Current Report

UNITED STATES

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) October 11, 2006

AEP Texas Central Company

(Exact name of registrant as specified in its charter)

 

State of Texas   333-136787   74-0550600

(State of other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

1 Riverside Plaza, Columbus, Ohio   43215
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code (614) 716-1000

 

 


(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 



Section 8 — Other Events

 

Item 8.01. Other Events.

In connection with the issuance on October 11, 2006 by AEP Texas Central Transition Funding II LLC (the “Issuing Entity”) of $1,739,700,000 Senior Secured Transition Bonds, Series A offered pursuant to the Prospectus dated October 4, 2006 and the Prospectus Supplement dated October 4, 2006, the Issuing Entity and AEP Texas Central Company (“TCC”) entered into the agreements listed below in Item 9.01 which are annexed hereto as exhibits to this Current Report on Form 8-K.

Section 9 — Financial Statements and Exhibits

 

Item 9.01. Financial Statements and Exhibits.

 

  (a) Not applicable.

 

  (b) Not applicable.

 

  (c) Not applicable.

 

  (d) Exhibits:

 

  1.1      Underwriting Agreement dated October 4, 2006, by and among TCC, the Issuing Entity and Credit Suisse Securities (USA) LLC, J.P. Morgan Securities Inc. and Greenwich Capital Markets, Inc., as representatives of the underwriters.
  4.1      Indenture dated as of October 11, 2006, by and between the Issuing Entity and The Bank of New York, as indenture trustee and securities intermediary (the “Indenture Trustee”).
  4.2      Series Supplement dated as of October 11, 2006 by and between the Issuing Entity and the Indenture Trustee.
99.1      Transition Property Servicing Agreement dated as of October 11, 2006 by and between the Issuing Entity and TCC, as servicer.
99.2      Transition Property Purchase and Sale Agreement dated as of October 11, 2006 by and between the Issuing Entity and TCC, as seller.
99.3      Administration Agreement dated as of October 11, 2006, by and between the Issuing Entity and TCC, as administrator.
99.4      Intercreditor Agreement dated as of October 11, 2006 by and among TCC, AEP Texas Central Transition Funding I, LLC, U.S. Bank National Association, the Indenture Trustee, and the Issuing Entity.
99.5      Limited Liability Company Agreement of AEP Texas Central Transition Funding II LLC.

 

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SIGNATURES

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.

 

AEP TEXAS CENTRAL COMPANY

By:  

/s/ Stephan T. Haynes

 

Stephan T. Haynes

 

Assistant Treasurer

Date: October 11, 2006

 

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EXHIBIT INDEX

 

Exhibit No.   

Description

  1.1      Underwriting Agreement dated October 4, 2006, by and among TCC, the Issuing Entity and Credit Suisse Securities (USA) LLC, J.P. Morgan Securities Inc. and Greenwich Capital Markets, Inc., as representatives of the underwriters.
  4.1      Indenture dated as of October 11, 2006, by and between the Issuing Entity and The Bank of New York, as indenture trustee and securities intermediary (the “Indenture Trustee”).
  4.2      Series Supplement dated as of October 11, 2006 by and between the Issuing Entity and the Indenture Trustee.
99.1      Transition Property Servicing Agreement dated as of October 11, 2006 by and between the Issuing Entity and TCC, as servicer.
99.2      Transition Property Purchase and Sale Agreement dated as of October 11, 2006 by and between the Issuing Entity and TCC, as seller.
99.3      Administration Agreement dated as of October 11, 2006, by and between the Issuing Entity and TCC, as administrator.
99.4      Intercreditor Agreement dated as of October 11, 2006 by and among TCC, AEP Texas Central Transition Funding I, LLC, U.S. Bank National Association, the Indenture Trustee, and the Issuing Entity.
99.5      Limited Liability Company Agreement of AEP Texas Central Transition Funding II LLC.

 

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Underwriting Agreement

Exhibit 1.1

Execution Version

AEP TEXAS CENTRAL TRANSITION FUNDING II LLC

AEP TEXAS CENTRAL COMPANY

$1,739,700,000 SENIOR SECURED TRANSITION BONDS, SERIES A

UNDERWRITING AGREEMENT

October 4, 2006

To the Representatives named in Schedule I hereto

of the Underwriters named in Schedule II hereto

Ladies and Gentlemen:

1. Introduction. AEP Texas Central Transition Funding II LLC, a Delaware limited liability company (the “Issuer”), proposes to issue and sell $1,739,700,000 aggregate principal amount of its Senior Secured Transition Bonds, Series A (the “Bonds”), identified in Schedule I hereto. The Issuer and AEP Texas Central Company, a Texas corporation and the Issuer’s direct parent (“TCC”), hereby confirm their agreement with the several Underwriters (as defined below) as set forth herein.

The term “Underwriters” as used herein shall be deemed to mean the entity or several entities named in Schedule II hereto and any underwriter substituted as provided in Section 7 hereof and the term “Underwriter” shall be deemed to mean any one of such Underwriters. If the entity or entities listed in Schedule I hereto (the “Representatives”) are the same as the entity or entities listed in Schedule II hereto, then the terms “Underwriters” and “Representatives”, as used herein, shall each be deemed to refer to such entity or entities. All obligations of the Underwriters hereunder are several and not joint. If more than one entity is named in Schedule I hereto, any action under or in respect of this underwriting agreement (“Underwriting Agreement”) may be taken by such entities jointly as the Representatives or by one of the entities acting on behalf of the Representatives and such action will be binding upon all the Underwriters.

Capitalized terms used and not otherwise defined in this Underwriting Agreement shall have the meanings given to them in the Indenture (as defined below).

