shall receive
evidence reasonably satisfactory to it that the Rating Agency Condition
will be satisfied.
(9) Other Requirements. Such other documents, certificates,
agreements, instruments or opinions as the Note Trustee may reasonably
require.
Section 2.11. Release of Collateral. Subject to Section 11.01, the Note
Trustee shall release property from the lien of this Note Indenture only as
specified in Section 8.02 or upon receipt of an Issuer Request accompanied by an
Officer's Certificate, an Opinion of Counsel and Independent Certificates in
accordance with Trust Indenture Act Sections 314(c) and 314(d)(l) or an Opinion
of Counsel in lieu of such Independent Certificates to the effect that the Trust
Indenture Act does not require any such Independent Certificates.
ARTICLE III
COVENANTS
Section 3.01. Payment of Principal and Interest. The Note Issuer will
duly and punctually pay the principal of and interest on the Notes in accordance
with the terms of the Notes and this Note Indenture. Amounts properly withheld
under the Code by any Person from a payment to any Noteholder of interest or
principal shall be considered as having been paid by the Note Issuer to such
Noteholder for all purposes of this Note Indenture.
Section 3.02. Maintenance of Office or Agency. The Note Issuer will
maintain in the Borough of Manhattan, The City of New York, an office or agency
where Notes may be surrendered for registration of transfer or exchange. The
Note Issuer hereby initially appoints the Note Trustee to serve as its agent for
the foregoing purposes. The Note Issuer will give prompt written notice to the
Note Trustee of the location, and of any change in the location, of any such
office or agency. If at any time the Note Issuer shall fail to maintain any such
office or agency or shall fail to furnish the Note Trustee with the address
thereof, such surrenders may be made at the Corporate Trust Office, and the Note
Issuer hereby appoints the Note Trustee as its agent to receive all such
surrenders.
Section 3.03. Money for Payments To Be Held in Trust. As provided in
Section 8.02(a), all payments of amounts due and payable with respect to any
Notes that are to be made from amounts withdrawn from the Collection Account
pursuant to Section 8.02(d) shall be made on behalf of the Note Issuer by the
Note Trustee or by another Paying Agent, and no amounts so withdrawn from the
Collection Account for payments of Notes shall be paid over to the Note Issuer
except as provided in this Section and Section 8.02.
24
<PAGE> 31
The Note Issuer will cause each Paying Agent other than the Note
Trustee to execute and deliver to the Note Trustee an instrument in which such
Paying Agent shall agree with the Note Trustee (and if the Note Trustee acts as
Paying Agent, it hereby so agrees), subject to the provisions of this Section,
that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Note Trustee and the Certificate Trustee notice
of any Default by the Note Issuer (or any other obligor upon the Notes)
of which it has actual knowledge in the making of any payment required
to be made with respect to the Notes;
(iii) at any time during the continuance of any such Default,
upon the written request of the Note Trustee, forthwith pay to the Note
Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to
the Note Trustee all sums held by it in trust for the payment of Notes
if at any time it ceases to meet the standards required to be met by a
Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Notes of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
The Note Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Note Indenture or for any other purpose, by
Issuer Order direct any Paying Agent to pay to the Note Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Note Trustee upon the
same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Note Trustee, such Paying Agent
shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Note Trustee or any Paying Agent in trust for the payment of any
amount due with respect to any Note and remaining unclaimed for two years after
such amount has become due and payable shall be discharged from such trust and
be paid to the Note Issuer on Issuer Request; and, subject to Section 11.16, the
Holder of such Note shall thereafter, as an unsecured general creditor, look
only to the Note Issuer for payment thereof (but only to the extent of the
amounts so paid to the Note Issuer), and all liability of the Note Trustee or
such Paying Agent with respect to such trust money shall thereupon cease;
provided, however, that the Note Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Note Issuer cause
to be published once, in a newspaper published in the English language,
customarily published on each Business Day and of general circulation in The
City of New York, notice that such
25
<PAGE> 32
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Note Issuer. The Note
Trustee may also adopt and employ, at the expense of the Note Issuer, any other
reasonable means of notification of such repayment (including mailing notice of
such repayment to Holders whose Notes have been called but have not been
surrendered for redemption or whose right to or interest in moneys due and
payable but not claimed is determinable from the records of the Note Trustee or
of any Paying Agent, at the last address of record for each such Holder).
Section 3.04. Existence. The Note Issuer will keep in full effect its
existence, rights and franchises as a limited liability company under the laws
of the State of Delaware (unless, subject to the provisions of Section 3.10
hereof, it becomes, or any successor Note Issuer hereunder is or becomes,
organized under the laws of any other State or of the United States of America,
in which case the Note Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Note Indenture, the Notes, the Collateral and each other
instrument or agreement included in the Collateral.
Section 3.05. Protection of Collateral. The Note Issuer will from time
to time execute and deliver all such supplements and amendments hereto and all
such filings with the DTE pursuant to the Statute, financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) maintain or preserve the lien and security interest (and
the priority thereof) of this Note Indenture or carry out more
effectively the purposes hereof;
(ii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Note Indenture;
(iii) enforce any of the Collateral;
(iv) preserve and defend title to the Collateral and the
rights of the Note Trustee and the Noteholders in such Collateral
against the claims of all Persons and parties, including the challenge
by any party to the validity or enforceability of the Financing Order,
any Advice Letter or the Transition Property or any proceeding relating
thereto and institute any action or proceeding necessary to compel
performance by the DTE or The Commonwealth of Massachusetts of any of
its obligations or duties under the Statute, the Financing Order or any
Advice Letter; or
(v) pay any and all taxes levied or assessed upon all or any
part of the Collateral.
The Note Issuer hereby designates the Note Trustee its agent and
attorney-in-fact to execute any filings with the DTE pursuant to the Statute,
financing statement, continuation
26
<PAGE> 33
statement or other instrument required by the Note Trustee pursuant to this
Section, it being understood that the Note Trustee shall have no such
obligation.
Section 3.06. Opinions as to Collateral.
(a) On the Issuance Date, the Note Issuer shall furnish to the Note
Trustee an Opinion of Counsel either stating that, in the opinion of such
counsel, (A) such action has been taken (and reciting the details of such
action) with respect to the recording and filing of this Note Indenture and any
other requisite documents, and with respect to the execution and filing of any
filings with the DTE pursuant to the Statute, financing statements and
continuation statements, as are necessary to perfect the lien and security
interest of this Note Indenture, or (B) no such action is necessary to make such
lien and security interest effective.
(b) Prior to the effectiveness of any amendment to the Sale Agreement,
the Note Issuer shall furnish to the Note Trustee an Opinion of Counsel either
(A) stating that, in the opinion of such counsel, all filings, including filings
with the DTE pursuant to the Statute and any UCC financing statements, have been
executed and filed that are necessary fully to preserve and protect the interest
of the Note Issuer and the Note Trustee in the Transition Property and the
proceeds thereof, and reciting the details of such filings or referring to prior
Opinions of Counsel in which such details are given, or (B) stating that, in the
opinion of such counsel, no such action shall be necessary to preserve and
protect such interest.
Section 3.07. Performance of Obligations; Servicing; Commission
Filings.
(a) The Note Issuer (i) will diligently pursue any and all actions to
enforce its rights under each instrument or agreement included in the Collateral
and (ii) will not take any action and will use its reasonable efforts not to
permit any action to be taken by others that would release any Person from any
of such Person's covenants or obligations under any such instrument or agreement
or that would result in the amendment, hypothecation, subordination, termination
or discharge of, or impair the validity or effectiveness of, any such instrument
or agreement, except, in each case, as expressly permitted in this Note
Indenture, the Sale Agreement, the Servicing Agreement or such other instrument
or agreement.
(b) The Note Issuer may contract with other Persons to assist it in
performing its duties under this Note Indenture, and any performance of such
duties by a Person identified to the Note Trustee in an Officer's Certificate of
the Note Issuer shall be deemed to be action taken by the Note Issuer.
Initially, the Note Issuer has contracted with the Administrator and the
Servicer to assist the Note Issuer in performing its duties under this Note
Indenture.
(c) The Note Issuer will punctually perform and observe all of its
obligations and agreements contained in this Note Indenture, the Basic Documents
and in the instruments and agreements included in the Collateral, including
filing or causing to be filed all filings with the DTE pursuant to the Statute,
UCC financing statements and continuation statements required to be filed by it
by the terms of this Note Indenture, the Sale Agreement and the Servicing
Agreement in accordance with and within the time periods provided for herein and
therein. Except as otherwise expressly permitted therein, the Note Issuer shall
not waive, amend, modify, supple-
27
<PAGE> 34
ment or terminate any Basic Document or any provision thereof without the
written consent of the Note Trustee (which consent shall not be withheld if (i)
the Note Trustee shall have received an Officer's Certificate stating that such
waiver, amendment, modification, supplement or termination shall not adversely
affect in any material respect the interests of the Noteholders or the holders
of Certificates and (ii) the Rating Agency Condition shall have been satisfied
with respect thereto) or the Holders of at least a majority of the Outstanding
Amount of Notes.
(d) If the Note Issuer shall have knowledge of the occurrence of a
Servicer Default under the Servicing Agreement, the Note Issuer shall promptly
give written notice thereof to the Note Trustee, the Certificate Trustee, the
Agencies and the Rating Agencies, and shall specify in such notice the action,
if any, the Note Issuer is taking with respect of such default. If a Servicer
Default shall arise from the failure of the Servicer to perform any of its
duties or obligations under the Servicing Agreement with respect to the
Transition Property, including the RTC Charge, the Note Issuer shall take all
reasonable steps available to it to remedy such failure.
(e) As promptly as possible after the giving of notice to the Servicer,
the Note Trustee, the Certificate Trustee, the Agencies and the Rating Agencies
of termination of the Servicer's rights and powers pursuant to Section 7.01 of
the Servicing Agreement, the Note Issuer, subject to the approval of the DTE
pursuant to the Financing Order, shall appoint a successor Servicer (the
"Successor Servicer") with the Note Trustee's prior written consent thereto
(which consent shall not be unreasonably withheld), and such Successor Servicer
shall accept its appointment by a written assumption in a form acceptable to the
Note Issuer and the Note Trustee. A Person shall qualify as a Successor Servicer
only if such Person satisfies the requirements of the Servicing Agreement. If
within 30 days after the delivery of the notice referred to above, the Note
Issuer shall not have obtained such a new Servicer, the Note Trustee may
petition the DTE or a court of competent jurisdiction to appoint a Successor
Servicer. In connection with any such appointment, the Note Issuer may make such
arrangements for the compensation of such successor as it and such successor
shall agree, subject to the limitations set forth below and in the Servicing
Agreement, and in accordance and in compliance with Section 7.02 of the
Servicing Agreement, the Note Issuer shall enter into an agreement with such
successor for the servicing of the Transition Property (such agreement to be in
form and substance satisfactory to the Note Trustee).
(f) Upon any termination of the Servicer's rights and powers pursuant
to the Servicing Agreement, the Note Trustee shall promptly notify the Note
Issuer, the Noteholders, the Certificate Trustee, the Agencies and the Rating
Agencies. As soon as a Successor Servicer is appointed, the Note Issuer shall
notify the Note Trustee, the Noteholders, the Certificate Trustee, the Agencies
and the Rating Agencies of such appointment, specifying in such notice the name
and address of such Successor Servicer.
(g) Without derogating from the absolute nature of the assignment
granted to the Note Trustee under this Note Indenture or the rights of the Note
Trustee hereunder, the Note Issuer agrees that it will not, without the prior
written consent of the Note Trustee or the Holders of at least a majority in
Outstanding Amount of the Notes, amend, modify, waive, supplement, terminate or
surrender, or agree to any amendment, modification, supplement, termination,
28
<PAGE> 35
waiver or surrender of, the terms of any Collateral or the Basic Documents, or
waive timely performance or observance of any material term by the Seller or the
Servicer under the Sale Agreement or the Servicing Agreement, respectively. If
any such amendment, modification, supplement or waiver shall be so consented to
by the Note Trustee or such Holders, the Note Issuer agrees to execute and
deliver, in its own name and at its own expense, such agreements, instruments,
consents and other documents as shall be necessary or appropriate in the
circumstances. The Note Issuer agrees that no such amendment, modification,
supplement or waiver shall adversely affect the rights of the Holders of the
Notes or Certificates Outstanding at the time of any such amendment,
modification, supplement or waiver, except as otherwise agreed to by the Holders
in accordance with the Basic Documents.
(h) The Note Issuer shall file with the Commission such periodic
reports, if any, as are required from time to time under Section 13 of the
Exchange Act.
(i) The Note Issuer shall make all filings required under the Statute
relating to the transfer of the ownership or security interest in the Transition
Property other than those required to be made by the Seller pursuant to the
Basic Documents.
Section 3.08. Negative Covenants. So long as any Notes are Outstanding,
the Note Issuer shall not:
(i) except as expressly permitted by this Note Indenture,
sell, transfer, exchange or otherwise dispose of any of the properties
or assets of the Note Issuer, including those included in the
Collateral, unless directed to do so by the Note Trustee in accordance
with Article V;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the
Collateral;
(iii) terminate its existence or dissolve or liquidate in
whole or in part; or
(iv) (A) permit the validity or effectiveness of this Note
Indenture to be impaired, or permit the lien of this Note Indenture to
be amended, subordinated, terminated or discharged, or permit any
Person to be released from any covenants or obligations with respect to
the Notes under this Note Indenture except as may be expressly
permitted hereby, (B) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance (other than the lien of this
Note Indenture and any statutory lien under Section 1H(e) of the
Statute) to be created by the Note Issuer on or extend to or otherwise
arise upon or burden the Collateral or any part thereof or any interest
therein or the proceeds thereof or (C) subject to any statutory lien
under Section 1H(e) of the Statute, permit the lien of this Note
Indenture not to constitute a valid first priority security interest in
the Collateral.
Section 3.09. Annual Statement as to Compliance. The Note Issuer will
deliver to the Note Trustee, the Certificate Trustee and the Rating Agencies not
later than March 31 of each year
29
<PAGE> 36
(commencing with March 31, 2000), an Officer's Certificate stating, as to the
Authorized Officer signing such Officer's Certificate, that
(i) a review of the activities of the Note Issuer during the
preceding twelve months ended December 31 (or, in the case of the
Officer's Certificate to be delivered on or before March 31, 2000, the
period of time from the date of this Note Indenture until December 31,
1999), and of performance under this Note Indenture has been made under
such Authorized Officer's supervision; and
(ii) to such Authorized Officer's knowledge, based on such
review, the Note Issuer has complied with all conditions and covenants
under this Note Indenture throughout such twelve month period, or, if
there has been a default in so complying with any such condition or
covenant, specifying each such default known to such Authorized Officer
and the nature and status thereof.
Section 3.10. Note Issuer May Consolidate, etc., Only on Certain Terms.
(a) The Note Issuer shall not consolidate or merge with or into any
other Person, unless
(i) the Person (if other than the Note Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America, any State or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Note Trustee, in
form and substance reasonably satisfactory to the Note Trustee, the due
and punctual payment of the principal of and interest on all Notes and
the performance or observance of every agreement and covenant of this
Note Indenture on the part of the Note Issuer to be performed or
observed, all as provided herein;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied
with respect to such transaction;
(iv) the Note Issuer shall have received an Opinion of Counsel
(and shall have delivered copies thereof to the Note Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Note Issuer, the Certificate Issuer, any Noteholder
or any Certificateholder;
(v) any action as is necessary to maintain the lien and
security interest created by this Note Indenture shall have been taken;
and
(vi) the Note Issuer shall have delivered to the Note Trustee
an Officer's Certificate and an Opinion of Counsel each stating that
such consolidation or merger and such supplemental note indenture
comply with this Section 3.10 and that all conditions
30
<PAGE> 37
precedent herein provided for relating to such transaction have been
complied with (including any filing required by the Exchange Act).
(b) Except as specifically provided herein, the Note Issuer shall not
convey or transfer any of its properties or assets, including those included in
the Collateral, to any Person, unless
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Note Issuer the conveyance or transfer of
which is hereby restricted shall (A) be a United States citizen or a
Person organized and existing under the laws of the United States of
America, any State or the District of Columbia, (B) expressly assumes,
by an indenture supplemental hereto, executed and delivered to the Note
Trustee, in form and substance reasonably satisfactory to the Note
Trustee, the due and punctual payment of the principal of and interest
on all Notes and the performance or observance of every agreement and
covenant of this Note Indenture on the part of the Note Issuer to be
performed or observed, all as provided herein, (C) expressly agrees by
means of such supplemental note indenture that all right, title and
interest so conveyed or transferred shall be subject and subordinate to
the rights of Holders of the Notes, (D) unless otherwise provided in
the supplemental note indenture referred to in clause (B) above,
expressly agrees to indemnify, defend and hold harmless the Note
Trustee against and from any loss, liability or expense arising under
or related to this Note Indenture and the Notes and (E) expressly
agrees by means of such supplemental note indenture that such Person
(or if a group of Persons, then one specified Person) shall make all
filings with the Commission (and any other appropriate Person) required
by the Exchange Act in connection with the Notes;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied
with respect to such transaction;
(iv) the Note Issuer shall have received an Opinion of Counsel
(and shall have delivered copies thereof to the Note Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Note Issuer, the Certificate Issuer, any Noteholder
or any Certificateholder;
(v) any action as is necessary to maintain the lien and
security interest created by this Note Indenture shall have been taken;
and
(vi) the Note Issuer shall have delivered to the Note Trustee
an Officer's Certificate and an Opinion of Counsel each stating that
such conveyance or transfer and such supplemental note indenture comply
with this Section 3.10 and that all conditions precedent herein
provided for relating to such transaction have been complied with
(including any filing required by the Exchange Act).
31
<PAGE> 38
Section 3.11. Successor or Transferee.
(a) Upon any consolidation or merger of the Note Issuer in accordance
with Section 3.10(a), the Person formed by or surviving such consolidation or
merger (if other than the Note Issuer) shall succeed to, and be substituted for,
and may exercise every right and power of, the Note Issuer under this Note
Indenture with the same effect as if such Person had been named as the Note
Issuer herein.
(b) Except as set forth in Section 6.07, upon a conveyance or transfer
of all the assets and properties of the Note Issuer pursuant to Section 3.10(b),
BEC Funding LLC will be released from every covenant and agreement of this Note
Indenture to be observed or performed on the part of the Note Issuer with
respect to the Notes immediately upon the delivery of written notice by BEC
Funding LLC to the Note Trustee stating that BEC Funding LLC is to be so
released.
Section 3.12. No Other Business. The Note Issuer shall not engage in any
business other than financing, purchasing, owning and managing the Transition
Property in the manner contemplated by this Note Indenture and the Basic
Documents and activities incidental thereto.
Section 3.13. No Borrowing. The Note Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
Section 3.14. Servicer's Obligations. The Note Issuer shall enforce the
Servicer's compliance with all of the Servicer's material obligations under the
Servicing Agreement.
Section 3.15. No Additional Notes. The Note Issuer shall not issue any
additional Notes hereunder, except pursuant to Section 2.05 or Section 2.06.
Section 3.16. Guarantees, Loans, Advances and Other Liabilities. Except as
otherwise contemplated by the Sale Agreement, the Servicing Agreement or this
Note Indenture, the Note Issuer shall not make any loan or advance or credit to,
or guarantee (directly or indirectly or by an instrument having the effect of
assuring another's payment or performance on any obligation or capability of so
doing or otherwise), endorse or otherwise become contingently liable, directly
or indirectly, in connection with the obligations, stocks or dividends of, or
own, purchase, repurchase or acquire (or agree contingently to do so) any stock,
obligations, assets or securities of, or any other interest in, or make any
capital contribution to, any other Person.
Section 3.17. Capital Expenditures. Other than expenditures in an aggregate
amount not to exceed $25,000 in any calendar year, the Note Issuer shall not
make any expenditure (by long-term or operating lease or otherwise) for capital
assets (either realty or personalty).
Section 3.18. Non-Routine Periodic Adjustment. The Note Issuer agrees that it
shall not consent to a Non-Routine Periodic Adjustment pursuant to Section
4.01(c) of the Servicing Agreement unless the Rating Agency Condition shall have
been satisfied.
Section 3.19. Restricted Payments. The Note Issuer shall not, directly or
indirectly, while the Notes are Outstanding (i) pay any dividend or make any
distribution (by reduction of capital or
32
<PAGE> 39
otherwise), whether in cash, property, securities or a combination thereof, to
any owner of a beneficial interest in the Note Issuer or otherwise with respect
to any ownership or equity interest or security in or of the Note Issuer, (ii)
redeem, purchase, retire or otherwise acquire for value any such ownership or
equity interest or security or (iii) set aside or otherwise segregate any
amounts for any such purpose; provided, however, that, if no Event of Default
shall have occurred and be continuing, the Note Issuer may make, or cause to be
made, any such distributions to any owner of a beneficial interest in the Note
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Note Issuer using funds distributed to the Note Issuer pursuant to
Section 8.02 to the extent that such distributions would not cause the amount of
the Capital Subaccount to decline below the Required Capital Level. The Note
Issuer will not, directly or indirectly, make payments to or distributions from
the Collection Account except in accordance with this Note Indenture and the
Basic Documents.
Section 3.20. Notice of Events of Default. The Note Issuer agrees to
give the Note Trustee, the Certificate Trustee, the Agencies and the Rating
Agencies prompt written notice of each Event of Default hereunder and each
default on the part of the Seller or the Servicer of its obligations under the
Sale Agreement or the Servicing Agreement, respectively.
Section 3.21. Further Instruments and Acts. Upon request of the Note
Trustee, the Note Issuer will execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Note Indenture.
ARTICLE IV
SATISFACTION AND DISCHARGE; DEFEASANCE
Section 4.01. Satisfaction and Discharge of Note Indenture; Defeasance.
(a) This Note Indenture shall cease to be of further effect with
respect to the Notes and the Note Trustee, on reasonable demand of and at the
expense of the Note Issuer, shall execute proper instruments acknowledging
satisfaction and discharge of this Note Indenture with respect to the Notes,
when
(A) either
(1) all Notes theretofore authenticated and delivered
(other than (i) Notes that have been mutilated, destroyed,
lost or stolen and that have been replaced or paid as provided
in Section 2.06 and (ii) Notes for whose payment money has
theretofore been deposited in trust or segregated and held in
trust by the Note Issuer and thereafter repaid to the Note
Issuer or discharged from such trust, as provided in Section
3.03) have been delivered to the Note Trustee for
cancellation; or
(2) the Scheduled Maturity Date or Redemption Date
has occurred with respect to all Notes not theretofore
delivered to the Note Trustee for
33
<PAGE> 40
cancellation, and the Note Issuer has irrevocably deposited or
caused to be irrevocably deposited with the Note Trustee cash,
in trust for such purpose, in an amount sufficient to pay and
discharge the entire indebtedness on such Notes not
theretofore delivered to the Note Trustee for cancellation on
the Scheduled Maturity Date therefor;
(B) the Note Issuer has paid or caused to be paid all other
sums payable hereunder by the Note Issuer; and
(C) the Note Issuer has delivered to the Note Trustee an
Officer's Certificate, an Opinion of Counsel and (if required by the
Trust Indenture Act or the Note Trustee) an Independent Certificate
from a firm of certified public accountants, each meeting the
applicable requirements of Section 11.01(a) and each stating that all
conditions precedent herein provided for relating to the satisfaction
and discharge of this Note Indenture with respect to the Notes have
been complied with.
(b) Subject to Sections 4.01(c) and 4.02, the Note Issuer at any time
may terminate (i) all its obligations under this Note Indenture with respect to
the Notes ("Legal Defeasance Option") or (ii) its obligations under Sections
3.04, 3.05, 3.06, 3.07, 3.08, 3.09, 3.10, 3.12, 3.13, 3.14, 3.15, 3.16, 3.17 and
3.18 and the operation of Section 5.01(iv) ("Covenant Defeasance Option") with
respect to the Notes. The Note Issuer may exercise the Legal Defeasance Option
notwithstanding its prior exercise of the Covenant Defeasance Option.
If the Note Issuer exercises the Legal Defeasance Option, the maturity
of the Notes may not be accelerated because of an Event of Default. If the Note
Issuer exercises the Covenant Defeasance Option, the maturity of the Notes may
not be accelerated because of an Event of Default specified in Section 5.01(iv).
Upon satisfaction of the conditions set forth herein to the exercise of
the Legal Defeasance Option or the Covenant Defeasance Option, the Note Trustee,
on reasonable demand of and at the expense of the Note Issuer, shall execute
proper instruments acknowledging satisfaction and discharge of the obligations
that are terminated pursuant to such exercise.
(c) Notwithstanding Sections 4.01(a) and 4.01(b) above, (i) rights of
registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal and interest, (iv) Sections 4.03 and 4.04, (v) the rights,
obligations and immunities of the Note Trustee hereunder (including the rights
of the Note Trustee under Section 6.07 and the obligations of the Note Trustee
under Section 4.03) and (vi) the rights of Noteholders as beneficiaries hereof
with respect to the property deposited with the Note Trustee payable to all or
any of them, shall survive until the Notes, as to which this Note Indenture or
certain obligations hereunder have been satisfied and discharged pursuant to
Section 4.01(a) or 4.01(b), have been paid in full. Thereafter, the obligations
in Sections 6.07 and 4.04 shall survive.
34
<PAGE> 41
Section 4.02. Conditions to Defeasance. The Note Issuer may exercise
the Legal Defeasance Option or the Covenant Defeasance Option of Notes only if:
(a) the Note Issuer irrevocably deposits or causes to be
deposited in trust with the Note Trustee cash or U.S. Government
Obligations for the payment of principal of and interest on each such
Note to the Scheduled Maturity Date, Optional Redemption Date or
Mandatory Redemption Date therefor, as applicable;
(b) the Note Issuer delivers to the Note Trustee a certificate
from a nationally recognized firm of Independent accountants expressing
its opinion that the payments of principal and interest when due and
without reinvestment on the deposited U.S. Government Obligations plus
any deposited cash without investment will provide cash at such times
and in such amounts (but, in the case of the Legal Defeasance Option
only, not more than such amounts) as will be sufficient to pay in
respect of the Notes (i) subject to clause (ii), principal in
accordance with the Expected Amortization Schedule therefor, (ii) if to
be redeemed, the Optional Redemption Price or Mandatory Redemption
Price, as applicable, therefor on the related Optional Redemption Date
or Mandatory Redemption Date, as applicable and (iii) interest when
due;
(c) in the case of the Legal Defeasance Option, 91 days pass
after the deposit is made and during the 91-day period no Default
specified in Section 5.01(v) or (vi) occurs which is continuing at the
end of the period;
(d) no Default has occurred and is continuing on the day of
such deposit and after giving effect thereto;
(e) in the case of an exercise of the Legal Defeasance Option,
the Note Issuer shall have delivered to the Note Trustee an Opinion of
Counsel stating that (i) the Note Issuer has received from, or there
has been published by, the Internal Revenue Service a ruling, or (ii)
since the date of execution of this Note Indenture, there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the
Holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such legal defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such legal
defeasance had not occurred;
(f) in the case of an exercise of the Covenant Defeasance
Option, the Note Issuer shall have delivered to the Note Trustee an
Opinion of Counsel to the effect that the Holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred; and
(g) the Note Issuer delivers to the Note Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the satisfaction and
35
<PAGE> 42
discharge of the Notes to the extent contemplated by this Article IV
have been complied with.
Before or after a deposit pursuant to this Section 4.02, the Note
Issuer may make arrangements satisfactory to the Note Trustee for the redemption
of such Notes at a future date in accordance with Article X.
Section 4.03. Application of Trust Money. All moneys or U.S. Government
Obligations deposited with the Note Trustee pursuant to Section 4.01 or 4.02
hereof shall be held in trust and applied by it, in accordance with the
provisions of the Notes and this Note Indenture, to the payment, either directly
or through any Paying Agent, as the Note Trustee may determine, to the Holders
of the particular Notes for the payment or redemption of which such moneys have
been deposited with the Note Trustee, of all sums due and to become due thereon
for principal and interest, but such moneys need not be segregated from other
funds except to the extent required herein or in the Servicing Agreement or
required by law.
Section 4.04. Repayment of Moneys Held by Paying Agent. In connection
with the satisfaction and discharge of this Note Indenture or the Covenant
Defeasance Option or Legal Defeasance Option with respect to the Notes, all
moneys then held by any Paying Agent other than the Note Trustee under the
provisions of this Note Indenture with respect to such Notes shall, upon demand
of the Note Issuer, be paid to the Note Trustee to be held and applied according
to Section 3.03 and thereupon such Paying Agent shall be released from all
further liability with respect to such moneys.
ARTICLE V
REMEDIES
Section 5.01. Events of Default. "Event of Default", wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) default in the payment of any interest on any Note when
the same becomes due and payable, and such default shall continue for a
period of five days; or
(ii) default in the payment of the then unpaid principal of
any Note on the Final Maturity Date; or
(iii) default in the payment of the Optional Redemption Price
for the Notes on the Optional Redemption Date therefor, or a default in
the payment of the Mandatory Redemption Price for the Notes on the
Mandatory Redemption Date;
(iv) default in the observance or performance in any material
respect of any covenant or agreement of the Note Issuer made in this
Note Indenture (other than a
36
<PAGE> 43
covenant or agreement, a default in the observance or performance of
which is elsewhere in this Section specifically dealt with), or any
representation or warranty of the Note Issuer made in this Note
Indenture or in any certificate or other writing delivered pursuant
hereto or in connection herewith proving to have been incorrect in any
material respect as of the time when the same shall have been made, and
such default shall continue or not be cured, or the circumstance or
condition in respect of which such misrepresentation or warranty was
incorrect shall not have been eliminated or otherwise cured, for a
period of 30 days after there shall have been given, by registered or
certified mail, to the Note Issuer by the Note Trustee or to the Note
Issuer and the Note Trustee by the Holders of at least 25 percent of
the Outstanding Amount of the Notes, a written notice specifying such
default or incorrect representation or warranty and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder; or
(v) the filing of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Note Issuer or
any substantial part of the Collateral in an involuntary case under any
applicable federal or state bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Note Issuer or for any substantial part of the Collateral, or ordering
the winding-up or liquidation of the Note Issuer's affairs, and such
decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or
(vi) the commencement by the Note Issuer of a voluntary case
under any applicable federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by the Note
Issuer to the entry of an order for relief in an involuntary case under
any such law, or the consent by the Note Issuer to the appointment or
taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the Note Issuer or for any
substantial part of the Collateral, or the making by the Note Issuer of
any general assignment for the benefit of creditors, or the failure by
the Note Issuer generally to pay its debts as such debts become due, or
the taking of action by the Note Issuer in furtherance of any of the
foregoing.
The Note Issuer shall deliver to a Responsible Officer of the Note
Trustee, the Certificate Trustee and the Rating Agencies, within five days after
an Authorized Officer has knowledge of the occurrence thereof, written notice in
the form of an Officer's Certificate of any event which with the giving of
notice and the lapse of time would become an Event of Default under clause (iv),
its status and what action the Note Issuer is taking or proposes to take with
respect thereto.
Section 5.02. Acceleration of Maturity; Rescission and Annulment. If an
Event of Default should occur and be continuing, then and in every such case the
Note Trustee or the Holders of Notes representing not less than a majority of
the Outstanding Amount of the Notes may declare all the Notes to be immediately
due and payable, by a notice in writing to the Note Issuer (and to the Note
Trustee if given by Noteholders), and upon any such declaration the unpaid
principal amount of the Notes, together with accrued and unpaid interest thereon
through the date of acceleration, shall become immediately due and payable.
37
<PAGE> 44
At any time after such declaration of acceleration of maturity has been
made and before a judgment or decree for payment of the money due has been
obtained by the Note Trustee as hereinafter in this Article V provided, the
Holders of Notes representing a majority of the Outstanding Amount of the Notes,
by written notice to the Note Issuer and the Note Trustee, may rescind and annul
such declaration and its consequences if:
(i) the Note Issuer has paid or deposited with the Note
Trustee a sum sufficient to pay:
(A) all payments of principal of and interest on all
Notes and all other amounts that would then be due hereunder
or upon such Notes if the Event of Default giving rise to such
acceleration had not occurred; and
(B) all sums paid or advanced by the Note Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Note Trustee and its agents
and counsel and all amounts due under the Fee and Indemnity
Agreement; and
(ii) all Events of Default, other than the nonpayment of the
principal of the Notes that has become due solely by such acceleration,
have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent Default or impair any
right consequent thereto.
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
Note Trustee.
(a) The Note Issuer covenants that if (i) default is made in the
payment of any interest on any Note when the same becomes due and payable, and
such default continues for a period of five days, (ii) default is made in the
payment of the then unpaid principal of any Note on the Final Maturity Date for
such Note or (iii) default is made in the payment of the Optional Redemption
Price or Mandatory Redemption Price, as applicable, for any Note on the Optional
Redemption Date or Mandatory Redemption Date, as applicable, therefor, the Note
Issuer will, upon demand of the Note Trustee, pay to it, for the benefit of the
Holders of the Notes, the whole amount then due and payable on such Notes for
principal and interest, with interest upon the overdue principal and, to the
extent payment at such rate of interest shall be legally enforceable, upon
overdue installments of interest, at the respective rate borne by the Notes of
the applicable Class and in addition thereto such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Note
Trustee and its agents and counsel and an amount sufficient to cover all amounts
required to be paid by the Note Issuer under the Fee and Indemnity Agreement.
(b) Subject to Section 11.16, in case the Note Issuer shall fail
forthwith to pay such amounts upon such demand, the Note Trustee, in its own
name and as trustee of an express trust, may institute a Proceeding for the
collection of the sums so due and unpaid, and may prosecute such Proceeding to
judgment or final decree, and may enforce the same against the Note Issuer or
38
<PAGE> 45
other obligor upon such Notes and collect in the manner provided by law out of
the property of the Note Issuer or other obligor upon such Notes, wherever
situated, the moneys adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Note Trustee
may, as more particularly provided in Section 5.04, in its discretion, proceed
to protect and enforce its rights and the rights of the Noteholders, by such
appropriate Proceedings as the Note Trustee shall deem most effective to protect
and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Note Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy or legal or
equitable right vested in the Note Trustee by this Note Indenture or by law.
(d) In case there shall be pending, relative to the Note Issuer or any
other obligor upon the Notes or any Person having or claiming an ownership
interest in the Collateral, Proceedings under Title 11 of the United States Code
or any other applicable federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Note Issuer or its property or such other obligor or
Person, or in case of any other comparable judicial Proceedings relative to the
Note Issuer or other obligor upon the Notes, or to the creditors or property of
the Note Issuer or such other obligor, the Note Trustee, irrespective of whether
the principal of any Notes shall then be due and payable as therein expressed or
by declaration or otherwise and irrespective of whether the Note Trustee shall
have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, by intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount
of principal and interest owing and unpaid in respect of the Notes and
to file such other papers or documents as may be necessary or advisable
in order to have the claims of (A) the Note Trustee (including any
claim for reasonable compensation to the Note Trustee and each
predecessor Note Trustee, and their respective agents, attorneys and
counsel, and for reimbursement of all expenses and liabilities
incurred, and all advances made, by the Note Trustee and each
predecessor Note Trustee, except as a result of gross negligence or
willful misconduct), (B) the Noteholders and (C) each Person for whom a
claim may be made under the Fee and Indemnity Agreement, allowed in
such Proceedings;
(ii) unless prohibited by applicable law and regulations, to
vote on behalf of the Holders of Notes in any election of a trustee, a
standby trustee or Person performing similar functions in any such
Proceedings; and
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Noteholders and of the Note
Trustee on their behalf;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Note Trustee, and, in the event that the Note Trustee shall
consent to the making of payments directly to such Noteholders,
39
<PAGE> 46
to pay to the Note Trustee (or such other beneficiary of the Fee and Indemnity
Agreement) such amounts as shall be sufficient to cover reasonable compensation
and other amounts owing hereunder to the Note Trustee or such Person, each
predecessor Note Trustee and their respective agents, attorneys and counsel, and
all other reasonable expenses and liabilities incurred, and all advances made,
by the Note Trustee and each predecessor Note Trustee except as a result of
gross negligence or willful misconduct.
(e) Nothing herein contained shall be deemed to authorize the Note
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Note Trustee to vote in respect of the claim of any Noteholder in
any such proceeding except, as aforesaid, to vote for the election of a trustee
in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Note
Indenture, or under any of the Notes, may be enforced by the Note Trustee
without the possession of any of the Notes or the production thereof in any
trial or other Proceedings relative thereto, and any such action or proceedings
instituted by the Note Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment, subject to the payment of the
expenses, disbursements and compensation of the Note Trustee, each predecessor
Note Trustee and their respective agents and attorneys, shall be for the ratable
benefit of the Holders of the Notes.
(g) In any Proceedings brought by the Note Trustee (and also any
Proceedings involving the interpretation of any provision of this Note Indenture
to which the Note Trustee shall be a party), the Note Trustee shall be held to
represent all the Holders of the Notes, and it shall not be necessary to make
any Noteholder a party to any such Proceedings.
Section 5.04. Remedies; Priorities.
(a) If an Event of Default shall have occurred and be continuing, the
Note Trustee may do one or more of the following (subject to Section 5.05):
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the
Notes or under this Note Indenture with respect thereto, whether by
declaration or otherwise, enforce any judgment obtained, and collect
from the Note Issuer and any other obligor upon such Notes moneys
adjudged due;
(ii) institute Proceedings from time to time for the complete
or partial foreclosure of this Note Indenture with respect to the
Collateral;
(iii) exercise any remedies of a secured party under the UCC
or the Statute and take any other appropriate action to protect and
enforce the rights and remedies of the Note Trustee and the Holders of
the Notes; and
40
<PAGE> 47
(iv) sell the Collateral or any portion thereof or rights or
interest therein, at one or more public or private sales called and
conducted in any manner permitted by law;
provided, however, that the Note Trustee may not sell or otherwise liquidate any
portion of the Collateral following an Event of Default, other than an Event of
Default described in Section 5.01(i), (ii) or (iii), unless (A) the Holders of
100 percent of the Outstanding Amount of the Notes consent thereto, (B) the
proceeds of such sale or liquidation distributable to the Noteholders are
sufficient to discharge in full all amounts then due and unpaid upon such Notes
for principal and interest after taking into account payment of all amounts due
prior thereto pursuant to the priorities set forth in Section 8.02(d) or (C) the
Note Trustee determines that the Collateral will not continue to provide
sufficient funds for all payments on the Notes as they would have become due if
the Notes had not been declared due and payable, and the Note Trustee obtains
the consent of Holders of 66-2/3 percent of the Outstanding Amount of the Notes.
In determining such sufficiency or insufficiency with respect to clause (B) and
(C), the Note Trustee may, but need not, obtain and conclusively rely upon an
opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Collateral for such purpose.
(b) If the Note Trustee collects any money pursuant to this Article V,
it shall pay out such money in accordance with the priorities set forth in
Section 8.02(d).
Section 5.05. Optional Possession of the Collateral. If the Notes have
been declared to be due and payable under Section 5.02 following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, the Note Trustee may, but need not, elect to maintain possession of
the Collateral. It is the desire of the parties hereto and the Noteholders that
there be at all times sufficient funds for the payment of principal of and
interest on the Notes, and the Note Trustee shall take such desire into account
when determining whether or not to maintain possession of the Collateral. In
determining whether to maintain possession of the Collateral, the Note Trustee
may, but need not, obtain and conclusively rely upon an opinion of an
Independent investment banking or accounting firm of national reputation as to
the feasibility of such proposed action and as to the sufficiency of the
Collateral for such purpose.
Section 5.06. Limitation of Suits. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Note Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless:
(i) such Holder previously has given written notice to the
Note Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25 percent of the
Outstanding Amount of the Notes have made written request to the Note
Trustee to institute such Proceeding in respect of such Event of
Default in its own name as Note Trustee hereunder;
(iii) such Holder or Holders have offered to the Note Trustee
indemnity satisfactory to it against the costs, expenses and
liabilities to be incurred in complying with such request;
41
<PAGE> 48
(iv) the Note Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute such
Proceedings; and
(v) no direction inconsistent with such written request has
been given to the Note Trustee during such 60-day period by the Holders
of a majority of the Outstanding Amount of the Notes;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Note Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Note Indenture, except in
the manner herein provided.
In the event the Note Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more groups of Holders of Notes, each
representing less than a majority of the Outstanding Amount of the Notes, the
Note Trustee in its sole discretion may determine what action, if any, shall be
taken, notwithstanding any other provisions of this Note Indenture.
Section 5.07. Unconditional Rights of Noteholders To Receive Principal
and Interest. Notwithstanding any other provisions in this Note Indenture, the
Holder of any Note shall have the right, which is absolute and unconditional,
(a) to receive payment of (i) the interest, if any, on such Note on or after the
due dates thereof expressed in such Note or in this Note Indenture, (ii) the
unpaid principal, if any, of such Notes on or after the Final Maturity Date
therefor or (iii) in the case of redemption, receive payment of the unpaid
principal of and interest, if any, on such Note on or after the Optional
Redemption Date or Mandatory Redemption Date, as applicable, therefor and (b) to
institute suit for the enforcement of any such payment, and such right shall not
be impaired without the consent of such Holder.
Section 5.08. Restoration of Rights and Remedies. If the Note Trustee
or any Noteholder has instituted any Proceeding to enforce any right or remedy
under this Note Indenture and such Proceeding has been discontinued or abandoned
for any reason or has been determined adversely to the Note Trustee or to such
Noteholder, then and in every such case the Note Issuer, the Note Trustee and
the Noteholders shall, subject to any determination in such Proceeding, be
restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Note Trustee and the Noteholders shall
continue as though no such Proceeding had been instituted.
Section 5.09. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Note Trustee or to the Noteholders is intended
to be exclusive of any other right or remedy, and every right and remedy shall,
to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
42
<PAGE> 49
Section 5.10. Delay or Omission Not a Waiver. No delay or omission of
the Note Trustee or any Noteholder to exercise any right or remedy accruing upon
any Default or Event of Default shall impair any such right or remedy or
constitute a waiver of any such Default or Event of Default or an acquiescence
therein. Every right and remedy given by this Article V or by law to the Note
Trustee or to the Noteholders may be exercised from time to time, and as often
as may be deemed expedient, by the Note Trustee or by the Noteholders, as the
case may be.
Section 5.11. Control by Noteholders. The Holders of a majority of the
Outstanding Amount of the Notes (or, if less than all Classes are affected, the
affected Class or Classes) shall have the right to direct the time, method and
place of conducting any Proceeding for any remedy available to the Note Trustee
with respect to the Notes of such Class or Classes or exercising any trust or
power conferred on the Note Trustee with respect to such Class or Classes;
provided, however, that
(i) such direction shall not be in conflict with any rule of
law or with this Note Indenture;
(ii) subject to the express terms of Section 5.04, any
direction to the Note Trustee to sell or liquidate the Collateral shall
be by the Holders of Notes representing not less than 100 percent of
the Outstanding Amount of the Notes;
(iii) if the conditions set forth in Section 5.05 have been
satisfied and the Note Trustee elects to retain the Collateral pursuant
to such Section, then any direction to the Note Trustee by Holders of
Notes representing less than 100 percent of the Outstanding Amount of
the Notes to sell or liquidate the Collateral shall be of no force and
effect; and
(iv) the Note Trustee may take any other action deemed proper
by the Note Trustee that is not inconsistent with such direction;
provided, however, that, subject to Section 6.01, the Note Trustee need not take
any action that it determines might involve it in liability or might materially
adversely affect the rights of any Noteholders not consenting to such action.
Section 5.12. Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.02, the
Holders of Notes of not less than a majority of the Outstanding Amount of the
Notes may waive any past Default or Event of Default and its consequences except
a Default (a) in payment of principal of or interest on any of the Notes or (b)
in respect of a covenant or provision hereof which cannot be modified or amended
without the consent of the Holder of each Note or of all Classes affected. In
the case of any such waiver, the Note Issuer, the Note Trustee and the Holders
of the Notes shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other Default
or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to
43
<PAGE> 50
have been cured and not to have occurred, for every purpose of this Note
Indenture; but no such waiver shall extend to any subsequent or other Default or
Event of Default or impair any right consequent thereto.
Section 5.13. Undertaking for Costs. All parties to this Note Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Note Indenture, or in any
suit against the Note Trustee for any action taken, suffered or omitted by it as
Note Trustee, the filing by any party litigant in such suit of an undertaking to
pay the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to (a) any suit instituted by the Note Trustee, (b) any
suit instituted by any Noteholder, or group of Noteholders, in each case holding
in the aggregate more than 10 percent of the Outstanding Amount of the Notes or
(c) any suit instituted by any Noteholder for the enforcement of the payment of
(i) interest on any Note on or after the due dates expressed in such Note and in
this Note Indenture, (ii) the unpaid principal, if any, of any Note on or after
the Final Maturity Date therefor or (iii) in the case of redemption, the unpaid
principal of and interest on any Note on or after the Optional Redemption Date
or Mandatory Redemption Date, as applicable, therefor.
Section 5.14. Waiver of Stay or Extension Laws. The Note Issuer
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead or in any manner whatsoever, claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, that may affect the covenants or the performance of
this Note Indenture; and the Note Issuer (to the extent that it may lawfully do
so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Note Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
Section 5.15. Action on Notes. The Note Trustee's right to seek and
recover judgment on the Notes or under this Note Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Note Indenture. Neither the lien of this Note Indenture nor any
rights or remedies of the Note Trustee or the Noteholders shall be impaired by
the recovery of any judgment by the Note Trustee against the Note Issuer or by
the levy of any execution under such judgment upon any portion of the Collateral
or upon any of the assets of the Note Issuer.
Section 5.16. Performance and Enforcement of Certain Obligations.
(a) Promptly following a request from the Note Trustee to do so and at
the Note Issuer's expense, the Note Issuer agrees to take all such lawful action
as the Note Trustee may reasonably request to compel or secure the performance
and observance by the Seller and the Servicer, as applicable, of each of their
obligations to the Note Issuer under or in connection with the Sale Agreement
and the Servicing Agreement, respectively, in accordance with the terms thereof,
and
44
<PAGE> 51
to exercise any and all rights, remedies, powers and privileges lawfully
available to the Note Issuer under or in connection with the Sale Agreement and
the Servicing Agreement, respectively, to the extent and in the manner directed
by the Note Trustee, including the transmission of notices of default on the
part of the Seller or the Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller or the Servicer of each of their obligations under the Sale Agreement and
the Servicing Agreement, respectively.
(b) If an Event of Default has occurred, the Note Trustee may, and, at
the direction (which direction shall be in writing or by telephone (confirmed in
writing promptly thereafter)) of the Holders of 66-2/3 percent of the
Outstanding Amount of the Notes shall, subject to Article VI, exercise all
rights, remedies, powers, privileges and claims of the Note Issuer against the
Seller or the Servicer under or in connection with the Sale Agreement and the
Servicing Agreement, respectively, including the right or power to take any
action to compel or secure performance or observance by the Seller or the
Servicer of each of their obligations to the Note Issuer thereunder and to give
any consent, request, notice, direction, approval, extension or waiver under the
Sale Agreement or the Servicing Agreement, respectively, and any right of the
Note Issuer to take such action shall be suspended.
ARTICLE VI
THE NOTE TRUSTEE
Section 6.01. Duties of Note Trustee.
(a) If an Event of Default has occurred and is continuing, the Note
Trustee shall exercise the rights and powers vested in it by this Note Indenture
and use the same degree of care and skill in their exercise as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Note Trustee undertakes to perform such duties and
only such duties as are specifically set forth in this Note Indenture
and no implied covenants or obligations shall be read into this Note
Indenture against the Note Trustee; and
(ii) in the absence of bad faith on its part, the Note Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Note Trustee and conforming to the
requirements of this Note Indenture; however, the Note Trustee shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Note Indenture.
(c) The Note Trustee may not be relieved from liability for its own
grossly negligent action, its own grossly negligent failure to act or its own
willful misconduct, except that:
45
<PAGE> 52
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Note Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is
proved that the Note Trustee was grossly negligent in ascertaining the
pertinent facts; and
(iii) the Note Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.11.
(d) Every provision of this Note Indenture that in any way relates to
the Note Trustee is subject to paragraphs (a) , (b) and (c) of this Section.
(e) The Note Trustee shall not be liable for interest on any money
received by it except as the Note Trustee may agree in writing with the Note
Issuer.
(f) Money held in trust by the Note Trustee need not be segregated from
other funds except to the extent required by law or the terms of this Note
Indenture, the Sale Agreement or the Servicing Agreement.
(g) No provision of this Note Indenture shall require the Note Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayments
of such funds or indemnity satisfactory to it against such risk or liability is
not reasonably assured to it.
(h) Every provision of this Note Indenture relating to the conduct or
affecting the liability of or affording protection to the Note Trustee shall be
subject to the provisions of this Section and to the provisions of the Trust
Indenture Act.
(i) In the event that the Note Trustee is also acting as Paying Agent
or Note Registrar hereunder, this Article VI shall also be afforded to such
Paying Agent or Note Registrar.
Section 6.02. Rights of Note Trustee.
(a) The Note Trustee may conclusively rely and shall be fully protected
in relying on any document believed in good faith by it to be genuine and to
have been signed or presented by the proper person. The Note Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Note Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Note Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on the Officer's Certificate or Opinion of Counsel.
(c) The Note Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys or a custodian or nominee, and the Note Trustee shall not be
responsible for any misconduct or negligence on the part of, or
46
<PAGE> 53
for the supervision of, any such agent, attorney, custodian or nominee appointed
with due care by it hereunder.
(d) The Note Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Note Trustee's conduct does not
constitute willful misconduct or gross negligence.
(e) The Note Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Note Indenture
and the Notes shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
(f) The Note Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Note Indenture at the request or
direction of any Holder pursuant to this Note Indenture, unless such Holder
shall have offered to the Note Trustee reasonable security or indemnity against
the costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction.
(g) The Note Trustee shall not be charged with knowledge of any Default
or Event of Default, unless either (1) a Responsible Officer of the Note Trustee
shall have actual knowledge of the Default or Event of Default, or (2) written
notice of such Default or Event of Default shall have been given to the Note
Trustee by the Note Issuer or by a Holder of the Notes.
Section 6.03. Individual Rights of Note Trustee. The Note Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Note Issuer or its affiliates with the same rights
it would have if it were not Note Trustee. Any Paying Agent, Note Registrar,
co-registrar or co-paying agent may do the same with like rights. However, the
Note Trustee must comply with Sections 6.11 and 6.12.
Section 6.04. Note Trustee's Disclaimer. The Note Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Note Indenture or the Notes, it shall not be accountable for the Note
Issuer's use of the proceeds from the Notes, and it shall not be responsible for
any statement of the Note Issuer in the Note Indenture or in any document issued
in connection with the sale of the Notes or in the Notes other than the Note
Trustee's certificate of authentication.
Section 6.05. Notice of Defaults. If a Default occurs and is continuing and if
it is actually known to a Responsible Officer of the Note Trustee, the Note
Trustee shall mail to the Agencies, each Holder of Notes and to the Rating
Agencies notice of the Default within 30 days after it occurs. Except in the
case of a Default in payment of principal of or interest on any Note, the Note
Trustee may withhold the notice if and so long as a committee of its Responsible
Officers in good faith after consultation with the Certificate Trustee
determines that withholding the notice is in the interests of Noteholders and
the Certificateholders.
47
<PAGE> 54
Section 6.06. Reports by Note Trustee to Holders.
(a) So long as the Note Trustee is the Note Registrar and Paying Agent,
it shall deliver to each Noteholder such information in its possession as may be
required to enable such Holder to prepare its federal and state income tax
returns.
(b) On or prior to each Payment Date therefor, the Note Trustee will
deliver to each Holder of Notes on such Payment Date a statement as provided and
prepared by the Servicer which will include (to the extent applicable) the
following information as to the Notes with respect to such Payment Date or the
period since the previous Payment Date, as applicable:
(i) the amount of the distribution to Noteholders allocable to
principal;
(ii) the amount of the distribution to Noteholders allocable
to interest;
(iii) the aggregate outstanding Principal Balance of the
Notes, after giving effect to payments allocated to principal reported
under (i) above; and
(iv) the difference, if any, between the Principal Balance and
the Projected Principal Balance as of such Payment Date, after giving
effect to distributions to be made on such Payment Date.
(c) The Note Issuer shall send a copy of each Certificate of Compliance
delivered to it pursuant to Section 3.03 of the Servicing Agreement and each
Annual Accountant's Report delivered to it pursuant to Section 3.04 of the
Servicing Agreement to the Note Trustee, the Noteholders and the Rating
Agencies.
If the Note Trustee is also serving as the Certificate Trustee, it
shall also prepare the statements required to be delivered to Certificateholders
pursuant to Section 4.02(d) of the Certificate Indenture.
Section 6.07. Compensation and Indemnity. The Note Issuer shall pay to the Note
Trustee from time to time reasonable compensation for its services. The Note
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Note Issuer shall reimburse the Note Trustee
for all reasonable out-of-pocket expenses, disbursements and advances incurred
or made by it, including costs of collection, in addition to the compensation
for its services. Such expenses shall include the reasonable compensation and
expenses, disbursements and advances of the Note Trustee's agents, counsel,
accountants and experts. The Note Issuer shall indemnify, defend and hold
harmless the Note Trustee and any of its affiliates, officers, directors,
employees and agents (the "Indemnified Persons") from and against any and all
losses, claims, actions, suits, taxes, damages, expenses (including, without
limitation, legal fees and expenses) and liabilities (including liabilities
under state or federal securities laws) of any kind and nature whatsoever
(collectively, "Expenses"), to the extent that such Expenses arise out of or are
imposed upon or asserted against such Indemnified Persons with respect to the
creation, administration, operation or termination of this trust and the
performance by the Note Trustee of its duties hereunder, the failure of the Note
Issuer or any other Person (other than the Person being indemnified) to
48
<PAGE> 55
perform its obligations hereunder or under any of the Basic Documents, or
otherwise in connection with the Basic Documents or the transactions
contemplated thereby, provided, however, that the Note Issuer is not required to
indemnify any Indemnified Person for any Expenses that result from the willful
misconduct or gross negligence of such Indemnified Person. The willful
misconduct or gross negligence of any Note Trustee shall not affect the rights
of any predecessor or successor Note Trustee hereunder. The Note Trustee shall
notify the Note Issuer as soon as is reasonably practicable of any claim for
which it may seek indemnity. Failure by the Note Trustee to so notify the Note
Issuer shall not relieve the Note Issuer of its obligations hereunder. The Note
Issuer shall defend the claim and the Note Trustee may have separate counsel and
the Note Issuer shall pay the fees and expenses of such counsel.
The Note Issuer's payment obligations to the Note Trustee pursuant to
this Section shall survive the discharge of this Note Indenture or the earlier
resignation or removal of the Note Trustee. When the Note Trustee incurs
expenses after the occurrence of a Default specified in Section 5.01(v) or (vi)
with respect to the Note Issuer, the expenses are intended to constitute
expenses of administration under Title 11 of the United States Code or any other
applicable federal or state bankruptcy, insolvency or similar law.
The Note Issuer acknowledges and agrees that under the Certificate
Indenture the Certificate Trustee shall pay the fees and expenses of, and shall
indemnify and hold harmless the Note Trustee and the Delaware Trustee, to the
extent that payments required to be made by the Note Issuer to the Note Trustee
under this Section 6.07 or to the Delaware Trustee under the Fee and Indemnity
Agreement, as the case may be, are not made by the Note Issuer when due.
Section 6.08. Replacement of Note Trustee. The Note Trustee may resign at any
time by so notifying the Note Issuer, provided, however, that no such
resignation shall be effective until either (a) the Collateral has been
completely liquidated and the proceeds of the liquidation distributed to the
Noteholders or (b) a successor trustee having the qualifications set forth in
Section 6.11 has been designated and has accepted such trusteeship. The Holders
of a majority in Outstanding Amount of the Notes may remove the Note Trustee by
so notifying the Note Trustee and may appoint a successor Note Trustee. The Note
Issuer shall remove the Note Trustee if:
(i) the Note Trustee fails to comply with Section 6.11;
(ii) the Note Trustee is adjudged a bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the
Note Trustee or its property; or
(iv) the Note Trustee otherwise becomes incapable of acting.
If the Note Trustee resigns or is removed or if a vacancy exists in the
office of Note Trustee for any reason (the Note Trustee in such event being
referred to herein as the retiring Note Trustee), the Note Issuer shall promptly
appoint a successor Note Trustee.
49
<PAGE> 56
A successor Note Trustee shall deliver a written acceptance of its
appointment to the retiring Note Trustee and to the Note Issuer. Thereupon the
resignation or removal of the retiring Note Trustee shall become effective, and
the successor Note Trustee shall have all the rights, powers and duties of the
Note Trustee under this Note Indenture. The successor Note Trustee shall mail a
notice of its succession to Noteholders and to the Rating Agencies. The retiring
Note Trustee shall promptly transfer all property held by it as Note Trustee to
the successor Note Trustee.
If a successor Note Trustee does not take office within 60 days after
the retiring Note Trustee resigns or is removed, the retiring Note Trustee, the
Note Issuer or the Holders of a majority in Outstanding Amount of the Notes may
petition any court of competent jurisdiction for the appointment of a successor
Note Trustee.
If the Note Trustee fails to comply with Section 6.11, any Noteholder
may petition any court of competent jurisdiction for the removal of the Note
Trustee and the appointment of a successor Note Trustee.
Notwithstanding the replacement of the Note Trustee pursuant to this
Section, the Note Issuer's obligations under Section 6.07 shall continue for the
benefit of the retiring Note Trustee.
Section 6.09. Successor Note Trustee by Merger. If the Note Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Note Trustee. The successor Note Trustee
shall mail a notice of its merger, conversion or consolidation to the Rating
Agencies.
In case at the time such successor or successors by merger, conversion
or consolidation to the Note Trustee shall succeed to the trusts created by this
Note Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Note Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Note Trustee may authenticate such Notes
either in the name of any predecessor hereunder or in the name of the successor
to the Note Trustee; and in all such cases such certificates shall be valid for
all purposes hereunder and under the Notes.
Section 6.10. Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Note Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Collateral may at the time be located, the Note Trustee
shall have the power and may execute and deliver all instruments to appoint one
or more Persons to act as a co-trustee or co-trustees, or separate trustee or
separate trustees, of all or any part of the Collateral, and to vest in such
Person or Persons, in such capacity and for the benefit of the Noteholders, such
title to the Collateral, or any part hereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Note Trustee may consider necessary or desirable. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
a
50
<PAGE> 57
successor trustee under Section 6.11 and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Note Trustee shall be conferred or imposed upon and
exercised or performed by the Note Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Note Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
the Note Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Collateral or any portion
thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the
direction of the Note Trustee;
(ii) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder; and
(iii) the Note Trustee may at any time accept the resignation
of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Note Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Note Indenture
and the conditions of this Article VI. Each separate trustee and co-trustee,
upon its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Note Trustee or separately, as may be provided therein, subject to all the
provisions of this Note Indenture, specifically including every provision of
this Note Indenture relating to the conduct of, affecting the liability of, or
affording protection to, the Note Trustee. Every such instrument shall be filed
with the Note Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Note Trustee, its agent or attorney-in-fact with full power and authority, to
the extent not prohibited by law, to do any lawful act under or in respect of
this Note Indenture on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Note Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 6.11. Eligibility; Disqualification. The Note Trustee shall at all
times satisfy the requirements of Trust Indenture Act Section 310(a) and Section
26(a)(i) of the Investment Company Act of 1940. The Note Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition and it shall have a long term debt
rating of A (or the equivalent thereof) or better by all of the Rating Agencies
from which a rating is available. The Note Trustee shall comply with Trust
Indenture Act Section 310(b), including
51
<PAGE> 58
the optional provision permitted by the second sentence of Trust Indenture Act
Section 310(b)(9); provided, however, that there shall be excluded from the
operation of Trust Indenture Act Section 310(b)(1) any indenture or indentures
under which other securities of the Note Issuer are outstanding if the
requirements for such exclusion set forth in Trust Indenture Act Section
310(b)(1) are met.
Section 6.12. Preferential Collection of Claims Against Note Issuer. The Note
Trustee shall comply with Trust Indenture Act Section 311(a), excluding any
creditor relationship listed in Trust Indenture Act Section 311(b). A Note
Trustee who has resigned or been removed shall be subject to Trust Indenture Act
Section 311(a) to the extent indicated.
Section 6.13. Representations and Warranties of Note Trustee. The Note Trustee
hereby represents and warrants that:
(a) the Note Trustee is a banking corporation validly existing in good
standing under the laws of the State of New York; and
(b) the Note Trustee has full power, authority and legal right to
execute, deliver and perform this Note Indenture and the Basic Documents to
which the Note Trustee is a party and has taken all necessary action to
authorize the execution, delivery, and performance by it of this Note Indenture
and such Basic Documents.
Section 6.14. Covenants of the Note Trustee. The Note Trustee hereby covenants
and agrees as follows:
(a) the Note Trustee will establish the Collection Account as a
Securities Account;
(b) the Note Trustee, acting as Securities Intermediary, will identify
the Collection Account in its records as a Securities Account of the Note
Trustee and will identify the Note Trustee in such records as the Person having
the Security Entitlement against the Securities Intermediary with respect to the
Securities Account and all Security Entitlements carried in the Securities
Account;
(c) the Note Trustee, acting as Securities Intermediary, will maintain
accurate and complete records of the Financial Assets in the Securities Account
such that the Collateral is objectively determinable;
(d) the Note Trustee, acting as Securities Intermediary, will in the
ordinary course of its business, maintain securities accounts for its customers,
will act in that capacity in holding the Securities Account under this Note
Indenture and will at all times be located in and maintain its books and records
relating to all of these securities in the State of New York;
(e) the Note Trustee, acting as Securities Intermediary, will treat all
Eligible Investments as Financial Assets and will duly hold the Eligible
Investments in the Securities Account; and
52
<PAGE> 59
(f) the Note Trustee, acting as Securities Intermediary, will not agree
to comply with entitlement orders of any secured party other than the Note
Trustee with respect to the Securities Account or any Security Entitlements
carried in the Securities Account.
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. Note Issuer To Furnish Note Trustee Names and Addresses of
Noteholders. The Note Issuer will furnish or cause to be furnished to the Note
Trustee (a) not more than five days after the earlier of (i) each Record Date
and (ii) six months after the last Record Date, a list, in such form as the Note
Trustee may reasonably require, of the names and addresses of the Holders of
Notes as of such Record Date, (b) at such other times as the Note Trustee may
request in writing, within 30 days after receipt by the Note Issuer of any such
request, a list of similar form and content as of a date not more than 10 days
prior to the time such list is furnished; provided, however, that so long as the
Note Trustee is the Note Registrar, no such list shall be required to be
furnished.
Section 7.02. Preservation of Information; Communications to Noteholders.
(a) The Note Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Note Trustee as provided in
Section 7.01 and the names and addresses of Holders of Notes received by the
Note Trustee in its capacity as Note Registrar. The Note Trustee may destroy any
list furnished to it as provided in such Section 7.01 upon receipt of a new list
so furnished.
(b) Noteholders may communicate pursuant to Trust Indenture Act Section
312(b) with other Noteholders with respect to their rights under this Note
Indenture or under the Notes.
(c) The Note Issuer, the Note Trustee and the Note Registrar shall have
the protection of Trust Indenture Act Section 312(c).
Section 7.03. Reports by Note Issuer.
(a) The Note Issuer shall:
(i) so long as the Note Issuer is required to file such
documents with the Commission, file with the Note Trustee, within 15
days after the Note Issuer is required to file the same with the
Commission, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the
foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Note Issuer may be required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange
Act;
53
<PAGE> 60
(ii) file with the Note Trustee and the Commission in
accordance with rules and regulations prescribed from time to time by
the Commission such additional information, documents and reports with
respect to compliance by the Note Issuer with the conditions and
covenants of this Note Indenture as may be required from time to time
by such rules and regulations; and
(iii) supply to the Note Trustee (and the Note Trustee shall
transmit by mail to all Noteholders described in Trust Indenture Act
Section 313(c)) such summaries of any information, documents and
reports required to be filed by the Note Issuer pursuant to clauses (i)
and (ii) of this Section 7.03(a) as may be required by rules and
regulations prescribed from time to time by the Commission.
(b) Unless the Note Issuer otherwise determines, the fiscal year of the
Note Issuer shall end on December 31 of each year.
Section 7.04. Reports by Note Trustee. If required by Trust Indenture Act
Section 313(a), within 60 days after December 31 of each year, commencing
December 31, 1999, the Note Trustee shall mail to each Holder of Notes as
required by Trust Indenture Act Section 313(c) a brief report dated as of such
date that complies with Trust Indenture Act Section 313(a). The Note Trustee
also shall comply with Trust Indenture Act Section 313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Note Trustee with the Commission and each stock exchange, if
any, on which the Notes are listed. The Note Issuer shall notify the Note
Trustee if and when the Notes are listed on any stock exchange.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. Collection of Money. Except as otherwise expressly provided
herein, the Note Trustee may demand payment or delivery of, and shall receive
and collect, directly and without intervention or assistance of any fiscal agent
or other intermediary, all money and other property payable to or receivable by
the Note Trustee, the Certificate Trustee or the Delaware Trustee pursuant to
this Note Indenture, the Certificate Indenture and the Fee and Indemnity
Agreement. The Note Trustee shall apply all such money received by it as
provided in this Note Indenture. Except as otherwise expressly provided in this
Note Indenture, if any default occurs in the making of any payment or
performance under any agreement or instrument that is part of the Collateral,
the Note Trustee may take such action as may be appropriate to enforce such
payment or performance, subject to Article VI, including the institution and
prosecution of appropriate Proceedings. Any such action shall be without
prejudice to any right to claim a Default or Event of Default under this Note
Indenture and any right to proceed thereafter as provided in Article V.
54
<PAGE> 61
Section 8.02. Collection Account.
(a) Prior to the Issuance Date, the Note Issuer shall open, at the Note
Trustee's Corporate Trust Office, or at another Eligible Institution, one or
more segregated trust accounts in the Note Trustee's name for the deposit of
Estimated RTC Charge Payments and other amounts remitted under the Servicing
Agreement (collectively, the "Collection Account"). The Note Trustee shall hold
the Collection Account for the benefit of Noteholders. The Collection Account
will consist of four subaccounts: a general subaccount (the "General
Subaccount"), a reserve subaccount (the "Reserve Subaccount"), an
overcollateralization subaccount (the "Overcollateralization Subaccount") and a
capital subaccount (the "Capital Subaccount"). All amounts in the Collection
Account not allocated to any other subaccount shall be allocated to the General
Subaccount. Prior to the initial Payment Date, all amounts in the Collection
Account (other than funds deposited into the Capital Subaccount, together with
interest earnings thereon) shall be allocated to the General Subaccount. All
references to the Collection Account shall be deemed to include reference to all
subaccounts contained therein. Withdrawals from and deposits to each of the
foregoing subaccounts of the Collection Account shall be made as set forth in
Section 8.02. The Collection Account shall at all times be maintained in an
Eligible Deposit Account and only the Note Trustee shall have access to the
Collection Account for the purpose of making deposits in and withdrawals from
the Collection Account in accordance with this Note Indenture. Funds in the
Collection Account shall not be commingled with any other moneys. Except as
provided in Section 8.03, all moneys deposited from time to time in the
Collection Account, all deposits therein pursuant to this Note Indenture, and
all investments made in Eligible Investments with such moneys, including all
income or other gain from such investments, shall be held by the Note Trustee in
the Collection Account as part of the Collateral as herein provided.
(b) The Note Trustee shall have sole dominion and exclusive control
over all moneys in the Collection Account and shall apply such amounts therein
as provided in this Section 8.02. The Note Trustee shall also pay from the
Collection Account any amounts requested to be paid by the Servicer pursuant to
Section 4.03(b) of the Servicing Agreement.
(c) All Estimated RTC Charge Payments and other remittances under the
Servicing Agreement shall be deposited in the General Subaccount as provided in
Section 4.03 of the Servicing Agreement. All deposits to and withdrawals from
the Collection Account and all allocations to the subaccounts of the Collection
Account shall be made by the Note Trustee in accordance with the written
instructions provided by the Servicer in the Semiannual Servicer Certificate or
as otherwise provided herein.
(d) On any Business Day upon which the Note Trustee receives a written
request from the Administrator stating that any Operating Expense payable by the
Note Issuer (but only as described in clauses (i) through (iv) below) will
become due and payable prior to the next succeeding Payment Date, and setting
forth the amount and nature of such Operating Expenses, as well any supporting
documentation that the Note Trustee may reasonably request, the Note Trustee,
upon receipt of such information, will make payment of such Operating Expenses
on or before the date such payment is due from amounts on deposit in the General
Subaccount, the
55
<PAGE> 62
Reserve Subaccount, the Overcollateralization Subaccount and the Capital
Subaccount, in that order and only to the extent required to make such payment.
On each Payment Date, the Note Trustee shall apply, at the direction of
the Servicer, all amounts on deposit in the Collection Account, including all
net earnings thereon (other than on amounts in the Capital Subaccount), to pay
the following amounts, in accordance with the Semiannual Servicer Certificate,
in the following priority:
(i) all amounts owed by the Note Issuer to the Note Trustee
(including indemnity payments and legal fees and expenses) shall be
paid to the Note Trustee (subject to Section 6.07), all amounts owed by
the Note Issuer to the Certificate Trustee, the Delaware Trustee , the
Agencies and the Certificate Issuer under the Fee and Indemnity
Agreement, as well as an amount sufficient to compensate the
Certificate Trustee for all amounts payable by the Certificate Trustee
under Section 6.16 of the Certificate Indenture, as described in the
last paragraph of Section 6.07, shall be paid to the Certificate
Trustee, the Delaware Trustee, the Agencies and the Certificate Issuer,
as appropriate;
(ii) the Servicing Fee for such Payment Date and all unpaid
Servicing Fees from prior Payment Dates shall be paid to the Servicer;
(iii) the Administration Fee and all unpaid Administration
Fees from prior Payment Dates shall be paid to the Administrator;
(iv) so long as no Default or Event of Default shall have
occurred and be continuing or would result from such payment, all other
Operating Expenses shall be paid to the Persons entitled thereto;
provided, however, that the amount of such other Operating Expenses
paid by the Note Trustee from, but not including, the previous Payment
Date to, and including, the current Payment Date shall not in the
aggregate exceed $100,000;
(v) (A) any overdue Semiannual Interest (together with, to the
extent lawful, interest on such overdue Semiannual Interest at the
applicable Note Interest Rate) and (B) Semiannual Interest for such
Payment Date shall be paid to the Noteholders;
(vi) (A) principal due and payable on the Notes as a result of
an Event of Default or on the Final Maturity Date of the Notes, shall
be paid to the Noteholders and (B) Semiannual Principal for such
Payment Date shall be paid to the Noteholders;
(vii) unpaid Operating Expenses shall be paid to the Persons
entitled thereto;
(viii) the amount, if any, by which the Required Capital Level
with respect to all Outstanding Notes exceeds the amount in the Capital
Subaccount (disregarding any interest earnings held in the Capital
Subaccount which have not been remitted to the Note Issuer) as of such
Payment Date shall be allocated to the Capital Subaccount;
(ix) the amount, if any, by which the Required
Overcollateralization Level, with respect to all Outstanding Notes,
exceeds the amount in the Overcollateralization
56
<PAGE> 63
Subaccount as of such Payment Date shall be allocated to the
Overcollateralization Subaccount;
(x) the balance, if any, shall be allocated to the Reserve
Subaccount for distribution on subsequent Payment Dates; and
(xi) after principal of and interest on all Notes, and all of
the other foregoing amounts, have been paid in full, the balance, if
any, shall be paid to the Note Issuer, free from the lien of this Note
Indenture.
(e) All payments of interest and all payments of principal pursuant to
clause (vi)(A) shall be made to such holders pro rata based on the respective
principal amounts of Notes held by such Holders. All payments of principal
pursuant to clause (vi)(B) above shall be made to the Holders of the Class then
entitled to payment, based upon the Expected Amortization Schedule in accordance
with the priority set forth in Section 2.01(c)(iii). Payments in respect of
principal of and interest on any Class of Notes will be made on a pro rata basis
among all the Noteholders of such Class.
(f) If on any Payment Date, or for any amounts payable under clauses
(i) through (iv) above, on any Business Day, funds on deposit in the General
Subaccount are insufficient to make the payments contemplated by clauses (i)
through (vi) of Section 8.02(d) above, the Note Trustee shall (i) first, draw
from amounts on deposit in the Reserve Subaccount, (ii) second, draw from
amounts on deposit in the Overcollateralization Subaccount and (iii) third, draw
from amounts on deposit in the Capital Subaccount, in each case, up to the
amount of such shortfall in order to make the payments contemplated by clauses
(i) through (vi) of Section 8.02(d). In addition, if on any Payment Date funds
on deposit in the General Subaccount are insufficient to make the allocations
contemplated by clauses (viii) and (ix) above, the Note Trustee shall draw from
amounts on deposit in the Reserve Subaccount to make such allocations. If on any
Payment Date funds on deposit in the Collection Account are insufficient to make
the transfers contemplated by clause (v) above, the Note Trustee will allocate
the funds in the Collection Account among the classes pro rata.
(g) On any Optional Redemption Date or Mandatory Redemption Date, the
Note Trustee shall pay to the Noteholders the Optional Redemption Price or
Mandatory Redemption Price, as the case may be.
(h) On the last day of each month, if the amount in the Capital
Subaccount exceeds the Required Capital Level, the Note Trustee shall pay to the
Note Issuer, upon receipt of an Issuer Request, free from the lien of this Note
Indenture, all amounts in the Capital Subaccount in excess of the Required
Capital Level.
Section 8.03. General Provisions Regarding the Collection Account.
(a) So long as no Default or Event of Default shall have occurred and
be continuing, all or a portion of the funds in the Collection Account shall be
invested in Eligible Investments and reinvested by the Note Trustee upon Issuer
Order; provided, however, that (i) such Eligible
57
<PAGE> 64
Investments shall not mature later than the Business Day prior to the next
Payment Date, (ii) such Eligible Investments shall not be sold, liquidated or
otherwise disposed of at a loss prior to the maturity thereof and (iii) if such
Eligible Investments have a maturity of one month or less, such Eligible
Investments (or the provider thereof) must have a long-term unsecured debt
rating of at least A2 by Moody's (or the equivalent thereof by the other Rating
Agencies) or a short-term rating of at least P-1 by Moody's (or the equivalent
thereof by the other Rating Agencies), and if such Eligible Investments have a
maturity of greater than one month, such Eligible Investments (or the provider
thereof) must have a long-term unsecured debt rating of at least Aaa by Moody's
(or the equivalent thereof by the other Rating Agencies) and a short-term rating
of at least P-1 by Moody's (or the equivalent thereof by the other Rating
Agencies). All income or other gain from investments of moneys deposited in the
Collection Account shall be deposited by the Note Trustee in the Collection
Account, and any loss resulting from such investments shall be charged to the
Collection Account; provided, however, that all income or other gain from
investments of moneys deposited in the Capital Subaccount shall be retained in
the Capital Subaccount, and any loss resulting from such investments shall be
charged to the Capital Subaccount. The Note Issuer will not direct the Note
Trustee to make any investment of any funds or to sell any investment held in
the Collection Account unless the security interest Granted and perfected in
such account will continue to be perfected in such investment or the proceeds of
such sale, in either case without any further action by any Person, and, in
connection with any direction to the Note Trustee to make any such investment or
sale, if requested by the Note Trustee, the Note Issuer shall deliver to the
Note Trustee an Opinion of Counsel, reasonably acceptable to the Note Trustee,
to such effect. In no event shall the Note Trustee be liable for the selection
of Eligible Investments or for investment losses incurred thereon. The Note
Trustee shall have no liability in respect of losses incurred as a result of the
liquidation of any Eligible Investment prior to its stated maturity or the
failure of the Note Issuer to provide timely written investment direction. The
Note Trustee shall have no obligation to invest or reinvest any amounts held
hereunder in the absence of written investment direction pursuant to an Issuer
Order. If the rating of the Eligible Institution, which may be the Note
Trustee's Corporate Trust Office, falls below the rating requirements set forth
in clause (b)(i) of the definition of Eligible Institution, the Delaware
Trustee, on behalf of the Certificate Issuer, shall, within one month after
notice of such rating change, cause the Collection Account to be transferred to
an institution meeting the requirements set forth in clause (b)(i) of the
definition of "Eligible Institution."
(b) Subject to Section 6.01(c), the Note Trustee shall not in any way
be held liable by reason of any insufficiency in the Collection Account
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Note Trustee's failure to make payments on such
Eligible Investments issued by the Note Trustee, in its commercial capacity as
principal obligor and not as trustee, in accordance with their terms.
(c) If (i) the Note Issuer shall have failed to give written investment
directions for any funds on deposit in the Collection Account to the Note
Trustee by 11:00 a.m. Eastern Time (or such other time as may be agreed by the
Note Issuer and Note Trustee) on any Business Day; or (ii) a Default or Event of
Default shall have occurred and be continuing with respect to the Notes but the
Notes shall not have been declared due and payable pursuant to Section 5.02;
then the Note Trustee shall, to the fullest extent practicable, invest and
reinvest funds in the Collection
58
<PAGE> 65
Account in one or more investments described under paragraph (g) of the
definition of Eligible Investments.
Section 8.04. Release of Collateral.
(a) The Note Trustee may, and when required by the provisions of this
Note Indenture shall, execute instruments to release property from the lien of
this Note Indenture, or convey the Note Trustee's interest in the same, in a
manner and under circumstances that are not inconsistent with the provisions of
this Note Indenture. No party relying upon an instrument executed by the Note
Trustee as provided in this Article VIII shall be bound to ascertain the Note
Trustee's authority, inquire into the satisfaction of any conditions precedent
or see to the application of any moneys.
(b) The Note Trustee shall, at such time as there are no Notes
Outstanding, release any remaining portion of the Collateral that secured the
Notes from the lien of this Note Indenture and release to the Note Issuer or any
other Person entitled thereto any funds then on deposit in the Collection
Account. The Note Trustee shall release property from the lien of this Note
Indenture pursuant to this Section 8.04(b) only upon receipt of an Issuer
Request accompanied by an Officer's Certificate, an Opinion of Counsel and (if
required by the Trust Indenture Act) Independent Certificates in accordance with
Trust Indenture Act Sections 314(c) and 314(d)(1) meeting the applicable
requirements of Section 11.01.
Section 8.05. Opinion of Counsel. The Note Trustee shall receive at least seven
days' notice when requested by the Note Issuer to take any action pursuant to
Section 8.04(a), accompanied by copies of any instruments involved, and the Note
Trustee shall also require, as a condition to such action, an Opinion of
Counsel, in form and substance reasonably satisfactory to the Note Trustee,
stating the legal effect of any such action, outlining the steps required to
complete the same, and concluding that all conditions precedent to the taking of
such action have been complied with and such action will not materially and
adversely impair the security for the Notes or the rights of the Noteholders in
contravention of the provisions of this Note Indenture; provided, however, that
such Opinion of Counsel shall not be required to express an opinion as to the
fair value of the Collateral. Counsel rendering any such opinion may rely,
without independent investigation, on the accuracy and validity of any
certificate or other instrument delivered to the Note Trustee in connection with
any such action.
Section 8.06. Reports by Independent Accountants. As of the Issuance Date, the
Note Issuer shall appoint a firm of Independent certified public accountants of
recognized national reputation for purposes of preparing and delivering the
reports or certificates of such accountants required by this Note Indenture. In
the event such firm requires the Note Trustee to agree to the procedures
performed by such firm, the Note Issuer shall direct the Note Trustee in writing
to so agree; it being understood and agreed that the Note Trustee will deliver
such letter of agreement in conclusive reliance upon the direction of the Note
Issuer, and the Note Trustee makes no independent inquiry or investigation to,
and shall have no obligation or liability in respect of, the sufficiency,
validity or correctness of such procedures. Upon any resignation by such firm
the Note Issuer shall provide written notice thereof to the Note Trustee and
shall promptly appoint a
59
<PAGE> 66
successor thereto that shall also be a firm of Independent certified public
accountants of recognized national reputation. If the Note Issuer shall fail to
appoint a successor to a firm of Independent certified public accountants that
has resigned within 15 days after such resignation, the Note Trustee shall
promptly notify the Note Issuer of such failure in writing. If the Note Issuer
shall not have appointed a successor within 10 days thereafter the Note Trustee
shall promptly appoint a successor firm of Independent certified public
accountants of recognized national reputation; provided, however, that the Note
Trustee shall have no liability with respect to such appointment if the Note
Trustee acted with due care with respect thereto. The fees of such Independent
certified public accountants and its successor shall be payable by the Note
Issuer.
ARTICLE IX
SUPPLEMENTAL NOTE INDENTURES
Section 9.01. Supplemental Note Indentures Without Consent of Noteholders.
(a) Without the consent of the Holders of any Notes but with prior
notice to the Rating Agencies, the Note Issuer, the Note Trustee and the
Certificate Trustee, when authorized by an Issuer Order, at any time and from
time to time, may enter into one or more indentures supplemental hereto (which
shall conform to the provisions of the Trust Indenture Act as in force at the
date of the execution thereof), in form reasonably satisfactory to the Note
Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at
any time subject to the lien of this Note Indenture, or better to
assure, convey and confirm unto the Note Trustee any property subject
or required to be subjected to the lien of this Note Indenture, or to
subject to the lien of this Note Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Note Issuer, and
the assumption by any such successor of the covenants of the Note
Issuer herein and in the Notes contained;
(iii) to add to the covenants of the Note Issuer, for the
benefit of the Holders of the Notes, or to surrender any right or power
herein conferred upon the Note Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Note Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental note indenture which may be
inconsistent with any other provision herein or in any supplemental
note indenture or to make any other provisions with respect to matters
or questions arising under this Note Indenture or in any supplemental
note indenture; provided, however, that such action shall not adversely
affect the interests of the Holders of the Notes or holders of the
Certificates;
60
<PAGE> 67
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Note Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI; or
(vii) to modify, eliminate or add to the provisions of this
Note Indenture to such extent as shall be necessary to effect the
qualification of this Note Indenture under the Trust Indenture Act or
under any similar federal statute hereafter enacted and to add to this
Note Indenture such other provisions as may be expressly required by
the Trust Indenture Act.
The Note Trustee is hereby authorized to join in the execution of any
such supplemental note indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Note Issuer and the Note Trustee, when authorized by an Issuer
Order, may, also without the consent of any of the Holders of the Notes, enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to, or changing in any manner or eliminating any of the
provisions of, this Note Indenture or of modifying in any manner the rights of
the Holders of the Notes under this Note Indenture; provided, however, that (i)
such action shall not, as evidenced by an Officer's Certificate, adversely
affect in any material respect the interests of the Noteholders or the holders
of Certificates and (ii) the Rating Agency Condition shall have been satisfied
with respect thereto.
Section 9.02. Supplemental Note Indentures with Consent of Noteholders. The
Note Issuer and the Note Trustee, when authorized by an Issuer Order, also may,
with prior notice to the Rating Agencies, the Agencies and with the consent of
the Holders of not less than a majority of the Outstanding Amount of the Notes
of each Class to be affected, by Act of such Holders delivered to the Note
Issuer and the Note Trustee, enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Note Indenture or of modifying in any
manner the rights of the Holders of the Notes under this Note Indenture;
provided, however, that no such supplemental note indenture shall, without the
consent of the Holder of each Outstanding Note of each Class affected thereby:
(i) change the date of payment of any installment of principal
of or interest on any Note, or reduce the principal amount thereof or
the interest rate thereon, change the provisions of this Note Indenture
relating to the application of collections on, or the proceeds of the
sale of, the Collateral to payment of principal of or interest on the
Notes, or change any place of payment where, or the coin or currency in
which, any Note or the interest thereon is payable, or impair the right
to institute suit for the enforcement of the provisions of this Note
Indenture requiring the application of funds available therefor, as
provided in Article V, to the payment of any such amount due on the
Notes on or after the respective due dates thereof (or, in the case of
optional or mandatory redemption, on or after the Optional Redemption
Date or Mandatory Redemption Date, as applicable);
61
<PAGE> 68
(ii) reduce the percentage of the Outstanding Amount of the
Notes or of a Class thereof, the consent of the Holders of which is
required for any such supplemental note indenture, or the consent of
the Holders of which is required for any waiver of compliance with
certain provisions of this Note Indenture or certain defaults hereunder
and their consequences provided for in this Note Indenture;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(iv) reduce the percentage of the Outstanding Amount of the
Notes required to direct the Note Trustee to direct the Note Issuer to
sell or liquidate the Collateral pursuant to Section 5.04;
(v) modify any provision of this Section except to increase
any percentage specified herein or to provide that certain additional
provisions of this Note Indenture or the Basic Documents cannot be
modified or waived without the consent of the Holder of each
Outstanding Note affected thereby;
(vi) modify any of the provisions of this Note Indenture in
such manner as to affect the calculation of the amount of any payment
of interest or principal due on any Note on any Payment Date (including
the calculation of any of the individual components of such
calculation) or to affect the rights of the Holders of Notes to the
benefit of any provisions for the mandatory redemption of the Notes
contained herein; or
(vii) permit the creation of any lien ranking prior to or on a
parity with the lien of this Note Indenture with respect to any part of
the Collateral or, except as otherwise permitted or contemplated
herein, terminate the lien of this Note Indenture on any property at
any time subject hereto or deprive the Holder of any Note of the
security provided by the lien of this Note Indenture.
The Note Trustee, after consultation with the Certificate Trustee, may
in its discretion determine whether or not any Notes or Certificates of a Class
would be affected by any supplemental note indenture and any such determination
shall be conclusive upon the Holders of all Notes and holders of all
Certificates of such Class, whether theretofore or thereafter authenticated and
delivered hereunder. The Note Trustee shall not be liable for any such
determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section
to approve the particular form of any proposed supplemental note indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Note Issuer and the Note Trustee of
any supplemental note indenture pursuant to this Section, the Note Issuer shall
mail to the Rating Agencies, the Certificate Trustee, the Agencies and the
Holders of the Notes to which such amendment or supplemental note indenture
relates a notice setting forth in general terms the substance of such
supplemental note indenture. Any failure of the Note Trustee to mail such
notice, or any defect
62
<PAGE> 69
therein, shall not, however, in any way impair or affect the validity of any
such supplemental note indenture.
Section 9.03. Execution of Supplemental Note Indentures. In executing any
supplemental note indenture permitted by this Article IX or the modifications
thereby of the trusts created by this Note Indenture, the Note Trustee shall be
entitled to receive, and subject to Sections 6.01 and 6.02, shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
such supplemental note indenture is authorized or permitted by this Note
Indenture. The Note Trustee may, but shall not be obligated to, enter into any
such supplemental note indenture that affects the Note Trustee's own rights,
duties, liabilities or immunities under this Note Indenture or otherwise.