2. Description of the Bonds. The Bonds will be issued pursuant to an indenture to be dated as of October 11, 2006, as supplemented by one or more series supplements thereto (as so supplemented, the “Indenture”), between the Issuer and The Bank of New York, as indenture trustee (the “Indenture Trustee”). The Bonds will be senior secured obligations of the Issuer and will be supported by transition property (as more fully described in the Financing Order relating to the Bonds, “Series A Transition Property”), to be sold to the Issuer by TCC pursuant to the Transition Property Sale Agreement, to be dated on or about


October 11, 2006, between TCC and the Issuer (the “Sale Agreement”). The Series A Transition Property securing the Bonds will be serviced pursuant to the Series A Transition Property Servicing Agreement, to be dated on or about October 11, 2006, between TCC, as servicer, and the Issuer, as owner of the Series A Transition Property sold to it pursuant to the Sale Agreement (the “Servicing Agreement”).

3. Representations and Warranties of the Issuer. The Issuer represents and warrants to the several Underwriters that:

(a) The Issuer and the Bonds meet the requirements for the use of Form S-3 under the Securities Act of 1933, as amended (the “Securities Act”), and TCC, in its capacity as sponsor for the Issuer, has filed with the Securities and Exchange Commission (the “Commission”) a registration statement on such form on June 27, 2006 (Registration No. 333-136787), as amended by Amendment No. 1 thereto dated September 5, 2006, including a prospectus and a form of prospectus supplement, for the registration under the Securities Act of up to $1,747,975,174 aggregate principal amount of the Bonds. Such registration statement, as amended (“Registration Statement No. 333-136787”), has been declared effective by the Commission and no stop order suspending such effectiveness has been issued under the Securities Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Issuer, threatened by the Commission. No transition bonds registered with the Commission under the Securities Act pursuant to Registration Statement No. 333-136787 have been previously issued. References herein to the term “Registration Statement” shall be deemed to refer to Registration Statement No. 333-136787, including any amendment thereto, all documents incorporated by reference therein pursuant to Item 12 of Form S-3 (“Incorporated Documents”) and any information in a prospectus or a prospectus supplement deemed or retroactively deemed to be a part thereof pursuant to Rule 430B (“Rule 430B”) or 430C (“Rule 430C”) under the Securities Act that has not been superseded or modified. “Registration Statement” without reference to a time means the Registration Statement as of the Applicable Time (as defined below), which the parties agree is the time of the first Contract of Sale (as used in Rule 159) for the Bonds, and shall be considered the “Effective Date” of the Registration Statement relating to the Bonds. For purposes of this definition, information contained in a form of prospectus or prospectus supplement that is deemed retroactively to be a part of the Registration Statement pursuant to Rule 430B or 430C shall be considered to be included in the Registration Statement as of the time specified in Rule 430B or 430C as appropriate. The final prospectus and the final prospectus supplement relating to the Bonds, as filed with the Commission pursuant to Rule 424(b) under the Securities Act, are referred to herein as the “Final Prospectus;” and the most recent preliminary prospectus and prospectus supplement that omitted information to be included upon pricing in a form of prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act and that was used after the initial effectiveness of the Registration Statement and prior to the Applicable Time (as defined below) is referred to herein as the “Pricing Prospectus.”

(b) (i) At the earliest time after the filing of the Registration Statement that the Issuer or another offering participant made a bona fide offer (within the meaning of Rule

 

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164(h)(2) of the Securities Act) of the Bonds and (ii) at the date hereof, each of the Issuer and TCC was not and is not an “ineligible issuer,” as defined in Rule 405 under the Securities Act.

(c) At the time the Registration Statement initially became effective, at the time of each amendment thereto for the purposes of complying with Section 10(a)(3) of the Securities Act (whether by post-effective amendment, incorporated report or form of prospectus) and on the Effective Date relating to the Bonds, the Registration Statement, and the Indenture, at the Closing Date, fully complied and will fully comply in all material respects with the applicable requirements of the Securities Act, the Trust Indenture Act of 1939 (the “Trust Indenture Act”) and, in each case, the applicable instructions, rules and regulations of the Commission thereunder; the Registration Statement, at each of the aforementioned dates, did not and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. As of the Applicable Time and as of the Closing Date (as defined below), the Registration Statement and the Final Prospectus fully complied and will fully comply in all material respects with the applicable requirements of the Securities Act, the Trust Indenture Act and the applicable rules and regulations of the Commission thereunder, and neither of such documents includes 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, in the light of the circumstances in which they were made, not misleading; and on said dates the Incorporated Documents, taken together as a whole, fully complied or will fully comply in all material respects with the applicable provisions of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the applicable rules and regulations of the Commission thereunder; provided that the foregoing representations and warranties in this paragraph (c) shall not apply to statements or omissions made in reliance upon information furnished in writing to the Issuer or TCC by, or on behalf of, any Underwriter through the Representatives expressly for use in connection with the preparation of the Registration Statement or the Final Prospectus or to any statements in or omissions from any Statements of Eligibility on Form T-1 (or amendments thereto) of the Indenture Trustee under the Indenture filed as exhibits to the Registration Statement or Incorporated Documents or to any statements or omissions made in the Registration Statement or the Final Prospectus relating to The Depository Trust Company (“DTC”) Book-Entry System that are based solely on information contained in published reports of the DTC.