Section 9.04. Effect of Supplemental Note Indenture. Upon the execution of any
supplemental note indenture pursuant to the provisions hereof, this Note
Indenture shall be and be deemed to be modified and amended in accordance
therewith with respect to each Class of Notes affected thereby, and the
respective rights, limitations of rights, obligations, duties, liabilities and
immunities under this Note Indenture of the Note Trustee, the Note Issuer and
the Holders of the Notes shall thereafter be determined, exercised and enforced
hereunder subject in all respects to such modifications and amendments, and all
the terms and conditions of any such supplemental note indenture shall be and be
deemed to be part of the terms and conditions of this Note Indenture for any and
all purposes. If required by the Note Trustee, Notes may bear a notation in form
approved by the Note Trustee as to any matter provided for in such supplemental
note indenture. If the Note Issuer or the Note Trustee shall so determine, new
Notes so modified as to conform, in the opinion of the Note Trustee and the Note
Issuer, to any such supplemental note indenture may be prepared and executed by
the Note Issuer and authenticated and delivered by the Note Trustee in exchange
for Outstanding Notes.
Section 9.05. Conformity with Trust Indenture Act. Every amendment of this Note
Indenture and every supplemental note indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Note Indenture shall then be qualified under the Trust
Indenture Act.
ARTICLE X
REDEMPTION OF NOTES
Section 10.01. Optional Redemption by Note Issuer. The Note Issuer may, at its
option, redeem all, but not less than all, of the Notes on any Payment Date if,
after giving effect to payments that would otherwise be made on such Payment
Date, the Outstanding Amount has been reduced to less than five percent of the
initial principal balance thereof at a price equal to the outstanding principal
amount of the Notes to be redeemed plus accrued and unpaid interest thereon at
the Note Interest Rate to the Optional Redemption Date (such price being called
the "Optional Redemption Price"). If the Note Issuer shall elect to redeem the
Notes pursuant to this Section 10.01, it shall furnish written notice (which
notice shall state all items listed in
63
<PAGE> 70
Section 10.02) of such election to the Note Trustee, the Certificate Trustees,
the Agencies, the Rating Agencies not later than 25 days prior to the Optional
Redemption Date and shall deposit with the Note Trustee not later than one
Business Day prior to the Optional Redemption Date the Optional Redemption Price
of the Notes to be redeemed whereupon all such Notes shall be due and payable on
the Optional Redemption Date upon the furnishing of a notice complying with
Section 10.02 hereof to each Holder of the Notes pursuant to this Section 10.01.
Section 10.02. Form of Optional Redemption Notice. Notice of redemption under
Section 10.01 hereof shall be given by the Note Trustee by first-class mail,
postage prepaid, mailed not less than five days nor more than 25 days prior to
the Optional Redemption Date to each Holder of Notes to be redeemed, as of the
close of business on the Record Date preceding the Optional Redemption Date at
such Holder's address appearing in the Note Register.
All notices of redemption shall state:
(1) the Optional Redemption Date;
(2) the Optional Redemption Price; and
(3) the place where such Notes are to be surrendered for
payment of the Optional Redemption Price (which shall be the office or
agency of the Note Issuer to be maintained as provided in Section 3.02
hereof).
Notice of redemption of the Notes to be redeemed shall be given by the
Note Trustee in the name and at the expense of the Note Issuer. Failure to give
notice of redemption, or any defect therein, to any Holder of any Note selected
for redemption shall not impair or affect the validity of the redemption of any
other Note.
Section 10.03. Notes Payable on Optional Redemption Date or Payment Date.
Notice of redemption having been given as provided in Section 10.02 hereof, the
Notes to be redeemed shall on the Optional Redemption Date become due and
payable at the Optional Redemption Price and (unless the Note Issuer shall
default in the payment of the Optional Redemption Price) no interest shall
accrue on the Optional Redemption Price for any period after the date to which
accrued interest is calculated for purposes of calculating the Optional
Redemption Price.
Section 10.04. Mandatory Redemption by Note Issuer. If the Seller is required
to repurchase the Transition Property pursuant to Section 5.01(b) of the Sale
Agreement, the Note Issuer shall be required to redeem all outstanding Notes on
or before the fifth Business Day following the Repurchase Date (such date of
mandatory redemption, the "Mandatory Redemption Date") for a purchase price
equal to the then outstanding principal amount of the Notes plus accrued and
unpaid interest thereon at the Note Interest Rate to the Mandatory Redemption
Date (such price being called the "Mandatory Redemption Price"). If the Note
Issuer is required to redeem the Notes pursuant to this Section 10.04, it shall
furnish written notice (which notice shall state all items listed in Section
10.05) of such redemption to the Note Trustee, the Certificate Trustee, the
Agencies and the Rating Agencies not later than one Business Day before such
Repurchase Date and shall deposit with the Note Trustee, not later than one
Business Day prior to the Mandatory
64
<PAGE> 71
Redemption Date, the Mandatory Redemption Price of the Notes to be redeemed
whereupon all such Notes shall be due and payable on the Mandatory Redemption
Date upon the furnishing of a notice complying with Section 10.05 hereof to each
Holder of the Notes pursuant to this Section 10.04.
Section 10.05. Form of Mandatory Redemption Notice. Notice of redemption under
Section 10.04 hereof shall be given by the Note Trustee by first-class mail,
postage prepaid, mailed not less than five days prior to the Mandatory
Redemption Date to each Holder of Notes to be redeemed, as of the close of
business on the Record Date preceding the Mandatory Redemption Date at such
Holder's address appearing in the Note Register.
All notices of redemption shall state:
(1) the Mandatory Redemption Date;
(2) the Mandatory Redemption Price; and
(3) the place where such Notes are to be surrendered for
payment of the Mandatory Redemption Price (which shall be the office or
agency of the Note Issuer to be maintained as provided in Section 3.02
hereof).
Notice of redemption of the Notes to be redeemed shall be given by the
Note Trustee in the name and at the expense of the Note Issuer. Failure to give
notice of redemption, or any defect therein, to any Holder of any Note selected
for redemption shall not impair or affect the validity of the redemption of any
other Note.
Section 10.06. Notes Payable on Mandatory Redemption Date or Payment Date.
Notice of redemption having been given as provided in Section 10.05 hereof, the
Notes to be redeemed shall on the Mandatory Redemption Date become due and
payable at the Mandatory Redemption Price and (unless the Note Issuer shall
default in the payment of the Mandatory Redemption Price) no interest shall
accrue on the Mandatory Redemption price for any period after the date to which
accrued interest is calculated for purposes of calculating the Mandatory
Redemption Price.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Compliance Certificates and Opinions, etc.
(a) Upon any application or request by the Note Issuer to the Note
Trustee to take any action under any provision of this Note Indenture, the Note
Issuer shall furnish to the Note Trustee (i) an Officer's Certificate stating
that all conditions precedent, if any, provided for in this Note Indenture
relating to the proposed action have been complied with, (ii) an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with and (iii) (if required by the Trust
Indenture Act) an Independent Certificate
65
<PAGE> 72
from a firm of certified public accountants meeting the applicable requirements
of this Section, except that, in the case of any such application or request as
to which the furnishing of such documents is specifically required by any
provision of this Note Indenture, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Note Indenture shall include:
(i) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Note Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Note
Indenture, the Note Issuer shall, in addition to any obligation imposed
in Section 11.01(a) or elsewhere in this Note Indenture, furnish to the
Note Trustee an Officer's Certificate certifying or stating the opinion
of each person signing such certificate as to the fair value (within 90
days of such deposit) to the Note Issuer of the Collateral or other
property or securities to be so deposited.
(ii) Whenever the Note Issuer is required to furnish to the
Note Trustee an Officer's Certificate certifying or stating the opinion
of any signer thereof as to the matters described in clause (i) above,
the Note Issuer shall also deliver to the Note Trustee an Independent
Certificate as to the same matters, if the fair value to the Note
Issuer of the securities to be so deposited and of all other such
securities made the basis of any such withdrawal or release since the
commencement of the then-current fiscal year of the Note Issuer, as set
forth in the certificates delivered pursuant to clause (i) above and
this clause (ii), is ten percent or more of the Outstanding Amount of
the Notes, but such a certificate need not be furnished with respect to
any securities so deposited, if the fair value thereof to the Note
Issuer as set forth in the related Officer's Certificate is less than
$25,000 or less than one percent of the Outstanding Amount of the
Notes.
(iii) Whenever any property or securities are to be released
from the lien of this Note Indenture other than pursuant to Section
8.02, the Note Issuer shall also furnish to
66
<PAGE> 73
the Note Trustee an Officer's Certificate certifying or stating the
opinion of each person signing such certificate as to the fair value
(within 90 days of such release) of the property or securities proposed
to be released and stating that in the opinion of such person the
proposed release will not impair the security under this Note Indenture
in contravention of the provisions hereof.
(iv) Whenever the Note Issuer is required to furnish to the
Note Trustee an Officer's Certificate certifying or stating the opinion
of any signer thereof as to the matters described in clause (iii)
above, the Note Issuer shall also furnish to the Note Trustee an
Independent Certificate as to the same matters if the fair value of the
property or securities and of all other property, or securities
released from the lien of this Note Indenture (other than pursuant to
Section 8.02 hereof) since the commencement of the then-current
calendar year, as set forth in the certificates required by clause
(iii) above and this clause (iv), equals 10 percent or more of the
Outstanding Amount of the Notes, but such certificate need not be
furnished in the case of any release of property or securities if the
fair value thereof as set forth in the related Officer's Certificate is
less than $25,000 or less than one percent of the then Outstanding
Amount of the Notes.
(v) Notwithstanding Section 2.11 or any other provision of
this Section, the Note Issuer may (A) collect, liquidate, sell or
otherwise dispose of the Transition Property and the RTC Charge as and
to the extent permitted or required by the Basic Documents and (B)
cause the Note Trustee to make cash payments out of the Collection
Account as and to the extent permitted or required by the Basic
Documents.
Section 11.02. Form of Documents Delivered to Note Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Note Issuer
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his or her certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Servicer, the Seller, the Note Issuer or the Administrator, stating that the
information with respect to such factual matters is in the possession of the
Servicer, the Seller, the Note Issuer or the Administrator, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Whenever in this Note Indenture, in connection with any application or
certificate or report to the Note Trustee, it is provided that the Note Issuer
shall deliver any document as a
67
<PAGE> 74
condition of the granting of such application, or as evidence of the Note
Issuer's compliance with any term hereof, it is intended that the truth and
accuracy, at the time of the granting of such application or at the effective
date of such certificate or report (as the case may be), of the facts and
opinions stated in such document shall in such case be conditions precedent to
the right of the Note Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Note Trustee's right to rely upon the truth and accuracy
of any statement or opinion contained in any such document as provided in
Article VI.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Note Indenture, they may, but need not, be consolidated
and form one instrument.
Section 11.03. Acts of Noteholders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Note Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agents
duly appointed in writing; and except as herein otherwise expressly provided
such action shall become effective when such instrument or instruments are
delivered to the Note Trustee, and, where it is hereby expressly required, to
the Note Issuer. Such instrument or instruments (and the action embodied therein
and evidenced thereby) are herein sometimes referred to as the "Act" of the
Noteholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Note Indenture and (subject to Section 6.01) conclusive
in favor of the Note Trustee and the Note Issuer, if made in the manner provided
in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Note Trustee deems
sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the Note
Trustee or the Note Issuer in reliance thereon, whether or not notation of such
action is made upon such Note.
Section 11.04. Notices.
(a) Unless otherwise specifically provided herein, all notices,
directions, consents and waivers required under the terms and provisions of this
Note Indenture shall be in English and in writing, and any such notice,
direction, consent or waiver may be given by United States mail, courier
service, facsimile transmission or electronic mail (confirmed by telephone,
United States mail or courier service in the case of notice by facsimile
transmission or electronic mail) or any other customary means of communication,
and any such notice, direction, consent or waiver shall
68
<PAGE> 75
be effective when delivered, or if mailed, three days after deposit in the
United States mail with proper postage for ordinary mail prepaid,
if to the Agencies, to:
Massachusetts Development Finance Agency
75 Federal Street
Boston, Massachusetts 02110
Attention: General Counsel
Facsimile: (617) 727-8741
Telephone: (617) 451-2477
and
Massachusetts Health and Educational Facilities Authority
99 Summer Street
10th Floor
Boston, Massachusetts 02110
Attention: General Counsel
Facsimile: (617) 737-8366
Telephone: (617) 737-8377
if to the Certificate Issuer, to:
The Bank of New York (Delaware), as Delaware Trustee for the
Massachusetts RRB Special Purpose Trust BEC-1
c/o The Bank of New York
101 Barclay Street
Floor 12 East
New York, New York 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
(with copies to the Agencies at the addresses listed herein)
if to the Note Issuer, to:
BEC Funding LLC
800 Boylston Street, 35th Floor
Boston, Massachusetts 02199
Attention: President
Facsimile: (617) 424-2605
Telephone: (617) 369-6000
69
<PAGE> 76
if to the Note Trustee or the Certificate Trustee, to:
The Bank of New York
101 Barclay Street
Floor 12 East
New York, New York 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
if to the Rating Agencies, to:
Standard & Poor's Ratings Services
55 Water Street, 40th Floor
New York, New York 10041
Attention: Asset Backed Surveillance Department
Facsimile: (212) 438-2655
Telephone: (212) 438-2000
Moody's Investors Service
99 Church Street
New York, New York 10007
Attention: ABS Monitoring Department
Facsimile: (212) 553-0573
Telephone: (212) 553-3686
Fitch IBCA, Inc.
One State Street Plaza
New York, New York 10004
Attention: ABS Surveillance
Facsimile: (212) 635-0476
Telephone: (212) 908-0200
and
Duff & Phelps Credit Rating Co.
17 State Street, 12th Floor
New York, New York 10004
Attention: Asset Backed Securities
Facsimile: (212) 908-0222
Telephone: (212) 908-0200
Section 11.05. Notices to Noteholders; Waiver. Where this Note Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at such Noteholder's address as it appears on the Note Register, not
later
70
<PAGE> 77
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have been duly given.
Where this Note Indenture provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Noteholders shall be filed with the Note
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event of Noteholders when such notice is required to be
given pursuant to any provision of this Note Indenture, then any manner of
giving such notice as shall be satisfactory to the Note Trustee shall be deemed
to be a sufficient giving of such notice.
Where this Note Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
Section 11.06. Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof that is required to
be included in this Note Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of Trust Indenture Act Sections 310 through 317 that
impose duties on any person (including the provisions automatically deemed
included herein unless expressly excluded by this Note Indenture) are a part of
and govern this Note Indenture, whether or not physically contained herein.
Section 11.07. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
Section 11.08. Successors and Assigns. All covenants and agreements in this
Note Indenture and the Notes by the Note Issuer shall bind its successors and
assigns, whether so expressed or not.
All agreements of the Note Trustee in this Note Indenture shall bind
its successors.
Section 11.09. Severability. In case any provision in this Note Indenture or in
the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 11.10. Benefits of Note Indenture. Nothing in this Note Indenture or in
the Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders, and any other party
secured hereunder, and any other Person with an
71
<PAGE> 78
ownership interest in any part of the Collateral, any benefit or any legal or
equitable right, remedy or claim under this Note Indenture.
Section 11.11. Legal Holidays. In any case where the date on which any payment
is due shall not be a Business Day, then (notwithstanding any other provision of
the Notes or this Note Indenture) payment need not be made on such date, but may
be made on the next succeeding Business Day with the same force and effect as if
made on the date on which nominally due, and no interest shall accrue for the
period from and after any such nominal date.
Section 11.12. GOVERNING LAW. THIS NOTE INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT REFERENCE
TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF
THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. THE
PERFECTION OF ANY INTERESTS IN THE SECURITIES ACCOUNT AND THE SECURITIES
ENTITLEMENTS SHALL BE DETERMINED BY THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS.
Section 11.13. Counterparts. This Note Indenture may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.
Section 11.14. Recording of Note Indenture. If this Note Indenture is subject
to recording in any appropriate public recording offices, such recording is to
be effected by the Note Issuer and at its expense accompanied by an Opinion of
Counsel (which may be counsel to the Note Trustee or any other counsel
reasonably acceptable to the Note Trustee) to the effect that such recording is
necessary either for the protection of the Noteholders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Note Trustee under this Note Indenture.
Section 11.15. Trust Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Note Issuer or the Note
Trustee on the Notes or under this Note Indenture or any certificate or other
writing delivered in connection herewith or therewith, against (i) the Note
Trustee in its individual capacity, (ii) any owner of a beneficial interest in
the Note Issuer or (iii) any partner, owner, beneficiary, agent, officer,
director or employee of the Note Trustee in its individual capacity, any holder
of a beneficial interest in the Note Issuer or the Note Trustee or of any
successor or assign of the Note Trustee in its individual capacity, except as
any such Person may have expressly agreed (it being understood that the Note
Trustee has no such obligations in its individual capacity).
Section 11.16. No Recourse to Note Issuer. Notwithstanding any provision of
this Note Indenture or any Supplemental Note Indenture to the contrary,
Noteholders shall have no recourse against the Note Issuer, but shall look only
to the Collateral, with respect to any amounts due to the Noteholders hereunder.
Section 11.17. Inspection. The Note Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Note Trustee, during the Note
Issuer's normal business hours, to
72
<PAGE> 79
examine all the books of account, records, reports, and other papers of the Note
Issuer, to make copies and extracts therefrom, to cause such books to be audited
by Independent certified public accountants, and to discuss the Note Issuer's
affairs, finances and accounts with the Note Trustee's officers, employees, and
Independent certified public accountants, all at such reasonable times and as
often as may be reasonably requested. The Note Trustee shall and shall cause its
representatives to hold in confidence all such information except to the extent
disclosure may be required by law (and all reasonable applications for
confidential treatment are unavailing) and except to the extent that the Note
Trustee may reasonably determine that such disclosure is consistent with its
obligations hereunder. Notwithstanding anything herein to the contrary, the
foregoing shall not be construed to prohibit (i) disclosure of any and all
information that is or becomes publicly known, or information obtained by the
Note Trustee from sources other than the Note Issuer, provided such parties are
rightfully in possession of such information and do not have an obligation of
confidentiality, (ii) disclosure of any and all information (A) if required to
do so by any applicable statute, law, rule or regulation, (B) pursuant to any
subpoena, civil investigative demand or similar demand or request of any court
or regulatory authority exercising its proper jurisdiction, (C) in any
preliminary or final offering circular, registration statement or contract or
other document pertaining to the transactions contemplated by this Note
Indenture or the Basic Documents approved in advance by the Note Issuer or (D)
to any affiliate, independent or internal auditor, agent, employee or attorney
of the Note Trustee having a need to know the same, provided that such parties
agree to be bound by the confidentiality provisions contained in this Section
11.17, or (iii) any other disclosure authorized by the Note Issuer.
73
<PAGE> 80
IN WITNESS WHEREOF, the Note Issuer and the Note Trustee have caused
this Note Indenture to be duly executed by their respective officers, thereunto
duly authorized and duly attested, all as of the day and year first above
written.
BEC FUNDING LLC
By: /s/ Emilie G. O'Neil
-------------------------------------
Name: Emilie G. O'Neil
Title: Vice President and Treasurer
THE BANK OF NEW YORK,
not in its individual capacity but solely
as Note Trustee,
By: /s/ Cheryl L. Laser
-------------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
S-1
<PAGE> 81
COMMONWEALTH OF MASSACHUSETTS, )
) ss.:
COUNTY OF Suffolk, )
On the 29th day of July, 1999, before me, Denise Cosby, a Notary Public
in and for said county and state, personally appeared Emilie G. O'Neil,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person and officer whose name is subscribed to the within instrument
and acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument BEC Funding LLC, a Delaware limited
liability company and the entity upon which the person acted, executed this
instrument.
WITNESS my hand and official seal.
/s/ Denise Cosby
----------------------------------------
Notary Public
My commission expires: 7/20/2001
<PAGE> 82
COMMONWEALTH OF MASSACHUSETTS, )
) ss.:
COUNTY OF Suffolk, )
On the 29th day of July, 1999, before me, Frances E. DeFiore, a Notary
Public in and for said county and state, personally appeared Cheryl L. Laser,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person and officer whose name is subscribed to the within instrument
and acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument The Bank of New York, the entity upon
which the person acted, executed this instrument.
WITNESS my hand and official seal.
/s/ Frances E. DeFiore
----------------------------------------
Notary Public
My commission expires: 5/24/2002
<PAGE> 83
SCHEDULE A
EXPECTED AMORTIZATION SCHEDULE
OUTSTANDING PRINCIPAL BALANCE
<TABLE>
<CAPTION>
Payment Date Class A-1 Class A-2 Class A-3 Class A-4 Class A-5
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Issuance Date $108,500,000 $170,609,837 $103,390,163 $170,875,702 $171,624,298
03/15/00 68,500,000 170,609,837 103,390,163 170,875,702 171,624,298
09/15/00 30,058,542 170,609,837 103,390,163 170,875,702 171,624,298
03/15/01 0 170,609,837 103,390,163 170,875,702 171,624,298
09/15/01 0 138,240,115 103,390,163 170,875,702 171,624,298
03/15/02 0 102,109,837 103,390,163 170,875,702 171,624,298
09/15/02 0 68,014,173 103,390,163 170,875,702 171,624,298
03/15/03 0 33,609,837 103,390,163 170,875,702 171,624,298
09/15/03 0 0 103,390,163 170,875,702 171,624,298
03/15/04 0 0 68,500,000 170,875,702 171,624,298
09/15/04 0 0 34,649,752 170,875,702 171,624,298
03/15/05 0 0 0 170,875,702 171,624,298
09/15/05 0 0 0 137,123,948 171,624,298
03/15/06 0 0 0 102,375,702 171,624,298
09/15/06 0 0 0 68,519,879 171,624,298
03/15/07 0 0 0 33,875,702 171,624,298
09/15/07 0 0 0 0 171,624,298
03/15/08 0 0 0 0 137,000,000
09/15/08 0 0 0 0 103,134,628
03/15/09 0 0 0 0 68,500,000
09/15/09 0 0 0 0 34,631,016
03/15/10 0 0 0 0 0
</TABLE>
<PAGE> 84
SCHEDULE B
REQUIRED OVERCOLLATERALIZATION LEVEL SCHEDULE
<TABLE>
<CAPTION>
Payment Date Required Payment Date Required
Overcollateralization Level Overcollateralization Level
--------------------------- ---------------------------
<S> <C> <C> <C>
03/15/00 $329,545 09/15/05 $2,142,045
09/15/00 494,318 03/15/06 2,306,818
03/15/01 659,091 09/15/06 2,471,591
09/15/01 823,864 03/15/07 2,636,364
03/15/02 988,636 09/15/07 2,801,136
09/15/02 1,153,409 03/15/08 2,965,909
03/15/03 1,318,182 09/15/08 3,130,682
09/15/03 1,482,955 03/15/09 3,295,455
03/15/04 1,647,727 09/15/09 3,460,227
09/15/04 1,812,500 03/15/10 3,625,000
03/15/05 1,977,273
</TABLE>
<PAGE> 85
EXHIBIT B
FORM OF NOTE
REGISTERED
NO. [ ] $ [ ]
SEE REVERSE FOR CERTAIN DEFINITIONS
THE PRINCIPAL OF THIS CLASS A-[ ] NOTE WILL BE PAID IN INSTALLMENTS AS
SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS
A-[ ] NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
BEC FUNDING LLC NOTES
CLASS A-[ ]
<TABLE>
<CAPTION>
Interest Rate Original Principal Amount Final Maturity Date
------------- ------------------------- -------------------
<S> <C> <C>
[ ]% $[ ]
</TABLE>
PRINCIPAL AMOUNT:
BEC Funding LLC, a limited liability company formed and existing under
the laws of the State of Delaware (herein referred to as the "Note Issuer"), for
value received, hereby promises to pay to Massachusetts RRB Special Purpose
Trust BEC-1, or registered assigns, the Original Principal Amount shown above in
semiannual installments on the Payment Dates and in the amounts specified on the
reverse hereof or, if less, the amounts determined pursuant to Section 8.02 of
the Note Indenture, in each year, commencing on the date determined as provided
on the reverse hereof and ending on or before the Final Maturity Date and to pay
interest, at the Interest Rate shown above, on each September 15 and March 15 or
if any such day is not a Business Day, the next succeeding Business Day,
commencing on March 15, 2000 and continuing until the earlier of the payment of
the principal hereof or the Final Maturity Date (each a "Payment Date"), on the
principal amount of this Class A-[ ] Note. Interest on this Class A-[ ] Note
will accrue for each Payment Date from the most recent Payment Date on which
interest has been paid to but excluding such Payment Date or, if no interest has
yet been paid, from [ ], 1999. Interest will be computed on the basis of a
360-day year of twelve 30-day months. Such
B-1
<PAGE> 86
principal of and interest on this Class A-[ ] Note shall be paid in the manner
specified on the reverse hereof.
The principal of and interest on this Class A-[ ] Note are payable in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts. All payments made by
the Note Issuer with respect to this Class A-[ ] Note-shall be applied first to
interest due and payable on this Class A-[ ] Note as provided above and then to
the unpaid principal of this Class A-[ ] Note, all in the manner set forth in
Section 8.02 of the Note Indenture.
Reference is made to the further provisions of this Class A-[ ] Note
set forth on the reverse hereof, which shall have the same effect as though
fully set forth on the face of this Class A-[ ] Note.
Unless the certificate of authentication hereon has been executed by
the Note Trustee whose name appears below by manual signature, this Class A-[ ]
Note shall not be entitled to any benefit under the Note Indenture referred to
on the reverse hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Note Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Date: [ ], 1999
BEC FUNDING LLC
By:
-------------------------------------
Name:
Title:
B-2
<PAGE> 87
NOTE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: [ ], 1999
This is one of the Notes referred to in the within-mentioned Note
Indenture.
THE BANK OF NEW YORK,
not in its individual capacity but solely
as Note Trustee,
By:
-------------------------------------
Name:
Title:
B-3
<PAGE> 88
[REVERSE OF NOTE]
This Class A-[ ] Note is one of a duly authorized issue of Notes of the
Note Issuer, designated as its BEC Funding LLC Notes (herein called the
"Notes"), issuable in one or more Classes, and further designated as a Class A-[
] Note (collectively with all other Class A-[ ] Notes of this issue, the "Class
A-[ ] Notes"), all issued under a Note Indenture dated as of [ ], 1999 (the
"Note Indenture"), between the Note Issuer and The Bank of New York, as Note
Trustee (the "Note Trustee," which term includes any successor trustee under the
Note Indenture), to which Note Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights and
obligations thereunder of the Note Issuer, the Note Trustee and the Holders of
the Notes. All terms used in this Class A-[ ] Note that are defined in the Note
Indenture, as supplemented or amended, shall have the meanings assigned to them
in the Note Indenture, as supplemented or amended.
The Class A-[ ] Notes and the other Classes of Notes issued by the Note
Issuer are and will be equally and ratably secured by the collateral pledged as
security therefor, as provided in the Note Indenture.
The principal of this Class A-[ ] Note shall be payable on each Payment
Date only to the extent that amounts in the Collection Account are available
therefor, and only until the outstanding principal balance thereof on such
Payment Date (after giving effect to all payments of principal, if any, made on
such Payment Date) has been reduced to the principal balance specified in the
Expected Amortization Schedule which is attached to the Note Indenture as
Schedule A, unless payable earlier either because (x) an Event of Default shall
have occurred and be continuing and the Note Trustee or the Holders of Notes
representing not less than a majority of the Outstanding Amount of the Notes
have declared the Notes to be immediately due and payable in accordance with
Section 5.02 of the Note Indenture, (y) the Note Issuer, at its option, shall
have called for the redemption of the Notes pursuant to Section 10.01 of the
Note Indenture or (z) the Note Issuer shall have called for the redemption of
the Notes pursuant to Section 10.04 of the Note Indenture if the Seller is
required to repurchase the Transition Property pursuant to Section 5.01(b) of
the Sale Agreement. However, actual principal payments may be made in lesser
than expected amounts and at later than expected times as determined pursuant to
Section 8.02 of the Note Indenture. The entire unpaid principal amount of this
Class A-[ ] Note shall be due and payable on the earlier of the Final Maturity
Date hereof, the optional Redemption Date, if any, and the Mandatory Redemption
Date, if any, herefor. Notwithstanding the foregoing, the entire unpaid
principal amount of the Notes shall be due and payable, if not then previously
paid, on the date on which an Event of Default shall have occurred and be
continuing and the Note Trustee or the Holders of the Notes representing not
less than a majority of the Outstanding Amount of the Notes have declared the
Notes to be immediately due and payable in the manner provided in Section 5.02
of the Note Indenture. All principal payments on the Class A-[ ] Notes shall be
made pro rata to the Class A-[ ] Noteholders entitled thereto based on the
respective principal amounts of the Class A-[ ] Notes held by them.
B-4
<PAGE> 89
Payments of interest on this Class A-[ ] Note due and payable on each
Payment Date, together with the installment of principal shall be made by check
mailed first-class, postage prepaid, to the Person whose name appears as the
Registered Holder of this Class A-[ ] Note (or one or more Predecessor Notes) on
the Note Register as of the close of business on the Record Date, except that
with respect to Notes registered on the Record Date in the name of the
Certificate Trustee, payments will be made by wire transfer in immediately
available funds to the account designated by the Certificate Trustee and except
for the final installment of principal payable with respect to this Class A-[ ]
Note on a Payment Date which shall be payable as provided below. Such checks
shall be mailed to the Person entitled thereto at the address of such Person as
it appears on the Note Register as of the applicable Record Date without
requiring that this Class A-[ ] Note be submitted for notation of payment. Any
reduction in the principal amount of this Class A-[ ] Note (or any one or more
Predecessor Notes) effected by any payments made on any Payment Date shall be
binding upon all future Holders of this Class A-[ ] Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be available, as
provided in the Note Indenture, for payment in full of the then remaining unpaid
principal amount of this Class A-[ ] Note on a Payment Date, then the Note
Trustee, in the name of and on behalf of the Note Issuer, will notify the Person
who was the Registered Holder hereof as of the Record Date preceding such
Payment Date by notice mailed no later than five days prior to such final
Payment Date and shall specify that such final installment will be payable only
upon presentation and surrender of this Class A-[ ] Note and shall specify the
place where this Class A-[ ] Note may be presented and surrendered for payment
of such installment.
The Note Issuer shall pay interest on overdue installments of interest
at the Note Interest Rate to the extent lawful.
As provided in the Note Indenture, the Class A-[ ] Notes may be
redeemed, in whole but not in part, at the option of the Note Issuer on any
Payment Date at the Optional Redemption Price if, after giving effect to
payments that would otherwise be made on such Payment Date, the Outstanding
Amount of the Notes has been reduced to less than five percent of the initial
principal balance thereof. In addition, as provided in the Note Indenture, if
the Seller is required to repurchase the Transition Property pursuant to Section
5.01(b) of the Sale Agreement, the Note Issuer will be required to redeem all
outstanding Notes, including the Class A-[ ] Notes, on or before the fifth
Business Day following the Repurchase Date (as defined in the Sale Agreement).
As provided in the Note Indenture and subject to certain limitations
set forth therein, the transfer of this Class A-[ ] Note may be registered on
the Note Register upon surrender of this Class A-[ ] Note for registration of
transfer at the office or agency designated by the Note Issuer pursuant to the
Note Indenture, duly endorsed by, or accompanied by (a) a written instrument of
transfer in form satisfactory to the Note Trustee duly executed by the Holder
hereof or his attorney duly authorized in writing, with such signature
guaranteed by an institution which is a member of one of the following
recognized Signature Guaranty Programs: (i) The Securities
B-5
<PAGE> 90
Transfer Agent Medallion Program (STAMP); (ii) The New York Stock Exchange
Medallion Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or
(iv) in such other guarantee program acceptable to the Note Trustee, and (b)
such other documents as the Note Trustee may require, and thereupon one or more
new Class A-[ ] Notes of Minimum Denominations and in the same aggregate
principal amount will be issued to the designated transferee or transferees. No
service charge will be charged for any registration of transfer or exchange of
this Class A-[ ] Note, but the transferor may be required to pay a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any such registration of transfer or exchange, other than
exchanges pursuant to Section 2.04 of the Note Indenture not involving any
transfer.
Each Noteholder, by acceptance of a Note, covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Note Issuer or the Note Trustee on the Notes or under the Note Indenture
or any certificate or other writing delivered in connection therewith, against
(i) the Note Trustee in its individual capacity, (ii) any owner of a beneficial
interest in the Note Issuer or (iii) any partner, owner, beneficiary, agent,
officer, director or employee of the Note Trustee in its individual capacity,
any holder of a beneficial interest in the Note Issuer or the Note Trustee or of
any successor or assign of the Note Trustee in its individual capacity, except
as any such Person may have expressly agreed (it being understood that the Note
Trustee has no such obligations in its individual capacity).
Prior to the due presentment for registration of transfer of this Class
A-[ ] Note, the Note Issuer, the Note Trustee and any agent of the Note Issuer
or the Note Trustee may treat the Person in whose name this Class A-[ ] Note is
registered (as of the day of determination) as the owner hereof for the purpose
of receiving payments of principal of and interest on this Class A-[ ] Note and
for all other purposes whatsoever, whether or not this Class A-[ ] Note be
overdue, and neither the Note Issuer, the Note Trustee nor any such agent shall
be affected by notice to the contrary.
The Note Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Note Issuer and the rights of the Holders of the Notes under
the Note Indenture at any time by the Note Issuer with the consent of the
Holders of Notes representing a majority of the Outstanding Amount of all Notes
at the time Outstanding of each Class to be affected. The Note Indenture also
contains provisions permitting the Holders of Notes representing specified
percentages of the Outstanding Amount of the Notes, on behalf of the Holders of
all the Notes, to waive compliance by the Note Issuer with certain provisions of
the Note Indenture and certain past defaults under the Note Indenture and their
consequences. Any such consent or waiver by the Holder of this Class A-[ ] Note
(or any one of more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future Holders of this Class A-[ ] Note and of any Note
issued upon the registration of transfer hereof or in exchange hereof or in lieu
hereof whether or not notation of such consent or waiver is made upon this Class
A-[ ] Note. The Note Indenture also permits the Note Trustee to amend or waive
B-6
<PAGE> 91
certain terms and conditions set forth in the Note Indenture without the consent
of Holders of the Notes issued thereunder.
The term "Note Issuer" as used in this Class A-[ ] Note includes any
successor to the Note Issuer under the Note Indenture.
The Note Issuer is permitted by the Note Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Note
Trustee and the Holders of Notes under the Note Indenture.
The Class A-[ ] Notes are issuable only in registered form in
denominations as provided in the Note Indenture, subject to certain limitations
therein set forth.
This Class A-[ ] Note and the Note Indenture shall be construed in
accordance with the laws of The Commonwealth of Massachusetts, without reference
to its conflict of law provisions, and the obligations, rights and remedies of
the parties hereunder and thereunder shall be determined in accordance with such
laws.
No reference herein to the Note Indenture and no provision of this
Class A-[ ] Note or of the Note Indenture shall alter or impair the obligation
of the Note Issuer, which is absolute and unconditional, to pay the principal of
and interest on this Class A-[ ] Note at the times, place, and rate, and in the
coin or currency herein prescribed.
The Holder of this Class A-[ ] Note by the acceptance hereof agrees
that, notwithstanding any provision of the Note Indenture to the contrary, the
Holder shall have no recourse against the Note Issuer, but shall look only to
the Collateral, with respect to any amounts due to the Holder under this Class
A-[ ] Note.
B-7
<PAGE> 92
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of
assignee: _________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto___________________________________________________________________________
_______________________________________________________________________________
(name and address of assignee)
the within Class A-[ ] Note and all rights thereunder, and hereby irrevocably
constitutes and appoints __________________, attorney, to transfer said Class
A-[ ] Note on the books kept for registration thereof, with full power of
substitution in the premises.
Dated: _____________________ ___________________________________
Signature Guaranteed:
__________________________________ ___________________________________
___________________
* NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Class A-[ ] Note
in every particular, without alteration, enlargement or any change
whatsoever.
B-8
<PAGE> 1
EXECUTION COPY
================================================================================
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1,
AS CERTIFICATE ISSUER
THE BANK OF NEW YORK (DELAWARE),
AS DELAWARE TRUSTEE
AND
THE BANK OF NEW YORK,
AS CERTIFICATE TRUSTEE
----------------------------
CERTIFICATE INDENTURE
DATED AS OF JULY 29, 1999
----------------------------
$725,000,000
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
RATE REDUCTION CERTIFICATES
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Definitions................................................................................... 2
Section 1.01. Definitions............................................................................... 2
Section 1.02. Compliance Certificates and Opinions...................................................... 11
Section 1.03. Form of Documents Delivered to Certificate Trustee........................................ 12
Section 1.04. Acts of Certificateholders................................................................ 13
ARTICLE II The Certificates............................................................................. 14
Section 2.01. Terms of the Certificates................................................................. 14
Section 2.02. Issuance of Certificates.................................................................. 14
Section 2.03. Form, Denomination and Execution of Certificates.......................................... 17
Section 2.04. Authentication of Certificates............................................................ 18
Section 2.05. Temporary Certificates.................................................................... 18
Section 2.06. Registration of Transfer and Exchange of Certificates..................................... 18
Section 2.07. Certificateholders' Lists and Reports by Certificate Trustee.............................. 19
Section 2.08. Mutilated, Destroyed, Lost or Stolen Certificates......................................... 20
Section 2.09. Persons Deemed Owners..................................................................... 21
Section 2.10. Cancellation.............................................................................. 21
Section 2.11. Limitation of Liability for Payments...................................................... 21
Section 2.12. Book-Entry and Definitive Certificates.................................................... 22
Section 2.13. Tax Treatment............................................................................. 23
ARTICLE III Covenants................................................................................... 23
Section 3.01. Compliance with Declaration of Trust...................................................... 23
Section 3.02. No Additional Certificates................................................................ 24
ARTICLE IV Distributions; Statements to Certificateholders.............................................. 24
Section 4.01. Certificate Accounts...................................................................... 24
Section 4.02. Distributions from Certificate Accounts................................................... 24
Section 4.03. Statements to Certificateholders.......................................................... 27
Section 4.04. Investment of Special Payment Moneys...................................................... 27
Section 4.05. Reduction in Principal.................................................................... 28
ARTICLE V Defaults 27
Section 5.01. Events of Default......................................................................... 28
Section 5.02. Incidents of Sale of Notes................................................................ 29
Section 5.03. Judicial Proceedings Instituted by Certificate Trustee; Certificate Trustee
May Bring Suit......................................................................... 30
Section 5.04. Control by Certificateholders............................................................. 30
Section 5.05. Waiver of Past Defaults................................................................... 31
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 5.06. Right of Certificateholders To Receive Payments Not To Be Impaired........................ 31
Section 5.07. Certificateholders May Not Bring Suit Except Under Certain Conditions..................... 31
Section 5.08. Remedies Cumulative....................................................................... 32
ARTICLE VI The Certificate Trustee...................................................................... 32
Section 6.01. Notice of Defaults........................................................................ 32
Section 6.02. Certain Rights of Certificate Trustee..................................................... 33
Section 6.03. Not Responsible for Recitals or Issuance of Certificates.................................. 34
Section 6.04. May Hold Certificates..................................................................... 34
Section 6.05. Money Held in Trust....................................................................... 35
Section 6.06. Compensation and Reimbursement; Indemnification........................................... 35
Section 6.07. Corporate Certificate Trustee Required; Eligibility....................................... 35
Section 6.08. Resignation and Removal; Appointment of Successor......................................... 36
Section 6.09. Acceptance of Appointment by Successor.................................................... 38
Section 6.10. Merger, Conversion, Consolidation or Succession to Business............................... 38
Section 6.11. Maintenance of Agencies................................................................... 39
Section 6.12. Money for Certificate Payments To Be Held in Trust........................................ 40
Section 6.13. Registration of Notes in Certificate Trustee's Name....................................... 41
Section 6.14. Representations and Warranties of Certificate Trustee..................................... 41
Section 6.15. Withholding Taxes; Information Reporting.................................................. 41
Section 6.16. Obligations to Note Trustee and Delaware Trustee.......................................... 42
ARTICLE VII Supplemental Certificate Indentures......................................................... 42
Section 7.01. Supplemental Certificate Indentures Without Consent of Certificateholders................. 42
Section 7.02. Supplemental Certificate Indentures With Consent of Certificateholders.................... 43
Section 7.03. Documents Affecting Immunity or Indemnity................................................. 44
Section 7.04. Execution of Supplemental Certificate Indentures.......................................... 44
Section 7.05. Effect of Supplemental Certificate Indentures............................................. 44
Section 7.06. Conformity with Trust Indenture Act....................................................... 44
Section 7.07. Reference in Certificates to Supplemental Certificate Indentures.......................... 44
ARTICLE VIII Amendments and Supplements to Notes, Note Indenture and Other Basic
Documents............................................................................ 45
Section 8.01. Amendments and Supplements to Notes, Note Indenture and Other Basic
Documents.............................................................................. 45
ARTICLE IX Satisfaction and Discharge................................................................... 45
Section 9.01. Satisfaction and Discharge of Certificate Indenture....................................... 45
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE X Miscellaneous Provisions...................................................................... 46
Section 10.01. Commonwealth Pledge; Certificates and Notes Not Obligation of The
Commonwealth of Massachusetts, Agencies or Seller.................................... 46
Section 10.02. Limitation on Rights of Certificateholders............................................... 47
Section 10.03. No Recourse to Certificate Issuer........................................................ 48
Section 10.04. Certificates Nonassessable and Fully Paid................................................ 48
Section 10.05. Notices.................................................................................. 48
Section 10.06. Governing Law............................................................................ 51
Section 10.07. Severability of Provisions............................................................... 51
Section 10.08. Conflict With Trust Indenture Act........................................................ 51
Section 10.09. Effect of Headings and Table of Contents................................................. 52
Section 10.10. Successors and Assigns; Delegation....................................................... 52
Section 10.11. Benefits of Certificate Indenture........................................................ 52
Section 10.12. Legal Holidays........................................................................... 52
Section 10.13. Counterparts............................................................................. 52
Section 10.14. The Delaware Trustee..................................................................... 52
SIGNATURE PAGE.......................................................................................... S-1
EXHIBIT A -- FORM OF CERTIFICATE........................................................................ A-1
</TABLE>
iii
<PAGE> 5
CERTIFICATE INDENTURE, dated as of July 29, 1999, between Massachusetts
rrb Special Purpose Trust BEC-1, a Delaware business trust (the "Certificate
Issuer") formed under the Declaration of Trust, THE BANK OF NEW YORK (DELAWARE),
as Delaware trustee (the "Delaware Trustee"), and THE BANK OF NEW YORK, as
certificate trustee (the "Certificate Trustee").
RECITALS
The Note Issuer intends to issue its BEC Funding LLC Notes (the
"Notes") with an aggregate principal amount of $725,000,000, consisting of
Classes A-1 through A-5, pursuant to the Note Indenture. In order to finance the
purchase of the Notes pursuant to the Note Purchase Agreement relating to the
Notes, the Certificate Issuer shall issue, pursuant to this Certificate
Indenture, its Massachusetts RRB Special Purpose Trust BEC-1 Rate Reduction
Certificates (the "Certificates") with an aggregate principal amount of
$725,000,000, consisting of Classes A-1 through A-5, each of which shall
represent a fractional undivided beneficial interest in the corresponding Class
of Notes and the proceeds thereof.
The Certificate Issuer has duly authorized the execution and delivery
of this Certificate Indenture to provide the terms and conditions for the
issuance of the Certificates. The Certificate Issuer is entering into this
Certificate Indenture, and the Certificate Trustee is accepting the trusts
created hereby, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged.
GRANTING CLAUSE
The Certificate Issuer hereby grants to the Certificate Trustee on the
Issuance Date, as Certificate Trustee for the benefit of the Holders of the
Certificates, all of the Certificate Issuer's right, title and interest in and
to the Notes acquired pursuant to the Note Purchase Agreement, together with all
payments thereon and proceeds thereof, and other property constituting the Trust
Property relating to each such Class of Notes, all as provided in this
Certificate Indenture.
The foregoing grant is made in trust to secure the payment of principal
of and interest on, and any other amounts owing in respect of, the Certificates,
and to secure compliance with the provisions of this Certificate Indenture with
respect to the Certificates, all as provided in this Certificate Indenture. This
Certificate Indenture constitutes a security agreement within the meaning of the
UCC to the extent that, under Massachusetts law, the provisions of the UCC are
applicable hereto.
The Certificate Trustee, as trustee on behalf of the Holders of the
Certificates, acknowledges such grant, accepts the trusts hereunder in
accordance with the provisions hereof and agrees to perform its duties herein
required.
AND IT IS HEREBY COVENANTED, DECLARED AND AGREED between the parties
hereto that all Certificates are to be issued, countersigned and delivered and
that all of the Trust Property is to be held and applied, subject to the further
covenants, conditions, releases,
<PAGE> 6
uses and trusts hereinafter set forth, and the Certificate Issuer, for itself
and any successor, does hereby covenant and agree to and with the Certificate
Trustee and its successors in said trust, for the benefit of the Holders, as
follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions.
(a) For all purposes of this Certificate Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the
plural include the singular;
(vi) the words "herein," "hereof," "hereunder" and other words
of similar import refer to this Certificate Indenture as a whole and
not to any particular Article, Section or other subdivision;
(vii) all references in this Certificate Indenture to
designated "Articles," "Sections" and other subdivisions are to the
designated Articles, Sections and other subdivisions of this
Certificate Indenture; and
(viii) Whenever this Certificate Indenture refers to a
provision of the Indenture Act, the provision is incorporated by
reference in and made a part of this Certificate Indenture. The
following Trust Indenture Act terms used in this Certificate Indenture
have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Certificates.
"indenture security holder" means a Certificateholder.
"indenture to be qualified" means this Certificate Indenture.
2
<PAGE> 7
"indenture trustee" or "institutional trustee" means the
Certificate Trustee.
"obligor" on the indenture securities means the Certificate
Issuer and any other obligor on the indenture securities.
All other Trust Indenture Act terms used in this Certificate Indenture
that are defined by the Trust Indenture Act, defined by Trust Indenture Act
reference to another statute or defined by Commission rule have the meaning
assigned to them by such definitions.
"Act," when used with respect to any Certificateholder, has the meaning
specified in Section 1.04.
"Agencies" means collectively the Massachusetts Development Finance
Agency and the Massachusetts Health and Educational Facilities Authority.
"Authentication Agent" means the authentication agent appointed
pursuant to Section 6.11.
"Authorized Agent" means any Paying Agent, Authentication Agent or
Certificate Registrar.
"Authorized Representative" means, with respect to any entity, any
person who is authorized to act for such entity in matters relating to such
entity and who is identified on the list of Authorized Representatives delivered
by such entity to the Certificate Trustee on the Issuance Date (as such list may
be modified or supplemented from time to time thereafter).
"Avoidable Tax" has the meaning set forth in Section 6.08(f).
"Book-Entry Certificates" means, with respect to any Certificate, a
beneficial interest in such Certificate, ownership and transfers of which shall
be made through book entries by a Clearing Agency as described in Section 2.12.
"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, Boston,
Massachusetts or Wilmington, Delaware are authorized or obligated by law,
regulation or executive order to remain closed.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of the
Delaware Code, 12 Del.C., Section 3801 et seq., as the same may be amended from
time to time and any successor statute.
"Certificate Account" means, with respect to any Class of Certificates,
the account or accounts created and maintained with respect to such Class of
Certificates pursuant to Section 4.01(a).
"Certificate Indenture" means this instrument as originally executed
and, as from time to time supplemented or amended by one or more indentures
supplemental hereto entered into
3
<PAGE> 8
pursuant to the applicable provisions hereof, as so supplemented or amended or
both, and shall include the forms and terms of the Certificates established
hereunder.
"Certificate Owner" means the Person who owns a Book-Entry Certificate.
"Certificate Register" has the meaning set forth in Section 2.06.
"Certificate Registrar" means, initially, the Certificate Trustee,
pursuant to Section 2.06, and any successor registrar that meets the eligibility
standards specified in Section 6.11(b).
"Certificate Trustee" means The Bank of New York, as Certificate
Trustee under this Certificate Indenture, and its successors in interest, and
any successor Certificate Trustee appointed as provided herein.
"Certificate Trustee Expenses" has the meaning set forth in Section
6.06.
"Certificate Trustee Indemnified Persons" has the meaning set forth in
Section 6.06.
"Certificateholder" or "Holder" means the Person in whose name a
Certificate is registered on the Certificate Register.
"Certificates" has the meaning set forth in Section 2.01(a).
"Class" means any one of the classes of Certificates; and, with respect
to the Notes, any one of the classes of Notes.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"Commonwealth Pledge" has the meaning set forth in Section 10.01(a).
"Corporate Trust Office" means the principal office of the Certificate
Trustee at which at any particular time its corporate trust business shall be
administered, which office at the date of the execution of this Certificate
Indenture is located at 101 Barclay Street, Floor 12 East, New York, New York
10286, Attention: Asset Backed Finance Unit, or at such other address as the
Certificate Trustee may designate from time to time by notice to the
Certificateholders and the Certificate Issuer, or the principal corporate trust
office of any successor Certificate Trustee (the address of which the successor
Certificate Trustee will notify the Certificateholders and the Certificate
Issuer).
"Declaration of Trust" means the Declaration of Trust, relating to the
creation of the Certificate Issuer, dated as of July 28, 1999 by The Bank of New
York (Delaware), as Delaware Trustee, and the Massachusetts Development Finance
Agency and the Massachusetts Health and
4
<PAGE> 9
Educational Facilities Authority, acting jointly as settlors thereunder pursuant
to the Statute, as the same may be amended, supplemented or otherwise modified
from time to time.
"Definitive Certificates" has the meaning set forth in Section 2.12(a).
"Distribution Date" means, with respect to the Certificates, a Payment
Date with respect to the Notes.
"DTC Agreement" means the agreement between the Certificate Trustee, on
behalf of the Certificate Issuer, and The Depository Trust Company, as the
initial Clearing Agency, dated as of July 28, 1999, relating to the
Certificates, as the same may be amended and supplemented from time to time.
"Eligible Deposit Account" means either (a) a segregated trust account
with an Eligible Institution or (b) a segregated trust account with the
corporate trust department of a depository institution organized under the laws
of the United States of America or any one of the states thereof or the District
of Columbia (or any domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as any
of the securities of such depository institution shall have a credit rating from
each Rating Agency in one of its generic rating categories which signifies
investment grade.
"Eligible Institution" means (a) the corporate trust department of the
Certificate Trustee or (b) a depository institution organized under the laws of
the United States of America, any State or the District of Columbia (or any
domestic branch of a foreign bank), (i) which has either (A) a long-term
unsecured debt rating of AAA by Standard & Poor's and Aaa by Moody's or (B) a
certificate of deposit rating of A-1+ by Standard & Poor's and P-1 by Moody's,
or any other long-term, short-term or certificate of deposit rating acceptable
to the Rating Agencies and (ii) whose deposits are insured by the FDIC. If so
qualified under clause (b) above, the Certificate Trustee may be considered an
Eligible Institution for the purposes of clause (a) of the definition of
Eligible Deposit Account.
"Eligible Investments" means instruments or investment property
denominated in United States currency that evidence:
(i) direct obligations of, or obligations fully and
unconditionally guaranteed as to timely payment by, the United States
of America;
(ii) demand deposits, time deposits, certificates of deposit
or bankers' acceptances of depository institutions meeting the
requirements of clause (b) of the definition of Eligible Institutions;
(iii) commercial paper (other than commercial paper of the
Seller) having, at the time of the investment or contractual commitment
to invest therein, a rating from each of the Rating Agencies from which
a rating is available in the highest investment category granted
thereby;
5
<PAGE> 10
(iv) investments in money market funds having a rating from
each of the Rating Agencies from which a rating is available in the
highest investment category granted thereby (including funds for which
the Certificate Trustee or any of its Affiliates is investment manager
or advisor);
(v) repurchase obligations with respect to any security that
is a direct obligation of, or fully guaranteed by, the United States of
America or any agency or instrumentality thereof the obligations of
which are backed by the full faith and credit of the United States of
America, in either case entered into with depository institutions
meeting the requirements of clause (b) of the definition of Eligible
Institution;
(vi) any other investment permitted by each of the Rating
Agencies; and
(vii) The Bank of New York Deposit Reserve, an interest
bearing account of The Bank of New York,
in each case which mature on or before the Business Day preceding the next
Payment Date.
"Event of Default" means, with respect to the Certificates, (i) a Note
Event of Default, or (ii) a breach by The Commonwealth of Massachusetts of the
Commonwealth Pledge described in Section 10.01(a).
"FDIC" means the Federal Deposit Insurance Corporation or any
successor.
"Fee and Indemnity Agreement" means the fee and indemnity agreement
dated as of July 29, 1999, among the Note Issuer, the Delaware Trustee, the
Certificate Trustee, the Certificate Issuer and the Agencies.
"Final Termination Date" means, with respect to any Class of
Certificates, the Final Maturity Date of the related Class of Notes.
"Interest Rate" has the meaning set forth in Section 2.01(b).
"Minimum Denomination" means $1,000 or any integral multiple thereof.
"Note Event of Default" means, with respect to the Notes, any Event of
Default (as such term is defined in the Note Indenture).
"Note Indenture" means the Note Indenture dated as of July 29, 1999,
between the Note Issuer and the Note Trustee, as amended and supplemented from
time to time.
"Note Issuer" means BEC Funding LLC, a Delaware limited liability
company, and its successors in interest.
6
<PAGE> 11
"Note Purchase Agreement" means the Note Purchase Agreement dated as of
July 29, 1999, between the Note Issuer and the Certificate Issuer, as the same
may be amended or supplemented from time to time.
"Note Trustee" means the Person acting as Note Trustee under the Note
Indenture.
"Notes" has the meaning set forth in the recitals to this Certificate
Indenture.
"Officer's Certificate" means a certificate signed by any Authorized
Representative of the Certificate Issuer, under the circumstances described in,
and otherwise complying with, the applicable requirements of Section 1.02, and
delivered to the Certificate Trustee.
"Opinion of Counsel" means one or more written opinions of counsel who
may, except as otherwise expressly provided in this Certificate Indenture, be an
employee of or counsel to the Certificate Issuer and who shall be reasonably
satisfactory to the Certificate Trustee, and which opinion or opinions shall be
addressed to the Certificate Trustee, as trustee, shall comply with any
applicable requirements of Section 1.02, and shall be in form and substance
reasonably satisfactory to the Certificate Trustee.
"Original Principal Amount" means, with respect to any Certificate, the
amount set forth as such on the face of such Certificate on the date of its
issuance.
"Outstanding" means, as of the date of determination, all Certificates
theretofore authenticated and delivered under this Certificate Indenture except:
(i) Certificates theretofore cancelled by the Certificate
Registrar or delivered to the Certificate Registrar for cancellation;
(ii) Certificates or portions thereof the payment for which
money in the necessary amount has been theretofore deposited with the
Certificate Trustee or any Paying Agent in trust for the Holders of
such Certificates (provided, however, that if such Certificates are to
be redeemed, notice of such redemption has been duly given pursuant to
this Certificate Indenture or provision therefor, reasonably
satisfactory to the Certificate Trustee, has been made); and
(iii) Certificates in exchange for or in lieu of other
Certificates that have been authenticated and delivered pursuant to
this Certificate Indenture unless proof satisfactory to the Certificate
Trustee is presented that any such Certificates are held by a bona fide
purchaser;
provided, however, that in determining whether the Holders of the requisite
Outstanding Amount of the Certificates or any Class thereof have given any
request, demand, authorization, direction, notice, consent or waiver hereunder
or under any Basic Document, Certificates owned by the Note Issuer, the
Certificate Issuer, any other obligor upon the Certificates, the Seller, or any
Affiliate of any of the foregoing Persons shall be disregarded and deemed not to
be Outstanding, except that, in determining whether the Certificate Trustee
shall be protected in relying upon any
7
<PAGE> 12
such request, demand, authorization, direction, notice, consent or waiver, only
Certificates that a Responsible Officer of the Certificate Trustee actually
knows to be so owned shall be so disregarded. Certificates so owned that have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Certificate Trustee the pledgee's right
so to act with respect to such Certificates and that the pledgee is not the Note
Issuer, any other obligor upon the Certificates, the Certificate Issuer, the
Seller, or any Affiliate of any of the foregoing Persons.
"Outstanding Amount" means the aggregate principal amount of all
Certificates, or, if the context requires, all Certificates of a Class,
Outstanding at the date of determination.
"Paying Agent" means the Certificate Trustee or any other Person that
meets the eligibility standards specified in Section 6.11(b) and is authorized
by the Certificate Issuer (with the prior written approval of the Note Issuer)
to make distributions of principal of or interest with respect to the
Certificates.
"Payment" means, with respect to the Notes, any payment (other than a
Special Payment but including any Redemption Payment) of principal of or
interest thereon.
"Payment Date" means, with respect to the Notes, the date or dates
specified as Payment Dates therefor in the Note Indenture.
"Person" means any individual, corporation, limited liability company,
estate, partnership, joint venture, association, joint stock company, trust
(including any beneficiary thereof), unincorporated organization or government
or any agency or political subdivision thereof.
"Record Date" means, with respect to any Distribution Date, the
Business Day immediately preceding such Distribution Date or, if Definitive
Certificates are issued, the last day of the calendar month preceding the
calendar month in which such Distribution Date occurs.
"Redemption Payment" means, with respect to the Notes, any payment of
principal of and interest on the Notes due from the Note Issuer upon the early
redemption of the Notes, other than any such payment due by reason of the
occurrence of a Note Event of Default.
"Request" means a written request by the Certificate Issuer setting
forth the subject matter of the request accompanied by an Officer's Certificate
and an Opinion of Counsel as provided in Section 1.02.
"Responsible Officer" means any officer within the Corporate Trust
Office, including any Managing Director, Vice President, Assistant Vice
President, Secretary, Assistant Secretary or Assistant Treasurer or any other
officer of the Certificate Trustee customarily performing functions similar to
those performed by any of the above designated officers and also, with respect
to a particular matter, any other officer to whom such matter is referred
because of such officer's knowledge and familiarity with the particular subject.
8
<PAGE> 13
"Sale Agreement" means the Transition Property Purchase and Sale
Agreement dated as of July 29, 1999, between the Seller and the Note Issuer, as
amended and supplemented from time to time.
"Scheduled Final Distribution Date" means, with respect to any Class of
Certificates, the Scheduled Maturity Date of the related Class of Notes.
"Secretary of State" shall mean the Secretary of State of the State of
Delaware.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" means Boston Edison Company, a Massachusetts corporation, and
its permitted successors and assigns under the Sale Agreement.
"Servicer" means Boston Edison Company, a Massachusetts corporation, in
its capacity as servicer under the Servicing Agreement, including its successors
in interest, until a successor Person shall have become the servicer pursuant to
the Servicing Agreement, and thereafter "Servicer" shall mean such successor
Person.
"Servicing Agreement" means the Transition Property Servicing Agreement
dated as of July 29, 1999, between the Servicer and the Note Issuer, as amended
and supplemented from time to time.
"Special Distribution Date" means, with respect to the distribution of
any Special Payment with respect to any Class of Notes, the later of (i) the
date receipt of such Special Payment is confirmed by the Certificate Trustee and
(ii) the date that is the earlier of (A) if the Certificate Trustee shall have
received such Special Payment without prior notice thereof, 20 days after such
receipt is confirmed or (B) unless such Special Payment represents the proceeds
of a sale of such Notes by the Certificate Trustee (in which event the Special
Distribution Date for such proceeds shall be the earliest date for which it is
practicable for the Certificate Trustee to give the 20-day notice required by
Section 4.02(d)), the date that is 20 days after the Certificate Trustee
receives notice from the Note Issuer of the anticipated payment of such Special
Payment; provided, however, that in the event of the repurchase of the
Transition Property by the Seller, the Special Distribution Date shall mean a
date not later than five Business Days after receipt of such proceeds.
"Special Payment" means, with respect to any Class of Notes, (i) any
payment of principal of or interest on (including any interest accruing upon
default), or any other amount in respect of, the Notes of such Class that is
paid more than five days after the Payment Date applicable thereto or (ii) any
proceeds from the sale of such Notes by the Certificate Trustee pursuant to
Article V hereof or the repurchase of the Transition Property by the Seller
pursuant to Article V of the Sale Agreement.
"Special Record Date" means, with respect to any Special Distribution
Date, the close of business on the 15th day (whether or not a Business Day)
preceding such Special Distribution Date.
9
<PAGE> 14
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
on the date hereof, unless otherwise specifically provided.
"Trust Property" means, with respect to any Class of Certificates, the
Class of Notes corresponding to such Class of Certificates held as the property
of the Certificate Issuer and all monies at any time paid thereon and all monies
due and to become due thereunder, all rights of the Certificate Trustee or the
Certificate Issuer, as holder of such Class of Notes, in and to the Collateral
and any proceeds thereof, funds from time to time deposited in the Certificate
Account for such Class of Certificates and any proceeds from the sale by the
Certificate Trustee pursuant to Article V hereof of Notes of such Class.
"Underwriters" means the underwriters who purchase the Certificates
from the Certificate Issuer and sell the Certificates in a public offering.
(a) Except as otherwise specified herein or as the context may
otherwise require, the following terms have the respective meanings set forth in
the Note Indenture as in effect on the Issuance Date for all purposes of this
Certificate Indenture.
10
<PAGE> 15
Section of
Term Note Indenture
---- --------------
Administrator ................................................ 1.01(a)
Affiliate .................................................... 1.01(a)
Basic Documents .............................................. 1.01(a)
Capital Subaccount. .......................................... 1.01(a)
Code. ........................................................ 1.01(a)
Collateral. .................................................. 1.01(a)
DTE .......................................................... 1.01(a)
Duff & Phelps ................................................ 1.01(a)
Exchange Act. ................................................ 1.01(a)
Expected Amortization Schedule. .............................. 1.01(b)
Final Maturity Date .......................................... 1.01(a)
Financing Order .............................................. 1.01(b)
Fitch IBCA. .................................................. 1.01(a)
Issuance Date ................................................ 1.01(a)
Moody's ...................................................... 1.01(a)
Rating Agency ................................................ 1.01(a)
Rating Agency Condition ...................................... 1.01(a)
Scheduled Maturity Date ...................................... 1.01(a)
Standard & Poor's ............................................ 1.01(a)
State ........................................................ 1.01(a)
Statute ...................................................... 1.01(a)
Transition Property .......................................... 1.01(b)
UCC .......................................................... 1.01(a)
(b) When reference is made herein to the Certificates of any Class,
such reference shall mean the Certificates of such Class.
Section 1.02. Compliance Certificates and Opinions. Upon any
application or request by the Certificate Issuer to the Certificate Trustee to
take any action under any provision of this Certificate Indenture, the
Certificate Issuer shall furnish to the Certificate Trustee an Officer's
Certificate stating that, in the opinion of the signer thereof, all conditions
precedent, if any, provided for in this Certificate Indenture relating to the
proposed action have been complied with and, if requested by the Certificate
Trustee, an Opinion of Counsel stating that in the opinion of such counsel all
such conditions precedent, if any, have been complied with, except that in the
case of any such application or request as to which the furnishing of such
documents is specifically required by any provision of this Certificate
Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished. Any such application or request by the
Certificate Issuer to the Certificate Trustee shall also be accompanied by
evidence reasonably satisfactory to the Certificate Trustee that the Note Issuer
has given its prior written approval of such application or request.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Certificate Indenture shall include:
11
<PAGE> 16
(a) a statement that each signatory of such certificate or
opinion has read or caused to be read such covenant or condition and
the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.
Section 1.03. Form of Documents Delivered to Certificate Trustee. In
any case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Representative of the
Certificate Issuer may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate of an
Authorized Representative or Opinion of Counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion of, or representations
by, an officer or officers of the Servicer, the Seller, the Note Issuer or the
Administrator, stating that the information with respect to such factual matters
is in the possession of the Servicer, the Seller, the Note Issuer or the
Administrator, as the case may be, unless such officer or counsel knows, or in
the exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Whenever in this Certificate Indenture, in connection with any
application or certificate or report to the Certificate Trustee, it is provided
that the Certificate Issuer shall deliver any document as a condition of the
granting of such application, or as evidence of the Certificate Issuer's
compliance with any term hereof, it is intended that the truth and accuracy, at
the time of the granting of such application or at the effective date of such
certificate or report (as the case may be), of the facts and opinions stated in
such document shall in such case be conditions precedent to the right of the
Certificate Issuer to have such application granted or to the sufficiency of
such certificate or report. The foregoing shall not, however, be construed to
affect the Certificate Trustee's right to rely upon the truth and accuracy of
any statement or opinion contained in any such document as provided in Article
VI.
12
<PAGE> 17
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Certificate Indenture, they may, but need not, be
consolidated and form one instrument.
Section 1.04. Acts of Certificateholders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Certificate Indenture to be given or
taken by Certificateholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Certificateholders in
person or by their agents duly appointed in writing; and except as herein
otherwise expressly provided such request, demand, authorization, direction,
notice, consent, waiver or other action shall become effective when such
instrument or instruments are delivered to the Certificate Trustee, and, where
it is hereby expressly required, to the Certificate Issuer and the Note Trustee.
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Certificateholders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Certificate Indenture and (subject to Article VI) conclusive in
favor of the Certificate Trustee, the Certificate Issuer and the Note Trustee,
if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner that the Certificate Trustee
deems sufficient.
(c) The ownership of Certificates shall be proved by the Certificate
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Certificates shall bind the Holder
of every Certificate issued upon the registration thereof or in exchange
therefor or in lieu thereof, in respect of anything done, omitted or suffered to
be done by the Certificate Trustee, the Certificate Issuer or the Note Trustee
in reliance thereon, whether or not notation of such action is made upon such
Certificate.
(e) The Certificate Issuer may at its option by delivery of an
Officer's Certificate to the Certificate Trustee set a record date to determine
the Holders of any Class of Certificates entitled to give any consent, request,
demand, authorization, direction, notice, waiver or other Act. Notwithstanding
316(c) of the Trust Indenture Act, such record date shall be the record date
specified in such Officer's Certificate, which shall be the date not more than
30 days prior to the first solicitation of Certificateholders in connection
therewith. If such a record date is fixed, such consent, request, demand,
authorization, direction, notice, waiver or other Act may be given before or
after such record date, but only the Holders of Certificates of the applicable
Class at the close of business on such record date shall be deemed to be
Certificateholders of such Class for the purposes of determining whether Holders
of the requisite aggregate Outstanding Amount of Certificates of such Class have
authorized or agreed or consented to such consent, request, demand,
authorization, direction, notice, waiver or other Act, and for that purpose the
aggregate Outstanding Amount of Certificates of such Class shall be computed as
of such record date; provided, however, that no such consent, request, demand,
authorization, direction, notice, waiver or other Act by the Holders of
Certificates of such Class on such record date shall be
13
<PAGE> 18
deemed effective unless it shall become effective pursuant to the provisions of
this Certificate Indenture not later than one year after the record date.
(f) Except as otherwise provided in the definition of Outstanding,
Certificates of any Class owned by or pledged to any Person shall have an equal
and proportional benefit under the provisions of this Certificate Indenture,
without preference, priority or distinction as among all of the Certificates of
that Class.
ARTICLE II
THE CERTIFICATES
Section 2.01. Terms of the Certificates.
(a) Authorization; Designation. The issuance of the Certificates is
hereby authorized and the Certificates shall be designated generally as the
Massachusetts RRB Special Purpose Trust BEC-1 Rate Reduction Certificates (the
"Certificates"), and further designated as Classes A-1 through A-5. Each such
Class shall be in an aggregate principal amount equal to the corresponding Class
of Notes as set forth in the Note Purchase Agreement.
(b) Initial Principal Amount; Certificate Interest Rate; Scheduled
Final Distribution Date; Final Termination Date. The Certificates of each Class
shall have the initial principal amount, bear interest at the rates per annum
and shall have Scheduled Final Distribution Dates and Final Termination Dates as
set forth below:
<TABLE>
<CAPTION>
Initial Principal Certificate Scheduled Final Final Termination
Class Amount Interest Rate Distribution Date Date
----- ----------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
A-1 $108,500,000 5.99% 3/15/01 3/15/03
A-2 $170,609,837 6.45% 9/15/03 9/15/05
A-3 $103,390,163 6.62% 3/15/05 3/15/07
A-4 $170,875,702 6.91% 9/15/07 9/15/09
A-5 $171,624,298 7.03% 3/15/10 3/15/12
</TABLE>
The Interest Rate of the Certificates shall be computed on the basis of
a 360-day year of twelve 30-day months.
Section 2.02. Issuance of Certificates. On the Issuance Date, the
Certificate Issuer, subject to the provisions of this Certificate Indenture and
the Note Purchase Agreement, shall issue, and the Delaware Trustee shall execute
on behalf of the Certificate Issuer and the Certificate Trustee shall
authenticate and deliver, in fully registered form only, the Certificates of the
Class corresponding to the Class of Notes issued on such Issuance Date, all in
accordance with the Note Purchase Agreement. Each Certificate represents a
fractional undivided beneficial interest in a corresponding Class of Notes and
the proceeds thereof. Prior to the execution and
14
<PAGE> 19
authentication of the Certificates of any Class, the Certificate Trustee shall
have received the following:
(a) The Class of Notes, duly executed by the Note Issuer and
authenticated by the Note Trustee, corresponding to the Class of Certificates to
be issued;
(b) A certificate of an Authorized Representative of the Note Issuer to
the effect that all conditions required to be satisfied under Section 2.10 of
the Note Indenture for the issuance of such Class of Notes and all conditions
required to be satisfied under the Note Purchase Agreement for the purchase of
the Notes by the Certificate Issuer have been satisfied, together with executed
copies of all documents, certificates, opinions, orders or approvals
establishing satisfaction of such conditions;
(c) An order of an Authorized Representative of the Certificate Issuer
(i) directing the Delaware Trustee on behalf of the Certificate Issuer to
execute and deliver this Certificate Indenture to be executed in connection with
the Certificates to be issued hereunder, (ii) directing the Delaware Trustee on
behalf of the Certificate Issuer to execute and deliver the Note Purchase
Agreement and (iii) directing the Delaware Trustee to execute and deliver on
behalf of the Certificate Issuer, and the Certificate Trustee to authenticate,
as Authentication Agent, global Certificates, each to be registered in the name
of Cede & Co., as nominee of The Depository Trust Company ("DTC"), and to
confirm its custody of the Certificates to DTC in New York, New York so that the
Certificate may be credited to or upon the order of the Underwriters named in
said order for the purchase price specified therein and directing the
application of the proceeds thereof;
(d) An Opinion of Counsel, portions of which may be delivered by
counsel to the Certificate Issuer and portions of which may be delivered by
counsel to the Certificate Trustee or other counsel satisfactory to the
Certificate Trustee, dated the Issuance Date in each case subject to the
customary exceptions, qualifications and assumptions contained therein (which
may include, for the purpose of the Issuance Date, the assumption that the
Financing Order has been duly authorized by the DTE and is in full force and
effect), to the effect that:
(i) this Certificate Indenture has been duly authorized,
executed and delivered by the Certificate Issuer and Delaware Trustee;
(ii) this Certificate Indenture constitutes a valid and
binding agreement of the Certificate Issuer and Delaware Trustee,
enforceable in accordance with its terms except as enforcement thereof
may be subject to or limited by bankruptcy, insolvency, moratorium,
reorganization, fraudulent conveyance or other similar laws relating to
or affecting the enforcement of creditors' rights generally and by
general equitable principles (regardless of whether such enforceability
is considered in a proceeding in equity or at law), including that the
availability of specific enforcement or injunctive relief is subject to
the discretion of the court before which any such proceeding is
brought;
15
<PAGE> 20
(iii) all instruments furnished to the Certificate Trustee as
conditions precedent to the delivery of the Certificates conform to the
requirements of this Certificate Indenture and constitute all documents
required to be delivered thereunder to authorize the Certificate
Trustee to execute, authenticate and deliver the Certificates;
(iv) the Certificates to be issued have been duly authorized
and executed and, when authenticated in accordance with the provisions
of this Certificate Indenture and delivered to and paid for by the
Underwriters pursuant to the Underwriting Agreement dated July 22,
1999, among the Seller, the Note Issuer and Lehman Brothers Inc. and
Goldman, Sachs & Co., as the representatives of the several
underwriters named therein, will represent valid, fully paid and
nonassessable undivided beneficial interests in the assets of the
Certificate Issuer, entitled to the benefits of this Certificate
Indenture;
(v) the Note Purchase Agreement has been duly executed and
delivered by the Delaware Trustee on behalf of the Certificate Issuer
and, assuming due authorization, execution and delivery thereof by the
Note Issuer, constitutes a legal, valid and binding agreement of the
Certificate Issuer, enforceable against the Certificate Issuer in
accordance with its terms except as enforcement thereof may be subject
to or limited by bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance or other similar laws relating to or affecting
the enforcement of creditors' rights generally and by general equitable
principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law), including that the availability of
specific enforcement or injunctive relief is subject to the discretion
of the court before which any such proceeding is brought;
(vi) the Certificate Issuer is a duly organized and validly
existing business trust under the Business Trust Statute and is in good
standing;
(vii) this Certificate Indenture has been duly qualified under
the Trust Indenture Act or no such qualification is necessary;
(viii) the Certificate Issuer constitutes a "special purpose
trust" and a "financing entity" under Section 1H(a) of the Statute, and
the Certificates constitute "electric rate reduction bonds" under
Section 1H(a) of the Statute and the Holders of the Certificates are
entitled to the rights and benefits thereunder;
(ix) for Federal income tax purposes, the Certificate Issuer
is not a business entity classified as a corporation or a publicly
traded partnership treated as a corporation, but is a "grantor trust"
not taxable as a corporation;
(x) the Statute creates, upon the effective date of the
Financing Order, a first priority lien in the Transition Property
securing all obligations, then existing or subsequently arising, to the
Holders of the Certificates in respect of such Certificates or to the
Certificate Trustee in its capacity as such; and
(xi) such other matters as the Certificate Trustee may
reasonably require.
16
<PAGE> 21
(e) Sufficient funds to pay the purchase price for the related Class of
Notes, as specified in Section 1(b) of the Note Purchase Agreement; and
(f) The Rating Agency Condition shall have been satisfied with respect
to the issuance of the Class of Certificates.
Section 2.03. Form, Denomination and Execution of Certificates. The
Certificates shall be issued in registered form without coupons and shall be
substantially in the form attached hereto as Exhibit A, with the following
filled in: (a) the designation of the Classes thereof, which shall be the same
designation as the related Class or Classes of Notes, (b) the Certificate number
or numbers thereof, (c) the date of authentication thereof, which shall be the
same as the Issuance Date of the related Class or Classes of Notes, and (d) the
Original Principal Amount thereof, which shall equal, in the aggregate, the
principal amount of the Notes; and with such omissions, variations and
insertions as are permitted by this Certificate Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements printed, lithographed or engraved thereon as may be required to
comply with the rules of any securities exchange on which any Class or Classes
of the Certificates may be listed or to conform to any usage in respect thereof,
or as may, consistently herewith, be prescribed by the Certificate Trustee or by
the Certificate Issuer (with the prior written approval of the Note Issuer), and
as evidenced by the execution and authentication of such Certificates.
Except as provided in Section 2.12, the definitive Certificates of each
Class shall be printed, lithographed or engraved or produced by any combination
of these methods or may be produced in any other manner permitted by the rules
of any securities exchange on which the Certificates of such Class may be
listed, as evidenced by an order by an Authorized Representative of the
Certificate Issuer, relating to the authentication of such Certificates by the
Certificate Trustee.
The Certificates of each Class shall be issued in not less than Minimum
Denominations.
The Certificates shall be executed on behalf of the Certificate Issuer
by the Delaware Trustee by manual or facsimile signature of a Responsible
Officer of the Delaware Trustee. Certificates bearing the manual or facsimile
signature of an individual who was, at the time when such signature was affixed,
authorized to sign on behalf of the Certificate Issuer shall be validly issued
by the Certificate Issuer, notwithstanding that such individual has ceased to be
so authorized prior to the authentication and delivery of such Certificates or
did not hold such office at the date of such Certificates. No Certificate shall
be entitled to any benefit under this Certificate Indenture, or be valid for any
purpose, unless there appears on such Certificate a certificate of
authentication substantially in the form set forth in Exhibit A hereto, executed
by the Certificate Trustee (or any Authentication Agent) by manual signature,
and such certificate of authentication upon any Certificate shall be conclusive
evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication.
17
<PAGE> 22
Section 2.04. Authentication of Certificates. The Certificate Trustee
shall duly authenticate and deliver Certificates of each Class in authorized
denominations equaling, in the aggregate for each Class of Certificates, the
aggregate initial principal amount of the Notes of such Class.
Section 2.05. Temporary Certificates. Pending the preparation of
definitive Certificates of any Class, the Delaware Trustee on behalf of the
Certificate Issuer may execute, and the Certificate Trustee or any
Authentication Agent upon written order of the Certificate Issuer shall
authenticate and deliver, temporary Certificates of such Class that are printed,
lithographed, typewritten or otherwise produced, in any denomination, containing
substantially the same terms and provisions as set forth in Exhibit A, except
for such appropriate insertions, omissions, substitutions and other variations
relating to their temporary nature as the Certificate Issuer may determine, as
evidenced by the execution of such temporary Certificates by the Delaware
Trustee on behalf of the Certificate Issuer.
If temporary Certificates of any Class are issued, the Certificate
Issuer will cause definitive Certificates of such Class to be prepared without
unreasonable delay. After the preparation of definitive Certificates of such
Class, the temporary Certificates shall be exchangeable for definitive
Certificates of such Class upon surrender of the temporary Certificates at the
Corporate Trust Office of the Certificate Trustee, or at the office or agency of
the Certificate Trustee maintained in accordance with Section 6.11, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Certificates, the Delaware Trustee on behalf of the Certificate Issuer
shall execute and the Certificate Trustee shall authenticate and deliver in
exchange therefor definitive Certificates (of the same Class as the temporary
Certificates surrendered) of authorized denominations of a like aggregate
Original Principal Amount. Until so exchanged, such temporary Certificates shall
in all respects be entitled to the same benefits under this Certificate
Indenture as definitive Certificates of the same Class.
Section 2.06. Registration of Transfer and Exchange of Certificates.
The Certificate Trustee shall cause to be kept at the office of agency to be
maintained by it in accordance with the provisions of Section 6.11 a register
(the "Certificate Register") in which, subject to such reasonable regulations as
it may prescribe, the Certificate Trustee shall provide for the registration of
Certificates and of transfers and exchanges of Certificates as herein provided.
The Certificate Trustee shall initially be the registrar (the "Certificate
Registrar") for the purpose of registering Certificates and transfers and
exchanges of Certificates as herein provided.
Subject to this Section 2.06, upon surrender for registration of
transfer of any Certificate at the Corporate Trust Office or such other office
or agency maintained by the Certificate Trustee in accordance with Section 6.11,
the Delaware Trustee on behalf of the Certificate Issuer shall execute, and the
Certificate Trustee shall authenticate and deliver, in the name of the
designated transferee, one or more new Certificates (of the same Class as the
Certificates surrendered for registration of transfer) in authorized
denominations of a like aggregate Original Principal Amount; provided, however,
that if any such surrendered Certificate shall have become or within 15 days
shall be due and payable or shall have been called for redemption, instead of
issuing a replacement Certificate, the Certificate Trustee may pay such
surrendered Certificate when so due and payable or upon the Special Distribution
Date without surrender thereof.
18
<PAGE> 23
At the option of a Certificateholder, Certificates may be exchanged for
other Certificates (of the same Class as the Certificates surrendered for
registration of exchange) of authorized denominations of a like aggregate
Original Principal Amount, upon surrender of the Certificates to be exchanged at
any such office or agency. Whenever any Certificates are so surrendered for
exchange, the Delaware Trustee on behalf of the Certificate Issuer shall
execute, and the Certificate Trustee shall authenticate and deliver the
Certificates that the Certificateholder making the exchange is entitled to
receive.
Every Certificate presented or surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Certificate Trustee and the Certificate
Registrar duly executed by the Certificateholder thereof or its attorney duly
authorized in writing.
No service charge shall be made to a Certificateholder for any
registration of transfer or exchange of Certificates, but the Certificate
Trustee shall require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Certificates.
All Certificates surrendered for registration of transfer or exchange
shall be cancelled and subsequently destroyed by the Certificate Trustee in
accordance with its customary practices.
Section 2.07. Certificateholders' Lists and Reports by Certificate
Trustee.
(a) The Certificate Issuer To Furnish Certificate Trustee with Names
and Addresses of Certificateholders. The Certificate Registrar on behalf of the
Certificate Issuer will furnish or cause to be furnished to the Certificate
Trustee within 15 days after each Record Date, and at such other times as the
Certificate Trustee may request in writing, within 30 days after receipt by the
Certificate Issuer of any such request, a list, in such form as the Certificate
Trustee may reasonably require, of all information in the possession or control
of the Certificate Issuer as to the names and addresses of the
Certificateholders, in each case as of a date not more than 15 days prior to the
time such list is furnished; provided, however, that so long as the Certificate
Trustee is the sole Certificate Registrar, no such list need be furnished; and
provided further, however, that no such list need be furnished for so long as a
copy of the Certificate Register is being furnished to the Certificate Trustee
pursuant to Section 6.11.
Upon the written request of any Certificateholder or Certificateholders
of record holding Certificates evidencing not less than ten percent of the
aggregate Outstanding Amount of Certificates, the Certificate Trustee shall
afford such 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 this Certificate
Indenture.
(b) Preservation of Information. The Certificate Trustee shall
preserve, in as current a form as is reasonably practicable, the names and
addresses of Certificateholders contained in the most recent list furnished to
the Certificate Trustee as provided in Section 6.11 or Section 2.07(a), as the
case may be, and the names and addresses of Certificateholders received
19
<PAGE> 24
by the Certificate Trustee in its capacity as Certificate Registrar, if so
acting. The Certificate Trustee may destroy any list furnished to it as provided
in Section 6.11 or Section 2.07(a), as the case may be, upon receipt of a new
list so furnished.
(c) Communications Among Certificateholders. Certificateholders may
communicate pursuant to Section 312(b) of the Trust Indenture Act with other
Certificateholders with respect to their rights under this Certificate Indenture
or under the Certificates.
(d) Reports by Certificate Trustee. To the extent that any of the
events described in Section 313(a) of the Trust Indenture Act shall have
occurred, within 60 days after December 31 of each year, commencing with the
year 1999, the Certificate Trustee shall transmit to the Certificateholders, as
provided in Section 313(c) of the Trust Indenture Act, a brief report dated as
of such December 31, if required by Section 313(a) of the Trust Indenture Act.
The Certificate Trustee also shall comply with Section 313(b) of the Trust
Indenture Act.
A copy of each report at the time of its mailing to Certificateholders
shall be filed by the Certificate Trustee with the Commission and with each
stock exchange, if any, on which the Certificates are listed and of which
listing the Certificate Trustee has been informed. The Certificate Issuer shall
notify the Certificate Trustee if and when the Certificates are listed on any
stock exchange.
(e) Reports by the Certificate Issuer. Pursuant to Section 314(a)(4) of
the Trust Indenture Act, the Certificate Issuer shall furnish to the Certificate
Trustee, not less often than annually and prior to January 31 of each year,
commencing January 31, 2000, a certificate prepared by the Delaware Trustee on
behalf of the Certificate Issuer as to the Certificate Issuer's compliance with
all conditions and covenants under this Certificate Indenture. For purposes of
this Section 2.07(e), such compliance shall be determined without regard to any
period of grace or requirement of notice provided under this Certificate
Indenture. In addition, the Certificate Trustee shall forward such Certificate
to the Certificateholders.
(f) Protections. The Certificate Issuer, the Certificate Trustee and
the Certificate Registrar shall have the protection of Section 312(c) of the
Trust Indenture Act.
Section 2.08. Mutilated, Destroyed, Lost or Stolen Certificates. If (a)
any mutilated Certificate is surrendered to the Certificate Registrar, or the
Certificate Registrar receives evidence to its satisfaction of the destruction,
loss or theft of any Certificate, and (b) there is delivered to the Certificate
Registrar and the Certificate Trustee such security, indemnity or bond as may be
required by them to save each of them harmless, then, in the absence of notice
to the Certificate Registrar or the Certificate Trustee that such Certificate
has been acquired by a bona fide purchaser, the Delaware Trustee, on behalf of
the Certificate Issuer shall execute, and the Certificate Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate (of the same Class as
the Certificate so mutilated, destroyed, lost or stolen) of like Original
Principal Amount. In connection with the issuance of any new Certificate under
this Section 2.08, the Certificate Trustee shall require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and
20
<PAGE> 25
expenses of the Certificate Trustee and the Certificate Registrar) connected
therewith. Any duplicate Certificate issued pursuant to this Section 2.08 shall
constitute conclusive evidence of the same interest in the Certificate Issuer,
as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.
Every replacement Certificate issued pursuant to this Section in
replacement of any mutilated, destroyed, lost or stolen Certificate shall
constitute an original additional contractual obligation of the Certificate
Issuer, whether or not the mutilated, destroyed, lost or stolen Certificate
shall be at any time enforceable by anyone, and shall be entitled to all the
benefits of this Certificate Indenture equally and proportionately with any and
all other Certificates duly issued hereunder.
Section 2.09. Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Certificate Trustee, the
Certificate Registrar and any Paying Agent of the Certificate Trustee may treat
the Person in whose name any Certificate is registered as the owner of such
Certificate for the purpose of receiving distributions pursuant to Section 4.02
and for all other purposes whatsoever, and none of the Certificate Trustee, the
Certificate Registrar nor any Paying Agent of the Certificate Trustee shall be
affected by any notice to the contrary.
Section 2.10. Cancellation. All Certificates surrendered for payment or
transfer or exchange shall, if surrendered to any party hereto other than the
Certificate Registrar, be delivered to the Certificate Registrar for
cancellation. No Certificates shall be authenticated in lieu of or in exchange
for any Certificates cancelled as provided in this Section, except as expressly
permitted by this Certificate Indenture. All cancelled Certificates held by the
Certificate Registrar shall be delivered to the Certificate Trustee and, in
accordance with Section 2.06, destroyed.