(d) As of its date, at the Applicable Time (as defined below) and on the date of its filing, if applicable, and on the Closing Date, the Pricing Prospectus and each Issuer Free Writing Prospectus (as defined below) (other than the Pricing Term Sheet, as defined in Section 5(c) below), considered together, did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading (except that (i) the principal amount of the Bonds, the tranches, the initial principal balances, the scheduled final payment dates, the final maturity dates, the expected average lives, the Expected Amortization Schedule and the Expected Sinking Fund Schedule described in the Pricing Prospectus supersede any previously issued

 

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descriptions of such information and (ii) the interest rate, price to the public and underwriting discounts and commissions for each tranche was not included in the Pricing Prospectus). The Pricing Term Sheet, as of its issue date and at all subsequent times through the completion of the public offer and sale of the Bonds, considered together with the Pricing Prospectus and each other Issuer Free Writing Prospectus, did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstance in which they are made, not misleading. The two preceding sentences do not apply to statements in or omissions from the Pricing Prospectus, the Pricing Term Sheet or any other Issuer Free Writing Prospectus in reliance upon and in conformity with written information furnished to the Issuer or TCC by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information set forth in Schedule V hereto. “Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433(h), relating to the Bonds, in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Issuer’s records pursuant to Rule 433(g). References to the term “Free Writing Prospectus” shall mean a free writing prospectus, as defined in Rule 405 under the Securities Act. References to the term “Applicable Time” mean 12:08 PM, eastern time, on the date hereof, except that if, subsequent to such Applicable Time, the Issuer, TCC and the Underwriters have determined that the information contained in the Pricing Prospectus or any Issuer Free Writing Prospectus issued prior to such Applicable Time included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading and have terminated their old purchase contracts and entered into new purchase contracts with purchasers of the Bonds, then “Applicable Time” will refer to the first of such times when such new purchase contracts are entered into. The Issuer represents, warrants and agrees that it has treated and agrees that it will treat each of the free writing prospectuses listed on Schedule IV hereto as an Issuer Free Writing Prospectus, and that each such Free Writing Prospectus has fully complied and will fully comply with the applicable requirements of Rules 164 and 433, including timely Commission filing where required, legending and record keeping.

(e) Each Issuer Free Writing Prospectus, as of its issue date and at all subsequent times through the Closing Date or until any earlier date that the Issuer notified or notifies the Representatives as described in the next sentence, did not, does not and will not include any information that conflicted, conflicts or will conflict with the information then contained in the Registration Statement. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information then contained in the Registration Statement or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances prevailing at that subsequent time, not misleading, (i) TCC or the Issuer has promptly notified or will promptly notify the Representatives and (ii) TCC or the Issuer has promptly amended or will promptly amend or supplement such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.

 

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The foregoing two sentences do not apply to statements in or omissions from any Issuer Free Writing Prospectus in reliance upon and in conformity with written information furnished to the Issuer or TCC by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information set forth on Schedule V hereto.

(f) The Issuer has been duly formed and is validly existing as a limited liability company in good standing under the Limited Liability Company Act of the State of Delaware, as amended, with full limited liability company power and authority to execute, deliver and perform its obligations under this Underwriting Agreement, the Bonds, the Sale Agreement, the Servicing Agreement, the Indenture, the Issuer LLC Agreement, the Intercreditor Agreement, the Administration Agreement and the other agreements and instruments contemplated by the Pricing Prospectus (collectively, the “Issuer Documents”) and to own its properties and conduct its business as described in the Pricing Prospectus; the Issuer has been duly qualified as a foreign limited liability company for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except where failure to so qualify or to be in good standing would not have a material adverse effect on the business, properties or financial condition of the Issuer; the Issuer has conducted and will conduct no business in the future that would be inconsistent with the description of the Issuer’s business set forth in the Pricing Prospectus; the Issuer is not a party to or bound by any agreement or instrument other than the Issuer Documents and other agreements or instruments incidental to its formation; the Issuer has no material liabilities or obligations other than those arising out of the transactions contemplated by the Issuer Documents and as described in the Pricing Prospectus; TCC is the beneficial owner of all of the limited liability company interests of the Issuer; and based on current law, the Issuer is not classified as an association taxable as a corporation for United States federal income tax purposes.

(g) The issuance and sale of the Bonds by the Issuer, the purchase of the Series A Transition Property by the Issuer from TCC and the consummation of the transactions herein contemplated by the Issuer, and the fulfillment of the terms hereof on the part of the Issuer to be fulfilled, will not result in a breach of any of the terms or provisions of, or constitute a default under the Issuer’s certificate of formation or limited liability company agreement (collectively, the “Issuer Charter Documents”), or any indenture, mortgage, deed of trust or other agreement or instrument to which the Issuer is now a party.

(h) This Underwriting Agreement has been duly authorized, executed and delivered by the Issuer, which has the necessary limited liability company power and authority to execute, deliver and perform its obligations under this Underwriting Agreement, and constitutes a valid and binding obligation of the Issuer, enforceable against the Issuer in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other similar laws relating to or affecting creditors’ or secured parties’ rights generally and by 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;

 

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and limitations on enforceability of rights to indemnification or contribution by federal or state securities laws or regulations or by public policy.

(i) The Issuer (i) is not in violation of the Issuer Charter Documents, (ii) is not in default and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties is subject, except for any such defaults that would not, individually or in the aggregate, have a material adverse effect on its business, property or financial condition, and (iii) is not in violation of any law, ordinance, governmental rule, regulation or court decree to which it or its property may be subject, except for any such violations that would not, individually or in the aggregate, have a material adverse effect on its business, property or financial condition.

(j) The Indenture has been duly authorized by the Issuer, and, on the Closing Date, will have been duly executed and delivered by the Issuer and will be a valid and binding instrument, enforceable against the Issuer in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other similar laws relating to or affecting creditors’ or secured parties’ rights generally and by 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; and limitations on enforceability of rights to indemnification by federal or state securities laws or regulations or by public policy. On the Closing Date, the Indenture will (i) comply as to form in all material respects with the requirements of the Trust Indenture Act and (ii) conform in all material respects to the description thereof in the Pricing Prospectus and Final Prospectus.

(k) The Bonds have been duly authorized by the Issuer for issuance and sale to the Underwriters pursuant to this Underwriting Agreement and, when executed by the Issuer and authenticated by the Indenture Trustee in accordance with the Indenture and delivered to the Underwriters against payment therefor in accordance with the terms of this Underwriting Agreement, will constitute valid and binding obligations of the Issuer entitled to the benefits of the Indenture and enforceable against the Issuer in accordance with their terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other similar laws relating to or affecting creditors’ or secured parties’ rights generally and by 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; and limitations on enforceability of rights to indemnification by federal or state securities laws or regulations or by public policy, and the Bonds conform in all material respects to the description thereof in the Pricing Prospectus and Final Prospectus. The Issuer has all requisite limited liability company power and authority to issue, sell and deliver the Bonds in accordance with and upon the terms and conditions set forth in this Underwriting Agreement and in the Pricing Prospectus and Final Prospectus.

 

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(l) Other than as set forth or contemplated in the Pricing Prospectus, there is no litigation or governmental proceeding to which the Issuer is a party or to which any property of the Issuer is subject or which is pending or, to the knowledge of the Issuer, threatened against the Issuer that would reasonably be expected to, individually or in the aggregate, result in a material adverse effect on the Issuer’s business, property or financial condition.

(m) Other than any necessary action of the PUCT, any filings required under the Restructuring Act or Financing Order or as otherwise set forth or contemplated in the Pricing Prospectus, no approval, authorization, consent or order of any public board or body (except such as have been already obtained and other than in connection or in compliance with the provisions of applicable blue-sky laws or securities laws of any state, as to which the Issuer makes no representations or warranties), is legally required for the issuance and sale by the Issuer of the Bonds.

(n) Neither the Issuer nor TCC is, and, after giving effect to the sale and issuance of the Bonds, will not be an “investment company” within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”).

(o) Deloitte & Touche LLP, who have performed certain agreed upon procedures with respect to certain statistical and structural information contained in the Pricing Prospectus and the Final Prospectus, are independent public accountants as required by the Securities Act and the rules and regulations of the Commission thereunder.

(p) Each of the Sale Agreement, the Servicing Agreement, the Intercreditor Agreement, the Administration Agreement and Issuer LLC Agreement has been duly authorized by the Issuer, and when executed and delivered by the Issuer and the other parties thereto, will constitute a valid and legally binding obligation of the Issuer, enforceable against the Issuer in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other similar laws relating to or affecting creditors’ or secured parties’ rights generally and by 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, and limitations on enforceability of rights to indemnification by federal or state securities laws or regulations or by public policy.

4. Representations and Warranties of TCC. TCC represents and warrants to the several Underwriters that:

(a) TCC, in its capacity as sponsor with respect to the Bonds, has filed with the Commission Registration Statement No. 333-136787 for the registration under the Securities Act of up to $1,747,975,174 aggregate principal amount of its transition bonds. Registration Statement No. 333-136787 has been declared effective by the Commission and no stop order suspending such effectiveness has been issued under the Securities Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of TCC, threatened by the Commission.

 

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(b) At the time the Registration Statement initially became effective, at the time of each amendment thereto for the purposes of complying with Section 10(a)(3) of the Act (whether by post-effective amendment, incorporated report or form of prospectus) and on the Effective Date relating to the Bonds, the Registration Statement, and the Indenture, on the Closing Date, fully complied and will fully comply in all material respects with the applicable requirements of the Securities Act, the Trust Indenture Act and the applicable rules and regulations of the Commission thereunder; the Registration Statement, at each of the aforementioned dates, did not and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading. As of the Applicable Time and as of the Closing Date, the Registration Statement and the Final Prospectus fully complied and will fully comply in all material respects to the requirements of the Securities Act, the Trust Indenture Act and the applicable rules and regulations of the Commission thereunder, and neither of such documents includes 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, in the light of the circumstances in which they were made, not misleading; provided, that the foregoing representations and warranties in this paragraph (b) shall not apply to statements or omissions made in reliance upon and in conformity with information furnished in writing to the Issuer or TCC by, or on behalf of, any Underwriter through the Representatives expressly for use in connection with the preparation of the Registration Statement or the Final Prospectus, or to any statements in or omissions from any Statement of Eligibility on Form T-1, or amendments thereto, of the Indenture Trustee under the Indenture filed as exhibits to the Registration Statement or Incorporated Documents or to any statements or omissions made in the Registration Statement or Final Prospectus relating to the DTC Book-Entry-Only System that are based solely on information contained in published reports of DTC.

(c) As of its date, at the Applicable Time (as defined below), on the date of its filing, if applicable, and on the Closing Date, the Pricing Prospectus and each Issuer Free Writing Prospectus (other than the Pricing Term Sheet), considered together, did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading (except that (i) the principal amount of the Bonds, the tranches, the initial principal balances, the scheduled final payment dates, the final maturity dates, the expected average lives, the Expected Amortization Schedule and the Expected Sinking Fund Schedule described in the Pricing Prospectus supersede any previously issued descriptions of such information and (ii) the interest rate, price to the public and underwriting discounts and commissions for each tranche was not included in the Pricing Prospectus). The Pricing Term Sheet, as of its issue date and at all subsequent times through the completion of the public offer and sale of the Bonds, considered together with the Pricing Prospectus and each other Issuer Free Writing Prospectus, did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading. The two preceding sentences do not apply to statements in or omissions from the Pricing Prospectus, the Pricing Term Sheet or any Issuer Free Writing Prospectus in reliance upon and in conformity with written

 