Section 2.11. Limitation of Liability for Payments. All payments or
distributions made to Holders of Certificates under this Certificate Indenture
shall be made only from the Trust Property with respect to that Class of
Certificates and only to the extent that the Certificate Trustee shall have
sufficient income or proceeds from such Trust Property to make such payments in
accordance with the terms of Article IV of this Certificate Indenture. Each
Holder of a Certificate of any Class, by its acceptance of a Certificate of that
Class, agrees that it will look solely to the income and proceeds from the Trust
Property with respect to that Class to the extent available for distribution to
the Holder thereof as provided in this Certificate Indenture. It is expressly
understood and agreed by the parties hereto that (a) the Certificates are
executed, authenticated and delivered by the Delaware Trustee and the
Certificate Trustee, respectively, not individually or personally but solely in
their respective capacity as Delaware Trustee and Certificate Trustee in the
exercise of the powers and authority conferred and vested in them, and (b) under
no circumstances shall the Delaware Trustee or Certificate Trustee be personally
liable for the payment of any of the Certificates or any indebtedness or
expenses of the Trust or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Certificate
Issuer under this Certificate Indenture.
21
<PAGE> 26
Section 2.12. Book-Entry and Definitive Certificates.
(a) The Certificates of any Class may be issued in the form of one or
more typewritten certificates representing the Book-Entry Certificates of that
Class, to be delivered to The Depository Trust Company, the initial Clearing
Agency, by, or on behalf of, the Certificate Issuer. In such case, the
Certificates of such Class delivered to The Depository Trust Company shall
initially be registered on the Certificate Register in the name of Cede & Co.,
the nominee of the initial Clearing Agency, and no Certificate Owner will
receive a definitive Certificate representing such Certificate Owner's interest
in the Certificate of such Class, except as provided in Section 2.12(c) below.
Unless and until definitive, fully registered Certificates ("Definitive
Certificates") of such Class have been issued pursuant to Section 2.12(c) below:
(i) the provisions of this Section 2.12 shall be in full force
and effect with respect to the Certificates of such Class;
(ii) the Certificate Issuer, the Paying Agent, the Certificate
Registrar and the Certificate Trustee may deal with the Clearing Agency
for all purposes (including the making of distributions on the
Certificates of such Class) as the authorized representative of the
Certificate Owners of Certificates of such Class;
(iii) to the extent that the provisions of this Section 2.12
conflict with any other provisions of this Certificate Indenture, the
provisions of this Section 2.12 shall control;
(iv) the rights of Certificate Owners of Certificates of such
Class shall be exercised only through the Clearing Agency and shall be
limited to those established by law and agreements between such
Certificate Owners and the Clearing Agency Participants; and until
Definitive Certificates of such Class are issued pursuant to Section
2.12(c) below, the Clearing Agency will make book-entry transfers among
the Clearing Agency Participants and receive and transmit distributions
of principal of and interest on the Certificates of such Class to such
Clearing Agency Participants; and
(v) whenever this Certificate Indenture requires or permits
actions to be taken based upon instructions or directions of
Certificateholders holding Certificates of such Class representing a
specified percentage of the aggregate Outstanding Amount of
Certificates of such Class, the Clearing Agency shall be deemed to
represent such percentage only to the extent that it has received
instructions to such effect from Certificate Owners or Clearing Agency
Participants owning or representing, respectively, Certificates
representing such percentage of the aggregate Outstanding Amount of
Certificates of such Class, and has delivered such instructions to the
Certificate Trustee; the Certificate Trustee shall have no obligation
to determine whether the Clearing Agency has in fact received any such
instructions.
(b) Whenever notice or other communication to the Holders of
Certificates of any Class issued in the form of Certificates representing
Book-Entry Certificates is required under this Certificate Indenture, unless and
until Definitive Certificates of such Class shall have been issued
22
<PAGE> 27
pursuant to Section 2.12(c), the Certificate Trustee shall give all such notices
and communications specified herein to be given to Holders of Certificates of
such Class to the Clearing Agency.
(c) If (i) the Clearing Agency advises the Certificate Trustee in
writing that the Clearing Agency is no longer willing or able to properly
discharge its responsibilities with respect to the Certificates of a Class, and
the Certificate Trustee or the Certificate Issuer is unable to locate a
qualified successor, (ii) the Certificate Issuer (with the prior written
approval of the Note Issuer) at its option advises the Certificate Trustee in
writing that it elects to terminate the book-entry system through the Clearing
Agency with respect to the Certificates of such Class or (iii) after the
occurrence of a Note Event of Default with respect to any Class of Certificates,
Certificate Owners representing beneficial interests aggregating at least a
majority of the Outstanding Amount of the Certificates advise the Clearing
Agency and the Certificate Trustee in writing that the continuation of a
book-entry system through the Clearing Agency is no longer in the best interests
of the Certificate Owners, then the Clearing Agency shall notify all Certificate
Owners and the Certificate Trustee of the occurrence of any such event and of
the availability of Definitive Certificates to Certificate Owners requesting the
same. Upon surrender to the Certificate Trustee of the typewritten certificate
or certificates representing the Book-Entry Certificates by the Clearing Agency,
accompanied by registration instructions, and upon written direction by the
Certificate Issuer, the Delaware Trustee shall execute on behalf of the
Certificate Issuer and the Certificate Trustee shall authenticate the Definitive
Certificates in accordance with the instructions of the Clearing Agency. None of
the Certificate Issuer, the Certificate Registrar or the Certificate Trustee
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be fully protected in relying on, such
instructions. Upon the issuance of Definitive Certificates, the Certificate
Trustee shall recognize the Holders of the Definitive Certificates as
Certificateholders.
Section 2.13. Tax Treatment.
(a) It is the intention of the parties hereto that the Certificate
Issuer shall be treated as a "grantor trust" for federal income tax purposes and
all transactions contemplated by this Certificate Indenture will be reported
consistent with such treatment.
(b) The provisions of this Certificate Indenture shall be construed,
and the affairs of the Certificate Indenture shall be conducted, so as to
achieve treatment of the Certificate Indenture as a "grantor trust" for federal
income tax purposes.
ARTICLE III
COVENANTS
Section 3.01. Compliance with Declaration of Trust. The Certificate
Issuer covenants and agrees to operate in strict conformity with the Declaration
of Trust, the terms of which are incorporated herein by reference, and shall not
amend the Declaration of Trust except as expressly permitted thereunder or in
any manner that would adversely affect the interests of the Certificateholders.
23
<PAGE> 28
This Certificate Indenture and the Declaration of Trust shall,
together, constitute the governing instrument of the Trust. To the extent that
the provisions of this Certificate Indenture and the Declaration of Trust
conflict with respect to the issuance of the Certificates and the rights of the
holders thereof, this Certificate Indenture shall control.
Section 3.02. No Additional Certificates. The Certificate Issuer shall
not issue any additional Certificates hereunder, except pursuant to Section 2.06
and Section 2.08.
ARTICLE IV
DISTRIBUTIONS; STATEMENTS TO CERTIFICATEHOLDERS
Section 4.01. Certificate Accounts.
(a) The Certificate Trustee shall establish and maintain, for the
Certificate Issuer, on behalf of the Holders of Certificates of each Class one
or more segregated trust accounts with respect to such Class (each, a
"Certificate Account"), which shall be non-interest bearing except as provided
in Section 4.04, in the corporate trust department of an Eligible Institution,
in the name of the Certificate Trustee for the benefit of such
Certificateholders. The Certificate Trustee shall hold each Certificate Account
in trust for the benefit of the Holders of Certificates of the corresponding
Class, and shall make or permit withdrawals therefrom only as provided in this
Certificate Indenture. On each day when a Payment or Special Payment (other than
a Special Payment that represents the proceeds of any sale pursuant to Article V
hereof by the Certificate Trustee of any Note) is made to the Certificate
Trustee, as holder of Notes of any Class, the Certificate Trustee upon receipt
shall immediately deposit the aggregate amount of such Payment or Special
Payment in the Certificate Account for the corresponding Class of Certificates.
Upon the sale of any Note by the Certificate Trustee pursuant to Article V and
the realization of any proceeds thereof, the Certificate Trustee shall deposit
the aggregate amount of such proceeds as a Special Payment in the Certificate
Account for the Class of Certificates corresponding to the Class of the Note so
sold.
(b) The Certificate Trustee shall present to the Note Trustee for
payment each Note on its Final Maturity Date, or, in the case of any redemption
or repayment of such Note in full prior to its Final Maturity Date, on the
applicable Payment Date therefor.
(c) The Certificate Trustee (or any Paying Agent other than the
Certificate Trustee) shall have sole dominion and exclusive control over all
monies in the Certificate Accounts and shall apply such amounts therein as
provided in this Article.
Section 4.02. Distributions from Certificate Accounts.
(a) On any Distribution Date, the Certificate Trustee shall distribute
out of the Certificate Account for the corresponding Class of Certificates, in
the manner described in Section 4.02(e), the entire amount of such Payment
deposited therein pursuant to Section 4.01(a); provided, however, that in the
event receipt of any such Payment is not confirmed by the Certificate Trustee by
1:00 p.m. (New York City time) on such Distribution Date, distribution thereof
shall
24
<PAGE> 29
be made on the day receipt thereof is confirmed by the Certificate Trustee by
1:00 p.m. (New York City time) or, if receipt thereof is confirmed by the
Certificate Trustee after 1:00 p.m. (New York City time), on the following
Business Day. There shall be so distributed to each Holder of such Class of
Certificates on the Record Date with respect to such Distribution Date (other
than as provided in Section 9.01 with respect to a final distribution) such
Certificateholder's fractional undivided share (based on the aggregate
Outstanding Amount of Certificates of such Class held by such Certificateholder)
of the aggregate amount in the related Certificate Account. The foregoing
notwithstanding, if a Payment is not received by the Certificate Trustee by the
day that is five days after the related Payment Date, but is subsequently
received, it will be treated as a Special Payment pursuant to Section 4.02(b).
The final distribution with respect to any Certificate, however, will
be made only upon presentation and surrender of such Certificate at the office
or agency of the Certificate Trustee specified in the notice given by the
Certificate Trustee with respect to such final payment. The Certificate Trustee
will provide notice of a final distribution to each Holder as of the date such
notice is given with respect to any Certificate as soon as practicable following
receipt of notice from the Note Trustee of a final payment on a corresponding
Note.
(b) On each Special Distribution Date with respect to the distribution
of any Special Payment with respect to any Class of Notes, the Certificate
Trustee shall distribute out of the Certificate Account for the corresponding
Class of Certificates, in the manner described in Section 4.02(e), the entire
amount of such Special Payment deposited therein pursuant to Section 4.01(a) and
any income and earnings received from the investment of such Special Payment
pursuant to Section 4.04; provided, however, that in the event receipt of any
such Special Payment is not confirmed by the Certificate Trustee by 1:00 p.m.
(New York City time) on such Special Distribution Date, distribution thereof
shall be made on the day receipt thereof is confirmed by the Certificate Trustee
by 1:00 p.m. (New York City time) or, if receipt thereof is confirmed by the
Certificate Trustee after 1:00 p.m. (New York City time), on the following
Business Day. There shall be so distributed to each Holder of such Class of
Certificates on the Special Record Date with respect to such Special
Distribution Date (other than as provided in Section 9.01 with respect to a
final distribution) such Certificateholder's fractional undivided share (based
on the aggregate Outstanding Amount of Certificates of such Class held by such
Certificateholder) of the aggregate amount of such Special Payment and any
income and earnings received from the investment of such Special Payment
pursuant to Section 4.04.
(c) The Certificate Trustee shall allocate amounts distributed to
Holders of Certificates of any Class on any Distribution Date or Special
Distribution Date as follows: (i) to the extent such amounts represent payments
of principal of the corresponding Class of Notes (including prepayments or
redemption price), or the proceeds of the sale of any such Note by the
Certificate Trustee pursuant to Article V (to the extent such proceeds exceed
the unpaid interest on the related class of Notes), such amounts shall be
allocated to principal of such Certificates and (ii) all other such amounts
shall be allocated to interest on such Certificates. The Certificate Trustee may
conclusively rely on the payment statement received by it from the Servicer
pursuant to the Servicing Agreement with any payment in respect of any Class of
Notes as to whether the amount so paid in respect of such Notes is in respect of
principal of or interest on
25
<PAGE> 30
such Notes. If no statement is received, such payments received with respect to
any Class of Notes shall first be allocable to interest to the extent of any
interest accrued and payable on such Class of Notes, and then to principal.
(d) The Certificate Trustee shall cause notice of each Special Payment
with respect to any Class of Notes to be mailed to each Holder of Certificates
of the corresponding Class at its address as it appears in the Certificate
Register. In the event of (i) the optional redemption of the Notes of any Class,
such notice shall be mailed not less than five days nor more than 25 days prior
to the Special Distribution Date on which any such Redemption Payment is
scheduled to be distributed, and (ii) the mandatory redemption of the Notes of
any Class, such notice shall be mailed not less than five days prior to the
Special Distribution Date on which any such Redemption Payment is scheduled to
be distributed. In the case of any other Special Payment, such notice shall be
mailed not less than 20 days prior to the Special Distribution Date on which any
Special Payment is scheduled to be distributed in respect of Certificates of
such Class stating such anticipated Special Distribution Date. Any such notice
mailed by the Certificate Trustee shall set forth:
(i) the Special Distribution Date or the Distribution Date, as
applicable, and the Special Record Date or Record Date therefor, as
applicable (except as otherwise provided in Section 9.01);
(ii) the amount of the Special Distribution for each $1,000
Original Principal Amount of Certificates of the applicable Class and
the amount thereof constituting principal and interest;
(iii) the reason for the Special Distribution; and
(iv) the total amount to be received on such date for each
$1,000 Original Principal Amount of Certificates of the applicable
Class but only, in the case of a Special Payment, if the related
Special Distribution Date is also a Distribution Date.
(e) Distributions to Holders of Certificates shall be by check sent by
first-class mail to the address of such Holder appearing on the Certificate
Register at the relevant Record Date or Special Record Date or, upon written
application of a Holder of Certificates of any Class in the Original Principal
Amount of $1,000,000 or more to the Certificate Trustee made at any time not
later than such Record Date or Special Record Date or continuing in effect from
a prior request, by wire transfer in immediately available funds to the account
of such Holder at such bank located in New York, New York having wire transfer
capability as may be designated by such Holder; provided, however, that the
final distribution in respect of any Certificate shall be made only as provided
in Section 9.01. The foregoing notwithstanding, any distributions made to Cede &
Co., as the nominee of the initial Clearing Agency, shall be made by wire
transfer of immediately available funds.
26
<PAGE> 31
Section 4.03. Statements to Certificateholders.
(a) On each Distribution Date, Special Distribution Date or any other
date specified herein for distribution of any payments with respect to any Class
of Certificates, or as soon as practicable following such Distribution Date,
Special Distribution Date or other date (unless the Certificate Trustee is the
Note Trustee and the statement required below is provided by the Note Trustee no
later than two Business Days prior to such distribution), the Certificate
Trustee will send, with respect to each distribution, to Holders of Certificates
of such Class a statement with respect to such distribution to be made on such
Distribution Date, Special Distribution Date or other date, as the case may be,
setting forth the following information:
(i) the amount of such distribution to Holders of Certificates
allocable to (A) principal and (B) interest, in each case per $1,000
Original Principal Amount of each Class of Certificates;
(ii) the aggregate outstanding principal balance of the
Certificates, after giving effect to payments allocated to principal
reported under (i) above; and
(iii) the difference, if any, between the amount specified in
(ii) above and the principal amount scheduled to be outstanding on such
date according to the Expected Amortization Schedule.
In providing the foregoing statement, the Certificate Trustee may rely upon the
statements provided by the Note Trustee pursuant to Section 6.06 of the Note
Indenture. On each date on which the Certificate Trustee distributes any such
report to the Holders of the Certificates of any Class, the Certificate Trustee
shall also distribute such report to each Rating Agency.
(b) Within a reasonable period of time after the end of each calendar
year but not later than the latest date permitted by law, the Certificate
Trustee shall furnish to each Person who at any time during such calendar year
was a Holder of any Class of Certificates and received a distribution thereon, a
statement containing the sum of the amounts determined pursuant to clause (a)
(i) above with respect to such Class of Certificates for such calendar year, or,
in the event such Person was a Holder of such Class of Certificates during a
portion of such calendar year, for the applicable portion of such year, and such
other items as are readily available to the Certificate Trustee and that a
Certificateholder shall reasonably request as necessary for the purpose of such
Certificateholder's preparation of its federal income tax returns.
Section 4.04. Investment of Special Payment Moneys. Any money received
by the Certificate Trustee pursuant to Section 4.01(a) representing a Special
Payment that is not to be promptly distributed, to the extent practicable, shall
be invested in Eligible Investments at the written direction of the Servicer by
the Certificate Trustee pending distribution of such Special Payment pursuant to
Section 4.02. Any investment made pursuant to this Section 4.04 shall be in such
Eligible Investments maturing in not more than 60 days or such lesser time as is
required for the distribution of any such funds on a Special Distribution Date
pending the distribution of such funds to Certificateholders as described
herein. The Certificate Trustee shall hold any such Eligible Investments until
maturity. Such Eligible Investments (i) shall not mature later than the
27
<PAGE> 32
Business Day immediately preceding the Special Distribution Date relating to
such invested funds, (ii) (A) if such Eligible Investments have a maturity of
one month or less, such Eligible Investments (or the provider thereof) must have
a long term unsecured debt rating of at least A2 by Moody's or a certificate of
deposit rating of at least P-1 by Moody's, and (B) if such Eligible Investments
have a maturity of greater than one month, such Eligible Investments (or the
provider thereof) must have a long term unsecured debt rating of at least Aaa by
Moody's and a certificate of deposit rating of at least P-1 by Moody's. The
Certificate Trustee shall have no liability with respect to any investment made
pursuant to this Section 4.04 (including any losses on such investments), other
than by reason of the willful misconduct or gross negligence of the Certificate
Trustee. All income and earnings from such investments shall be distributed, if
and as received, on such Special Distribution Date as part of such Special
Payment and shall be treated as payments of interest on the Certificates.
If the rating of the Eligible Institution, which may be the Note
Trustee's Corporate Trust Office, fall below the rating requirements set forth
in clause (b)(i) of the definition of Eligible Institution, the Delaware
Trustee, on behalf of the Certificate Issuer, shall, within one month after
notice of such rating change, cause the Collection Account to be transferred to
an institution meeting the requirements set forth in clause (b)(i) of the
definition of Eligible Institution.
Section 4.05. Reduction in Principal. Any reduction in the principal
amount of any Certificate effected by any distribution in respect of principal
thereof shall be binding upon all Holders of such Certificate and of any
Certificate issued upon the registration or transfer thereof or in lieu thereof,
whether or not noted thereon.
ARTICLE V
DEFAULTS
Section 5.01. Events of Default.
(a) If any Event of Default, other than a breach of the Commonwealth
Pledge by The Commonwealth of Massachusetts under the Statute and Section 10.01
hereunder, shall occur and be continuing, then, and in each and every case, the
Certificate Trustee may, and, upon the written direction of Holders representing
not less than a majority of the Outstanding Amount of the Certificates then
Outstanding, shall vote all the Notes in favor of declaring the unpaid principal
amount of all the Notes then outstanding and accrued interest thereon to be due
and payable in accordance with the provisions thereof. In addition, if a Note
Event of Default shall have occurred and be continuing, the Certificate Trustee
may, and, upon the written direction of Holders representing not less than a
majority of the Outstanding Amount of the Certificates then Outstanding, 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.
28
<PAGE> 33
(b) In addition, after a Note Event of Default shall have occurred and
be continuing, subject to Section 5.01(c), the Certificate Trustee may, and upon
the written direction of Holders of Certificates representing not less than a
majority of the Outstanding Amount of Certificates, by such officer or agent as
it may appoint, shall sell, convey, transfer and deliver any Note or Notes,
without recourse to or warranty by the Certificate Trustee or any
Certificateholder, to any Person, all upon such terms and conditions as the
Certificateholders may reasonably deem advisable and at such prices as the
Certificateholders may reasonably deem advisable, for cash. If the Certificate
Trustee so decides or is required to sell or otherwise dispose of the Notes
pursuant to this Section, the Certificate Trustee may, but is not obligated to,
take such of the actions described above as it may reasonably deem most
effectual to complete the sale or other disposition of the Notes, so as to
provide for the payment in full of all amounts due on the Certificates.
(c) The foregoing provisions of Section 5.01(b) notwithstanding, the
Certificate Trustee shall not sell any Notes following the occurrence of any
Event of Default, other than a Note Event of Default described in Section
5.01(i), (ii) or (iii) of the Note Indenture, unless (i) the Certificate Trustee
determines that the amounts receivable from the Collateral are not sufficient to
pay in full the principal of and accrued interest on the Notes and all amounts
payable pursuant to clauses (i) through (iv) of Section 8.02(d) of the Note
Indenture and the Certificate Trustee obtains the written consent of Holders of
Certificates of each Class representing 66 2/3 percent of the aggregate
Outstanding Amount of the Certificates, or (ii) the Certificate Trustee obtains
the written consent of Holders of Certificates representing 100 percent of the
aggregate Outstanding Amount of the Certificates.
Section 5.02. Incidents of Sale of Notes. Upon any sale of the Notes
made either under the power of sale given under this Certificate Indenture or
otherwise for the enforcement of this Certificate Indenture, the following shall
be applicable:
(a) Certificateholders and Certificate Trustee May Purchase
Notes. Any Certificateholder, the Certificate Trustee in its individual
or any other capacity or any other Person (other than the Seller) may
bid for and purchase any of the Notes, and upon compliance with the
terms of sale, may hold, retain, possess and dispose of such Notes in
their own absolute right without further accountability.
(b) Receipt of Certificate Trustee Shall Discharge Purchaser.
The receipt of the Certificate Trustee, on behalf of the Certificate
Issuer, shall be a sufficient discharge to any purchaser for its
purchase money, and, after paying such purchase money and receiving
such receipt, such purchaser or its personal representative or assigns
shall not be obliged to see to the application of such purchase money,
or be in any way answerable for any loss, misapplication or
nonapplication thereof.
(c) Application of Moneys Received upon Sale. Any moneys
collected by the Certificate Issuer or the Certificate Trustee upon any
sale made either under the power of sale given by this Certificate
Indenture or otherwise for the enforcement of this Certificate
Indenture, shall be applied as provided in Section 4.02.
29
<PAGE> 34
Section 5.03. Judicial Proceedings Instituted by Certificate Trustee;
Certificate Trustee May Bring Suit.
(a) If there shall be a failure to make payment of the principal of or
interest on any Note, then the Certificate Trustee in its own name, and as
trustee of an express trust, as holder of such Note, if directed in writing by
the Holders of a majority of the Outstanding Amount of the Certificates but
subject to the provisions of Article VI, shall, to the extent permitted by and
in accordance with the terms of the Notes, be entitled and empowered to
institute any suits, actions or proceedings at law, in equity or otherwise,
including the power to make a demand on the Note Trustee to take action under
the Note Indenture to enforce the Notes, for the collection of the sums so due
and unpaid on the Note and may prosecute any such claim or proceeding to
judgment or final decree with respect to the whole amount of any such sums so
due and unpaid.
(b) If there shall be a breach of the Commonwealth Pledge by The
Commonwealth of Massachusetts, then the Certificate Trustee, in its own name and
as trustee of an express trust, as holder of the Notes, shall be, to the extent
permitted by state and federal law, entitled and empowered to institute any
suits, actions or proceedings at law, in equity or otherwise, to enforce the
Commonwealth Pledge and to collect any monetary damages as a result of a breach
thereof, and may prosecute any such suit, action or proceeding to judgment or
final decree.
Section 5.04. Control by Certificateholders. The Holders of a majority
of the Outstanding Amount of the Certificates (or, if less than all Classes are
affected, the affected Class or Classes) shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Certificate Trustee, or exercising any trust or power conferred on the
Certificate Trustee under this Certificate Indenture, including any right of the
Certificate Trustee as holder of the Notes of the corresponding Class or
Classes, in each case unless a different percentage is specified herein;
provided, however, that:
(a) such direction shall not be in conflict with any rule of
law or with this Certificate Indenture and would not involve the
Certificate Trustee in personal liability or expense;
(b) the Certificate Trustee shall not determine that the
action so directed would be unjustly prejudicial to the Holders of
Certificates of such Class or Classes not taking part in such
direction;
(c) the Certificate Trustee may take any other action deemed
proper by the Certificate Trustee that is not inconsistent with such
direction; and
(d) if a Note Event of Default with respect to such Class of
Notes shall have occurred and be continuing, such direction shall not
obligate the Certificate Trustee to vote more than a corresponding
majority of the related Notes held by the Certificate Issuer in favor
of declaring the unpaid principal amount of the Notes and accrued
interest thereon to be due and payable or directing any action by the
Note Trustee with respect to such Note Event of Default.
30
<PAGE> 35
Section 5.05. Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.01, the
Holders of Certificates of not less than a majority of the Outstanding Amount of
the Certificates may waive any past default or Note Event of Default and its
consequences except a default (a) in payment of principal of or interest on any
of the Notes, (b) in respect of a covenant or provision under the Note Indenture
that cannot be modified or amended without the consent of the Holder of each
Certificate or Classes affected or (c) in the deposit or distribution of any
Payment or Special Payment under Section 4.01 or in the distribution of any
payment under Section 4.02. Upon any such direction, the Certificate Trustee
shall vote such percentage of the Notes of the corresponding Class held by the
Certificate Trustee as corresponds to the percentage of the aggregate
Outstanding Amount of the Certificates of such Class held by Holders who
directed the Certificate Trustee to waive such default or Note Event of Default
hereunder.
Upon any waiver that is effective under the terms of the Note Indenture
to waive such Note Event of Default, such Note Event of Default shall cease to
exist with respect to this Certificate Indenture, and, in the case of a default,
any Note Event of Default arising therefrom shall be deemed to have been cured
for every purpose of this Certificate Indenture and any written direction given
by the Certificate Trustee on behalf of such Certificateholders to the Note
Trustee or in respect of any Notes shall be annulled with respect thereto; but
no such waiver shall extend to any subsequent or other default or Note Event of
Default or impair any right consequent thereon.
Section 5.06. Right of Certificateholders To Receive Payments Not To Be
Impaired. Anything in this Certificate Indenture to the contrary
notwithstanding, including Section 5.07 hereof, the right of any
Certificateholder to receive distributions of payments required pursuant to
Section 4.02 hereof on the Certificates when due, or to institute suit for the
enforcement of any such payment on or after the applicable Distribution Date,
Special Distribution Date or other date specified herein for the making of such
payment, shall not be impaired or affected without the consent of such
Certificateholder.
Section 5.07. Certificateholders May Not Bring Suit Except Under
Certain Conditions. A Certificateholder shall not have the right to institute
any suit, action or proceeding at law or in equity or otherwise with respect to
this Certificate Indenture, for the appointment of a receiver or for the
enforcement of any other remedy under this Certificate Indenture, unless:
(a) such Certificateholder has previously given written notice
to the Certificate Trustee of a continuing Note Event of Default with
respect to the Class of Certificates held by such Holder;
(b) the Holders of not less than 25 percent of the Outstanding
Amount of the Certificates have made written request to the Certificate
Trustee to institute such action, suit or proceeding in respect of such
Note Event of Default in its own name as Certificate Trustee hereunder;
31
<PAGE> 36
(c) such Certificateholder or Certificateholders have offered
to the Certificate Trustee indemnity satisfactory to it against the
costs, expenses (including legal fees and expenses) and liabilities to
be incurred in complying with such request;
(d) the Certificate Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has failed to institute
such action, suit or proceedings; and
(e) no direction inconsistent with such written request has
been given to the Certificate Trustee during such 60-day period by the
Holders of a majority of the Outstanding Amount of the Certificates;
it being understood and intended that no one or more Holders of Certificates
shall have any right in any manner whatever by virtue of, or by availing of, any
provision of this Certificate Indenture to affect, disturb or prejudice the
rights of any other Holders of Certificates or to obtain or to seek to obtain
priority or preference over any other Certificateholders or to enforce any right
under this Certificate Indenture, except in the manner herein provided. The
provisions of this Section 5.07 shall be deemed to modify, to the fullest extent
permitted by law, the rights of the Certificateholders under Section 3816 of the
Business Trust Statute.
In the event the Certificate Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of
Certificates, each representing less than a majority of the Outstanding Amount
of the Certificates, the Certificate Trustee in its sole discretion may
determine what action, if any, shall be taken, notwithstanding any other
provisions of this Certificate Indenture.
Section 5.08. Remedies Cumulative. No remedy given hereunder to the
Certificate Trustee or to any of the Certificateholders shall be exclusive of
any other remedy or remedies, and every such remedy shall be cumulative and in
addition to every other remedy given hereunder or now or hereafter given by
statute, law, equity or otherwise.
ARTICLE VI
THE CERTIFICATE TRUSTEE
Section 6.01. Notice of Defaults. As promptly as practicable after, and
in any event within 30 days after, receipt by a Responsible Officer of the
Certificate Trustee of written notice or actual knowledge of the occurrence of
any default (as such term is defined below) hereunder, the Certificate Trustee
shall transmit by mail to the Certificate Issuer, the Note Trustee and the
Holders of Certificates in accordance with Section 313(c) of the Trust Indenture
Act, notice of such default, unless such default shall have been cured or
waived; provided, however, that, except in the case of a default hereunder with
respect to any Class of Certificates arising from a default under the Note
Indenture in the payment of the principal of or interest on any Note, the
Certificate Trustee shall be fully protected in withholding such notice if and
so long as a trust committee of Responsible Officers of the Certificate Trustee
in good faith determines that the withholding of such notice is in the interests
of the Holders of the Certificates. For the purpose
32
<PAGE> 37
of this Section, the term "default" means any event that is, or after notice or
lapse of time or both would become, a Note Event of Default with respect to such
Class of Certificates.
Section 6.02 Certain Rights of Certificate Trustee. Subject to the
provisions of Section 315 of the Trust Indenture Act:
(a) the Certificate Trustee may conclusively rely and shall be
fully protected in acting or refraining from acting in reliance upon
any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(b) any request or direction of the Certificate Issuer
mentioned herein shall be sufficiently evidenced by a Request,
accompanied by evidence reasonably satisfactory to the Certificate
Trustee that the Note Issuer has given its prior written approval of
such request or direction;
(c) whenever in the administration of this Certificate
Indenture the Certificate Trustee shall deem it desirable that a matter
be proved or established prior to taking, suffering or omitting any
action hereunder, the Certificate Trustee (unless other evidence be
herein specifically prescribed) may, in the absence of bad faith on its
part, conclusively rely upon an Officers' Certificate of the
Certificate Issuer;
(d) the Certificate Trustee may consult with counsel and the
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(e) the Certificate Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Certificate
Indenture at the request or direction of any of the Certificateholders
pursuant to this Certificate Indenture, unless such Certificateholders
shall have offered to the Certificate Trustee reasonable security or
indemnity satisfactory to it against the cost, expenses (including
reasonable legal fees and expenses) and liabilities that might be
incurred by it in compliance with such request or direction;
(f) the Certificate Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture or other paper or document;
(g) the Certificate Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through agents, attorneys, custodians or nominees and the
Certificate Trustee shall not be responsible for any misconduct or
negligence on the part of, or for the supervision of, any agent,
attorney, custodian or nominee appointed with due care by it hereunder;
33
<PAGE> 38
(h) the Certificate Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of Certificates relating
to the time, method and place of conducting any proceeding for any
remedy available to the Certificate Trustee, or exercising any trust or
power conferred upon the Certificate Trustee, under this Certificate
Indenture;
(i) the Certificate Trustee shall not be required to expend or
risk its own funds in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or
indemnity satisfactory to it against such risk is not reasonably
assured to it;
(j) the Certificate Trustee shall not be personally liable for
any action taken or suffered or omitted to be taken by it in good faith
and reasonably believed by it to be authorized or within the discretion
or rights or powers conferred upon it by this Certificate Indenture;
provided, however, that the Certificate Trustee's conduct does not
constitute willful misconduct, gross negligence or bad faith;
(k) in the event that the Certificate Trustee is also acting
as Paying Agent, Authenticating Agent or Certificate Registrar
hereunder, the rights and protections afforded to the Certificate
Trustee pursuant to this Article VI shall also be afforded to such
Paying Agent, Authenticating Agent or Certificate Registrar;
(l) the Certificate Trustee shall not be charged with
knowledge of an Event of Default unless a Responsible Officer obtains
actual knowledge of such event or the Certificate Trustee receives
written notice of such event from the Certificate Issuer, the Note
Trustee, the Servicer or a majority of the Holders of Certificates of
the Class or Classes so affected; and
(m) without limiting its rights under bankruptcy law, when the
Certificate Trustee incurs expenses or renders services in connection
with the insolvency or bankruptcy of any party hereto or with the Basic
Documents to which it is a party, such expenses (including the fees and
expenses of its counsel) and the compensation for such services are
intended to constitute expenses of administration under any bankruptcy
or insolvency law.
Section 6.03. Not Responsible for Recitals or Issuance of Certificates.
The recitals contained herein and in the Certificates, except the execution
thereof and the certificates of authentication, shall not be taken as the
statements of the Certificate Trustee, and the Certificate Trustee assumes no
responsibility for their correctness. Except as set forth in Section 6.14, the
Certificate Trustee makes no representations as to the validity or sufficiency
of this Certificate Indenture, the Notes, any Basic Document or the
Certificates.
Section 6.04. May Hold Certificates. The Certificate Trustee, any
Paying Agent, any Certificate Registrar or any of their Affiliates or any other
agent, in their respective individual or any other capacity, may become the
owner or pledgee of Certificates and, subject to Sections 310(b) and 311 of the
Trust Indenture Act, may otherwise deal with the Certificate Issuer, the Note
Issuer or
34
<PAGE> 39
the Note Trustee with the same rights it would have if it were not Certificate
Trustee, Paying Agent, Certificate Registrar or such other agent.
Section 6.05. Money Held in Trust. Money held by the Certificate
Trustee or the Paying Agent in trust hereunder need not be segregated from other
funds except to the extent required herein or by law and neither the Certificate
Trustee nor the Paying Agent shall have any liability for interest upon any such
moneys except as provided for herein.
Section 6.06. Compensation and Reimbursement; Indemnification.
(a) Pursuant to the Fee and Indemnity Agreement, the Note Issuer has
agreed to pay, or cause to be paid, to the Certificate Trustee from time to time
reasonable compensation for its services and to reimburse it for its reasonable
expenses.
(b) Pursuant to the Fee and Indemnity Agreement, the Note Issuer shall
indemnify, defend and hold harmless the Certificate Trustee and any of the
affiliates, officers, directors, employees and agents of the Certificate Trustee
(the "Certificate Trustee Indemnified Persons") from and against any and all
losses, claims, actions, suits, taxes, damages, expenses and liabilities
(including liabilities under state or federal securities laws) of any kind and
nature whatsoever (collectively, "Certificate Trustee Expenses"), to the extent
that such Certificate Trustee Expenses arise out of or are imposed upon or
asserted against such Certificate Trustee Indemnified Persons with respect to
the creation, operation or termination of the Certificate Issuer, the execution,
delivery or performance of the Declaration of Trust or this Certificate
Indenture, as the case may be, or the transactions contemplated hereby, the
failure of the Note Issuer or any other person (other than the person being
indemnified) to perform its obligations under the Fee and Indemnity Agreement or
under any of the Basic Documents, or otherwise in connection with the Basic
Documents or the transactions contemplated thereby; provided, however, that the
Note Issuer shall not be required to indemnify any Certificate Trustee
Indemnified Person for any Certificate Trustee Expenses that result from the
willful misconduct or gross negligence of such Certificate Trustee Indemnified
Person. The obligations of the Note Issuer to indemnify the Certificate Trustee
Indemnified Persons shall survive the termination of the Fee and Indemnity
Agreement, this Certificate Indenture and the resignation or removal of the
Certificate Trustee.
Notwithstanding anything to the contrary in this Certificate Indenture,
the Certificate Trustee shall have no recourse against the Certificate Issuer or
the Notes or payments thereon or proceeds thereof for payment of any amounts
required to be paid to the Certificate Trustee under this Section 6.06(b).
Section 6.07. Corporate Certificate Trustee Required; Eligibility.
(a) The Certificate Trustee shall at all times be eligible to act as a
trustee under Section 310(a) of the Trust Indenture Act, shall have a combined
capital and surplus of at least $50,000,000 and shall have a long-term debt
rating of at least A by Moody's and Standard & Poor's. If such entity publishes
reports of conditions at least annually, pursuant to law or to the requirements
of federal, state, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section 6.07, the combined capital and
surplus of such
35
<PAGE> 40
entity shall be deemed to be its combined capital and surplus as set forth in
its most recent report of condition so published.
(b) In determining whether the Certificate Trustee has a conflicting
interest under Section 310(b) of the Trust Indenture Act and this Section, each
other Class of Certificates will be treated as having been issued under an
indenture other than this Certificate Indenture.
(c) If at any time the Certificate Trustee shall cease to be eligible
in accordance with the provisions of this Section 6.07, the Certificate Trustee
shall resign immediately in the manner and with the effect specified in Section
6.08.
Section 6.08. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Certificate Trustee and no
appointment of a successor Certificate Trustee pursuant to this Article shall
become effective (i) until the acceptance of appointment by the successor
Certificate Trustee under Section 6.09 and (ii) other than in the case of
paragraph (b) below, unless a successor Certificate Trustee has been appointed
and has accepted such appointment and the Note Issuer and the Certificate Issuer
have received written confirmation from each of the Rating Agencies that no
lowering or withdrawal of the then current ratings of any Class of Certificates
will result from such appointment.
(b) The Certificate Trustee may resign at any time in the case of a
conflicting interest as determined in accordance with Section 6.07(b) by giving
written notice thereof to the Certificate Issuer, the Authorized Agents, the
Note Issuer and the Note Trustee. If an instrument of acceptance by a successor
Certificate Trustee shall not have been delivered to the Certificate Issuer and
the Certificate Trustee within 30 days after the giving of such notice of
resignation, the resigning Certificate Trustee may petition any court of
competent jurisdiction for the appointment of a successor Certificate Trustee.
(c) The Certificate Trustee may be removed at any time in the case of a
conflicting interest as determined in accordance with Section 6.07(b) by Act of
Certificateholders holding Certificates representing not less than 51 percent of
the Outstanding Amount of the Certificates delivered to the Certificate Trustee
and to the Certificate Issuer, the Note Issuer and the Note Trustee.
(d) Upon 30 days' written notice, the Certificate Trustee (i) may
resign with respect to the Certificates as a whole by giving such written notice
to the Certificate Issuer, the Authorized Agents, the Note Issuer and the Note
Trustee or (ii) may be removed with respect to the Certificates as a whole by
Act of Certificateholders holding Certificates representing not less than a
majority of the Outstanding Amount of Certificates delivered to the Certificate
Issuer, the Note Issuer and the Note Trustee. If an instrument of acceptance by
a successor Certificate Trustee with respect to the Certificates as a whole
shall not have been delivered to the Certificate Issuer, the Note Issuer and the
Note Trustee within 90 days after the giving of such notice of resignation or
Act by the Certificateholders as a whole for removal of the Certificate Trustee,
the Certificate Issuer may petition any court of competent jurisdiction for the
appointment of a successor Certificate Trustee with respect to the Certificates
as a whole.
36
<PAGE> 41
(e) If at any time:
(i) the Certificate Trustee shall fail to comply with Section
310 of the Trust Indenture Act after written request therefor by the
Certificate Issuer or by any Holder of Certificates who has been a bona
fide Holder of Certificates for at least six months; or
(ii) the Certificate Trustee shall cease to be eligible under
Section 6.07 and shall fail to resign after written request therefor by
the Certificate Issuer or by any Certificateholder; or
(iii) the Certificate Trustee shall become incapable of acting
or shall be adjudged a bankrupt or insolvent or a receiver of the
Certificate Trustee or of its property shall be appointed or any public
officer shall take charge or control of the Certificate Trustee or of
its property or affairs for the purpose of rehabilitation, conservation
or liquidation;
then, in any case, (x) the Certificate Issuer may remove the Certificate Trustee
or (y) any Holder of Certificates who has been a bona fide Holder of
Certificates for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Certificate Trustee and the appointment of a successor Certificate
Trustee.
(f) If a Responsible Officer of the Certificate Trustee shall have
received written notice of an Avoidable Tax that has been or is likely to be
asserted, the Certificate Trustee shall promptly notify the Certificate Issuer
and the Note Issuer thereof and shall, within 30 days of such notification,
resign hereunder unless within such 30-day period the Certificate Trustee shall
have received notice that either the Certificate Issuer or the Note Issuer has
agreed to pay such tax. In such event, the Certificate Issuer (with the prior
written approval of the Note Issuer) shall promptly appoint a successor
Certificate Trustee in a jurisdiction where there are no Avoidable Taxes. As
used herein, an "Avoidable Tax" means a state or local tax: (i) upon (w) the
Certificate Issuer, (x) the Trust Property, (y) the Certificateholders or (z)
the Certificate Trustee for which the Certificate Trustee is entitled to seek
reimbursement from the Trust Property, and (ii) that would be avoided if the
Certificate Trustee were located in another state, or jurisdiction within a
state, within the United States. A tax shall not be an Avoidable Tax if either
the Certificate Issuer or the Note Issuer shall agree to pay, and shall pay,
such tax.
(g) If the Certificate Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of the
Certificate Trustee for any reason, the Certificate Issuer (with the prior
written approval of the Note Issuer and the Agencies) shall promptly appoint a
successor Certificate Trustee. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor
Certificate Trustee shall be appointed by Act of the Certificateholders
representing not less than a majority of the Outstanding Amount of the
Certificates delivered to the Certificate Issuer, the Note Trustee and the
retiring Certificate Trustee, the successor Certificate Trustee so appointed
shall, forthwith upon its acceptance of such appointment, become the successor
Certificate Trustee and supersede the successor Certificate Trustee appointed as
provided above. If no successor Certificate Trustee shall have been so appointed
as provided above and accepted appointment in the manner hereinafter
37
<PAGE> 42
provided, any Holder of Certificates who has been a bona fide Holder of
Certificates for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Certificate Trustee.
(h) The successor Certificate Trustee shall give notice of the
resignation and removal of the Certificate Trustee and appointment of the
successor Certificate Trustee by mailing written notice of such event by
first-class mail, postage prepaid, to the Holders as their names and addresses
appear in the Certificate Register and to each Rating Agency, the Certificate
Issuer and the Agencies. Each notice shall include the name of such successor
Certificate Trustee and the address of the corporate trust office of such
successor Certificate Trustee.
(i) The Certificate Issuer shall notify the Rating Agencies and the
Agencies of any resignation and removal of the Certificate Trustee and
appointment of a successor Certificate Trustee under this Section 6.08.
Section 6.09. Acceptance of Appointment by Successor. Every successor
Certificate Trustee appointed hereunder shall execute, acknowledge and deliver
to the Certificate Issuer and to the retiring Certificate Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Certificate Trustee shall become effective and such successor
Certificate Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring
Certificate Trustee; but, on request of the Certificate Issuer or the successor
Certificate Trustee, such retiring Certificate Trustee shall execute and deliver
an instrument transferring to such successor Certificate Trustee all the rights,
powers and trusts of the retiring Certificate Trustee and shall duly assign,
transfer and deliver to such successor Certificate Trustee all property and
money held by such retiring Certificate Trustee hereunder. Upon request of any
such successor Certificate Trustee, the Certificate Issuer, the retiring
Certificate Trustee and such successor Certificate Trustee shall execute and
deliver any and all instruments containing such provisions as shall be necessary
or desirable to transfer and confirm to, and for more fully and certainly
vesting in, such successor Certificate Trustee all such rights, powers and
trusts. No Certificate Trustee hereunder shall be liable for the acts or
omissions of any successor Certificate Trustee.
No successor Certificate Trustee shall accept its appointment unless at
the time of such acceptance such successor Certificate Trustee shall be
qualified and eligible under this Article and any and all amounts due and
payable to the predecessor Certificate Trustee have been paid.
Section 6.10. Merger, Conversion, Consolidation or Succession to
Business. Any corporation into which the Certificate Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Certificate Trustee
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of the Certificate Trustee, shall be the successor
of the Certificate Trustee hereunder, provided such corporation shall be
otherwise qualified and eligible under this Article, without the execution or
filing of any paper or any further act on the part of any of the parties hereto.
In case any Certificates shall have been authenticated, but not delivered, by
the Certificate Trustee then in office, any successor by merger, conversion or
consolidation to such
38
<PAGE> 43
authenticating Certificate Trustee may adopt such authentication and deliver the
Certificates so authenticated with the same effect as if such successor
Certificate Trustee had itself authenticated such Certificates.
Section 6.11. Maintenance of Agencies.
(a) There shall at all times be maintained in the Borough of Manhattan,
The City of New York, an office or agency where Certificates may be presented or
surrendered for registration of transfer or for exchange, and for payment
thereof and where notices and demands to or upon the Certificate Trustee on
behalf of the Certificate Issuer in respect of the Certificates or of this
Certificate Indenture may be served. At no time shall there be any other such
office or agency outside the United States. Such office or agency shall be
initially at The Bank of New York, 101 Barclay Street, Floor 12 East, New York,
New York 10286, Attention: Asset-Backed Finance Unit. Written notice of any
change of location thereof shall be given by the Certificate Trustee to the
Certificate Issuer, the Note Trustee, the Note Issuer, the Certificateholders,
the Agencies and the Rating Agencies. In the event that no such office or agency
shall be maintained or no such notice of location or of change of location shall
be given, presentations and demands may be made and notices may be served at the
Corporate Trust Office of the Certificate Trustee.
(b) There shall at all times be a Certificate Registrar, an
Authentication Agent and a Paying Agent hereunder. Each such Authorized Agent
shall be a bank or trust company, shall be a entity organized and doing business
under the laws of the United States or any state, with a combined capital and
surplus of at least $50,000,000, shall have a long-term debt rating of at least
A by Moody's and by Standard & Poor's, shall be authorized under such laws to
exercise corporate trust powers and shall be subject to supervision by federal
or state authorities. The Certificate Trustee shall initially be the Paying
Agent, Authentication Agent, and, as provided in Section 2.06, Certificate
Registrar hereunder. Each Certificate Registrar, if other than the Certificate
Trustee, shall furnish to the Certificate Trustee, at stated intervals of not
more than six months, and at such other times as the Certificate Trustee may
request in writing, a copy of the Certificate Register.
(c) Any corporation into which any Authorized Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any Authorized Agent shall
be a party, or any corporation succeeding to the corporate trust business of any
Authorized Agent, shall be the successor of such Authorized Agent hereunder, if
such successor corporation is otherwise eligible under this Section, without the
execution or filing of any paper or any further act on the part of the parties
hereto or such Authorized Agent or such successor corporation.
(d) Any Authorized Agent may at any time resign by giving written
notice of resignation to the Certificate Trustee, the Certificate Issuer and the
Note Trustee. The Certificate Issuer (with the prior written approval of the
Note Issuer) may, and at the request of the Certificate Trustee shall, at any
time terminate the agency of any Authorized Agent by giving written notice of
termination to such Authorized Agent, the Note Trustee and to the Certificate
Trustee. Upon
39
<PAGE> 44
the resignation or termination of an Authorized Agent or in case at any time any
such Authorized Agent shall cease to be eligible under this Section (when, in
either case, no other Authorized Agent performing the functions of such
Authorized Agent shall have been appointed by the Certificate Trustee), the
Certificate Issuer (with the prior written approval of the Note Issuer) shall
promptly appoint one or more qualified successor Authorized Agents, reasonably
satisfactory to the Certificate Trustee, to perform the functions of the
Authorized Agent who has resigned or whose agency has been terminated or who
shall have ceased to be eligible under this Section. The Certificate Issuer
shall give written notice of any such appointment made by it to the Certificate
Trustee and the Note Trustee; and in each case the Certificate Trustee shall
mail notice of such appointment to all Certificateholders as their names and
addresses appear on the Certificate Register.
(e) Pursuant to the Fee and Indemnity Agreement, the Note Issuer has
agreed to pay, or cause to be paid, from time to time to each Authorized Agent
reasonable compensation for its services and to reimburse it for its reasonable
expenses; provided, however, that the Note Issuer shall have given prior consent
to the appointment of such Authorized Agent pursuant to the Fee and Indemnity
Agreement, and no Authorized Agent shall have any recourse against the
Certificate Issuer or the Trust Property for payment of such amounts.
Section 6.12. Money for Certificate Payments To Be Held in Trust.
(a) All moneys deposited with any Paying Agent for the purpose of any
payment on Certificates of any Class shall be deposited and held in trust for
the benefit of the Certificateholders of such Class entitled to such payment,
subject to the provisions of this Section. Moneys so deposited and held in trust
shall constitute a separate trust fund for the benefit of the Class of
Certificateholders with respect to which such money was deposited.
The Certificate Trustee may at any time, for the purpose of obtaining
the satisfaction and discharge of this Certificate Indenture or for any other
purpose, direct any Paying Agent to pay to the Certificate Trustee all sums held
in trust by such Paying Agent, such sums to be held by the Certificate Trustee
upon the same trusts as those upon which such sums were held by such Paying
Agent; and, upon such payment by any Paying Agent to the Certificate Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
(b) The Certificate Trustee will cause each Paying Agent other than the
Certificate Trustee to execute and deliver to the Certificate Trustee an
instrument in which such Paying Agent shall agree with the Certificate Trustee
(and, if the Certificate Trustee acts as Paying Agent, it hereby so agrees),
subject to the provisions of this Section, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due
with respect to the Certificates in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons
or otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Certificate Trustee notice of any default under
this Certificate Indenture of which it has actual knowledge in the
making of any payment required to be
40
<PAGE> 45
made by the Certificate Issuer (or any other obligor on the
Certificates) with respect to the Certificates;
(iii) at any time during the continuance of such default, upon
the written request of the Certificate Trustee, forthwith pay to the
Certificate Trustee all sums held by it in trust for the payment of the
Certificates if at any time it ceases to meet the standards required to
be met by a Paying Agent at the time of its appointment; and
(iv) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Certificates of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
Section 6.13. Registration of Notes in Certificate Trustee's Name. The
Certificate Trustee agrees that all Notes and Eligible Investments, if any,
shall be issued in the name of the Certificate Trustee or its nominee, on behalf
of the Certificate Issuer, and held by the Certificate Trustee, or, if not so
held, the Certificate Trustee or its nominee, on behalf of the Certificate
Issuer, shall be reflected as the owner of such Notes or Eligible Investments,
as the case may be, in the register of the issuer of such Notes or Eligible
Investments. In no event shall the Certificate Trustee invest in, or hold, Notes
or Eligible Investments in a manner that would cause the Certificate Trustee not
to have the ownership interest in such Notes or Eligible Investments under the
applicable provisions of the Uniform Commercial Code in effect in the location
where the Certificate Trustee holds such Notes or Eligible Investments or other
applicable law then in effect.
Section 6.14. Representations and Warranties of Certificate Trustee.
The Certificate Trustee hereby represents and warrants that:
(a) the Certificate Trustee is validly existing as a state
banking institution in good standing under the laws of the State of New
York;
(b) the Certificate Trustee has full power, authority and
legal right to execute, deliver and perform this Certificate Indenture
and the Basic Documents to which the Certificate Trustee is a party and
has taken all necessary action to authorize the execution, delivery,
and performance by it of this Certificate Indenture and such Basic
Documents; and
(c) when delivered by the Certificate Trustee, the
Certificates will have been duly executed by the Delaware Trustee on
behalf of the Certificate Issuer and duly authenticated by the
Certificate Trustee.
Section 6.15. Withholding Taxes; Information Reporting. The Certificate
Trustee, as trustee for the assets of a grantor trust, shall exclude and
withhold from each distribution of principal and interest and other amounts due
hereunder or under the Certificates any and all withholding taxes applicable
thereto as required by law. The Certificate Trustee agrees that it will act as
such withholding agent and, in connection therewith, whenever any present or
future taxes or similar
41
<PAGE> 46
charges are required to be withheld with respect to any amounts payable in
respect of the Certificates, to withhold such amounts and timely pay the same to
the appropriate authority in the name of and on behalf of the
Certificateholders, that it will file any necessary withholding tax returns or
statements when due, and that, as promptly as possible after the payment
thereof, it will deliver to each Certificateholder appropriate documentation
showing the payment thereof, together with such additional documentary evidence
as such Certificateholders may reasonably request from time to time. The
Certificate Trustee agrees to file any other information reports as it may be
required to file with respect to taxes. For purposes of reporting on Internal
Revenue Service Form 1041 (and any statement attached thereto) or any successor
form thereto, the Certificate Trustee will separately set forth information
reported with respect to each Class of Certificates.
Section 6.16. Obligations to Note Trustee and Delaware Trustee. It is
agreed by the parties hereto that the services of the Note Trustee and the
Delaware Trustee are an essential part of the transactions contemplated hereby.
Therefore, to the extent amounts payable under the Fee and Indemnity Agreement
to the Note Trustee and/or the Delaware Trustee are not paid when due, the
payment of such amounts shall be made by the Certificate Trustee and any amounts
so paid or to be paid by the Certificate Trustee shall constitute expenses of
the Certificate Trustee for which it is entitled to reimbursement under Section
6.06 of this Certificate Indenture and under Section 1(a) of the Fee and
Indemnity Agreement. Notwithstanding the foregoing, the Delaware Trustee and the
Note Trustee shall not have recourse against the Certificate Trustee with
respect to such amounts except to the extent the Certificate Trustee is
reimbursed under the Fee and Indemnity Agreement or realizes against the
Collateral under the Note Indenture or pursuant to any lien created by the
Statute or the Financing Order with respect to such amounts.
ARTICLE VII
SUPPLEMENTAL CERTIFICATE INDENTURES
Section 7.01. Supplemental Certificate Indentures Without Consent of
Certificateholders. Without the consent of Certificateholders, the Certificate
Issuer (with the prior written approval of the Note Issuer) may, and the
Certificate Trustee (subject to Section 7.03) shall, at any time and from time
to time enter into one or more indentures supplemental hereto, in form
satisfactory to the Certificate Trustee, for any of the following purposes:
(a) to add to the covenants of the Certificate Issuer for the
benefit of the Certificateholders, or to surrender any right or power
herein conferred upon the Certificate Issuer;
(b) to correct or supplement any provision herein or in any
supplemental certificate indenture that may be defective or
inconsistent with any other provision herein or in any supplemental
certificate indenture or to make any other provisions with respect to
matters or questions arising under this Certificate Indenture;
provided, however, that any such action shall not adversely affect in
any material respect the interests of the Certificateholders;
42
<PAGE> 47
(c) to cure any ambiguity or correct any mistake; or
(d) to qualify, if necessary, this Certificate Indenture
(including any supplemental certificate indenture) under the Trust
Indenture Act, or under any similar federal statute hereafter enacted,
and to add to this Certificate Indenture such other provisions as may
be expressly permitted by the Trust Indenture Act, excluding, however,
the provisions referred to in Section 316(a)(2) of the Trust Indenture
Act as in effect at the date as of which this instrument was executed
or any corresponding provision in any similar federal statute hereafter
enacted.
Section 7.02. Supplemental Certificate Indentures With Consent of
Certificateholders. With the consent of the Certificateholders holding
Certificates representing not less than a majority of the aggregate Outstanding
Amount of Certificates of each Class affected thereby, by Act of said
Certificateholders delivered to the Certificate Issuer, the Note Trustee and the
Certificate Trustee, the Certificate Issuer (with the prior written approval of
the Note Issuer) may, and the Certificate Trustee (subject to Section 7.03)
shall, enter into an indenture or indentures supplemental hereto for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Certificate Indenture or of modifying in any manner the
rights and obligations of the Holders of Certificates of each such Class under
this Certificate Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Certificateholder of each
Outstanding Certificate affected thereby:
(a) reduce in any manner the amount of, or delay the timing
of, any receipt by the Certificate Trustee of payments on the Notes or
distributions that are required to be made herein on any Certificate,
or change any date of payment on any Certificate, or change the place
of payment where, or the coin or currency in which, any Certificate is
payable, or impair the right to institute suit for the enforcement of
any such payment or distribution on or after the Distribution Date,
Special Distribution Date or other date specified herein applicable
thereto;
(b) permit the disposition of any Note in the Trust Property
except as permitted by this Certificate Indenture, or otherwise deprive
any Holder of Certificates of any Class of the benefit of the ownership
of the Notes of the corresponding Class in the Trust;
(c) reduce the percentage of the aggregate Outstanding Amount
of the Certificates of any Class that is required for any such
supplemental indenture, or reduce such percentage required for any
waiver or consent (of compliance with certain provisions of this
Certificate Indenture or certain defaults hereunder and their
consequences) provided for in this Certificate Indenture;
(d) modify any of the provisions of this Section, except to
increase any percentage set forth herein or to provide that certain
other provisions of this Certificate Indenture cannot be modified or
waived without the consent of the Holder of each Certificate affected
thereby; or
43
<PAGE> 48
(e) adversely affect the status of the Trust as a grantor
trust for federal income tax purposes.
It shall not be necessary for any Act of Certificateholders under this
Section to approve the particular form of any proposed supplemental certificate
indenture, but it shall be sufficient if such Act shall approve the substance
thereof. The Certificate Issuer shall give each Rating Agency five Business Days
prior written notice of any such proposed supplemental certificate indenture.
Promptly after the execution by the Certificate Issuer and the Certificate
Trustee of any supplemental certificate indenture pursuant to this Section, the
Certificate Trustee shall mail to the Holders of the Certificates to which such
supplemental certificate indenture relates a notice setting forth in general
terms the substance of such supplemental certificate indenture. Any failure of
the Certificate Trustee to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
certificate indenture.
Section 7.03. Documents Affecting Immunity or Indemnity. If in the
opinion of the Certificate Trustee any document required to be executed by it
pursuant to the terms of Section 7.01 or 7.02 adversely affects any interest,
right, duty, immunity or indemnity in favor of the Certificate Trustee under
this Certificate Indenture, the Certificate Trustee may in its discretion
decline to execute such document.
Section 7.04. Execution of Supplemental Certificate Indentures. In
executing, or accepting the additional trusts created by, any supplemental
certificate indenture permitted by this Article or the modifications thereby of
the trusts created by this Certificate Indenture, the Certificate Trustee shall
be entitled to receive, and shall be fully protected in relying upon, an Opinion
of Counsel stating that the execution of such supplemental certificate indenture
is authorized or permitted by this Certificate Indenture.
Section 7.05. Effect of Supplemental Certificate Indentures. Upon the
execution of any supplemental certificate indenture under this Article, this
Certificate Indenture shall be modified in accordance therewith, and such
supplemental certificate indenture shall form a part of this Certificate
Indenture for all purposes; and every Holder of any Certificate theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.
Section 7.06. Conformity with Trust Indenture Act. Every supplemental
certificate indenture executed pursuant to this Article shall conform to the
requirements of the Trust Indenture Act as then in effect.
Section 7.07. Reference in Certificates to Supplemental Certificate
Indentures. Certificates authenticated and delivered after the execution of any
supplemental certificate indenture pursuant to this Article may bear a notation
in form approved by the Certificate Trustee as to any matter provided for in
such supplemental certificate indenture; and, in such case, suitable notation
may be made upon Outstanding Certificates after proper presentation and demand.
44
<PAGE> 49
ARTICLE VIII
AMENDMENTS AND SUPPLEMENTS TO NOTES, NOTE INDENTURE
AND OTHER BASIC DOCUMENTS
Section 8.01. Amendments and Supplements to Notes, Note Indenture and
Other Basic Documents. In the event that the Certificate Issuer or the
Certificate Trustee, as holder of the Notes of each Class in trust for the
benefit of the Holders of Certificates of the corresponding Class, receives a
request for a consent to any amendment, modification, waiver or supplement under
the Notes, the Note Indenture or any other Basic Document to which the
Certificate Issuer or the Certificate Trustee is a party, the Certificate Issuer
shall forward such request for consent to the Certificate Trustee, and the
Certificate Trustee shall forthwith send a notice of such proposed amendment,
modification, waiver or supplement, to each Holder of Certificates of such Class
registered on the Certificate Register as of such date. The Certificate Trustee
shall request from such Certificateholders directions as to (a) whether or not
the Certificate Trustee should take or refrain from taking any action that a
holder of such Note has the option to direct, (b) whether or not to give or
execute or direct the Certificate Issuer to give or execute any waivers,
consents, amendments, modifications or supplements as a holder of such Note and
(c) how to vote such Note if a vote has been called for with respect thereto;
provided, however, in the case of any change to the terms of, or modification
to, the Notes, the Certificateholders may not direct any such action to be taken
or direct whether or not to give or execute any such waiver, consent, amendment,
modification or supplement that is not pursuant to the original terms of the
Notes, unless the Certificate Trustee obtains an Opinion of Counsel at the
expense of the Certificate Issuer of independent tax counsel to the effect that
after any such action, waiver, consent, amendment, modification or supplement
the Trust will continue to be treated as a "grantor trust" for federal income
tax purposes. Provided such a request for Certificateholder direction shall have
been made, in directing any action or casting any vote or giving any consent as
the holder of the Notes, the Certificate Trustee shall vote or consent with
respect to such Notes in the same proportion as the Certificates of the
corresponding Class were actually voted by Acts of the Holders thereof delivered
to the Certificate Trustee prior to two Business Days before the Certificate
Trustee takes such action or casts such vote or gives such consent.
ARTICLE IX
SATISFACTION AND DISCHARGE
Section 9.01. Satisfaction and Discharge of Certificate Indenture. This
Certificate Indenture shall cease to be of further effect with respect to the
Certificates, and the Certificate Trustee, on reasonable demand of and at the
expense of the Certificate Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Certificate Indenture with
respect to the Certificates, upon the distribution to all Holders of
Certificates and the Certificate Trustee of all amounts required to be
distributed to them pursuant to this Certificate Indenture and the disposition
of all property held as part of the Trust Property. The Certificate Issuer shall
pay or provide for the payment of all remaining liabilities of the Certificate
Trustee, but solely from amounts payable by the Note Issuer under the Fee and
Indemnity Agreement.
45
<PAGE> 50
Notice of any distribution pursuant to the paragraph above shall be
mailed promptly by the Certificate Trustee to Holders of Certificates then
outstanding. Such notice shall specify the Distribution Date or Special
Distribution Date, as the case may be, upon which the Holders of Certificates
may surrender their Certificates to the Certificate Trustee for payment of the
final distribution and cancellation. Such notice shall be mailed (a) if with
respect to a final distribution, as soon as practicable following receipt of
notice from the Note Trustee of a final payment on a corresponding Note, (b) if
with respect to a Special Payment other than a Special Payment constituting a
redemption, not earlier than the 60th day and not later than the 20th day next
preceding such final distribution or (c) if with respect to a Special Payment
constituting a redemption of Certificates resulting from a redemption of Notes,
then in accordance with the provisions of the relevant Section of Article IV
hereof. Such notice shall specify (a) the Distribution Date or Special
Distribution Date, as the case may be, upon which the proposed final payment of
the Certificates will be made upon presentation and surrender of such
Certificates at the office or agency of the Certificate Trustee therein
specified, (b) the amount of any such proposed final payment and (c) that the
Record Date otherwise applicable to such Distribution Date or the Special Record
Date otherwise applicable to such Special Distribution Date, as the case may be,
is not applicable, payments being made only upon presentation and surrender of
the Certificates at the office or agency of the Certificate Trustee therein
specified. The Certificate Trustee shall give such notice to the Certificate
Registrar at the time such notice is given to Holders of Certificates. Upon
presentation and surrender of such Certificates, the Certificate Trustee shall
cause to be distributed to the Holders thereof amounts distributable thereon on
such Distribution Date or Special Distribution Date, as the case may be,
pursuant to Section 4.02.
In the event that all of the Holders of Certificates shall not
surrender their Certificates for cancellation within six months after the date
specified in the above mentioned written notice, the Certificate Trustee shall
give a second written notice to the remaining Holders of such Certificates to
surrender their Certificates for cancellation and receive the final distribution
with respect thereto. In the event that any money held by the Certificate
Trustee for the payment of distributions on the Certificates shall remain
unclaimed for two years (or such lesser time as the Certificate Trustee shall be
satisfied, after 60 days' notice from the Certificate Issuer (with the prior
written approval of the Note Issuer), is one month prior to the escheat period
provided under applicable law) after the final distribution date with respect
thereto, the Certificate Trustee shall pay such money to the Note Trustee for
deposit into the collection account relating to the related Notes or, if such
collection account no longer exists, to the Note Issuer and the Certificate
Trustee or Note Issuer shall give written notice thereof to the Note Trustee,
the Note Issuer and the Certificate Issuer.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1. Commonwealth Pledge; Certificates and Notes Not
Obligation of The Commonwealth of Massachusetts, Agencies or Seller.
46
<PAGE> 51
(a) The Certificate Issuer hereby finds and determines, and hereby
represents and warrants, that it constitutes a "special purpose trust" and a
"financing entity" under Section 1H(a) of the Statute, and that the Certificates
constitute "electric rate reduction bonds" under Section 1H(a) of the Statute
and that the Holders of the Certificates are entitled to the rights and benefits
thereunder. Pursuant to Section 1H(b)(3) of the Statute, The Commonwealth of
Massachusetts pledges and agrees with the Note Issuer, the Certificate Issuer
and the Holders of the Certificates (the "Commonwealth Pledge") as follows:
(b) [T]he [C]ommonwealth [of Massachusetts] does hereby pledge
and agree with the owners of the transition property and
holders of electric rate reduction bonds that the
[C]ommonwealth [of Massachusetts] shall not (i) alter the
provisions of this chapter which make the transition charges
imposed by the financing order irrevocable and binding or (ii)
limit or alter the reimbursable transition costs amounts,
transition property, financing orders, and all rights
thereunder until the electric rate reduction bonds, together
with the interest thereon, are fully met and discharged.
(c) Further, the Certificate Issuer does hereby pledge and agree with
the Note Issuer and the Holders of the Certificates that it will not act in a
manner inconsistent with the Commonwealth Pledge and will not take any action
that would impair any rights of the Note Issuer or the Holders of the
Certificates or the Notes, the Transition Property or the Certificates. The
Certificate Issuer hereby further agrees to treat the Notes as debt of the Note
Issuer, secured by, among other things, the Transition Property and the equity
of the Note Issuer on deposit in the Capital Subaccount, for all purposes.
(d) Each Certificate represents a fractional undivided beneficial
interest in a corresponding Class of Notes and the proceeds thereof. The
Certificates and the Notes do not represent an interest in or obligation of The
Commonwealth of Massachusetts, the Agencies, any other governmental agency or
instrumentality or the Seller or any of its affiliates, except for BEC Funding
LLC, which is an affiliate of Boston Edison. None of the Certificates, the Notes
or the underlying Transition Property will be guaranteed or insured by The
Commonwealth of Massachusetts, the Agencies, the Certificate Issuer or any other
governmental agency or instrumentality or by the Seller or its affiliates.
Neither the full faith and credit nor the taxing power of The
Commonwealth of Massachusetts, the Agencies or any other governmental agency or
instrumentality is pledged to the payment of the principal of, purchase price
of, or interest on, the Certificates or the Notes, or to the payments in respect
of the Transition Property, nor are The Commonwealth of Massachusetts, the
Agencies or any other governmental agency or instrumentality in any manner
obligated to make any appropriation for the payment thereof.
Section 10.2. Limitation on Rights of Certificateholders. The death or
incapacity of any Certificateholder shall not operate to terminate this
Certificate Indenture, the Declaration of Trust or the Certificate Issuer, nor
entitle such Certificateholder's legal representatives or heirs to claim an
accounting or to take any action or commence any proceeding in any court for a
partition or
47
<PAGE> 52
winding up of the Certificate Issuer, nor otherwise affect the rights,
obligations, and liabilities of the parties hereto or any of them.
Section 10.03. No Recourse to Certificate Issuer. Notwithstanding any
provision of this Certificate Indenture or any supplemental certificate
indenture to the contrary, Holders shall have no recourse against the
Certificate Issuer or the Agencies, but shall look only to the Trust Property
with respect to any amounts due to the Holders hereunder and under the
Certificates.
Section 10.04. Certificates Nonassessable and Fully Paid. Pursuant to
Section 3803(a) of the Business Trust Statute, Certificateholders shall be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the General Corporation law
of the State of Delaware. Certificateholders shall not be personally liable for
obligations of the Certificate Issuer, the interests in the Certificate Issuer
represented by the Certificates shall be nonassessable for any losses or
expenses of the Certificate Issuer or for any reason whatsoever, and upon
authentication of the Certificates by the Certificate Trustee pursuant to
Section 2.04, the Certificates are and shall be deemed fully paid and
non-assessable. No Certificateholder shall have any right (except as expressly
provided herein) to vote or in any manner otherwise control the operation and
management of the Trust Property, the Certificate Issuer, or the obligations of
the parties hereto, nor shall anything set forth herein, or contained in the
terms of the Certificates, be construed so as to constitute the
Certificateholders from time to time as partners or members of an association.
Section 10.05. Notices.
(a) Unless otherwise specifically provided herein, all notices,
directions, consents and waivers required under the terms and provisions of this
Certificate Indenture shall be in English and in writing, and any such notice,
direction, consent or waiver may be given by United States mail, courier
service, facsimile transmission or electronic mail (confirmed by telephone,
United States mail or courier service in the case of notice by facsimile
transmission or electronic mail) or any other customary means of communication,
and any such notice, direction, consent or waiver shall be effective when
delivered, or if mailed, three days after deposit in the United States mail with
proper postage for ordinary mail prepaid,
if to the Agencies, to:
Massachusetts Development Finance Agency
75 Federal Street
Boston, Massachusetts 02110
Attention: General Counsel
Facsimile: (617) 727-8741
Telephone: (617) 451-2477
and
48
<PAGE> 53
Massachusetts Health and Educational Facilities Authority
99 Summer Street
10th Floor
Boston, Massachusetts 02110
Attention: General Counsel
Facsimile: (617) 737-8366
Telephone: (617) 737-8377
if to the Certificate Issuer, to:
The Bank of New York (Delaware), as Delaware Trustee for
the Massachusetts RRB Special Purpose Trust BEC-1
c/o The Bank of New York
101 Barclay Street
Floor 12 East
New York, New York 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
(with copies to the Agencies at the addresses listed herein)
if to the Certificate Trustee, to:
The Bank of New York
101 Barclay Street
Floor 12 East
New York, New York 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
if to the Delaware Trustee, to:
The Bank of New York (Delaware)
c/o The Bank of New York
101 Barclay Street
Floor 12 East
New York, New York 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
49
<PAGE> 54
if to the Note Issuer, to:
BEC Funding LLC
800 Boylston Street, 35th Floor
Boston, Massachusetts 02199
Attention: President
Facsimile: (617) 424-2605
Telephone: (617) 369-6000
if to the Note Trustee, to:
The Bank of New York
101 Barclay Street
Floor 12 East
New York, New York 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
if to the Rating Agencies, to:
Standard & Poor's Ratings Services
55 Water Street, 40th Floor
New York, New York 10041
Attention: Asset Backed Surveillance Department
Facsimile: (212) 438-2655
Telephone: (212) 438-2000
Moody's Investors Service
99 Church Street
New York, New York 10007
Attention: ABS Monitoring Department
Facsimile: (212) 553-0573
Telephone: (212) 553-3686
Fitch IBCA, Inc.
One State Street Plaza
New York, New York 10004
Attention: ABS Surveillance
Facsimile: (212) 635-0476
Telephone: (212) 908-0200
and
50
<PAGE> 55
Duff & Phelps Credit Rating Co.
17 State Street, 12th Floor
New York, New York 10004
Attention: Asset Backed Securities
Facsimile: (212) 908-0222
Telephone: (212) 908-0200
(b) The Certificate Issuer, the Certificate Trustee, the Note Issuer or
the Note Trustee, by notice to the others, may designate additional or different
addresses for subsequent notices or communications.
(c) Any notice or communication to Certificateholders shall be mailed
by first-class mail to the addresses for each Certificateholder shown on the
Certificate Register kept by the Certificate Registrar. Failure so to mail a
notice or communication or any defect in such notice or communication shall not
affect its sufficiency with respect to other Certificateholders.
(d) If a notice or communication is mailed in the manner provided above
within the time prescribed, it is conclusively presumed to have been duly given,
whether or not the addressee receives it.
(e) If the Certificate Issuer mails a notice or communication to the
Certificateholders, it shall mail a copy to the Certificate Trustee, to each
Paying Agent and to the Note Issuer at the same time.
(f) Notwithstanding the foregoing, all communications or notices to the
Certificate Trustee shall be deemed to be given only when received by a
Responsible Officer of the Certificate Trustee.
Section 10.06. Governing Law. THIS CERTIFICATE INDENTURE SHALL BE
GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAW OF THE STATE OF
DELAWARE WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAW.
Section 10.07. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Certificate Indenture shall
be for any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Certificate Indenture and shall in no
way affect the validity or enforceability of the other provisions of this
Certificate Indenture, or of the Certificates or the rights of the
Certificateholders thereof.
Section 10.08. Conflict With Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Certificate Indenture by any of the provisions
of the Trust Indenture Act, such required provision shall control.
51
<PAGE> 56
The provisions of Sections 310 through 317 of the Trust Indenture Act
that impose duties on any Person (including the provisions automatically deemed
included herein unless expressly excluded by this Certificate Indenture) are a
part of and govern this Certificate Indenture, whether or not physically
contained herein.
Section 10.09. Effect of Headings and Table of Contents. The Article
and Section headings herein and in the Table of Contents are for convenience
only and shall not affect the construction hereof.
Section 10.10. Successors and Assigns; Delegation.
(a) All covenants, agreements, representations and warranties in this
Certificate Indenture by the Certificate Trustee and the Certificate Issuer
shall bind and, to the extent permitted hereby, shall inure to the benefit of
and be enforceable by their respective successors and assigns, whether so
expressed or not.
(b) No party to this Certificate Indenture shall assign or delegate
this Certificate Indenture or all or any part of its rights or obligations
hereunder to any Person without the prior written consent of the other parties.
Section 10.11. Benefits of Certificate Indenture. Nothing in this
Certificate Indenture or in the Certificates, express or implied, shall give to
any Person, other than the parties hereto and their successors hereunder, the
Certificateholders and, to the extent provided herein, the Note Issuer, any
benefit or any legal or equitable right, remedy or claim under this Certificate
Indenture.
Section 10.12. Legal Holidays. In any case where any date for any
distribution in respect of any Certificate shall not be a Business Day, then
(notwithstanding any other provision of this Certificate Indenture) payment need
not be made on such date, but may be made on the next succeeding Business Day
with the same force and effect as if made on such first date, and no interest
shall accrue during the intervening period.
Section 10.13. Counterparts. For the purpose of facilitating the
execution of this Certificate Indenture and for other purposes, this Certificate
Indenture may be executed simultaneously in any number of counterparts, each of
which counterparts shall be deemed to be an original, and all of which
counterparts shall constitute but one and the same instrument.
Section 10.14. The Delaware Trustee. In performing its obligations
hereunder, the Delaware Trustee shall be entitled to the protections of the
Declaration of Trust.
52
<PAGE> 57
IN WITNESS WHEREOF, the Certificate Issuer and the Certificate
Trustee have caused this Certificate Indenture to be duly executed by duly
authorized officers or representatives, all as of the day and year first above
written.
MASSACHUSETTS RRB SPECIAL PURPOSE
TRUST BEC-1
By: THE BANK OF NEW YORK (DELAWARE),
not in its individual capacity but solely as
Delaware Trustee
By: /s/ Cheryl L. Laser
-----------------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
THE BANK OF NEW YORK (DELAWARE),
not in its individual capacity but solely as
Delaware Trustee,
By: /s/ Cheryl L. Laser
-----------------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
THE BANK OF NEW YORK,
not in its individual capacity but solely as
Certificate Trustee,
By: /s/ Cheryl L. Laser
-----------------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
S-1
<PAGE> 58
EXHIBIT A
FORM OF CERTIFICATE
REGISTERED
NO. [ ] $ [ ]
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
CLASS [ ]
RATE REDUCTION CERTIFICATE
<TABLE>
<CAPTION>
SCHEDULED FINAL
INTEREST RATE DISTRIBUTION DATE FINAL TERMINATION DATE CUSIP
------------- ----------------- ---------------------- -----
<S> <C> <C> <C>
</TABLE>
REGISTERED OWNER: Cede & Co.
PRINCIPAL AMOUNT:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
This Certificate evidences a fractional undivided beneficial interest
in an Underlying Note (as defined below) of the corresponding class issued by
BEC Funding LLC, a Delaware limited liability company, and the proceeds thereof,
held by a trust or registered assigns, as more fully described herein.
This Certificate does not represent an interest in or obligation of The
Commonwealth of Massachusetts, the Massachusetts Development Finance Agency or
the Massachusetts Health and Educational Facilities Authority (collectively, the
"Agencies"), any other governmental
A-1
<PAGE> 59
agency or instrumentality or Boston Edison Company, a Massachusetts corporation
("Boston Edison"), or any of its affiliates. None of the Certificate, the
Underlying Note or the underlying Transition Property (as defined in the
Certificate Indenture) will be guaranteed or insured by The Commonwealth of
Massachusetts, either of the Agencies, the Trust (as defined below) or any other
governmental agency or instrumentality or by Boston Edison or its affiliates.
Neither the full faith and credit nor the taxing power of The
Commonwealth of Massachusetts, either of the Agencies or any other governmental
agency or instrumentality is pledged to the payment of the principal of,
purchase price of, or interest on, this Certificate or the Underlying Note, or
to the payments in respect of the Transition Property, nor are The Commonwealth
of Massachusetts, either of the Agencies or any other governmental agency or
instrumentality in any manner obligated to make any appropriation for the
payment thereof.
To the extent not otherwise defined herein, the capitalized terms used
herein have the meanings assigned to them in the Certificate Indenture.
THIS CERTIFIES THAT CEDE & CO., as nominee for The Depository Trust
Company, for value received, is the registered owner of a Principal Amount
(stated above) of nonassessable, fully-paid, fractional undivided beneficial
interest in the related Underlying Note and the proceeds thereof held by
Massachusetts RRB Special Purpose Trust BEC-1 (the "Trust") or registered
assigns. The Trust is created pursuant to a Declaration of Trust dated as of
July 28, 1999 by The Bank of New York (Delaware), as Delaware Trustee (the
"Delaware Trustee"), and the Agencies, acting jointly as settlors thereunder
pursuant to Chapter 164 of the Massachusetts Acts of 1997 (the "Statute"). This
Certificate is issued under and is subject to the terms, provisions, and
conditions of, a Certificate Indenture dated as of July 29, 1999 (the
"Certificate Indenture"), by and among the Delaware Trustee, The Bank of New
York, as certificate trustee (the "Certificate Trustee"), and the Trust, a
summary of certain of the pertinent provisions of which is set forth below. This
Certificate is one of the duly authorized class of Certificates designated as
"Massachusetts RRB Special Purpose Trust BEC-1 Rate Reduction Certificates,
Class [ ]" (herein called the "Class [ ] Certificates"). The Class [ ]
Certificates are one of a class of Certificates issued under the Certificate
Indenture (such Class [ ] Certificates, together with other Classes of
Certificates issued on the date hereof under the Certificate Indenture being
herein called the "Certificates"). The holder of this Certificate (the
"Holder"), by virtue of its acceptance hereof, assents and agrees to be bound by
the terms of the Certificate Indenture. This Class [ ] Certificate represents a
fractional undivided beneficial interest in the note of the corresponding class
(the "Underlying Note") issued by BEC Funding LLC, as Note Issuer, together with
the payments on and proceeds of the Underlying Note. The Underlying Note is
secured by a security interest in the property right created under the Statute,
pursuant to the order of the Massachusetts Department of Telecommunications and
Energy, DTE-98-118, issued on April 2, 1999, as further clarified by the Order
on the Massachusetts Development Finance Agency's and the Massachusetts Health
and Educational Facilities Authority's Motion for Clarification dated May 21,
1999 (collectively, the "Financing Order"), representing the irrevocable right
of Boston Edison or its assignee to receive a certain
A-2
<PAGE> 60
nonbypassable charge (as adjusted from time to time) from certain retail
customers of Boston Edison's distribution system, together with certain related
collateral, all as more fully described in the Note Indenture.
The aggregate principal amount of all Certificates of all Classes
issued under the Certificate Indenture equals the aggregate principal amount of
the Underlying Notes of all Classes, and all such Certificates are and will be
equally secured by the pledge and covenants made therein, except as otherwise
expressly provided or permitted in the Certificate Indenture.
Subject to and in accordance with the terms of the Certificate
Indenture, there will be distributed on each March 15 and September 15 of each
year or, if any such day is not a Business Day, the next succeeding Business Day
(each, a "Distribution Date"), commencing on March 15, 2000 to the Person in
whose name this Certificate is registered at the close of business on the last
Business Day immediately preceding the related Distribution Date or, if
Definitive Certificates are issued, the last day of the immediately preceding
calendar month (each, a "Record Date"), such Holder's fractional undivided
interest in the payments made on the Underlying Note due on the related Payment
Date, the receipt of which has been confirmed by the Certificate Trustee.
Subject to and in accordance with the terms of the Certificate Indenture, in the
event that a Special Payment on the Underlying Note is received by the
Certificate Trustee, from funds then available to the Certificate Trustee, there
will be distributed on the applicable Special Distribution Date, to the Person
in whose name this Certificate is registered on the Record Date preceding the
Special Distribution Date, as applicable, such Holder's fractional undivided
share of such amount. The Special Distribution Date will be determined as
provided in the Certificate Indenture. The Certificate Trustee will mail notice
of each Special Payment and the related Special Distribution Date to the Holder
as provided in the Certificate Indenture.
Distributions on this Certificate will be made as provided in the
Certificate Indenture by the Certificate Trustee by wire transfer or check
mailed to the Holder of record in the Certificate Register without the
presentation or surrender of this Certificate or the making of any notation
hereon, except that with respect to Certificates registered on the Record Date
in the name of the nominee of the Clearing Agency (initially, such nominee to be
Cede & Co.), payments will be made by wire transfer in immediately available
funds to the account designated by such nominee. Except as otherwise provided in
the Certificate Indenture and notwithstanding the above, the final distribution
on this Certificate will be made after due notice by the Certificate Trustee of
the pendency of such distribution and only upon presentation and surrender of
this Certificate at the office of the Paying Agent or the office or agency
maintained for that purpose by the Certificate Trustee in The City of New York.
(a) Subject to and in accordance with the terms of the Certificate
Indenture, the Trust has represented and warranted under the Certificate
Indenture that the Trust constitutes a "special purpose trust" and a "financing
entity" under Section 1H(a) of the Statute, and that the Certificates constitute
"electric rate reduction bonds" under Section 1H(a) of the Statute and that the
Holders are entitled to the rights and benefits thereunder. Pursuant to Section
1H(b)(3) of the
A-3
<PAGE> 61
Statute, The Commonwealth of Massachusetts, has pledged and agreed with the Note
Issuer, the Trust and the Holders (the "Commonwealth Pledge") as follows:
(b) [T]he [C]ommonwealth [of Massachusetts] does hereby pledge
and agree with the owners of the transition property and
holders of electric rate reduction bonds that the
[C]ommonwealth [of Massachusetts] shall not (i) alter the
provisions of this chapter which make the transition charges
imposed by the financing order irrevocable and binding or (ii)
limit or alter the reimbursable transition costs amounts,
transition property, financing orders, and all rights
thereunder until the electric rate reduction bonds, together
with the interest thereon, are fully met and discharged.
In addition, the Trust has pledged and agreed with the Note Issuer and
the Holders that it will not act in a manner inconsistent with the Commonwealth
Pledge and will not take any action that would impair any rights of the Note
Issuer or the Holders in the Notes, the Transition Property or the Certificates.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Certificate Trustee by manual
signature, this Certificate shall not be entitled to any benefit under the
Certificate Indenture or any other Basic Document or be valid for any purpose.
THIS CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE DOMESTIC LAW OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF
LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAW.
Any reduction in the principal amount of any Certificate effected by
any distribution in respect of principal thereof shall be binding upon all
Holders of such Certificate and of any Certificate issued upon the registration
of transfer thereof or in exchange thereof or in lieu thereof, whether or not
noted thereon.
It is expressly agreed and understood by the parties hereto
that (a) this Certificate is executed by The Bank of New York (Delaware) and
authenticated and delivered by The Bank of New York, not individually or
personally but solely as Delaware Trustee and Certificate Trustee, respectively,
on behalf of the Trust in the exercise of the powers and authority conferred and
vested in them, (b) the representations, undertakings and agreements herein made
by the Delaware Trustee and Certificate Trustee on behalf of the Trust are made
and intended not as
A-4
<PAGE> 62
personal representations, undertakings and agreements of either trustee, but are
made and intended for the purpose of binding only the Trust, (c) nothing herein
contained shall be construed as creating any liability on The Bank of New York
(Delaware) or The Bank of New York, individually or personally, to perform any
covenant either expressed or implied herein, except in their capacity as
Delaware Trustee and Certificate Trustee, respectively, all such liability being
expressly waived by all Persons, and (d) under no circumstances shall The Bank
of New York (Delaware) or The Bank of New York be personally liable for the
payment of any indebtedness or expenses of the Trust, or be personally liable
for the breach or failure of any obligation, representation, warranty or
covenant made or undertaken by the Trust under the Certificate Indenture.
A-5
<PAGE> 63
IN WITNESS WHEREOF, the Delaware Trustee on behalf of the
Trust has caused this Certificate to be duly executed.
MASSACHUSETTS RRB SPECIAL
PURPOSE TRUST BEC-1
By: THE BANK OF NEW YORK (DELAWARE),
not in its individual
capacity but solely as Delaware
Trustee
By:
Name:
Title:
A-6
<PAGE> 64
CERTIFICATE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: [ ]
This is one of the Certificates referred to in the within-mentioned
Certificate Indenture.
THE BANK OF NEW YORK, not in its
individual capacity but solely as
Certificate Trustee
By:
Name:
Title:
A-7
<PAGE> 65
[FORM OF REVERSE OF CERTIFICATE]
The Certificates are limited in right of payment, all as more
specifically set forth on the face hereof and in the Certificate Indenture. All
payments or distributions made to Holders under the Certificate Indenture shall
be made only from the Trust Property and only to the extent that the Certificate
Trustee shall have sufficient income or proceeds from the Trust Property to make
such payments in accordance with the terms of the Certificate Indenture. Each
Holder, by its acceptance hereof, agrees that it will look solely to the income
and proceeds from the Trust Property to the extent available for distribution to
such Holder as provided in the Certificate Indenture. This Certificate does not
purport to summarize the Certificate Indenture and reference is made to the
Certificate Indenture for information with respect to the interests, rights,
benefits, obligations, proceeds, and duties evidenced hereby. A copy of the
Certificate Indenture may be examined during normal business hours at the
principal office of the Certificate Trustee, and at such other places, if any,
designated by the Certificate Trustee, by any Holder upon request.