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information furnished to the Issuer or TCC by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information set forth in Schedule V hereto. TCC represents, warrants and agrees that it has treated and agrees that it will treat each of the free writing prospectuses listed on Schedule IV hereto as an Issuer Free Writing Prospectus, and that each such Issuer Free Writing Prospectus has fully complied and will fully comply with the applicable requirements of Rules 164 and 433, including timely Commission filing where required, legending and record keeping

(d) Each Issuer Free Writing Prospectus, as of its issue date and at all subsequent times through the completion of the public offer and sale of the Bonds or until any earlier date that the Issuer or TCC notified or notifies the Representatives as described in the next sentence, did not, does not and will not include any information that conflicted, conflicts or will conflict with the information then contained in the Registration Statement. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information then contained in the Registration Statement or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances prevailing at that subsequent time, not misleading, (i) TCC or the Issuer has promptly notified or will promptly notify the Representatives and (ii) TCC or the Issuer has promptly amended or will promptly amend or supplement such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission. The foregoing two sentences do not apply to statements in or omissions from any Issuer Free Writing Prospectus in reliance upon and in conformity with written information furnished to the Issuer or TCC by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information set forth on Schedule V hereto.

(e) TCC has been duly formed and is validly existing as a corporation in good standing under the laws of the jurisdiction of its formation, has the corporate power and authority to own, lease and operate its properties and to conduct its business as presently conducted and as set forth in or contemplated by the Pricing Prospectus, and is qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or be in good standing would not have a material adverse effect on the business, property or financial condition of TCC and its subsidiaries considered as a whole. TCC is the beneficial owner of all of the limited liability company interests of the Issuer.

(f) TCC has no significant subsidiaries within the meaning of Rule 1-02(w) of Regulation S-X.

(g) The transfer by TCC of all of its rights and interests under the Financing Order relating to the Bonds to the Issuer and the consummation of the transactions herein contemplated by TCC, and the fulfillment of the terms hereof on the part of TCC to be

 

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fulfilled, will not result in a breach of any of the terms or provisions of, or constitute a default under, TCC’s articles of incorporation or bylaws (collectively, the “TCC Charter Documents”), or in a material breach of any of the terms of, or constitute a material default under, any indenture, mortgage, deed of trust or other agreement or instrument to which TCC is now a party.

(h) This Underwriting Agreement has been duly authorized, executed and delivered by TCC, which has the necessary corporate power and authority to execute, deliver and perform its obligations under this Underwriting Agreement, and constitutes a valid and binding obligation of TCC, enforceable against TCC in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other similar laws relating to or affecting creditors’ or secured parties’ rights generally and by 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, and limitations on enforceability of rights to indemnification or contribution by federal or state securities laws or regulations or by public policy.

(i) TCC (i) is not in violation of the TCC Charter Documents, (ii) is not in default and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties is subject, except for any such defaults that would not, individually or in the aggregate, have a material adverse effect on the business, property or financial condition of TCC and its subsidiaries considered as a whole, or (iii) is not in violation of any law, ordinance, governmental rule, regulation or court decree to which it or its property may be subject, except for any such violations that would not, individually or in the aggregate, have a material adverse effect on the business, property or financial condition of TCC and its subsidiaries considered as a whole.

(j) Except as set forth or contemplated in the Pricing Prospectus, there is no litigation or governmental proceeding to which TCC or any of its subsidiaries is a party or to which any property of TCC or any of its subsidiaries is subject or which is pending or, to the knowledge of TCC, threatened against TCC or any of its subsidiaries that would reasonably be expected to, individually or in the aggregate, result in a material adverse effect on the Issuer’s business, property, or financial condition or on TCC’s ability to perform its obligations under the Sale Agreement and the Servicing Agreement.

(k) Other than any necessary action of the PUCT, any filings required under the Restructuring Act (as such term is defined in the Pricing Prospectus) or Financing Order or as otherwise set forth or contemplated in the Pricing Prospectus, no approval, authorization, consent or order of any public board or body (except such as have been already obtained and other than in connection or in compliance with the provisions of applicable blue-sky laws or securities laws of any state, as to which TCC makes no representations or warranties), is legally required for the issuance and sale by the Issuer of the Bonds.

 

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(l) Neither TCC nor the Issuer is, and after giving effect to the sale and issuance of the Bonds, neither TCC or the Issuer will be, an “investment company” within the meaning of the 1940 Act.

(m) Each of the Sale Agreement and Servicing Agreement has been duly and validly authorized by TCC, and when executed and delivered by TCC and the other parties thereto will constitute a valid and legally binding obligation of TCC, enforceable against TCC in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other similar laws relating to or affecting creditors’ or secured parties’ rights generally and by 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, and limitations on enforceability of rights to indemnification by federal or state securities laws or regulations or by public policy. Each of the Administration Agreement and Intercreditor Agreement has been duly authorized by TCC, and when executed and delivered by TCC and other parties thereto will constitute a valid and legally binding obligation of TCC, enforceable against TCC in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other similar laws relating to or affecting creditors’ or secured parties’ rights generally and by 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, and limitations on enforceability of rights to indemnification by federal or state securities laws or regulations or by public policy.

(n) There are no Texas transfer taxes related to the transfer of the Series A Transition Property or the issuance and sale of the Bonds to the Underwriters pursuant to this Underwriting Agreement required to be paid at or prior to the Closing Date by TCC or the Issuer.

5. Investor Communications.

(a) Issuer and TCC represent and agree that, unless they obtain the prior consent of the Representatives, and each Underwriter represents and agrees that,, unless it obtains the prior consent of the Issuer and TCC and the Representatives, it has not made and will not make any offer relating to the Bonds that would constitute an Issuer Free Writing Prospectus, or that would otherwise constitute a “free writing prospectus,” required to be filed by the Issuer or TCC, as applicable, with the Commission or retained by the Issuer or TCC, as applicable, under Rule 433 under the Securities Act; provided that the prior written consent of the parties hereto shall be deemed to have been given in respect of the Term Sheets and each other Free Writing Prospectus identified in Schedule IV hereto.