The Certificate Indenture permits, with certain exceptions
therein provided, the amendment thereof and the modification of the rights of
the Holders under the Certificate Indenture at any time by the Trust and the
Certificate Trustee with the consent of the Holders holding Certificates
representing not less than a majority of the aggregate Outstanding Amount of
Certificates of each affected Class issued by the Trust. Any such consent by the
Holder of this Certificate shall be conclusive and binding on such Holder and
upon all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange hereof or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Certificate
Indenture also permits the amendment thereof, in certain limited circumstances,
without the consent of the Holders of any of the Certificates.
As provided in the Certificate Indenture and subject to
certain limitations therein set forth, the transfer of this Certificate is
registerable in the Certificate Register upon surrender of this Certificate for
registration of transfer at the offices or agencies maintained by the
Certificate Trustee in its capacity as Certificate Registrar, or by any
successor Certificate Registrar, in the Borough of Manhattan, The City of New
York, duly endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Certificate Trustee and the Certificate Registrar duly
executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Certificates of authorized denominations
evidencing the same aggregate fractional undivided beneficial interest in the
Underlying Note will be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates
without coupons in Minimum Denominations of $1,000 Original Principal Amount and
integral multiples thereof. As provided in the Certificate Indenture and subject
to certain limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the
A-8
<PAGE> 66
same aggregate fractional undivided beneficial interest in the Underlying Notes,
as requested by the Holder surrendering the same.
THE HOLDER, BY PURCHASE OF THIS CERTIFICATE, WILL BE DEEMED TO
REPRESENT THAT SUCH PURCHASE WILL NOT RESULT IN A NON-EXEMPT PROHIBITED
TRANSACTION UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, AND, IN EACH CASE, THE RULES
AND REGULATIONS THEREUNDER.
No service charge will be made for any such registration of
transfer or exchange, but the Certificate Trustee shall require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Certificate Trustee, the Certificate Registrar, and any
agent of the Certificate Trustee or the Certificate Registrar may treat the
person in whose name this Certificate is registered as the owner hereof for all
purposes, and neither the Certificate Trustee, the Certificate Registrar, nor
any such agent shall be affected by any notice to the contrary.
The obligations and responsibilities created by the
Certificate Indenture shall terminate with respect to the Certificates upon the
distribution to the Holders of all amounts required to be distributed to them
pursuant to the Certificate Indenture and the disposition of all property held
as part of the Trust Property, except certain indemnity obligations of the Note
Issuer to the Certificate Trustee under the Fee and Indemnity Agreement.
A-9
<PAGE> 1
================================================================================
MASSACHUSETTS DEVELOPMENT FINANCE AGENCY
ACTING JOINTLY WITH
MASSACHUSETTS HEALTH AND EDUCATIONAL FACILITIES AUTHORITY,
AS SETTLORS,
AND
THE BANK OF NEW YORK (DELAWARE),
AS DELAWARE TRUSTEE
----------------------------
DECLARATION OF TRUST
DATED AS OF JULY 28, 1999
----------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
PAGE
Article 1 Definitions and Incorporation By Reference...................2
SECTION 1.1 Definitions..........................................2
Article 2 Organization.................................................2
SECTION 2.1 Creation of Trust....................................2
SECTION 2.2 Trust as Financing Entity............................2
SECTION 2.3 Situs of the Trust...................................3
SECTION 2.4 Purposes and Powers..................................3
SECTION 2.5 Trust Property.......................................4
SECTION 2.6 Issuance of Certificates.............................4
SECTION 2.7 Organizational Expenses..............................4
SECTION 2.8 No Liability of the Agencies or Agency Personnel.....4
SECTION 2.9 Independent Status...................................4
SECTION 2.10 Tax Treatment; Construction..........................5
Article 3 Delivery of Certain Documents................................5
SECTION 3.1 Documents Relating to Issuance of Certificates.......5
SECTION 3.2 Compliance with Securities Laws......................5
Article 4 The Delaware Trustee.........................................5
SECTION 4.1 Appointment..........................................5
SECTION 4.2 Duties and Responsibilities..........................6
SECTION 4.3 Prohibited Actions...................................6
SECTION 4.4 Acceptance of the Trusts.............................6
SECTION 4.5 Limitation of Liability..............................6
SECTION 4.6 Compensation and Reimbursement; Indemnification......8
SECTION 4.7 Resignation..........................................8
SECTION 4.8 Representations and Warranties of Delaware Trustee...9
SECTION 4.9 Reliance; Advice of Counsel..........................9
SECTION 4.10 Delaware Trustee May Own Certificates...............10
Article 5 Representations and Warranties of the Agencies..............10
SECTION 5.1 Representations and Warranties of Agencies..........10
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
PAGE
Article 6 Termination of Declaration..................................11
SECTION 6.1 Termination of the Trust............................11
Article 7 Miscellaneous...............................................11
SECTION 7.1 No Legal Title to Trust Property....................11
SECTION 7.2 Limitations on Rights of Others.....................11
SECTION 7.3 Notices.............................................12
SECTION 7.4 Severability........................................13
SECTION 7.5 Amendments Without Consent of Holders...............13
SECTION 7.6 Amendments With Consent of Holders..................14
SECTION 7.7 Form of Amendments..................................14
SECTION 7.8 Counterparts........................................15
SECTION 7.9 Successors..........................................15
SECTION 7.10 No Petition Covenant................................15
SECTION 7.11 Headings............................................15
SECTION 7.12 Governing Law.......................................15
-ii-
<PAGE> 4
DECLARATION OF TRUST dated as of July 28, 1999 (as amended or restated
from time to time, the "Declaration"), by the Massachusetts Development Finance
Agency and the Massachusetts Health and Educational Facilities Authority, acting
jointly hereunder as settlors pursuant to Chapter 164 of the Massachusetts Acts
of 1997 (the "Statute") (each an "Agency," and, collectively, the "Agencies")
and The Bank of New York (Delaware), a Delaware banking corporation, acting
hereunder not in its individual or corporate capacity but solely as trustee
under the laws of the State of Delaware (the "Delaware Trustee").
RECITALS
Pursuant to the Statute, an electric company in The Commonwealth of
Massachusetts may obtain from the Massachusetts Department of Telecommunications
and Energy (the "DTE") a financing order (as defined in the Statute) permitting
such utility to recover a portion of its transition costs (as defined in the
Statute) through the issuance of electric rate reduction bonds (as defined in
the Statute). The Statute further empowers a special purpose trust (as defined
in the Statute) established by the Agencies to issue such electric rate
reduction bonds.
Boston Edison Company, a Massachusetts corporation ("Boston Edison"),
has applied for and received a financing order from the DTE, and has requested
the Agencies to establish a special purpose trust to issue electric rate
reduction bonds.
The Trust created hereby (the "Trust") shall constitute a special
purpose trust and shall be empowered to issue one series with one or more
classes of certificates constituting Massachusetts RRB Special Purpose Trust
BEC-1 Rate Reduction Certificates (the "Certificates"). All such Certificates
shall be issued pursuant to an indenture (the "Certificate Indenture"), by and
among the Delaware Trustee, the Trust and a trustee (the "Certificate Trustee"),
initially designated as The Bank of New York, and each class of Certificates
shall represent fractional undivided beneficial interests in the corresponding
class of BEC Funding LLC Notes (the "Notes") issued by BEC Funding LLC, a
special purpose limited liability company (the "Note Issuer") created by Boston
Edison. The Certificate Indenture and this Declaration shall together constitute
the governing instrument of the Trust. The Trust shall purchase the Notes from
the Note Issuer pursuant to a note purchase agreement (a "Note Purchase
Agreement") relating to the Notes. The Notes will be issued pursuant to an
indenture (the "Note Indenture"), by and between the Note Issuer and a trustee
(the "Note Trustee"), initially designated as The Bank of New York, and secured
by a pledge of and lien upon transition property (as defined in the Statute)
purchased by the Note Issuer from Boston Edison together with any other assets
of the Note Issuer. Boston Edison will service such transition property for the
benefit of the Note Issuer pursuant to a transition property servicing agreement
(the "Servicing Agreement"), between Boston Edison as servicer (in such
capacity, together with any successor servicer, the "Servicer") and the Note
Issuer. The Declaration, the Certificate Indenture, the Note Purchase Agreement,
the Note Indenture, the Servicing Agreement, the Fee and Indemnity Agreement
defined and described in Section 2.7 hereof, the Transition Property Purchase
and Sale Agreement between the Note Issuer and Boston Edison, as seller,
relating to the purchase and sale of the transition property described above,
the Administration Agreement between the Note Issuer and Boston Edison, as
administrator, relating to the administration of the
1
<PAGE> 5
Note Issuer, and the Underwriting Agreement among the Note Issuer, Boston Edison
and certain underwriters, relating to the underwriting of the Certificates, are
herein collectively referred to as the "Basic Documents."
THE AGENCIES AND THE DELAWARE TRUSTEE AGREE AS FOLLOWS:
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Definitions. All references herein to "the Declaration" or
"this Declaration" are to this Declaration of Trust, all references herein to
the "Trust" are to the trust created hereunder, and all references herein to
Articles, Sections, subsections, Schedules and Exhibits are to Articles,
Sections, subsections, Schedules and Exhibits of this Declaration, unless
otherwise specified. All capitalized terms used herein and not otherwise defined
shall have the meanings set forth in the Recitals hereto.
ARTICLE 2
ORGANIZATION
SECTION 2.1 Creation of Trust. The Trust created hereby shall be known
as "Massachusetts RRB Special Purpose Trust BEC-1," in which name the Delaware
Trustee may conduct the business of the Trust, make and execute contracts and
other instruments on behalf of the Trust and sue and be sued on behalf of the
Trust. In addition, the Delaware Trustee may conduct the business of the Trust
in its own name, as trustee hereunder, to the extent deemed necessary or
appropriate by the Delaware Trustee, in its sole discretion; provided that the
Delaware Trustee may rely conclusively upon an opinion of counsel as to whether
any proposed action is necessary or appropriate. It is the intention that the
Trust shall constitute a not-for-profit business trust under the Delaware
Business Trust Act (being Chapter 38 of Title 12 of the Delaware Code, 12 Del.
C., Section 3801 et seq., as the same may be amended from time to time and any
successor statute) (the "Business Trust Act"), that the Certificate Indenture
shall be deemed a part of this Declaration and that this Declaration (together
with the Certificate Indenture) shall constitute the governing instrument of the
Trust. To the extent that the provisions of this Declaration and the Certificate
Indenture conflict with respect to the issuance of the Certificates and the
rights of the holders thereof, the Certificate Indenture shall control. The
Delaware Trustee and the Certificate Trustee shall file the Certificate of
Trust, substantially in the form attached hereto as Exhibit A, pursuant to
Section 3810 et seq. of the Business Trust Act in connection with the formation
of the Trust as a not-for-profit business trust under the Business Trust Act.
The fiscal year of the Trust shall be the calendar year.
SECTION 2.2 Trust as Financing Entity. The Agencies hereby find and
determine, and hereby represent and warrant, that the Trust constitutes a
"special purpose trust" and a "financing
2
<PAGE> 6
entity" within the meaning of the Statute, and that the Trust is being
established to issue "electric rate reduction bonds" within the meaning of the
Statute.
SECTION 2.3 Situs of the Trust. The office of the Trust shall be in
care of the Delaware Trustee at the corporate trust office (the "Office") at
White Clay Center, Route 273, Newark, Delaware 19711 (although any notice,
direction, consent or waiver given to the Delaware Trustee hereunder may be
given in care of the address set forth in Section 7.3(a) hereof), which Office
shall be located in Delaware, or at such other address in Delaware as the
Delaware Trustee may designate by written notice to the Agencies, the
Certificate Trustee, the Note Issuer, the Note Trustee, the Servicer, and the
holders of the Certificates, and the Trust shall conduct its business in such
Office, separate and apart from that of the Agencies and their affiliates. If
and to the extent required pursuant to the provisions of the Business Trust Act,
all bank accounts of the Trust maintained by the Delaware Trustee, except those
bank accounts maintained by the Certificate Trustee, shall be located in the
State of Delaware. Any bank accounts of the Trust maintained by the Delaware
Trustee that are not required to be located in the State of Delaware by the
Business Trust Act may be maintained in Delaware or New York, or such other
location as is acceptable to the Agencies. The Trust shall not have any
employees in any state other than Delaware; provided, however, that nothing
herein shall restrict or prohibit the Delaware Trustee (in its individual
capacity but not as Delaware Trustee) from having employees within or without
the State of Delaware. If and to the extent required pursuant to the provisions
of the Business Trust Act, payments shall be received by the Trust only in
Delaware, and payments shall be made by the Trust only from Delaware, except as
otherwise provided in the Basic Documents. To the extent the Business Trust Act
does not require that payments be received in and paid from Delaware, to the
extent consistent with such act and the Basic Documents, payments may be
received and made by the Trust in and from Delaware, New York or such other
location as is acceptable to the Agencies. To the extent required pursuant to
the provisions of the Business Trust Act, the Delaware Trustee shall conduct the
Trust's activities from Delaware, sign documents on behalf of the Trust in
Delaware and maintain business records on behalf of the Trust in Delaware.
SECTION 2.4 Purposes and Powers.
(a) The Trust is constituted solely for the purpose of acquiring and
holding the Notes and issuing the Certificates, applying the proceeds of the
Notes to the payment of the Certificates and entering into and performing its
obligations under each of the Basic Documents to which it may be a party (which
functions the Delaware Trustee shall perform or cause to be performed on behalf
of the Trust), and, except as set forth herein, the Delaware Trustee is not
authorized or empowered to acquire any other investments or engage in any other
activities on behalf of the Trust and, in particular, the Delaware Trustee is
not authorized or empowered to do anything that would cause the Trust to fail to
qualify as a "grantor trust" for federal income tax purposes.
(b) The Delaware Trustee shall have all rights and powers set forth
herein and, to the extent not inconsistent herewith, in the Business Trust Act
with respect to accomplishing the purposes of the Trust.
3
<PAGE> 7
SECTION 2.5 Trust Property.
(a) The Agencies hereby assign, transfer, convey and set over to
the Delaware Trustee on behalf of the Trust the sum of $1.00. The Delaware
Trustee hereby acknowledges receipt of such amount in trust from the Agencies,
which amount shall constitute the initial trust property.
(b) Upon issuance of the Certificates and purchase of the Notes,
the holders of the Certificates shall become the sole and exclusive beneficial
owners of the Trust estate established hereby. The Delaware Trustee hereby
declares that it shall hold the Notes, the security interest in the transition
property (as defined in the Statute) securing the Notes, any other assets
acquired directly or indirectly from the Note Issuer and the proceeds therefrom
(the "Trust Property") in trust as herein provided for the benefit of the
holders of the Certificates, subject to the rights of such holders under the
Certificate Indenture, from and after such date until termination of the Trust
as herein provided, or under the Basic Documents.
(c) Legal title to the Trust Property shall be vested at all
times in the Trust as a separate legal entity except where applicable law in any
jurisdiction requires title to any part of the Trust Property to be vested in a
trustee or trustees, in which case title shall be deemed to be vested in the
Delaware Trustee, a co-trustee and/or a separate trustee, as the case may be.
SECTION 2.6 Issuance of Certificates. The Trust shall execute and
deliver the Certificates only upon satisfaction of the terms of the Certificate
Indenture. The Certificates of each Class shall represent undivided beneficial
interests in the assets of the Trust consisting of the Notes of the
corresponding Class and payments thereon, and shall be issued in accordance with
the terms of the Certificate Indenture.
SECTION 2.7 Organizational Expenses. The Delaware Trustee shall be
reimbursed, but solely from amounts payable by the Note Issuer under a fee and
indemnity agreement (the "Fee and Indemnity Agreement"), for organizational
expenses of the Trust as they may arise. The Delaware Trustee shall have no
recourse against the Agencies or against the Notes or the payments thereon and
proceeds thereof, for the reimbursement of such expenses.
SECTION 2.8 No Liability of the Agencies or Agency Personnel. No
recourse shall be had by the Delaware Trustee for any claim based on this
Declaration, the Certificates, the Notes or the Basic Documents against any
member, director, officer, employee, agent or attorney of the Agencies unless
such claim is based upon the bad faith, fraud or deceit of such person. No
covenant, stipulation, obligation or agreement of the Agencies contained in this
Declaration shall be deemed to be a covenant, stipulation, obligation or
agreement of any present or future member, director, officer, employee or agent
of the Agencies in his or her individual capacity, and any member, director,
officer, employee, agent or attorney of the Agencies executing and delivering or
directing the execution and delivery of the Certificates shall not be liable
personally thereon or be subject to any personal liability or accountability by
reason of the issuance of the Certificates.
SECTION 2.9 Independent Status. The Trust and each of the Agencies each
covenant and agree to hold itself out to the public under its own name as a
separate and distinct entity and
4
<PAGE> 8
will each conduct its business so as not to mislead others as to its identity.
The Trust shall cause those financial statements and other records required by
law, or otherwise required, to be prepared and maintained separate and apart
from those of the Agencies.
SECTION 2.10 Tax Treatment; Construction.
(a) It is the intention of the parties hereto that the Trust
shall be treated as a "grantor trust" for federal income tax purposes and all
transactions contemplated by this Declaration will be reported consistently with
such treatment.
(b) The provisions of this Declaration shall be construed, and
the affairs of the Trust shall be conducted, so as to achieve treatment of the
Trust as a "grantor trust" for federal income tax purposes. Accordingly,
notwithstanding any other provision hereof to the contrary, this Declaration
shall be construed to establish a class or classes of ownership interests, with
each class representing undivided beneficial interests in a separate specified
asset or set of assets of the Trust and facilitating the direct investment in
such assets by the holders of the Certificates. The assets of the Trust shall
consist of the Notes and other assets described in this Declaration, and the
Delaware Trustee shall have no power hereunder to vary the investment of the
holders of the Certificates.
ARTICLE 3
DELIVERY OF CERTAIN DOCUMENTS
SECTION 3.1 Documents Relating to Issuance of Certificates. The
Delaware Trustee is hereby directed to execute and deliver on behalf of the
Trust from time to time and as instructed in writing by the Agencies, all Basic
Documents to which the Trust or the Delaware Trustee may be a party, including
the Certificate Indenture, and any amendment or supplement thereto, the Note
Purchase Agreement, the Fee and Indemnity Agreement, the Underwriting Agreement,
and all other documents and instruments as may be necessary or desirable to
issue the Certificates pursuant to the provisions of the Certificate Indenture
and to purchase the Notes pursuant to the Note Purchase Agreement.
SECTION 3.2 Compliance with Securities Laws. The Delaware Trustee is
hereby authorized to take such action as it may deem necessary or desirable to
comply with applicable state and federal securities laws in connection with the
offering, sale and issuance of the Certificates or the administration of the
Trust.
ARTICLE 4
THE DELAWARE TRUSTEE
SECTION 4.1 Appointment. For valuable consideration received, it is
mutually covenanted and agreed that the Delaware Trustee has been and by this
document is, appointed to serve as the trustee of the Trust in the State of
Delaware pursuant to Section 3807 of the Business Trust Act.
5
<PAGE> 9
SECTION 4.2 Duties and Responsibilities. It is understood and agreed
that, except as provided in Section 2.4 hereof, the duties and responsibilities
of the Delaware Trustee shall be limited to (a) executing and delivering on
behalf of the Trust all Basic Documents to which the Trust or the Delaware
Trustee may be a party and, to the extent required by Article 3 hereof or deemed
appropriate by the Delaware Trustee, all other documents and instruments
referred to in Article 3 hereof, (b) accepting legal process served on the Trust
in the State of Delaware and (c) the execution and delivery of all
certifications required to be filed with the Secretary of State of the State of
Delaware in order to form, maintain and terminate the existence of the Trust
under the Business Trust Act. No implied covenants or obligations shall be read
into this Declaration against the Delaware Trustee.
SECTION 4.3 Prohibited Actions. Except as otherwise expressed herein
and as permitted under the Basic Documents, the Delaware Trustee shall not (i)
take any action with respect to any election by the Trust to file an amendment
to this Declaration, (ii) amend, change, modify or terminate any Basic Document,
or (iii) sell the Notes, any other Trust Property or any interest therein.
SECTION 4.4 Acceptance of the Trusts. By the execution hereof, the
Delaware Trustee accepts the trusts created hereinabove.
SECTION 4.5 Limitation of Liability. Except as otherwise expressly
required by this Declaration, the Delaware Trustee shall not have any duty or
liability with respect to the administration of the Trust, the investment of the
Trust's property or the payment of dividends or other distributions of income or
principal to the holders of the Certificates. The Delaware Trustee shall not be
liable for the acts or omissions of the Certificate Trustee, nor shall the
Delaware Trustee be liable for supervising or monitoring the performance of the
duties and obligations of the Certificate Trustee. The Delaware Trustee shall
not be personally liable under any circumstances, except for its own willful
misconduct or gross negligence. In particular, but not by way of limitation:
(a) the Delaware Trustee shall not be personally liable for any
error of judgment made in good faith by any officer within the corporate trust
department of the Delaware Trustee who has been assigned to perform or provide
trustee functions or services on behalf of the Trust;
(b) no provision of this Declaration shall require the Delaware
Trustee to expend or risk its personal funds or otherwise incur any financial
liability in the performance of its rights or powers hereunder, if the Delaware
Trustee shall have reasonable grounds for believing that repayment of such funds
or indemnity satisfactory to it against such risk or liability is not reasonably
assured or provided to it;
(c) it is expressly understood and agreed by the parties hereto
that (i) this Declaration is executed and delivered by The Bank of New York
(Delaware), not individually or personally but solely as Delaware Trustee of the
Trust, in the exercise of the powers and authority conferred and vested in it,
(ii) the representations, undertakings and agreements herein made on the part of
the Trust are made and intended not as personal representations, undertakings
and agreements by The Bank of New York (Delaware), but are made and intended for
the purpose of binding only the Trust, (iii) nothing herein contained shall be
construed as
6
<PAGE> 10
creating any liability of The Bank of New York (Delaware), individually or
personally, to perform any covenant either expressed or implied contained
herein, all such liability, if any, being expressly waived by the parties who
are signatories to this Declaration and by any person claiming by, through or
under such parties and (iv) under no circumstances shall The Bank of New York
(Delaware) be personally liable for the payment of any indebtedness or expenses
of the Trust or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by or on behalf of the
Trust under this Declaration;
(d) the Delaware Trustee shall not be personally responsible for
the validity or sufficiency of this Declaration or the Certificates or for the
due execution hereof by the Agencies;
(e) in the exercise or administration of the trusts hereunder,
the Delaware Trustee (i) may act directly or through agents (including
affiliates, such as The Bank of New York), attorneys, custodians or nominees
pursuant to agreements entered into with any of them, and the Delaware Trustee
shall not be liable for the default or misconduct or supervision of such agents,
attorneys, custodians or nominees if such agents, attorneys, custodians or
nominees shall have been selected by the Delaware Trustee in good faith and (ii)
may, at the expense of the Note Issuer, consult with attorneys, accountants and
other skilled persons to be selected in good faith and employed by it, and it
shall not be liable for anything done, suffered or omitted in good faith by it
in accordance with the advice or opinion of any such attorneys, accountants or
other skilled persons;
(f) except as expressly provided in this Section 4.5, in
accepting and performing the trusts hereby created, the Delaware Trustee acts
solely as trustee for the Trust and not in its individual capacity, and all
persons having any claim against the Delaware Trustee by reason of the
transactions contemplated by this Declaration shall look only to the Trust's
property for payment or satisfaction thereof;
(g) the Delaware Trustee's sole duty with respect to the custody,
safekeeping and physical preservation of the Trust Property shall be to deal
with such property in a manner similar to the manner in which the Delaware
Trustee deals with similar property for its own account, subject to the
protections and limitations on liability afforded to the Delaware Trustee under
this Declaration;
(h) the Delaware Trustee shall have no duty or liability for or
with respect to the value, genuineness, existence or sufficiency of the Trust
Property or the payment of any taxes or assessments levied thereon or in
connection therewith;
(i) the Delaware Trustee shall not be liable for any interest on
any moneys received by it on behalf of the Trust except as the Delaware Trustee
may otherwise agree with the Agencies;
(j) moneys held by the Delaware Trustee on behalf of the Trust
need not be segregated from other moneys except as the Delaware Trustee may
otherwise agree with the Agencies or as otherwise required by law; and
7
<PAGE> 11
(k) the Delaware Trustee shall have the right at any time to seek
instructions concerning the administration of the Trust from any court of
competent jurisdiction.
SECTION 4.6 Compensation and Reimbursement; Indemnification.
(a) Pursuant to the Fee and Indemnity Agreement, the Note Issuer
has agreed to pay, or cause to be paid, to the Delaware Trustee from time to
time compensation for its services and to reimburse it for its reasonable
expenses hereunder. The Delaware Trustee shall have no recourse against the
Agencies or against the Notes, the payments received thereon or the proceeds
therefrom, for the payment of such compensation or for the reimbursement of such
expenses.
(b) Pursuant to the Fee and Indemnity Agreement, the Note Issuer
has agreed to indemnify, defend and hold harmless the Delaware Trustee and any
of the affiliates, officers, directors, employees and agents of the Delaware
Trustee (the "Delaware Trustee Indemnified Persons") from and against any and
all losses, claims, actions, suits, taxes, damages, costs, expenses (including
the reasonable fees and expenses of its counsel) and liabilities (including
liabilities under state or federal securities laws) of any kind and nature
whatsoever (collectively, "Delaware Trustee Expenses"), to the extent that such
Delaware Trustee Expenses arise out of or are imposed upon or asserted against
such Delaware Trustee Indemnified Persons with respect to the creation,
operation or termination of the Trust, the execution, delivery or performance of
this Declaration or the transactions contemplated hereby; provided, however,
that the Note Issuer is not, and shall not be, required to indemnify any
Delaware Trustee Indemnified Person for any Delaware Trustee Expenses that
result from the willful misconduct or gross negligence of such Delaware Trustee
Indemnified Person. Pursuant to the Fee and Indemnity Agreement, the obligations
of the Note Issuer to indemnify the Delaware Trustee Indemnified Persons shall
survive the termination of this Declaration and the resignation or removal of
the Delaware Trustee. The Delaware Trustee is hereby authorized to execute the
Fee and Indemnity Agreement on behalf of the Trust and to enforce the terms
thereof on its own behalf and on behalf of the Trust.
(c) Notwithstanding anything to the contrary in this Declaration,
the Delaware Trustee shall have no recourse against the Agencies or against the
Notes or the payments thereon and proceeds thereof, for payment of any amounts
required to be paid to the Delaware Trustee under the Fee and Indemnity
Agreement. The Delaware Trustee shall have a lien against the Transition
Property to secure payment of such amounts to the extent provided in the Statute
or the financing order issued pursuant thereto. The Note Issuer's obligations to
make payments of such amounts to the Delaware Trustee shall be subject to the
priorities set forth in Section 8.02 of the Note Indenture.
SECTION 4.7 Resignation. The Delaware Trustee may resign upon 30 days'
prior written notice to the Certificate Trustee, the Agencies and the Trust;
provided, however, that a successor Delaware Trustee satisfactory to the
Agencies shall have been appointed and agreed to serve. If a successor Delaware
Trustee shall not have been appointed by the Agencies within such 30-day period,
the Delaware Trustee may apply to the Court of Chancery of the State of Delaware
for the appointment of a successor Delaware Trustee. Any successor Delaware
Trustee must satisfy the requirement of Section 3807(a) of the Business Trust
Act.
8
<PAGE> 12
SECTION 4.8 Representations and Warranties of Delaware Trustee. The
Bank of New York (Delaware) hereby represents and warrants to the other parties
hereto that:
(a) It is a banking corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
(b) It has full power, authority and legal right to execute,
deliver and perform this Declaration, and has taken all necessary action to
authorize the execution, delivery and performance by it of this Declaration.
(c) The execution, delivery and performance by it of this
Declaration (i) do not violate any requirement of federal law or the law of the
State of Delaware governing its banking and trust powers or any order, writ,
judgment or decree of any court, arbitrator or governmental authority applicable
to it or any of its assets, (ii) do not violate any provision of its charter or
by-laws, and (iii) do not violate any provision of, or constitute, with or
without notice or lapse of time, a default under, or result in the creation or
imposition of any Lien on any properties included in the Trust pursuant to the
provisions of any mortgage, indenture, contract, agreement or other undertaking
to which it is a party, which violation, default or Lien could reasonably be
expected to have a materially adverse effect on its performance or its ability
to perform its duties as a Trustee under this Declaration or on the transactions
contemplated in this Declaration.
(d) Its execution, delivery and performance of this Declaration
shall not require the authorization, consent or approval of, the giving of
notice to, the filing or registration with, or the taking of any other action in
respect of, any governmental authority or agency regulating the banking and
corporate trust activities of banks or trust companies in the jurisdiction in
which the Trust was formed (except for the filing of the Certificate of Trust
with the Secretary of State of the State of Delaware).
(e) This Declaration has been duly executed and delivered by it
and, assuming due authorization, execution and delivery hereof by the other
parties hereto, constitutes the legal, valid and binding agreement of it,
enforceable against it in accordance with the terms of this Declaration, except
as enforceability may be limited by bankruptcy, insolvency, reorganization, and
other similar laws affecting the enforcement of creditors' rights in general and
by general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
SECTION 4.9 Reliance; Advice of Counsel.
(a) The Delaware Trustee shall incur no liability to anyone in
acting upon any signature, instrument, notice, resolution, request, consent,
order, certificate, report, opinion, bond or other document or paper reasonably
believed by it to be genuine and reasonably believed by it to be signed by the
proper party or parties and need not investigate any fact or matter pertaining
to or in any such document. The Delaware Trustee may accept a certified copy of
a resolution of the board of directors or other governing body of any corporate
party as conclusive evidence that such resolution has been duly adopted by such
body and that the same is in full force and effect unless and until the Delaware
Trustee receives a certified copy of a resolution of such board of directors or
other body revoking the same. As to any fact or matter the method of the
9
<PAGE> 13
determination of which is not specifically prescribed herein, the Delaware
Trustee may for all purposes hereof rely on a certificate, signed by the
president or any vice president or by the treasurer or other authorized officers
of the relevant party, as to such fact or matter, and such certificate shall
constitute full protection to it for any action taken or omitted to be taken by
it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and
in the performance of its duties and obligations under this Declaration and the
Basic Documents, the Delaware Trustee: (i) may, at the expense of the Note
Issuer or any other party, to the extent provided in the Fee and Indemnity
Agreement, act directly or through its agents, attorneys, custodians or nominees
(including, if necessary, the granting of a power of attorney to any of its
officers not otherwise authorized to execute and deliver any Basic Document,
Certificate or other documents related thereto and to take any action in
connection therewith on behalf of the Delaware Trustee) pursuant to agreements
entered into with any of them, and the Delaware Trustee shall not be liable for
the conduct or misconduct of such agents, attorneys, custodians or nominees if
such agents, attorneys, custodians or nominees shall have been selected by the
Delaware Trustee with reasonable care; and (ii) may, at the expense of the Note
Issuer or any other party, to the extent provided in the Fee and Indemnity
Agreement, consult with counsel, accountants and other professionals to be
selected with reasonable care by it. The Delaware Trustee shall not be liable
for anything done, suffered or omitted in good faith by it in accordance with
the opinion or advice of any such counsel, accountant or other such persons
reasonably relied on and which, according to such opinion or advice, is not
contrary to this Declaration or any other Basic Document.
SECTION 4.10 Delaware Trustee May Own Certificates. The Delaware
Trustee in its individual or any other capacity may become the owner or pledgee
of Certificates and may deal with Boston Edison, the Note Issuer, the Note
Trustee, the Certificate Trustee, the Servicer, the Agencies and their
respective affiliates and with the holders of the Certificates in transactions
in the same manner as the Delaware Trustee would have if it were not a trustee
under this Declaration.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE AGENCIES
SECTION 5.1 Representations and Warranties of Agencies. Each Agency as
a settlor of the Trust will represent and warrant, as of the Issuance Date of
the Certificates, the following:
(a) such Agency has full power, authority and legal right, and
has taken all action necessary, to execute and deliver this Declaration and to
fulfill its obligations under, and to consummate the transactions contemplated
by, this Declaration;
(b) the making and performance by such Agency of this Declaration
and all documents required to be executed and delivered by it hereunder do not
and will not violate any law or regulation of the jurisdiction of its
organization or any other law or regulation applicable to it or violate any
provision of, or constitute, with or without notice or lapse of time, a default
under, or result in the creation or imposition of any lien on any properties
included in the Trust
10
<PAGE> 14
Property pursuant to, any mortgage, indenture, contract, agreement or other
undertaking to which such Agency is a party;
(c) this Declaration has been duly executed and delivered by such
Agency and constitutes its legal, valid and binding obligation, enforceable in
accordance with its terms; and
(d) to the best knowledge of such Agency, all consents, licenses,
approvals, authorizations, exemptions, registrations, filings, opinions and
declarations from or with any agency, department, administrative authority,
statutory corporation or judicial entity necessary for the validity or
enforceability of such Agency's obligations under this Declaration have been
obtained, and no governmental authorizations other than any already obtained are
required in connection with the execution, delivery and performance of this
Declaration by such Agency.
ARTICLE 6
TERMINATION OF DECLARATION
SECTION 6.1 Termination of the Trust. The respective obligations and
responsibilities of the Agencies, the Delaware Trustee and the Trust created
hereby shall terminate with respect to any class of Certificates one year and
one day following the distribution to all holders of the Certificates of such
class of all amounts required to be distributed to them pursuant to the
Certificate Indenture and the disposition of all property held as part of the
Trust Property with respect to such class of Certificates. Upon the redemption
of all classes of Certificates and at the election of the Agencies, the Trust
shall dissolve. The Agencies shall pay or provide for the payment of all
remaining liabilities of the Trust and the Delaware Trustee, but solely from
amounts payable to the Agencies under the Fee and Indemnity Agreement, and
thereupon the Delaware Trustee shall file a certificate of cancellation under
the Business Trust Act and the Trust shall terminate, and any fees associated
with such filing shall be paid from amounts payable to the Agencies under the
Fee and Indemnity Agreement.
Notice of any termination of the Trust shall be mailed by the
Certificate Trustee promptly in accordance with the Certificate Indenture.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 No Legal Title to Trust Property. As provided in Section
2.5(c) hereof, the Agencies shall not have legal title to any part of the Trust
Property.
SECTION 7.2 Limitations on Rights of Others. Except as otherwise
provided herein, the provisions of this Declaration are solely for the benefit
of the Agencies, the Delaware Trustee, the Certificate Trustee and the holders
of the Certificates, and nothing in this Declaration, whether express or
implied, shall be construed to give to any other person any legal or equitable
right, remedy or claim in the Trust Property or under or in respect of this
Declaration or any covenants, conditions or provisions contained herein.
11
<PAGE> 15
SECTION 7.3 Notices. (a) Unless otherwise specifically provided herein,
all notices, directions, consents and waivers required under the terms and
provisions of this Declaration shall be in English and in writing, and any such
notice, direction, consent or waiver may be given by United States mail, courier
service, facsimile transmission or electronic mail (confirmed by telephone,
United States mail or courier service in the case of notice by facsimile
transmission or electronic mail) or any other customary means of communication,
and any such notice, direction, consent or waiver shall be effective when
delivered, or if mailed, three days after deposit in the United States mail with
proper postage for ordinary mail prepaid,
if to the Trust, to:
The Bank of New York (Delaware), as Delaware Trustee for the
Massachusetts RRB Special Purpose Trust BEC-1
c/o The Bank of New York
101 Barclay Street
Floor 12 East
New York, NY 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
with copies to the Agencies at the addresses listed herein.
if to the Agencies, to:
Massachusetts Development Finance Agency
75 Federal Street
Boston, MA 02110
Attention: General Counsel
Facsimile: (617) 727-8741
Telephone: (617) 451-2477
and
Massachusetts Health and Education Facilities Authority
99 Summer Street
10th Floor
Boston, MA 02110
Attention: General Counsel
Facsimile: (617) 737-8366
Telephone: (617) 737-8377
12
<PAGE> 16
if to the Delaware Trustee, to:
The Bank of New York (Delaware)
c/o The Bank of New York
101 Barclay Street
Floor 12 East
New York, NY 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
(b) The Trust, the Agencies or the Delaware Trustee, by notice to
the others, may designate additional or different addresses for subsequent
notices or communications.
(c) If a notice or communication is mailed in the manner provided
above within the time prescribed, it is conclusively presumed to have been duly
given, whether or not the addressee receives it.
SECTION 7.4 Severability. If any one or more of the covenants,
agreements, provisions or terms of this Declaration shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
or terms of this Declaration and shall in no way affect the validity or
enforceability of the other provisions of this Declaration.
SECTION 7.5 Amendments Without Consent of Holders. This Declaration may
be amended by the Delaware Trustee and the Agencies with the prior written
consent of the Certificate Trustee but without the consent of any of the holders
of the Certificates (but with prior notice to the rating agencies named in the
Certificate Indenture) to (i) cure any ambiguity; (ii) correct or supplement any
provision in this Declaration that may be defective or inconsistent with any
other provision in this Declaration; (iii) add to the covenants, restrictions or
obligations of the Delaware Trustee for the benefit of the holders of the
Certificates; (iv) evidence and provide for the acceptance of the appointment of
a successor trustee with respect to the Trust Property and add to or change any
provisions as shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee; or (v) add, change or eliminate any other
provision of this Declaration in any manner that shall not, as evidenced by an
opinion of counsel to the Agencies, adversely affect in any material respect the
interests of the holders of the Certificates; provided, however, that this
Declaration shall not be amended in any manner which (i) would cause the Trust
to be characterized as other than a "grantor trust" for federal income tax
purposes or (ii) would affect the rights of the Agencies hereunder or under the
Basic Documents without the prior written consent of the Agencies or receipt of
an opinion of counsel to the Agencies to the effect that such amendment does not
adversely affect, in any manner, the interests of the Agencies under this
Declaration. After the execution of any such amendment, the Delaware Trustee
shall furnish a copy thereof to the rating agencies named in the Certificate
Indenture.
13
<PAGE> 17
SECTION 7.6 Amendments With Consent of Holders. This Declaration may be
amended from time to time by the Delaware Trustee and the Agencies with the
consent of the Certificate Trustee and the holders of Certificates whose
Certificates evidence not less than a majority of the outstanding principal
amount of each affected class of the Certificates as of the close of business on
the preceding Certificate payment date (which consent, whether given pursuant to
this Section 7.6 or pursuant to any other provision of this Declaration or the
Certificate Indenture, shall be conclusive and binding on such Certificate
holder and on all future holders of such Certificates and of any Certificates
issued upon the transfer thereof or in exchange thereof or in lieu thereof
whether or not notation of such consent is made upon the Certificates) (and with
prior notice to the rating agencies named in the Certificate Indenture) for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Declaration, or of modifying in any manner the rights
of the holders of the Certificates; provided, however, that no such amendment
shall (a) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, payments that shall be required to be made on any Certificate
without the consent of the holder thereof; (b) adversely affect the rating of
any of the Certificates without the consent of the holders of all of the
outstanding principal amount of such affected Certificates; or (c) reduce the
aforesaid majority required to consent to any such amendment, without the
consent of all of the holders of the Certificates then outstanding. Prior to the
execution of any such amendment, supplement or consent, the Delaware Trustee
shall furnish written notification of the substance of such amendment,
supplement or consent to the rating agencies named in the Certificate Indenture.
After the execution of any such amendment, supplement or consent, the Delaware
Trustee shall furnish a copy thereof to the rating agencies named in the
Certificate Indenture.
SECTION 7.7 Form of Amendments.
(a) Promptly after the execution of any amendment, supplement or
consent pursuant to Sections 7.5 and 7.6, the Delaware Trustee shall furnish
written notification of the substance of such amendment or consent to the
Certificate Trustee and the Agencies.
(b) The manner of obtaining such consents (and any other consents
of holders of the Certificates provided for in this Declaration or in any other
Basic Document) and of evidencing the authorization of the execution thereof by
holders of the Certificates shall be subject to such reasonable requirements as
the Delaware Trustee may prescribe to the extent not inconsistent with the
provisions of the Basic Documents.
(c) Promptly after the execution of any amendment to the
Certificate of Trust, the Delaware Trustee shall cause the filing of such
amendment with the Secretary of State of the State of Delaware.
(d) Prior to the execution of any amendment to this Declaration,
the Delaware Trustee shall receive an opinion of counsel to the effect that (i)
the execution of such amendment is authorized or permitted by this Declaration
and (ii) such execution will not adversely affect the treatment of the Trust as
a "grantor trust" for federal income tax purposes.
14
<PAGE> 18
(e) The Delaware Trustee may, but shall not be obligated to,
enter into any such amendment that affects and only affects the Delaware
Trustee's own rights, duties or immunities under this Declaration or otherwise.
SECTION 7.8 Counterparts. This Declaration may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
SECTION 7.9 Successors. All covenants and agreements contained herein
shall be binding upon, and inure to the benefit of the Agencies, the Trust and
the Delaware Trustee and their respective successors and permitted assigns, all
as herein provided.
SECTION 7.10 No Petition Covenant. Notwithstanding any other provision
of this Declaration or any Basic Document and notwithstanding any prior
termination of this Declaration, the Trust (or the Delaware Trustee on behalf of
the Trust) and the Agencies shall not, prior to the date which is one year and
one day after the termination of this Declaration, acquiesce, petition or
otherwise invoke or cause the Trust to invoke the process of any governmental
authority for the purpose of commencing or sustaining a case against the Trust
under any federal or state bankruptcy, insolvency or similar law or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Trust or any substantial part of its property, or
ordering the winding up or liquidation of the affairs of the Trust.
SECTION 7.11 Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 7.12 Governing Law. THIS DECLARATION SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
15
<PAGE> 19
IN WITNESS WHEREOF, the Delaware Trustee and the Agencies have
caused this Declaration of Trust to be duly executed by duly authorized
officers, all as of the day and year first above written.
Massachusetts Development Finance
Agency, as a Settlor
By: /s/ David T. Slatery
--------------------------------
Name: David T. Slatery
Title: General Counsel
Massachusetts Health and
Education Facilities Authority, as a
Settlor
By: /s/ David J. MacKenzie
--------------------------------
Name: David J. MacKenzie
Title: General Counsel
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee
By: /s/ Cheryl L. Laser
--------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
S-1
<PAGE> 20
EXHIBIT A TO THE
DECLARATION OF TRUST
CERTIFICATE OF TRUST OF
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
THIS CERTIFICATE OF TRUST of Massachusetts RRB Special Purpose Trust
BEC-1 (the "Trust"), dated as of July 28, 1999, is being duly executed and filed
by the undersigned, as trustees, to form a not-for-profit business trust under
the Delaware Business Trust Act (12 Del. C., Section 3801 et seq.) (the "Act").
1. Name. The name of the not-for-profit business trust formed hereby is
"Massachusetts RRB Special Purpose Trust BEC-1."
2. Delaware Trustee. The name and business address of the trustee of
the Trust in the State of Delaware is The Bank of New York (Delaware),White Clay
Center, Route 273, Newark, Delaware 19711.
3. Effective Date. This Certificate of Trust shall be effective as of
the date filed.
4. Series. The Trust shall be a series Trust and shall issue series of
beneficial interests having separate rights, powers and duties with respect to
property or obligations of the Trust, as provided in Section 3804 and 3806(b)(2)
of the Act, such that the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular series shall
be enforceable against the assets of such series only, and not against the
assets of the Trust generally or any other series.
A-1
<PAGE> 21
IN WITNESS WHEREOF, the undersigned, being the sole trustees of the
Trust, have executed this Certificate of Trust in accordance with Section
3811(a) of the Act.
THE BANK OF NEW YORK (DELAWARE), not in
its individual capacity but solely as Delaware Trustee
By:
Name:
Title:
THE BANK OF NEW YORK, not in its individual
capacity but solely as Certificate Trustee
By:
Name:
Title:
S-1
<PAGE> 1
REGISTERED
NO. A-1 $108,500,000
SEE REVERSE FOR CERTAIN DEFINITIONS
THE PRINCIPAL OF THIS CLASS A-1 NOTE WILL BE PAID IN INSTALLMENTS AS
SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS
A-1 NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
BEC FUNDING LLC NOTES
CLASS A-1
Interest Rate Original Principal Amount Final Maturity Date
5.99% $108,500,000 March 15, 2003
PRINCIPAL AMOUNT: One Hundred Eight Million Five Hundred Thousand Dollars
Exactly ($108,500,000)
BEC Funding LLC, a limited liability company formed and existing under
the laws of the State of Delaware (herein referred to as the "Note Issuer"), for
value received, hereby promises to pay to Massachusetts RRB Special Purpose
Trust BEC-1, or registered assigns, the Original Principal Amount shown above in
semiannual installments on the Payment Dates and in the amounts specified on the
reverse hereof or, if less, the amounts determined pursuant to Section 8.02 of
the Note Indenture, in each year, commencing on the date determined as provided
on the reverse hereof and ending on or before the Final Maturity Date and to pay
interest, at the Interest Rate shown above, on each September 15 and March 15 or
if any such day is not a Business Day, the next succeeding Business Day,
commencing on March 15, 2000 and continuing until the earlier of the payment of
the principal hereof or the Final Maturity Date (each a "Payment Date"), on the
principal amount of this Class A-1 Note. Interest on this Class A-1 Note will
accrue for each Payment Date from the most recent Payment Date on which interest
has been paid to but excluding such Payment Date or, if no interest has yet been
paid, from July 29, 1999. Interest will be computed on the basis of a 360-day
year of twelve 30-day months. Such principal of and interest on this Class A-1
Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Class A-1 Note are payable in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts. All payments made by
the Note Issuer with respect to this Class A-1 Note shall be applied first to
interest due and payable on this Class A-1 Note as provided above and
<PAGE> 2
then to the unpaid principal of this Class A-1 Note, all in the manner set forth
in Section 8.02 of the Note Indenture.
Reference is made to the further provisions of this Class A-1 Note set
forth on the reverse hereof, which shall have the same effect as though fully
set forth on the face of this Class A-1 Note.
Unless the certificate of authentication hereon has been executed by
the Note Trustee whose name appears below by manual signature, this Class A-1
Note shall not be entitled to any benefit under the Note Indenture referred to
on the reverse hereof, or be valid or obligatory for any purpose.
2
<PAGE> 3
IN WITNESS WHEREOF, the Note Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Date: July 29, 1999
BEC FUNDING LLC
By: /s/ Emilie G. O'Neil
----------------------------
Emilie G. O'Neil
Vice President and Treasurer
3
<PAGE> 4
NOTE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: July 29, 1999
This is one of the Notes referred to in the within-mentioned Note
Indenture.
THE BANK OF NEW YORK,
not in its individual capacity but solely as Note
Trustee,
By: /s/ Cheryl L. Laser
--------------------
Authorized Signatory
4
<PAGE> 5
[REVERSE OF NOTE]
This Class A-1 Note is one of a duly authorized issue of Notes of the
Note Issuer, designated as its BEC Funding LLC Notes (herein called the
"Notes"), issued and to be issuable in one or more Classes, and further
designated as a Class A-1 Note (collectively with all other Class A-1 Notes of
this issue, the "Class A-1 Notes"), all issued and to be issued under a Note
Indenture dated as of July 29, 1999 (the "Note Indenture"), between the Note
Issuer and The Bank of New York, as Note Trustee (the "Note Trustee," which term
includes any successor trustee under the Note Indenture), to which Note
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights and obligations thereunder of the Note
Issuer, the Note Trustee and the Holders of the Notes. All terms used in this
Class A-1 Note that are defined in the Note Indenture, as supplemented or
amended, shall have the meanings assigned to them in the Note Indenture, as
supplemented or amended.
The Class A-1 Notes and the other Classes of Notes issued by the Note
Issuer are and will be equally and ratably secured by the collateral pledged as
security therefor, as provided in the Note Indenture.
The principal of this Class A-1 Note shall be payable on each Payment
Date only to the extent that amounts in the Collection Account are available
therefor, and only until the outstanding principal balance thereof on such
Payment Date (after giving effect to all payments of principal, if any, made on
such Payment Date) has been reduced to the principal balance specified in the
Expected Amortization Schedule which is attached to the Note Indenture as
Schedule A, unless payable earlier either because (x) an Event of Default shall
have occurred and be continuing and the Note Trustee or the Holders of Notes
representing not less than a majority of the Outstanding Amount of the Notes
have declared the Notes to be immediately due and payable in accordance with
Section 5.02 of the Note Indenture, (y) the Note Issuer, at its option, shall
have called for the redemption of the Notes pursuant to Section 10.01 of the
Note Indenture or (z) the Note Issuer shall have called for the redemption of
the Notes pursuant to Section 10.04 of the Note Indenture if the Seller is
required to repurchase the Transition Property pursuant to Section 5.01 of the
Sale Agreement. However, actual principal payments may be made in lesser than
expected amounts and at later than expected times as determined pursuant to
Section 8.02 of the Note Indenture. The entire unpaid principal amount of this
Class A-1 Note shall be due and payable on the earlier of the Final Maturity
Date hereof, the optional Redemption Date, if any, and the Mandatory Redemption
Date, if any, herefor. Notwithstanding the foregoing, the entire unpaid
principal amount of the Notes shall be due and payable, if not then previously
paid, on the date on which an Event of Default shall have occurred and be
continuing and the Note Trustee or the Holders of the Notes representing not
less than a majority of the Outstanding Amount of the Notes have declared the
Notes to be immediately due and payable in the manner provided in Section 5.02
of the Note Indenture. All principal payments on the Class A-1 Notes shall be
made pro rata to the Class A-1 Noteholders entitled thereto based on the
respective principal amounts of the Class A-1 Notes held by them.
5
<PAGE> 6
Payments of interest on this Class A-1 Note due and payable on each
Payment Date, together with the installment of principal shall be made by check
mailed first-class, postage prepaid, to the Person whose name appears as the
Registered Holder of this Class A-1 Note (or one or more Predecessor Notes) on
the Note Register as of the close of business on the Record Date, except that
with respect to Notes registered on the Record Date in the name of the
Certificate Trustee, payments will be made by wire transfer in immediately
available funds to the account designated by the Certificate Trustee and except
for the final installment of principal payable with respect to this Class A-1
Note on a Payment Date which shall be payable as provided below. Such checks
shall be mailed to the Person entitled thereto at the address of such Person as
it appears on the Note Register as of the applicable Record Date without
requiring that this Class A-1 Note be submitted for notation of payment. Any
reduction in the principal amount of this Class A-1 Note (or any one or more
Predecessor Notes) effected by any payments made on any Payment Date shall be
binding upon all future Holders of this Class A-1 Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be available, as
provided in the Note Indenture, for payment in full of the then remaining unpaid
principal amount of this Class A-1 Note on a Payment Date, then the Note
Trustee, in the name of and on behalf of the Note Issuer, will notify the Person
who was the Registered Holder hereof as of the Record Date preceding such
Payment Date by notice mailed no later than five days prior to such final
Payment Date and shall specify that such final installment will be payable only
upon presentation and surrender of this Class A-1 Note and shall specify the
place where this Class A-1 Note may be presented and surrendered for payment of
such installment.
The Note Issuer shall pay interest on overdue installments of interest
at the Note Interest Rate to the extent lawful.
As provided in the Note Indenture, the Class A-1 Notes may be redeemed,
in whole but not in part, at the option of the Note Issuer on any Payment Date
at the Optional Redemption Price if, after giving effect to payments that would
otherwise be made on such Payment Date, the Outstanding Amount of the Notes has
been reduced to less than five percent of the initial principal balance thereof.
In addition, as provided in the Note Indenture, if the Seller is required to
repurchase the Transition Property pursuant to Section 5.01 of the Sale
Agreement, the Note Issuer will be required to redeem all outstanding Notes,
including the Class A-1 Notes, on or before the fifth Business Day following the
Repurchase Date (as defined in the Sale Agreement).
As provided in the Note Indenture and subject to certain limitations
set forth therein, the transfer of this Class A-1 Note may be registered on the
Note Register upon surrender of this Class A-1 Note for registration of transfer
at the office or agency designated by the Note Issuer pursuant to the Note
Indenture, duly endorsed by, or accompanied by (a) a written instrument of
transfer in form satisfactory to the Note Trustee duly executed by the Holder
hereof or his attorney duly authorized in writing, with such signature
guaranteed by an institution which is a member of one of the following
recognized Signature Guaranty Programs: (i) The Securities Transfer Agent
Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion
6
<PAGE> 7
Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) in
such other guarantee program acceptable to the Note Trustee, and (b) such other
documents as the Note Trustee may require, and thereupon one or more new Class
A-1 Notes of Minimum Denominations and in the same aggregate principal amount
will be issued to the designated transferee or transferees. No service charge
will be charged for any registration of transfer or exchange of this Class A-1
Note, but the transferor may be required to pay a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any such
registration of transfer or exchange, other than exchanges pursuant to Section
2.04 of the Note Indenture not involving any transfer.
Each Noteholder, by acceptance of a Note, covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Note Issuer or the Note Trustee on the Notes or under the Note Indenture
or any certificate or other writing delivered in connection therewith, against
(i) the Note Trustee in its individual capacity, (ii) any owner of a beneficial
interest in the Note Issuer or (iii) any partner, owner, beneficiary, agent,
officer, director or employee of the Note Trustee in its individual capacity,
any holder of a beneficial interest in the Note Issuer or the Note Trustee or of
any successor or assign of the Note Trustee in its individual capacity, except
as any such Person may have expressly agreed (it being understood that the Note
Trustee has no such obligations in its individual capacity).
Prior to the due presentment for registration of transfer of this Class
A-1 Note, the Note Issuer, the Note Trustee and any agent of the Note Issuer or
the Note Trustee may treat the Person in whose name this Class A-1 Note is
registered (as of the day of determination) as the owner hereof for the purpose
of receiving payments of principal of and interest on this Class A-1 Note and
for all other purposes whatsoever, whether or not this Class A-1 Note be
overdue, and neither the Note Issuer, the Note Trustee nor any such agent shall
be affected by notice to the contrary.
The Note Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Note Issuer and the rights of the Holders of the Notes under
the Note Indenture at any time by the Note Issuer with the consent of the
Holders of Notes representing a majority of the Outstanding Amount of all Notes
at the time Outstanding of each Class to be affected. The Note Indenture also
contains provisions permitting the Holders of Notes representing specified
percentages of the Outstanding Amount of the Notes, on behalf of the Holders of
all the Notes, to waive compliance by the Note Issuer with certain provisions of
the Note Indenture and certain past defaults under the Note Indenture and their
consequences. Any such consent or waiver by the Holder of this Class A-1 Note
(or any one of more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future Holders of this Class A-1 Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Class A-1
Note. The Note Indenture also permits the Note Trustee to amend or waive certain
terms and conditions set forth in the Note Indenture without the consent of
Holders of the Notes issued thereunder.
7
<PAGE> 8
The term "Note Issuer" as used in this Class A-1 Note includes any
successor to the Note Issuer under the Note Indenture.
The Note Issuer is permitted by the Note Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Note
Trustee and the Holders of Notes under the Note Indenture.
The Class A-1 Notes are issuable only in registered form in
denominations as provided in the Note Indenture, subject to certain limitations
therein set forth.
This Class A-1 Note and the Note Indenture shall be construed in
accordance with the laws of The Commonwealth of Massachusetts, without reference
to its conflict of law provisions, and the obligations, rights and remedies of
the parties hereunder and thereunder shall be determined in accordance with such
laws.
No reference herein to the Note Indenture and no provision of this
Class A-1 Note or of the Note Indenture shall alter or impair the obligation of
the Note Issuer, which is absolute and unconditional, to pay the principal of
and interest on this Class A-1 Note at the times, place, and rate, and in the
coin or currency herein prescribed.
The Holder of this Class A-1 Note by the acceptance hereof agrees that,
notwithstanding any provision of the Note Indenture to the contrary, the Holder
shall have no recourse against the Note Issuer, but shall look only to the
Collateral, with respect to any amounts due to the Holder under this Class A-1
Note.
8
<PAGE> 9
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of
assignee:
- ---------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(name and address of assignee)
the within Class A-1 Note and all rights thereunder, and hereby irrevocably
constitutes and appoints , attorney, to transfer said Class
A-1 Note on the books kept for registration thereof, with full power of
substitution in the premises.
Dated: *
--------------------------------- ------------------------------------
Signature Guaranteed:
--------------------------------- ------------------------------------
- ----------
* NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Class A-1 Note in
every particular, without alteration, enlargement or any change whatsoever.
9
<PAGE> 10
REGISTERED
NO. A-2 $170,609,837
SEE REVERSE FOR CERTAIN DEFINITIONS
THE PRINCIPAL OF THIS CLASS A-2 NOTE WILL BE PAID IN INSTALLMENTS AS
SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS
A-2 NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
BEC FUNDING LLC NOTES
CLASS A-2
Interest Rate Original Principal Amount Final Maturity Date
6.45% $170,609,837 September 15, 2005
PRINCIPAL AMOUNT: One Hundred Seventy Million Six Hundred Nine Thousand Eight
Hundred Thirty Seven Dollars Exactly ($170,609,837)
BEC Funding LLC, a limited liability company formed and existing under
the laws of the State of Delaware (herein referred to as the "Note Issuer"), for
value received, hereby promises to pay to Massachusetts RRB Special Purpose
Trust BEC-1, or registered assigns, the Original Principal Amount shown above in
semiannual installments on the Payment Dates and in the amounts specified on the
reverse hereof or, if less, the amounts determined pursuant to Section 8.02 of
the Note Indenture, in each year, commencing on the date determined as provided
on the reverse hereof and ending on or before the Final Maturity Date and to pay
interest, at the Interest Rate shown above, on each September 15 and March 15 or
if any such day is not a Business Day, the next succeeding Business Day,
commencing on March 15, 2000 and continuing until the earlier of the payment of
the principal hereof or the Final Maturity Date (each a "Payment Date"), on the
principal amount of this Class A-2 Note. Interest on this Class A-2 Note will
accrue for each Payment Date from the most recent Payment Date on which interest
has been paid to but excluding such Payment Date or, if no interest has yet been
paid, from July 29, 1999. Interest will be computed on the basis of a 360-day
year of twelve 30-day months. Such principal of and interest on this Class A-2
Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Class A-2 Note are payable in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts. All payments made by
the Note Issuer with respect to this Class A-2 Note shall be applied first to
interest due and payable on this Class A-2 Note as provided above and
<PAGE> 11
then to the unpaid principal of this Class A-2 Note, all in the manner set forth
in Section 8.02 of the Note Indenture.
Reference is made to the further provisions of this Class A-2 Note set
forth on the reverse hereof, which shall have the same effect as though fully
set forth on the face of this Class A-2 Note.
Unless the certificate of authentication hereon has been executed by
the Note Trustee whose name appears below by manual signature, this Class A-2
Note shall not be entitled to any benefit under the Note Indenture referred to
on the reverse hereof, or be valid or obligatory for any purpose.
2
<PAGE> 12
IN WITNESS WHEREOF, the Note Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Date: July 29, 1999
BEC FUNDING LLC
By: /s/ Emilie G. O'Neil
----------------------------
Emilie G. O'Neil
Vice President and Treasurer
3
<PAGE> 13
NOTE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: July 29, 1999
This is one of the Notes referred to in the within-mentioned Note
Indenture.
THE BANK OF NEW YORK,
not in its individual capacity but solely as Note
Trustee,
By: /s/ Cheryl L. Laser
--------------------
Authorized Signatory
4
<PAGE> 14
[REVERSE OF NOTE]
This Class A-2 Note is one of a duly authorized issue of Notes of the
Note Issuer, designated as its BEC Funding LLC Notes (herein called the
"Notes"), issued and to be issuable in one or more Classes, and further
designated as a Class A-2 Note (collectively with all other Class A-2 Notes of
this issue, the "Class A-2 Notes"), all issued and to be issued under a Note
Indenture dated as of July 29, 1999 (the "Note Indenture"), between the Note
Issuer and The Bank of New York, as Note Trustee (the "Note Trustee," which term
includes any successor trustee under the Note Indenture), to which Note
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights and obligations thereunder of the Note
Issuer, the Note Trustee and the Holders of the Notes. All terms used in this
Class A-2 Note that are defined in the Note Indenture, as supplemented or
amended, shall have the meanings assigned to them in the Note Indenture, as
supplemented or amended.
The Class A-2 Notes and the other Classes of Notes issued by the Note
Issuer are and will be equally and ratably secured by the collateral pledged as
security therefor, as provided in the Note Indenture.
The principal of this Class A-2 Note shall be payable on each Payment
Date only to the extent that amounts in the Collection Account are available
therefor, and only until the outstanding principal balance thereof on such
Payment Date (after giving effect to all payments of principal, if any, made on
such Payment Date) has been reduced to the principal balance specified in the
Expected Amortization Schedule which is attached to the Note Indenture as
Schedule A, unless payable earlier either because (x) an Event of Default shall
have occurred and be continuing and the Note Trustee or the Holders of Notes
representing not less than a majority of the Outstanding Amount of the Notes
have declared the Notes to be immediately due and payable in accordance with
Section 5.02 of the Note Indenture, (y) the Note Issuer, at its option, shall
have called for the redemption of the Notes pursuant to Section 10.01 of the
Note Indenture or (z) the Note Issuer shall have called for the redemption of
the Notes pursuant to Section 10.04 of the Note Indenture if the Seller is
required to repurchase the Transition Property pursuant to Section 5.01 of the
Sale Agreement. However, actual principal payments may be made in lesser than
expected amounts and at later than expected times as determined pursuant to
Section 8.02 of the Note Indenture. The entire unpaid principal amount of this
Class A-2 Note shall be due and payable on the earlier of the Final Maturity
Date hereof, the optional Redemption Date, if any, and the Mandatory Redemption
Date, if any, herefor. Notwithstanding the foregoing, the entire unpaid
principal amount of the Notes shall be due and payable, if not then previously
paid, on the date on which an Event of Default shall have occurred and be
continuing and the Note Trustee or the Holders of the Notes representing not
less than a majority of the Outstanding Amount of the Notes have declared the
Notes to be immediately due and payable in the manner provided in Section 5.02
of the Note Indenture. All principal payments on the Class A-2 Notes shall be
made pro rata to the Class A-2 Noteholders entitled thereto based on the
respective principal amounts of the Class A-2 Notes held by them.
5
<PAGE> 15
Payments of interest on this Class A-2 Note due and payable on each
Payment Date, together with the installment of principal shall be made by check
mailed first-class, postage prepaid, to the Person whose name appears as the
Registered Holder of this Class A-2 Note (or one or more Predecessor Notes) on
the Note Register as of the close of business on the Record Date, except that
with respect to Notes registered on the Record Date in the name of the
Certificate Trustee, payments will be made by wire transfer in immediately
available funds to the account designated by the Certificate Trustee and except
for the final installment of principal payable with respect to this Class A-2
Note on a Payment Date which shall be payable as provided below. Such checks
shall be mailed to the Person entitled thereto at the address of such Person as
it appears on the Note Register as of the applicable Record Date without
requiring that this Class A-2 Note be submitted for notation of payment. Any
reduction in the principal amount of this Class A-2 Note (or any one or more
Predecessor Notes) effected by any payments made on any Payment Date shall be
binding upon all future Holders of this Class A-2 Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be available, as
provided in the Note Indenture, for payment in full of the then remaining unpaid
principal amount of this Class A-2 Note on a Payment Date, then the Note
Trustee, in the name of and on behalf of the Note Issuer, will notify the Person
who was the Registered Holder hereof as of the Record Date preceding such
Payment Date by notice mailed no later than five days prior to such final
Payment Date and shall specify that such final installment will be payable only
upon presentation and surrender of this Class A-2 Note and shall specify the
place where this Class A-2 Note may be presented and surrendered for payment of
such installment.
The Note Issuer shall pay interest on overdue installments of interest
at the Note Interest Rate to the extent lawful.
As provided in the Note Indenture, the Class A-2 Notes may be redeemed,
in whole but not in part, at the option of the Note Issuer on any Payment Date
at the Optional Redemption Price if, after giving effect to payments that would
otherwise be made on such Payment Date, the Outstanding Amount of the Notes has
been reduced to less than five percent of the initial principal balance thereof.
In addition, as provided in the Note Indenture, if the Seller is required to
repurchase the Transition Property pursuant to Section 5.01 of the Sale
Agreement, the Note Issuer will be required to redeem all outstanding Notes,
including the Class A-2 Notes, on or before the fifth Business Day following the
Repurchase Date (as defined in the Sale Agreement).
As provided in the Note Indenture and subject to certain limitations
set forth therein, the transfer of this Class A-2 Note may be registered on the
Note Register upon surrender of this Class A-2 Note for registration of transfer
at the office or agency designated by the Note Issuer pursuant to the Note
Indenture, duly endorsed by, or accompanied by (a) a written instrument of
transfer in form satisfactory to the Note Trustee duly executed by the Holder
hereof or his attorney duly authorized in writing, with such signature
guaranteed by an institution which is a member of one of the following
recognized Signature Guaranty Programs: (i) The Securities Transfer Agent
Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion
6
<PAGE> 16
Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) in
such other guarantee program acceptable to the Note Trustee, and (b) such other
documents as the Note Trustee may require, and thereupon one or more new Class
A-2 Notes of Minimum Denominations and in the same aggregate principal amount
will be issued to the designated transferee or transferees. No service charge
will be charged for any registration of transfer or exchange of this Class A-2
Note, but the transferor may be required to pay a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any such
registration of transfer or exchange, other than exchanges pursuant to Section
2.04 of the Note Indenture not involving any transfer.
Each Noteholder, by acceptance of a Note, covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Note Issuer or the Note Trustee on the Notes or under the Note Indenture
or any certificate or other writing delivered in connection therewith, against
(i) the Note Trustee in its individual capacity, (ii) any owner of a beneficial
interest in the Note Issuer or (iii) any partner, owner, beneficiary, agent,
officer, director or employee of the Note Trustee in its individual capacity,
any holder of a beneficial interest in the Note Issuer or the Note Trustee or of
any successor or assign of the Note Trustee in its individual capacity, except
as any such Person may have expressly agreed (it being understood that the Note
Trustee has no such obligations in its individual capacity).
Prior to the due presentment for registration of transfer of this Class
A-2 Note, the Note Issuer, the Note Trustee and any agent of the Note Issuer or
the Note Trustee may treat the Person in whose name this Class A-2 Note is
registered (as of the day of determination) as the owner hereof for the purpose
of receiving payments of principal of and interest on this Class A-2 Note and
for all other purposes whatsoever, whether or not this Class A-2 Note be
overdue, and neither the Note Issuer, the Note Trustee nor any such agent shall
be affected by notice to the contrary.
The Note Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Note Issuer and the rights of the Holders of the Notes under
the Note Indenture at any time by the Note Issuer with the consent of the
Holders of Notes representing a majority of the Outstanding Amount of all Notes
at the time Outstanding of each Class to be affected. The Note Indenture also
contains provisions permitting the Holders of Notes representing specified
percentages of the Outstanding Amount of the Notes, on behalf of the Holders of
all the Notes, to waive compliance by the Note Issuer with certain provisions of
the Note Indenture and certain past defaults under the Note Indenture and their
consequences. Any such consent or waiver by the Holder of this Class A-2 Note
(or any one of more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future Holders of this Class A-2 Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Class A-2
Note. The Note Indenture also permits the Note Trustee to amend or waive certain
terms and conditions set forth in the Note Indenture without the consent of
Holders of the Notes issued thereunder.
7
<PAGE> 17
The term "Note Issuer" as used in this Class A-2 Note includes any
successor to the Note Issuer under the Note Indenture.
The Note Issuer is permitted by the Note Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Note
Trustee and the Holders of Notes under the Note Indenture.
The Class A-2 Notes are issuable only in registered form in
denominations as provided in the Note Indenture, subject to certain limitations
therein set forth.
This Class A-2 Note and the Note Indenture shall be construed in
accordance with the laws of The Commonwealth of Massachusetts, without reference
to its conflict of law provisions, and the obligations, rights and remedies of
the parties hereunder and thereunder shall be determined in accordance with such
laws.
No reference herein to the Note Indenture and no provision of this
Class A-2 Note or of the Note Indenture shall alter or impair the obligation of
the Note Issuer, which is absolute and unconditional, to pay the principal of
and interest on this Class A-2 Note at the times, place, and rate, and in the
coin or currency herein prescribed.
The Holder of this Class A-2 Note by the acceptance hereof agrees that,
notwithstanding any provision of the Note Indenture to the contrary, the Holder
shall have no recourse against the Note Issuer, but shall look only to the
Collateral, with respect to any amounts due to the Holder under this Class A-2
Note.
8
<PAGE> 18
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee:
- ---------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(name and address of assignee)
the within Class A-2 Note and all rights thereunder, and hereby irrevocably
constitutes and appoints , attorney, to transfer said Class
A-2 Note on the books kept for registration thereof, with full power of
substitution in the premises.
Dated: *
--------------------------------- ------------------------------------
Signature Guaranteed:
--------------------------------- ------------------------------------
- ----------
* NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Class A-2 Note in
every particular, without alteration, enlargement or any change whatsoever.
9
<PAGE> 19
REGISTERED
NO. A-3 $103,390,163
SEE REVERSE FOR CERTAIN DEFINITIONS
THE PRINCIPAL OF THIS CLASS A-3 NOTE WILL BE PAID IN INSTALLMENTS AS
SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS
A-3 NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
BEC FUNDING LLC NOTES
CLASS A-3
Interest Rate Original Principal Amount Final Maturity Date
6.62% $103,390,163 March 15, 2007
PRINCIPAL AMOUNT: One Hundred Three Million Three Hundred Ninety Thousand One
Hundred Sixty Three Dollars Exactly ($103,390,163)
BEC Funding LLC, a limited liability company formed and existing under
the laws of the State of Delaware (herein referred to as the "Note Issuer"), for
value received, hereby promises to pay to Massachusetts RRB Special Purpose
Trust BEC-1, or registered assigns, the Original Principal Amount shown above in
semiannual installments on the Payment Dates and in the amounts specified on the
reverse hereof or, if less, the amounts determined pursuant to Section 8.02 of
the Note Indenture, in each year, commencing on the date determined as provided
on the reverse hereof and ending on or before the Final Maturity Date and to pay
interest, at the Interest Rate shown above, on each September 15 and March 15 or
if any such day is not a Business Day, the next succeeding Business Day,
commencing on March 15, 2000 and continuing until the earlier of the payment of
the principal hereof or the Final Maturity Date (each a "Payment Date"), on the
principal amount of this Class A-3 Note. Interest on this Class A-3 Note will
accrue for each Payment Date from the most recent Payment Date on which interest
has been paid to but excluding such Payment Date or, if no interest has yet been
paid, from July 29, 1999. Interest will be computed on the basis of a 360-day
year of twelve 30-day months. Such principal of and interest on this Class A-3
Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Class A-3 Note are payable in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts. All payments made by
the Note Issuer with respect to this Class A-3 Note shall be applied first to
interest due and payable on this Class A-3 Note as provided above and
<PAGE> 20
then to the unpaid principal of this Class A-3 Note, all in the manner set forth
in Section 8.02 of the Note Indenture.
Reference is made to the further provisions of this Class A-3 Note set
forth on the reverse hereof, which shall have the same effect as though fully
set forth on the face of this Class A-3 Note.
Unless the certificate of authentication hereon has been executed by
the Note Trustee whose name appears below by manual signature, this Class A-3
Note shall not be entitled to any benefit under the Note Indenture referred to
on the reverse hereof, or be valid or obligatory for any purpose.
2
<PAGE> 21
IN WITNESS WHEREOF, the Note Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Date: July 29, 1999
BEC FUNDING LLC
By: /s/ Emilie G. O'Neil
----------------------------
Emilie G. O'Neil
Vice President and Treasurer
3
<PAGE> 22
NOTE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: July 29, 1999
This is one of the Notes referred to in the within-mentioned Note
Indenture.
THE BANK OF NEW YORK,
not in its individual capacity but solely as Note
Trustee,
By: /s/ Cheryl L. Laser
--------------------
Authorized Signatory
4
<PAGE> 23
[REVERSE OF NOTE]
This Class A-3 Note is one of a duly authorized issue of Notes of the
Note Issuer, designated as its BEC Funding LLC Notes (herein called the
"Notes"), issued and to be issuable in one or more Classes, and further
designated as a Class A-3 Note (collectively with all other Class A-3 Notes of
this issue, the "Class A-3 Notes"), all issued and to be issued under a Note
Indenture dated as of July 29, 1999 (the "Note Indenture"), between the Note
Issuer and The Bank of New York, as Note Trustee (the "Note Trustee," which term
includes any successor trustee under the Note Indenture), to which Note
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights and obligations thereunder of the Note
Issuer, the Note Trustee and the Holders of the Notes. All terms used in this
Class A-3 Note that are defined in the Note Indenture, as supplemented or
amended, shall have the meanings assigned to them in the Note Indenture, as
supplemented or amended.
The Class A-3 Notes and the other Classes of Notes issued by the Note
Issuer are and will be equally and ratably secured by the collateral pledged as
security therefor, as provided in the Note Indenture.
The principal of this Class A-3 Note shall be payable on each Payment
Date only to the extent that amounts in the Collection Account are available
therefor, and only until the outstanding principal balance thereof on such
Payment Date (after giving effect to all payments of principal, if any, made on
such Payment Date) has been reduced to the principal balance specified in the
Expected Amortization Schedule which is attached to the Note Indenture as
Schedule A, unless payable earlier either because (x) an Event of Default shall
have occurred and be continuing and the Note Trustee or the Holders of Notes
representing not less than a majority of the Outstanding Amount of the Notes
have declared the Notes to be immediately due and payable in accordance with
Section 5.02 of the Note Indenture, (y) the Note Issuer, at its option, shall
have called for the redemption of the Notes pursuant to Section 10.01 of the
Note Indenture or (z) the Note Issuer shall have called for the redemption of
the Notes pursuant to Section 10.04 of the Note Indenture if the Seller is
required to repurchase the Transition Property pursuant to Section 5.01 of the
Sale Agreement. However, actual principal payments may be made in lesser than
expected amounts and at later than expected times as determined pursuant to
Section 8.02 of the Note Indenture. The entire unpaid principal amount of this
Class A-3 Note shall be due and payable on the earlier of the Final Maturity
Date hereof, the optional Redemption Date, if any, and the Mandatory Redemption
Date, if any, herefor. Notwithstanding the foregoing, the entire unpaid
principal amount of the Notes shall be due and payable, if not then previously
paid, on the date on which an Event of Default shall have occurred and be
continuing and the Note Trustee or the Holders of the Notes representing not
less than a majority of the Outstanding Amount of the Notes have declared the
Notes to be immediately due and payable in the manner provided in Section 5.02
of the Note Indenture. All principal payments on the Class A-3 Notes shall be
made pro rata to the Class A-3 Noteholders entitled thereto based on the
respective principal amounts of the Class A-3 Notes held by them.
5
<PAGE> 24
Payments of interest on this Class A-3 Note due and payable on each
Payment Date, together with the installment of principal shall be made by check
mailed first-class, postage prepaid, to the Person whose name appears as the
Registered Holder of this Class A-3 Note (or one or more Predecessor Notes) on
the Note Register as of the close of business on the Record Date, except that
with respect to Notes registered on the Record Date in the name of the
Certificate Trustee, payments will be made by wire transfer in immediately
available funds to the account designated by the Certificate Trustee and except
for the final installment of principal payable with respect to this Class A-3
Note on a Payment Date which shall be payable as provided below. Such checks
shall be mailed to the Person entitled thereto at the address of such Person as
it appears on the Note Register as of the applicable Record Date without
requiring that this Class A-3 Note be submitted for notation of payment. Any
reduction in the principal amount of this Class A-3 Note (or any one or more
Predecessor Notes) effected by any payments made on any Payment Date shall be
binding upon all future Holders of this Class A-3 Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be available, as
provided in the Note Indenture, for payment in full of the then remaining unpaid
principal amount of this Class A-3 Note on a Payment Date, then the Note
Trustee, in the name of and on behalf of the Note Issuer, will notify the Person
who was the Registered Holder hereof as of the Record Date preceding such
Payment Date by notice mailed no later than five days prior to such final
Payment Date and shall specify that such final installment will be payable only
upon presentation and surrender of this Class A-3 Note and shall specify the
place where this Class A-3 Note may be presented and surrendered for payment of
such installment.
The Note Issuer shall pay interest on overdue installments of interest
at the Note Interest Rate to the extent lawful.
As provided in the Note Indenture, the Class A-3 Notes may be redeemed,
in whole but not in part, at the option of the Note Issuer on any Payment Date
at the Optional Redemption Price if, after giving effect to payments that would
otherwise be made on such Payment Date, the Outstanding Amount of the Notes has
been reduced to less than five percent of the initial principal balance thereof.
In addition, as provided in the Note Indenture, if the Seller is required to
repurchase the Transition Property pursuant to Section 5.01 of the Sale
Agreement, the Note Issuer will be required to redeem all outstanding Notes,
including the Class A-3 Notes, on or before the fifth Business Day following the
Repurchase Date (as defined in the Sale Agreement).
As provided in the Note Indenture and subject to certain limitations
set forth therein, the transfer of this Class A-3 Note may be registered on the
Note Register upon surrender of this Class A-3 Note for registration of transfer
at the office or agency designated by the Note Issuer pursuant to the Note
Indenture, duly endorsed by, or accompanied by (a) a written instrument of
transfer in form satisfactory to the Note Trustee duly executed by the Holder
hereof or his attorney duly authorized in writing, with such signature
guaranteed by an institution which is a member of one of the following
recognized Signature Guaranty Programs: (i) The Securities Transfer Agent
Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion
6
<PAGE> 25
Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) in
such other guarantee program acceptable to the Note Trustee, and (b) such other
documents as the Note Trustee may require, and thereupon one or more new Class
A-3 Notes of Minimum Denominations and in the same aggregate principal amount
will be issued to the designated transferee or transferees. No service charge
will be charged for any registration of transfer or exchange of this Class A-3
Note, but the transferor may be required to pay a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any such
registration of transfer or exchange, other than exchanges pursuant to Section
2.04 of the Note Indenture not involving any transfer.
Each Noteholder, by acceptance of a Note, covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Note Issuer or the Note Trustee on the Notes or under the Note Indenture
or any certificate or other writing delivered in connection therewith, against
(i) the Note Trustee in its individual capacity, (ii) any owner of a beneficial
interest in the Note Issuer or (iii) any partner, owner, beneficiary, agent,
officer, director or employee of the Note Trustee in its individual capacity,
any holder of a beneficial interest in the Note Issuer or the Note Trustee or of
any successor or assign of the Note Trustee in its individual capacity, except
as any such Person may have expressly agreed (it being understood that the Note
Trustee has no such obligations in its individual capacity).
Prior to the due presentment for registration of transfer of this Class
A-3 Note, the Note Issuer, the Note Trustee and any agent of the Note Issuer or
the Note Trustee may treat the Person in whose name this Class A-3 Note is
registered (as of the day of determination) as the owner hereof for the purpose
of receiving payments of principal of and interest on this Class A-3 Note and
for all other purposes whatsoever, whether or not this Class A-3 Note be
overdue, and neither the Note Issuer, the Note Trustee nor any such agent shall
be affected by notice to the contrary.
The Note Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Note Issuer and the rights of the Holders of the Notes under
the Note Indenture at any time by the Note Issuer with the consent of the
Holders of Notes representing a majority of the Outstanding Amount of all Notes
at the time Outstanding of each Class to be affected. The Note Indenture also
contains provisions permitting the Holders of Notes representing specified
percentages of the Outstanding Amount of the Notes, on behalf of the Holders of
all the Notes, to waive compliance by the Note Issuer with certain provisions of
the Note Indenture and certain past defaults under the Note Indenture and their
consequences. Any such consent or waiver by the Holder of this Class A-3 Note
(or any one of more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future Holders of this Class A-3 Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Class A-3
Note. The Note Indenture also permits the Note Trustee to amend or waive certain
terms and conditions set forth in the Note Indenture without the consent of
Holders of the Notes issued thereunder.
7
<PAGE> 26
The term "Note Issuer" as used in this Class A-3 Note includes any
successor to the Note Issuer under the Note Indenture.
The Note Issuer is permitted by the Note Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Note
Trustee and the Holders of Notes under the Note Indenture.
The Class A-3 Notes are issuable only in registered form in
denominations as provided in the Note Indenture, subject to certain limitations
therein set forth.
This Class A-3 Note and the Note Indenture shall be construed in
accordance with the laws of The Commonwealth of Massachusetts, without reference
to its conflict of law provisions, and the obligations, rights and remedies of
the parties hereunder and thereunder shall be determined in accordance with such
laws.
No reference herein to the Note Indenture and no provision of this
Class A-3 Note or of the Note Indenture shall alter or impair the obligation of
the Note Issuer, which is absolute and unconditional, to pay the principal of
and interest on this Class A-3 Note at the times, place, and rate, and in the
coin or currency herein prescribed.
The Holder of this Class A-3 Note by the acceptance hereof agrees that,
notwithstanding any provision of the Note Indenture to the contrary, the Holder
shall have no recourse against the Note Issuer, but shall look only to the
Collateral, with respect to any amounts due to the Holder under this Class A-3
Note.
8
<PAGE> 27
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of
assignee:
- ---------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(name and address of assignee)
the within Class A-3 Note and all rights thereunder, and hereby irrevocably
constitutes and appoints , attorney, to transfer said Class
A-3 Note on the books kept for registration thereof, with full power of
substitution in the premises.
Dated: *
--------------------------------- ------------------------------------
Signature Guaranteed:
--------------------------------- ------------------------------------
- ----------
* NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Class A-3 Note in
every particular, without alteration, enlargement or any change whatsoever.
9
<PAGE> 28
REGISTERED
NO. A-4 $170,875,702
SEE REVERSE FOR CERTAIN DEFINITIONS
THE PRINCIPAL OF THIS CLASS A-4 NOTE WILL BE PAID IN INSTALLMENTS AS
SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS
A-4 NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
BEC FUNDING LLC NOTES
CLASS A-4
Interest Rate Original Principal Amount Final Maturity Date
6.91% $170,875,702 September 15, 2009
PRINCIPAL AMOUNT:_One Hundred Seventy Million Eight Hundred Seventy Five
Thousand Seven Hundred Two Dollars Exactly ($170,875,702)
BEC Funding LLC, a limited liability company formed and existing under
the laws of the State of Delaware (herein referred to as the "Note Issuer"), for
value received, hereby promises to pay to Massachusetts RRB Special Purpose
Trust BEC-1, or registered assigns, the Original Principal Amount shown above in
semiannual installments on the Payment Dates and in the amounts specified on the
reverse hereof or, if less, the amounts determined pursuant to Section 8.02 of
the Note Indenture, in each year, commencing on the date determined as provided
on the reverse hereof and ending on or before the Final Maturity Date and to pay
interest, at the Interest Rate shown above, on each September 15 and March 15 or
if any such day is not a Business Day, the next succeeding Business Day,
commencing on March 15, 2000 and continuing until the earlier of the payment of
the principal hereof or the Final Maturity Date (each a "Payment Date"), on the
principal amount of this Class A-4 Note. Interest on this Class A-4 Note will
accrue for each Payment Date from the most recent Payment Date on which interest
has been paid to but excluding such Payment Date or, if no interest has yet been
paid, from July 29, 1999. Interest will be computed on the basis of a 360-day
year of twelve 30-day months. Such principal of and interest on this Class A-4
Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Class A-4 Note are payable in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts. All payments made by
the Note Issuer with respect to this Class A-4 Note shall be applied first to
interest due and payable on this Class A-4 Note as provided above and
<PAGE> 29
then to the unpaid principal of this Class A-4 Note, all in the manner set forth
in Section 8.02 of the Note Indenture.
Reference is made to the further provisions of this Class A-4 Note set
forth on the reverse hereof, which shall have the same effect as though fully
set forth on the face of this Class A-4 Note.
Unless the certificate of authentication hereon has been executed by
the Note Trustee whose name appears below by manual signature, this Class A-4
Note shall not be entitled to any benefit under the Note Indenture referred to
on the reverse hereof, or be valid or obligatory for any purpose.
2
<PAGE> 30
IN WITNESS WHEREOF, the Note Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Date: July 29, 1999
BEC FUNDING LLC
By: /s/ Emilie G. O'Neil
----------------------------
Emilie G. O'Neil
Vice President and Treasurer
3
<PAGE> 31
NOTE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: July 29, 1999
This is one of the Notes referred to in the within-mentioned Note
Indenture.
THE BANK OF NEW YORK,
not in its individual capacity but solely as Note
Trustee,
By: /s/ Cheryl L. Laser
--------------------
Authorized Signatory
4
<PAGE> 32
[REVERSE OF NOTE]
This Class A-4 Note is one of a duly authorized issue of Notes of the
Note Issuer, designated as its BEC Funding LLC Notes (herein called the
"Notes"), issued and to be issuable in one or more Classes, and further
designated as a Class A-4 Note (collectively with all other Class A-4 Notes of
this issue, the "Class A-4 Notes"), all issued and to be issued under a Note
Indenture dated as of July 29, 1999 (the "Note Indenture"), between the Note
Issuer and The Bank of New York, as Note Trustee (the "Note Trustee," which term
includes any successor trustee under the Note Indenture), to which Note
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights and obligations thereunder of the Note
Issuer, the Note Trustee and the Holders of the Notes. All terms used in this
Class A-4 Note that are defined in the Note Indenture, as supplemented or
amended, shall have the meanings assigned to them in the Note Indenture, as
supplemented or amended.
The Class A-4 Notes and the other Classes of Notes issued by the Note
Issuer are and will be equally and ratably secured by the collateral pledged as
security therefor, as provided in the Note Indenture.
The principal of this Class A-4 Note shall be payable on each Payment
Date only to the extent that amounts in the Collection Account are available
therefor, and only until the outstanding principal balance thereof on such
Payment Date (after giving effect to all payments of principal, if any, made on
such Payment Date) has been reduced to the principal balance specified in the
Expected Amortization Schedule which is attached to the Note Indenture as
Schedule A, unless payable earlier either because (x) an Event of Default shall
have occurred and be continuing and the Note Trustee or the Holders of Notes
representing not less than a majority of the Outstanding Amount of the Notes
have declared the Notes to be immediately due and payable in accordance with
Section 5.02 of the Note Indenture, (y) the Note Issuer, at its option, shall
have called for the redemption of the Notes pursuant to Section 10.01 of the
Note Indenture or (z) the Note Issuer shall have called for the redemption of
the Notes pursuant to Section 10.04 of the Note Indenture if the Seller is
required to repurchase the Transition Property pursuant to Section 5.01 of the
Sale Agreement. However, actual principal payments may be made in lesser than
expected amounts and at later than expected times as determined pursuant to
Section 8.02 of the Note Indenture. The entire unpaid principal amount of this
Class A-4 Note shall be due and payable on the earlier of the Final Maturity
Date hereof, the optional Redemption Date, if any, and the Mandatory Redemption
Date, if any, herefor. Notwithstanding the foregoing, the entire unpaid
principal amount of the Notes shall be due and payable, if not then previously
paid, on the date on which an Event of Default shall have occurred and be
continuing and the Note Trustee or the Holders of the Notes representing not
less than a majority of the Outstanding Amount of the Notes have declared the
Notes to be immediately due and payable in the manner provided in Section 5.02
of the Note Indenture. All principal payments on the Class A-4 Notes shall be
made pro rata to the Class A-4 Noteholders entitled thereto based on the
respective principal amounts of the Class A-4 Notes held by them.