(b) TCC and the Issuer (or the Representatives at the direction of the Issuer) will prepare a final pricing term sheet relating to the Bonds (the “Pricing Term Sheet”), containing only information that describes the final pricing terms of the Bonds and otherwise in a form consented to by the Representatives, and will file such final pricing term sheet within the period required by Rule 433(d)(5)(ii) following the date such final

 

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terms have been established for all classes of the offering of the Bonds. The Pricing Term Sheet is an Issuer Free Writing Prospectus for purposes of this Agreement.

(c) Each Underwriter may provide to investors one or more of the Free Writing Prospectuses, including the Term Sheets, subject to the following conditions:

(i) Unless preceded or accompanied by a prospectus satisfying the requirements of Section 10(a) of the Securities Act, an Underwriter shall not convey or deliver any Written Communication (as defined herein) to any person in connection with the initial offering of the Bonds, unless such Written Communication (i) is made in reliance on Rule 134 under the Securities Act, (ii) constitutes a prospectus satisfying the requirements of Rule 430B under the Securities Act, (iii) is an Issuer Free Writing Prospectus listed on Schedule IV hereto or (iv) is an Underwriter Free Writing Prospectus (as defined below). “Written Communication” has the same meaning as that term is defined in Rule 405 under the Securities Act.

An “Underwriter Free Writing Prospectus” means any free writing prospectus that contains only preliminary or final terms of the Transition Bonds and is not required to be filed by TCC or the Issuer pursuant to Rule 433 and that contains information substantially the same as the information contained in the Pricing Prospectus or Pricing Term Sheet (including, without limitation, (i) the class, size, rating, price, CUSIPs, coupon, yield, spread, benchmark, status and/or legal maturity date of the Bonds, the weighted average life, expected first and final payment dates, trade date, settlement date, transaction parties, credit enhancement, roadshow details, ERISA eligibility, legal investment status and payment window of one or more classes of Bonds and (ii) a column or other entry showing the status of the subscriptions for the Bonds, both for the Bonds as a whole and for each Underwriter’s retention, and/or expected pricing parameters of the Bonds).

(ii) Each Underwriter shall comply with all applicable laws and regulations in connection with the use of Free Writing Prospectuses and Term Sheets, including but not limited to Rules 164 and 433 under the Securities Act.

(iii) All Free Writing Prospectuses provided to investors, whether or not filed with the Commission, shall bear a legend including substantially the following statement:

Issuer has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents Issuer has filed with the SEC for more complete information about Issuer and the offering. You may get these documents for free by visiting EDGAR on the SEC web site at www.sec.gov.

 

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Alternatively, Issuer, any underwriter or any dealer participating in the offering will arrange to send you the base prospectus if you request it by calling Credit Suisse Securities (USA) LLC toll-free at 1-800-221-1037, J.P. Morgan Securities Inc. toll free at 866-669-7629 or Greenwich Capital Markets, Inc. toll-free at 866-884-2071.

The Issuer and the Representatives shall have the right to require additional specific legends or notations to appear on any Free Writing Prospectus, the right to require changes regarding the use of terminology and the right to determine the types of information appearing therein with the approval of, in the case of the Issuer, Representatives and, in the case of the Representatives, the Issuer (which in either case shall not be unreasonably withheld).

(iv) Each Underwriter covenants with the Issuer and TCC that after the Final Prospectus is available such Underwriter shall not distribute any written information concerning the Bonds to a investor unless such information is preceded or accompanied by the Final Prospectus or by notice to the investor that the Final Prospectus is available for free by visiting EDGAR on the SEC website at www.sec.gov.

(v) Each Underwriter agrees and covenants that (a) no information that is conveyed to investors has been or will be inconsistent with the information contained in the Registration Statement, the Pricing Prospectus and each Issuer Free Writing Prospectus, and (b) if an Underwriter shall use an Underwriter Free Writing Prospectus, the liability arising from its use shall be the sole responsibility of the Underwriter using such Underwriter Free Writing Prospectus unless the Underwriter Free Writing Prospectus was consented to in advance by TCC; provided, however, that, for the avoidance of doubt, (i) this clause (v) shall not be interpreted as tantamount to the indemnification obligations contained in Section 11(b) hereof and (ii) no Underwriter shall be responsible for any “issuer information” as defined in Rule 433(h)(2) of the Securities Act giving rise to such Underwriter liability provided by the Issuer or TCC for inclusion in the Registration Statement, the Pricing Prospectus or any Issuer Free Writing Prospectus or was otherwise previously provided by the Issuer or TCC to such Underwriter for use in such Underwriter Free Writing Prospectus.

6. Purchase and Sale. On the basis of the representations and warranties herein contained, and subject to the terms and conditions herein set forth, the Issuer shall sell to each of the Underwriters, and each Underwriter shall purchase from the Issuer, at the time and place herein specified, severally and not jointly, at the purchase price set forth in Schedule I hereto, the principal amount of the Bonds set forth opposite such Underwriter’s name in Schedule II hereto. The Underwriters agree to make a public offering of the Bonds. The Issuer shall pay (in the form of a discount to the principal amount of the offered Bonds) to the Underwriters a commission equal to $6,391,458.