5
<PAGE> 33
Payments of interest on this Class A-4 Note due and payable on each
Payment Date, together with the installment of principal shall be made by check
mailed first-class, postage prepaid, to the Person whose name appears as the
Registered Holder of this Class A-4 Note (or one or more Predecessor Notes) on
the Note Register as of the close of business on the Record Date, except that
with respect to Notes registered on the Record Date in the name of the
Certificate Trustee, payments will be made by wire transfer in immediately
available funds to the account designated by the Certificate Trustee and except
for the final installment of principal payable with respect to this Class A-4
Note on a Payment Date which shall be payable as provided below. Such checks
shall be mailed to the Person entitled thereto at the address of such Person as
it appears on the Note Register as of the applicable Record Date without
requiring that this Class A-4 Note be submitted for notation of payment. Any
reduction in the principal amount of this Class A-4 Note (or any one or more
Predecessor Notes) effected by any payments made on any Payment Date shall be
binding upon all future Holders of this Class A-4 Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be available, as
provided in the Note Indenture, for payment in full of the then remaining unpaid
principal amount of this Class A-4 Note on a Payment Date, then the Note
Trustee, in the name of and on behalf of the Note Issuer, will notify the Person
who was the Registered Holder hereof as of the Record Date preceding such
Payment Date by notice mailed no later than five days prior to such final
Payment Date and shall specify that such final installment will be payable only
upon presentation and surrender of this Class A-4 Note and shall specify the
place where this Class A-4 Note may be presented and surrendered for payment of
such installment.
The Note Issuer shall pay interest on overdue installments of interest
at the Note Interest Rate to the extent lawful.
As provided in the Note Indenture, the Class A-4 Notes may be redeemed,
in whole but not in part, at the option of the Note Issuer on any Payment Date
at the Optional Redemption Price if, after giving effect to payments that would
otherwise be made on such Payment Date, the Outstanding Amount of the Notes has
been reduced to less than five percent of the initial principal balance thereof.
In addition, as provided in the Note Indenture, if the Seller is required to
repurchase the Transition Property pursuant to Section 5.01 of the Sale
Agreement, the Note Issuer will be required to redeem all outstanding Notes,
including the Class A-4 Notes, on or before the fifth Business Day following the
Repurchase Date (as defined in the Sale Agreement).
As provided in the Note Indenture and subject to certain limitations
set forth therein, the transfer of this Class A-4 Note may be registered on the
Note Register upon surrender of this Class A-4 Note for registration of transfer
at the office or agency designated by the Note Issuer pursuant to the Note
Indenture, duly endorsed by, or accompanied by (a) a written instrument of
transfer in form satisfactory to the Note Trustee duly executed by the Holder
hereof or his attorney duly authorized in writing, with such signature
guaranteed by an institution which is a member of one of the following
recognized Signature Guaranty Programs: (i) The Securities Transfer Agent
Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion
6
<PAGE> 34
Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) in
such other guarantee program acceptable to the Note Trustee, and (b) such other
documents as the Note Trustee may require, and thereupon one or more new Class
A-4 Notes of Minimum Denominations and in the same aggregate principal amount
will be issued to the designated transferee or transferees. No service charge
will be charged for any registration of transfer or exchange of this Class A-4
Note, but the transferor may be required to pay a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any such
registration of transfer or exchange, other than exchanges pursuant to Section
2.04 of the Note Indenture not involving any transfer.
Each Noteholder, by acceptance of a Note, covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Note Issuer or the Note Trustee on the Notes or under the Note Indenture
or any certificate or other writing delivered in connection therewith, against
(i) the Note Trustee in its individual capacity, (ii) any owner of a beneficial
interest in the Note Issuer or (iii) any partner, owner, beneficiary, agent,
officer, director or employee of the Note Trustee in its individual capacity,
any holder of a beneficial interest in the Note Issuer or the Note Trustee or of
any successor or assign of the Note Trustee in its individual capacity, except
as any such Person may have expressly agreed (it being understood that the Note
Trustee has no such obligations in its individual capacity).
Prior to the due presentment for registration of transfer of this Class
A-4 Note, the Note Issuer, the Note Trustee and any agent of the Note Issuer or
the Note Trustee may treat the Person in whose name this Class A-4 Note is
registered (as of the day of determination) as the owner hereof for the purpose
of receiving payments of principal of and interest on this Class A-4 Note and
for all other purposes whatsoever, whether or not this Class A-4 Note be
overdue, and neither the Note Issuer, the Note Trustee nor any such agent shall
be affected by notice to the contrary.
The Note Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Note Issuer and the rights of the Holders of the Notes under
the Note Indenture at any time by the Note Issuer with the consent of the
Holders of Notes representing a majority of the Outstanding Amount of all Notes
at the time Outstanding of each Class to be affected. The Note Indenture also
contains provisions permitting the Holders of Notes representing specified
percentages of the Outstanding Amount of the Notes, on behalf of the Holders of
all the Notes, to waive compliance by the Note Issuer with certain provisions of
the Note Indenture and certain past defaults under the Note Indenture and their
consequences. Any such consent or waiver by the Holder of this Class A-4 Note
(or any one of more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future Holders of this Class A-4 Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Class A-4
Note. The Note Indenture also permits the Note Trustee to amend or waive certain
terms and conditions set forth in the Note Indenture without the consent of
Holders of the Notes issued thereunder.
7
<PAGE> 35
The term "Note Issuer" as used in this Class A-4 Note includes any
successor to the Note Issuer under the Note Indenture.
The Note Issuer is permitted by the Note Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Note
Trustee and the Holders of Notes under the Note Indenture.
The Class A-4 Notes are issuable only in registered form in
denominations as provided in the Note Indenture, subject to certain limitations
therein set forth.
This Class A-4 Note and the Note Indenture shall be construed in
accordance with the laws of The Commonwealth of Massachusetts, without reference
to its conflict of law provisions, and the obligations, rights and remedies of
the parties hereunder and thereunder shall be determined in accordance with such
laws.
No reference herein to the Note Indenture and no provision of this
Class A-4 Note or of the Note Indenture shall alter or impair the obligation of
the Note Issuer, which is absolute and unconditional, to pay the principal of
and interest on this Class A-4 Note at the times, place, and rate, and in the
coin or currency herein prescribed.
The Holder of this Class A-4 Note by the acceptance hereof agrees that,
notwithstanding any provision of the Note Indenture to the contrary, the Holder
shall have no recourse against the Note Issuer, but shall look only to the
Collateral, with respect to any amounts due to the Holder under this Class A-4
Note.
8
<PAGE> 36
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of
assignee:
- ---------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(name and address of assignee)
the within Class A-4 Note and all rights thereunder, and hereby irrevocably
constitutes and appoints , attorney, to transfer said Class
A-4 Note on the books kept for registration thereof, with full power of
substitution in the premises.
Dated: *
--------------------------------- ------------------------------------
Signature Guaranteed:
--------------------------------- ------------------------------------
- ----------
* NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Class A-4 Note in
every particular, without alteration, enlargement or any change whatsoever.
9
<PAGE> 37
REGISTERED
NO. A-5 $171,624,298
SEE REVERSE FOR CERTAIN DEFINITIONS
THE PRINCIPAL OF THIS CLASS A-5 NOTE WILL BE PAID IN INSTALLMENTS AS
SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS
A-5 NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
BEC FUNDING LLC NOTES
CLASS A-5
Interest Rate Original Principal Amount Final Maturity Date
7.03% $171,624,298 March 15, 2012
PRINCIPAL AMOUNT: One Hundred Seventy One Million Six Hundred Twenty Four
Thousand Two Hundred Ninety Eight Dollars Exactly ($171,624,298)
BEC Funding LLC, a limited liability company formed and existing under
the laws of the State of Delaware (herein referred to as the "Note Issuer"), for
value received, hereby promises to pay to Massachusetts RRB Special Purpose
Trust BEC-1, or registered assigns, the Original Principal Amount shown above in
semiannual installments on the Payment Dates and in the amounts specified on the
reverse hereof or, if less, the amounts determined pursuant to Section 8.02 of
the Note Indenture, in each year, commencing on the date determined as provided
on the reverse hereof and ending on or before the Final Maturity Date and to pay
interest, at the Interest Rate shown above, on each September 15 and March 15 or
if any such day is not a Business Day, the next succeeding Business Day,
commencing on March 15, 2000 and continuing until the earlier of the payment of
the principal hereof or the Final Maturity Date (each a "Payment Date"), on the
principal amount of this Class A-5 Note. Interest on this Class A-5 Note will
accrue for each Payment Date from the most recent Payment Date on which interest
has been paid to but excluding such Payment Date or, if no interest has yet been
paid, from July 29, 1999. Interest will be computed on the basis of a 360-day
year of twelve 30-day months. Such principal of and interest on this Class A-5
Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Class A-5 Note are payable in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts. All payments made by
the Note Issuer with respect to this Class A-5 Note shall be applied first to
interest due and payable on this Class A-5 Note as provided above and
<PAGE> 38
then to the unpaid principal of this Class A-5 Note, all in the manner set forth
in Section 8.02 of the Note Indenture.
Reference is made to the further provisions of this Class A-5 Note set
forth on the reverse hereof, which shall have the same effect as though fully
set forth on the face of this Class A-5 Note.
Unless the certificate of authentication hereon has been executed by
the Note Trustee whose name appears below by manual signature, this Class A-5
Note shall not be entitled to any benefit under the Note Indenture referred to
on the reverse hereof, or be valid or obligatory for any purpose.
2
<PAGE> 39
IN WITNESS WHEREOF, the Note Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Date: July 29, 1999
By: /s/ Emilie G. O'Neil
----------------------------
Emilie G. O'Neil
Vice President and Treasurer
3
<PAGE> 40
NOTE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: July 29, 1999
This is one of the Notes referred to in the within-mentioned Note
Indenture.
THE BANK OF NEW YORK,
not in its individual capacity but solely as Note
Trustee,
By: /s/ Cheryl L. Laser
--------------------
Authorized Signatory
4
<PAGE> 41
[REVERSE OF NOTE]
This Class A-5 Note is one of a duly authorized issue of Notes of the
Note Issuer, designated as its BEC Funding LLC Notes (herein called the
"Notes"), issued and to be issuable in one or more Classes, and further
designated as a Class A-5 Note (collectively with all other Class A-5 Notes of
this issue, the "Class A-5 Notes"), all issued and to be issued under a Note
Indenture dated as of July 29, 1999 (the "Note Indenture"), between the Note
Issuer and The Bank of New York, as Note Trustee (the "Note Trustee," which term
includes any successor trustee under the Note Indenture), to which Note
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights and obligations thereunder of the Note
Issuer, the Note Trustee and the Holders of the Notes. All terms used in this
Class A-5 Note that are defined in the Note Indenture, as supplemented or
amended, shall have the meanings assigned to them in the Note Indenture, as
supplemented or amended.
The Class A-5 Notes and the other Classes of Notes issued by the Note
Issuer are and will be equally and ratably secured by the collateral pledged as
security therefor, as provided in the Note Indenture.
The principal of this Class A-5 Note shall be payable on each Payment
Date only to the extent that amounts in the Collection Account are available
therefor, and only until the outstanding principal balance thereof on such
Payment Date (after giving effect to all payments of principal, if any, made on
such Payment Date) has been reduced to the principal balance specified in the
Expected Amortization Schedule which is attached to the Note Indenture as
Schedule A, unless payable earlier either because (x) an Event of Default shall
have occurred and be continuing and the Note Trustee or the Holders of Notes
representing not less than a majority of the Outstanding Amount of the Notes
have declared the Notes to be immediately due and payable in accordance with
Section 5.02 of the Note Indenture, (y) the Note Issuer, at its option, shall
have called for the redemption of the Notes pursuant to Section 10.01 of the
Note Indenture or (z) the Note Issuer shall have called for the redemption of
the Notes pursuant to Section 10.04 of the Note Indenture if the Seller is
required to repurchase the Transition Property pursuant to Section 5.01 of the
Sale Agreement. However, actual principal payments may be made in lesser than
expected amounts and at later than expected times as determined pursuant to
Section 8.02 of the Note Indenture. The entire unpaid principal amount of this
Class A-5 Note shall be due and payable on the earlier of the Final Maturity
Date hereof, the optional Redemption Date, if any, and the Mandatory Redemption
Date, if any, herefor. Notwithstanding the foregoing, the entire unpaid
principal amount of the Notes shall be due and payable, if not then previously
paid, on the date on which an Event of Default shall have occurred and be
continuing and the Note Trustee or the Holders of the Notes representing not
less than a majority of the Outstanding Amount of the Notes have declared the
Notes to be immediately due and payable in the manner provided in Section 5.02
of the Note Indenture. All principal payments on the Class A-5 Notes shall be
made pro rata to the Class A-5 Noteholders entitled thereto based on the
respective principal amounts of the Class A-5 Notes held by them.
5
<PAGE> 42
Payments of interest on this Class A-5 Note due and payable on each
Payment Date, together with the installment of principal shall be made by check
mailed first-class, postage prepaid, to the Person whose name appears as the
Registered Holder of this Class A-5 Note (or one or more Predecessor Notes) on
the Note Register as of the close of business on the Record Date, except that
with respect to Notes registered on the Record Date in the name of the
Certificate Trustee, payments will be made by wire transfer in immediately
available funds to the account designated by the Certificate Trustee and except
for the final installment of principal payable with respect to this Class A-5
Note on a Payment Date which shall be payable as provided below. Such checks
shall be mailed to the Person entitled thereto at the address of such Person as
it appears on the Note Register as of the applicable Record Date without
requiring that this Class A-5 Note be submitted for notation of payment. Any
reduction in the principal amount of this Class A-5 Note (or any one or more
Predecessor Notes) effected by any payments made on any Payment Date shall be
binding upon all future Holders of this Class A-5 Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be available, as
provided in the Note Indenture, for payment in full of the then remaining unpaid
principal amount of this Class A-5 Note on a Payment Date, then the Note
Trustee, in the name of and on behalf of the Note Issuer, will notify the Person
who was the Registered Holder hereof as of the Record Date preceding such
Payment Date by notice mailed no later than five days prior to such final
Payment Date and shall specify that such final installment will be payable only
upon presentation and surrender of this Class A-5 Note and shall specify the
place where this Class A-5 Note may be presented and surrendered for payment of
such installment.
The Note Issuer shall pay interest on overdue installments of interest
at the Note Interest Rate to the extent lawful.
As provided in the Note Indenture, the Class A-5 Notes may be redeemed,
in whole but not in part, at the option of the Note Issuer on any Payment Date
at the Optional Redemption Price if, after giving effect to payments that would
otherwise be made on such Payment Date, the Outstanding Amount of the Notes has
been reduced to less than five percent of the initial principal balance thereof.
In addition, as provided in the Note Indenture, if the Seller is required to
repurchase the Transition Property pursuant to Section 5.01 of the Sale
Agreement, the Note Issuer will be required to redeem all outstanding Notes,
including the Class A-5 Notes, on or before the fifth Business Day following the
Repurchase Date (as defined in the Sale Agreement).
As provided in the Note Indenture and subject to certain limitations
set forth therein, the transfer of this Class A-5 Note may be registered on the
Note Register upon surrender of this Class A-5 Note for registration of transfer
at the office or agency designated by the Note Issuer pursuant to the Note
Indenture, duly endorsed by, or accompanied by (a) a written instrument of
transfer in form satisfactory to the Note Trustee duly executed by the Holder
hereof or his attorney duly authorized in writing, with such signature
guaranteed by an institution which is a member of one of the following
recognized Signature Guaranty Programs: (i) The Securities Transfer Agent
Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion
6
<PAGE> 43
Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) in
such other guarantee program acceptable to the Note Trustee, and (b) such other
documents as the Note Trustee may require, and thereupon one or more new Class
A-5 Notes of Minimum Denominations and in the same aggregate principal amount
will be issued to the designated transferee or transferees. No service charge
will be charged for any registration of transfer or exchange of this Class A-5
Note, but the transferor may be required to pay a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any such
registration of transfer or exchange, other than exchanges pursuant to Section
2.04 of the Note Indenture not involving any transfer.
Each Noteholder, by acceptance of a Note, covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Note Issuer or the Note Trustee on the Notes or under the Note Indenture
or any certificate or other writing delivered in connection therewith, against
(i) the Note Trustee in its individual capacity, (ii) any owner of a beneficial
interest in the Note Issuer or (iii) any partner, owner, beneficiary, agent,
officer, director or employee of the Note Trustee in its individual capacity,
any holder of a beneficial interest in the Note Issuer or the Note Trustee or of
any successor or assign of the Note Trustee in its individual capacity, except
as any such Person may have expressly agreed (it being understood that the Note
Trustee has no such obligations in its individual capacity).
Prior to the due presentment for registration of transfer of this Class
A-5 Note, the Note Issuer, the Note Trustee and any agent of the Note Issuer or
the Note Trustee may treat the Person in whose name this Class A-5 Note is
registered (as of the day of determination) as the owner hereof for the purpose
of receiving payments of principal of and interest on this Class A-5 Note and
for all other purposes whatsoever, whether or not this Class A-5 Note be
overdue, and neither the Note Issuer, the Note Trustee nor any such agent shall
be affected by notice to the contrary.
The Note Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Note Issuer and the rights of the Holders of the Notes under
the Note Indenture at any time by the Note Issuer with the consent of the
Holders of Notes representing a majority of the Outstanding Amount of all Notes
at the time Outstanding of each Class to be affected. The Note Indenture also
contains provisions permitting the Holders of Notes representing specified
percentages of the Outstanding Amount of the Notes, on behalf of the Holders of
all the Notes, to waive compliance by the Note Issuer with certain provisions of
the Note Indenture and certain past defaults under the Note Indenture and their
consequences. Any such consent or waiver by the Holder of this Class A-5 Note
(or any one of more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future Holders of this Class A-5 Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Class A-5
Note. The Note Indenture also permits the Note Trustee to amend or waive certain
terms and conditions set forth in the Note Indenture without the consent of
Holders of the Notes issued thereunder.
7
<PAGE> 44
The term "Note Issuer" as used in this Class A-5 Note includes any
successor to the Note Issuer under the Note Indenture.
The Note Issuer is permitted by the Note Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Note
Trustee and the Holders of Notes under the Note Indenture.
The Class A-5 Notes are issuable only in registered form in
denominations as provided in the Note Indenture, subject to certain limitations
therein set forth.
This Class A-5 Note and the Note Indenture shall be construed in
accordance with the laws of The Commonwealth of Massachusetts, without reference
to its conflict of law provisions, and the obligations, rights and remedies of
the parties hereunder and thereunder shall be determined in accordance with such
laws.
No reference herein to the Note Indenture and no provision of this
Class A-5 Note or of the Note Indenture shall alter or impair the obligation of
the Note Issuer, which is absolute and unconditional, to pay the principal of
and interest on this Class A-5 Note at the times, place, and rate, and in the
coin or currency herein prescribed.
The Holder of this Class A-5 Note by the acceptance hereof agrees that,
notwithstanding any provision of the Note Indenture to the contrary, the Holder
shall have no recourse against the Note Issuer, but shall look only to the
Collateral, with respect to any amounts due to the Holder under this Class A-5
Note.
8
<PAGE> 45
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of
assignee:
- ---------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(name and address of assignee)
the within Class A-5 Note and all rights thereunder, and hereby irrevocably
constitutes and appoints , attorney, to transfer said Class
-----------------
A-5 Note on the books kept for registration thereof, with full power of
substitution in the premises.
Dated: *
--------------------------------- ------------------------------------
Signature Guaranteed:
--------------------------------- ------------------------------------
- ----------
* NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Class A-5 Note in
every particular, without alteration, enlargement or any change whatsoever.
9
<PAGE> 1
REGISTERED
NO. A-1 $108,500,000
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
CLASS A-1
RATE REDUCTION CERTIFICATE
<TABLE>
<CAPTION>
SCHEDULED FINAL
INTEREST RATE DISTRIBUTION DATE FINAL TERMINATION DATE CUSIP
------------- ----------------- ---------------------- -----
<S> <C> <C> <C>
5.99% March 15, 2001 March 15, 2003 575796 AA5
</TABLE>
REGISTERED OWNER: Cede & Co.
PRINCIPAL AMOUNT: One Hundred Eight Million Five Hundred Thousand Dollars
Exactly ($108,500,000)
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
This Certificate evidences a fractional undivided beneficial interest
in an Underlying Note (as defined below) of the corresponding class issued by
BEC Funding LLC, a Delaware limited liability company, and the proceeds thereof,
held by a trust or registered assigns, as more fully described herein.
This Certificate does not represent an interest in or obligation of The
Commonwealth of Massachusetts, the Massachusetts Development Finance Agency or
the Massachusetts Health and Educational Facilities Authority (collectively, the
"Agencies"), any other governmental agency or instrumentality or Boston Edison
Company, a Massachusetts corporation ("Boston Edison"), or any of its
affiliates. None of the Certificate, the Underlying Note or the underlying
Transition Property (as defined in the Certificate Indenture) will be guaranteed
or insured by The Commonwealth of Massachusetts, either of the Agencies, the
Trust (as defined below) or any other governmental agency or instrumentality or
by Boston Edison or its affiliates.
<PAGE> 2
Neither the full faith and credit nor the taxing power of The
Commonwealth of Massachusetts, either of the Agencies or any other governmental
agency or instrumentality is pledged to the payment of the principal of,
purchase price of, or interest on, this Certificate or the Underlying Note, or
to the payments in respect of the Transition Property, nor are The Commonwealth
of Massachusetts, either of the Agencies or any other governmental agency or
instrumentality in any manner obligated to make any appropriation for the
payment thereof.
THIS CERTIFIES THAT CEDE & CO., as nominee for The Depository Trust
Company, for value received, is the registered owner of a Principal Amount
(stated above) of nonassessable, fully-paid, fractional undivided beneficial
interest in the related Underlying Note and the proceeds thereof held by
Massachusetts RRB Special Purpose Trust BEC-1 (the "Trust") or registered
assigns. The Trust is created pursuant to, and this Certificate is issued under
and is subject to the terms, provisions and conditions of, a Declaration of
Trust dated as of July 28, 1999 by The Bank of New York (Delaware), as Delaware
trustee (the "Delaware Trustee"), and the Agencies, acting jointly as settlors
thereunder pursuant to Chapter 164 of the Massachusetts Acts of 1997 (the
"Statute"). This Certificate is issued under and is subject to the terms,
provisions, and conditions of, a Certificate Indenture dated as of July 29, 1999
(the "Certificate Indenture"), by and among the Delaware Trustee, The Bank of
New York, as certificate trustee (the "Certificate Trustee"), and the Trust, a
summary of certain of the pertinent provisions of which is set forth below. This
Certificate is one of the duly authorized class of Certificates designated as
"Massachusetts RRB Special Purpose Trust BEC-1 Rate Reduction Certificates,
Class A-1" (herein called the "Class A-1 Certificates"). The Class A-1
Certificates are one of a class of Certificates issued under the Certificate
Indenture (such Class A-1 Certificates, together with other Classes of
Certificates issued on the date hereof under the Certificate Indenture being
herein called the "Certificates"). The holder of this Certificate (the
"Holder"), by virtue of its acceptance hereof, assents and agrees to be bound by
the terms of the Certificate Indenture. This Class A-1 Certificate represents a
fractional undivided beneficial interest in the note of the corresponding class
(the "Underlying Note") issued by BEC Funding LLC, as Note Issuer, together with
the payments on and proceeds of the Underlying Note. The Underlying Note is
secured by a security interest in the property right created under the Statute,
pursuant to the order of the Massachusetts Department of Telecommunications and
Energy, DTE-98-118, issued on April 2, 1999, as further clarified by the Order
on the Massachusetts Development Finance Agency's and the Massachusetts Health
and Educational Facilities Authority's Motion for Clarification dated May 21,
1999 (collectively, the "Financing Order"), representing the irrevocable right
of Boston Edison or its assignee to receive a certain nonbypassable charge (as
adjusted from time to time) from certain retail customers of Boston Edison's
distribution system, together with certain related collateral, all as more fully
described in the Note Indenture.
To the extent not otherwise defined herein, the capitalized terms used
have the meanings assigned to them in the Certificate Indenture.
The aggregate principal amount of all Certificates of all Classes
issued under the Certificate Indenture equals the aggregate principal amount of
the Underlying Notes of all Classes, and all such Certificates are and will be
equally secured by the pledge and covenants made therein, except as otherwise
expressly provided or permitted in the Certificate Indenture.
2
<PAGE> 3
Subject to and in accordance with the terms of the Certificate
Indenture, there will be distributed on each March 15 and September 15 of each
year or, if any such day is not a Business Day, the next succeeding Business Day
(each, a "Distribution Date"), commencing on March 15, 2000 to the Person in
whose name this Certificate is registered at the close of business on the last
Business Day immediately preceding the related Distribution Date or, if
Definitive Certificates are issued, the last day of the immediately preceding
calendar month (each, a "Record Date"), such Holder's fractional undivided
interest in the payments made on the Underlying Note due on the related Payment
Date, the receipt of which has been confirmed by the Certificate Trustee.
Subject to and in accordance with the terms of the Certificate Indenture, in the
event that a Special Payment on the Underlying Note is received by the
Certificate Trustee, from funds then available to the Certificate Trustee, there
will be distributed on the applicable Special Distribution Date, to the Person
in whose name this Certificate is registered on the Record Date preceding the
Special Distribution Date, as applicable, such Holder's fractional undivided
share of such amount. The Special Distribution Date will be determined as
provided in the Certificate Indenture. The Certificate Trustee will mail notice
of each Special Payment and the related Special Distribution Date to the Holder
as provided in the Certificate Indenture.
Distributions on this Certificate will be made as provided in the
Certificate Indenture by the Certificate Trustee by wire transfer or check
mailed to the Holder of record in the Certificate Register without the
presentation or surrender of this Certificate or the making of any notation
hereon, except that with respect to Certificates registered on the Record Date
in the name of the nominee of the Clearing Agency (initially, such nominee to be
Cede & Co.), payments will be made by wire transfer in immediately available
funds to the account designated by such nominee. Except as otherwise provided in
the Certificate Indenture and notwithstanding the above, the final distribution
on this Certificate will be made after due notice by the Certificate Trustee of
the pendency of such distribution and only upon presentation and surrender of
this Certificate at the office of the Paying Agent or the office or agency
maintained for that purpose by the Certificate Trustee in The City of New York.
(a) Subject to and in accordance with the terms of the Certificate
Indenture, the Trust has represented and warranted under the Certificate
Indenture that the Trust constitutes a "special purpose trust" and a "financing
entity" under Section 1H(a) of the Statute, and that the Certificates constitute
"electric rate reduction bonds" under Section 1H(a) of the Statute and that the
Holders are entitled to the rights and benefits thereunder. Pursuant to Section
1H(b)(3) of the Statute, The Commonwealth of Massachusetts, has additionally
pledged and agreed with the Note Issuer, the Trust and the Holders (the
"Commonwealth Pledge") as follows:
(b) [T]he [C]ommonwealth [of Massachusetts] does hereby pledge
and agree with the owners of the transition property and
holders of electric rate reduction bonds that the
[C]ommonwealth [of Massachusetts] shall not (i) alter the
provisions of this chapter which make the transition charges
imposed by the financing order irrevocable and binding or (ii)
limit or alter the reimbursable transition costs amounts,
transition property, financing orders, and all rights
thereunder until the electric rate reduction bonds, together
with the interest thereon, are fully met and discharged.
3
<PAGE> 4
In addition, the Trust has pledged and agreed with the Note Issuer and
the Holders of the Certificates that it will not act in a manner inconsistent
with the Commonwealth Pledge and will not take any action that would impair any
rights of the Note Issuer or the Holders in the Notes, the Transition Property
or the Certificates.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Certificate Trustee by manual
signature, this Certificate shall not be entitled to any benefit under the
Certificate Indenture or any other Basic Document or be valid for any purpose.
THIS CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE DOMESTIC LAW OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF
LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAW.
Any reduction in the principal amount of any Certificate effected by
any distribution in respect of principal thereof shall be binding upon all
Holders of such Certificate and of any Certificate issued upon the registration
of transfer thereof or in exchange thereof or in lieu thereof, whether or not
noted thereon.
It is expressly agreed and understood by the parties hereto
that (a) this Certificate is executed by The Bank of New York (Delaware) and
authenticated and delivered by The Bank of New York, not individually or
personally but solely as Delaware Trustee and Certificate Trustee, respectively,
on behalf of the Trust in the exercise of the powers and authority conferred and
vested in them, (b) the representations, undertakings and agreements herein made
by the Delaware Trustee and Certificate Trustee on behalf of the Trust are made
and intended not as personal representations, undertakings and agreements of
either trustee, but are made and intended for the purpose of binding only the
Trust, (c) nothing herein contained shall be construed as creating any liability
on The Bank of New York (Delaware) or The Bank of New York, individually or
personally, to perform any covenant either expressed or implied herein, except
in their capacity as Delaware Trustee and Certificate Trustee, respectively, all
such liability being expressly waived by all Persons, and (d) under no
circumstances shall The Bank of New York (Delaware) or The Bank of New York be
personally liable for the payment of any indebtedness or expenses of the Trust,
or be personally liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Trust under the
Certificate Indenture.
4
<PAGE> 5
IN WITNESS WHEREOF, the Delaware Trustee on behalf of the
Trust has caused this Certificate to be duly executed.
MASSACHUSETTS RRB SPECIAL
PURPOSE TRUST BEC-1
By: THE BANK OF NEW YORK
(DELAWARE), not in its individual
capacity but solely as Delaware
Trustee
By: /s/ CHERYL L. LASER
---------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
CERTIFICATE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: July 29, 1999
This is one of the Certificates referred to in the within-mentioned
Certificate Indenture.
THE BANK OF NEW YORK, not in its
individual capacity but solely as
Certificate Trustee
By: /s/ CHERYL L. LASER
---------------------------------
Authorized Officer
5
<PAGE> 6
[REVERSE OF CERTIFICATE]
The Certificates are limited in right of payment, all as more
specifically set forth on the face hereof and in the Certificate Indenture. All
payments or distributions made to Holders under the Certificate Indenture shall
be made only from the Trust Property and only to the extent that the Certificate
Trustee shall have sufficient income or proceeds from the Trust Property to make
such payments in accordance with the terms of the Certificate Indenture. Each
Holder, by its acceptance hereof, agrees that it will look solely to the income
and proceeds from the Trust Property to the extent available for distribution to
such Holder as provided in the Certificate Indenture. This Certificate does not
purport to summarize the Certificate Indenture and reference is made to the
Certificate Indenture for information with respect to the interests, rights,
benefits, obligations, proceeds, and duties evidenced hereby. A copy of the
Certificate Indenture may be examined during normal business hours at the
principal office of the Certificate Trustee, and at such other places, if any,
designated by the Certificate Trustee, by any Holder upon request.
The Certificate Indenture permits, with certain exceptions
therein provided, the amendment thereof and the modification of the rights of
the Holders under the Certificate Indenture at any time by the Trust and the
Certificate Trustee with the consent of the Holders holding Certificates
representing not less than a majority of the aggregate Outstanding Amount of
Certificates of each affected Class issued by the Trust. Any such consent by the
Holder of this Certificate shall be conclusive and binding on such Holder and
upon all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange hereof or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Certificate
Indenture also permits the amendment thereof, in certain limited circumstances,
without the consent of the Holders of any of the Certificates.
As provided in the Certificate Indenture and subject to
certain limitations therein set forth, the transfer of this Certificate is
registerable in the Certificate Register upon surrender of this Certificate for
registration of transfer at the offices or agencies maintained by the
Certificate Trustee in its capacity as Certificate Registrar, or by any
successor Certificate Registrar, in the Borough of Manhattan, The City of New
York, duly endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Certificate Trustee and the Certificate Registrar duly
executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Certificates of authorized denominations
evidencing the same aggregate fractional undivided beneficial interest in the
Underlying Note will be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates
without coupons in Minimum Denominations of $1,000 Original Principal Amount and
integral multiples thereof. As provided in the Certificate Indenture and subject
to certain limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the same aggregate
fractional undivided beneficial interest in the Underlying Notes, as requested
by the Holder surrendering the same.
6
<PAGE> 7
THE HOLDER, BY PURCHASE OF THIS CERTIFICATE, WILL BE DEEMED TO
REPRESENT THAT SUCH PURCHASE WILL NOT RESULT IN A NON-EXEMPT PROHIBITED
TRANSACTION UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, AND, IN EACH CASE, THE RULES
AND REGULATIONS THEREUNDER.
No service charge will be made for any such registration of
transfer or exchange, but the Certificate Trustee shall require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Certificate Trustee, the Certificate Registrar, and any
agent of the Certificate Trustee or the Certificate Registrar may treat the
person in whose name this Certificate is registered as the owner hereof for all
purposes, and neither the Certificate Trustee, the Certificate Registrar, nor
any such agent shall be affected by any notice to the contrary.
The obligations and responsibilities created by the
Certificate Indenture shall terminate with respect to the Certificates upon the
distribution to the Holders of all amounts required to be distributed to them
pursuant to the Certificate Indenture and the disposition of all property held
as part of the Trust Property, except certain indemnity obligations of the Note
Issuer to the Certificate Trustee under the Fee and Indemnity Agreement.
7
<PAGE> 8
REGISTERED
NO. A-2 $170,609,837
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
CLASS A-2
RATE REDUCTION CERTIFICATE
<TABLE>
<CAPTION>
SCHEDULED FINAL
INTEREST RATE DISTRIBUTION DATE FINAL TERMINATION DATE CUSIP
------------- ----------------- ---------------------- -----
<S> <C> <C> <C>
6.45% September 15, 2003 September 15, 2005 575796 AB3
</TABLE>
REGISTERED OWNER: Cede & Co.
PRINCIPAL AMOUNT: One Hundred Seventy Million Six Hundred Nine Thousand Eight
Hundred Thirty Seven Dollars Exactly ($170,609,837)
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
This Certificate evidences a fractional undivided beneficial interest
in an Underlying Note (as defined below) of the corresponding class issued by
BEC Funding LLC, a Delaware limited liability company, and the proceeds thereof,
held by a trust or registered assigns, as more fully described herein.
This Certificate does not represent an interest in or obligation of The
Commonwealth of Massachusetts, the Massachusetts Development Finance Agency or
the Massachusetts Health and Educational Facilities Authority (collectively, the
"Agencies"), any other governmental agency or instrumentality or Boston Edison
Company, a Massachusetts corporation ("Boston Edison"), or any of its
affiliates. None of the Certificate, the Underlying Note or the underlying
Transition Property (as defined in the Certificate Indenture) will be guaranteed
or insured by The Commonwealth of Massachusetts, either of the Agencies, the
Trust (as defined below) or any other governmental agency or instrumentality or
by Boston Edison or its affiliates.
<PAGE> 9
Neither the full faith and credit nor the taxing power of The
Commonwealth of Massachusetts, either of the Agencies or any other governmental
agency or instrumentality is pledged to the payment of the principal of,
purchase price of, or interest on, this Certificate or the Underlying Note, or
to the payments in respect of the Transition Property, nor are The Commonwealth
of Massachusetts, either of the Agencies or any other governmental agency or
instrumentality in any manner obligated to make any appropriation for the
payment thereof.
THIS CERTIFIES THAT CEDE & CO., as nominee for The Depository Trust
Company, for value received, is the registered owner of a Principal Amount
(stated above) of nonassessable, fully-paid, fractional undivided beneficial
interest in the related Underlying Note and the proceeds thereof held by
Massachusetts RRB Special Purpose Trust BEC-1 (the "Trust") or registered
assigns. The Trust is created pursuant to, and this Certificate is issued under
and is subject to the terms, provisions and conditions of, a Declaration of
Trust dated as of July 28, 1999 by The Bank of New York (Delaware), as Delaware
trustee (the "Delaware Trustee"), and the Agencies, acting jointly as settlors
thereunder pursuant to Chapter 164 of the Massachusetts Acts of 1997 (the
"Statute"). This Certificate is issued under and is subject to the terms,
provisions, and conditions of, a Certificate Indenture dated as of July 29, 1999
(the "Certificate Indenture"), by and among the Delaware Trustee, The Bank of
New York, as certificate trustee (the "Certificate Trustee"), and the Trust, a
summary of certain of the pertinent provisions of which is set forth below. This
Certificate is one of the duly authorized class of Certificates designated as
"Massachusetts RRB Special Purpose Trust BEC-1 Rate Reduction Certificates,
Class A-2" (herein called the "Class A-2 Certificates"). The Class A-2
Certificates are one of a class of Certificates issued under the Certificate
Indenture (such Class A-2 Certificates, together with other Classes of
Certificates issued on the date hereof under the Certificate Indenture being
herein called the "Certificates"). The holder of this Certificate (the
"Holder"), by virtue of its acceptance hereof, assents and agrees to be bound by
the terms of the Certificate Indenture. This Class A-2 Certificate represents a
fractional undivided beneficial interest in the note of the corresponding class
(the "Underlying Note") issued by BEC Funding LLC, as Note Issuer, together with
the payments on and proceeds of the Underlying Note. The Underlying Note is
secured by a security interest in the property right created under the Statute,
pursuant to the order of the Massachusetts Department of Telecommunications and
Energy, DTE-98-118, issued on April 2, 1999, as further clarified by the Order
on the Massachusetts Development Finance Agency's and the Massachusetts Health
and Educational Facilities Authority's Motion for Clarification dated May 21,
1999 (collectively, the "Financing Order"), representing the irrevocable right
of Boston Edison or its assignee to receive a certain nonbypassable charge (as
adjusted from time to time) from certain retail customers of Boston Edison's
distribution system, together with certain related collateral, all as more fully
described in the Note Indenture.
To the extent not otherwise defined herein, the capitalized terms used
have the meanings assigned to them in the Certificate Indenture.
The aggregate principal amount of all Certificates of all Classes
issued under the Certificate Indenture equals the aggregate principal amount of
the Underlying Notes of all Classes, and all such Certificates are and will be
equally secured by the pledge and covenants made therein, except as otherwise
expressly provided or permitted in the Certificate Indenture.
2
<PAGE> 10
Subject to and in accordance with the terms of the Certificate
Indenture, there will be distributed on each March 15 and September 15 of each
year or, if any such day is not a Business Day, the next succeeding Business Day
(each, a "Distribution Date"), commencing on March 15, 2000 to the Person in
whose name this Certificate is registered at the close of business on the last
Business Day immediately preceding the related Distribution Date or, if
Definitive Certificates are issued, the last day of the immediately preceding
calendar month (each, a "Record Date"), such Holder's fractional undivided
interest in the payments made on the Underlying Note due on the related Payment
Date, the receipt of which has been confirmed by the Certificate Trustee.
Subject to and in accordance with the terms of the Certificate Indenture, in the
event that a Special Payment on the Underlying Note is received by the
Certificate Trustee, from funds then available to the Certificate Trustee, there
will be distributed on the applicable Special Distribution Date, to the Person
in whose name this Certificate is registered on the Record Date preceding the
Special Distribution Date, as applicable, such Holder's fractional undivided
share of such amount. The Special Distribution Date will be determined as
provided in the Certificate Indenture. The Certificate Trustee will mail notice
of each Special Payment and the related Special Distribution Date to the Holder
as provided in the Certificate Indenture.
Distributions on this Certificate will be made as provided in the
Certificate Indenture by the Certificate Trustee by wire transfer or check
mailed to the Holder of record in the Certificate Register without the
presentation or surrender of this Certificate or the making of any notation
hereon, except that with respect to Certificates registered on the Record Date
in the name of the nominee of the Clearing Agency (initially, such nominee to be
Cede & Co.), payments will be made by wire transfer in immediately available
funds to the account designated by such nominee. Except as otherwise provided in
the Certificate Indenture and notwithstanding the above, the final distribution
on this Certificate will be made after due notice by the Certificate Trustee of
the pendency of such distribution and only upon presentation and surrender of
this Certificate at the office of the Paying Agent or the office or agency
maintained for that purpose by the Certificate Trustee in The City of New York.
(c) Subject to and in accordance with the terms of the Certificate
Indenture, the Trust has represented and warranted under the Certificate
Indenture that the Trust constitutes a "special purpose trust" and a "financing
entity" under Section 1H(a) of the Statute, and that the Certificates constitute
"electric rate reduction bonds" under Section 1H(a) of the Statute and that the
Holders are entitled to the rights and benefits thereunder. Pursuant to Section
1H(b)(3) of the Statute, The Commonwealth of Massachusetts, has additionally
pledged and agreed with the Note Issuer, the Trust and the Holders (the
"Commonwealth Pledge") as follows:
(d) [T]he [C]ommonwealth [of Massachusetts] does hereby pledge
and agree with the owners of the transition property and
holders of electric rate reduction bonds that the
[C]ommonwealth [of Massachusetts] shall not (i) alter the
provisions of this chapter which make the transition charges
imposed by the financing order irrevocable and binding or (ii)
limit or alter the reimbursable transition costs amounts,
transition property, financing orders, and all rights
thereunder until the electric rate reduction bonds, together
with the interest thereon, are fully met and discharged.
3
<PAGE> 11
In addition, the Trust has pledged and agreed with the Note Issuer and
the Holders of the Certificates that it will not act in a manner inconsistent
with the Commonwealth Pledge and will not take any action that would impair any
rights of the Note Issuer or the Holders in the Notes, the Transition Property
or the Certificates.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Certificate Trustee by manual
signature, this Certificate shall not be entitled to any benefit under the
Certificate Indenture or any other Basic Document or be valid for any purpose.
THIS CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE DOMESTIC LAW OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF
LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAW.
Any reduction in the principal amount of any Certificate effected by
any distribution in respect of principal thereof shall be binding upon all
Holders of such Certificate and of any Certificate issued upon the registration
of transfer thereof or in exchange thereof or in lieu thereof, whether or not
noted thereon.
It is expressly agreed and understood by the parties hereto
that (a) this Certificate is executed by The Bank of New York (Delaware) and
authenticated and delivered by The Bank of New York, not individually or
personally but solely as Delaware Trustee and Certificate Trustee, respectively,
on behalf of the Trust in the exercise of the powers and authority conferred and
vested in them, (b) the representations, undertakings and agreements herein made
by the Delaware Trustee and Certificate Trustee on behalf of the Trust are made
and intended not as personal representations, undertakings and agreements of
either trustee, but are made and intended for the purpose of binding only the
Trust, (c) nothing herein contained shall be construed as creating any liability
on The Bank of New York (Delaware) or The Bank of New York, individually or
personally, to perform any covenant either expressed or implied herein, except
in their capacity as Delaware Trustee and Certificate Trustee, respectively, all
such liability being expressly waived by all Persons, and (d) under no
circumstances shall The Bank of New York (Delaware) or The Bank of New York be
personally liable for the payment of any indebtedness or expenses of the Trust,
or be personally liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Trust under the
Certificate Indenture.
4
<PAGE> 12
IN WITNESS WHEREOF, the Delaware Trustee on behalf of the
Trust has caused this Certificate to be duly executed.
MASSACHUSETTS RRB SPECIAL
PURPOSE TRUST BEC-1
By: THE BANK OF NEW YORK
(DELAWARE), not in its individual
capacity but solely as Delaware
Trustee
By: /s/ CHERYL L. LASER
---------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
CERTIFICATE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: July 29, 1999
This is one of the Certificates referred to in the within-mentioned
Certificate Indenture.
THE BANK OF NEW YORK, not in its
individual capacity but solely as
Certificate Trustee
By: /s/ CHERYL L. LASER
---------------------------------
Authorized Officer
5
<PAGE> 13
[REVERSE OF CERTIFICATE]
The Certificates are limited in right of payment, all as more
specifically set forth on the face hereof and in the Certificate Indenture. All
payments or distributions made to Holders under the Certificate Indenture shall
be made only from the Trust Property and only to the extent that the Certificate
Trustee shall have sufficient income or proceeds from the Trust Property to make
such payments in accordance with the terms of the Certificate Indenture. Each
Holder, by its acceptance hereof, agrees that it will look solely to the income
and proceeds from the Trust Property to the extent available for distribution to
such Holder as provided in the Certificate Indenture. This Certificate does not
purport to summarize the Certificate Indenture and reference is made to the
Certificate Indenture for information with respect to the interests, rights,
benefits, obligations, proceeds, and duties evidenced hereby. A copy of the
Certificate Indenture may be examined during normal business hours at the
principal office of the Certificate Trustee, and at such other places, if any,
designated by the Certificate Trustee, by any Holder upon request.
The Certificate Indenture permits, with certain exceptions
therein provided, the amendment thereof and the modification of the rights of
the Holders under the Certificate Indenture at any time by the Trust and the
Certificate Trustee with the consent of the Holders holding Certificates
representing not less than a majority of the aggregate Outstanding Amount of
Certificates of each affected Class issued by the Trust. Any such consent by the
Holder of this Certificate shall be conclusive and binding on such Holder and
upon all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange hereof or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Certificate
Indenture also permits the amendment thereof, in certain limited circumstances,
without the consent of the Holders of any of the Certificates.
As provided in the Certificate Indenture and subject to
certain limitations therein set forth, the transfer of this Certificate is
registerable in the Certificate Register upon surrender of this Certificate for
registration of transfer at the offices or agencies maintained by the
Certificate Trustee in its capacity as Certificate Registrar, or by any
successor Certificate Registrar, in the Borough of Manhattan, The City of New
York, duly endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Certificate Trustee and the Certificate Registrar duly
executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Certificates of authorized denominations
evidencing the same aggregate fractional undivided beneficial interest in the
Underlying Note will be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates
without coupons in Minimum Denominations of $1,000 Original Principal Amount and
integral multiples thereof. As provided in the Certificate Indenture and subject
to certain limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the same aggregate
fractional undivided beneficial interest in the Underlying Notes, as requested
by the Holder surrendering the same.
6
<PAGE> 14
THE HOLDER, BY PURCHASE OF THIS CERTIFICATE, WILL BE DEEMED TO
REPRESENT THAT SUCH PURCHASE WILL NOT RESULT IN A NON-EXEMPT PROHIBITED
TRANSACTION UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, AND, IN EACH CASE, THE RULES
AND REGULATIONS THEREUNDER.
No service charge will be made for any such registration of
transfer or exchange, but the Certificate Trustee shall require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Certificate Trustee, the Certificate Registrar, and any
agent of the Certificate Trustee or the Certificate Registrar may treat the
person in whose name this Certificate is registered as the owner hereof for all
purposes, and neither the Certificate Trustee, the Certificate Registrar, nor
any such agent shall be affected by any notice to the contrary.
The obligations and responsibilities created by the
Certificate Indenture shall terminate with respect to the Certificates upon the
distribution to the Holders of all amounts required to be distributed to them
pursuant to the Certificate Indenture and the disposition of all property held
as part of the Trust Property, except certain indemnity obligations of the Note
Issuer to the Certificate Trustee under the Fee and Indemnity Agreement.
7
<PAGE> 15
REGISTERED
NO. A-3 $103,390,163
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
CLASS A-3
RATE REDUCTION CERTIFICATE
<TABLE>
<CAPTION>
SCHEDULED FINAL
INTEREST RATE DISTRIBUTION DATE FINAL TERMINATION DATE CUSIP
------------- ----------------- ---------------------- -----
<S> <C> <C> <C>
6.62% March 15, 2005 March 15, 2007 575796 AC1
</TABLE>
REGISTERED OWNER: Cede & Co.
PRINCIPAL AMOUNT: One Hundred Three Million Three Hundred Ninety Thousand One
Hundred Sixty Three Dollars Exactly ($103,390,163)
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
This Certificate evidences a fractional undivided beneficial interest
in an Underlying Note (as defined below) of the corresponding class issued by
BEC Funding LLC, a Delaware limited liability company, and the proceeds thereof,
held by a trust or registered assigns, as more fully described herein.
This Certificate does not represent an interest in or obligation of The
Commonwealth of Massachusetts, the Massachusetts Development Finance Agency or
the Massachusetts Health and Educational Facilities Authority (collectively, the
"Agencies"), any other governmental agency or instrumentality or Boston Edison
Company, a Massachusetts corporation ("Boston Edison"), or any of its
affiliates. None of the Certificate, the Underlying Note or the underlying
Transition Property (as defined in the Certificate Indenture) will be guaranteed
or insured by The Commonwealth of Massachusetts, either of the Agencies, the
Trust (as defined below) or any other governmental agency or instrumentality or
by Boston Edison or its affiliates.
<PAGE> 16
Neither the full faith and credit nor the taxing power of The
Commonwealth of Massachusetts, either of the Agencies or any other governmental
agency or instrumentality is pledged to the payment of the principal of,
purchase price of, or interest on, this Certificate or the Underlying Note, or
to the payments in respect of the Transition Property, nor are The Commonwealth
of Massachusetts, either of the Agencies or any other governmental agency or
instrumentality in any manner obligated to make any appropriation for the
payment thereof.
THIS CERTIFIES THAT CEDE & CO., as nominee for The Depository Trust
Company, for value received, is the registered owner of a Principal Amount
(stated above) of nonassessable, fully-paid, fractional undivided beneficial
interest in the related Underlying Note and the proceeds thereof held by
Massachusetts RRB Special Purpose Trust BEC-1 (the "Trust") or registered
assigns. The Trust is created pursuant to, and this Certificate is issued under
and is subject to the terms, provisions and conditions of, a Declaration of
Trust dated as of July 28, 1999 by The Bank of New York (Delaware), as Delaware
trustee (the "Delaware Trustee"), and the Agencies, acting jointly as settlors
thereunder pursuant to Chapter 164 of the Massachusetts Acts of 1997 (the
"Statute"). This Certificate is issued under and is subject to the terms,
provisions, and conditions of, a Certificate Indenture dated as of July 29, 1999
(the "Certificate Indenture"), by and among the Delaware Trustee, The Bank of
New York, as certificate trustee (the "Certificate Trustee"), and the Trust, a
summary of certain of the pertinent provisions of which is set forth below. This
Certificate is one of the duly authorized class of Certificates designated as
"Massachusetts RRB Special Purpose Trust BEC-1 Rate Reduction Certificates,
Class A-3" (herein called the "Class A-3 Certificates"). The Class A-3
Certificates are one of a class of Certificates issued under the Certificate
Indenture (such Class A-3 Certificates, together with other Classes of
Certificates issued on the date hereof under the Certificate Indenture being
herein called the "Certificates"). The holder of this Certificate (the
"Holder"), by virtue of its acceptance hereof, assents and agrees to be bound by
the terms of the Certificate Indenture. This Class A-3 Certificate represents a
fractional undivided beneficial interest in the note of the corresponding class
(the "Underlying Note") issued by BEC Funding LLC, as Note Issuer, together with
the payments on and proceeds of the Underlying Note. The Underlying Note is
secured by a security interest in the property right created under the Statute,
pursuant to the order of the Massachusetts Department of Telecommunications and
Energy, DTE-98-118, issued on April 2, 1999, as further clarified by the Order
on the Massachusetts Development Finance Agency's and the Massachusetts Health
and Educational Facilities Authority's Motion for Clarification dated May 21,
1999 (collectively, the "Financing Order"), representing the irrevocable right
of Boston Edison or its assignee to receive a certain nonbypassable charge (as
adjusted from time to time) from certain retail customers of Boston Edison's
distribution system, together with certain related collateral, all as more fully
described in the Note Indenture.
To the extent not otherwise defined herein, the capitalized terms used
have the meanings assigned to them in the Certificate Indenture.
The aggregate principal amount of all Certificates of all Classes
issued under the Certificate Indenture equals the aggregate principal amount of
the Underlying Notes of all Classes, and all such Certificates are and will be
equally secured by the pledge and covenants made therein, except as otherwise
expressly provided or permitted in the Certificate Indenture.
2
<PAGE> 17
Subject to and in accordance with the terms of the Certificate
Indenture, there will be distributed on each March 15 and September 15 of each
year or, if any such day is not a Business Day, the next succeeding Business Day
(each, a "Distribution Date"), commencing on March 15, 2000 to the Person in
whose name this Certificate is registered at the close of business on the last
Business Day immediately preceding the related Distribution Date or, if
Definitive Certificates are issued, the last day of the immediately preceding
calendar month (each, a "Record Date"), such Holder's fractional undivided
interest in the payments made on the Underlying Note due on the related Payment
Date, the receipt of which has been confirmed by the Certificate Trustee.
Subject to and in accordance with the terms of the Certificate Indenture, in the
event that a Special Payment on the Underlying Note is received by the
Certificate Trustee, from funds then available to the Certificate Trustee, there
will be distributed on the applicable Special Distribution Date, to the Person
in whose name this Certificate is registered on the Record Date preceding the
Special Distribution Date, as applicable, such Holder's fractional undivided
share of such amount. The Special Distribution Date will be determined as
provided in the Certificate Indenture. The Certificate Trustee will mail notice
of each Special Payment and the related Special Distribution Date to the Holder
as provided in the Certificate Indenture.
Distributions on this Certificate will be made as provided in the
Certificate Indenture by the Certificate Trustee by wire transfer or check
mailed to the Holder of record in the Certificate Register without the
presentation or surrender of this Certificate or the making of any notation
hereon, except that with respect to Certificates registered on the Record Date
in the name of the nominee of the Clearing Agency (initially, such nominee to be
Cede & Co.), payments will be made by wire transfer in immediately available
funds to the account designated by such nominee. Except as otherwise provided in
the Certificate Indenture and notwithstanding the above, the final distribution
on this Certificate will be made after due notice by the Certificate Trustee of
the pendency of such distribution and only upon presentation and surrender of
this Certificate at the office of the Paying Agent or the office or agency
maintained for that purpose by the Certificate Trustee in The City of New York.
(e) Subject to and in accordance with the terms of the Certificate
Indenture, the Trust has represented and warranted under the Certificate
Indenture that the Trust constitutes a "special purpose trust" and a "financing
entity" under Section 1H(a) of the Statute, and that the Certificates constitute
"electric rate reduction bonds" under Section 1H(a) of the Statute and that the
Holders are entitled to the rights and benefits thereunder. Pursuant to Section
1H(b)(3) of the Statute, The Commonwealth of Massachusetts, has additionally
pledged and agreed with the Note Issuer, the Trust and the Holders (the
"Commonwealth Pledge") as follows:
(f) [T]he [C]ommonwealth [of Massachusetts] does hereby pledge
and agree with the owners of the transition property and
holders of electric rate reduction bonds that the
[C]ommonwealth [of Massachusetts] shall not (i) alter the
provisions of this chapter which make the transition charges
imposed by the financing order irrevocable and binding or (ii)
limit or alter the reimbursable transition costs amounts,
transition property, financing orders, and all rights
thereunder until the electric rate reduction bonds, together
with the interest thereon, are fully met and discharged.
3
<PAGE> 18
In addition, the Trust has pledged and agreed with the Note Issuer and
the Holders of the Certificates that it will not act in a manner inconsistent
with the Commonwealth Pledge and will not take any action that would impair any
rights of the Note Issuer or the Holders in the Notes, the Transition Property
or the Certificates.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Certificate Trustee by manual
signature, this Certificate shall not be entitled to any benefit under the
Certificate Indenture or any other Basic Document or be valid for any purpose.
THIS CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE DOMESTIC LAW OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF
LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAW.
Any reduction in the principal amount of any Certificate effected by
any distribution in respect of principal thereof shall be binding upon all
Holders of such Certificate and of any Certificate issued upon the registration
of transfer thereof or in exchange thereof or in lieu thereof, whether or not
noted thereon.
It is expressly agreed and understood by the parties hereto
that (a) this Certificate is executed by The Bank of New York (Delaware) and
authenticated and delivered by The Bank of New York, not individually or
personally but solely as Delaware Trustee and Certificate Trustee, respectively,
on behalf of the Trust in the exercise of the powers and authority conferred and
vested in them, (b) the representations, undertakings and agreements herein made
by the Delaware Trustee and Certificate Trustee on behalf of the Trust are made
and intended not as personal representations, undertakings and agreements of
either trustee, but are made and intended for the purpose of binding only the
Trust, (c) nothing herein contained shall be construed as creating any liability
on The Bank of New York (Delaware) or The Bank of New York, individually or
personally, to perform any covenant either expressed or implied herein, except
in their capacity as Delaware Trustee and Certificate Trustee, respectively, all
such liability being expressly waived by all Persons, and (d) under no
circumstances shall The Bank of New York (Delaware) or The Bank of New York be
personally liable for the payment of any indebtedness or expenses of the Trust,
or be personally liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Trust under the
Certificate Indenture.
4
<PAGE> 19
IN WITNESS WHEREOF, the Delaware Trustee on behalf of the
Trust has caused this Certificate to be duly executed.
MASSACHUSETTS RRB SPECIAL
PURPOSE TRUST BEC-1
By: THE BANK OF NEW YORK
(DELAWARE), not in its individual
capacity but solely as Delaware
Trustee
By: /S/ CHERYL L. LASER
---------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
CERTIFICATE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: July 29, 1999
This is one of the Certificates referred to in the within-mentioned
Certificate Indenture.
THE BANK OF NEW YORK, not in its
individual capacity but solely as
Certificate Trustee
By: /s/ CHERYL L. LASER
---------------------------------
Authorized Officer
5
<PAGE> 20
[REVERSE OF CERTIFICATE]
The Certificates are limited in right of payment, all as more
specifically set forth on the face hereof and in the Certificate Indenture. All
payments or distributions made to Holders under the Certificate Indenture shall
be made only from the Trust Property and only to the extent that the Certificate
Trustee shall have sufficient income or proceeds from the Trust Property to make
such payments in accordance with the terms of the Certificate Indenture. Each
Holder, by its acceptance hereof, agrees that it will look solely to the income
and proceeds from the Trust Property to the extent available for distribution to
such Holder as provided in the Certificate Indenture. This Certificate does not
purport to summarize the Certificate Indenture and reference is made to the
Certificate Indenture for information with respect to the interests, rights,
benefits, obligations, proceeds, and duties evidenced hereby. A copy of the
Certificate Indenture may be examined during normal business hours at the
principal office of the Certificate Trustee, and at such other places, if any,
designated by the Certificate Trustee, by any Holder upon request.
The Certificate Indenture permits, with certain exceptions
therein provided, the amendment thereof and the modification of the rights of
the Holders under the Certificate Indenture at any time by the Trust and the
Certificate Trustee with the consent of the Holders holding Certificates
representing not less than a majority of the aggregate Outstanding Amount of
Certificates of each affected Class issued by the Trust. Any such consent by the
Holder of this Certificate shall be conclusive and binding on such Holder and
upon all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange hereof or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Certificate
Indenture also permits the amendment thereof, in certain limited circumstances,
without the consent of the Holders of any of the Certificates.
As provided in the Certificate Indenture and subject to
certain limitations therein set forth, the transfer of this Certificate is
registerable in the Certificate Register upon surrender of this Certificate for
registration of transfer at the offices or agencies maintained by the
Certificate Trustee in its capacity as Certificate Registrar, or by any
successor Certificate Registrar, in the Borough of Manhattan, The City of New
York, duly endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Certificate Trustee and the Certificate Registrar duly
executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Certificates of authorized denominations
evidencing the same aggregate fractional undivided beneficial interest in the
Underlying Note will be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates
without coupons in Minimum Denominations of $1,000 Original Principal Amount and
integral multiples thereof. As provided in the Certificate Indenture and subject
to certain limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the same aggregate
fractional undivided beneficial interest in the Underlying Notes, as requested
by the Holder surrendering the same.
6
<PAGE> 21
THE HOLDER, BY PURCHASE OF THIS CERTIFICATE, WILL BE DEEMED TO
REPRESENT THAT SUCH PURCHASE WILL NOT RESULT IN A NON-EXEMPT PROHIBITED
TRANSACTION UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, AND, IN EACH CASE, THE RULES
AND REGULATIONS THEREUNDER.
No service charge will be made for any such registration of
transfer or exchange, but the Certificate Trustee shall require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Certificate Trustee, the Certificate Registrar, and any
agent of the Certificate Trustee or the Certificate Registrar may treat the
person in whose name this Certificate is registered as the owner hereof for all
purposes, and neither the Certificate Trustee, the Certificate Registrar, nor
any such agent shall be affected by any notice to the contrary.
The obligations and responsibilities created by the
Certificate Indenture shall terminate with respect to the Certificates upon the
distribution to the Holders of all amounts required to be distributed to them
pursuant to the Certificate Indenture and the disposition of all property held
as part of the Trust Property, except certain indemnity obligations of the Note
Issuer to the Certificate Trustee under the Fee and Indemnity Agreement.
7
<PAGE> 22
REGISTERED
NO. A-4 $170,875,702
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
CLASS A-4
RATE REDUCTION CERTIFICATE
<TABLE>
<CAPTION>
SCHEDULED FINAL
INTEREST RATE DISTRIBUTION DATE FINAL TERMINATION DATE CUSIP
------------- ----------------- ---------------------- -----
<S> <C> <C> <C>
6.91% September 15, 2007 September 15, 2009 575796 AD9
</TABLE>
REGISTERED OWNER: Cede & Co.
PRINCIPAL AMOUNT: One Hundred Seventy Million Eight Hundred Seventy Five
Thousand Seven Hundred Two Dollars Exactly ($170,875,702)
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
This Certificate evidences a fractional undivided beneficial interest
in an Underlying Note (as defined below) of the corresponding class issued by
BEC Funding LLC, a Delaware limited liability company, and the proceeds thereof,
held by a trust or registered assigns, as more fully described herein.
This Certificate does not represent an interest in or obligation of The
Commonwealth of Massachusetts, the Massachusetts Development Finance Agency or
the Massachusetts Health and Educational Facilities Authority (collectively, the
"Agencies"), any other governmental agency or instrumentality or Boston Edison
Company, a Massachusetts corporation ("Boston Edison"), or any of its
affiliates. None of the Certificate, the Underlying Note or the underlying
Transition Property (as defined in the Certificate Indenture) will be guaranteed
or insured by The Commonwealth of Massachusetts, either of the Agencies, the
Trust (as defined below) or any other governmental agency or instrumentality or
by Boston Edison or its affiliates.
<PAGE> 23
Neither the full faith and credit nor the taxing power of The
Commonwealth of Massachusetts, either of the Agencies or any other governmental
agency or instrumentality is pledged to the payment of the principal of,
purchase price of, or interest on, this Certificate or the Underlying Note, or
to the payments in respect of the Transition Property, nor are The Commonwealth
of Massachusetts, either of the Agencies or any other governmental agency or
instrumentality in any manner obligated to make any appropriation for the
payment thereof.
THIS CERTIFIES THAT CEDE & CO., as nominee for The Depository Trust
Company, for value received, is the registered owner of a Principal Amount
(stated above) of nonassessable, fully-paid, fractional undivided beneficial
interest in the related Underlying Note and the proceeds thereof held by
Massachusetts RRB Special Purpose Trust BEC-1 (the "Trust") or registered
assigns. The Trust is created pursuant to, and this Certificate is issued under
and is subject to the terms, provisions and conditions of, a Declaration of
Trust dated as of July 28, 1999 by The Bank of New York (Delaware), as Delaware
trustee (the "Delaware Trustee"), and the Agencies, acting jointly as settlors
thereunder pursuant to Chapter 164 of the Massachusetts Acts of 1997 (the
"Statute"). This Certificate is issued under and is subject to the terms,
provisions, and conditions of, a Certificate Indenture dated as of July 29, 1999
(the "Certificate Indenture"), by and among the Delaware Trustee, The Bank of
New York, as certificate trustee (the "Certificate Trustee"), and the Trust, a
summary of certain of the pertinent provisions of which is set forth below. This
Certificate is one of the duly authorized class of Certificates designated as
"Massachusetts RRB Special Purpose Trust BEC-1 Rate Reduction Certificates,
Class A-4" (herein called the "Class A-4 Certificates"). The Class A-4
Certificates are one of a class of Certificates issued under the Certificate
Indenture (such Class A-4 Certificates, together with other Classes of
Certificates issued on the date hereof under the Certificate Indenture being
herein called the "Certificates"). The holder of this Certificate (the
"Holder"), by virtue of its acceptance hereof, assents and agrees to be bound by
the terms of the Certificate Indenture. This Class A-4 Certificate represents a
fractional undivided beneficial interest in the note of the corresponding class
(the "Underlying Note") issued by BEC Funding LLC, as Note Issuer, together with
the payments on and proceeds of the Underlying Note. The Underlying Note is
secured by a security interest in the property right created under the Statute,
pursuant to the order of the Massachusetts Department of Telecommunications and
Energy, DTE-98-118, issued on April 2, 1999, as further clarified by the Order
on the Massachusetts Development Finance Agency's and the Massachusetts Health
and Educational Facilities Authority's Motion for Clarification dated May 21,
1999 (collectively, the "Financing Order"), representing the irrevocable right
of Boston Edison or its assignee to receive a certain nonbypassable charge (as
adjusted from time to time) from certain retail customers of Boston Edison's
distribution system, together with certain related collateral, all as more fully
described in the Note Indenture.
To the extent not otherwise defined herein, the capitalized terms used
have the meanings assigned to them in the Certificate Indenture.
The aggregate principal amount of all Certificates of all Classes
issued under the Certificate Indenture equals the aggregate principal amount of
the Underlying Notes of all Classes, and all such Certificates are and will be
equally secured by the pledge and covenants made therein, except as otherwise
expressly provided or permitted in the Certificate Indenture.
2
<PAGE> 24
Subject to and in accordance with the terms of the Certificate
Indenture, there will be distributed on each March 15 and September 15 of each
year or, if any such day is not a Business Day, the next succeeding Business Day
(each, a "Distribution Date"), commencing on March 15, 2000 to the Person in
whose name this Certificate is registered at the close of business on the last
Business Day immediately preceding the related Distribution Date or, if
Definitive Certificates are issued, the last day of the immediately preceding
calendar month (each, a "Record Date"), such Holder's fractional undivided
interest in the payments made on the Underlying Note due on the related Payment
Date, the receipt of which has been confirmed by the Certificate Trustee.
Subject to and in accordance with the terms of the Certificate Indenture, in the
event that a Special Payment on the Underlying Note is received by the
Certificate Trustee, from funds then available to the Certificate Trustee, there
will be distributed on the applicable Special Distribution Date, to the Person
in whose name this Certificate is registered on the Record Date preceding the
Special Distribution Date, as applicable, such Holder's fractional undivided
share of such amount. The Special Distribution Date will be determined as
provided in the Certificate Indenture. The Certificate Trustee will mail notice
of each Special Payment and the related Special Distribution Date to the Holder
as provided in the Certificate Indenture.
Distributions on this Certificate will be made as provided in the
Certificate Indenture by the Certificate Trustee by wire transfer or check
mailed to the Holder of record in the Certificate Register without the
presentation or surrender of this Certificate or the making of any notation
hereon, except that with respect to Certificates registered on the Record Date
in the name of the nominee of the Clearing Agency (initially, such nominee to be
Cede & Co.), payments will be made by wire transfer in immediately available
funds to the account designated by such nominee. Except as otherwise provided in
the Certificate Indenture and notwithstanding the above, the final distribution
on this Certificate will be made after due notice by the Certificate Trustee of
the pendency of such distribution and only upon presentation and surrender of
this Certificate at the office of the Paying Agent or the office or agency
maintained for that purpose by the Certificate Trustee in The City of New York.
(g) Subject to and in accordance with the terms of the Certificate
Indenture, the Trust has represented and warranted under the Certificate
Indenture that the Trust constitutes a "special purpose trust" and a "financing
entity" under Section 1H(a) of the Statute, and that the Certificates constitute
"electric rate reduction bonds" under Section 1H(a) of the Statute and that the
Holders are entitled to the rights and benefits thereunder. Pursuant to Section
1H(b)(3) of the Statute, The Commonwealth of Massachusetts, has additionally
pledged and agreed with the Note Issuer, the Trust and the Holders (the
"Commonwealth Pledge") as follows:
(h) [T]he [C]ommonwealth [of Massachusetts] does hereby pledge
and agree with the owners of the transition property and
holders of electric rate reduction bonds that the
[C]ommonwealth [of Massachusetts] shall not (i) alter the
provisions of this chapter which make the transition charges
imposed by the financing order irrevocable and binding or (ii)
limit or alter the reimbursable transition costs amounts,
transition property, financing orders, and all rights
thereunder until the electric rate reduction bonds, together
with the interest thereon, are fully met and discharged.
3
<PAGE> 25
In addition, the Trust has pledged and agreed with the Note Issuer and
the Holders of the Certificates that it will not act in a manner inconsistent
with the Commonwealth Pledge and will not take any action that would impair any
rights of the Note Issuer or the Holders in the Notes, the Transition Property
or the Certificates.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Certificate Trustee by manual
signature, this Certificate shall not be entitled to any benefit under the
Certificate Indenture or any other Basic Document or be valid for any purpose.
THIS CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE DOMESTIC LAW OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF
LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAW.
Any reduction in the principal amount of any Certificate effected by
any distribution in respect of principal thereof shall be binding upon all
Holders of such Certificate and of any Certificate issued upon the registration
of transfer thereof or in exchange thereof or in lieu thereof, whether or not
noted thereon.
It is expressly agreed and understood by the parties hereto
that (a) this Certificate is executed by The Bank of New York (Delaware) and
authenticated and delivered by The Bank of New York, not individually or
personally but solely as Delaware Trustee and Certificate Trustee, respectively,
on behalf of the Trust in the exercise of the powers and authority conferred and
vested in them, (b) the representations, undertakings and agreements herein made
by the Delaware Trustee and Certificate Trustee on behalf of the Trust are made
and intended not as personal representations, undertakings and agreements of
either trustee, but are made and intended for the purpose of binding only the
Trust, (c) nothing herein contained shall be construed as creating any liability
on The Bank of New York (Delaware) or The Bank of New York, individually or
personally, to perform any covenant either expressed or implied herein, except
in their capacity as Delaware Trustee and Certificate Trustee, respectively, all
such liability being expressly waived by all Persons, and (d) under no
circumstances shall The Bank of New York (Delaware) or The Bank of New York be
personally liable for the payment of any indebtedness or expenses of the Trust,
or be personally liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Trust under the
Certificate Indenture.
4
<PAGE> 26
IN WITNESS WHEREOF, the Delaware Trustee on behalf of the
Trust has caused this Certificate to be duly executed.
MASSACHUSETTS RRB SPECIAL
PURPOSE TRUST BEC-1
By: THE BANK OF NEW YORK
(DELAWARE), not in its individual
capacity but solely as Delaware
Trustee
By: /S/ CHERYL L. LASER
---------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
CERTIFICATE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: July 29, 1999
This is one of the Certificates referred to in the within-mentioned
Certificate Indenture.
THE BANK OF NEW YORK, not in its
individual capacity but solely as
Certificate Trustee
By: /S/ CHERYL L. LASER
---------------------------------
Authorized Officer
5
<PAGE> 27
[REVERSE OF CERTIFICATE]
The Certificates are limited in right of payment, all as more
specifically set forth on the face hereof and in the Certificate Indenture. All
payments or distributions made to Holders under the Certificate Indenture shall
be made only from the Trust Property and only to the extent that the Certificate
Trustee shall have sufficient income or proceeds from the Trust Property to make
such payments in accordance with the terms of the Certificate Indenture. Each
Holder, by its acceptance hereof, agrees that it will look solely to the income
and proceeds from the Trust Property to the extent available for distribution to
such Holder as provided in the Certificate Indenture. This Certificate does not
purport to summarize the Certificate Indenture and reference is made to the
Certificate Indenture for information with respect to the interests, rights,
benefits, obligations, proceeds, and duties evidenced hereby. A copy of the
Certificate Indenture may be examined during normal business hours at the
principal office of the Certificate Trustee, and at such other places, if any,
designated by the Certificate Trustee, by any Holder upon request.
The Certificate Indenture permits, with certain exceptions
therein provided, the amendment thereof and the modification of the rights of
the Holders under the Certificate Indenture at any time by the Trust and the
Certificate Trustee with the consent of the Holders holding Certificates
representing not less than a majority of the aggregate Outstanding Amount of
Certificates of each affected Class issued by the Trust. Any such consent by the
Holder of this Certificate shall be conclusive and binding on such Holder and
upon all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange hereof or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Certificate
Indenture also permits the amendment thereof, in certain limited circumstances,
without the consent of the Holders of any of the Certificates.
As provided in the Certificate Indenture and subject to
certain limitations therein set forth, the transfer of this Certificate is
registerable in the Certificate Register upon surrender of this Certificate for
registration of transfer at the offices or agencies maintained by the
Certificate Trustee in its capacity as Certificate Registrar, or by any
successor Certificate Registrar, in the Borough of Manhattan, The City of New
York, duly endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Certificate Trustee and the Certificate Registrar duly
executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Certificates of authorized denominations
evidencing the same aggregate fractional undivided beneficial interest in the
Underlying Note will be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates
without coupons in Minimum Denominations of $1,000 Original Principal Amount and
integral multiples thereof. As provided in the Certificate Indenture and subject
to certain limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the same aggregate
fractional undivided beneficial interest in the Underlying Notes, as requested
by the Holder surrendering the same.
6
<PAGE> 28
THE HOLDER, BY PURCHASE OF THIS CERTIFICATE, WILL BE DEEMED TO
REPRESENT THAT SUCH PURCHASE WILL NOT RESULT IN A NON-EXEMPT PROHIBITED
TRANSACTION UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, AND, IN EACH CASE, THE RULES
AND REGULATIONS THEREUNDER.
No service charge will be made for any such registration of
transfer or exchange, but the Certificate Trustee shall require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Certificate Trustee, the Certificate Registrar, and any
agent of the Certificate Trustee or the Certificate Registrar may treat the
person in whose name this Certificate is registered as the owner hereof for all
purposes, and neither the Certificate Trustee, the Certificate Registrar, nor
any such agent shall be affected by any notice to the contrary.
The obligations and responsibilities created by the
Certificate Indenture shall terminate with respect to the Certificates upon the
distribution to the Holders of all amounts required to be distributed to them
pursuant to the Certificate Indenture and the disposition of all property held
as part of the Trust Property, except certain indemnity obligations of the Note
Issuer to the Certificate Trustee under the Fee and Indemnity Agreement.
7
<PAGE> 29
REGISTERED
NO. A-5 $171,624,298
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
CLASS A-5
RATE REDUCTION CERTIFICATE
<TABLE>
<CAPTION>
SCHEDULED FINAL
INTEREST RATE DISTRIBUTION DATE FINAL TERMINATION DATE CUSIP
------------- ----------------- ---------------------- -----
<S> <C> <C> <C>
7.03% March 15, 2010 March 15, 2012 575796 AE7
</TABLE>
REGISTERED OWNER: Cede & Co.
PRINCIPAL AMOUNT: One Hundred Seventy One Million Six Hundred Twenty Four
Thousand Two Hundred Ninety Eight Dollars Exactly ($171,624,298)
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
This Certificate evidences a fractional undivided beneficial interest
in an Underlying Note (as defined below) of the corresponding class issued by
BEC Funding LLC, a Delaware limited liability company, and the proceeds thereof,
held by a trust or registered assigns, as more fully described herein.
This Certificate does not represent an interest in or obligation of The
Commonwealth of Massachusetts, the Massachusetts Development Finance Agency or
the Massachusetts Health and Educational Facilities Authority (collectively, the
"Agencies"), any other governmental agency or instrumentality or Boston Edison
Company, a Massachusetts corporation ("Boston Edison"), or any of its
affiliates. None of the Certificate, the Underlying Note or the underlying
Transition Property (as defined in the Certificate Indenture) will be guaranteed
or insured by The Commonwealth of Massachusetts, either of the Agencies, the
Trust (as defined below) or any other governmental agency or instrumentality or
by Boston Edison or its affiliates.
<PAGE> 30
Neither the full faith and credit nor the taxing power of The
Commonwealth of Massachusetts, either of the Agencies or any other governmental
agency or instrumentality is pledged to the payment of the principal of,
purchase price of, or interest on, this Certificate or the Underlying Note, or
to the payments in respect of the Transition Property, nor are The Commonwealth
of Massachusetts, either of the Agencies or any other governmental agency or
instrumentality in any manner obligated to make any appropriation for the
payment thereof.
THIS CERTIFIES THAT CEDE & CO., as nominee for The Depository Trust
Company, for value received, is the registered owner of a Principal Amount
(stated above) of nonassessable, fully-paid, fractional undivided beneficial
interest in the related Underlying Note and the proceeds thereof held by
Massachusetts RRB Special Purpose Trust BEC-1 (the "Trust") or registered
assigns. The Trust is created pursuant to, and this Certificate is issued under
and is subject to the terms, provisions and conditions of, a Declaration of
Trust dated as of July 28, 1999 by The Bank of New York (Delaware), as Delaware
trustee (the "Delaware Trustee"), and the Agencies, acting jointly as settlors
thereunder pursuant to Chapter 164 of the Massachusetts Acts of 1997 (the
"Statute"). This Certificate is issued under and is subject to the terms,
provisions, and conditions of, a Certificate Indenture dated as of July 29, 1999
(the "Certificate Indenture"), by and among the Delaware Trustee, The Bank of
New York, as certificate trustee (the "Certificate Trustee"), and the Trust, a
summary of certain of the pertinent provisions of which is set forth below. This
Certificate is one of the duly authorized class of Certificates designated as
"Massachusetts RRB Special Purpose Trust BEC-1 Rate Reduction Certificates,
Class A-5" (herein called the "Class A-5 Certificates"). The Class A-5
Certificates are one of a class of Certificates issued under the Certificate
Indenture (such Class A-5 Certificates, together with other Classes of
Certificates issued on the date hereof under the Certificate Indenture being
herein called the "Certificates"). The holder of this Certificate (the
"Holder"), by virtue of its acceptance hereof, assents and agrees to be bound by
the terms of the Certificate Indenture. This Class A-5 Certificate represents a
fractional undivided beneficial interest in the note of the corresponding class
(the "Underlying Note") issued by BEC Funding LLC, as Note Issuer, together with
the payments on and proceeds of the Underlying Note. The Underlying Note is
secured by a security interest in the property right created under the Statute,
pursuant to the order of the Massachusetts Department of Telecommunications and
Energy, DTE-98-118, issued on April 2, 1999, as further clarified by the Order
on the Massachusetts Development Finance Agency's and the Massachusetts Health
and Educational Facilities Authority's Motion for Clarification dated May 21,
1999 (collectively, the "Financing Order"), representing the irrevocable right
of Boston Edison or its assignee to receive a certain nonbypassable charge (as
adjusted from time to time) from certain retail customers of Boston Edison's
distribution system, together with certain related collateral, all as more fully
described in the Note Indenture.
To the extent not otherwise defined herein, the capitalized terms used
have the meanings assigned to them in the Certificate Indenture.
The aggregate principal amount of all Certificates of all Classes
issued under the Certificate Indenture equals the aggregate principal amount of
the Underlying Notes of all Classes, and all such Certificates are and will be
equally secured by the pledge and covenants made therein, except as otherwise
expressly provided or permitted in the Certificate Indenture.
2
<PAGE> 31
Subject to and in accordance with the terms of the Certificate
Indenture, there will be distributed on each March 15 and September 15 of each
year or, if any such day is not a Business Day, the next succeeding Business Day
(each, a "Distribution Date"), commencing on March 15, 2000 to the Person in
whose name this Certificate is registered at the close of business on the last
Business Day immediately preceding the related Distribution Date or, if
Definitive Certificates are issued, the last day of the immediately preceding
calendar month (each, a "Record Date"), such Holder's fractional undivided
interest in the payments made on the Underlying Note due on the related Payment
Date, the receipt of which has been confirmed by the Certificate Trustee.
Subject to and in accordance with the terms of the Certificate Indenture, in the
event that a Special Payment on the Underlying Note is received by the
Certificate Trustee, from funds then available to the Certificate Trustee, there
will be distributed on the applicable Special Distribution Date, to the Person
in whose name this Certificate is registered on the Record Date preceding the
Special Distribution Date, as applicable, such Holder's fractional undivided
share of such amount. The Special Distribution Date will be determined as
provided in the Certificate Indenture. The Certificate Trustee will mail notice
of each Special Payment and the related Special Distribution Date to the Holder
as provided in the Certificate Indenture.
Distributions on this Certificate will be made as provided in the
Certificate Indenture by the Certificate Trustee by wire transfer or check
mailed to the Holder of record in the Certificate Register without the
presentation or surrender of this Certificate or the making of any notation
hereon, except that with respect to Certificates registered on the Record Date
in the name of the nominee of the Clearing Agency (initially, such nominee to be
Cede & Co.), payments will be made by wire transfer in immediately available
funds to the account designated by such nominee. Except as otherwise provided in
the Certificate Indenture and notwithstanding the above, the final distribution
on this Certificate will be made after due notice by the Certificate Trustee of
the pendency of such distribution and only upon presentation and surrender of
this Certificate at the office of the Paying Agent or the office or agency
maintained for that purpose by the Certificate Trustee in The City of New York.
(i) Subject to and in accordance with the terms of the Certificate
Indenture, the Trust has represented and warranted under the Certificate
Indenture that the Trust constitutes a "special purpose trust" and a "financing
entity" under Section 1H(a) of the Statute, and that the Certificates constitute
"electric rate reduction bonds" under Section 1H(a) of the Statute and that the
Holders are entitled to the rights and benefits thereunder. Pursuant to Section
1H(b)(3) of the Statute, The Commonwealth of Massachusetts, has additionally
pledged and agreed with the Note Issuer, the Trust and the Holders (the
"Commonwealth Pledge") as follows:
(j) [T]he [C]ommonwealth [of Massachusetts] does hereby pledge
and agree with the owners of the transition property and
holders of electric rate reduction bonds that the
[C]ommonwealth [of Massachusetts] shall not (i) alter the
provisions of this chapter which make the transition charges
imposed by the financing order irrevocable and binding or (ii)
limit or alter the reimbursable transition costs amounts,
transition property, financing orders, and all rights
thereunder until the electric rate reduction bonds, together
with the interest thereon, are fully met and discharged.
3
<PAGE> 32
In addition, the Trust has pledged and agreed with the Note Issuer and
the Holders of the Certificates that it will not act in a manner inconsistent
with the Commonwealth Pledge and will not take any action that would impair any
rights of the Note Issuer or the Holders in the Notes, the Transition Property
or the Certificates.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Certificate Trustee by manual
signature, this Certificate shall not be entitled to any benefit under the
Certificate Indenture or any other Basic Document or be valid for any purpose.
THIS CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE DOMESTIC LAW OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF
LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAW.
Any reduction in the principal amount of any Certificate effected by
any distribution in respect of principal thereof shall be binding upon all
Holders of such Certificate and of any Certificate issued upon the registration
of transfer thereof or in exchange thereof or in lieu thereof, whether or not
noted thereon.
It is expressly agreed and understood by the parties hereto
that (a) this Certificate is executed by The Bank of New York (Delaware) and
authenticated and delivered by The Bank of New York, not individually or
personally but solely as Delaware Trustee and Certificate Trustee, respectively,
on behalf of the Trust in the exercise of the powers and authority conferred and
vested in them, (b) the representations, undertakings and agreements herein made
by the Delaware Trustee and Certificate Trustee on behalf of the Trust are made
and intended not as personal representations, undertakings and agreements of
either trustee, but are made and intended for the purpose of binding only the
Trust, (c) nothing herein contained shall be construed as creating any liability
on The Bank of New York (Delaware) or The Bank of New York, individually or
personally, to perform any covenant either expressed or implied herein, except
in their capacity as Delaware Trustee and Certificate Trustee, respectively, all
such liability being expressly waived by all Persons, and (d) under no
circumstances shall The Bank of New York (Delaware) or The Bank of New York be
personally liable for the payment of any indebtedness or expenses of the Trust,
or be personally liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Trust under the
Certificate Indenture.
4
<PAGE> 33
IN WITNESS WHEREOF, the Delaware Trustee on behalf of the
Trust has caused this Certificate to be duly executed.
MASSACHUSETTS RRB SPECIAL
PURPOSE TRUST BEC-1
By: THE BANK OF NEW YORK
(DELAWARE), not in its individual
capacity but solely as Delaware
Trustee
By: /S/ CHERYL L. LASER
---------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
CERTIFICATE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: July 29, 1999
This is one of the Certificates referred to in the within-mentioned
Certificate Indenture.
THE BANK OF NEW YORK, not in its
individual capacity but solely as
Certificate Trustee
By: /S/ CHERYL L. LASER
---------------------------------
Authorized Officer
5
<PAGE> 34
[REVERSE OF CERTIFICATE]
The Certificates are limited in right of payment, all as more
specifically set forth on the face hereof and in the Certificate Indenture. All
payments or distributions made to Holders under the Certificate Indenture shall
be made only from the Trust Property and only to the extent that the Certificate
Trustee shall have sufficient income or proceeds from the Trust Property to make
such payments in accordance with the terms of the Certificate Indenture. Each
Holder, by its acceptance hereof, agrees that it will look solely to the income
and proceeds from the Trust Property to the extent available for distribution to
such Holder as provided in the Certificate Indenture. This Certificate does not
purport to summarize the Certificate Indenture and reference is made to the
Certificate Indenture for information with respect to the interests, rights,
benefits, obligations, proceeds, and duties evidenced hereby. A copy of the
Certificate Indenture may be examined during normal business hours at the
principal office of the Certificate Trustee, and at such other places, if any,
designated by the Certificate Trustee, by any Holder upon request.
The Certificate Indenture permits, with certain exceptions
therein provided, the amendment thereof and the modification of the rights of
the Holders under the Certificate Indenture at any time by the Trust and the
Certificate Trustee with the consent of the Holders holding Certificates
representing not less than a majority of the aggregate Outstanding Amount of
Certificates of each affected Class issued by the Trust. Any such consent by the
Holder of this Certificate shall be conclusive and binding on such Holder and
upon all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange hereof or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Certificate
Indenture also permits the amendment thereof, in certain limited circumstances,
without the consent of the Holders of any of the Certificates.
As provided in the Certificate Indenture and subject to
certain limitations therein set forth, the transfer of this Certificate is
registerable in the Certificate Register upon surrender of this Certificate for
registration of transfer at the offices or agencies maintained by the
Certificate Trustee in its capacity as Certificate Registrar, or by any
successor Certificate Registrar, in the Borough of Manhattan, The City of New
York, duly endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Certificate Trustee and the Certificate Registrar duly
executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Certificates of authorized denominations
evidencing the same aggregate fractional undivided beneficial interest in the
Underlying Note will be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates
without coupons in Minimum Denominations of $1,000 Original Principal Amount and
integral multiples thereof. As provided in the Certificate Indenture and subject
to certain limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the same aggregate
fractional undivided beneficial interest in the Underlying Notes, as requested
by the Holder surrendering the same.
6
<PAGE> 35
THE HOLDER, BY PURCHASE OF THIS CERTIFICATE, WILL BE DEEMED TO
REPRESENT THAT SUCH PURCHASE WILL NOT RESULT IN A NON-EXEMPT PROHIBITED
TRANSACTION UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, AND, IN EACH CASE, THE RULES
AND REGULATIONS THEREUNDER.
No service charge will be made for any such registration of
transfer or exchange, but the Certificate Trustee shall require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Certificate Trustee, the Certificate Registrar, and any
agent of the Certificate Trustee or the Certificate Registrar may treat the
person in whose name this Certificate is registered as the owner hereof for all
purposes, and neither the Certificate Trustee, the Certificate Registrar, nor
any such agent shall be affected by any notice to the contrary.
The obligations and responsibilities created by the
Certificate Indenture shall terminate with respect to the Certificates upon the
distribution to the Holders of all amounts required to be distributed to them
pursuant to the Certificate Indenture and the disposition of all property held
as part of the Trust Property, except certain indemnity obligations of the Note
Issuer to the Certificate Trustee under the Fee and Indemnity Agreement.
7
<PAGE> 1
EXECUTION COPY
BEC FUNDING LLC,
AS NOTE ISSUER
AND
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1,
AS CERTIFICATE ISSUER
-------------------------------
NOTE PURCHASE AGREEMENT
DATED AS OF JULY 29, 1999
-------------------------------
<PAGE> 2
NOTE PURCHASE AGREEMENT (this "Agreement") dated as of July 29, 1999,
between BEC FUNDING LLC, a Delaware limited liability company (the "Note
Issuer"), and MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1, a Delaware business
trust (the "Certificate Issuer ") formed under the Declaration of Trust.
RECITALS
A. Capitalized terms used herein without definition shall have the
meanings ascribed to them in that certain Note Indenture (the "Note Indenture"),
dated as of July 29, 1999, between Note Issuer and The Bank of New York, a New
York banking corporation, as trustee (the "Note Trustee"), which is incorporated
herein by this reference.
B. On the Issuance Date, and on the terms set forth herein, the Note
Issuer has agreed to sell to the Certificate Issuer and the Certificate Issuer
has agreed to purchase from the Note Issuer $725,000,000 in principal amount of
BEC Funding LLC Notes (the "Notes"), issued pursuant to the Note Indenture.
AGREEMENT
NOW, THEREFORE, on the terms and conditions set forth below and for
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Note Issuer and the Certificate Issuer agree as follows:
1. SALE OF NOTES
a. Authorization of Notes.
On or before the Issuance Date, the Note Issuer shall have caused to be
authorized pursuant to the Note Indenture the issuance of the Notes in such
classes and principal amounts as set forth in Schedule 1(a) attached hereto and
incorporated herein by this reference.
b. Issuance and Purchase.
On the basis of the representations, warranties and covenants contained
in this Agreement and in the Note Indenture (collectively, the "Note Purchase
Documents"), and subject to the terms and conditions of the Note Purchase
Documents, the Note Issuer agrees to issue and sell to the Certificate Issuer,
and the Certificate Issuer agrees to purchase from the Note Issuer, the Notes
set forth in Schedule 1(a) hereto. The purchase price of each class of Notes is
set forth in Schedule 1(a) attached hereto, and the aggregate purchase price of
the Notes shall be an amount equal to the proceeds net of underwriting discounts
and commissions to the Certificate Issuer set forth in Schedule I to the
Underwriting Agreement dated as of July 22, 1999 (the "Underwriting Agreement"),
among Boston Edison Company, the Note Issuer and the underwriters named therein,
for whom Lehman Brothers Inc. and Goldman, Sachs & Co. are acting as
representatives.
1
<PAGE> 3
c. Delivery.
Delivery of, and payment of the purchase price for the Notes shall be
made by federal wire transfer of immediately available funds as early as
possible after 9:00 a.m. (E.S.T.) on the Issuance Date to an account designated
by the Note Issuer not later than the Business Day prior to the Issuance Date.
2. CONDITIONS PRECEDENT
The obligations of the Certificate Issuer to purchase the Notes under
this Agreement are subject to the satisfaction of each of the following
conditions:
a. All the representations and warranties of the Note Issuer
contained in this Agreement shall be true and correct in all material respects
on the Issuance Date with the same force and effect as if made on and as of the
Issuance Date.
b. Neither the Notes nor the Certificates shall have received
a lower rating by any Rating Agency than that on which the Notes or the
Certificates, respectively, were marketed.
c. The Certificate Trustee, on behalf of the Certificate
Issuer, shall have received on the Issuance Date an Officer's Certificate dated
the Issuance Date confirming the matters set forth in Sections 2(a) and 2(b).
d. The Certificate Trustee, on behalf of the Certificate
Issuer, shall have received a copy of the executed Note Indenture (certified by
an Authorized Officer of the Note Issuer) which shall have been entered into by
the Note Issuer and the Note Trustee.
e. The Note Issuer shall not have failed on or prior to the
Issuance Date to perform or comply in any material respect with any of the
agreements herein contained and required to be performed or complied with by the
Note Issuer on or prior to the Issuance Date.
3. REPRESENTATIONS AND WARRANTIES
To induce the Certificate Issuer to enter into this Agreement and to
purchase the Notes, the Note Issuer represents and warrants to the Certificate
Issuer on the date of this Agreement that the following statements are true and
correct:
a. The Note Issuer has been duly formed and is validly
existing and in good standing as a limited liability company under the laws of
the State of Delaware and has the limited liability power and authority to carry
on its business as described in the Registration Statement covering the Notes
(the "Registration Statement") and to own its properties, and is registered to
transact business in The Commonwealth of Massachusetts.
b. This Agreement has been duly authorized, executed and
delivered by the Note Issuer.
2
<PAGE> 4
c. The Note Indenture has been duly authorized by the Note
Issuer and, on the Issuance Date, will have been validly executed and delivered
by the Note Issuer. When the Note Indenture has been duly executed and delivered
by the Note Issuer, the Note Indenture will be a valid and binding agreement of
the Note Issuer, enforceable against the Note Issuer in accordance with its
terms except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization, fraudulent transfer and other laws
relating to or affecting creditors' rights generally and (ii) the availability
of equitable remedies may be limited by equitable principles of general
applicability. On the Issuance Date, the Note Indenture will conform in all
material respects to the requirements of the Trust Indenture Act, and the rules
and regulations of the Commission applicable to an indenture which is qualified
thereunder.
d. The Notes have been duly authorized and, on the Issuance
Date, will have been validly executed and delivered by the Note Issuer. When the
Notes have been issued, executed and authenticated in accordance with the
provisions of the Note Indenture and delivered to and paid for by the
Certificate Issuer in accordance with the terms of this Agreement, the Notes
will be entitled to the benefits of the Note Indenture and will be valid and
binding obligations of the Note Issuer, enforceable in accordance with their
terms except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization, fraudulent transfer and other laws
relating to or affecting creditors' rights generally and (ii) the availability
of equitable remedies may be limited by equitable principles of general
applicability.
e. No Default or Event of Default under the Note Indenture
would occur as a result of the sale of the Notes pursuant to the terms hereof.
f. The execution, delivery and performance of this Agreement
and the other Basic Documents by the Note Issuer, compliance by the Note Issuer
with all provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as has been obtained or may be required
under the laws of The Commonwealth of Massachusetts, the Statute, the Securities
Act, or the securities or blue sky laws of the various states), (ii) conflict
with or constitute a material breach of any of the terms or provisions of, or a
default under, the limited liability company agreement of the Note Issuer, (iii)
violate or conflict in any material respect with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental body or
agency having jurisdiction over the Note Issuer or its property, (iv) result in
the imposition or creation of a lien under, any agreement or instrument to which
the Note Issuer is a party or by which the Note Issuer or its respective
property is bound, except as may be created or imposed under the Basic Documents
and any statutory lien under Section 1H(e) of the Statute.
g. To the best knowledge of the Note Issuer, there are no
legal or governmental proceedings pending or threatened to which the Note Issuer
is or reasonably could be a party or to which any of its property is or
reasonably could be subject, which might result, singly or in the aggregate, in
a material adverse effect on the enforceability of the Notes.
3
<PAGE> 5
h. The Note Issuer is not and, after giving effect to the
offering and sale of the Notes and the application of the net proceeds thereof
as described in the Registration Statement, will not be, an "investment
company," as such term is defined in the Investment Company Act of 1940, as
amended.
i. The Note Issuer is not and, after giving effect to the
offering and sale of the Notes and the application of the net proceeds thereof
as described in the Registration Statement, will not be, a "holding company," as
such term is defined in the Public Utilities Holding Company Act of 1935, as
amended.
j. The Note Issuer has not taken any action that might cause
this Agreement or the issuance or sale of the Notes to violate Regulation T (12
C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R.
Part 224) of the Board of Governors of the Federal Reserve System.
k. Since the date as of which information is given in the
Registration Statement and other than as set forth in the Registration Statement
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement), (i) there has not occurred any material adverse change in the
assets, business, management or operations of the Note Issuer and (ii) other
than the Notes and as contemplated by the Basic Documents, the Note Issuer has
not incurred any material liability or obligation, direct or contingent.
4. COVENANTS
The Note Issuer covenants and agrees that, until payment in full of the
Notes, unless the Delaware Trustee, on behalf of the Certificate Issuer, shall
otherwise give prior written consent, the Note Issuer shall perform all
covenants in this Section 4.
a. To advise the Delaware Trustee, as the representative of
the Certificate Issuer, the Agencies and the Certificate Trustee promptly and,
if requested by the Delaware Trustee, on behalf of the Certificate Issuer, the
Agencies or the Certificate Trustee, confirm such advice in writing, of the
issuance by the Commission or any state securities commission of any stop order
or an order suspending the qualification or exemption from qualification of any
Note or Certificate for offering or sale in any jurisdiction in which the
Certificates have been offered or the initiation of any proceeding by the
Commission, any state securities commission or any other federal or state
regulatory authority for such purpose. The Note Issuer shall use its best
efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption of any Note or Certificate under the Securities Act,
or any state securities or blue sky laws and, if at any time the Commission or
any state securities commission or other federal or state regulatory authority
shall issue a stop order or an order suspending the qualification or exemption
of any Note or Certificate under the Securities Act or any state securities or
blue sky laws, the Note Issuer shall use its reasonable efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
b. To the extent permitted by applicable law, not to claim
voluntarily the benefit of any usury laws against the holders of any Notes. To
the extent permitted by applicable law, to
4
<PAGE> 6
resist actively any attempts to claim the benefit of any usury laws against the
holders of any Notes.
c. To use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by it prior
to the Issuance Date and to satisfy all conditions precedent to the delivery of
the Notes.
d. At the written request of the Delaware Trustee on behalf of
the Certificate Issuer, the Agencies, or the Certificate Trustee, to provide, or
cause to be provided, to the Delaware Trustee as the representative of the
Certificate Issuer, the Agencies or the Certificate Trustee, as applicable, a
copy of any requested certificate, notice, opinion or other document delivered
by the Note Issuer to the Note Trustee pursuant to the terms of the Note
Indenture.
5. MISCELLANEOUS
a. Fees
The Note Issuer agrees to reimburse the Certificate Issuer, the
Certificate Trustee, the Delaware Trustee and the Agencies and their respective
officers, directors and each person, if any, who controls the Certificate
Issuer, the Certificate Trustee, the Delaware Trustee or the Agencies within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
for any and all fees and expenses (including without limitation the reasonable
fees and expenses of counsel) reasonably incurred by them in connection with
enforcing their rights under this Agreement (including, without limitation,
their respective rights under this Section 5(a)); provided, however, that the
Note Issuer's obligations pursuant to this Section 5(a) shall be treated as
Operating Expenses under the Note Indenture and shall be payable only to the
extent that funds are available for such Operating Expenses in the priority set
forth in Section 8.02(d) of the Note Indenture.
b. Effective Date of Agreement
This Agreement shall become effective upon the execution and delivery
of this Agreement by the parties hereto.
c. Survival of Representations and Agreements
All agreements, representations and warranties made herein shall
survive the execution and delivery of this Agreement and the purchase of the
Notes hereunder. Notwithstanding anything in this Agreement or implied by law to
the contrary, the agreements of the Note Issuer set forth in Section 5(a),
except as otherwise expressly provided therein, shall survive the payment of the
Notes and the termination of this Agreement.
d. Notice
Unless otherwise specifically provided herein, all notices, directions,
consents and waivers required under the terms and provisions of this Note
Purchase Agreement shall be in
5
<PAGE> 7
English and in writing, and any such notice, direction, consent or waiver may be
given by United States mail, courier service, facsimile transmission or
electronic mail (confirmed by telephone, United States mail or courier service
in the case of notice by facsimile transmission or electronic mail) or any other
customary means of communication, and any such notice, direction, consent or
waiver shall be effective when delivered, or if mailed, three days after deposit
in the United States mail with proper postage for ordinary mail prepaid,
if to the Agencies, to:
Massachusetts Development Finance Agency
75 Federal Street
Boston, Massachusetts 02110
Attention: General Counsel
Facsimile: (617) 727-8741
Telephone: (617) 451-2477
and
Massachusetts Health and Educational Facilities Authority
99 Summer Street
10th Floor
Boston, Massachusetts 02110
Attention: General Counsel
Facsimile: (617) 737-8366
Telephone: (617) 737-8377
if to the Certificate Issuer, to:
The Bank of New York (Delaware), as Delaware Trustee for the
Massachusetts RRB Special Purpose Trust BEC-1
c/o The Bank of New York
101 Barclay Street
Floor 12 East
New York, New York 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
(with copies to the Agencies at the addresses listed herein)
6
<PAGE> 8
if to the Certificate Trustee, to:
The Bank of New York
101 Barclay Street
Floor 12 East
New York, New York 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
if to the Delaware Trustee, to:
The Bank of New York (Delaware)
c/o The Bank of New York
101 Barclay Street
Floor 12 East
New York, New York 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
if to the Note Issuer, to:
BEC Funding LLC
800 Boylston Street, 35th Floor
Boston, Massachusetts 02199
Attention: President
Facsimile: (617) 424-2605
Telephone: (617) 369-6000
if to the Note Trustee, to:
The Bank of New York
101 Barclay Street
Floor 12 East
New York, New York 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
e. Parties
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of the Note Issuer, the Note Trustee, the Certificate
Issuer, the Certificate Trustee, the Delaware Trustee, the Agencies, the
directors and officers of the Certificate Issuer, the Certificate Trustee, the
Delaware Trustee and the Agencies, any controlling persons referred to herein,
the directors,
7
<PAGE> 9
officers and any manager of the Note Issuer (not in their individual capacities
but in their respective capacities as directors, officers or manager of the Note
Issuer) and their respective successors and assigns, all as and to the extent
provided in this Agreement, all of which Persons shall have rights of
enforcement with respect hereto, and no other Person shall acquire or have any
right under or by virtue of this Agreement, except as contemplated by the
Certificate Indenture and the other Basic Documents. The term "successors and
assigns" shall not include a purchaser of any of the Notes from the Certificate
Issuer merely because of such purchase.
f. Governing Law
This Agreement shall be governed by, and shall be construed and
enforced in accordance with, the internal laws of The Commonwealth of
Massachusetts, without regard to its conflict of laws principles.
g. Severability
If any provision of this Agreement shall be prohibited or invalid under
applicable law, the Agreement shall be ineffective only to such extent, without
invalidating the remainder of the Agreement.
h. Further Assurances
The Note Issuer agrees to execute and deliver such instruments and take
such actions as the Delaware Trustee on behalf of the Certificate Issuer, the
Agencies or the Certificate Trustee may, from time to time, reasonably request
in order to effectuate the purpose and to carry out the terms of this Agreement.
i. Headings
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
j. Counterparts
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
k. Limitation of Liability.
It is expressly understood and agreed by the parties hereto that (a)
this Agreement is executed and delivered by The Bank of New York (Delaware), not
individually or personally but solely as Delaware Trustee on behalf of the
Certificate Issuer, in the exercise of the powers and authority conferred and
vested in it, (b) any representations, undertakings and agreements herein made
by the Delaware Trustee on behalf of the Certificate Issuer are made and
intended not as personal representations, undertakings and agreements by The
Bank of New York (Delaware) but are made and intended for the purpose of binding
only the Certificate Issuer, (c) nothing herein
8
<PAGE> 10
contained shall be construed as creating any liability on The Bank of New York
(Delaware), individually or personally, to perform any covenant either expressed
or implied contained herein, except in its capacity as Delaware Trustee, all
such liability, if any, being expressly waived by the parties who are
signatories to this Agreement and by any Person claiming by, through or under
such parties and (d) under no circumstances shall The Bank of New York
(Delaware) be personally liable for the payment of any indebtedness or expense
of the Certificate Issuer or be personally liable for the breach or failure of
any obligation, representation, warranty or covenant made or undertaken by the
Certificate Issuer under this Agreement; provided, however, that this provision
shall not protect The Bank of New York (Delaware) against any liability that
would otherwise be imposed by reason of willful misconduct, bad faith or gross
negligence in the performance of its obligations and duties under this
Agreement.
9
<PAGE> 11
IN WITNESS WHEREOF, the Note Issuer and the Certificate Issuer have
caused this Note Purchase Agreement to be duly executed by their respective
officer or trustee, all as of the day and year first above written.
BEC FUNDING LLC,
a Delaware limited liability company
/s/ Emilie G. O'Neil
By: ------------------------------------------------
Name: Emilie G. O'Neil
Title: Vice President and Treasurer
Massachusetts RRB
SPECIAL PURPOSE TRUST
BEC-1, a business
trust organized under
the laws of the State
of Delaware
By: THE BANK OF NEW YORK (DELAWARE), not in its
individual capacity, but solely as Delaware Trustee
/s/ Cheryl L. Laser
By: ------------------------------------------------
Name: Cheryl L. Laser
Title: Assistant vice President
S-1
<PAGE> 12
SCHEDULE 1(a)
NOTES
<TABLE>
<CAPTION>
CLASS OF NOTES PRINCIPAL AMOUNT PURCHASE PRICE (%)
- -------------- ---------------- ------------------
<S> <C> <C>
A-1 $108,500,000 99.97799%
A-2 170,609,837 99.97574
A-3 103,390,163 99.97469
A-4 170,875,702 99.97071
A-5 171,624,298 99.93977
------------
Total: $725,000,000
============
</TABLE>
<PAGE> 1
BEC FUNDING LLC,
AS NOTE ISSUER
THE BANK OF NEW YORK,
IN ITS SEPARATE CAPACITY AS CERTIFICATE TRUSTEE
THE BANK OF NEW YORK (DELAWARE),
IN ITS SEPARATE CAPACITY AS DELAWARE TRUSTEE,
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1,
AS CERTIFICATE ISSUER
AND
MASSACHUSETTS DEVELOPMENT FINANCE AGENCY
ACTING JOINTLY WITH
MASSACHUSETTS HEALTH AND EDUCATIONAL FACILITIES AUTHORITY
AS SETTLORS
--------------------------------------------------
FEE AND INDEMNITY AGREEMENT
DATED AS OF JULY 29, 1999
--------------------------------------------------
<PAGE> 2
FEE AND INDEMNITY AGREEMENT dated as of July 29, 1999 (as amended or
restated from time to time, the "Agreement"), among THE BANK OF NEW YORK
(DELAWARE), in its separate capacity as Delaware Trustee (the "Delaware
Trustee") under the Declaration of Trust (the "Declaration of Trust"), dated as
of July 28, 1999, the MASSACHUSETTS DEVELOPMENT FINANCE AGENCY and the
MASSACHUSETTS HEALTH AND EDUCATIONAL FACILITIES AUTHORITY (collectively herein,
the "Agencies"), acting jointly pursuant to Chapter 164 of the Massachusetts
Acts of 1997 (the "Statute") as Settlors under the Declaration of Trust,
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1, as Certificate Issuer (the
"Certificate Issuer" or the "Trust"), THE BANK OF NEW YORK, in its separate
capacity as Certificate Trustee (the "Certificate Trustee") under the
Certificate Indenture (the "Certificate Indenture") of even date herewith, and
BEC FUNDING LLC, as Note Issuer (the "Note Issuer") under the Note Indenture
(the "Note Indenture") of even date herewith. All capitalized terms used herein
and not otherwise defined herein shall have the meanings attributed to them in
the Certificate Indenture.
Section 1. Payment of Fees and Expenses of Certificate Trustee;
Authorized Agents.
(a) Subject to Section 4 hereof, the Note Issuer hereby covenants and
agrees to pay to the Certificate Trustee (or any successor trustee) from time to
time reasonable compensation for its services under the Certificate Indenture
and to reimburse it for its reasonable expenses (including, without limitation,
reasonable legal fees and expenses and amounts owed to the Note Trustee and/or
the Delaware Trustee that have been or are to be paid by the Certificate Trustee
pursuant to Section 6.16 of the Certificate Indenture) incurred in connection
therewith, it being understood that the Certificate Trustee shall have no
recourse against the Agencies or against the Notes or the payments thereon and
proceeds thereof, for payment of such amounts. The Certificate Trustee shall
have a lien against the Transition Property to secure payment of such amounts to
the extent provided in the Statute or the financing order issued pursuant
thereto. The Note Issuer's obligations to make payments of such amounts to the
Certificate Trustee shall be subject to the priorities set forth in Section 8.02
of the Note Indenture.
(b) Subject to Section 4 hereof, the Note Issuer further covenants and
agrees to pay, or cause to be paid, from time to time to each Authorized Agent
reasonable compensation for its services and to reimburse it for its expenses
incurred in connection with such service, it being understood that no Authorized
Agent shall have any recourse against the Agencies or against the Notes or the
payments thereon and proceeds thereof, for payment of such amounts. The
appointment of any Authorized Agent shall be subject to the approval of the
Agencies and the Note Issuer.
(c) In addition, subject to Section 4 hereof, the Note Issuer covenants
and agrees to reimburse the Certificate Trustee for any tax incurred other than
through gross negligence, bad faith or willful misconduct on the part of the
Certificate Trustee, arising out of or in connection with the acceptance or
administration of the Trust Property under the Certificate Indenture (other than
any tax attributable to the Certificate Trustee's compensation for serving as
such), including any costs and expenses incurred in contesting the imposition of
any such tax.
(d) Notwithstanding anything herein to the contrary, if the Certificate
Trustee shall have entered into a fee agreement in writing with the Certificate
Issuer with respect to the
<PAGE> 3
Certificate Trustee's compensation for services under the Certificate Indenture,
the terms of such fee agreement shall control and the provisions of this
Agreement shall not entitle the Certificate Trustee to greater compensation than
that due and owing pursuant to such fee agreement.
Section 2. Payment of Fees and Expenses of Delaware Trustee.
(a) The Note Issuer covenants and agrees to pay to the Delaware Trustee
(or any successor trustee) from time to time reasonable compensation for its
services under the Declaration of Trust and the Certificate Indenture and to
reimburse it for its reasonable expenses (including, without limitation,
reasonable legal fees and expenses) incurred in connection therewith, it being
understood that the Delaware Trustee shall have no recourse against the Agencies
or against the Notes or the payments thereon and proceeds thereof, for payment
of such amounts. The Delaware Trustee shall have a lien against the Transition
Property to secure payment of such amounts to the extent provided in the Statute
or the financing order issued pursuant thereto. The Note Issuer's obligations to
make payments of such amounts to the Delaware Trustee shall be subject to the
priorities set forth in Section 8.02 of the Note Indenture.
(b) In addition, subject to Section 4 hereof, the Note Issuer covenants
and agrees to reimburse the Delaware Trustee for any tax incurred other than
through gross negligence, bad faith or willful misconduct on the part of the
Delaware Trustee, arising out of or in connection with the acceptance or
administration of the Trust Property under the Declaration of Trust (other than
any tax attributable to the Delaware Trustee's compensation for serving as
such), including any costs and expenses incurred in contesting the imposition of
any such tax.
(c) Notwithstanding anything herein to the contrary, if the Delaware
Trustee shall have entered into a fee agreement in writing with the Certificate
Issuer with respect to its compensation for services under the Declaration of
Trust and the Certificate Indenture, the terms of such other fee agreement shall
control and the provisions of this Agreement shall not entitle the Delaware
Trustee to greater compensation than that due and owing pursuant to such fee
agreement.
Section 3. Indemnity and Contribution.
(a) The Note Issuer hereby covenants and agrees to indemnify, defend
and hold harmless the Delaware Trustee, the Certificate Trustee, the Certificate
holders, the Trust, the Agencies and any of their respective affiliates,
officers, directors, employees and agents (the "Indemnified Persons") from and
against any and all losses, claims, actions, suits, taxes, damages, expenses
(including, without limitation, legal fees and expenses) and liabilities
(including liabilities under state or federal securities laws) of any kind and
nature whatsoever (collectively, "Expenses"), to the extent that such Expenses
arise out of or are imposed upon or asserted against such Indemnified Persons
with respect to the creation, operation or termination of the Certificate
Issuer, the execution, delivery or performance of the Declaration of Trust or
the Certificate Indenture, as the case may be, or the transactions contemplated
thereby, the failure of the Note Issuer or any other person (other than the
person being indemnified) to perform its obligations hereunder or under any of
the Basic Documents, or otherwise in connection with the Basic Documents or the
transactions contemplated thereby; provided, however, that the Note Issuer is
not required to indemnify any Indemnified Person for any Expenses that result
from the
2
<PAGE> 4
willful misconduct or gross negligence of such Indemnified Person and provided,
further that it is understood and agreed that the Certificate holders may only
exercise their rights and remedies hereunder through the Certificate Trustee and
no Certificate holder shall have any right to pursue any cause of action to
enforce its rights and remedies hereunder except through the Certificate
Trustee. For purposes of this indemnification, the references to the "Agencies"
shall include the Executive Office of Administration and Finance of The
Commonwealth of Massachusetts. The obligations of the Note Issuer to indemnify
the Indemnified Persons as provided herein shall survive the termination of the
Declaration of Trust, the termination, satisfaction or discharge of the
Certificate Indenture and the resignation or removal of the Delaware Trustee or
the Certificate Trustee. The Indemnified Persons are entitled to the benefit of
this Agreement and shall have the right to enforce the provisions hereof. The
Indemnified Persons shall have a lien against the Transition Property to secure
payment of such Expenses to the extent provided in the Statute or the financing
order issued pursuant thereto. The Note Issuer's obligations to make payments of
such Expenses shall be subject to the priorities set forth in Section 8.02 of
the Note Indenture.
(b) If the indemnity provided in paragraph (a) of this Section 3 is
unavailable to or insufficient to hold harmless an Indemnified Person for any
reason, the Note Issuer and such Indemnified Person agree to contribute to the
aggregate Expenses to which the Note Issuer and such Indemnified Person may be
subject in such proportion as is appropriate to reflect the relative benefits
received by the Note Issuer and such Indemnified Person, respectively, from the
offering of the Certificates and the Notes; provided, however, that in no case
shall any Indemnified Person be responsible for any amount in excess of the fees
or other amounts received by such Indemnified Person in connection with the
Basic Documents and the issuance of the Notes and the Certificates. If the
allocation provided by the immediately preceding sentence is unavailable for any
reason, the Note Issuer and the Indemnified Person shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Note Issuer and such Indemnified Person, respectively,
in connection with the actions or omissions giving rise to such Expenses as well
as any other relevant equitable considerations; provided, however, that in no
case shall any Indemnified Person be responsible for any amount in excess of the
fees or other amounts received by such Indemnified Person in connection with the
Basic Documents and the issuance of the Notes and the Certificates. The Note
Issuer and the Indemnified Persons agree that it would not be just and equitable
if contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above.
Section 4. Payment. All amounts owed by the Note Issuer to the
Certificate Trustee, the Delaware Trustee, the Trust, any Authorized Agent or
the Agencies under the Declaration of Trust or the Certificate Indenture, as the
case may be, shall be paid to the Certificate Trustee, the Delaware Trustee, the
Trust, any Authorized Agent or the Agencies, as appropriate, pursuant to the
Declaration of Trust or the Certificate Indenture, as the case may be, or, if a
fee agreement or fee schedule has been provided to the Note Issuer, payment
shall be made in accordance with said agreement or schedule, or if not otherwise
provided, such amount shall be paid directly to the Certificate Trustee, the
Delaware Trustee, the Trust, any Authorized Agent or the Agencies, as
appropriate, until the Note Issuer is otherwise notified by the Certificate
Trustee, the Delaware Trustee, the Trust, such Authorized Agent or such Agency;
provided, however, that
3
<PAGE> 5
notwithstanding anything to the contrary in this Agreement or in any fee
agreement or fee schedule, not later than 30 days following the selection of a
successor Delaware Trustee pursuant to the provisions of Section 4.7 of the
Declaration of Trust, the Note Issuer shall pay to the appropriate parties all
amounts described in this Section 4 which have accrued through the date of
selection of such successor Delaware Trustee; and, provided, further, that
notwithstanding anything to the contrary in this Agreement or in any fee
agreement or fee schedule, each of the parties to this Agreement agrees that the
Note Issuer's obligations to make payments to it shall be subject to the
priorities set forth in Section 8.02 of the Note Indenture and the Note Issuer
shall have no obligation to make any payment except to the extent consistent
with Section 8.02 of the Note Indenture. The Note Issuer hereby irrevocably
directs the Note Trustee to pay such amounts from monies on deposit in the
Collection Account as provided pursuant to Section 8.02 of the Note Indenture.
Section 5. Notices. Unless otherwise specifically provided herein, all
notices, directions, consents and waivers required under the terms and
provisions of this Agreement shall be in English and in writing, and any such
notice, direction, consent or waiver may be given by United States mail, courier
service, telegram, telex, telemessage, telecopy, telefax, cable or facsimile
(confirmed by telephone or in writing in the case of notice by telegram, telex,
telemessage, telecopy, telefax, cable or facsimile) or any other customary means
of communication, and any such notice, direction, consent or waiver shall be
effective when delivered,
if to the Agencies, to:
Massachusetts Development Finance Agency
75 Federal Street
Boston, MA 02110
Attention: General Counsel
Facsimile: (617) 727-8741
Telephone: (617) 451-2477
and
Massachusetts Health and Educational Facilities Authority
99 Summer Street
10th Floor
Boston, MA 02110
Attention: General Counsel
Facsimile: (617) 737-8366
Telephone: (617) 737-8377
4
<PAGE> 6
if to the Certificate Issuer (or the Trust), to:
The Bank of New York (Delaware), as Delaware Trustee for the
Massachusetts RRB Special Purpose Trust BEC-1
c/o The Bank of New York
101 Barclay Street
Floor 12 East
New York, NY 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
with copies to the Agencies at the addresses listed herein.
if to the Delaware Trustee, to:
The Bank of New York (Delaware)
c/o The Bank of New York
101 Barclay Street
Floor 12 East
New York, NY 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
if to the Certificate Trustee, to:
The Bank of New York
101 Barclay Street
Floor 12 East
New York, NY 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
if to the Note Issuer, to:
BEC Funding LLC
800 Boylston Street, 35th Floor
Boston, Massachusetts 02199
Attention: Treasurer
Facsimile: (617) 424-2605
Telephone: (617) 369-6000
5
<PAGE> 7
if to the Note Trustee, to:
The Bank of New York
101 Barclay Street
Floor 12 East
New York, NY 10286
Attention: Asset Backed Finance Unit
Facsimile: (212) 815-5544
Telephone: (212) 815-5286
Section 6. Survival of Agreements. This Agreement shall terminate upon
the termination of the Certificate Issuer and the payment and discharge of all
Certificates; provided, however, that the agreements of the Note Issuer set
forth in Sections 3 and 7 hereof shall survive the termination of this Agreement
or the resignation or removal of the Delaware Trustee, the Certificate Trustee
or the Note Trustee.
Section 7. Nonpetition Covenant. Notwithstanding any prior termination
of this Agreement, but subject to the Massachusetts Department of Transportation
and Energy's right to order the sequestration and payment of revenues arising
with respect to the Transition Property notwithstanding any bankruptcy,
reorganization or other insolvency proceedings with respect to the debtor,
pledgor or transferor of the Transition Property pursuant to the Statute, the
Agencies, the Certificate Issuer, the Delaware Trustee and the Certificate
Trustee agree that they shall not, prior to the date which is one year and one
day after the termination of the Note Indenture with respect to the Note Issuer,
acquiesce, petition or otherwise invoke or cause the Note Issuer to invoke the
process of any court or government authority for the purpose of commencing or
sustaining a case against the Note Issuer under any federal or state bankruptcy,
insolvency or similar law, appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Note Issuer or any
substantial part of the property of the Note Issuer, or ordering the winding up
of the affairs of or the liquidation of the Note Issuer.
Section 8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
Section 9. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT REFERENCE
TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF
THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10. Non-Consolidation. The parties hereby acknowledge and agree
that the Note Issuer and Boston Edison Company shall not be substantively
consolidated, and that Boston Edison Company shall have no liability or
obligation of any kind with respect to this Agreement; provided, however, that
this provision shall not be interpreted to relieve Boston Edison Company of its
obligations to indemnify the Note Issuer pursuant to any other Basic Document,
including without limitation with respect to amounts paid by the Note Issuer to
persons indemnified by it
6
<PAGE> 8
under this Agreement, to the extent the Note Issuer would otherwise be entitled
to indemnification with respect to such amounts under such other Basic Document.
[SIGNATURE PAGES FOLLOW]
7
<PAGE> 9
IN WITNESS WHEREOF, the Agencies, the Delaware Trustee, the Certificate
Trustee and the Note Issuer have caused this Agreement to be duly executed by
duly authorized officers, all as of the day and year first above written.
MASSACHUSETTS DEVELOPMENT FINANCE AGENCY, as a Settlor
By: /s/ David T. Slatery
----------------------------------------
Name: David T. Slatery
Title: General Counsel
MASSACHUSETTS HEALTH AND EDUCATIONAL FACILITIES AUTHORITY,
as a Settlor
By: /s/ David J. MacKenzie
----------------------------------------
Name: David J. MacKenzie
Title: General Counsel
THE BANK OF NEW YORK (DELAWARE),
in its separate capacity as Delaware Trustee
By: /s/ Cheryl L. Laser
----------------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
S-1
<PAGE> 10
THE BANK OF NEW YORK,
in its separate capacity as Certificate Trustee
By: /s/ Cheryl L. Laser
----------------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
BEC FUNDING LLC,
as Note Issuer
By: /s/ Emilie G. O'Neil
----------------------------------------
Name: Emilie G. O'Neil
Title: Vice President
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
By: THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee
By: /s/ Cheryl L. Laser
----------------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
S-2
<PAGE> 1
ISSUANCE ADVICE LETTER
July 28, 1999
ADVICE DTE 98-118
DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY (THE "DEPARTMENT") OF THE
COMMONWEALTH OF MASSACHUSETTS
SUBJECT: Issuance Advice Letter for Electric Rate Reduction Bonds ("RRBs")
Pursuant to DTE Docket No. 98-118 (the "Financing Order"), Boston Edison Company
("Boston Edison") hereby transmits for filing, on or about the pricing date of
this series of RRBs, the initial RTC Charge for such series. This Issuance
Advice Letter is for the RRB series Massachusetts RRB Special Purpose Trust
BEC-1 Rate Reduction Certificates classes A-1, A-2, A-3, A-4 and A-5. Any
capitalized terms not defined herein shall have the meanings ascribed thereto in
the Financing Order.
PURPOSE
This filing establishes the following:
(a) the actual terms of the RRBs being issued;
(b) confirmation of ratepayer savings;
(c) the initial RTC Charge for retail users;
(d) the identification of the Transition Property to be sold to a special
purpose entity (the "SPE"); and
(e) the identification of the SPE;
BACKGROUND
In the Financing Order, the Department authorized Boston Edison to file an
Issuance Advice Letter when pricing terms for a series of RRBs have been
established. This Issuance Advice Letter filing incorporates the methodology for
determining the RTC Charge approved and authorized by the Department in the
Financing Order to establish the initial RTC Charge for a series of RRBs and
establishes the initial RTC Charge to be assessed and collected from all classes
of retail users of Boston Edison's distribution system within the geographic
service territory as in effect on July 1, 1997, whether or not energy is
purchased from Boston Edison or any TPS, and whether or not such distribution
system is being operated by Boston Edison or a successor distribution company.
The RTC Charge is a portion, which may become all, of the transition charge
approved by the Department. The RTC Charge is a usage-based component of the
transition charge on each retail user's monthly bill, and may include in the
future a component of any exit fee collected pursuant to M.G.L. c. 164, Section
1G(g) until the Total RRB Payment Requirements are discharged in full.
<PAGE> 2
<TABLE>
<S> <C>
ACTUAL TERMS OF ISSUANCE
RRB Name: Massachusetts RRB Special Purpose Trust BEC-1 Rate Reduction
Certificates
RRB Issuer: Massachusetts RRB Special Purpose Trust BEC-1
Trustee(s): The Bank of New York, as Note Trustee and Certificate Trustee;
The Bank of New York (Delaware), as Delaware Trustee
Closing Date: July 29, 1999
Bond Ratings: Aaa/AAA/AAA/AAA (Moody's/S&P/Fitch IBCA/Duff & Phelps)
Amount Issued: $725,000,000
Transaction costs of issuance: See Attachment 1
Ongoing transaction costs: See Attachment 2
Coupon Rate(s): Class A-1: 5.99%; Class A-2: 6.45%; Class A-3: 6.62%; Class A-4:
6.91%; Class A-5: 7.03%
Call Features: 5% cleanup call only
Massachusetts Tax Exempt
(yes/no): Personal income tax exempt only
Expected Principal Amortization
Schedule: See Attachment 3
Expected Final Maturity: Class A-1: 3/15/2001; Class A-2: 9/15/2003; Class A-3: 3/15/2005;
Class A-4: 9/15/2007; Class A-5: 3/15/2010
Legal Final Maturity: Class A-1: 3/15/2003; Class A-2: 9/15/2005; Class A-3: 3/15/2007;
Class A-4: 9/15/2009; Class A-5: 3/15/2012
Distributions to Investors
(quarterly or semi-annually): Semi-Annually
Annual Servicing Fee as a percent
of initial RRB principal balance: 0.05%
Overcollateralization amount
for the RRBs: 0.50% of initial RRB principal balance, or $3,625,000
</TABLE>
Confirmation of Ratepayer Savings
The Financing Order requires Boston Edison to demonstrate, using the savings
methodology approved in that Docket, that the actual terms of the RRB
Transaction result in net savings. Attached to this Issuance Advice Letter is a
spreadsheet calculation which shows expected net savings of approximately $76
million for this series of RRBs. See Attachment 4.
<PAGE> 3
Initial RTC Charge
Table I below shows the current assumptions for each of the variables used in
the initial RTC Charge calculation.
TABLE I
INPUT VALUES FOR RTC CHARGES
<TABLE>
<S> <C>
Forecasted retail kWh sales expected to be realized in current period: 6,441,583,026
Percent of billed amounts expected to be charged-off: 0.67% per annum
Weighted average days sales outstanding: 45
(calculated as follows)
Percent of billed amounts collected in current month: 0.00%
Percent of billed amounts collected in second month after billing: 49.67%
Percent of billed amounts collected in third month after billing: 49.67%
Percent of billed amounts collected in fourth month after billing: 0.00%
Percent of billed amounts collected in fifth month after billing: 0.00%
Forecasted annual ongoing transaction expenses*: $365,681
Required annual overcollateralization amount: $329,545
Required Interest Payments: $30,271,829
Current RRB outstanding balance: $725,000,000
Expected RRB outstanding balance as of March 15, 2000: $685,000,000
The initial RTC Charge calculated for retail users is as follows: 1.1017(cent)/kWh
</TABLE>
Transition Property
Transition Property is the property described in M.G.L. c. 164, Section 1H(a)
relating to the RTC Charge set forth herein, including, without limitation, the
right, title, and interest in and to all revenues, collections, claims,
payments, money, or proceeds of or arising from or constituting (a) the
reimbursable transition costs amounts established by the Financing Order
including such amounts established in the Issuance Advice Letter, (b) the RTC
Charge authorized by the Financing Order including the initial RTC Charge set
forth in the Issuance Advice Letter, as may be adjusted from time to time in
order to generate amounts sufficient to discharge the Total RRB Payment
Requirements, and (c) all rights to obtain periodic adjustments and non-routine
adjustments to the RTC Charge.
This RTC Charge, as adjusted from time to time, shall remain in place until the
Total RRB Payment Requirements are discharged in full.
* Ongoing transaction expenses pro-rated for the initial interest period, which
begins on the closing date (7/29/1999) and ends on the first payment date
(3/15/2000).
<PAGE> 4
IDENTIFICATION OF SPE
The owner of the Transition Property (the "SPE") will be: BEC Funding LLC. The
SPE shall be considered a financing entity for purposes of M.G.L. c.164, Section
1H.
EFFECTIVE DATE
In accordance with the Financing Order, the RTC Charge shall be automatically
effective when filed by means of this Issuance Advice Letter and will continue
to be effective, unless it is changed by a Routine True-Up Letter or a Non
Routine True-Up Letter.
NOTICE
Copies of this filing are being furnished to the parties on the attached service
list. Notice to the public is hereby given by filing and keeping this filing
open for public inspection at the Company's corporate headquarters.
Enclosures
<PAGE> 5
ATTACHMENT 1
TRANSACTION COSTS OF ISSUANCE
<TABLE>
<CAPTION>
Amount
------
<S> <C>
Underwriting spread $3,066,750
Financial Advisory Fee 275,000
Rating agency fees 510,000
Accounting fees 75,000
SEC registration fee (.0278%) 201,550
DTE filing fee ($750 for first million plus $150
for each additional million) 110,100
Printing and marketing expenses 375,000
Trustee fees and counsel 60,000
Company legal fees and expenses 2,000,000
Underwriters' legal fees and expenses 425,000
Bond counsel legal fees and expenses 425,000
MassDevelopment/HEFA fees 145,000
Servicing set-up costs 450,000
SPE set-up costs 25,000
Miscellaneous costs 100,000
Expenses in connection with reducing capitalization
(including call provisions and prepayments) $26,000,000
-----------
Total transaction costs of issuance $34,243,400*
===========
</TABLE>
* Does not include original issue discount of $244,860.
<PAGE> 6
ATTACHMENT 2
ONGOING TRANSACTION COSTS (ANNUAL)
<TABLE>
<CAPTION>
Ongoing Costs Amount
------------- ------
<S> <C>
Administration fee $ 75,000
Rating agency fees 20,000
Accounting, legal and trustees' fees 75,000
Servicing fee (.05% of initial principal balance)(1) 362,500
Overcollateralization amount 329,545
Miscellaneous(2) 50,000
------
Total estimated costs $912,045
========
</TABLE>
- --------
(1) These costs will include:
- Billing, collecting and remitting the RTC Charges;
- Calculate daily amount of remittances to the SPE trustee;
- Wire transfer daily remittances to the SPE trustee;
- Prepare monthly servicer report for trustee and rating agencies;
- Prepare semi-annual servicer report for trustee;
- Manage and invest the various SPE cash accounts;
- Reflect all transactions on the financial statements;
- Perform periodic reconciliations with the trustee;
- Perform annual true-up and adjust RTC Charge, as necessary; and
- Maintain memorandum account, if any.
(2) These costs would include any contingent liabilities arising in connection
with indemnity provisions in the RRB Transaction documents.
<PAGE> 7
ATTACHMENT 3
EXPECTED AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
A-1 A-2 A-3 A-4 A-5 Total Outstanding
Date Principal Balance Principal Balance Principal Balance Principal Balance Principal Balance Principal Balance
<S> <C> <C> <C> <C> <C> <C>
29-Jul-99 $108,500,000 $170,609,837 $103,390,163 $170,875,702 $171,624,298 $725,000,000
15-Mar-00 68,500,000 170,609,837 103,390,163 170,875,702 171,624,298 685,000,000
15-Sep-00 30,058,542 170,609,837 103,390,163 170,875,702 171,624,298 646,558,542
15-Mar-01 0 170,609,837 103,390,163 170,875,702 171,624,298 616,500,000
15-Sep-01 0 138,240,115 103,390,163 170,875,702 171,624,298 584,130,278
15-Mar-02 0 102,109,837 103,390,163 170,875,702 171,624,298 548,000,000
15-Sep-02 0 68,014,173 103,390,163 170,875,702 171,624,298 513,904,336
15-Mar-03 0 33,609,837 103,390,163 170,875,702 171,624,298 479,500,000
15-Sep-03 0 0 103,390,163 170,875,702 171,624,298 445,890,163
15-Mar-04 0 0 68,500,000 170,875,702 171,624,298 411,000,000
15-Sep-04 0 0 34,649,752 170,875,702 171,624,298 377,149,752
15-Mar-05 0 0 0 170,875,702 171,624,298 342,500,000
15-Sep-05 0 0 0 137,123,948 171,624,298 308,748,246
15-Mar-06 0 0 0 102,375,702 171,624,298 274,000,000
15-Sep-06 0 0 0 68,519,879 171,624,298 240,144,177
15-Mar-07 0 0 0 33,875,702 171,624,298 205,500,000
15-Sep-07 0 0 0 0 171,624,298 171,624,298
15-Mar-08 0 0 0 0 137,000,000 137,000,000
15-Sep-08 0 0 0 0 103,134,628 103,134,629
15-Mar-09 0 0 0 0 68,500,000 68,500,000
15-Sep-09 0 0 0 0 34,631,016 34,631,016
15-Mar-10 0 0 0 0 0 0
</TABLE>
<PAGE> 8
BOSTON EDISON COMPANY
SUMMARY OF TRANSITION CHARGE
FIXED COMPONENT PILGRIM SALE - 7/13/99 CLOSING
- ---------------------------------------------------------------------------
$ IN MILLIONS
<TABLE>
<CAPTION>
PRE-TAX AMORTIZATION NET FIXED
RETURN ON OF COMPONENT
GENERATION TRANSMISSION ADJUSTMENT INCLUDING SECURITIZED
RELATED IN SUPPORT BASE FOR ADJ. FOR CASH
INVESTMENT & OF REMOTE TOTAL RESIDUAL RESIDUAL FLOW
LINE REGULATORY GENERATING FIXED VALUE VALUE AT
# YEAR ASSETS ASSETS COMPONENT CREDIT CREDIT 7.94%
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H
- ----------------------------------------------------------------------------------------------------------------------------------
(Cols.B&C&D) (Col.J& Col.K) (Col.E& Col.F) (Col.M& Col.N)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1998 $ 88 $ 121 $ 1 $ 208 ($62) $ 146
2 1999 1/1/thru 42 69 111 (33) 78
7/26
2a 1999 7/29 thru
12/31 30 49 80 (6) 72 50
3 2000 63 138 201 (22) 179 117
4 2001 54 82 136 (22) 114 111
5 2002 48 82 130 (22) 108 106
6 2003 42 82 123 (22) 101 101
7 2004 35 82 117 (22) 95 95
8 2005 29 82 111 (22) 89 90
9 2006 23 82 105 (22) 83 85
10 2007 17 82 99 (22) 77 80
11 2008 11 82 93 (22) 71 74
12 2009 6 82 87 (22) 85 69
13 2010 - - -
14 2011 - - -
15 2012 - - -
16 2013 - - -
17 2014 - - -
18 2015 - - -
19 2016 - - -
20 2017
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL AMORTIZATION 1,112
LEGEND: This is the NPV of Column G from line 2a onwards discounted at 10.88%
<CAPTION>
Securitized
Net Fixed
Component Securi-
Including tization
Adj. for Savings
Residual NPV @
Line Value Prior Securitization 7.94%
# Year Credit RVC PRVC Principal Amort. Interest $ 76
- -----------------------------------------------------------------------------------------------------
Col. A Col. I Col. J Col. K Col. L Col. M Col. N Col. 0
(Col. G - Col. H)
(Col. G 1998-
7/31/99, Col.H
6/1/99 - 2008,
Col. G. 2010-2016
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1998 $ 146
2 1999 78 (33) 691
2a 1999 50 (24) 16 683 28 22 22
3 2000 117 (57) 35 597 66 50 62
4 2001 111 (57) 35 530 66 45 3
5 2002 108 (57) 35 464 66 40 2
6 2003 101 (57) 35 308 66 34 1
7 2004 95 (57) 35 332 66 29 (1)
8 2005 90 (57) 35 285 66 24 (1)
9 2006 85 (57) 35 199 66 19 (2)
10 2007 80 (57) 35 133 66 13 (3)
11 2008 74 (57) 35 66 66 6 (3)
12 2009 69 (57) 35 0 66 3 (4)
13 2010 -
14 2011 -
15 2012 -
16 2013 -
17 2014 -
18 2015 -
19 2016 -
20 2017
Net Present Value of Securitization Savings @ 7.94% - Pilgrim only $ 70.5
Net Present Value of Securitization Savings @ 7.94% - L'Energia only $ 5.3
Net Present Value of Total Securitization Savings @ 7.94% $ 75.8
- ----------------------------------------------------------------------------------------------------------------------------------
LEGEND:
Col. B per Settlement Attachment 3 at Page 242, Col. B Potential Balance to be Securitized $ 702.6
Col. C per Settlement Attachment 3 at Page 242, Col. C Actual Amount Securitized 690.7
Col. D per Settlement Attachment 3 at Page 242, Col. D Amt. to be recovered in Variable Component $ 11.9
Col. J per Transition Charge True-up
Col. K per GOL-3R3, Page 7 of 11 Col. D
Actual Market Valuation will be credited in Reconciliation Account
Check $890.7 7.94%
Note: Numbers may not foot due to rounding
The Securitization Principal, Amortization, and Interest schedule (Cols. L, M & N) is provided for
illustrative purposes.
The final amounts will vary due to the assumptions listed in Exhibit BE-3 on page 17.
</TABLE>
<PAGE> 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
THE COMMONWEALTH OF MASSACHUSETTS
----------
DEPARTMENT OF
TELECOMMUNICATIONS AND ENERGY
April 2, 1999
D.T.E. 98-118
Application of Boston Edison Company, an electric company under G.L. c. 164,
Section
1, for Approval of Rate Reduction Bonds under the terms of the Electric
Restructuring Act, St. 1997, c. 164.
- ------------------------------------------------------------------------------
APPEARANCES: William S. Stowe, Esq.
Catherine J. Keuthen, Esq.
Boston Edison Company
800 Boylston Street
Boston Massachusetts 02199
and
Robert K. Gad, Esq.
Colleen M. Granahan, Esq.
Ropes & Gray
One International Place
Boston, MA 02110
FOR: BOSTON EDISON COMPANY
Petitioner
Thomas J. Reilly, Attorney General
BY: Joseph W. Rogers
Rebecca Perez
Assistant Attorneys General
Regulated Industries Division
200 Portland Street, 4th Floor
Boston, Massachusetts 02114
Intervenor
<PAGE> 2
Robert F. Sydney, Esq.
Vincent DeVito, Esq.
Division of Energy Resources
100 Cambridge Street, Room 1500
Boston, Massachusetts 02202
FOR: COMMONWEALTH OF MASSACHUSETTS
DIVISION OF ENERGY RESOURCES
Intervenor
Paul R. Gauron, Esq.
Goodwin, Procter & Hoar, LLP
Exchange Place
Boston, Massachusetts 02109
FOR: ENTERGY NUCLEAR GENERATION COMPANY
Intervenor
Burton E. Rosenthal, Esq.
Segal, Roitman & Coleman
11 Beacon Street, Suite 500
Boston, MA 02108
FOR: LOCALS 369 and 387, AFL-CIO
Intervenor
Maria Krokidas, Esq.
Krokidas & Bluestein
141 Tremont Street
Boston, MA 02111-1209
FOR: MASSACHUSETTS DEVELOPMENT FINANCE AGENCY
and
FOR: MASSACHUSETTS HEALTH &
EDUCATIONAL FACILITIES AUTHORITY
Intervenors
<PAGE> 3
Michael B. Meyer, Esq.
Meyer, Connolly, Sloman & MacDonald, LLP
12 Post Office Square
Boston, MA 02109
FOR: TOWN OF PLYMOUTH
Intervenor
David S. Rosenzweig, Esq.
Keegan, Werlin & Pabian, LLP
21 Custom House Street
Boston, MA 02110
and
John Cope-Flanagan, Esq.
COM/Energy Services Company
One Main Street
P.O. Box 9150
Cambridge, MA 02142-9150
FOR: COMMONWEALTH ELECTRIC COMPANY
Limited Participant
Laura S. Olton, Esq.
McDermott, Will & Emery
28 State Street
Boston, MA 02109
FOR: MONTAUP ELECTRIC COMPANY
and
FOR: EASTERN EDISON COMPANY
Limited Participants
Stephen Klionsky, Esq.
260 Franklin Street, 21st Floor
Boston, MA 02110
FOR: WESTERN MASSACHUSETTS ELECTRIC
COMPANY
Limited Participant
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. INTRODUCTION..........................................................................................1
II. STANDARD OF REVIEW....................................................................................3
III. BOSTON EDISON'S SECURITIZATION PROPOSAL...............................................................6
A. Introduction...............................................................................6
1. Boston Edison...................................................................10
2. Attorney General................................................................10
3. The Agencies....................................................................11
4. Plymouth........................................................................11
C. Analysis and Findings.....................................................................11
1. Introduction....................................................................11
a. Mitigation of Transition Costs........................................12
b. Savings to Ratepayers.................................................14
c. Employee Commitments..................................................16
d. Order of Preference for Use of Proceeds...............................17
e. Tax Agreement.........................................................17
IV. AMOUNTS TO BE SECURITIZED............................................................................19
A. Introduction..............................................................................19
B. Positions of the Parties..................................................................21
1. Attorney General................................................................21
2. Agencies........................................................................23
3. Boston Edison...................................................................23
C. Analysis and Findings.....................................................................25
V. PROPOSED FINANCING ORDER.............................................................................28
A. Standards Governing Third Party Suppliers.................................................31
1. Introduction....................................................................31
2. Positions of the Parties........................................................32
a. Attorney General......................................................32
b. The Agencies..........................................................33
c. Boston Edison.........................................................33
3. Analysis and Findings...........................................................34
B. Statement Regarding Reimbursable Transition Costs on Customers' Bills.....................35
1. Introduction....................................................................35
2. Positions of the Parties........................................................35
a. The Agencies..........................................................35
b. Boston Edison.........................................................36
3. Analysis and Findings...........................................................36
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
C. Ancillary Agreements......................................................................37
1. Boston Edison=s Proposal........................................................37
2. Positions of the Parties........................................................37
a. Attorney General......................................................37
b. Boston Edison.........................................................38
3. Analysis and Findings...........................................................38
D. Adjustments to the RTC Charge.............................................................39
1. Introduction....................................................................39
2. Positions of the Parties........................................................39
a. Agencies..............................................................39
b. Boston Edison.........................................................40
3. Analysis and Findings...........................................................40
VI. EXEMPTIONS...........................................................................................42
A. Exemption from Competitive Bidding Requirements...........................................42
1. Introduction....................................................................42
2. Analysis and Findings...........................................................42
B. Exemption from Par Value Debt Issuance Requirements.......................................44
1. Introduction....................................................................44
2. Analysis and Findings...........................................................44
VII. ORDER................................................................................................45
</TABLE>
<PAGE> 6
I. INTRODUCTION
On December 3, 1998, Boston Edison Company ("Boston Edison" or "Company")
filed an application for approval of rate reduction bonds ("RRBs") pursuant to
G.L. c. 164, Section 1H(b). Boston Edison proposes to securitize approximately
$805 million of transition costs, the majority of which are associated with the
sale of its Pilgrim Nuclear Power Station and related assets ("Pilgrim"), to
Entergy Nuclear Generation Company ("Entergy"). This application was docketed as
D.T.E. 98-118. Boston Edison also submitted a proposed financing order (Exh.
BE-1) for issuance by the Department.
Pursuant to notice duly published, public hearings were held in Plymouth,
Massachusetts on December 21, 1998, and January 5, 1999, and at the Department's
offices in Boston on December 22, 1998. The Attorney General of the Commonwealth
("Attorney General") filed a notice of intervention pursuant to G.L. c. 12,
Section 11E. The Department allowed the petitions to intervene of the
Commonwealth of Massachusetts Division of Energy Resources ("DOER"), Entergy,
Locals 369 and 387 of the Utility Workers Union of America - American Federation
of Labor/Congress of Industrial Organizations (UWUA, AFL-CIO) ("Locals 369 and
387"), and the Massachusetts Development Finance Agency and Massachusetts Health
and Educational Facilities Authority (collectively, the "Agencies"). The
petition of the town of Plymouth ("Plymouth") to intervene was allowed, but
limited to the issue of whether a tax agreement between Boston Edison and
Plymouth had been executed pursuant to the provisions of G.L. c. 59, Section
38(H)(c). The petitions to intervene of Commonwealth Electric Company
("Commonwealth Electric"), Montaup Electric Company ("Montaup") and Eastern
Edison
<PAGE> 7
Company ("Eastern") were denied, but each was allowed limited participant
status. Western Massachusetts Electric Company ("WMECo") was also allowed
limited participant status.(1)
The Department granted a motion to consolidate Boston Edison=s petition for
approval of the Pilgrim divestiture transaction, D.T.E. 98-119, and Commonwealth
Electric=s petition for approval of the termination and buyout of its
Pilgrim-related purchase power agreement ("PPA"), D.T.E. 98-126, and denied a
motion to consolidate D.T.E. 98-118 with D.T.E. 98-119/126.(2) The Department
coordinated hearings for the purposes of establishing an evidentiary record
common to both proceedings (Tr. 1, at 5).
Evidentiary hearings were held on January 20, 21, 22, 25, and 26, and
February 12, 1999. In support of its petition, Boston Edison presented the
testimony of Geoffrey Lubbock, the director of generation divestiture for Boston
Edison; Emilie O=Neil, the manager of corporate finance for Boston Edison; and
Elliot Alchek, the managing director and co-head of the
- ----------------------
(1) The petitions to intervene of Citizens Urging Responsible Energy
("CURE"), John T. O'Connor, and Massachusetts Citizens for Safe Energy
("MCSE") were denied (Hearing Officer's Ruling on Petitions to
Intervene (December 23, 1998)). MCSE's and CURE's appeals of the
hearing officer ruling were also denied. D.T.E. 98-118, Interlocutory
Order on Appeal of Hearing Officer Rulings Regarding Petitions to
Intervene) (March 19, 1999).
(2) On March 22, 1999, in a consolidation proceeding in D.T.E. 98-119-126,
the Department approved (1) the sale of Pilgrim to Entergy; (2) the
adjustment of Boston Edison's transition charge after the divestiture
to reflect the proceeds of the sale through a residual value credit;
and (3) the purchase of Pilgrim-generated power by Boston Edison from
Entergy under two purchase power agreements and the recovery of any
above-market costs associated therewith in the transition charge.
Boston Edison Company, D.T.E. 98-119/126 (1999). The Department also
approved (1) the termination and buyout of Commonwealth Electric
Company's existing obligation with Boston Edison to purchase power from
Pilgrim; (2) the inclusion of the buyout amount as an adjustment to
Commonwealth Electric Company's transition charge; (3) the purchase by
Commonwealth Electric Company of power from Pilgrim under a new
purchase power agreement with Entergy; and (4) the recovery of any
above-market costs of the purchase power agreement with Entergy as an
adjustment to its transition charge. Id.
<PAGE> 8
asset-backed securities group at Goldman, Sachs & Co. The Attorney General
presented the testimony of Timothy Newhard, a financial analyst with the
Regulated Industries Division of the Office of the Attorney General. Briefs were
filed by Boston Edison, Commonwealth Electric, DOER, the Agencies, Entergy,
Plymouth, and the Attorney General. Reply briefs were filed by Boston Edison,
Entergy, the Attorney General, the Agencies and Commonwealth Electric. The
record consists of 346 exhibits and the responses to 75 record requests.(3)
II. STANDARD OF REVIEW
The Legislature has vested broad authority in the Department to regulate
the ownership and operation of electric utilities in the Commonwealth. See,
e.g., G.L. c. 164, Section 76. The Department's authority was most recently
amended by the Acts of 1997, c. 164 (the "Restructuring Act" or "Act").(4)
Boston Edison Company, D.P.U./D.T.E. 96-23, at 9 (1998). The Act authorizes the
Department to issue a financing order allowing a company to securitize its
reimbursable transition costs amounts (both debt and equity) through the
issuance of electric
- ----------------------
(3) On March 18, Boston Edison Filed a motion for the Department to update
the record in D.T.E. 98-118 and D.T.E. 98-119/126, reopen the
evidentiary record, and admit two additional exhibits. The motion was
granted in D.T.E. 98-119/126 and the exhibits (the Fourth Amendment to
the Pilgrim Power Sale Agreement between Boston Edison and Montaup and
the Agreement between Boston Edison and Plymouth concerning property
taxes were marked as BE-5B, Tab 11R and BE-17, respectively. The
Department notes that Exh. BE-17 already existed and on its own motion
now changes the number of Exh. BE-17 to BE-18.
(4) An Act relative to Restructuring the Electric Utility Industry in the
Commonwealth, Regulating the Provisions of Electricity and Other
Services, and Promoting Enhanced Consumer Protections Therein, signed
by the governor on November 25, 1997. St. 1997, c. 164.
<PAGE> 9
RRBs. (5) A financing order may be issued by the Department to facilitate the
provision, recovery, financing or refinancing of transition costs. G.L. c. 164,
Section 1H(b)(1).
- ----------------------
(5) "Electric rate reduction bonds" are defined as, "bonds, notes,
certificates of participation or beneficial interest, or other
evidences of indebtedness or ownership, issued pursuant to an executed
indenture, financing document, or other agreement of the financing
entity, secured by or payable from transition property, the proceeds of
which are used to provide recover, finance or refinance transition
costs or to acquire transition property and that are secured by or
payable from transition property." G.L. c.164, Section 1(H)(a).
"Financing order" is defined as, "an order of the Department. . .
approving a plan, which shall include, without limitation, a procedure
to review and approve periodic adjustments to transition charges to
include recovery of principal and interest and the costs of issuing,
servicing, and retiring electric rate reduction bonds contemplated by
the financing order." G.L. c. 164, Section 1(H)(a).
"Reimbursable transition costs amounts" are defined as, "the total
amount authorized by the Department in a financing order to be
collected through the transition charge, as defined pursuant to G.L. c.
164, Section 1, and allocated to an electric company in accordance with
a financing." G.L. c. 164, Section 1(H)(a).
"Securitization" is defined as, the use of rate reduction bonds to
refinance debt and equity associated with transition costs pursuant to
G.L. c. 164, Section 1H.
"Transition costs" are defined as, "the costs determined pursuant to
G.L. c. 164, Section 1G which remain after accounting for maximum
possible mitigation, subject to determination by the Department."
G.L. c. 164, Section 1(H)(a).
"Transition charge" is defined as, "the charge to the customers which
provides the mechanism for the recovery of an electric company's
transition costs." G.L. c. 164, Section 1(H)(a).
"Transition property" is defined as, "the property right created
pursuant to this section, including, without limitation, the right,
title and interest of an electric company or a financing entity to all
revenues, collections, claims, payments, money, or proceeds of or
arising from or constituting reimbursable transition costs amounts
which are the subject of a financing order, including those
non-bypassable rates and other charges that are authorized by the
department in the financing order to recover transitions costs and the
costs of providing, recovering, financing, or refinancing the
transition costs, including the costs of issuing, servicing and
retiring electric rate reduction bonds." G.L. c. 164, Section 1(H)(a).
<PAGE> 10
Prior to issuing a financing order, the Department must have approved an
electric company=s restructuring plan.(6) G.L. c. 164, Section 1(A)(a). The
restructuring plan must include, among other things, a company's strategy to
mitigate the transition costs it seeks to recover through a non-bypassable
transition charge. In order to issue a financing order, the Department must find
that a company has demonstrated that the issuance of electric RRBs to refinance
reimbursable transition costs will reduce the rates that a company's customers
would have paid without the issuance of electric RRBs, and that the reduction in
rates to customers equals the savings obtained by the company. G.L. c. 164,
Section 1(H)(b)(2). The company must establish, and the Department must approve,
an order of preference for use of bond proceeds such that transition costs
having the greatest impact on customer rates will be the first to be reduced by
those proceeds. G.L. c. 164, Section 1G(d)(4).
In order to approve an application for a financing order, the Department
must also be satisfied that a company has (1) fully mitigated the related
transition costs (including, but not limited to, as applicable, divestiture of
its non-nuclear generation assets,(7) renegotiation of
- ----------------------
(6) The Act requires that a company's restructuring plan or settlement
contain the following key features: (1) an estimate and detailed
accounting of total transition costs eligible for recover; (2) a
description of the strategy to mitigate transition costs; (3)
unbundled prices or rates for generation, distribution transmission
and other services; (4) proposed charges for the recovery of
transition costs; (5) proposed programs to provide universal service
for all customers' (6) proposed programs and recovery mechanisms to
promote energy conservation and demand-side management; (7)
procedures for ensuring direct retail access to all communities
served by the company; and (8) a discussion of the impact of the plan
on the company's employees and the communities served by the company.
G.L. c. 164 Section 1A9a). See Boston Edison Company, D.P.U./D.T.E.
96-23, at 10-11 (1998).
(7) The Act prescribes that a company that fails to divest its
non-nuclear generation assets is not eligible to benefit from
securitization and the issuance of electric RRBs. G.L. c. 164 Section
1(G)(d)(3). However, the Act also provides that an electric company
that has not divested its non-nuclear generation facilities may be
able to securitize its transition costs if it is not able to meet the
15 percent rate reduction required by the Act. G.L. c. 164,
<PAGE> 11
existing power purchase contracts, and the valuation of assets of the company);
and (2) obtained written commitments that purchasers of divested assets will
offer employment to any affected non-managerial employees who were employed at
any time during the three-month period prior to the divestiture, at levels of
wages and overall compensation no lower than the employees' prior levels. G.L.
c. 164, Section 1G(d)(4). In addition, the Department cannot approve a company's
application for securitization if the company owns, in whole or in part as of
July 1, 1997, a nuclear-powered generation facility located in the Commonwealth
that exceeds 250 megawatts in size, unless the company has executed a tax
agreement with the plant's host community. G.L. c. 59, Section 38H(c).
III. BOSTON EDISON'S SECURITIZATION PROPOSAL
A. Introduction
Securitization is a method for a company to refinance transition costs. The
Restructuring Act authorizes an electric company to securitize its transition
costs by issuing RRBs to investors that will be repaid through a portion of the
transition charge. G.L. c. 164, Section 1H. The RRBs, if assigned a high credit
rating(8), will have an interest rate lower than the carrying charge paid by
ratepayers as part of the transition charge, thereby generating savings to
ratepayers.
- ----------------------
Section 1(G)(c)(2).
(8) The rating of bonds relates to the likelihood of timely payment of
interest and ultimate repayment of principle by the final legal
maturity date. Credit enhancements are intended to reinforce the
likelihood that payments on the SPE debt securities will be made in
accordance with the expected amortization schedule. Typical examples
of credit enhancements include true-up adjustments,
overcollateralization, capital accounts (equity contribution), and
reserve accounts. Other forms of credit enhancement may include
additional reserve accounts, sureties, guarantees, letters of credit,
liquidity reserves, repurchase obligations, cash collateral accounts,
third party supports, or other similar arrangements.
<PAGE> 12
Boston Edison ratepayers currently pay a carrying charge of 10.88 percent
for all unrecovered transition costs (Exh. BE-1 ("Settlement Agreement") at Att.
3, Sch.1, at 14). Boston Edison proposes to securitize approximately $805
million of transition costs (and related costs of issuance) by issuing RRBs
(Boston Edison Reply Brief at 21-22). The proposed estimated principal amount of
the RRBs is composed of (1) approximately $691 million representing the net
present value of the fixed component of Boston Edison's transition charge after
all Pilgrim divestiture related adjustments have been made, (2) $68 million for
the L'Energia contract buyout (Boston Edison Company, D.T.E. 99-16, now pending
before the Department), (3) approximately $36 million in transaction costs, and
(4) $10 million for delivery requirements related to materials contracts with
General Electric (Boston Edison Reply Brief at 22). The amount to be securitized
is discussed in section IV, below.
After the enactment of the Restructuring Act, the Department, the Agencies,
the Massachusetts-based electric companies and other interested parties, such as
investment bankers and statistical rating organizations ("rating
organizations"), developed a structure for an RRB transaction (Boston Edison
Brief at 3-4). As part of its application, Boston Edison submitted a proposed
financing order prepared in consultation with the Agencies, Lehman Brothers, and
Goldman, Sachs & Co. ("the Underwriters"), the Commonwealth of Massachusetts
Executive Office for Administration and Finance, and three rating organizations
(Boston Edison Brief at 4, citing RR-DTE-29).(9)
- ------------------------
(9) Boston Edison submitted a revised proposed financing order with its
initial brief, arguing that it has been revised to reflect the
discussion, comments and concerns raised during the course of this
investigation (Boston Edison Brief at 4. Tab 1).
<PAGE> 13
Boston Edison seeks to recover through the RRBs, a portion of its
transition costs, together with the transaction costs of issuing RRBs, ongoing
transaction costs, and the costs of providing credit enhancement. Boston Edison
also seeks an exemption from the competitive bidding requirements of G.L. c.
164, Section 15 in connection with the sale of the RRBs, and from the par value
debt issuance requirements of G.L. c. 164, Section 15A. The request for these
exemptions is discussed below. If approved by the Department, the amounts Boston
Edison seeks to recover will constitute reimbursable transition costs amounts
and will be financed through the issuance of RRBs, and a portion of Boston
Edison's transition charge, the reimbursable transition cost ("RTC") charge,
will be used to repay these amounts. The RRBs will be backed by collateral,
including the right to all collections or proceeds arising from (1) recoverable
transition costs, (2) RTC charge, and (3) adjustments to the RTC charge
(collectively, the "Transition Property") as set forth in the financing order
(Boston Edison Brief at 65).
Boston Edison will sell the Transition Property to a special purpose entity
("SPE") (id.). The SPE will be a bankruptcy-remote entity owned and initially
capitalized by Boston Edison (id.). To raise the funds to buy the Transition
Property from Boston Edison, the SPE will issue and sell SPE debt securities to
a special purpose trust established by the Agencies (id.). This special purpose
trust will then issue RRBs, the proceeds of which will be remitted to the SPE
and ultimately to Boston Edison (id.). Once a financing order is issued, neither
the Department nor the Commonwealth of Massachusetts (pursuant to G.L. c. 164,
Section 1H(b)(3)) can alter or revoke the transfer of Transition Property, or
the RTC Charges.
In order to maximize the savings obtainable from securitization, the RRBs
must achieve the highest possible rating. The RRBs will receive ratings from
national rating organizations. The
<PAGE> 14
rating of debt instruments backed by regulatory assets such as the RRBs is not
tied to the rating of the distribution company; instead, it is based on an
analysis of the underlying collateral and the specific transaction structure. A
credit rating analysis takes into account elements that are customary in an
asset securitization and combines them with a detailed analysis of the
regulatory and legal foundation of the asset account and the collection
mechanisms. Rating organizations will consider the following characteristics of
RRBs (1) bankruptcy-remoteness of seller, (2) predictability and
nonbypassability of the RTC charge, (3) standards governing a third party
supplier ("TPS"), (4) credit enhancement, and (5) the Commonwealth's assurance
of irrevocability; and other statutory safeguards (Exh. BE-2, at 4).
The Restructuring Act establishes the Agencies as a financing entity for
RRBs. In this capacity, the goal of the Agencies is to protect the interests of
Boston Edison's ratepayers by (1) ensuring the lowest all-in cost pricing
reasonably obtainable for RRBs,(10) (2) streamlining the administrative
processes and thereby minimizing the costs of issuing the RRBs, and
(3) providing consulting services to the Department (G.L. c. 164,
Section 1H(b)(2)). The Agencies also have a number of other responsibilities
under the Act, including the issuance of the RRBs. The Agencies also will
approve the final terms and conditions of the RRBs, including structure,
pricing, credit enhancement, relevant issuance costs and manner of sale. In
addition, in order to minimize the all-in costs of the RRBs and associated
administrative expenses, the Agencies will coordinate with Boston Edison on the
marketing of the RRBs, the procurement of bond trustees
- -----------------------
(10) The all-in cost of the RRBs is an effective interest rate that
includes the stated interest rate of the RRBs, i.e., the interest rate
paid to investors, and the transaction costs of the securitization
(Exh. BE-3, at 13).
<PAGE> 15
and related services, and the selection of rating organizations and the
underwriting syndicate
(Agencies' Brief at 3).
B. Positions of the Parties
1. Boston Edison
Boston Edison argues that the structure of the RRB transaction, as
described above, satisfies all statutory and rating organizations requirements,
as well as the requirements of the Agencies (Boston Edison Brief at 61, 93).
Boston Edison argues that the proposed financing order complies with the
relevant provisions of the Restructuring Act, as well as other provisions
governing the operation of electric companies (id. at 62, citing G.L. c. 164,
Sections 1G and 1H). Finally, Boston Edison argues that it has drafted the
proposed financing order to obtain the "lowest pricing for the RRBs and the most
efficient cost structure for the transaction as a whole" (id. at 62). For these
reasons, Boston Edison argues that the issuance of RRBs is in the public
interest and should be approved by the Department (id. at 93).
2. Attorney General
The Attorney General does not disagree about whether the issuance of RRBs
by Boston Edison is in the public interest and should be approved by the
Department. However, the Attorney General urges that the Department's approval
of Boston Edison's application should incorporate certain changes to the
financing order. The Attorney General's proposed changes, together with findings
thereon, are discussed below.
3. The Agencies
The Agencies urge the Department to approve the proposed financing order
and argue that, in general, it incorporates all of the characteristics
considered significant by rating
<PAGE> 16
organizations in establishing the highest possible credit rating of the RRBs
(Agencies Brief at 4). However, the Agencies suggest some changes to the
proposed financing order which are discussed in section V, below.
4. Plymouth
The town of Plymouth argues that Boston Edison cannot securitize unless and
until Boston Edison has executed an agreement to make payments in addition to
and payments in lieu of taxes to Pilgrim's host community, the town of Plymouth.
The status of the host community tax agreement is discussed below.
C. Analysis and Findings
1. Introduction
The Act requires the Department to find that specific conditions have been
met in order for a company to be eligible to issue electric RRBs. Consistent
with the standard of review, the Department's analysis of Boston Edison's
proposed securitization transaction will focus on (1) mitigation of transition
costs, (2) savings to ratepayers, (3) employee commitments, (4) order of
preference for use of proceeds, and (5) host community tax agreement.
a. Mitigation of Transition Costs
An electric company seeking to recover transition costs must mitigate such
costs. G.L. c. 164, Section 1G(d)(1). Before approving the recovery of
transition costs through the transition charge, the Department must find that a
company has taken all reasonable steps to mitigate to the maximum extent
possible, the total amount of transition costs that will be recovered from
ratepayers. G.L. c. 164, Section 1G(d)(1).
<PAGE> 17
The Act requires a company to have an approved restructuring plan that
establishes its overall mitigation strategy and to divest it non-nuclear
generation assets in order to be able to securitize its reimbursable transition
costs. G.L. c. 164, Sections 1A(a), 1(G)(d)(3). Boston Edison filed a
restructuring Settlement Agreement with the Department on July 8, 1997, which
contained a detailed accounting of Boston Edison's transition costs and
mitigation strategy (Settlement Agreement at Att. 3). The Department approved
the mitigation strategy proposed in the Settlement Agreement and authorized
Boston Edison to recover its associated transition costs. Boston Edison Company,
D.P.U./D.T.E. 96-23, at 46-47 (1998).
The Settlement Agreement required Boston Edison to divest its non-nuclear
generation business, to endeavor to sell, assign or otherwise dispose of its
PPAs, and to file a market valuation plan for Pilgrim on or before January 1,
1999.(11) In May, 1998, Boston Edison divested its non-nuclear generation
assets, as required by the Settlement Agreement. With respect to PPAs, in Boston
Edison Company, D.T.E. 98-119/126, at 49 (1999), the Department found that
Boston Edison "has made and continues to make a reasonable attempt to mitigate
the costs related to the municipal contracts through attempted renegotiations of
the PPAs and through seeking recovery through its ongoing filing at FERC." In
addition, in a letter order issued on February 19, 1999, in D.T.E. 98-62, the
Department found that Boston Edison made a good faith effort to renegotiate its
above-market PPAs within the meaning of G.L. c. 164, Section 1G(d)(2)(i).
Boston Edison has received Department approval to divest Pilgrim pursuant
to D.T.E. 98-119/126 (1999), although such divestiture is not required by either
the Act or the Settlement Agreement. In approving the proposed sale, the
Department found that the divestiture transaction
- ----------------------
(11) Settlement Agreement at Section V.C.
<PAGE> 18
provided both direct and indirect benefits to Boston Edison ratepayers through
the mitigation of Pilgrim-related transition costs. Further, the Department
found that the divestiture of Pilgrim is consistent with the mitigation
requirements of the Act. D.T.E. 98-119/126, at 24 (1999).
Boston Edison contends that, because the Department has approved or will
approve the recovery of all transition costs (including the renegotiated PPAs)
that the Company seeks to securitize in the RRB transaction, it has mitigated
its transition costs (Boston Edison Brief at 94, citing D.P.U./D.T.E. 96-23, at
73; D.T.E. 97-113 (non-nuclear generating asset divestiture approval); D.T.E.
98-119 (Pilgrim divestiture); and D.T.E. 99-16 (L'Energia buyout)). The
Department approved recovery of transition costs through Boston Edison's
transition charge in (1) the Settlement Agreement approved by the Department in
D.T.E. 96-23, (2) the approval of Boston Edison's non-nuclear generation asset
divestiture in D.P.U./D.T.E. 97-113, and (3) the approval of Boston Edison's
Pilgrim divestiture in D.T.E. 98-119/126. In each case, the Department found
that Boston Edison had taken all reasonable steps to mitigate, to the maximum
extent possible, such transition costs. G.L. c. 164, Section 1G(d)(1).
Accordingly, the Department finds that Boston Edison has met its obligation to
mitigate the transition costs it seeks to securitize as approved in
D.P.U./D.T.E. 96-23, D.P.U./D.T.E. 97-113 and D.T.E. 98-119/126 for the purposes
of G.L. c. 164, Section 1G(d)(4)(i). The Department has not yet issued a
decision regarding the L'Energia contract buyout; therefore, the Department
makes no finding regarding mitigation related to the L'Energia contract buyout.
The exact costs, including the L'Energia buyout, are discussed in Section IV,
below.(12)
- -----------------------
(12) The Attorney General argues that approximately $50 million in costs
the company seeks to securitize have not been mitigated and are
therefore not eligible to be securitized. The specific costs are
discussed in section IV below.
<PAGE> 19
b. Savings to Ratepayers
Before approving a financing order, the Department must find that savings
to ratepayers will result from securitization and that all such savings derived
from securitization will inure to the benefit of ratepayers. G.L. c. 164,
Sections 1G(d)(4)(ii)-(iii). Under the Settlement Agreement, Boston Edison's
ratepayers pay a carrying charge of 10.88 percent for all unrecovered transition
costs (Settlement Agreement at Att. 3, Sch. 1, at 14). Boston Edison argues that
its ratepayers will benefit from securitization if the effective all-in cost of
the approved transition costs is lower than the current 10.88 percent carrying
charge. Based on current market conditions, Boston Edison anticipates that the
carrying charge rate of 10.88 percent will be reduced to approximately 7.50
percent through securitization (Tr. 3, at 283-284). Boston Edison estimates that
the total net present value of savings to its ratepayers, as a result of
securitization, will be $89 million (Boston Edison Brief at 95).(13)
Although no party disputed the conclusion that securitization will yield
ratepayer savings as long as the interest rate on the RRBs is less than 10.88
percent, the Attorney General cautions that "the bonds must, of course, result
in savings" and the Agencies must "ensure the lowest all-in cost pricing
reasonably obtainable on the RRBs" (Attorney General Reply Brief at 9). The
Agencies support approval of Boston Edison's request to securitize its
transition costs stating that, in their capacity as the "financing entity,"
their goal is to protect the interests of Boston Edison's ratepayers by ensuring
the lowest all-in cost pricing reasonably obtainable for the RRBs (Agencies
Brief at 2). The Agencies state that in approving specified transaction costs,
they
- -----------------------
(13) Boston Edison's savings estimate assumes a reduction in the interest
rate paid by Boston Edison to 7.50 percent. The actual interest rate
will be determined upon issuance of the RRBs.
<PAGE> 20
would seek to avoid unnecessary or excessive costs in order to obtain maximum
ratepayer savings, while at the same time obtaining the highest possible bond
ratings (id. at 13).
Neither Boston Edison nor the Agencies, as the financing entity, will
authorize a bond issuance unless there will be demonstrated ratepayer savings
(Exh. BE-4, at 14-15; Agencies Brief at 2). Boston Edison states that it will
not issue RRBs unless the all-in cost of issuance of the RRBs results in a
carrying charge of less than the current carrying charge of 10.88 percent
(Exh. BE-4, at 14-19). Because securitizing at an all-in cost of less than
10.88 percent will result in Boston Edison's ratepayers paying a transition
charge that is lower than what they would have paid without securitization, the
Department finds that savings to ratepayers will result from securitization.
Therefore, Boston Edison should proceed with securitization and ensure that all
such savings will inure to the benefit of ratepayers, in accordance with
G.L. c. 164, Sections 1G(d)(4)(ii)-(iii). While Boston Edison anticipates that
securitization will result in savings to ratepayers of approximately
$89 million, the Department notes that the amount of ratepayer savings is
predicated on market conditions at the time of bond issuance. Upon issuance, a
financing order is irrevocable and may not be altered by the Department.
G.L. c. 164, Section 1H(b)(3). The Department must, therefore, rely on the
Agencies, as the financing entity, to ensure that the maximum possible level of
ratepayer savings is obtained.
c. Employee Commitments
Before the Department may approve a financing order, the Department must be
satisfied that Boston Edison has obtained a written commitment from Entergy
which provides that Entergy, as the purchaser of Pilgrim, will offer employment
to any affected non-managerial employees who were employed at any time during
the three-month period prior to the divestiture,
<PAGE> 21
at levels of wages and overall compensation no lower than the employees' prior
levels. G.L. c. 164, Section 1G (d)(4)(iv).
The Purchase and Sale Agreement between Boston Edison and Entergy contains
a written commitment stating that Entergy, as the buyer, "is required to
offer employment to those employees of [Boston Edison] who were employed in
non-managerial positions and whose employment relates primarily to providing
services for operation of [Pilgrim] at any time during the three-month period
prior to the closing date, at levels of wages and overall compensation not lower
than the employees' prior levels, for a period of six months beginning at the
section closing date" (Exh. BE-5A, Tab 1, at Section 5.7(a)).
Accordingly, the Department finds that Boston Edison has satisfied the
requirements of G.L. c. 164, Section 1(g)(d)(4)(iv) relating to employee
commitments.
d. Order of Preference for Use of Proceeds
In its application, Boston Edison states that it expects to use the
proceeds from the sale of transition property, net of transaction costs, for the
following purposes: (1) to return the securitized portion of the Pilgrim and
non-nuclear unrecovered plant balances and related regulatory assets; (2) 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 (3) to provide any credit enhancement required
for the RRBs (Exh. BE-4, at 12). Before the Department may approve a financing
order, Boston Edison must show that it has established an order of preference
for use of the RRB proceeds that first reduces transition costs having the
greatest effect on customer rates. G.L. c. 164, Section 1G(d)(4)(v). Boston
Edison states that the order of preference for the use of RRB proceeds meets the
requirements of the Act because all of its transition costs have the same
carrying charge of 10.88 percent and, therefore,
<PAGE> 22
have the same effect on customer rates (Boston Edison Brief at 97). Because all
of Boston Edison's reimbursable transition costs have the same carrying charge,
the reduction of any cost has the same customer rate impact. The Department
therefore finds that Boston Edison's proposal satisfies the requirements of the
Act relative to the order of preference for use of the bond proceeds, and thus
complies with G.L. c. 164, Section 1G(d)(4)(v).
e. Tax Agreement
The Department cannot approve an electric company's plan to securitize its
transition costs without an executed tax agreement if the electric company owns
a nuclear-powered generation facility in the Commonwealth that exceeds 250
megawatts and that was owned in whole or in part by said company as of July 1,
1997. G.L. c. 59, Section 38H(c). Boston Edison owned Pilgrim (whose output
exceeds 250 megawatts) as of July 1, 1997; therefore, Boston Edison must
demonstrate to the Department that it has executed an agreement with the town of
Plymouth (Pilgrim's host community) to make payments in addition to and payments
in lieu of taxes before the Department can approve its securitization plan. G.L.
c. 59, Section 38H(c).
On March 18, 1999, Boston Edison and the town of Plymouth presented to the
Department an executed agreement (Exh. BE-17) which requires Boston Edison to
make payments in addition to and payments in lieu of taxes to the town of
Plymouth. There are additional requirements that are conditions of the executed
agreement.(14) Because Boston Edison
- --------------------------
(14) The Department notes that the agreement, although executed by Boston
Edison and the town of Plymouth, is conditioned upon (1) the
enactment of legislation which "authorizes, ratifies, validates and
confirms" that Boston Edison has satisfied all of its tax
requirements and (2) findings by the Department that (1) [the]
Agreement constitutes an agreement with respect to property taxes
which satisfies the requirements of M.G.L. c. 59, Section 38H(c) with
respect to agreements relating to property taxes, payments in
addition to property taxes and payments in lieu of property taxes for
Pilgrim Nuclear Power Stations and which is (i) sufficient to find
Boston Edison to be eligible to collect the full
<PAGE> 23
has executed an agreement pursuant to G.L. c. 59, Section 38H(c), these
requirements do not prohibit the Department from approving a plan submitted
by Boston Edison to utilize the provisions of securitization pursuant to
G.L. c. 164, Section 1H.(15) Therefore, the Department finds that Boston
Edison has complied with the requirements of the Restructuring Act relative
to executing an agreement to make payments in addition to and payments in
lieu of taxes pursuant to G.L. c. 59, Section 38H(c).
IV. AMOUNTS TO BE SECURITIZED
A. Introduction
After the divestiture of Pilgrim, Boston Edison will credit customers with
the sale proceeds after making adjustments for several items, such as materials
and supplies, nuclear refueling outage costs, and other costs. D.T.E.