 

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7. Time and Place of Closing. Delivery of the Bonds against payment of the aggregate purchase price therefor by wire transfer in federal funds shall be made at the place, on the date and at the time specified in Schedule I hereto, or at such other place, time and date as shall be agreed upon in writing by the Issuer and the Representatives. The hour and date of such delivery and payment are herein called the “Closing Date”. The Bonds shall be delivered to DTC or to The Bank of New York, as custodian for DTC, in fully registered global form registered in the name of Cede & Co., for the respective accounts specified by the Representatives not later than the close of business on the business day preceding the Closing Date or such other time as may be agreed upon by the Representatives. The Issuer agrees to make the Bonds available to the Representatives for checking purposes not later than 1:00 P.M. New York Time on the last business day preceding the Closing Date at the place specified for delivery of the Bonds in Schedule I hereto, or at such other place as the Issuer may specify.

If any Underwriter shall fail or refuse to purchase and pay for the aggregate principal amount of Bonds that such Underwriter has agreed to purchase and pay for hereunder, the Issuer shall immediately give notice to the other Underwriters of the default of such Underwriter, and the other Underwriters shall have the right within 24 hours after the receipt of such notice to determine to purchase, or to procure one or more others, who are members of the National Association of Securities Dealers, Inc. (“NASD”) (or, if not members of the NASD, who are not eligible for membership in the NASD and who agree (i) to make no sales within the United States, its territories or its possessions or to persons who are citizens thereof or residents therein and (ii) in making sales to comply with the NASD’s Conduct Rules) and satisfactory to the Issuer, to purchase, upon the terms herein set forth, the aggregate principal amount of Bonds that the defaulting Underwriter had agreed to purchase. If any non-defaulting Underwriter or Underwriters shall determine to exercise such right, such Underwriter or Underwriters shall give written notice to the Issuer of the determination in that regard within 24 hours after receipt of notice of any such default, and thereupon the Closing Date shall be postponed for such period, not exceeding three business days, as the Issuer shall determine. If in the event of such a default no non-defaulting Underwriter shall give such notice, then this Underwriting Agreement may be terminated by the Issuer, upon like notice given to the non-defaulting Underwriters, within a further period of 24 hours. If in such case the Issuer shall not elect to terminate this Underwriting Agreement it shall have the right, irrespective of such default:

(a) to require each non-defaulting Underwriter to purchase and pay for the respective aggregate principal amount of Bonds that it had agreed to purchase hereunder as hereinabove provided and, in addition, the aggregate principal amount of Bonds that the defaulting Underwriter shall have so failed to purchase up to aggregate principal amount of Bonds equal to one-tenth (1/10) of the aggregate principal amount of Bonds that such non-defaulting Underwriter has otherwise agreed to purchase hereunder, and/or

(b) to procure one or more persons, reasonably acceptable to the Representatives, who are members of the NASD (or, if not members of the NASD, who are not eligible for membership in the NASD and who agree (i) to make no sales within the United States, its territories or its possessions or to persons who are citizens thereof or residents therein and (ii) in making sales to comply with the NASD’s Conduct Rules), to purchase, upon the terms herein set forth, either all or a part of the aggregate principal amount of Bonds that such defaulting Underwriter had agreed to purchase or that portion thereof that the remaining Underwriters shall not be obligated to purchase pursuant to the foregoing clause (a).

 

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In the event the Issuer shall exercise its rights under (a) and/or (b) above, the Issuer shall give written notice thereof to the non-defaulting Underwriters within such further period of 24 hours, and thereupon the Closing Date shall be postponed for such period, not exceeding three business days, as the Issuer shall determine.

In the computation of any period of 24 hours referred to in this Section 7, there shall be excluded a period of 24 hours in respect of each Saturday, Sunday or legal holiday that would otherwise be included in such period of time.

Any action taken by the Issuer or TCC under this Section 7 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Underwriting Agreement. Termination by the Issuer under this Section 7 shall be without any liability on the part of the Issuer, TCC or any non-defaulting Underwriter, except as otherwise provided in Sections 8(a)(vii) and 11 hereof.

8. Covenants.

(a) Covenants of the Issuer. The Issuer covenants and agrees with the several Underwriters that:

(i) If, during such period of time (not exceeding nine months) after the Final Prospectus has been filed with the Commission pursuant to Rule 424 as in the opinion of Counsel for the Underwriters a prospectus covering the Bonds is required by law to be delivered in connection with sales by an Underwriter or dealer (including in circumstances where such requirement may be satisfied pursuant to Rule 172 under the Securities Act), any event relating to or affecting the Issuer, the Bonds or the Series A Transition Property or of which the Issuer shall be advised in writing by the Representatives shall occur that in the Issuer’s reasonable judgment after consultation with Counsel for the Underwriters (as defined below) should be set forth in a supplement to, or an amendment of, the Final Prospectus in order to make the Final Prospectus not misleading in the light of the circumstances when it is delivered to a purchaser (including in circumstances where such requirement may be satisfied pursuant to Rule 172 under the Securities Act), the Issuer will, at its expense, amend or supplement the Final Prospectus by either (A) preparing and furnishing to the Underwriters at the Issuer’s expense a reasonable number of copies of a supplement or supplements or an amendment or amendments to the Final Prospectus or (B) making an appropriate filing pursuant to Section 13 or Section 15 of the Exchange Act, which will supplement or amend the Final Prospectus so that, as supplemented or amended, it will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances when the Final Prospectus is delivered to a purchaser (including in circumstances where such requirement may be satisfied pursuant to Rule 172 under the Securities Act), not misleading; provided that should such

 

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event relate solely to the activities of any of the Underwriters, then such Underwriters shall assume the expense of preparing and furnishing any such amendment or supplement.