98-119/126, at 40-69. The Company will also reduce the sale proceeds by $466
million for the Decommissioning Trust being transferred to Entergy, the
purchaser of Pilgrim, less the amount already paid by ratepayers for
decommissioning. D.T.E. 98-119/126, at 69. After providing for these
adjustments, Boston Edison estimates that customers will have a liability of
$264 million, based on a closing date of
- -----------------------
amount of transition costs as approved by the DTE pursuant to
M.G.L. c. 164 Section 1G, and (ii) sufficient to permit Boston Edison
to securitize its transition costs, and (2) that the amounts to be
paid hereunder are transition costs recoverable from Boston Edison's
retail customers under applicable laws and precedent, including
M.G.L. c. 164, Section 1G(b)(2)(ii) and the DTE order in DPU/DTE
96-23." Boston Edison Company and Town of Plymouth Joint Motion to
Approve the Tax Agreement, D.T.E. 98-53, and D.T.E. 99-33.
(15) On March 22, 1999, Boston Edison and the town of Plymouth filed a
Joint Motion To Approve The Tax Agreement. D.T.E. 98-53, and D.T.E.
99-33. Approval of the Agreement is under review by the Department.
<PAGE> 24
March 31, 1999, for the sale. (16) D.T.E. 98-119/126, at 69, n.39. This
liability of $264 million results in a Pilgrim residual value credit ("RVC")
annualized at $29 million per year(17) (Exh. BE-7, Att. GOL-3, at 2).
Subtracting the $29 million annual payments from the $57 million for the
non-nuclear units' divestiture annual RVC credit, Boston Edison calculates a net
annual RVC of $27 million. D.T.E. 98-119/126, at 69, n.39. Boston Edison
estimates that after the implementation of this net RVC, the fixed component of
its transition charge will be $692 million, on a net present value basis,
assuming a closing date of March 31, 1999 (Exh. BE-7, Att. GOL-3, at 2).
Similarly, for closing dates of June 30, 1999, and December 31, 1999, Boston
Edison estimates the fixed component of the transition charge will be $653
million and $611 million, respectively (Exh. BE-7, Att. GOL-4, at 2, GOL-5,
at 2).
Boston Edison proposes to securitize the following costs: (1) the updated
fixed component of its transition charge (approximately $692 million, assuming a
March 31, 1999 closing, less the $800,000 balance for the LaGrange Street
Property);(18) (2) transaction costs of
- ------------------------
(16) While the ratepayers have a liability of $264 million for the
divestiture of Pilgrim, the sale reduces the transition charge paid
by them. On a net present value basis, Boston Edison calculates that
the Pilgrim divestiture would serve to reduce its total transition
charge by $15 million to $29 million, depending on the closing date.
D.T.E. 119/126, at 70.
(17) The annual RVC credit represents a yearly credit to ratepayers that
is calculated as an annuity based on the amortization and the pre-tax
carrying charge of 10.88 percent on the credit balance. In this case,
the net balance of negative $264 million results in an annual amount
of $29 million that ratepayers will pay Boston Edison over the period
from 1999 to 2009.
(18) In its initial filing, Boston Edison included $800,000 for the
LaGrange Street Property, a large tract of land in Newton owned by
the Company that it states was never used for the utility business
(Tr. 3, at 405-406). Boston Edison has withdrawn its request to
include the $800,000 amount with respect to the LaGrange Street
property as a reimbursable transition costs amount in response to
objections raised by the Attorney General and DOER (Boston Edison
Reply Brief at 20, n.16).
<PAGE> 25
approximately $36 million; (3) a $10 million delivery requirement related to a
materials contract with General Electric; and (4) $68 million for the buyout of
the contract with L'Energia Limited Partnership(19) upon a favorable ruling by
the Department in Boston Edison Company, D.T.E. 99-16 (Exh. BE-3, Sch. BEB3B;
Boston Edison Reply Brief at 22, n.17). The amounts the Company proposes to
securitize total $805 million, and might be increased by any credit enhancement
included upon issuance (Boston Edison Reply Brief at 22, n.17).
B. Positions of the Parties
1. Attorney General
The Attorney General argues that Boston Edison is seeking to securitize
costs that are not eligible for recovery or have not been fully mitigated
(Attorney General Brief at 22). Further, the Attorney General argues that Boston
Edison seeks to securitize costs that are not yet sufficiently final to permit
any determination that they are eligible for recovery or fully mitigated (id.).
The Attorney General recommends that the Department limit the amount to be
securitized to those costs that have been shown to be both recoverable and fully
mitigated (id.). To this end, the Attorney General recommends that the amount to
be securitized be capped at $710 million (id.).(20)
- ------------------------
(19) Boston Edison has a purchase power agreement pursuant to which Boston
Edison purchases 73 percent of the capacity and associated electric
energy produced by the L'Energia generation facility. Boston Edison
states that the cost of capacity and associated energy under the
L'Energia Agreement is now above the market price for power. In
D.T.E. 99-16, Boston Edison requests that the Department approve the
buyout of all obligations of Boston Edison under the L'Energia
agreement. In addition, in D.T.E. 99-16, Boston Edison requests that
the Department approve the full recovery of the buyout amount in its
retail rates through the fixed component of Boston Edison's
transition charge.
(20) The cap of $710 million recommended by the Attorney General assumes
that the total securitization amount requested by the Company is $730
million per Boston Edison's initial filing.
<PAGE> 26
The Attorney General argues that the amount that Boston Edison proposes
to securitize includes approximately $50 million of costs that are not
transition property because they have not been shown to be both recoverable and
fully mitigated (id. at 22-23). This $50 million in costs includes the
following: (1) $800,000 in costs for the LaGrange Street property; (2) $15
million in capital additions related to Pilgrim that have not been shown to be
prudently incurred; (3) $5 million of estimated transaction costs(21) related to
the Pilgrim divestiture; and (4) $26 million of estimated refinancing costs(22)
(id. at 23). The Attorney General argues that the Agencies "have not reviewed,
much less offered any opinion on the costs" that Boston Edison estimates it will
incur to refinance existing securities, and thus argues that there is no
evidence that these estimates are reasonable (Attorney General Reply Brief at
8-9).
The Attorney General acknowledges that even though the Company has not
yet shown that these costs are recoverable and fully mitigated, ultimately more
than half of these contested or unknown costs will be found to be appropriately
included in transition property for the purposes of securitization (Attorney
General Brief at 23). The Attorney General does not wish to
- -----------------------
(21) There are two types of transaction costs that are discussed in this
proceeding. The first type of transaction costs, which is the one
referred to here, represents those costs associated with the
divestiture of Pilgrim, and which the Company estimates to be $5
million. These transaction costs consist primarily of legal and
consulting fees (Exh. DTE-BECo 49). The second type of transaction
costs are those associated with securitization and consist of
underwriting fees, rating agency fees, accounting fees, SEC
registration fees, Department filing fees, printing and marketing
fees, trustees' fees, legal fees and expenses, the Agencies' fees,
servicing set-up costs and SPE set-up costs, original issue discount,
and refinancing costs (Exh. BE-3, at 22). The Company estimates these
transaction costs associated with the securitization to be about $35
million (Exh. BE-3, Sch. BE-3B).
(22) Refinancing costs refer to expenses that Boston Edison is expected to
incur to reduce its capitalization, including payment of call
premiums and prepayments (Exh. BE-3, Sch. BE-3B).
<PAGE> 27
forego cost savings that result from securitization (id.). Therefore, the
Attorney General recommends that the Department approve all but $20 million of
the amounts Boston Edison proposes to securitize, but further recommends that
the Department not specify which costs make up the $20 million (id.). According
to the Attorney General, as long as the amount approved by the Department does
not exceed the amount that will ultimately be found to be securitizable, his
recommendation is consistent with the Restructuring Act (id. at 23-24). The
Attorney General states that the Department can defer the specification of which
costs are included in the transition property for securitization until after the
closing date when any reconciliation and other necessary proceedings take place
(id. at 24).
2. Agencies
The Agencies do not make a recommendation on the size of the RTC
amounts (Agencies Reply Brief at 3). However, the Agencies recommend that the
Department "make clear that any limitation relates to the transition costs to be
securitized and not to credit enhancement or costs of issuance to be funded with
bond proceeds" (id. at 3).
3. Boston Edison
Boston Edison agrees with the Attorney General=s argument that only
costs that have been shown to be both recoverable and fully mitigated can be
securitized (Boston Edison Reply Brief at 19). However, Boston Edison argues
that it proposes to securitize only those transition costs that have been
determined by the Department to be reimbursable transition costs (id.).
Boston Edison argues that all the costs objected to by the Attorney
General are indeed reimbursable transition costs, with the exception of the
LaGrange Street Property (id.).(23) Boston
- -------------------------
(23) As noted above, Boston Edison withdrew the LaGrange Street property
from consideration for securitization.
<PAGE> 28
Edison asserts that refinancing costs are not transition costs that need to be
mitigated (id.). Boston Edison states that the Restructuring Act permits
recovery of refinancing costs as transition property (id. at 20, citing G.L. c.
164, Section 1H(a)). Furthermore, Boston Edison maintains that the recovery of
call premiums is provided for in the Settlement Agreement (id. at 20).
Boston Edison claims that any imposition of a cap on the securitizable
amount will unnecessarily deprive ratepayers of savings that can be achieved by
securitizing at an interest rate lower than the 10.88 percent carrying charge
rate (id. at 21). Boston Edison asserts that the higher the principal amount of
the RRBs, the greater the savings to ratepayers (id.).
Boston Edison argues that the Attorney General's method of setting a
cap is "imprecise to the point of being arbitrary" (id.). Boston Edison states
that if the Department ultimately determines in D.T.E. 99-16 that the L'Energia
buyout costs can be included in the transition charge, then the amount Boston
Edison proposes to securitize would exceed the cap recommended by the Attorney
General and would deprive ratepayers of additional savings (id. at 21-22).
In addition, Boston Edison argues that the proposed cap would not
accommodate any additional credit enhancement required by the rating
organizations in order to obtain the highest rating for the RRBs (id. at 22).
While Boston Edison does not anticipate that the rating organizations will
require additional credit enhancement, it cannot precisely predict the magnitude
of these costs if further enhancement is required. Boston Edison states that
certain forms of credit enhancement could increase the principal amount of the
RRBs substantially (id. at 22).(24)
- ----------------------
(24) For example, if the rating organizations were to require liquidity
reserves representing six months of debt service, Boston Edison
argues that this would add about $75 million to
<PAGE> 29
C. Analysis and Findings
Because the bonds issued pursuant to this order will be without
recourse to the credit of Boston Edison or any assets of Boston Edison, and will
constitute irrevocable obligations of the ratepayers of Boston Edison, the
Department must scrutinize all amounts that will be included in the
securitization total to ensure that only those costs that have been shown to be
both recoverable and mitigated are securitized. The Attorney General identifies
approximately $50 million in costs that he argues have not been shown to be both
recoverable and mitigated. The components of this $50 million include capital
additions, transaction costs related to the divestiture transaction, and
refinancing costs.
The Attorney General opposes the inclusion of certain capital addition
costs related to Pilgrim, arguing that they have not been shown to be prudently
incurred.(25) In D.T.E. 98-119/126, at 62-64, the Department allowed the capital
additions questioned by the Attorney General. Therefore, consistent with the
earlier finding in D.T.E. 98-119/126, at 62-64, the Department finds these costs
are recoverable, and can be included in the transition costs to be securitized.
The Attorney General objects to the inclusion of the transaction costs
related to the Pilgrim divestiture because they are estimates. Although the
transaction costs in question are estimated, Boston Edison will update the
estimates based on the actual closing statements, and, therefore, the Department
expects that the transaction costs for the divestiture transaction that Boston
Edison includes in the securitization amount will more closely approximate the
actual amounts. Furthermore, in D.T.E. 98-119/126, the Department directed
Boston Edison to file the
- ------------------------
the RRB principal amount (Boston Edison Reply Brief at 22-23).
(25) The Attorney General's arguments regarding prudence are discussed in
detail in D.T.E. 98-119/126, at 60-64.
<PAGE> 30
actual transaction costs, which will then be reconciled in the next transition
charge reconciliation proceeding. Therefore, the Department approves the
inclusion of the transaction costs estimates in the securitization amount, but
directs Boston Edison to use the most current estimates available for these
costs at the time of securitization.
The refinancing costs, which Boston Edison estimates to be about $26
million, constitute the largest component of the $50 million of costs that the
Attorney General objects to being included in the securitization amount.(26) The
Attorney General argues that these costs are estimates and that there is no
evidence that these estimates are reasonable (Attorney General Reply Brief at
8-9). The Act allows the inclusion of refinancing costs in the transition
property. G.L. c. 164, Section 1H(a). In addition, the Settlement Agreement
contemplated the inclusion of refinancing costs in the transition property, as
it requires that net savings from securitization be calculated using all
transaction costs including refinancing costs. Settlement Agreement at Att. 3
Section 1.7(a). Because refinancing will occur after securitization, the amount
included for refinancing costs in the securitization amount must necessarily be
an estimate.
Regarding the Attorney General's argument about the reasonableness of the
estimate for the refinancing costs, the Department acknowledges that while the
Agencies will approve most of the other transaction costs of the securitization,
they will not monitor the refinancing costs. Because the refinancing costs form
the largest component of the transaction costs, it is particularly important
that the Department ensure that the refinancing costs ultimately paid by
ratepayers are reasonable.
- ------------------------
(26) The refinancing costs also form the largest component of the total
transaction costs for securitization, estimated to be $35 million
(Exh. BE-3, Sch. BE-3B).
<PAGE> 31
Because the Restructuring Act permits recovery of refinancing costs as
Transition Property, the Department will allow Boston Edison to securitize the
refinancing costs associated with the securitization. However, the Department
will review the reasonableness of these costs in Boston Edison's next transition
charge reconciliation proceeding, and may, at that time, disallow the recovery
of any costs that are found to be unreasonable. (27) Furthermore, if Boston
Edison's actual refinancing costs are lower than the securitized amount, the
Department directs Boston Edison to return to ratepayers any amounts in excess
of its actual costs. Any such disallowance or return to ratepayers of an
overcollection will be carried out through a RVC established at the Company's
next transition charge reconciliation proceeding.
Regarding the Attorney General's recommendation for the imposition of a
cap, the Department notes that the imposition of an arbitrary cap on the amounts
to be securitized would prohibit Boston Edison from securitizing other costs,
such as the L'Energia buyout costs, if the Department approves the inclusion of
those costs as a transition charge. In addition, the imposition of a cap might
prevent Boston Edison from meeting any additional credit enhancement
requirements that the rating organizations may impose.
Although we will not impose a cap on the total amounts to be securitized,
the Department will specify which costs Boston Edison may securitize. Boston
Edison may include any amount from the L'Energia buyout in the amounts to be
securitized only if and when such amounts are
- -----------------------
(27) Any disallowance of the refunancing costs will not affect the RTC
charge. Boston Edison states that if the transition costs included in
the financing order exceed the correct amount, it will provide
ratepayers with a uniform rate credit using a RVC established during
a transition charge reconciliation proceeding (Exh. BE-4, at 11).
Further, the Company states that such a uniform rate credit will not
diminish the right to collect the RTC charge, and will not affect the
status of the transfer of the Transition Property as a true sale
(id. at 11-12).
<PAGE> 32
approved by the Department as transition costs in D.T.E. 99-16. Further, Boston
Edison may securitize amounts associated with the General Electric materials
contract or other costs not approved in the Divestiture Order only upon a
finding by the Department that such costs are a) reasonable and necessary costs
incurred in order to finalize the Pilgrim divestiture transaction, and
b) qualify as transition costs. See D.T.E. 98-119/126, at 67-69.
Based on the foregoing analysis and findings, the Department will allow
Boston Edison to securitize the following costs: (1) costs representing the
fixed component of the transition charge, which include the net balance of the
unrecovered plant balances for Pilgrim and related regulatory assets and the
unrecovered prefunded balance of Boston Edison's portion of the decommissioning
fund being transferred to Energy, and the municipal contract customers' portion
of such balances, less the investment in the LaGrange Street property; (2) the
transaction costs of approximately $35 million for issuing RRBs, providing any
credit enhancement, and including refinancing costs; (3) the costs of the buyout
of the L'Energia contract to the extent these costs are approved as transition
costs in D.T.E. 99-16; and (4) the costs associated with the General Electric
materials contracts, or other costs necessary to finalize the divestiture
transaction, to the extent they are approved by the Department as transition
costs. See D.T.E. 98-119/126 at 67-69.
V. PROPOSED FINANCING ORDER
As discussed above, Boston Edison, in consultation with the Agencies,
submitted a proposed financing order for the Department's consideration with its
petition and a revised proposed financing order with its initial brief
(Exh. BE-1; Boston Edison Brief, App. 1). The Department has reviewed the
proposed financing order as modified by the recommended
<PAGE> 33
revisions. The revisions resulted from discussions with certain rating agencies
as well as input from underwriters' bankruptcy and bond counsel. In addition,
the Department has incorporated Boston Edison's recommendation to add a
provision to the Financing Order (See Appendix 1, Paragraph 45) to protect the
RTC revenue stream if Boston Edison, as the initial servicer, seeks to resign
voluntarily as the servicer (Exh. BE-2 at 12). The revisions do not change the
structure or nature of the original application. The following is a summary of
changes in the proposed financing order:
* Revised the amount to be securitized including potential adjustments,
Paragraphs 3, 56, 59;
* Revised for clarification of RTC charges and Boston Edison's
capitalization of each SPE, Paragraphs 3, 22;
* Revised for inclusion of costs associated with the L'Energia PPA
buyout and a reference to its separate proceeding, Paragraphs 4, 56;
* Revised for clarification of the collection of RTC charges from all
classes of retail users, Paragraph 5;
* Revised for clarification of credit enhancement, Paragraphs 11, 16,
41;
* Revised for clarification of contingent indemnity obligations,
Paragraphs 4, 5, 8;
* Revised to reflect proper use of the terms "Transition Property" and
"Reimbursable Transition Costs," Paragraphs 17, 60;
* Revised for clarification of accounting of amounts in the reserve
account to be credited to ratepayers, Paragraph 62;
<PAGE> 34
* Revised to add that synthetic floating rate bonds will not be issued
unless it will result in a lower net interest cost on the RRBs,
Paragraph 64.
The Agencies contend that the proposed financing order meets the legal
requirements to issue the RRBs (Exh. BE-15, at 2). In addition, the Agencies
state that the proposed financing order incorporates the requisite provisions
necessary to achieve the highest possible credit rating and thus the lowest
possible interest rate for the RRBs (Agencies Brief at 4). The Agencies are not
aware of any provision in the proposed financing order, as revised, "beyond
that required for the necessary legal opinions or which exceeds the requirements
of the rating organizations in prior RRB transactions" (RR-DTE-29).(28)
Certain issues regarding the provisions contained in the proposed financing
order were raised during the proceeding and are discussed below.
The Department has included an attachment (Appendix 1) to this order which
incorporates the Department's findings herein. Appendix 1, which is part of the
Department's financing order, contains additional terms for the issuance of
bonds, which we adopt here today. Appendix 1 also includes reporting forms
(Appendix A, Attachments 1-4, and Appendix B) which shall be filed by the
Agencies with the Department upon bond issuance. In the following sections, the
Department reviews and analyzes the following provisions in the proposed
financing order: (1) standards governing TPS; (2) a statement regarding
reimbursable transition costs on customers' bills; (3) Ancillary Agreements and
(4) adjustments to the RTC charge. Pursuant to such review, the Department
approves the proposed financing order attached hereto as Appendix 1.
A. Standards Governing Third Party Suppliers
- -------------------------
(28) The cirteria and concerns of rating organizations are from previously
offered RRBs in other states including California and Illinois (Tr. 4,
at 464-466, 478-479).
<PAGE> 35
1. Introduction
Boston Edison defines a TPS as an entity that will provide electric
generation service to a customer and that could bill and collect from a customer
(1) all charges for transmission, distribution and transition charges, including
the RTC, (2) transmission and distribution charges, but not transition charges,
or (3) no charges, as Boston Edison would bill and collect all charges directly
from the customer even though a customer has chosen a TPS as its electric
supplier (Tr. 4, at 509). The standards governing the TPS collection and
remittance procedures are viewed by rating organizations as major criteria in
evaluating the creditworthiness of the RRBs (Exh. BE-2, at 4). Therefore, both
Boston Edison and the Agencies strongly recommend that the Department include
specific standards in the financing order to govern TPS collection and
remittance procedures.
Boston Edison included the following standards governing TPS collection and
remittance procedures in the proposed financing order: (1) a TPS will remit
reimbursable transition costs charges, regardless of whether payments are
received from end users, within 15 days of Boston Edison's, or any successor
servicer's,(29) bill for such charges; (2) a TPS will provide Boston Edison, or
any successor servicer, with total monthly KWH usage information, as such
information serves as the basis of RTC remittance;(30) (3) Boston Edison, or any
successor servicer, will be entitled, within seven days after default by a TPS
in remitting RTC charges
- -------------------------
(29) Servicer is defined as an entity acting as servicer of the Transition
Property, responsible for customer KWH billing and usage data, and
for billing, collecting and remitting RTC charges.
(30) This provision is required in the event an entity other than Boston
Edison performs metering services. RTC charges are assessed on a per
KWH basis usage and therefore the information is needed to forecast
any necessary RTC adjustment.
<PAGE> 36
billed, to assume responsibility for billing all charges for services provided,
or to switch responsibility to a third party; and (4) if a TPS does not maintain
at least a "BBB" long term unsecured credit rating, such TPS shall maintain,
with the servicer, a cash deposit or comparable security equal to one month's
maximum estimated collection of RTC charges, as agreed upon by Boston Edison, or
any successor servicer, and the TPS (Exh. BE-1, at 52).
2. Positions of the Parties
a. Attorney General
The Attorney General initially argued that the Department should not
approve policies or procedures regarding TPS billing, collection and remittance
procedures as they have not been reviewed by interested parties, or the
Department (Attorney General Brief at 25). In addition, the Attorney General
asserted that the Department should not delegate to any private entity its
authority over terms and conditions relative to third party billing (id. at 25).
The Attorney General acknowledged that the legislative scheme does not
contemplate that the Department approve TPS procedures, and that the Agencies
will have final approval over such procedures for purposes of securitization
(Attorney General Reply Brief at 9).
b. The Agencies
The Agencies argue that to obtain the highest possible bond rating, a
financing order must establish (1) stringent credit requirements to reduce risk
of TPS insolvency, (2) provisions to permit swift assumption of billing and
collection responsibilities by the servicer if the TPS fails to perform its
duties, and (3) requirements for sufficient information to be provided to the
servicer by the TPS to enable the servicer to calculate necessary adjustments to
the RTC charge and to perform other relevant functions (Agencies Brief at 9). In
addition, the Agencies claim
<PAGE> 37
that at least one rating organization has publicly stated that minimum standards
for TPS billing should be imposed in a financing order if a TPS is contemplated
in a state's restructuring statute (DTE-RR-20; Agencies Brief at 9). The
Agencies argue that the establishment of standards for TPS in documents other
than the proposed financing order would be an insufficient alternative because
only a financing order incorporates standards of finality and incontestability
(Agencies Brief at 9). The Agencies contend that failure to include TPS billing
standards in the proposed financing order would likely result in a lower rating
or require greater credit enhancement to compensate for any potential TPS
deficiencies (id. at 8). Based on TPS standards in other states in which the
highest ratings were obtained for similar bonds, the Agencies argue that the TPS
standards included in the proposed financing order are necessary as they include
the minimum requirements sufficient to achieve the highest ratings for the RRBs
(id. at 8-9).
c. Boston Edison
Boston Edison maintains that rating organizations view TPS standards as
major criteria in evaluating the creditworthiness of the RRBs (Boston Edison
Brief at 108). To achieve the highest possible credit rating and thereby
maximize the benefit to ratepayers, Boston Edison argues that the proposed
financing order requires a TPS to comply with specified billing, collection and
remittance procedures and credit requirements for the collection of RTC charges
(Boston Edison Brief at 108). Boston Edison contends that the approval of these
TPS standards is appropriate as the standards are designed to reduce risks of
delays or non-payment of RTC charges and the costs of TPS default, which would
ultimately be passed on to ratepayers (Exh. BE-1, at 52, Paragraphs 39, 40;
Boston Edison Brief at 108).
3. Analysis and Findings
<PAGE> 38
The record contains sufficient evidence to show that billing, collection,
remittance provisions, and creditworthiness criteria may affect the RRB credit
rating and that TPS provisions are critical to the way credit rating
organizations view the securities (DTE-RR-19; Tr. 4, at 509-513). Billing,
collection and remittance of RTC charges by a TPS may increase the risk of
shortfalls in the RTC charge collections by exposing the cash flow to potential
interruption due to the default, bankruptcy or insolvency of the TPS. The risk
of interruption increases risks to investors, potentially reducing the credit
rating and increasing the rate of interest on the RRBs. The Department
recognizes that the absence of TPS standards would reduce savings from
securitization by diminishing the creditworthiness of the RRBs. Lack of
standards would disadvantage ratepayers as the savings from securitization may
be diminished. Accordingly, the Department finds that the proposed standards
governing TPS in this instance should be included in the financing order.
B. Statement Regarding Reimbursable Transition Costs on Customers' Bills
1. Introduction
Boston Edison initially proposed to include on each customer's bill, a
statement 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" (Exh.
BE-1, at 54). Boston Edison revised its proposal so that the bill statement
would read "a portion of [the transition charge] has been sold to the SPE"
(Boston Edison Brief at 79).
2. Positions of the Parties
a. The Agencies
<PAGE> 39
The Agencies argue that a statement regarding the RTC charge is needed on
each customer's bill in order for a "true sale" opinion of the transition
property.(31) Absent such a statement, the Agencies argue that the credit risk
of the transaction as perceived by rating organizations would be adversely
affected (Agencies Brief at 11). Furthermore, the Agencies assert that in the
event of a bankruptcy, a court will consider whether steps were taken to assure
that creditors were not misled as to the separate existence of the company and
the SPE with respect to the transition property (RR-DTE-22). The Agencies argue
that an RTC statement, as part of the tariff filing alone and not on a
customer's bill, is insufficient to render a "true sale" opinion because it is
unlikely that it would be seen by creditors of Boston Edison (id.).
b. Boston Edison
Boston Edison argues that a bill statement regarding the RTC charge is
necessary for bankruptcy counsel to render a true sale opinion of the transition
property (Tr. 4, at 529-533). Boston Edison maintains that it is necessary to
highlight publicly that the RTC charges are not owned by Boston Edison, but are
instead the property of the SPE (Boston Edison Brief at 79, n.94). Boston Edison
argues that the proposed wording appearing in a footnote to the existing
transition charge line item is the least obtrusive method to identify the
ownership interest of the SPE (Boston Edison Reply Brief at 79).
3. Analysis and Findings
- ------------------------
(31) The Agencies contend that the sale of the property right by Boston Edison
to a bankruptcy-remote SPE must be treated as a "true-sale". A
"true-sale" is the transfer of transition property and not a secured
borrowing. A "true-sale" designation prevents the assets from becoming
part of any bankruptcy of Boston Edison. It is this feature of the
transaction that permits the RRBs to be assigned a credit rating above
that of Boston Edison's. Without this designation, the transactino could
be viewed as a general collateralized borrowing.
<PAGE> 40
The evidentiary record, which was uncontradicted, shows that the notation
on each customer's bill of the SPE's interest in the transition property is
necessary to achieve the highest possible credit rating of the bonds. When
reviewing proposed wording for inclusion as a statement on customer bills, the
Department seeks to minimize any potential customer confusion. Boston Edison has
revised the proposed wording in response to the Department's concern about
clarity. However, the Department finds the original wording to be more
understandable. Therefore, the Department directs the Company to include the
following statement in a footnote on customers' bills: "The reimbursable
transition cost ("RTC") charge as a component of the transition charge is being
collected on behalf of a special purpose entity ("SPE"), as the owner of the
transition property."
C. Ancillary Agreements
1. Boston Edison's Proposal
Boston Edison seeks Department approval to enter into a Servicing
Agreement, an Administration Agreement and other RRB Transaction documents with
one or more SPEs (collectively "Ancillary Agreements") (Exh. BE-1, at 58). (32)
While Boston Edison has provided
- -----------------------
(32) According to Boston Edison, the Administration Agreement is "[t]he
agreement that each SPE is anticipated to enter into with Boston
Edison pursuant to which Boston Edison shall perform ministerial
services and provide facilities for each SPE to enable each SPE to
perform such day-to-day operations as are necessary to maintain its
existence and perform its obligations under the RRB Transaction
documents" (Boston Edison Brief, App. 3 at 1).
The Servicing Agreement is the agreement under which an entity will
act as servicer of the Transition Property and be responsible for
customer billing and usage information, and for billing, collecting,
and remitting the RTC charges (See Boston Edison Brief, App. 3 at 3).
<PAGE> 41
drafts of these documents, it states that the documents cannot be finalized
until after the Department approves the proposed financing order (Tr. 5, at
635-636).
2. Positions of the Parties
a. Attorney General
The Attorney General advocates that the Department include language in the
proposed financing order requiring that the terms of any Ancillary Agreement
shall be consistent with the financing order and terms of the Restructuring Act
(Attorney General Reply Brief at 9). The Attorney General argues, however, that
the Act does not contemplate that the Department will approve such ancillary
documents and therefore Boston Edison is incorrectly seeking Department approval
of such Ancillary Agreements (Attorney General Reply Brief at 9, n.3, citing
Exh. BE-1, Paragraph 61).
b. Boston Edison
Boston Edison states that it seeks Department approval of the proposed
financing order and its ability to enter into the proposed various agreements,
but that it is not seeking Department approval of the agreements themselves
(Boston Edison Reply Brief at 26, n.22, citing Exh. BE-1, Paragraph 61).
3. Analysis and Findings
The Restructuring Act provides that if a company securitizes its transition
costs, the Department shall require an electric company to contract with a
financing entity (the SPE in this case) to collect the RTC charges, and that any
contract with the SPE "shall not impair or negate the characterization of the
sale, assignment or pledge as an absolute transfer, a true sale, or security
interest, as applicable" G.L. c. 164, Section 1H(c)(3). The Act does not require
Department
<PAGE> 42
approval of such contracts, only that the Department require such contracts and
ensure such contracts do not change the nature of the proposed financing order.
The Agencies will approve the final Ancillary Agreements after review of
the financing order and all Ancillary Agreements by the rating organizations,
the Internal Revenue Service and the Securities and Exchange Commission (Tr. 4,
at 505; Agencies Brief at 11). The proposed financing order does not ensure that
the Ancillary Agreements comply with the proposed financing order and are
consistent with the Act. Accordingly, the Department adds the following language
to the financing order at Paragraph 62: "Such Agreements and RRB Transaction
documents shall comply with this financing order and the Act and shall not
impair or negate the characterization of the sale, assignment or pledge as an
absolute transfer, a true sale, or security interest, as applicable."
Consistent with the Act, the Department approves the ability of Boston
Edison to enter into a Servicing Agreement. The Department need not approve the
actual Ancillary Agreements, except to direct that such agreements shall be
consistent with the financing order and the Act.
D. Adjustments to the RTC Charge
1. Introduction
Boston Edison proposes to periodically adjust the RTC charge to ensure that
it remains sufficient to generate an amount equal to the sum of the periodic RRB
payment requirements for the upcoming year (Boston Edison Brief at 12). Further,
in the proposed financing order, Boston Edison includes a requirement that in no
event shall the RTC charge exceed the transition charge, as approved by the
Department pursuant to the Settlement Agreement, and as may be in effect from
time to time (Exh. BE-1, at 56).
<PAGE> 43
2. Positions of the Parties
a. Agencies
The Agencies state that they must be able to represent to the rating
organizations and investors that more stringent limits on the RTC Charge
adjustment mechanism will not be imposed after the time of pricing the RRBs
(Agencies Reply Brief at 5). The Agencies contend that without such assurance,
the value of the true-up mechanism, which is an essential basis for the highest
bond rating for the RRBs, will be in doubt (Agencies Reply Brief at 5).
Therefore, the Agencies propose in their Reply Brief the following revision to
the wording of the section of the financing order that deals with the
relationship between the RTC charge and the transition charge:
In no event shall the RTC Charge exceed the transition charge from time to
time in effect as approved by the Department in accordance with the
Settlement Agreement's methodology and as may be revised by this Financing
Order, the Pilgrim Order, or in an order arising from a Separate Proceeding
(Agencies Reply Brief at 5).
On March 29, 1999, the Agencies filed a Motion for Leave to Make
Supplemental Filing and a Supplemental Filing.(33) The Supplemental Filing
includes proposed additions to the financing order to address "circumstances
where the RTC Charge, which is a component of the transition charge, would
exceed the then current transition charge until an adjustment of the transition
charge is made" (Supplemental Filing at 2). The Agencies offer two alternative
mechanisms to apply in the above described circumstances. The first alternative
would provide
- -----------------------
(33) The Motion for Leave to Make Supplemental Filing is approved.
<PAGE> 44
that the statutory rate reduction cap would be increased to permit an RTC charge
adjustment (id. at 3-4). The second alternative would not affect the statutory
rate reduction cap, but would provide that the Company would defer collection of
the increase in the standard offer rate so long as the deferred amount earns a
carrying charge of 10.88% (id. at 4-5).
b. Boston Edison
Boston Edison argues that the periodic adjustment mechanism is an important
aspect of credit enhancement necessary for the RRBs to receive the highest
possible credit rating from the rating organizations (Boston Edison Brief at
82). On March 31, 1999, the Company filed comments in support of the Agencies'
Supplemental Filing.
3. Analysis and Findings
The Department recognizes that the RTC charge adjustment mechanism is an
essential feature of the proposed securitization. The rating organizations will
expect the RTC charge to be sufficient to cover the expected amortization of the
principal amount and interest of the RRBs, together with fees and expenses. If
the RTC charge initially established is not sufficient to cover these payments,
then the rating organizations will expect to see a true-up mechanism that would
adjust the RTC charge on a timely basis. Under all circumstances, the Department
will ensure that the RTC charge is sufficient to cover the expected amortization
of the principal amount and interest of the RRBs, together with fees and
expenses, in order to protect the credit-worthiness of the RRBs. Therefore, the
Department will include the Agencies suggested revision for Paragraph 55 of the
financing order, as modified below.
The Agencies correctly note in their Supplemental Filing that there could
be circumstances where changes in other rate components cause the RTC charge to
exceed the
<PAGE> 45
transition charge. However, the Department cannot approve the Agencies'
proposed first alternative to address such circumstances because it may violate
the statutory requirements pertaining to rate reductions. Instead, in such
circumstances, the Department will adjust other components of the Company's
rates. The Department does not approve the Agencies' second alternative because
it would be premature to determine here exactly which component of the Company's
rates to adjust. As noted, the Department will include the Agencies' suggested
revision for Paragraph 55 of the financing order, but with modifications that
should address the Agencies' concerns expressed in their Supplemental Filing:
In no event shall the transition charge from time to time in effect as
approved by the Department in accordance with the Settlement Agreement's
methodology and as may be revised by this Financing Order, the Pilgrim
Order, or in an order arising from a Separate Proceeding be adjusted below
the RTC. If adjustments to the transition charge to meet the required rate
reduction would cause the transition charge to fall below the RTC charge,
the Department shall adjust other components of the Company's rates.
Conversely, if the RTC charge, as adjusted, would exceed the then current
transition charge, the Department also shall adjust other components of the
Company's rates.
VI. EXEMPTIONS
A. Exemption from Competitive Bidding Requirements
1. Introduction
Boston Edison requests an exemption from the competitive bidding
requirements of G.L. c. 164, Section 15 (Exh. BE-1, at 10). Boston Edison states
that competitive bidding would not be
<PAGE> 46
feasible for a complicated securitization transaction, and it considers a
negotiated process to be more cost effective than a competitive bid
(Exh. AG-2-17; Tr. 4, at 477). Boston Edison argues that the main advantage of a
negotiated process comes from the use of an underwriter (Tr. 4, at 477). Boston
Edison also argues that, without an underwriter, the effective cost of the
transaction would be higher in light of the complicated securitization
transaction (id.). Boston Edison relies on the underwriters' expertise developed
through prior securitizations to achieve the lowest all-in financing cost for
the securitized bonds and thus produce the greatest possible savings for
ratepayers (Exh. AG-2-17; Tr. 4, at 477).
2. Analysis and Findings
An electric or gas company offering long-term bonds or notes with a face
amount in excess of $1 million and payable at periods of more than five years
after the date thereof must invite purchase proposals through newspaper
advertisements. G.L. c. 164, Section 15. The Department may grant an exemption
from this competitive bidding requirement if the Department finds that an
exemption is in the public interest. G.L. c. 164, Section 15.
The Department has allowed an exemption from the advertising requirement
where there has been a measure of competition in private placement. See, e.g.,
Western Massachusetts Electric Company, D.P.U. 88-32, at 5 (1988); Eastern
Edison Company, D.P.U. 97-76 D.P.U. 88-127, at 11-12 (1988); Berkshire Gas
Company, D.P.U. 89-12, at 11 (1989). The Department also has found that it is in
the public interest to grant an exemption from the advertising requirement when
a measure of flexibility is necessary in order for a company to enter the bond
market in a timely manner. See, e.g., Western Massachusetts Electric Company,
D.P.U. 88-32, at
<PAGE> 47
5 (1988). However, G.L. c. 164, Section 15 requires advertising as the general
rule; and waiver cannot be automatic but must be justified whenever requested.
The Department recognizes that this securitization transaction is
complicated and that this is the first electric RRB transaction in the
Commonwealth. The ability to obtain services at the most competitive prices and
from able, experienced entities is limited. Other securitizations will follow
both in the Commonwealth and in other states and for now, at least, a negotiated
placement is a sufficient substitute for a competitive sale for these
securities.
With the flexibility offered by a negotiated process, Boston Edison can
take advantage of the knowledge and experience of the underwriters and
individuals in the utility asset-backed securities group to achieve the lowest
all-in financing cost for the securitized bonds. Use of a negotiated process
will produce the greatest possible savings for ratepayers and is therefore in
the public interest. Accordingly, the Department allows Boston Edison's request
for an exemption from the advertisement and competitive bidding requirements of
G.L. c. 164, Section 15.
B. Exemption from Par Value Debt Issuance Requirements
1. Introduction
Boston Edison requests an exemption from the par value debt issuance
requirements of G.L. 164, Section 15(a) (Exh. BE-1, at 10). Boston Edison states
that the bonds may be sold to investors at original issue discount, in
accordance with normal financial practices relating to market pricing mechanics
(Tr.4, at 480-481).(34)
2. Analysis and Findings
- -------------------------
(34) The discount is the difference between the par value of a bond, note,
or other debt security and the actual issue price when the actual issue
price is less than par value.
<PAGE> 48
An electric or gas company offering long-term bonds, debentures, notes, or
other evidences of indebtedness may not issue these securities at less than par
value. The Department may grant an exemption from this par value requirement if
the Department finds that an exemption is in the public interest. G.L. c. 164,
Section 15A.
The Department has found that it is in the public interest to grant an
exemption from the par value requirement where market conditions make it
difficult at times for a company to price a particular issue at par value and
simultaneously offer an acceptable coupon rate to prospective buyers. Bay State
Gas Company, D.P.U. 91-25, at 10 (1991).
The Department also found that it is in the public interest to authorize
the issuance of securities below par value where this technique offers a company
enhanced flexibility in entering the market quickly to take advantage of
prevailing interest rates, particularly if this benefits the company's
ratepayers in the form of lower interest rates and a lower cost of capital
(id.). See also, Boston Gas Company, D.P.U. 92-127, at 8 (1992); Boston Edison
Company, D.P.U. 91-47, at 12-13 (1991).
The Department finds that the ability to issue debt securities below par
value offers Boston Edison increased flexibility in placing its issuances with
the prospective investors. We find that this increased flexibility translates
into an ability to issue debt securities in a timely manner to take advantage of
favorable market conditions. The Department finds that Boston Edison's request
for an exemption from G.L. c. 164, Section 15A is in the public interest and
approves it.
VII. ORDER
Accordingly, after due notice, hearing and consideration, it is hereby
<PAGE> 49
ORDERED: That the issuance of rate reduction bonds by Boston Edison Company to
securitize reimbursable transition costs amounts pursuant to this Financing
Order and Appendix 1, which contains additional terms for the issuance of bonds,
is hereby approved; and it is
FURTHER ORDERED: That the amount which Boston Edison may securitize is comprised
of the costs associated with (1) the fixed component of the transition charge
(including the net balance of the unrecovered plant balances for Pilgrim and
related regulatory assets) and the unrecovered prefunded balance of Boston
Edison's portion of the decommissioning fund being transferred to Entergy and
the municipal contract customers' portion of such balances, (2) the transaction
costs (approximately $35 million) of issuing the RRBs and providing credit
enhancement, (3) the L'Energia contract buyout costs to the extent that the
Department may later approve these costs for inclusion as transition costs in
D.T.E. 99-16, (4) the General Electric materials contract costs to the extent
that the Department may later approve these costs for inclusion as transition
costs, and (5) other costs necessary to finalize the Pilgrim divestiture
transaction, to the extent that the Department may later approve these costs for
inclusion as transition costs; and it is
FURTHER ORDERED: That Boston Edison's request for an exemption from the
competitive bidding requirements of G.L. c. 164, Section 15 is approved; and
it is
FURTHER ORDERED: That Boston Edison's request for an exemption from the par
value debt issuance requirements of G.L. c. 164, Section 15(a) is approved;
and it is
<PAGE> 50
FURTHER ORDERED: That Boston Edison Company comply with all other orders and
directives contained herein.
By Order of the Department,
------------------------------
Janet Gail Besser, Chair
------------------------------
James Connelly, Commissioner
------------------------------
A true copy Paul B. Vasington, Commissioner
Attest:
------------------------------
MARY L. COTTRELL Eugene J. Sullivan, Jr., Commissioner
Secretary
<PAGE> 51
Appeal as to matters of law from any final decision, order or ruling of the
Commission may be taken to the Supreme Judicial Court by an aggrieved party in
interest by the filing of a written petition praying that the Order of the
Commission be modified or set aside in whole or in part.
Such petition for appeal shall be filed with the Secretary of the Commission
within twenty days after the date of service of the decision, order or ruling of
the Commission or within such further time as the Commission may allow upon
request filed prior to the expiration of twenty days after the date of service
of said decision, order or ruling. Within ten days after such petition is filed,
the appealing party shall enter the appeal in the Supreme Judicial Court sitting
in Suffolk County by filing a copy thereof with the Clerk of said Court. (Sed.
5, Chapter 25, G.L. Ter. Ed., as most recently amended by Chapter 485 of the
Acts of 1971).
<PAGE> 52
(This page is blank)
<PAGE> 53
APPENDIX 1
THE COMMONWEALTH OF MASSACHUSETTS
DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY
- ------------------------
)
BOSTON EDISON COMPANY ) D.T.E. 98-118
)
- ------------------------
APPENDIX TO FINANCING ORDER
The Department has considered the proposed issuance of electric rate
reduction bonds ("RRBs") by Boston Edison Company (together with any legal
successors thereto, "Boston Edison") to securitize (as such term is used in G.L.
c. 164, Sections 1G and 1H) reimbursable transition costs amounts of
approximately $800 million (the "RRB Transaction") represented by the fixed
component, net as of the date of issuance of RRBs, of the transition charge
(which includes the net balance of its Pilgrim unrecovered plant balances and
related regulatory assets and the unrecovered prefunded balance of its portion
of the decommissioning fund being transferred to the buyer in connection with
the divestiture of Pilgrim Nuclear Power Station and associated generation
assets ("Pilgrim")), the municipal contract customers' portion of such balances,
any additional transition costs arising in connection with the Pilgrim
divestiture or approved pursuant to any other proceeding in an order that
becomes final and no longer subject to appeal prior to the filing with the
Securities Exchange Commission ("SEC") of the preliminary prospectus to be
distributed to prospective investors (a "Separate Proceeding"), and the
transaction costs of issuing RRBs and providing any credit enhancement as
described below (other than approximately 0.50% of the initial principal balance
of RRBs to be contributed by the Company
<PAGE> 54
as the initial capitalization of each SPE (as defined below)). The principal
amount of RRBs is subject to adjustment (which may be significant) based on the
timing of the Pilgrim divestiture, additional transition costs in connection
with the Pilgrim divestiture or approved pursuant to a Separate Proceeding,
prevailing market conditions, input on credit enhancement from nationally
recognized statistical rating organizations (the "rating agencies") selected by
Boston Edison with the approval of the Massachusetts Development Finance Agency
and Massachusetts Health and Educational Facilities Authority (together, the
"Agencies") to rate the RRBs, tax authorities and underwriters, or changes in
the proposed transaction not now anticipated by Boston Edison. The Department
finds the RRB Transaction will result in net savings for the benefit of Boston
Edison's customers reflected in lower transition charges than would be required
to recover the approved transition costs if this Financing Order was not adopted
and otherwise satisfies the requirements of G.L. c. 164, Sections 1G and 1H.
Therefore, pursuant to this Financing Order, the Department authorizes the RRB
Transaction as described in Boston Edison's Application.
<PAGE> 55
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. STATUTORY AND REGULATORY OVERVIEW .................................................................................1
II. RRB TRANSACTION ...................................................................................................2
A. Proposed Structure ............................................................................2
B. Recovery of Transition Costs...................................................................5
C. Ongoing Transaction Costs .....................................................................8
D. RTC Charge ....................................................................................8
E. Periodic Adjustments to the RTC Charge .......................................................12
F. Formation of SPE .............................................................................13
G. Transition Property ..........................................................................15
H. Sale of Transition Property to SPE ...........................................................16
I. Issuance and Transfer of SPE Debt Securities and Issuance of RRBs.............................16
J. Nonbypassable RTC Charge .....................................................................18
III. RATEPAYER BENEFITS ...............................................................................................18
IV. USE OF PROCEEDS ..................................................................................................19
V. RELATED ISSUES ...................................................................................................19
A. Tax Considerations ...........................................................................19
B. Accounting and Financial Reporting ...........................................................21
C. Rating Agency Considerations .................................................................21
D. Allocation of Collection Shortfalls ..........................................................25
E. Servicing ....................................................................................27
F. Accounting for Certain Benefits. .............................................................28
G. SPE Administration and Other Transactions with each SPE. ....................................29
FINDINGS....................................................................................................................30
ORDERS......................................................................................................................40
Appendix A ISSUANCE ADVICE LETTER..........................................................................................A-1
Appendix B ROUTINE TRUE-UP LETTER..........................................................................................B-1
</TABLE>
i
<PAGE> 56
1. STATUTORY AND REGULATORY OVERVIEW
On November 25, 1997, Governor Cellucci signed into law a comprehensive
electric industry restructuring law, Chapter 164 of the Acts of 1997 (the
"Act"), which authorizes electric companies to securitize all or a portion of
their transition costs through the issuance of RRBs to provide savings to
ratepayers.
In the Restructuring Settlement Agreement approved by the Department in
D.P.U. Docket No. 96-23 and subsequent filings pursuant thereto (collectively,
the "Settlement Agreement"), the Department approved Boston Edison's retail
distribution rates, including its transition charge to recover on a fully
reconciling basis all of Boston Edison's transition costs which include the
reimbursable transition costs amounts being securitized. In either an order
issued pursuant to D.T.E. 98-119 (the "Pilgrim Order") or in another Separate
Proceeding, the Department has approved Boston Edison's divestiture of Pilgrim,
the recovery of the prefunded decommissioning fund being transferred to the
buyer in connection with the divestiture, additional transition costs arising in
connection with the divestiture transaction or approved pursuant to a Separate
Proceeding, and the costs associated with the L'Energia, Limited Partnership
power purchase agreement ("L'Energia") to the extent the Department approves
these costs as transition costs in D.T.E 99-16. In accordance with G.L. c. 164,
Section 1G(d)(3), Boston Edison has completed the divestiture of its non-nuclear
generation assets and thus is eligible to benefit from securitization.
Subsequent to the enactment of the Act, Boston Edison, together with other
electric companies, has been working with the staffs of the Agencies to develop
the structure for the RRB Transaction and the process for approval by the
Department. The Agencies have reviewed
<PAGE> 57
and commented on the Application, the exhibits thereto and this proposed
Financing Order, as updated from the draft Financing Order submitted with the
Application as Exhibit BE-1. The Agencies have indicated that the proposed
transaction satisfies all statutory and rating agency requirements and that the
transaction costs are reasonable.
II. RRB TRANSACTION
A. Proposed Structure
Boston Edison has provided a general description of the RRB Transaction
structure in its testimony and discovery conducted during the proceedings. This
proposed structure is subject to modification, depending upon marketing of RRBs
and negotiations with the rating agencies selected by Boston Edison (subject to
approval by the Agencies) to assign credit ratings to the RRBs. The final
structure will be determined by Boston Edison at the time RRBs are priced, with
the approval of the Agencies as provided herein, and after input from the rating
agencies, tax authorities and the underwriters.
Pursuant to this Financing Order, Boston Edison will securitize a portion
of its transition costs (as defined in G.L. c. 164, Sections 1G and 1H),
together with the transaction costs of issuing RRBs and providing credit
enhancement (including an overcollateralization account, additional
capitalization and liquidity reserves, if any). These amounts constitute
reimbursable transition costs amounts (as defined in G.L. c. 164, Section 1H(a))
and shall be financed through the issuance of notes (the "SPE Debt Securities")
and RRBs. The repayment of such amounts shall be effected through the assessment
and collection of a portion of Boston Edison's transition charge (the "RTC
Charge") from which SPE Debt Securities and RRBs to be issued will be repaid.
The transition charge, a component of which will be the RTC Charge, is a
separate, nonbypassable
2
<PAGE> 58
charge assessed and collected from all classes of retail users of Boston
Edison's distribution system within the geographic service territory as in
effect on July 1, 1997, whether or not energy is purchased from Boston Edison or
any third party supplier (each, a "TPS"), and whether or not such distribution
system is being operated by Boston Edison or a successor distribution company.
The transition charge, including the RTC Charge, is a usage-based tariff on each
retail user's monthly bill and may include in the future any exit fee collected
pursuant to G.L. c. 164, Section 1G(g) until the Total RRB Payment Requirements
(as defined below) are discharged in full.
As described in the Application, the principal asset to be used to support
RRBs is transition property (the "Transition Property"). The Transition Property
represents a continuously existing property right created pursuant to G.L. c.
164, Section 1H, including, without limitation, the right, title, and interest
in and to all revenues, collections, claims, payments, money, or proceeds of or
arising from or constituting (a) the reimbursable transition costs amounts
established by this Financing Order, including such amounts established in an
issuance advice letter (the "Issuance Advice Letter"), (b) the RTC Charge
authorized by this Financing Order, including the initial RTC Charge set forth
in the Issuance Advice Letter, as may be adjusted from time to time in order to
generate amounts sufficient to discharge an amount equal to the sum of the
Periodic RRB Payment Requirements for the upcoming year, and (c) all rights to
obtain periodic adjustments and non-routine adjustments to the RTC Charge.
Pursuant to this Financing Order, the Transition Property and the RTC Charges
are irrevocable, and cannot be reduced, rescinded, altered, amended or impaired
by either the Department (or any successor entity) or The Commonwealth of
Massachusetts through its pledge contained in G.L. c. 164, Section 1H(b)(3).
3
<PAGE> 59
Boston Edison will form one or more special purpose entities (each, an
"SPE"), each a bankruptcy-remote entity, wholly owned by Boston Edison, and
provide the initial capitalization of each SPE (currently estimated to be
approximately 0.50% of the initial RRB principal balance). Any other credit
enhancement is either part of the periodic adjustment to the RTC Charge or will
be included in the principal balance of RRBs. Boston Edison will sell the
Transition Property to one or more SPEs in transactions, each of which, under
G.L. c. 164, Section 1H(f)(1) will be intended and treated, as a legal true sale
and absolute transfer to such SPE. Each such SPE will constitute a financing
entity for purposes of G.L. c. 164, Section 1H.
To raise the funds to pay the purchase price of the Transition Property to
Boston Edison, such SPE will issue and sell SPE Debt Securities to a special
purpose trust established by the Agencies. Such special purpose trust, which
will constitute a financing entity for purposes of G.L. c. 164, Section 1H, will
sell interests in the SPE Debt Securities by issuing and selling RRBs, the
proceeds of which will be remitted to such SPE and ultimately to Boston Edison.
All of the assets of such SPE, including, without limitation, the Transition
Property and the other collateral of the SPE (the "Other SPE Collateral"), will
be pledged as collateral to secure SPE Debt Securities. The Other SPE Collateral
will include without limitation, the rights of each SPE under the RRB
Transaction documents including the purchase agreement by which each SPE
acquires the Transition Property, the servicing agreement (the "Servicing
Agreement") by which Boston Edison acts as initial servicer of the Transition
Property (the "Servicer") or any successor Servicer, acts as Servicer of the
Transition Property, the Administration Agreement (as defined below), the
collection account and any other accounts of such SPE contained in such SPE's
collection account including the overcollateralization account and the reserve
account, any
4
<PAGE> 60
investment earnings on amounts (other than the earnings on the initial capital
contributed by Boston Edison, which earnings are to be returned as a
distribution of capital by such SPE to Boston Edison) held by such SPE and the
capital of such SPE.
RRBs sold to investors will take the form of pass-through certificates
representing undivided beneficial interests in SPE Debt Securities in the manner
permitted by G.L. c. 164, Section 1H(c). SPE Debt Securities will take the form
of notes secured by a first priority statutory lien on all Transition Property
as provided in G.L. c. 164, Section 1H(e), together with a pledge of the Other
SPE Collateral.
It is anticipated that RRBs may be issued in multiple series or classes
depending upon market conditions. The longest term RRBs will have expected
repayment terms of approximately 11 years, with legal maturities up to 2 years
beyond the longest expected repayment term or longer if required by the rating
agencies, in accordance with 1H(b)(4)(vi).
B. RECOVERY OF TRANSITION COSTS
G.L. c. 164, Section 1H(b)(1) provides that the Department may issue a
financing order "to facilitate the provision, recovery, financing, or
refinancing of transition costs." Transition costs are "the embedded costs"
which are determined to be recoverable through a transition charge pursuant to
G.L. c. 164, Section 1. In the Settlement Agreement, the Department approved
Boston Edison's transition costs and transition charges (referred to as access
charges in the Settlement Agreement) which Boston Edison may collect. The
Department has further approved, under G.L. c. 164, Sections 1G(e) and H(b)(2),
that these transition charges be nonbypassable by ratepayers. The Department can
authorize an electric company to securitize reimbursable transition costs
amounts, as provided in G.L. c. 164, Section 1H. Pursuant to this Financing
Order, the Department
5
<PAGE> 61
authorizes Boston Edison's securitization through the RRB Transaction of the
reimbursable transition costs amounts recoverable through RTC Charges. Boston
Edison currently estimates that the principal amount of RRBs to be issued will
be approximately $800 million as described below 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 rating agencies, tax authorities and underwriters, or changes in the
proposed RRB Transaction not now anticipated by Boston Edison.
1. Fixed Component Transition Costs
The Department has approved as transition costs in the Settlement
Agreement, the Pilgrim Order or pursuant to a Separate Proceeding, the fixed
component of Boston Edison's transition charge (which includes the Pilgrim
unrecovered balances, as defined below), the municipal contract customers'
portion of such balances, other transition costs, and may approve as additional
transition costs the cost of the buyout of the L'Energia power purchase contract
(collectively, the "Fixed Component Transition Costs"), presently considered by
the Department in D.T.E. 99-16. The "Pilgrim unrecovered balances" include 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 the buyer in connection with the Pilgrim divestiture. Pursuant to
this Financing Order, the Department approves the Fixed Component Transition
Costs as reimbursable transition costs amounts and the right to recover such
amounts shall constitute Transition Property.
2. Transaction Costs of Issuance
6
<PAGE> 62
In order to issue RRBs to achieve net savings for the benefit of its
customers, Boston Edison will incur transaction costs related to issuance of
RRBs. G.L. c. 164, Section 1H(a) specifically provides that a financing order
shall include recovery of the costs of issuing RRBs and defines transition
property to include the costs of issuing, servicing and retiring RRBs. Based on
the currently estimated initial offering of $800 million of RRBs, Boston Edison
estimates that such amount will include the transaction costs to be
approximately $36 million which may vary, in part, based on the factors
described below. These transaction costs will include, among other items, the
underwriting spread, rating agency fees, accounting fees, Securities and
Exchange Commission registration fees ("SEC fees"), Department registration
fees, printing and marketing expenses, trustees' fees, legal fees, the Agencies'
fees, the servicing set-up fee and the administrative cost to set up each SPE.
The costs may also include original issue discount and redemption costs
including call provisions and prepayments required to reduce existing
capitalization of Boston Edison. Certain fees, such as underwriters' spread,
rating agency fees, SEC fees, Department registration fees, trustees' fees,
Agencies' fees, original issue discount and redemption costs will vary,
depending on the actual principal amount of RRBs to be issued, market conditions
and the amount of securities to be repurchased to be determined at the time of
RRB pricing or the reduction of capitalization. Other fees are based on market
rates charged for similar transactions.
The Department authorizes Boston Edison, with approval of the Agencies to
the extent provided in the testimony, to recover the transaction costs of
issuing RRBs described above out of the proceeds of the RRB Transaction and to
include such costs as reimbursable transition costs
7
<PAGE> 63
amounts and the right to recover such amounts shall constitute Transition
Property. To the extent prior payment is required, such costs will be paid by
Boston Edison and reimbursed from the proceeds of the RRB Transaction.
C. Ongoing Transaction Costs
The Department approves Boston Edison's recovery of ongoing transaction
costs through the RTC Charge. The primary ongoing transaction costs will be the
servicing fee (the "Servicing Fee") paid to Boston Edison, as initial servicer
(the "Servicer") of the Transition Property, or any successor Servicer and the
ongoing cost of credit enhancement.
It is anticipated that there will be additional, ongoing costs associated
with the RRB Transaction, such as the Administration Fee (as defined below),
legal and accounting fees, directors fees, rating agency fees, fees for the
trustees, and any indemnity obligations of the SPE in the RRB Transaction
documents for SPE officers and directors, trustee fees, liabilities of the
special purpose trust, and liabilities to the underwriters related to the
underwriting of the RRBs. These costs will also be reimbursable transition costs
amounts and will be recovered through the RTC Charge in accordance with G.L. c.
164, Section 1H and the right to recover these costs as reimbursable transition
costs amounts will constitute Transition Property.
D. RTC Charge
To facilitate the RRB Transaction, this Financing Order provides a
procedure to establish the RTC Charges necessary to amortize SPE Debt Securities
and RRBs in accordance with the expected amortization schedule, and provide for
the payment of all ongoing transaction costs associated with the RRB
Transaction. The Department understands that the RTC Charge will vary over the
life of the RRB Transaction as a result of several factors, including, without
8
<PAGE> 64
limitation, 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 and changes in payment
and charge-off patterns, and changes in ongoing costs of RRBs. Prior to the
issuance of RRBs, Boston Edison is authorized to file the Issuance Advice Letter
with the Department. The Issuance Advice Letter will confirm the final structure
and repayment terms of the RRB Transaction, the total principal amount and
pricing of RRBs, and the actual transaction costs. Such filing will also
describe the initial RTC Charge associated with the RRB Transaction which will
be calculated using the methodology described in Boston Edison's testimony and
adopted in this Financing Order. The transition charge will also be adjusted in
revised tariffs to reflect the divestiture of Pilgrim and the issuance of RRBs.
To confirm that the actual terms of the RRB Transaction will result in
savings for ratepayers, the Department will require Boston Edison to provide in
the Issuance Advice Letter a calculation of projected savings to ratepayers,
using the methodology contained in Boston Edison's testimony, applied to the
actual structure and terms of RRBs. So long as the terms and structure result in
net savings to Boston Edison's customers in accordance with this approved
methodology, Boston Edison is authorized to undertake the RRB Transaction.
The RTC Charge for customers established by this Financing Order and
calculated using the methodology contained in Boston Edison's testimony, shall
become effective automatically when the Issuance Advice Letter is filed. The RTC
Charge calculations have been examined and found reasonable and Boston Edison
will use the Issuance Advice Letter substantially in the form of Appendix A to
this Financing Order.
9
<PAGE> 65
As more fully described in the testimony, Boston Edison, or any successor
Servicer, is expected to remit to the trustee of the SPE on a daily basis an
amount equal to the actual RTC Charges billed, less an allowance for estimated
charge-offs as more fully described in the testimony, on or about the day such
amounts are deemed to be collected. The deemed collection date of such amounts
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. On the basis of these remittances on or about the deemed
collection date, collections of RTC Charges will be deemed paid within one
calendar month of collection for purposes of G.L. c. 164, Section 1H(b)(8). The
Servicer then will reconcile such remittances at least once annually for all
remittances made in the previous year as more fully described in the testimony.
Boston Edison's establishment of the deemed collection date, based on its
historical collections experience, and its remittance and reconciliation
procedure is an economical and cost effective method of identifying to a useful
degree of certainty the actual RTC Charge collections in accordance with the
provisions of G.L. c. 164, Section 1H(b)(8), given Boston Edison's current
accounting and billing information systems capabilities. On each semi-annual
payment date for the RRBs, or more frequently depending on market conditions at
the time of RRB pricing, the trustee for the SPE will release money from the
collection account to a trustee for the special purpose trust appointed under an
indenture in connection with the RRB Transaction who will pay interest and
principal on RRBs to RRB holders.
RTC Charges will be set at a level intended to recover the principal
balance of (in accordance with the expected amortization schedule), and interest
on, SPE Debt Securities authorized under this Financing Order, together with the
costs of servicing SPE Debt Securities
10
<PAGE> 66
and RRBs, including the Servicing Fee, the Administration Fee (as defined
below), fees for the trustees, rating agency fees, legal and accounting fees,
directors' fees, contingent indemnity obligations in the RRB Transaction
documents, other fees and expenses and the cost of creating and maintaining any
credit enhancement required for SPE Debt Securities and RRBs (the required
periodic payment of such, including deficiencies on past due principal and
interest for any reason, the "Periodic RRB Payment Requirement" and
collectively, the "Total RRB Payment Requirements"), based on assumptions set
forth in the testimony including sales forecasts, payment and charge-off
patterns, and lags between RTC Charge billing and collection. RTC Charges shall
remain in effect until the owner of the Transition Property has received RTC
Charges sufficient to discharge the Total RRB Payment Requirements as described
in G.L. c. 164, Section 1H(b)(2). Payments on the SPE Debt Securities and RRBs
will be semi-annual or more frequent, depending upon market conditions at the
time of RRB pricing.
Under G.L. c. 164, Section 1H(b)(6), the right to collect these RTC Charges
becomes Transition Property when and to the extent that the Financing Order is
entered authorizing such RTC Charges. The amounts of the reimbursable transition
costs amounts determined
11
<PAGE> 67
hereby are irrevocable, and the Department or any successor entity does not have
authority to, and shall not, rescind, reduce, alter, amend or impair this
Financing Order, determine that the reimbursable transition costs amounts or the
RTC Charges established hereby are unjust or unreasonable or in any way reduce
or impair the value of the Transition Property by taking reimbursable transition
costs amounts into account in setting other rates of Boston Edison. Nor shall
the amounts of revenues under the RTC Charges be subject to reduction,
impairment, postponement or termination. See G.L. c. 164, Section 1H(b)(3).
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.
E. Periodic Adjustments to the RTC Charge
Although this Financing Order, the Transition Property and the RTC Charges
are each irrevocable, the Department or any successor entity must approve
adjustments to the RTC Charge as necessary to ensure timely recovery of all
reimbursable transition costs amounts that are the subject of this Financing
Order, including the ongoing costs of the RRB Transaction. The Department must
establish a procedure for the expeditious approval of periodic adjustments to
the RTC Charge. See G.L. c. 164, Section 1H(b)(5).
Boston Edison will establish an adjustment mechanism (the "RTC Charge
True-Up Mechanism") to periodically adjust the RTC Charge, up or down, to ensure
that it remains sufficient to generate an amount equal to the sum of the
Periodic RRB Payment Requirements for the upcoming year. Adjustments to the RTC
Charge pursuant to the RTC Charge True-Up Mechanism shall include, without
limitation, the effect of under estimates of required collections,
12
<PAGE> 68
customer defaults, any contingent obligations of the SPE arising from indemnity
provisions in the transaction documents, customers exiting Boston Edison's
distribution system and defaults by Servicers in the remittance of collections.
Boston Edison proposes to adjust the RTC Charge by the RTC Charge True-Up
Mechanism, at least annually, to keep actual principal amortization in line with
the expected amortization schedule which is established after the RRBs are
priced. The forms of advice letters for periodic RTC Charge True-Ups are
substantially in the form of Appendix B to this Financing Order.
Boston Edison shall file periodic RTC Charge True-Up advice letters
("Routine True-Up Letters") annually, prior to the anniversary of this Financing
Order, and if necessary, more frequently. In either case, the resulting upward
or downward adjustments to the RTC Charge will be effective on the first day of
the succeeding calendar month, or such date as may be specified in the Routine
True-Up Letter, as long as such effective date is at least 15 days after the
filing of such Routine True-Up Letter. For these adjustments, the adjusted RTC
Charge will be calculated using the methodology set forth in Boston Edison's
testimony.
Whenever Boston Edison determines that the RTC Charge True-Up Mechanism
used to calculate RTC Charge adjustments requires modification to more
accurately project and generate adequate revenues, a non-routine RTC Charge
True-Up advice letter ("Non-Routine True-Up Letter") may be filed with the
resulting adjustments to the RTC Charge (reflecting such modification to the
methodology or model) to be effective upon review and approval by the Department
within 60 days of such filing.
13
<PAGE> 69
F. Formation of SPE
The Department authorizes Boston Edison to form and capitalize one or more
SPEs to engage in the RRB transaction as described herein. The Department hereby
determines that each SPE constitutes a financing entity, as defined in G.L. c.
164, Section 1H(a), which is authorized to acquire the Transition Property. Each
SPE will be a Delaware limited liability company, wholly owned by Boston Edison
and, if so, may constitute an "affiliated company" under G.L. c. 164, Section
85, clause (a) or (b), subject to supervision of the Department in certain
respects under G.L. c. 164, Sections 17A and 76A by reason thereof. The
Department finds that each SPE is not an "affiliated company" for purposes of
clause (c) of the said Section 85.
The fundamental organizational documents of each SPE will impose
significant limitations upon the activities of such SPE and the ability of
Boston Edison to take actions as the holder of the equity interest therein. For
example, each SPE will be formed for the limited purpose of acquiring the
Transition Property and Other SPE Collateral and issuing and selling the SPE
Debt Securities. It will not be permitted to engage in any other activities, and
will have no assets other than the Transition Property and Other SPE Collateral.
Each SPE will be managed by a Management Committee, which will have rights
and authority similar to that of a board of directors for a corporation. As long
as the SPE Debt Securities and the RRBs remain outstanding, Boston Edison shall
be required to cause each SPE to have at least two independent directors.
Without the consent of these independent directors, each SPE will be unable (a)
to amend provisions of fundamental organizational documents which ensure the
bankruptcy-remoteness of such SPE, (b) to institute bankruptcy or insolvency
proceedings or to consent to the institution of bankruptcy or insolvency
proceedings against it, or
14
<PAGE> 70
(c) to dissolve, liquidate or wind up the Company. Other provisions may also be
included to support the bankruptcy-remote character of each SPE as required by
the rating agencies.
G. Transition Property
Under G.L. c. 164, Section 1H(a) of the Act, Transition Property is
"the property right created pursuant to G.L. c. 164, Section 1H,
including, without limitation, the right, title and interest of an
electric company or a financing entity to all revenues, collections,
payments, money, or proceeds or arising from or constituting
reimbursable transition costs amounts which are the subject of a
financing order, including those nonbypassable rates and other charges
that are authorized by the department in the financing order to
recover the transition costs and the costs of providing, recovering,
financing, or refinancing the transition costs, including the costs of
issuing, servicing, and retiring electric rate reduction bonds."
The Transition Property thereafter continuously exists as property for all
purposes as provided in this Financing Order, but in any event until any RRBs
issued and sold in the RRB Transaction are paid in full. G.L. c. 164, Section
1H(b)(6). Transition Property shall constitute property for all purposes whether
or not the revenues or proceeds with respect to RTC Charges have accrued. See
G.L. c. 164, Section 1H(d)(3).
The foregoing structural elements, including, without limitation, the legal
true sale and absolute transfer of the Transition Property by Boston Edison to
an SPE, and the bankruptcy-remote status of such SPE, should enable RRBs to
receive a credit rating superior to that of Boston Edison. The Department finds
that upon the filing of the Issuance Advice Letter,
15
<PAGE> 71
automatically effective as of such filing, all of the Transition Property
identified in the Issuance Advice Letter constitutes a property right and shall
thereafter continuously exist as property for all purposes.
H. Sale of Transition Property to SPE
The Department approves the sale by Boston Edison of the Transition
Property identified in the Issuance Advice Letter to one or more SPEs in one or
more transactions which, under G.L. c. 164, Section 1H(f)(1), will be intended,
and treated, as a legal true sale and absolute transfer to each SPE,
notwithstanding any other characterization for tax, accounting or other
purposes. Upon the sale of the Transition Property identified in the Issuance
Advice Letter to such SPE, such SPE will have all of the rights originally held
by Boston Edison with respect to the Transition Property and Other SPE
Collateral, including without limitation, the right to exercise any and all
rights and remedies to collect any amounts payable by any customer in respect of
the Transition Property and Other SPE Collateral, including the right to
authorize the Servicer to shut-off electric power to the extent permitted in
accordance with G.L. c. 164, Sections 116, 124-124I and any applicable
regulations. Any payment by any such customer to any SPE shall discharge the
customer's obligations in respect of such Transition Property to the extent of
the payment, notwithstanding any objection or direction to the contrary by
Boston Edison, as initial Servicer, or any successor Servicer.
16
<PAGE> 72
I. Issuance and Transfer of SPE Debt Securities and Issuance of RRBs
The Department approves the issuance by one or more SPEs of SPE Debt
Securities with the terms to mirror substantially the terms of RRBs, to one or
more special purpose trusts formed or otherwise approved by the Agencies and
identified in the Issuance Advice Letter. The Department also approves each
SPE's pledge of its right, title and interest in and to the Transition Property
and Other SPE Collateral as security for SPE Debt Securities. The SPE Debt
Securities and RRBs (being undivided beneficial interests in the SPE Debt
Securities) will, by their terms, be non-recourse to Boston Edison or its
assets, but will be secured by a pledge of all of the right, title and interest
of each SPE in its Transition Property and Other SPE Collateral. The Department
approves the issuance by such special purpose trust of RRBs on terms
substantially described herein and finalized by Boston Edison in the Issuance
Advice Letter. To the extent provided in this Financing Order, the final terms
and conditions of the SPE Debt Securities and RRBs shall be approved by the
Agencies.
Pursuant to G.L. c. 164, Section 1H(e), upon the effective date of this
Financing Order there shall exist a statutory first priority lien on all
Transition Property then existing or thereafter arising pursuant to the terms of
this Financing Order. Such lien shall secure all obligations, then existing or
subsequently arising, to the holders of RRBs, the trustee or representative for
such holders, and each special purpose trust and shall arise by operation of law
automatically without any action on the part of Boston Edison or any other
person. Such lien shall be valid, perfected, and enforceable upon the
effectiveness of the Financing Order without any further public notice. Boston
Edison does expect to file a financing statement with respect to the Transition
Property which will constitute a protective filing pursuant to G.L. c. 164,
Section 1H(e).
17
<PAGE> 73
If the Transition Property subject to this Financing Order is transferred
and sold to more than one SPE, any collections in respect of the undivided
beneficial interests in RTC Charges related to such Transition Property will be
allocated pro rata among such undivided beneficial interests to give effect to
the pari passu first priority statutory liens on each SPE's portion of the
Transition Property subject to this Financing Order.
J. Nonbypassable RTC Charge
To ensure credit risks are minimized, it is necessary that the RTC Charge
be nonbypassable. Under G.L. c. 164, Section 1H(b)(2), "nonbypassable" means the
RTC Charge will be assessed and collected from all classes of retail users of
Boston Edison's distribution system within the geographic service territory as
in effect on July 1, 1997, whether or not energy is purchased from Boston Edison
or any TPS, and whether or not such distribution system is being operated by
Boston Edison or a successor distribution company. The RTC Charge is a
usage-based component of the transition charge on each retail user's monthly
bill and may in the future include a pro rata component of any exit fee
collected pursuant to G.L. c. 164, Section 1G(g) by Boston Edison and any
successor distribution company, including any TPS, until the Total RRB Payment
Requirements are discharged in full.
III. RATEPAYER BENEFITS
Boston Edison evaluated whether the RRB Transaction would result in net
savings to its customers. Based upon the methodology established and approved by
the Department in the Settlement Agreement and assumptions set forth in the
testimony, Boston Edison estimates the RRB Transaction to result in net savings
reflected in lower transition charges to its customers than would be required to
recover the approved transition costs if this Financing Order were not
18
<PAGE> 74
adopted. The actual savings and lower transition charges resulting from the RRB
Transaction will depend upon the actual amount of RRBs issued, market conditions
at the time of RRB pricing, the actual amount of transition costs, the actual
amount of transaction costs and the amount of credit enhancement.
Based on this evidence, the Department finds that the RRB Transaction will
result in savings for customers as is contemplated by the Settlement Agreement
and G.L. c. 164, Sections 1G(d)(4) and 1H(b)(2). To confirm this finding after
RRB pricing, the Issuance Advice Letter shall include a calculation in
accordance with Boston Edison's testimony indicating that, based on the actual
structure and pricing terms, the RRB Transaction is expected to result in net
savings and such savings will inure to the benefit of Boston Edison's customers.
IV. USE OF PROCEEDS
The proceeds from the sale of RRBs will ultimately be remitted to Boston
Edison in consideration of Boston Edison's sale of the Transition Property.
Boston Edison expects to use such proceeds, net of transaction costs, for one or
more of 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 additional transition costs arising in connection with
the Pilgrim divestiture or approved pursuant to another Separate Proceeding; 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.
19
<PAGE> 75
V. RELATED ISSUES
As Boston Edison describes in its testimony, there are several related
issues that have a potentially significant impact on the RRB transaction as
described below.
A. Tax Considerations
The possibility that the Internal Revenue Service ("IRS") would assess
income taxes when this Financing Order is issued or when Boston Edison receives
the initial proceeds from SPE Debt Securities, rather than when RTC Charge
revenues are collected, is an issue to Boston Edison associated with financing
the reimbursable transition costs amounts. In addition to having tax
consequences, this would also affect the economics of issuing SPE Debt
Securities and RRBs, as the benefits of the RRB Transaction depend in large part
on recognizing taxable income in respect of reimbursable transition costs
amounts as RTC Charges are paid by customers, rather than it being accelerated
into current income upon issuance of SPE Debt Securities.
As a result, on January 19, 1999, Boston Edison submitted a ruling request
to the IRS seeking confirmation that (a) the issuance of this Financing Order by
the Department will not result in gross income to Boston Edison; (b) the
issuance of the SPE Debt Securities and the issuance of RRBs will not result in
gross income to Boston Edison; and (c) SPE Debt Securities will be treated as
obligations of Boston Edison for tax purposes. An IRS ruling is expected within
one month after the issuance of this Financing Order.
If the RRB Transaction results in current income taxation of the proceeds
of such transaction, the benefits of the RRB Transaction would be substantially
reduced. Should the IRS
20
<PAGE> 76
choose not to provide a ruling, or rule adversely, Boston Edison would have to
reassess the RRB Transaction and, if possible, modify it to eliminate the risk
of current taxation.
The interest paid to holders of RRBs will be exempt from income taxes
imposed in The Commonwealth of Massachusetts but will not be exempt from federal
income taxes or taxes imposed in any other state. See G.L. c. 164, Section
1H(b)(4)(iii).
B. Accounting and Financial Reporting
The amount financed is expected to be recorded in accordance with generally
accepted accounting principles ("GAAP") as long term debt on the balance sheet
of each SPE for financial reporting purposes. Boston Edison, each SPE, each
special purpose trust and the holders of RRBs will expressly agree pursuant to
the terms of the applicable documents to treat SPE Debt Securities as debt of
such SPE secured by, among other things, the Transition Property and the Other
SPE Collateral for this purpose. Because such SPE will be a wholly owned
subsidiary of Boston Edison, it is required that such SPE be consolidated with
Boston Edison for financial reporting purposes under GAAP. Therefore, such SPE's
debt will appear on the consolidated balance sheet of Boston Edison in its
annual and quarterly financial filings to the Securities and Exchange
Commission. For purposes of financial reporting to the Department, Boston Edison
will exclude such SPE's debt from its capital structure. The RRB Transaction is
not expected to impact Boston Edison's credit ratings, as it is expected that
the rating agencies will determine that RRBs, which are not supported by Boston
Edison's general revenue stream, and not collateralized by the assets of Boston
Edison, do not affect Boston Edison's creditworthiness. Therefore, it is
anticipated that the rating agencies will exclude the RRBs as debt for purposes
of calculating financial ratios.
21
<PAGE> 77
C. Rating Agency Considerations
1. True-sale Opinion
Rating agencies will require acceptable opinions of bankruptcy counsel at
the time SPE Debt Securities and RRBs are issued for assurance that the
Transition Property will be bankruptcy-remote from Boston Edison. To obtain such
opinions, the transfer of the Transition Property from Boston Edison to an SPE
must constitute a legal "true sale" such that if Boston Edison were to become
the subject of a bankruptcy or insolvency case, the Transition Property would
not be part of Boston Edison's bankruptcy estate and therefore would not be
subject to the claims of Boston Edison's creditors.
G.L. c. 164, Section 1H(f)(1) expressly provides that certain transfers of
Transition Property as described in G.L. c. 164, Section 1H(f)(1) approved in a
financing order shall be so treated for all purposes as an absolute transfer and
true sale, other than for federal and state income tax purposes. In addition,
SPE Debt Securities and RRBs will be non-recourse to Boston Edison and its
assets, other than the Transition Property sold to an SPE and the Other SPE
Collateral. See G.L. c. 164, Section 1H(c)(1).
Another element of the bankruptcy analysis focuses on the separate legal
status of Boston Edison and each SPE. Although Boston Edison will wholly own
each SPE, the RRB Transaction will be structured so that, in the event of a
bankruptcy of Boston Edison, each SPE's separate legal existence would be
respected and the assets and liabilities of each SPE would remain separate from
the estate of Boston Edison. The structural elements supporting such separate
existence include, without limitation, requirements that each SPE be adequately
capitalized, that Boston Edison be adequately compensated on an arms-length
basis for the servicing functions it
22
<PAGE> 78
performs in billing, collecting and remitting the RTC Charges and that Boston
Edison and each SPE take certain steps to ensure that creditors are not mislead
as to their separate existence. These structural protections are very important
because, without such protections, a bankruptcy court might invoke the doctrine
of "substantive consolidation" and disregard each SPE's separate existence.
Substantive consolidation is an equitable doctrine in bankruptcy cases that
allows courts to disregard the separate existence of two or more affiliated
entities to ensure the equitable treatment of all creditors and to maximize
creditor recoveries. When entities are "substantively consolidated" in a
bankruptcy proceeding, their assets and liabilities are pooled, thereby
eliminating intercompany claims, and claims of third-party creditors against any
of those entities are generally treated as claims against the common pool of
assets created by consolidation.
2. Credit Enhancement
Credit enhancements are mechanisms that provide investors with added
assurance that they will recover their investment. Examples of credit
enhancement provided by the seller of transition property or from proceeds of
the RRBs include the initial capitalization of each SPE, true-up mechanisms,
overcollateralization amounts and liquidity reserves. It is expected that the
RRB Transaction will incorporate the RTC Charge True-Up Mechanism authorized by
G.L. c. 164, Section 1H(b)(5) as described above and overcollateralization
amounts or other means of credit enhancement as required by the rating agencies
or taxing authorities.
The purpose of the overcollateralization amount is to provide security to
investors and to enhance the credit rating of RRBs by providing an additional
amount to cover shortfalls in RTC Charge collections. As a result, the RTC
Charge will be set to collect an overcollateralization amount over time in
addition to the principal balance of (in accordance with the expected
23
<PAGE> 79
amortization schedule), and interest on (including deficiencies on past due
principal and interest for any reason), SPE Debt Securities authorized under
this Financing Order, together with the costs of servicing SPE Debt Securities
and RRBs, including the Servicing Fee, the Administration Fee, fees for the
trustees, rating agency fees, legal and accounting fees, directors' fees,
contingent liabilities of the SPE arising from indemnity obligations in the RRB
Transaction documents, other fees and expenses required for SPE Debt Securities
and RRBs. The overcollateralization amount needed to satisfy the rating agencies
will be determined by Boston Edison, subject to approval by the Agencies, with
input from the rating agencies and tax authorities prior to the time RRBs are
priced. As with other components of the RTC Charge, the overcollateralization
component, any deficiencies in the capital account and any excess in the reserve
account will be incorporated into each periodic adjustment to the extent
necessary using the RTC Charge True-Up Mechanism adopted in this Financing
Order, in accordance with Section 1H(b)(7).
Retail customers obligated to pay the RTC Charge in their rates should
receive credit equal to the amount of any overcollateralization and any
investment earnings thereon (other than the earnings on the initial capital
contributed by Boston Edison to the SPE, which earnings will be returned as a
distribution of capital by the SPE to Boston Edison) not used to discharge the
Total RRB Payment Requirements. As a result, overcollateralization will not
reduce customer benefits from the RRB Transaction.
3. Sequestration
The Department agrees that, in the event of a default by Boston Edison or
any successor Servicer in payment of the RTC Charges to an SPE, the Department
will, upon application by (1)
24
<PAGE> 80
the holders of RRBs or the trustee for the special purpose trust, (2) such SPE
or its assignees or (3) pledgees or transferees of the Transition Property and
Other SPE Collateral, order the sequestration and payment to or for the benefit
of such SPE or such other party of revenues arising with respect to the
Transition Property and Other SPE Collateral. This will provide additional
certainty that the RTC Charges will benefit the owner of the Transition
Property, and should serve to enhance the credit quality of RRBs.
4. Third Party Supplier Concerns
Each TPS, if any, shall comply with the billing, collection and remittance
procedures and information access requirements set forth in Boston Edison's
testimony, or such other policies or procedures as the rating agencies may
require. Billing, collection and remittance of RTC Charges by a TPS may increase
the risk of shortfalls in RTC Charge collections by exposing the cashflow to
potential interruption due to the default, bankruptcy or insolvency of the TPS.
This risk of interruption will increase risks to investors, potentially reducing
the credit rating and increasing the rate of interest on RRBs that would be
required by investors. Such TPS billing may increase the RTC Charge component of
the transition charge resulting from such interruption or delay in payment.
Therefore, the Department approves such procedures.
D. Allocation of Collection Shortfalls
In order to preserve the bankruptcy-remote status of the Transition
Property and Other SPE Collateral once it is transferred to each SPE, Boston
Edison cannot have any claim on the RTC Charges. In its capacity as Servicer,
Boston Edison will bill RTC Charges along with other charges for services
rendered to customers obligated to pay such charges. If Boston Edison collects
less than the full amount that is billed to such customers, it is not permitted
to favor itself
25
<PAGE> 81
over each SPE, as owner of the Transition Property. In accordance with M.G.L.
c. 164, Section 1H(b)(1), this Financing Order requires that upon the issuance
of RRBs, transition charges collected shall be allocated first to transition
property and second to transition charges, if any, that are not subject to this
or any other financing order.
In the event that more than one SPE issues SPE Debt Securities in respect
of transition property created under this Financing Order or subsequent
financing orders, any payment which is not sufficient to pay all RTC Charges
imposed on the ratepayer will be allocated pro rata among each SPE based on the
relative size of each SPE's undivided beneficial interest in the transition
property. The Department approves of such allocation because such proceeds of
the transition property created by this Financing Order and subsequent financing
orders constitute a fungible fund consisting of non-identifiable proceeds of
such portions of the transition property, each of which has the benefit of first
priority contractual and statutory liens. A pro rata allocation among these pari
passu interests and liens on each SPE's portion of such transition property is
therefore appropriate.
As described earlier, it is expected that Boston Edison, or any successor
Servicer, will remit to the SPE trustee on a daily basis, an amount equal to the
actual RTC Charges billed, less an allowance for estimated charge-offs, on or
about the day such amounts are deemed to be collected. Boston Edison's allowance
for estimated RTC Charge charge-offs is its system-wide allowance for
charge-offs, adjusted to take into consideration estimates of partially paid
bills. Given the relative size of the RTC Charge to the overall tariff rates for
services, partially paid bills are deemed to have satisfied the RTC Charge
amount in full. Boston Edison will reconcile such remittances at least once
annually for all remittances made in the previous year with the
26
<PAGE> 82
SPE trustee to more accurately reflect the amount of RTC Charges that should
have been remitted, based on the actual system-wide charge-off percentage, which
is adjusted again for estimates of partially paid bills. The Department approves
Boston Edison's remittance procedure, with estimated charge-offs relating to RTC
Charges and reconciliation of remittances, and finds that such remittance
procedure, based on Boston Edison's accounting and billing information systems
capabilities, is an economical and cost effective method of identifying to a
useful degree of certainty the actual RTC Charge collections and complies with
the provisions of G.L. c. 164, Section 1H(b)(1).
E. Servicing
To the extent that any interest in Transition Property is transferred by
Boston Edison to one or more SPEs, the Department authorizes Boston Edison to
enter into a Servicing Agreement, in accordance with G.L. c. 164, Section 1H(c)
(3), with one or more SPEs to perform servicing functions on behalf of each SPE.
Pursuant to the Servicing Agreement with each SPE, Boston Edison will act
as Servicer of the Transition Property. Boston Edison will be responsible for
customer kWh billing and usage information, and for billing, collecting and
remitting the RTC Charges as described earlier and in the testimony. The
Department authorizes Boston Edison to contract with each SPE to collect amounts
in respect of the RTC Charges for the benefit and account of such SPE, and to
account for and remit these amounts to or for the account of such SPE. The
Servicing Agreement will provide that Boston Edison, as initial Servicer, may
not voluntarily resign its duties as Servicer without obtaining the prior
approval of the Department, or if such resignation will result in the reduction
or withdrawal of the credit ratings of RRBs.
27
<PAGE> 83
In order to support each SPE's legal status separate and apart from Boston
Edison, the Servicing Fee paid to Boston Edison must be market-based. The annual
Servicing Fee, payable semi-annually or more frequently, will be a part of the
Servicing Agreement and will be based upon a percentage of the initial principal
balance of RRBs and will be included in the reimbursable transition costs
constituting Transition Property that is sold to an SPE. The Servicing Fee
represents a reasonable good faith estimate of an arm's length, market-based fee
for servicing RRBs. Such servicing responsibilities include without limitation,
billing, monitoring, collecting and remitting RTC Charges, systems modifications
to bill, monitor, collect and remit RTC Charges, reporting requirements imposed
by the Servicing Agreement, procedures required to coordinate with each TPS,
required audits related to Boston Edison's role as Servicer, and legal and
accounting functions related to the servicing obligation. The Servicing Fee paid
to Boston Edison will be lower than the Servicing Fee paid to a successor
Servicer that does not concurrently bill the RTC Charge with charges for other
services to reflect the higher costs related thereto.
F. Accounting for Certain Benefits.
Any amounts accounted for in the reserve account, which represents
collections in excess of the fully funded credit enhancement reserves, at the
time that Boston Edison calculates a periodic RTC Charge adjustment will be
incorporated in such adjustment, in accordance with G.L. c. 164, Section
1H(b)(7). Boston Edison, as initial Servicer (or any successor Servicer)
intends, through a separate non-cash memorandum account, to account for, and
ultimately credit to ratepayers, any amounts remaining in the collection account
after the RRBs are paid in full, such as any overcollateralization amounts,
including interest earnings thereon, or RTC Charge
28
<PAGE> 84
collections that remain after the Total RRB Payment Requirements have been
discharged. Such amounts will be released to the SPE in accordance with G.L. c.
164, Section 1H(b)(7), upon retirement of the RRBs and discharge of the Total
RRB Payment Requirements. These benefits 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.
G. SPE Administration and Other Transactions with each SPE.
Because each SPE will be a special-purpose, bankruptcy-remote entity with
limited business activities, it is anticipated that each SPE will need to enter
into an administration agreement (the "Administration Agreement") with Boston
Edison pursuant to which Boston Edison shall perform ministerial services and
provide facilities for each SPE to ensure that it is able to perform such
day-to-day operations as are necessary to maintain its existence and perform its
obligations under the RRB Transaction documents. The Administration Agreement
incorporates provisions to ensure that Boston Edison will be paid a fee (the
"Administration Fee") in an amount commensurate with its costs of performing
such services and providing such facilities.
The Department authorizes Boston Edison to enter into the Administration
Agreement and other agreements as well as any other transactions with one or
more SPEs as may be necessary to carry out the RRB Transaction.
29
<PAGE> 85
FINDINGS
1. In the Settlement Agreement and subsequent filings pursuant thereto,
the Department approved Boston Edison's retail distribution rates, including its
transition charge, to recover on a fully reconciling basis all of Boston
Edison's transition costs, including the reimbursable transition costs amounts
being securitized.
2. Boston Edison currently has a carrying charge of 10.88% as approved in
the Settlement Agreement, Section 1.7(b) of Attachment 3 (adjusted for changes
in the federal and state tax rates) and applicable to all of Boston Edison's
transition costs that are subject to a carrying charge.
3. The actual amounts of the Fixed Component Transition Costs were
approved as transition costs by the Department either in the Pilgrim Order,
pursuant to the Settlement Agreement or approved pursuant to any other
proceeding in an order that becomes final and no longer subject to appeal
prior to the filing, with the Securities Exchange Commission ("SEC"), of the
preliminary prospectus to be distributed to prospective investors (a "Separate
Proceeding").
4. Pursuant to the Settlement Agreement and the Pilgrim Order, the actual
amounts of the Pilgrim and fossil unrecovered plant balances, generation related
regulatory asset balances, Pilgrim decommissioning funding, the cost associated
with the buyout of the L'Energia, Limited Partnership ("L'Energia") power
purchase agreement (to the extent approved by the Department in D.T.E. 99-16)
and any additional transition costs arising in connection with the Pilgrim
divestiture or approved pursuant to a Separate Proceeding have been approved by
the Department and determined to be actual and fully mitigated for purposes of
G.L. c. 164, Section 1G(a). No audit of such amounts for purposes of G.L. c.
164, Section 1G(a) is necessary. Pursuant to this Financing Order, the actual
amounts of the transaction costs of issuance (other than the costs of reducing
30
<PAGE> 86
capitalization) and ongoing transaction costs (other than legal and accounting
fees and other miscellaneous fees), each of which will be set forth in the
Issuance Advice Letter and fixed at the time of RRB pricing, are hereby approved
by the Department and determined as actual for purposes of G.L. c. 164, Section
1G(a), and no audit of such amounts for purposes of G.L. c. 164, Section 1G(a)
is necessary.
5. This Financing Order approves as reimbursable transition costs amounts
the Fixed Component Transition Costs, any transition costs approved in a
Separate Proceeding including the buyout of the L'Energia power purchase
contract, the transaction costs of issuance, the ongoing transaction costs and
the cost of any credit enhancement associated with the RRB Transaction.
6. Boston Edison has or will have proved to the Department's satisfaction
that it has fully mitigated the transition costs sought to be securitized by
Boston Edison pursuant to this Financing Order for purposes of G.L. c. 164,
Section 1G(d)(4)(i). Boston Edison has complied with G.L. c. 164, Section
1G(d)(1), which requires an electric company to take all reasonable steps to
mitigate to the maximum extent possible the total amount of transition costs the
Company seeks to recover through securitization.
7. The amount of SPE Debt Securities and RRBs to be issued as described in
Boston Edison's Application and testimony is reasonable. 1.
8. The amount of necessary credit enhancement and any necessary
adjustments thereto as described in Boston Edison's testimony or required by
the rating agencies or tax authorities is reasonable.
9. So long as the effective all-in-cost of RRBs is less than 10.88%, the
RRB Transaction approved by this Financing Order will result in net savings to
Boston Edison's customers in
31
<PAGE> 87
compliance with G.L. c. 164, Section 1G(d)(4)(ii). The net savings will be
reflected in lower transition charges to Boston Edison's customers than would
otherwise be required to recover the approved transition costs if the RRB
Transaction did not occur in accordance with G.L. c. 164, Section 1H(b)(2). The
methodology to calculate savings described in the testimony implements Section
1.7(b) of Attachment 3 to the Settlement Agreement. All such savings will inure
to the benefit of its ratepayers as demonstrated in such testimony in compliance
with G.L. c. 164, Section 1G(d)(4)(iii). Such savings to ratepayers will result
regardless of the amount of reimbursable transition costs amounts being
securitized or the initial principal balance of RRBs.
10. Boston Edison, to the satisfaction and approval of the Department, has
established an order of preference as described in its testimony such that the
transition costs having the greatest impact on customer rates will be the first
to be reduced by securitization in compliance with G.L. c. 164, Section
1G(d)(4)(iv).
11. In the event one or more SPEs issues SPE Debt Securities in respect of
transition property created under this Financing Order or subsequent financing
orders, such proceeds of the transition property created by this Financing Order
and any subsequent financing orders constitutes a fungible fund consisting of
non-identifiable proceeds of such portions of the transition property, each of
which has the benefit of first priority contractual and statutory liens. A pro
rata allocation among these pari passu interests and liens on each SPE's portion
of such transition property is reasonable in accordance with G.L. c. 164,
Section 1H(b)(1).
12. The proposed structure of the RRB Transaction contemplates that RTC
Charge remittances will be paid over to the SPE trustee daily, on or about the
deemed collection date.
13. The Department finds that Boston Edison's methodology for calculating
the deemed collection date of RTC Charges is an economical and cost effective
method of identifying to a
32
<PAGE> 88
useful degree of certainty the actual RTC Charge collections in accordance with
the provisions of G.L. c. 164, Section 1H(b)(8) based upon Boston Edison's
accounting and billing information systems capabilities and finds that RTC
Charges are deemed to be paid within one calendar month of collection.
14. Boston Edison's procedure of remitting to the SPE trustee actual RTC
Charges billed less an allowance for estimated charge-offs as described in the
testimony, along with a periodic reconciliation of such remittances as described
in the testimony, is an economical and cost effective method of identifying to a
useful degree of certainty the actual RTC Charge collections and complying with
G.L. c. 164, Sections 1H(b)(1) and 1H(b)(8).
15. The RTC Charge billing, collection and remittance procedures imposed
upon any successor Servicer and any TPS as set forth in Boston Edison's
testimony are reasonable.
16. In accordance with G.L. c. 164, Section 1H(b)(2), the owner of the
Transition Property will have the right to recover an aggregate amount equal to
the Total RRB Payment Requirements until such amounts have been discharged in
full through continued assessment, collection and remittance of RTC Charges from
all classes of retail users of Boston Edison's distribution system within the
geographic service territory as in effect on July 1, 1997, whether or not energy
is purchased from Boston Edison or any TPS, and whether or not such distribution
system is being operated by Boston Edison or a successor distribution company.
The RTC Charge will be a usage-based component of retail users' monthly
transition charge and may in the future include a pro rata component of any exit
fee collected pursuant to G.L c.164, Section 1G(g).
17. The methodology used to calculate the RTC Charge associated with the
RRB Transaction and the periodic adjustments thereto as described in Boston
Edison's testimony is reasonable and complies with G.L. c. 164,
Section 1H(b)(5).
33
<PAGE> 89
18. Boston Edison's plan to account through a non-cash memorandum
account, and ultimately credit ratepayers, for amounts remaining in the
collection account after the RRBs are paid in full is reasonable and in
compliance with G.L. c. 164, Section 1H(b)(7).
19. The sale of the Transition Property by Boston Edison to an SPE shall
be treated as an absolute transfer of all of Boston Edison's right, title, and
interest, as in a legal true sale, and not as a pledge or other financing, of
the Transition Property, in each case notwithstanding the following, which are
hereby determined not to effect such absolute transfer and legal true sale: (i)
any contrary treatment of such transfer for accounting, tax or other purposes,
(ii) certain indemnities (including mandatory redemption or repurchase
obligations related thereto) provided for in SPE Debt Securities or in the
transaction documents which do not constitute recourse in violation of G.L. c.
164, Section 1H(c)(1), (iii) Boston Edison's continued collection of RTC Charges
pursuant to the Servicing Agreement authorized by this Financing Order, or (iv)
Boston Edison's providing any credit enhancement to such SPE as described in the
testimony. 1.
20. SPE Debt Securities and RRBs will be non-recourse to Boston Edison
and its assets, but will be secured by a pledge of all right, title and interest
of each SPE in its Transition Property and Other SPE Collateral in accordance
with G.L. c. 164, Section 1H(c)(1), (2).
21. The formation of one or more SPEs by Boston Edison, the
capitalization of each SPE by Boston Edison with an amount equal to
approximately 0.50% of the initial principal balance of the RRBs, and entering
into the Servicing Agreement, the Administration Agreement, other agreements and
transactions by Boston Edison and each SPE are necessary for the consummation of
the RRB Transaction.
22. Pursuant to G.L. c. 164, Section 1H(b)(3), the Commonwealth has
pledged and agreed that it shall not: (i) alter the provisions of G.L. c. 164
which make the RTC Charge imposed by
34
<PAGE> 90
this Financing Order irrevocable and binding or (ii) limit or alter the
reimbursable transition costs amounts, Transition Property, Financing Order, and
all rights thereunder until the RRBs, together with the interest thereon, are
fully discharged.
23. Pursuant to G.L. Section 1H(b)(3), the Transition Property created by
and subject to this Financing Order, and the RTC Charge authorized hereby shall
be irrevocable, and the Department (or any successor thereto) does not have
authority to revalue or revise for ratemaking purposes the reimbursable
transition costs amounts, or determine that the reimbursable transition costs
amounts or the RTC Charge is unjust or unreasonable, or in any way reduce or
impair the value of the Transition Property either directly or indirectly by
taking into account the RTC Charge when setting rates for Boston Edison, nor
should the amount of revenues arising with respect thereto be subject to
reduction, impairment, postponement, or termination.
24. Except to the extent that such matters are provided for in collective
bargaining agreements or asset purchase agreements negotiated prior to the
effective date of the Restructuring Act, or amendments to such previously
negotiated asset purchase agreements, Boston Edison has obtained written
commitments that purchasers of its divested operations will offer employment to
the impacted employees who were employed in non-managerial positions to provide
services for the divested operations at any time during the three month period
prior to the divestiture, at levels of wages and overall compensation no lower
than the employees' prior levels in compliance with G.L. c. 164,
Section 1G(d)(4)(iv).
25. The Department has received full and satisfactory documentation that
with respect to this Financing Order, Boston Edison has proved to the
Department's satisfaction that it has complied with each requirement of G.L. c.
164, Section 1G(d)(4) and each other requirement of G.L. c. 164, Sections 1G
and 1H.
35
<PAGE> 91
26. Boston Edison has satisfied the requirements of G.L. c. 59,
Section 38H(c).(1)
27. The annual Servicing Fee, payable semi-annually or more frequently,
is a reasonable good faith estimate of an arms-length, market-based fee for
servicing RRBs pursuant to the Servicing Agreement, as described in Boston
Edison's testimony.
28. The Department finds that each SPE formed by Boston Edison in
connection with the RRB Transaction is not an "affiliated company" for purposes
of clause (c) of G.L. c. 164, Section 85.
- ----------------------------
(1) This provision has been satisfied by an executed property tax
agreement between Boston Edison and the Town of Plymouth pursuant to
G.L. c. 59, Section 38H(c).
36
<PAGE> 92
29. The Settlement Agreement in Section 2.9(g) of Attachment 3 provides
that Boston Edison's transition charge shall not exceed 3.51 cents/kWh in 1998
or 3.35 cents/kWh in later years.
30. The Department finds that in the event that an audit pursuant to G.L.
c. 164, Section 1G(a)(2) results in excess reimbursable transition costs
amounts, Boston Edison's providing a uniform rate credit through a residual
value credit to its ratepayers rather than remitting payment to a financing
entity with respect to such excess is reasonable.
31. The Department finds an exemption from the competitive bidding
requirements of G.L. c. 164, Section 15 in connection with the sale of RRBs is
in the public interest.
32. The Department finds an exemption from the par value debt issuance
requirements of G.L. c. 164, Section 15A is in the public interest.
33. The Department finds that to the extent that Boston Edison
securitizes more than 75% of the decommissioning trust fund being transferred to
Entergy at closing pursuant to this Financing Order, the securitization of such
amount does not constitute a subsidy or benefit to any electric company or the
customers thereof other than Boston Edison and its customers.
34. The Department's review and approval of the Settlement Agreement in
D.P.U. Docket No. 96-23 satisfies the audit requirement under G.L. c. 164,
Section 1G(a)(1).
35. Upon completion of the fossil divestiture, Boston Edison completed
the divestiture of all non-nuclear generation assets as required by G.L. c. 164,
Section 1G(d)(3). 1.
36. The RRBs will be used to pay for mitigated transition costs related
to G.L. c. 164, Section 1G(b), in accordance with G.L. c. 164, Section
1H(b)(4)(iv). To the extent the Department has approved or will approve the
recovery of any transition costs, including the Fixed Component
37
<PAGE> 93
Transition Costs and the buyout of the L'Energia power purchase contract, these
costs constitute mitigated transition costs.
37. The Agencies have reviewed the Company's Application and this
Financing Order and have indicated that the RRB Transaction satisfies all
statutory requirements and contains provisions that should permit the RRBs to
achieve the highest feasible credit ratings. The Agencies have indicated that
they are not aware of any provision in the revised Financing Order beyond that
required for the necessary legal opinions or which exceeds the requirements of
the rating agencies in prior RRB transactions. The Agencies have also indicated
that the estimated transaction costs as described in Boston Edison's testimony
are reasonable and that they will also approve certain costs incurred after
issuance of the Financing Order, but before the pricing of the RRBs.
38. The final terms and conditions of SPE Debt Securities and RRBs,
including the schedule of principal amortization, credit enhancement, the
frequency of principal or interest payments, the interest rates on SPE Debt
Securities and RRBs, and manner of setting such interest rates (fixed or
variable), the manner of sale of the RRBs, the number and determination of
credit ratings and the approval of final transaction documents, will, to the
extent consistent with the provisions of this Financing Order, be determined by
Boston Edison and approved by the Agencies on behalf of the special purpose
trust at the time RRBs are priced and after input from the rating agencies, tax
authorities and the underwriters.
38
<PAGE> 94
ORDERS
1. The Application of Boston Edison Company (together with any legal
successors thereto, "Boston Edison") for this Financing Order pursuant to G.L.
c. 164, Section 1H is approved subject to the terms and conditions stated in the
following paragraphs.
2. The findings included in the introduction to this Financing Order are
adopted as findings by the Department and made a part of this Financing Order.
Creation of Transition Property and Reimbursable Transition Costs Amounts
3. Boston Edison is authorized to finance an aggregate total principal
amount equal to the amount required to provide, recover, finance or refinance a
portion of Boston Edison's transition costs (as defined in G.L. c. 164, Sections
1G and 1H) represented by the fixed component, net as of the date of issuance of
RRBs, of Boston Edison's transition charge (which includes the net balance of
its Pilgrim unrecovered plant balances and related regulatory assets and the
unrecovered prefunded balance of its portion of the decommissioning fund being
transferred to the buyer in connection with the divestiture of Pilgrim Nuclear
Power Station and associated generation assets ("Pilgrim")), the municipal
contract customers' portion of such balances, any additional transition costs
arising in connection with the Pilgrim divestiture or approved pursuant to any
other proceeding in an order by the Department that becomes final and no longer
subject to appeal prior to the filing with the Securities Exchange Commission
("SEC") of the preliminary prospectus to be distributed to prospective investors
(a "Separate Proceeding"), the transaction costs of issuing (as described in the
testimony) the notes ("SPE Debt Securities") of one or more SPEs (as defined
below) and the electric rate reduction bonds ("RRBs") and providing credit
enhancement (as hereinafter described, other than approximately 0.50% of the
initial principal balance of RRBs to be contributed by Boston Edison as the
initial capitalization of each SPE (as
39
<PAGE> 95
defined below)). These amounts constitute reimbursable transition costs amounts
(as defined in G.L. c. 164, Section 1H(a)) and shall be financed through the
issuance of SPE Debt Securities and RRBs (the "RRB Transaction"). Boston Edison
currently estimates that the principal amount of RRBs to be issued will be $800
million, subject to adjustment (which may be significant) based on the timing of
the Pilgrim divestiture, additional transition costs in connection with the
Pilgrim divestiture or approved pursuant to a Separate Proceeding, prevailing
market conditions, input on credit enhancement from nationally recognized
statistical rating organizations (the "rating agencies") selected by Boston
Edison with the approval of the Massachusetts Development Finance Agency and
Massachusetts Health and Educational Facilities Authority (together, the
"Agencies") to rate the RRBs, tax authorities and underwriters, or changes in
the proposed transaction not now anticipated by Boston Edison. The repayment of
such amounts shall be effected through the assessment and collection of a
portion of Boston Edison's transition charge (the "RTC Charge") from which SPE
Debt Securities and RRBs to be issued will be repaid.
4. The actual amounts of the fixed component of Boston Edison's transition
charge (which includes the Pilgrim unrecovered balances, as defined below), the
municipal contract customers' portion of such balances and other transition
costs (collectively, the "Fixed Component Transition Costs"), have been approved
by the Department as transition costs in Boston Edison's Restructuring
Settlement Agreement, D.P.U. Docket No. 96-23 and subsequent filings with the
Department pursuant thereto (collectively, the "Settlement Agreement"), an order
issued in connection with D.T.E. 98-119 (the "Pilgrim Order"), or in any other
Separate Proceeding and the costs associated with the L'Energia, Limited
Partnership power purchase agreement ("L'Energia") to the extent the Department
approves these costs as transition costs in D.T.E 99-16. Such transition costs,
together with the transaction costs of issuing RRBs, the
40
<PAGE> 96
ongoing transaction costs and the provision of credit enhancement (other than
Boston Edison's initial capital contribution), represent the reimbursable
transition costs amounts subject to this Financing Order. The "Pilgrim
unrecovered balances" include the net balance of Pilgrim unrecovered plant
balances and related regulatory assets and the unrecovered prefunded balance of
the decommissioning fund in connection with the divestiture of Pilgrim.
5. In the Settlement Agreement, the Department previously approved Boston
Edison's retail distribution rates, including its transition charge (referred to
as an "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), the methodology to
determine if savings will result from the RRB Transaction, the application of a
carrying charge of 10.88% to all unrecovered transition costs and the amount of
Boston Edison's transition charge, and such approval is hereby reaffirmed by the
Department.
6. The transition charge, a component of which will be the RTC Charge,
shall be assessed and collected from all classes of retail users of Boston
Edison's distribution system within the geographic service territory as in
effect on July 1, 1997, whether or not energy is purchased from Boston Edison or
any TPS, and whether or not such distribution system is being operated by Boston
Edison or a successor distribution company. The transition charge, including the
RTC Charge, is a usage-based tariff on each retail user's monthly bill and may
in the future include any exit fee collected pursuant to G.L. c. 164, Section
1G(g). The RTC Charge will be sufficient in the aggregate to pay the principal
balance of (in accordance with the expected amortization schedule), and interest
on, SPE Debt Securities authorized for issuance pursuant to this Financing
Order, together with the costs of servicing SPE Debt Securities and RRBs
(including the Servicing Fee, trustee fees, rating agency fees, administration
fees, contingent
41
<PAGE> 97
indemnity obligations in the RRB Transaction documents (as described below) and
other fees and expenses) and the cost to Boston Edison of creating and
maintaining any credit enhancement required for SPE Debt Securities and RRBs
(the required periodic payment of such, including deficiencies on past due
principal and interest for any reason, a "Periodic RRB Payment Requirement" and
collectively, the "Total RRB Payment Requirements").
7. As of the effective date of this Financing Order, there is created and
established for the benefit of Boston Edison (or any assignee in accordance with
the terms hereof) Transition Property which represents a continuously existing
property right created pursuant to G.L. c. 164, Section 1H, including, without
limitation, the right, title, and interest in and to all revenues, collections,
claims, payments, money, or proceeds of or arising from or constituting (a) the
reimbursable transition costs amounts established by this Financing Order
including such amounts established in the Issuance Advice Letter, (b) the RTC
Charge authorized by this Financing Order including the initial RTC Charge set
forth in the Issuance Advice Letter as may be adjusted from time to time in
order to generate amounts sufficient to discharge an amount equal to the sum of
the Periodic RRB Payment Requirements for the upcoming year as authorized by
paragraph 6 of this Financing Order, and (c) all rights to obtain periodic
adjustments and non-routine adjustments to the RTC Charge.
8. The RRB Transaction will result in net savings for Boston Edison
customers reflected in lower transition charges than Boston Edison's customers
would have paid if this Financing Order were not adopted, in accordance with
G.L. c. 164, Section 1H(b)(2).
9. Boston Edison has proved to the Department's satisfaction that in
accordance with G.L. c. 164, Section 1G(d)(4): (i) Boston Edison has fully
mitigated the transition costs related to this Financing Order; (ii) savings to
Boston Edison's customers will result from the RRB
42
<PAGE> 98
Transaction; (iii) all such savings derived from the RRB Transaction shall
inure to the benefit of Boston Edison's customers; (iv) Boston Edison has
obtained written commitments that purchasers of divested operations will offer
employment to impacted employees; and (v) Boston Edison has established, with
the approval of the Department, an order of preference such that transition
costs having the greatest impact on customer rates will be the first to be
provided, recovered, financed or refinanced by the RRB Transaction.
Establishment of SPE
10. The establishment by Boston Edison of one or more wholly owned special
purpose entities (each, an "SPE") described in the testimony to which the
Transition Property subject to this Financing Order is to be sold is authorized
pursuant to G.L. c. 164, Sections 17A and 76A, and in accordance with all
applicable Massachusetts law, rules and regulations.
11. The capitalization by Boston Edison of each SPE with approximately
0.50% of the initial principal balance of RRBs, subject to prevailing market
conditions at the time of RRB pricing, is authorized pursuant to G.L. c. 164,
Sections 17A and 76A, and in accordance with all applicable Massachusetts law,
rules and regulations. Any other credit enhancement is either part of the
periodic adjustment to the RTC Charge or will be included in the principal
balance of RRBs.
Sale of Transition Property
12. In accordance with G.L. c. 164, Section 1H(c)(2), Boston Edison is
authorized to sell or assign all of its interest in Transition Property that
arises from this Financing Order to one or more SPEs. Each SPE is authorized to
acquire the Transition Property and is designated as a "financing entity" (as
defined in G.L. c. 164, Section 1H(a)) for such purpose, and for the purpose of
43
<PAGE> 99
pledging such Transition Property (and such other assets of such SPE as are
pledged under the transaction documents) to the payment of SPE Debt Securities
and RRBs.
13. Upon the sale by Boston Edison of the Transition Property to each SPE
as described in paragraph 15 of this Financing Order, (i) such SPE shall have
all of the rights originally held by Boston Edison with respect to such
Transition Property, including, without limitation, the right to exercise any
and all rights and remedies, including the right to authorize the Servicer to
shut-off electric power to the extent permitted by G.L. c. 164, Sections 116,
124-124I and applicable regulations, to assess and collect any amounts payable
by any customer in respect of such Transition Property, notwithstanding any
objection or direction to the contrary by Boston Edison, as initial servicer
(the "Servicer"), or any successor Servicer, and (ii) any payment by any
customer to such SPE shall discharge such customer's obligations in respect of
such Transition Property to the extent of such payment, notwithstanding any
objection or direction to the contrary by the Servicer. 1.
14. Upon the sale by Boston Edison of the Transition Property to an SPE,
Boston Edison or any successor Servicer shall not be entitled to recover RTC
Charges other than for the benefit of the holders of SPE Debt Securities and the
related RRBs in accordance with Boston Edison's duties as Servicer of such
Transition Property as authorized in paragraphs 33 et seq. of this Financing
Order.
15. The sale by Boston Edison of the Transition Property to an SPE in
accordance with G.L. c. 164, Section 1H(f)(1) and in a manner described in such
section shall be treated as an absolute transfer of all of Boston Edison's
rights, title and interest, as a legal true sale, and not as a pledge or other
financing, of the Transition Property, in each case notwithstanding the
following, which are hereby determined not to effect such absolute transfer and
legal true sale: (i) any contrary
44
<PAGE> 100
treatment of such transfer for accounting, tax or other purposes, (ii) certain
indemnities (including mandatory redemption or repurchase obligations related
thereto) provided for in SPE Debt Securities or in the transaction documents
which do not constitute recourse in violation of G.L. c. 164, Section 1H(c)(1),
(iii) Boston Edison's continued collection of the RTC Charge pursuant to a
servicing agreement (the "Servicing Agreement") authorized in paragraphs 33 et
seq. of this Financing Order, or (iv) Boston Edison's providing any credit
enhancement to such SPE as described in the testimony.
16. In accordance with G.L. c. 164, Section 1H(b)(2) and paragraph 6 of
this Financing Order, the RTC Charge and its imposition, collection and payment
as provided in this Financing Order shall be assessed and collected from all
classes of retail users of Boston Edison's distribution system within the
geographic service territory as in effect on July 1, 1997, whether or not energy
is purchased from Boston Edison or any TPS, and whether or not such distribution
system is being operated by Boston Edison or a successor distribution company.
The RTC Charge is a usage-based component of the transition charge on each
retail user's monthly bill and may in the future include a pro rata component of
any exit fee collected pursuant to G.L. c. 164, Section 1G(g) until the Total
RRB Payment Requirements are discharged in full.
17. In accordance with G.L. c. 164, Section 1H(b)(3), this Financing
Order, the reimbursable transition costs amounts arising from this Financing
Order, and the RTC Charge authorized shall be irrevocable, and the Department
(or any successor entity) 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 the RTC Charge associated
therewith is unjust or unreasonable, or in any way reduce or impair the value of
Transition Property either directly or indirectly by taking into account the
reimbursable transition costs amounts when setting rates for
45
<PAGE> 101
Boston Edison, nor shall the amount of revenues arising with respect thereto be
subject to reduction, impairment, postponement, or termination.
18. Each SPE, as owner of the Transition Property, and the holders of SPE
Debt Securities and RRBs, or any trustee acting therefor, shall be entitled to
the benefit of the pledge and agreement of the Commonwealth contained in G.L. c.
164, Section 1H(b)(3), and each special purpose trust referred to in paragraph
23 hereof, as a financing entity under G.L. c. 164, Section 1H, and as agent for
the Commonwealth, is authorized to include this pledge and undertaking in any
contracts with the holders of RRBs, or any trustees acting therefor.
19. In accordance with G.L. c. 164, Section 1H(d)(3) and paragraph 7 of
this Financing Order, the Transition Property created and established by this
Financing Order shall constitute property from the effective date of this
Financing Order for all purposes, including for the purpose of contracts
relating to or securing SPE Debt Securities and RRBs, whether or not the
revenues and proceeds arising with respect to RTC Charges have accrued at the
time of this Financing Order.
20. In accordance with G.L. c. 164, Section 1H(b)(6) and paragraph 7 of
this Financing Order, the Transition Property created and established by this
Financing Order shall constitute a current property right of the owner thereof
or its assignee or transferee, which continuously exists for all purposes with
all of the rights and privileges as provided in G.L. c. 164, Section 1H, from
the effective date of this Financing Order until the owner or its assignee or
transferee has received RTC Charges sufficient to discharge the Total RRB
Payment Requirements in full. In accordance with G.L. c. 164, Section 1H(b)(3),
such property right may not be limited, altered, impaired or reduced or
otherwise terminated by any subsequent actions of Boston Edison or any third
party and shall, to the fullest extent permitted by law, be enforceable against
Boston Edison, its successors and
46
<PAGE> 102
assigns, and all other third parties, including judicial lien creditors,
claiming an interest therein by or through Boston Edison or its successors or
assigns.
21. Pursuant to G.L. c. 164, Section 1H(e), upon the effective date of
this Financing Order there shall exist a statutory first priority lien on all
Transition Property then existing or thereafter arising pursuant to the terms of
this Financing Order. Such lien shall secure all obligations, then existing or
subsequently arising, to the holders of RRBs, the trustee or representative for
such holders, each SPE and special purpose trust and shall arise by operation of
law automatically without any action on the part of Boston Edison or any other
person. Such lien shall be valid, perfected, and enforceable upon the
effectiveness of the Financing Order without any further public notice. Boston
Edison does expect to file a financing statement with respect to the Transition
Property which will constitute a protective filing pursuant to G.L. c. 164,
Section 1H(e). If the Transition Property subject to this Financing Order is
transferred and sold to more than one SPE, any collections in respect of the
undivided beneficial interests in RTC Charges related to such Transition
Property will be allocated pro rata among such undivided beneficial interests to
give effect to the pari passu first priority statutory liens on each SPE's
portion of the Transition Property subject to this Financing Order.
SPE Debt Securities and RRBs
22. Each SPE is authorized to issue SPE Debt Securities and to pledge (i)
all of its interest in Transition Property, and (ii) any other contract rights,
other assets or collateral of the SPE (the "Other SPE Collateral") which shall
include without limitation, the rights of each SPE under the RRB Transaction
documents including the purchase agreement by which each SPE acquires the
Transition Property, and the Servicing Agreement by which Boston Edison or any
successor Servicer, acts as Servicer of the Transition Property, the collection
account and any
47
<PAGE> 103
other account of such SPE contained in such SPE's collection account including
the overcollateralization account and the reserve account, any investment
earnings on amounts (other than earnings on the initial capital provided by
Boston Edison, which earnings are to be returned as a distribution of capital by
such SPE to Boston Edison) held by such SPE, and the capital of such SPE, to
secure RRBs or SPE Debt Securities that are not themselves RRBs, but
substantially are mirrored by the financial terms and conditions of the RRBs
issued in connection with such pledge.
23. Each SPE and one or more special purpose trusts authorized and created
by the Agencies are each determined to be a financing entity for the purposes of
G.L. c. 164, Section 1H, and each special purpose trust is authorized to issue
RRBs evidencing undivided beneficial interests in SPE Debt Securities, the
expected and final legal maturity of the RRBs are expected to be 11 and 13
years, respectively (or longer, if required) in accordance with G.L. c. 164,
Section 1H(b)(4)(vi), the principal of the RRBs will be paid in substantially
equal annual amounts. The effective all-in-cost of the RRBs, as described in the
testimony, will not exceed the Carrying Charge of 10.88% (as defined in the
Settlement Agreement).
24. The final terms and conditions of SPE Debt Securities and RRBs
authorized by this Financing Order, including, without limiting the foregoing,
the schedule of principal amortization, credit enhancement, frequency of
principal or interest payments, the interest rates on SPE Debt Securities and
RRBs and manner of setting such interest rates (fixed or variable), the manner
of sale of the RRBs, the number and determination of credit ratings, the
approval of final transaction documents and certain transaction costs as set
forth in the testimony, shall, to the extent consistent with the provisions of
this Financing Order, be determined by Boston
48
<PAGE> 104
Edison and approved by the Agencies on behalf of the special purpose trust at
the time RRBs are priced and after input from the rating agencies, tax
authorities and the underwriters.
25. The amount of SPE Debt Securities and RRBs to be issued shall be
determined as described in Boston Edison's testimony; and the net proceeds of
SPE Debt Securities or RRBs shall be used to pay for mitigated transition costs,
in accordance with G.L. c. 164, Section 1H(b)(4)(iv).
26. A special purpose trust shall remit the proceeds from the issuance of
the RRBs authorized by this Financing Order, less underwriters' discount and
original issue discount, to an SPE, which shall, in turn, remit such net
proceeds, less certain transaction costs of issuing SPE Debt Securities and RRBs
to Boston Edison.
27. Boston Edison may apply the net proceeds of RRBs as described in the
testimony (and as set forth in paragraphs 60 et seq. of this Financing Order).
28. The amounts necessary for credit enhancement for SPE Debt Securities
and RRBs and any subsequent adjustments thereto should be determined as
described in Boston Edison's testimony, subject to the requirements of rating
agencies and tax authorities and approval by the Agencies on behalf of the
special purpose trust.
29. The net savings and lower transition charges resulting from the RRB
Transaction should be calculated in accordance with the methodology set forth in
Boston Edison's testimony and such savings will inure to the benefit of
ratepayers, directly or indirectly as described in the testimony. 1.
30. In accordance with G.L. c. 164, Section 1H(c)(1), RRBs and SPE Debt
Securities shall be non-recourse to Boston Edison and its assets, other than the
Transition Property sold to the SPE and Other SPE Collateral subject to this
Financing Order, provided nothing herein shall prevent
49
<PAGE> 105
Boston Edison or its successors or assigns from (a) entering into the Servicing
Agreement authorized pursuant to G.L. c. 164, Section 1H(c)(3) and paragraphs 33
and 62 of this Financing Order, which arrangements may include the making of
representations, warranties and agreements and the providing of covenants and
indemnities, not amounting to recourse, for the benefit of the holders of RRBs
and SPE Debt Securities, and the making of remittances of amounts representing
deemed collections of RTC Charges, (b) entering into agreements in connection
with the sale and transfer of the Transition Property to an SPE and sale of the
SPE Debt Securities, which agreements may include representations and warranties
with respect to, among other things, the validity of the Transition Property and
the title thereto, and providing specific covenants, indemnities and repurchase
obligations, not amounting to recourse, in connection with such transfer for the
benefit of the holders of RRBs and SPE Debt Securities, (c) entering into an
administration agreement (the "Administration Agreement") with each SPE as
further described in the testimony and authorized in paragraph 62 of this
Financing Order and (d) capitalizing each SPE as described in paragraph 11 of
this Financing Order.
Reports
31. Upon the issuance of RRBs and SPE Debt Securities, Boston Edison shall
file with the Department, for informational purposes, an issuance advice letter,
substantially in the form of Appendix A hereto (the "Issuance Advice Letter"),
setting forth the final structural details of RRBs and SPE Debt Securities,
including the repayment terms (in accordance with the expected amortization
schedule), the initial RTC Charge, the amount necessary for credit enhancement,
the identification of each SPE and a special purpose trust, the transaction
costs of issuance and a calculation confirming net savings to ratepayers as a
result of the RRB Transaction. Such filing
50
<PAGE> 106
shall not be a condition to the effectiveness of this Financing Order or the
issuance of RRBs or SPE Debt Securities and shall be automatically effective
upon filing. 1.
32. Within 90 days following the closing of the RRB Transaction, and
within 60 days of the end of each fiscal quarter thereafter until the proceeds
have been applied in full, Boston Edison shall file with the Department a report
showing the use of RRB proceeds in compliance with paragraphs 60 et seq. of this
Financing Order. Such filing shall not be a condition to the effectiveness of
this Financing Order or the issuance of RRBs or SPE Debt Securities.
Servicing of SPE Debt Securities and RRBs
33. Boston Edison, as Servicer, or any successor Servicer is required, in
accordance with G.L. c. 164, Section 1H(c)(3), to enter into a servicing
agreement (the "Servicing Agreement") with an SPE pursuant to which it agrees to
continue to operate its distribution system to provide service to its customers,
to bill and collect RTC Charges for the benefit and account of such SPE or its
assigns, and to account for and remit these amounts to or for the account of
such SPE or its assigns. These components of the Servicing Agreement as further
described in the testimony are authorized and approved.
34. Given Boston Edison's current accounting and billing information
systems capabilities, Boston Edison's establishment of the deemed collection
date, based on its historical collections experience, and its remittance and
reconciliation procedure as more fully described in the testimony is in
compliance with the provisions of G.L. c. 164, Sections 1H(b)(1), (8).
35. In the event of a default by a Servicer in remittance of RTC Charges,
the Department will, in accordance with G.L. c. 164, Sections 1H(d)(5) and (e),
upon application by (i) the holders of SPE Debt Securities or RRBs, or the
trustees or representatives therefor as beneficiaries of any statutory lien
provided by G.L. c. 164, Section 1H(e), (ii) an SPE or its assignees,
51
<PAGE> 107
(iii) a special purpose trust, or (iv) other pledgees or transferees of the
Transition Property and Other SPE Collateral, order the sequestration and
payment to or for the benefit of the pledgees or transferees of the revenues
arising with respect to the Transition Property.
36. In the event of a default by a Servicer under any Servicing Agreement
with respect to RRBs, each special purpose trust or the trustees or
representatives of the holders of SPE Debt Securities or RRBs, may immediately
appoint a successor Servicer for the Transition Property, subject to the
approval of the Department, who shall promptly assume billing responsibilities
for RTC Charges. The Department shall act on an expedited basis within 30 days
to approve such successor Servicer. Such successor Servicer shall assume all
rights and obligations under G.L. c. 164, Section 1H and this Financing Order as
though it were the Servicer at the time such SPE Debt Securities and RRBs were
issued.
37. In accordance with G.L. c. 164, Section 1H(b)(1), amounts collected
from a customer of Boston Edison shall be allocated first, pro rata based on the
relative size of applicable RTC Charges, to the RTC Charges and other portions
of the transition charge subject to other subsequent financing orders, and
second, to any remaining portion of the transition charge not the subject of a
financing order, provided, however, as set forth in G.L. c. 164, Section
1H(f)(1), such preferred right to revenues of Boston Edison shall not impair or
negate the characterization of the transfer of the Transition Property as a
legal true sale as set forth in paragraph 15 of this Financing Order. The
Department approves Boston Edison's remittance procedure, with estimated
charge-offs relating to RTC Charges and reconciliation of remittances, as more
fully described in the testimony and finds that such remittance procedure based
on Boston Edison's accounting and billing information systems capabilities is in
compliance with G.L. c. 164, Section 1H(b)(1).
52
<PAGE> 108
38. The Department will not approve or require any Servicer to replace
Boston Edison as Servicer in any of its servicing functions with respect to the
RTC Charges and the Transition Property authorized by this Financing Order
without determining that approving or requiring such successor Servicer will not
cause the then current credit ratings on RRBs to be withdrawn or downgraded.
39. Any TPS that proposes to collect RTC Charges shall (i) meet the
creditworthiness criteria to be established by the Department, and at a minimum,
the criteria set forth and approved in paragraph 40 of this Financing Order; and
(ii) comply with the billing, collection and remittance procedures and
information access requirements set forth in the testimony, or such other
procedures as the rating agencies may require.
40. The Department will not authorize a TPS to bill and collect the RTC
Charge for remittance to Boston Edison as Servicer (or any successor Servicer),
unless (i) such TPS agrees to remit the full amount of RTC Charges it bills to
retail end-users, regardless of whether payments are received from such
end-users, within 15 days of Boston Edison's (or any successor Servicer's) bill
for such charges, (ii) such TPS shall provide Boston Edison (or any successor
Servicer) with total monthly kWh usage information in a timely manner for the
Servicer to fulfill its obligations, as such information is the basis of such
remittance and (iii) Boston Edison (or any successor Servicer) will be entitled,
within seven days after a default by the TPS in remitting any RTC Charges
billed, to assume responsibility for billing all charges for services provided
by Boston Edison (or any successor Servicer), including the RTC Charges, or to
switch responsibility to a third party. In addition, if and so long as such TPS
does not maintain at least a 'BBB' (or the equivalent) long term unsecured
credit rating from Moody's Investors Service or Standard & Poor's Rating
Services, such TPS shall maintain, with the Servicer or as directed by
53
<PAGE> 109
the Servicer, a cash deposit or comparable security equal to one months'
maximum estimated collections of RTC Charges, as agreed upon by Boston Edison
(or any successor Servicer) and the TPS. In the event of a default in the
remittance of RTC charges by a TPS, such amount will be included in the periodic
adjustment of the RTC Charge as described in the testimony.
41. Regardless of who is responsible for billing of the transition charge,
such transition charge, a component of which will be the RTC Charge, will be
assessed and collected from all classes of retail users of Boston Edison's
distribution system within the geographic service territory as in effect on July
1, 1997 whether or not energy is purchased from Boston Edison or any TPS, and
whether or not such distribution system is being operated by Boston Edison or a
successor distribution company. Such users will continue to be responsible for
payment of the transition charge, a component of which will be the RTC Charge,
billed, but not yet remitted, to the Servicer to the extent such user has not
paid RTC Charges billed to it.
42. In the event of a failure of any retail user to pay the RTC Charge,
the Servicer is authorized to shut-off power of such retail user in accordance
with G.L. c. 164, Sections 116, 124-124I and applicable regulations, at the
direction of Boston Edison or any successor Servicer.
43. The Servicer is authorized to implement the rate collection methods
described in the testimony to ensure that the RTC Charge is nonbypassable
pursuant to G.L. c. 164, Section 1H(b)(2).
44. The Servicer shall be entitled to a servicing fee (the "Servicing
Fee"). The Department approves the Servicing Fee as follows: A Servicer which
bills the RTC Charge concurrently with other service charges is entitled to
receive an annual Servicing Fee, payable semi-annually or more frequently, of
approximately 0.05% of the initial principal balance of RRBs and a Servicer that
does not concurrently bill the RTC Charge with other service charges is
54
<PAGE> 110
entitled to receive a higher Servicing Fee of up to approximately 1.25% of such
initial principal balance.
45. Boston Edison, as initial Servicer, may not voluntarily resign its
duties as Servicer without prior written approval of the Department. Boston
Edison shall remain as Servicer if such resignation will result in the reduction
or withdrawal of the credit rating of the RRBs.
The RTC Charge: Establishment and Adjustment
46. The methodology used to calculate the RTC Charge associated with SPE
Debt Securities and RRBs, and to periodically adjust such RTC Charge, was
described in the testimony, which methodology is approved.
47. The RTC Charge, which will constitute Transition Property, will be
filed initially with the Department in the Issuance Advice Letter and adjusted
up or down, as necessary, in Routine True-Up Letters or Non-Routine True-Up
Letters (each, as defined below). While not separately identified on each retail
user's monthly bill, each monthly bill will indicate in a footnote that the
reimbursable transition cost ("RTC") Charge, as a component of the transition
charge, is being collected on behalf of a special purpose entity ("SPE"), as
owner of the Transition Property.
48. The initial RTC Charge shall be filed in the Issuance Advice Letter,
as provided in paragraph 31 of this Financing Order, which RTC Charge shall be
effective upon filing.
49. In accordance with G.L. c. 164, Section 1H(b)(5), Boston Edison, or a
successor Servicer, on behalf of the pledgees or transferees of the Transition
Property, is authorized to file periodic RTC Charge adjustments to the extent
necessary to ensure the timely recovery of revenues sufficient to provide for
the payment of an amount equal to the sum of the Periodic RRB Payment
Requirements for the upcoming year, which may include indemnity obligations of
the
55
<PAGE> 111
SPE in the RRB transaction documents for SPE officers and directors, trustee
fees, liabilities of the special purpose trust and liabilities to the
underwriters related to the underwriting of the RRBs. The Transition Property
includes the right to obtain such adjustments.
50. Periodic RTC true-up advice letters ("Routine True-Up Letters"), shall
be filed in substantially the form attached to this Financing Order as Appendix
B and shall be completed in accordance with the methodology described in the
testimony, which methodology is approved.
51. Annual RTC Charge adjustments shall be filed with the Department in
Routine True-Up Letters. Adjustments to the RTC Charge proposed by Routine
True-Up Letters shall be filed with the Department each year prior to the
anniversary of the date of effectiveness of this Financing Order, and resulting
adjustments to the RTC Charge shall become effective the first day of the
succeeding month, or such date as may be specified in the Routine True-Up
Letter, as long as such effective date is at least 15 days after the filing of
such Routine True-Up Letter.
52. Routine True-Up Letters may also be filed more frequently before the
end of any calendar quarter or payment date (as defined in the RRB Transaction
documents) and the resulting adjustments to RTC Charges will be effective the
first day of the succeeding month, or such date as may be specified in the
Routine True-Up Letter, as long as such effective date is at least 15 days after
the filing of such Routine True-Up Letter.
53. So long as Routine True-Up Letters are filed in accordance with the
adjustment calculation methodology approved in this Financing Order and use the
Routine True-Up Letters attached substantially in the form of Appendix B to this
Financing Order, no hearing or other action by the Department regarding such
Routine True-Up Letter filings shall be required, and the resulting RTC Charge
adjustments will be effective as provided herein and in such filings.
56
<PAGE> 112
54. In the event that Boston Edison determines that the methodology used
to calculate the RTC Charge described in the testimony requires adjustment to
more accurately project and generate adequate RTC Charge revenues, a non-routine
RTC true-up advice letter ("Non-Routine True-Up Letter") may be filed. Any
Non-Routine RTC True-Up Letter and resulting adjustments to RTC Charges shall be
effective within 60 days of such filing. Non-Routine True-Up Letters are subject
to the review and approval of the Department.
55. In no event shall the transition charge from time to time in effect as
approved by the Department in accordance with the Settlement Agreement's
methodology and as may be revised by this Financing Order, the Pilgrim Order, or
in an order arising from a Separate Proceeding be adjusted below the RTC. If
adjustments to the transition charge to meet the required rate reduction would
cause the transition charge to fall below the RTC charge, the Department shall
adjust other components of the Company's rates. Conversely, if the RTC charge,
as adjusted, would exceed the then current transition charge, the Department
also shall adjust other components of the Company's rates.
Advice Filings for Tariff Language
56. Boston Edison is authorized to establish by the Issuance Advice Letter
filing the initial RTC Charge and by the true-up letter filings, subsequent
adjustments, up or down, to the RTC Charge. The RTC Charge will represent a
component of the transition charge.
Reconciliation of the RTC Charge
57. As required by G.L. c. 164, Section 1G(a)(2), Boston Edison shall
permit the Department, at Boston Edison's expense, to audit, review and
reconcile the difference, if any, between assumed reimbursable transition costs
amounts, with the actual reimbursable transition costs amounts not less often
than once during each 18 month period following the effective date of this
57
<PAGE> 113
Financing Order. Such audit, review and reconciliation shall not include the
actual amounts approved in the findings of this Financing Order and known at the
time of pricing of the RRBs and filing of the Issuance Advice Letter. Through
the Settlement Agreement, the subsequent filings pursuant thereto, the Pilgrim
Order or a Separate Proceeding, the Department has established and authorized as
actual and fully mitigated for purposes of G.L. c. 164, Section 1G(a)(2), the
amounts of the Pilgrim and fossil unrecovered plant balances, generation related
regulatory assets balances, Pilgrim decommissioning funding and any additional
costs arising in connection with the Pilgrim divestiture or approved pursuant to
a Separate Proceeding. In this Financing Order, the Department has established
and authorized as actual for purposes of G.L. c. 164, Section 1G(a)(2), the
transaction costs of issuance (other than the costs of reducing capitalization),
ongoing transaction costs (other than legal and accounting fees and other
miscellaneous fees) and any credit enhancement (collectively with the above
transition costs, the "actual reimbursable transition costs amounts"). No audit
of Boston Edison pursuant to G.L. c. 164, Section 1G(a)(2) is necessary with
respect to such actual reimbursable transition costs amounts and the Department
shall not conduct or require any audit of such amounts.
58. To the extent that an audit under G.L. c. 164, Section 1G(a)(2) is
required subject to paragraph 57 of this Financing Order, if the amount of
reimbursable transition costs amounts, other than actual reimbursable transition
costs amounts (as defined in paragraph 57 of this Financing Order), exceeds the
actual amount of such reimbursable transition costs amounts as shown by the
audit, then Boston Edison, upon order of the Department, shall provide
ratepayers with a uniform rate credit through the mechanism of its residual
value credit and annual transition charge update as described in the Settlement
Agreement.
58
<PAGE> 114
59. No such uniform rate credit shall in any way diminish or affect the
right of Boston Edison or its assignee or pledgee to collect RTC Charges in
amounts necessary to provide for the payment of an amount equal to the sum of
the Periodic RRB Payment Requirements for the upcoming year as the same become
due, nor shall any such rate credit impair or negate the characterization of the
transfer of the Transition Property as a true sale as set forth in paragraph 15
of this Financing Order nor shall any such rate credit reduce or impair the
value of the Transition Property as proscribed by paragraph 17 of this Financing
Order.
Use of RRB Proceeds
60. Boston Edison expects to use such proceeds, net of transaction costs
described in paragraph 3 of this Financing Order, 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
recover other transition costs arising in connection with the Pilgrim
divestiture or approved pursuant to a Separate Proceeding; and (c) to provide
any credit enhancement required for the RRBs. Boston Edison may also apply such
proceeds to the reduction of its capitalization and for general corporate
purposes.
61. Boston Edison's use of the net RRB proceeds is authorized and
approved. Boston Edison has proved to the Department's satisfaction that it has
established an order of preference such that the transition costs having the
greatest impact on customer rates will be the first to be provided, recovered,
financed or refinanced by the RRB Transaction in accordance with G.L. c. 164,
Section 1G(d)(4)(v).
Approval of Servicing Agreement, Administration Agreement and Other
Agreements or Transactions
59
<PAGE> 115
62. Boston Edison's entering into the Servicing Agreement, the
Administration Agreement and other RRB Transaction documents with one or more
SPEs as described herein and other transaction documents and other dealings
between Boston Edison and each SPE contemplated by the RRB Transaction are
authorized pursuant to G.L. c. 164, Sections 17A and 76A and in accordance with
all applicable Massachusetts law, rules and regulations. Such Agreements and RRB
Transaction documents shall comply with this Financing Order and shall not
impair or negate the characterization of the sale, assignment or pledge as an
absolute transfer, a true sale, or security interest as applicable.
Accounting for Certain Benefits
63. Any amounts accounted for in the reserve account, which represents
collections in excess of the fully funded credit enhancement reserves, at the
time that Boston Edison calculates a periodic RTC Charge adjustment will be
incorporated in such adjustment, in accordance with G.L. c. 164, Section
1H(b)(7). Boston Edison, as initial Servicer (or any successor Servicer)
intends, through a separate non-cash memorandum account, to account for, and
ultimately credit to ratepayers, any amounts remaining in the collection account
after the RRBs are paid in full, such as any overcollateralization amounts,
including interest earnings thereon, or RTC Charge collections that remain after
the Total RRB Payment Requirements have been discharged. Such amounts will be
released to the SPE in accordance with G.L. c. 164, Section 1H(b)(7), upon
retirement of the RRBs and discharge of the Total RRB Payment Requirements.
These benefits 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.
60
<PAGE> 116
64. The Department confirms that as provided in the Settlement Agreement,
Boston Edison's transition charge shall not exceed 3.51 cents/kWh in 1998 or
3.35 cents/kWh thereafter and that this cap is not subject to reduction.
65. Synthetic floating rate RRBs (RRBs representing an interest in fixed
rate SPE Debt Securities and the floating rate side of a swap transaction) will
not be issued unless such issuance, as determined by the Company and approved by
the Agencies, on behalf of the special purpose trust will result in a lower net
interest cost on the RRBs.
66. The Department grants an exemption from the competitive bidding
requirements of G.L. c. 164, Section 15 in connection with the sale of RRBs.
67. The Department grants an exemption from the par value debt issuance
requirements of G.L. c. 164, Section 15.
68. This order hereby incorporates those findings and determinations that
transition costs are securitizable as defined in G.L. c. 164, as reached by the
Department in an order, including D.T.E. 98-119 and 99-16, that becomes final
and no longer subject to appeal prior to the filing with the SEC of the
preliminary prospectus to be distributed to prospective investors.
61
<PAGE> 117
Appendix A
ISSUANCE ADVICE LETTER
[date]
ADVICE______
DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY (THE
"DEPARTMENT") OF THE COMMONWEALTH OF MASSACHUSETTS
SUBJECT: Issuance Advice Letter for Electric Rate Reduction Bonds ("RRBs")
Pursuant to D.T.E. Docket No. 98-118 (the "Financing Order"), Boston Edison
Company ("Boston Edison") hereby transmits for filing, on the pricing date of
this series of RRBs, the initial RTC Charge for such series. This Issuance
Advice Letter is for the RRB series _______ class(es)_________. Any capitalized
terms not defined herein shall have the meanings ascribed thereto in the
Financing Order.
PURPOSE
This filing establishes the following:
(a) the actual terms of the RRBs being issued;
(b) confirmation of ratepayer savings;
(c) the initial RTC Charge for retail users;
(d) the identification of the Transition Property to be sold to a special
purpose entity (the "SPE"); and
(e) the identification of the SPE;
BACKGROUND
In the Financing Order, the Department authorized Boston Edison to file an
Issuance Advice Letter when pricing terms for a series of RRBs have been
established. This Issuance Advice Letter filing incorporates the methodology for
determining the RTC Charge approved and authorized by the Department in the
Financing Order to establish the initial RTC Charge for a series of RRBs and
establishes the initial RTC Charge to be assessed and collected from all classes
of retail users of Boston Edison's distribution system within the geographic
service territory as in effect on July 1, 1997, whether or not energy is
purchased from Boston Edison or any TPS, and whether or not such distribution
system is being operated by Boston Edison or a successor distribution company.
The RTC Charge is a usage-based component of the transition
A-1
<PAGE> 118
charge on each retail user's monthly bill, and may include in the future a
component of any exit fee collected pursuant to G.L. c. 164, Section 1G(g) until
the Total RRB Payment Requirements are discharged in full.
ACTUAL TERMS OF ISSUANCE
RRB Name:_________
RRB Issuer:_________
Trustee(s):_________
Closing Date:_________
Bond Rating:________
Amount Issued:_________
Transaction costs of issuance: See Attachment 1
Ongoing transaction costs: See Attachment 2
Coupon Rate(s):_________
Call Features:_________
Massachusetts Tax Exempt (yes/no):_________
Expected Principal Amortization Schedule: See Attachment 3
Expected Final Maturity:_________
Legal Final Maturity:_________
Distributions to Investors (quarterly or semi-annually):_________
Annual Servicing Fee as a percent of the initial RRB principal
balance:_________
Overcollateralization amount for the RRBs:_________
Confirmation of Ratepayer Savings
The Financing Order requires Boston Edison to demonstrate, using the savings
methodology approved in that Docket, that the actual terms of the RRB
Transaction result in net savings. Attached to this Issuance Advice Letter is a
spreadsheet calculation which shows expected net savings of $___ million for
this series of RRBs. See Attachment 4.
A-2
<PAGE> 119
Initial RTC Charge
Table I below shows the current assumptions for each of the variables used in
the RTC Charge calculation.
TABLE I
INPUT VALUES FOR RTC CHARGES
Forecasted annual retail kWh sales
Percent of billed amounts expected to be charged-off:________
Weighted average days sales outstanding:_____
(calculated as follows)
Percent of billed amounts collected in current month:_____
Percent of billed amounts collected in second month after billing:_____
Percent of billed amounts collected in third month after billing:_____
Percent of billed amounts collected in fourth month after billing:_____
Percent of billed amounts collected in fifth month after billing:_____
Forecasted annual ongoing transaction expenses:_____
Required annual overcollateralization amount:_____
Current RRB outstanding balance:_____
Expected RRB outstanding balance as of ___/___/___:_____
The initial RTC Charge calculated for retail users is as follows:
_____cent/kWh
Transition Property
Transition Property is the property described in G.L. c. 164, Section 1H(a)
relating to the RTC Charge set forth herein, including, without limitation, the
right, title, and interest in and to all revenues, collections, claims,
payments, money, or proceeds of or arising from or constituting (a) the
reimbursable transition costs amounts established by the Financing Order
including such amounts established in the Issuance Advice Letter, (b) the RTC
Charge authorized by the Financing Order including the initial RTC Charge set
forth in the Issuance Advice Letter, as may be adjusted from time to time in
order to generate amounts sufficient to discharge the Total RRB Payment
Requirements, and (c) all rights to obtain periodic adjustments and non-routine
adjustments to the RTC Charge.
This RTC Charge, as adjusted from time to time, shall remain in place until the
Total RRB Payment Requirements are discharged in full.
Identification of SPE
The owner of the Transition Property (the "SPE") will be: ____________________.
The SPE shall be considered a financing entity for purposes of G.L. c. 164,
Section 1H.
A-3
<PAGE> 120
EFFECTIVE DATE
In accordance with the Financing Order, the RTC Charge shall be automatically
effective when filed and will continue to be effective, unless it is changed by
subsequent Issuance Advice Letter, Routine True-Up Letter, or Non Routine
True-Up Letter.
NOTICE
Copies of this filing are being furnished to the parties on the attached service
list. Notice to the public is hereby given by filing and keeping this filing
open for public inspection at the Company's corporate headquarters.
Enclosures
A-4
<PAGE> 121
ATTACHMENT 1
TRANSACTION COSTS OF ISSUANCE
<TABLE>
<S> <C>
Amount
------
Underwriting spread
Rating agency fees
Accounting fees
SEC registration fee (.0278%)
D.T.E. filing fee ($750 for first million plus $150
for each additional million)
Printing and marketing expenses
Trustee fees and counsel
Company legal fees and expenses
Underwriters' legal fees and expenses
Bond counsel legal fees and expenses
Mass Development/HEFA fees
Original issue discount
Servicing set-up costs
SPE set-up costs
Miscellaneous costs
Expenses in connection with reducing capitalization
(including call provisions and prepayments) ----------
Total transaction costs of issuance $
==========
</TABLE>
A-5
<PAGE> 122
ATTACHMENT 2
ONGOING TRANSACTION COSTS
<TABLE>
<S> <C>
Ongoing Costs Amount
- ------------- ------
Administration fee
Rating agency fees
Accounting, legal and trustees' fees
Servicing fee (approximately .05% of initial
principal balance)(2)
Overcollateralization amount
Miscellaneous(3)
------
Total estimated costs $
======
</TABLE>
- ----------------------
(2) These costs will include:
- Billing, collecting and remitting the RTC Charges;
- Calculate daily amount of remittances to the SPE trustee;
- Wire transfer daily remittances to the SPE trustee;
- Prepare monthly servicer report for trustee and rating agencies;
- Prepare semi-annual servicer report for trustee;
- Manage and invest the various SPE cash accounts;
- Reflect all transactions on the financial statements;
- Perform periodic reconciliations with the trustee;
- Perform annual true-up and adjust RTC Charge, as necessary; and
- Maintain memorandum account, if any.
(3) These costs would include any contingent liabilities arising in
connection with indemnity provisions in the RRB Transaction documents.
A-6
<PAGE> 123
ATTACHMENT 3
EXPECTED AMORTIZATION SCHEDULE
SERIES_______, CLASS_______
A-7
<PAGE> 124
ATTACHMENT 4
RATEPAYER SAVINGS
A-8
<PAGE> 125
Appendix B
ROUTINE TRUE-UP LETTER
[date]
ADVICE________
DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY (THE "DEPARTMENT") OF THE
COMMONWEALTH OF MASSACHUSETTS
SUBJECT: Periodic RTC Charge True-Up Mechanism Advice Filing
Pursuant to D.T.E. Docket No. 98-118 (the "Financing Order"), Boston Edison
Company ("Boston Edison") as servicer of the RRBs or any successor Servicer and
on behalf of the trustee as assignee of the special purpose entity (the "SPE")
may apply for adjustment to the RTC Charge on each anniversary of the date of
the Financing Order and at such additional intervals as may be provided for in
the Financing Order. Any capitalized terms not defined herein shall have the
meanings ascribed thereto in the Financing Order.
PURPOSE
This filing establishes the revised RTC Charge to be assessed and collected from
all classes of retail users of Boston Edison's distribution system within the
geographic service territory as in effect on July 1, 1997, whether or not energy
is purchased from Boston Edison or any TPS, and whether or not such distribution
system is being operated by Boston Edison or a successor distribution company.
The RTC Charge is a usage-based component of the transition charge on each
retail user's monthly bill and may include in the future a component of any exit
fee collected pursuant to G.L. c. 164, Section 1G(g) until the Total RRB Payment
Requirements are discharged in full. In the Financing Order, the Department
authorized Boston Edison to file Routine True-Up Letters prior to each
anniversary of the date of the Financing Order and at such additional intervals,
if necessary, as provided for in the Financing Order. Boston Edison, or a
successor Servicer, is authorized to file periodic RTC Charge adjustments to the
extent necessary to ensure the timely recovery of revenues sufficient to provide
for the payment of an amount equal to the sum of the Periodic RRB Payment
Requirements (as defined in the Financing Order for the upcoming year, which may
include indemnity obligations of the SPE in the RRB transaction documents for
SPE officers and directors, trustee fees, liabilities of the special purpose
trust and liabilities to the underwriters related to the underwriting of the
RRBs.
B-1
<PAGE> 126
Routine True-Up Letter filings are those where Boston Edison uses the
methodology approved by the Department in the Financing Order to adjust upward
or downward the existing RTC Charge.
Using the methodology approved by the Department in the Financing Order, this
filing modifies the variables used in the RTC Charge calculation and provides
the resulting modified RTC Charge. Table I shows the revised assumptions for
each of the variables used in calculating the RTC Charge for retail users. The
assumptions underlying the current RTC Charges were filed in an Issuance Advice
Letter, dated _____________.
Table I below shows the current assumptions for each of the variables used in
the RTC Charge calculation.
TABLE I
INPUT VALUES FOR RTC CHARGE
Forecasted annual retail kWh sales:_____
Forecasted percent of retail users' billed amounts charged-off:_____
Percent of retail users' billed amounts charged-off:_____
Weighted average days sales outstanding:_____
(calculated as follows)
Percent of billed amounts collected in current month:_____
Percent of billed amounts collected in second month after billing:_____
Percent of billed amounts collected in third month after billing:_____
Percent of billed amounts collected in fourth month after
billing:_____
Percent of billed amounts collected in fifth month after billing:_____
Annual ongoing transaction expenses:_____
Current RRB outstanding balance:_____
Expected RRB outstanding balance as of ___/___/___:_____
Deferred unpaid RRB principal:_____
Accrued but unpaid RRB interest:_____
Unpaid ongoing transaction costs:_____
Required annual overcollateralization amount:_____
Deficiency in capital account:_____
Deficiency in overcollateralization account:_____
Amount in reserve account:_____
The adjusted RTC Charge calculated for retail users is as follows: _____cent/kWh
EFFECTIVE DATE
In accordance with the Financing Order, Routine True-Up Letters for annual RTC
Charge adjustments shall be filed prior to the anniversary of the Financing
Order or more frequently, if necessary, with the resulting changes to be
effective no sooner than 15 days after the filing of this
B-2
<PAGE> 127
Routine True-Up Letter. No resolution by the Department is required. Therefore,
these RTC Charges shall be effective as of __________.
NOTICE
Copies of this filing are being furnished to the parties on the attached service
list. Notice to the public is hereby given by filing and keeping this filing
open for public inspection at Boston Edison's corporate headquarters.
Enclosures
B-3
<PAGE> 128
THE COMMONWEALTH OF MASSACHUSETTS
----------
DEPARTMENT OF
TELECOMMUNICATIONS AND ENERGY
May 21, 1999
D.T.E. 98-118-A
Application of Boston Edison Company, an electric company under G.L. c. 164,
Section 1, for Approval of Rate Reduction Bonds under the terms of the Electric
Restructuring Act, St. 1997, c. 164.
- --------------------------------------------------------------------------------
APPEARANCES: William S. Stowe, Esq.
Catherine J. Keuthen, Esq.
Boston Edison Company
800 Boylston Street
Boston, Massachusetts 02199
and
Robert K. Gad, Esq.
Colleen M. Granahan, Esq.
Ropes & Gray
One International Place
Boston, MA 02110
FOR: BOSTON EDISON COMPANY
Petitioner
Thomas J. Reilly, Attorney General
BY: Joseph W. Rogers
Rebecca Perez
Assistant Attorneys General
Regulated Industries Division
200 Portland Street, 4th Floor
Boston, Massachusetts 02114
Intervenor
<PAGE> 129
Robert F. Sydney, Esq.
Vincent DeVito, Esq.
Division of Energy
Resources 100 Cambridge Street, Room 1500
Boston, Massachusetts 02202
FOR: COMMONWEALTH OF MASSACHUSETTS
DIVISION OF ENERGY RESOURCES
Intervenor
Paul R. Gauron, Esq.
Goodwin, Procter & Hoar, LLP
Exchange Place
Boston, Massachusetts 02109
FOR: ENTERGY NUCLEAR GENERATION
COMPANY
Intervenor
Burton E. Rosenthal, Esq.
Segal, Roitman & Coleman
11 Beacon Street, Suite 500
Boston, MA 02108
FOR: LOCALS 369 and 387, AFL-CIO
Intervenor
Maria Krokidas, Esq.
Krokidas & Bluestein
141 Tremont Street
Boston, MA 02111-1209
FOR: MASSACHUSETTS DEVELOPMENT
FINANCE AGENCY
and
FOR: MASSACHUSETTS HEALTH &
EDUCATIONAL FACILITIES AUTHORITY
Intervenors
Michael B. Meyer, Esq.
Meyer, Connolly, Sloman & MacDonald, LLP
12 Post Office Square
Boston, MA 02109
FOR: TOWN OF PLYMOUTH
Intervenor
<PAGE> 130
David S. Rosenzweig, Esq.
Keegan, Werlin & Pabian, LLP
21 Custom House Street
Boston, MA 02110
and
John Cope-Flanagan, Esq.
COM/Energy Services Company
One Main Street
P.O. Box 9150
Cambridge, MA 02142-9150
FOR: COMMONWEALTH ELECTRIC COMPANY
Limited Participant
Laura S. Olton, Esq.
McDermott, Will & Emery
28 State Street
Boston, MA 02109
FOR: MONTAUP ELECTRIC COMPANY
and
FOR: EASTERN EDISON COMPANY
Limited Participants
Stephen Klionsky, Esq.
260 Franklin Street, 21st Floor
Boston, MA 02110
FOR: WESTERN MASSACHUSETTS ELECTRIC
COMPANY
Limited Participant
<PAGE> 131
ORDER ON MASSACHUSETTS DEVELOPMENT FINANCE AGENCY'S AND
MASSACHUSETTS HEALTH AND EDUCATIONAL FACILITY AUTHORITY'S
MOTION FOR CLARIFICATION
1. INTRODUCTION
On December 3, 1998, Boston Edison Company ("Boston Edison" or "Company")
filed with the Department of Telecommunications and Energy ("Department") an
application to issue rate reduction bonds ("RRBs") pursuant to G.L. c. 164,
Section 1.H(b). On April 2, 1999, the Department issued an order approving
Boston Edison's application. Boston Edison Company, D.T.E. 98-118 ("D.T.E.
98-118"). On March 29, 1999, the Massachusetts Development Finance Agency and
Massachusetts Health and Educational Facilities Authority (collectively, the
"Agencies") requested that the Department include language in the Order to
address "circumstances where the [reimbursable transition cost charge ("RTC
Charge")], which is a component of the transition charge, would exceed the then
current transition charge until an adjustment of the transition charge is made"
(Supplemental Filing of the Agencies at 2 (March 29, 1999) "Supplemental
Filing"). The Agencies requested this change to satisfy the bond rating agencies
that the RTC Charge will be sufficient to cover the payments on the bonds (id.).
In their Supplemental Filing, the Agencies offered two alternative mechanisms to
satisfy their concern in the above described circumstances. The first
alternative would provide an increase in the statutory rate reduction cap to
permit an RTC Charge adjustment (id. at 3-4). The second alternative would not
affect the statutory rate reduction cap, but would provide that the Company
would defer collection of the increase in the standard offer rate so long as the
deferred amount earns a carrying charge of 10.88% (id. at 4-5). On March 31,
1999, Boston Edison filed comments in support of the Agencies' Supplemental
Filing.
<PAGE> 132
In D.T.E. 98-118, the Department acknowledged that there could be
circumstances where changes in other rate components would cause the transition
charge to go below the RTC Charge. D.T.E. 98-118 at 40. However, the Department
did not adopt the Agencies' first proposed alternative stating "it may violate
the statutory requirements pertaining to rate reductions." Id. Instead, the
Department stated that in such circumstances, it will adjust other components of
the Company's rates. Id. The Department also did not adopt the Agencies' second
proposed alternative stating "it would be premature to determine here exactly
which component of the Company's rates to adjust." Id. Instead, to address the
Agencies concerns, the Department did include the following language in D.T.E.
98-118:
In no event shall the transition charge from time to time in effect as
approved by the Department in accordance with the Settlement Agreement's
methodology and as may be revised by this Financing Order, the Pilgrim
Order, or in an order arising from a Separate Proceeding be adjusted below
the RTC. If adjustments to the transition charge to meet the required rate
reduction would cause the transition charge to fall below the RTC Charge,
the Department shall adjust other components of the Company's rates.
Conversely, if the RTC Charge, as adjusted, would exceed the then current
transition charge, the Department also shall adjust other components of the
Company's rates. D.T.E. 98-118, at 40-41, Appendix 1 at Paragraph 55.
On April 16, 1999, the Agencies filed a Motion for Clarification of D.T.E.
98-118 ("Motion"). The Agencies seek to clarify what adjustments would happen in
the event the transition charge is increased to cover the RTC Charge as well as
the timing of any such adjustments (Motion at 2-3). Specifically, the Agencies
seek to clarify whether other rates would be deferred and if so, at what
carrying charge rate (id.). In addition, the Agencies request some minor
clarification edits, and a small change to the language that would be required
on the
<PAGE> 133
customers' bills regarding the RTC Charge.(1) On May 3, 1999, Boston Edison
filed comments in support of the Motion ("Company Comments").
II. POSITION OF THE PARTIES
A. Agencies
1. RTC Charge Adjustment
The Agencies state that in D.T.E. 98-118 the Department recognized that
there may be circumstances when the RTC Charge would exceed the transition
charge and that under such circumstances the transition charge would have to be
increased (Motion at 2). According to the Agencies, D.T.E. 98-118 recognizes
that under such circumstances, adjustments to the other rates may be necessary
to provide the legislatively mandated rate reductions (Motion at 2). However,
the Agencies state that the Department's order does not make clear that
adjustments to the other rate components would result in deferrals in the
collection of those rate components (Motion at 2). Further the Agencies state
that D.T.E. 98-118 does not identify the carrying charge rate that would apply
if such deferrals occur (Motion at 2).
The Agencies argue that clarification of these RTC Charge issues is
necessary to ensure the nonrecourse nature of the RRBs, and will help in
providing the opinions on true sale and non-consolidation that are necessary to
achieve the highest possible rating for the RRBs (Motion at 2-3). According to
the Agencies, if Boston Edison's revenues are reduced to support the RTC Charge
without the payment of an appropriate carrying charge, then there is a link
between
- ------------------------
(1) Although not characterized in this way by the Agencies,
many of the requested "clarification edits" are more
properly treated as requests for reconsideration.
<PAGE> 134
Boston Edison and the separate special purpose entity set up to own the
transition property. In case of a bankruptcy of the Company, resources of the
post-petition bankruptcy estate would be subject to depletion to support the RTC
Charge (Motion at 2-3, n. 2). The Agencies contend that such depletion could
create significant difficulties for bankruptcy counsel in the issuance of
true-sale and non-consolidation opinions (Motion at 2-3, n. 2).
To clarify these issues, the Agencies ask the Department to substitute the
following language for the language currently contained in Paragraph 55 of
D.T.E.98-118:
If, as a result of a true-up calculation, the RTC Charge would be increased
above the transition charge then in effect, the transition charge shall, on
the effective date of the RTC Charge adjustment, be increased to the amount
of the RTC Charge, as so adjusted, subject to the 3.35 cents/kWh cap on the
transition charge. If adjustments to the transition charge necessary to
meet the required rate reduction in effect through December 31, 2004 would
cause the transition charge to fall below the required RTC Charge, the
Department shall instead, effective as of the time of the RTC Charge
adjustment, adjust components of Boston Edison's rates and charges, other
than the RTC Charge, as necessary to satisfy such rate reduction
requirement. If, as a result of such adjustment, Boston Edison is not
allowed to collect on a current basis any rate or charge which it would be
allowed to collect but for the adjustment of such rate or charge required
to maintain the RTC Charge, the portion of such other rate or charge that
is not collected on a current basis shall be deferred at the carrying
charge from time to time in effect applicable to that portion of the
transition charge not constituting the RTC Charge; provided, however, that
this provision for deferral of uncollected rates or charges shall apply
solely to adjustments required to maintain the RTC Charge as provided
herein and nothing in this Order 55 shall affect the Department's legal
authority to make a separate determination to adjust Boston Edison's rates
and charges on any other basis (Motion at 3-4).
2. Minor Clarification Edits
The Agencies provide an appendix to their motion that contains an "errata
sheet" with proposed corrections to D.T.E. 98-118 (Motion at 4; Appendix A).
Eight of these proposed
<PAGE> 135
corrections are to update the approximate amount of transactions costs and
total securitization amounts, which the Agencies argue is necessary for
"accuracy" (Motion, Appendix A). Two corrections are proposed to clarify that
the estimated amounts for transaction costs do not include any amount for any
additional credit enhancements which may be necessary (id.). In addition, the
Agencies propose to modify a finding and the corresponding ordering clause to
clarify that the Department may change the otherwise irrevocable value of the
transition property in the event the transition charge goes above the transition
charge cap in Boston Edison's Settlement Agreement. Finally, the Agencies
propose to substitute the word "affect" for "effect" in one paragraph of the
Order to prevent an "unintended meaning" (id.).
In addition, the Agencies propose a change to the text that is to be placed
on the customers' bills regarding ownership of the transition charge. Pursuant
to the Department's order in D.T.E. 98-118, the text is to read, "The
reimbursable transition cost ("RTC") charge as a component of the transition
charge is being collected on behalf of a special purpose entity (SPE), as the
owner of the transition property" (Motion at 4, citing D.T.E. 98-118, at 36).
The Agencies propose to replace this text with "Therefore, the Department
directs the Company to include the following statement (or, alternatively,
language of substantially the same effect as shall be approved by the
Department's Consumer Division) in a footnote on customers' bills: 'The
reimbursable transition cost ("RTC") charge as a component of the transition
charge is being collected on behalf of a special purpose entity ("SPE"), as the
owner of the transition property.'" (Motion at 4-5, n. 3) The Agencies assert
that this proposed change clarifies the instruction, and leaves open the
possibility of minor changes to the wording subject to the approval of the
<PAGE> 136
Department's Consumer Division (Motion at 4). According to the Agencies, these
changes may be necessary to provide the legal name of the special purpose entity
or to accommodate bill formatting issues faced by Boston Edison (Motion at 4-5).
The Agencies state that in any case, all modifications to the language will
reflect the substance of the Department's proposed language, seek to minimize
customer confusion, and be subject to the approval of the Department's Consumer
Division (Motion at 5). The Agencies state that they have "consulted with Boston
Edison with respect to this filing and it has authorized the Agencies to
indicate that Boston Edison has no objection to the clarifications and
corrections requested herein" (Motion at 1).
B. Boston Edison
1. RTC Charge Adjustment
Boston Edison argues that the requested clarification is necessary in order
for bankruptcy counsel to issue the appropriate opinions critical to the overall
securitization transaction (Company Comments at 1). Boston Edison states that
the Agencies' request ensures that the future operations of the Company,
especially during a hypothetical bankruptcy case, will not be "burdened by
reductions in rates and charges for future services or other impacts imposed on
Boston Edison's assets (other than access charges that have been sold) to
provide a stream of revenue to pay the RTC Charge" (id. at 2). Boston Edison
argues that this clarification is necessary to ensure that the bonds receive the
highest feasible credit rating which will, in turn, translate into greater
savings for Company ratepayers (id.).
<PAGE> 137
2. Minor Clarification Edits
With respect to the footnote to be included on customers' bills, the
Company argues that space limitations on the front of the bill necessitate a
minor change in the language (id.). The Company proposes that the following
language be included on the bills:
"Part of the transition charge which we collect is owned by BEC Funding
LLC." Boston Edison states that this proposed language has been approved by its
bankruptcy counsel and will satisfy any bankruptcy opinion considerations
(id. at 2-3). Boston Edison's position on this issue is slightly different from
the Agencies' who propose to leave open the possibility of minor changes to the
quoted language which would be subject to approval by the Department's Consumer
Division. Boston Edison states that the Agencies approach would also be
acceptable provided that the final language is also approved by bankruptcy
counsel.
III. STANDARD OF REVIEW
Clarification of previously issued orders may be granted when an order is
silent as to the disposition of a specific issue requiring determination in the
order, or when the order contains language that is so ambiguous so as to leave
doubt as to its meaning. Boston Edison Company, D.P.U. 92-1A-B at 4 (1993);
Whitinsville Water Company, D.P.U. 89-67-A at 1-2 (1989). Clarification does not
involve reexamining the record for the purpose of substantively modifying a
decision. Boston Edison Company, D.P.U. 90-335-A at 3 (1992), citing Fitchburg
Gas & Electric Light Company, D.P.U. 18296/18297, at 2 (1976).
The Department's policy on reconsideration is well settled. Reconsideration
of previously decided issues is granted only when extraordinary circumstances
dictate that we take a
<PAGE> 138
fresh look at the record for the express purpose of substantively modifying a
decision reached after review and deliberation. North Attleboro Gas Company,
D.P.U. 94-130-B at 2 (1995); Boston Edison Company, D.P.U. 90-270-A at 2-3
(1991); Western Massachusetts Electric Company, D.P.U. 558-A at 2 (1987).
A motion for reconsideration should bring to light previously unknown or
undisclosed facts that would have a significant impact upon the decision already
rendered. It should not attempt to reargue issues considered and decided in the
main case. Commonwealth Electric Company, D.P.U. 92-3C-1A at 3-6 (1995); Boston
Edison Company, D.P.U. 90-270-A at 3 (1991); Boston Edison Company, D.P.U.
1350-A at 4 (1983). The Department has denied reconsideration when the request
rests on an issue or updated information presented for the first time in the
motion for reconsideration. Western Massachusetts Electric Company, D.P.U.
85-270-C at 18-20 (1987); but see Western Massachusetts Electric Company, D.P.U.
86-280-A at 16-18 (1987). Alternatively, a motion for reconsideration may be
based on the argument that the Department's treatment of an issue was the result
of mistake or inadvertence. Massachusetts Electric Company, D.P.U. 90-261-B at 7
(1991); New England Telephone and Telegraph Company, D.P.U. 86-33-J at 2 (1989);
Boston Edison Company, D.P.U. 1350-A at 5 (1983).
IV. ANALYSIS AND FINDINGS
A. RTC Charge Adjustment
In response to the Agencies' Motion for Clarification, we first assess
whether the Department's order was, in fact, silent on a central issue and
whether that issue "requir[es] determination" in accordance with our standard of
review. The Agencies argue that D.T.E. 98-
<PAGE> 139
118 is ambiguous as to whether, in circumstances when adjustments to the other
rate components are necessary, deferrals in the collection of those rate
components would result. Further, the Agencies argue that D.T.E. 98-118 is
silent as to the carrying charge rate that would apply if such deferrals occur.
Both the Agencies and Boston Edison argue that determination of these issues is
required to provide the opinions on true sale and non-consolidation that are
necessary to achieve the highest possible rating for the RRBs. The Department's
Order in D.T.E. 98-118 is silent on this issue and determination is necessary to
effect the true-sale opinion and ultimately the rating of the RRBs.
Despite the Order's silence, if Boston Edison is not allowed to collect on
a current basis any rate or charge which it would be allowed to collect but for
the adjustment of such rate or charge required to maintain the RTC Charge, such
amounts would necessarily be deferred at an appropriate carrying charge.
Deferral at an appropriate carrying charge is necessary to ensure that the
Company neither gains nor loses from the deferrals. While the language proposed
by the Agencies appropriately clarifies the necessity of deferrals when
adjustments to rate components are necessary, we do not agree that the
appropriate carrying charge for all costs deferred to protect the RTC Charge is
"the carrying charge rate from time to time in effect applicable to that portion
of the transition charge not constituting the RTC Charge" which is currently
10.88 percent. The actual costs of deferral may be different from 10.88 percent
depending on which rates are reduced. As we stated in D.T.E. 98-118, it is
premature to determine here exactly which component of the Company's rates to
adjust. The Agencies proposed clarification specifies the same carrying charge
rate without regard to which rate is reduced. Under this proposal, Boston
<PAGE> 140
Edison may potentially gain (or lose) depending on what rate the Department
later selects for reduction.
To remedy the Department's silence with respect to the deferrals and
carrying charge, we will adopt the Agencies' proposed clarification, modified to
link the carrying charge rate for the deferred amounts should to the rate that
is being reduced.(2)
If, as a result of a true-up calculation, the RTC Charge would be increased
above the transition charge then in effect, the transition charge shall, on
the effective date of the RTC Charge adjustment, be increased to the amount
of the RTC Charge, as so adjusted, subject to the 3.35 cents/kWh cap on
the transition charge. If adjustments to the transition charge necessary to
meet the required rate reduction in effect through December 31, 2004, would
cause the transition charge to fall below the required RTC Charge, the
Department shall instead, effective as of the time of the RTC Charge
adjustment, adjust components of Boston Edison's rates and charges, other
than the RTC Charge, as necessary to satisfy such rate reduction
requirement. If, as a result of such adjustment, Boston Edison is not
allowed to collect on a current basis any rate or charge which it would be
allowed to collect but for the adjustment of such rate or charge required
to maintain the RTC Charge, the portion of such other rate or charge that
is not collected on a current basis shall be deferred at the carrying
charge from time to time in effect applicable to that rate or charge which
is being reduced; provided, however, that this provision for deferral of
uncollected rates or charges shall apply solely to adjustments required to
maintain the RTC Charge as provided herein and nothing in this Order 55
shall affect the Department's legal authority to make a separate
determination to adjust Boston Edison's rates and charges on any other
basis.
- --------------------------
(2) On May 20, 1999, the Department requested comment on this modified
language. On May 21, 1999, the Agencies' responded that the language
is satisfactory as it: (a) should be sufficient to permit bankruptcy
counsel to issue the appropriate opinions on true sale and
non-consolidation; (b) will address the concerns of the bond rating
agencies so as to enable the RRBs to achieve the highest ratings; and
(c) is consistent with the non-recourse provisions of G.L. c. 164,
Section 1H (Agencies' Response to Request for Comments, May 21, 1999,
at 1).
<PAGE> 141
B. Minor Clarification Edits
Both the Agencies and the Company request that the Department change the
language to be included on the customer bills regarding the ownership of the RTC
Charge due to space limitations on the front of the bill. The change in billing
language is a request for reconsideration rather than clarification as the
parties are asking the Department to reconsider an earlier finding based on
previously unknown concerns of bill formatting. Because the language adopted by
the Department in D.T.E. 98-118 will not fit the format of the Company's current
customer bills we reconsider our earlier finding and direct the Company to
include the following statement on customer bills: "Part of the transition
charge which we collect is owned by BEC Funding LLC." This language will satisfy
any bill formatting and bankruptcy opinion considerations as well as minimize
any potential customer confusion.
The other clarification (or reconsideration) edits fall into four
categories: 1) word and punctuation changes, 2) modifications to one finding and
a corresponding ordering clause regarding the irrevocable value of the
transition property, 3) clarification of what amounts are included in
transaction costs, and 4) corrections to estimated numbers. The Department
allows the Agencies' motion to change the word "effect" to "affect" (Appendix at
35, Paragraph 19, line 4) and the addition of a comma after the word "documents"
(Appendix at 36, Paragraph 19, line 7), finding that our treatment these issues
was the result of inadvertence. Making these corrections will prevent unintended
meaning. The Department also allows the Agencies' motion to modify a finding and
the corresponding ordering clause to clarify that the Department may change the
otherwise irrevocable value of the transition property in the event the
transition charge goes above the
<PAGE> 142
transition charge cap in Boston Edison's Settlement Agreement (Appendix at 36,
last line, at 47, line 10). Without this clarification, the Order may
incorrectly imply that the RTC Charge can exceed the transition charge cap
imposed by the Settlement Agreement. The Department also approves the Agencies'
motion to clarify that any amount for additional credit enhancements which may
be necessary are in addition to estimated transaction costs (D.T.E. 98-118 at
28, line 6; at 44, last line). As currently written, the language incorrectly
implies that the estimated transaction costs includes amounts for credit
enhancements.
Finally, the Department rejects the Agencies' proposed corrections to the
estimated transaction costs and total amount to be securitized. In each case the
numbers cited are clearly approximations which were taken from the Company's
prefiled testimony or draft financing order proposed by the Company. Updating
these numbers to reflect more recent estimates would have no effect on the
transaction costs or final amounts to be securitized.
V. ORDER
Accordingly, after due notice, hearing and consideration, it is hereby
ORDERED: That the Massachusetts Development Finance Agency's and the
Massachusetts Health and Educational Facility Authority's Motion for
Clarification is APPROVED in part and DENIED in part as described herein; and it
is
<PAGE> 143
FURTHER ORDERED: That the Department's Order of April 2, 1999, in Boston
Edison Company, D.T.E. 98-118, be and hereby is supplemented by, and clarified
in accordance with the terms set forth herein.
By Order of the Department,
--------------------------------
Janet Gail Besser, Chair
--------------------------------
James Connelly, Commissioner
--------------------------------
W. Robert Keating, Commissioner
--------------------------------
Paul B. Vasington, Commissioner
--------------------------------
Eugene J. Sullivan, Jr., Commissioner