(ii) The Issuer or TCC will, except as herein provided, pay or cause to be paid all expenses and taxes (except transfer taxes) in connection with (i) the preparation and filing by it of the Registration Statement, Pricing Prospectus and Final Prospectus, (ii) the issuance and delivery of the Bonds as provided in Section 7 hereof (including, without limitation, reasonable fees and disbursements of Counsel for the Underwriters and all trustee, rating agency and PUCT financial advisor fees), (iii) the qualification of the Bonds under blue-sky laws (including counsel fees not to exceed $10,000), (iv) the printing and delivery to the Underwriters of reasonable quantities of the Registration Statement and, except as provided in Section 8(a)(iv) hereof, of the Pricing Prospectus and Final Prospectus and (v) any amendment or supplement to the Registration Statement, Pricing Prospectus, or Issuer Free Writing Prospectus required to be filed with the Commission to correct any untrue statement of a material fact or omission of any statement necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading, the result of which requires the reforming of any Contracts of Sale of the Bonds made by the Underwriters (including any damages or other amounts payable in connection with legal and contractual liability). The Issuer shall not, however, be required to pay any amount for any expenses of the Underwriters or for any fees and expenses of counsel for the PUCT financial advisor, except that, if this Underwriting Agreement shall be terminated in accordance with the provisions of Section 10 or 12 hereof, the Issuer will reimburse the Underwriters for the reasonable fees and disbursements of Counsel for the Underwriters, and will reimburse the Underwriters for their reasonable out-of-pocket expenses, in an aggregate amount not exceeding $200,000, incurred in contemplation of the performance of this Underwriting Agreement. The Issuer shall not in any event be liable to any of the several Underwriters for damages on account of loss of anticipated profits.

(iii) During the period from the date of this Underwriting Agreement to the date that is five days after the Closing Date, the Issuer will not, without the prior 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 (other than the Bonds).

(iv) To the extent, if any, that any rating necessary to satisfy the condition set forth in Section 9(dd) of this Underwriting Agreement is conditioned upon the furnishing of documents or the taking of other actions by the Issuer on or after the Closing Date, the Issuer shall furnish such documents and take such other actions.

(v) For a period from the date of this Underwriting Agreement until the retirement of the Bonds or until such time as the Underwriters shall cease to

 

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maintain a secondary market in the Bonds, whichever occurs first, the Issuer shall file with the Commission, and to the extent permitted by and consistent with the Issuer’s obligations under applicable law, make available on the website associated with the Issuer’s parent, such periodic reports, if any, as are required (without regard to the number of holders of Bonds to the extent permitted by and consistent with the Issuer’s obligations under applicable law) from time to time under Section 13 or Section 15(d) of the Exchange Act, and the Issuer shall not voluntarily suspend or terminate its filing obligations with the Commission. The Issuer shall also, to the extent permitted by and consistent with the Issuer’s obligations under applicable law, include in the periodic and other reports to be filed with the Commission as provided above, such information as required by Section 3.07(g) of the Indenture with respect to the Bonds. To the extent that the Issuer’s obligations are terminated or limited by an amendment to Section 3.07(g) of the Indenture, or otherwise, such obligations shall be correspondingly terminated or limited hereunder.

(b) Covenants of TCC. TCC covenants and agrees with the several Underwriters that, to the extent that the Issuer has not already performed such act pursuant to Section 8(a):

(i) TCC, in its capacity as sponsor with respect to the Bonds, will upon request promptly deliver to the Representatives and Counsel to the Underwriters a signed copy of the Registration Statement as originally filed or, to the extent a signed copy is not available, a conformed copy, certified by an officer of TCC to be in the form as originally filed, including all Incorporated Documents and exhibits and all amendments thereto.

(ii) TCC, in its capacity as sponsor with respect to the Bonds, will deliver to the Underwriters, as soon as practicable after the date hereof, as many copies of the Pricing Prospectus and the Final Prospectus as they may reasonably request.

(iii) TCC, in its capacity as sponsor with respect to the Bonds, will cause the Pricing Prospectus and the Final Prospectus to be filed with the Commission pursuant to Rule 424 as soon as practicable and advise the Underwriters of any stop order suspending the effectiveness of the Registration Statement or the institution of any proceeding therefor of which Issuer shall have received notice. The Issuer will use its reasonable best efforts to prevent the issuance of any such stop order and, if issued, to obtain as soon as possible the withdrawal thereof. The Issuer has complied and will comply with Rule 433 under the Securities Act in connection with the offering of the Bonds.

(iv) As soon as practicable, but not later than 16 months, after the date hereof, TCC, in its capacity as sponsor with respect to the Bonds, will make generally available to its security holders, an earnings statement (which need not be audited) that will satisfy the provisions of Section 11(a) of the Securities Act with respect to the Bonds.

 

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(v) TCC, in its capacity as sponsor with respect to the Bonds, will furnish such proper information as may be lawfully required and otherwise cooperate in qualifying the Bonds for offer and sale under the blue-sky laws of such jurisdictions as the Representatives may designate; provided that neither the Issuer nor TCC shall be required to qualify as a foreign limited liability company or dealer in securities, to file any consents to service of process under the laws of any jurisdiction, or meet any other requirements deemed by the Issuer or TCC, as applicable, to be unduly burdensome.

(vi) TCC will not file any amendment to the Registration Statement or amendment or supplement to the Final Prospectus during the period when a prospectus relating to the Bonds is required to be delivered under the Securities Act, without prior notice to the Underwriters, or to which Thelen Reid & Priest LLP, who are acting as counsel for the Underwriters (“Counsel for the Underwriters”), shall reasonably object by written notice to TCC and the Issuer.

(vii) To the extent permitted by applicable law and the agreements and instruments that bind TCC, TCC will use its reasonable best efforts to cause the Issuer to comply with the covenants set forth in Section 8(a) hereof.

(viii) TCC will use its reasonable best efforts to prevent the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement and, if issued, to obtain as soon as possible the withdrawal thereof.

(ix) If, during such period of time (not exceeding nine months) after the Final Prospectus has been filed with the Commission pursuant to Rule 424 as in the opinion of Counsel for the Underwriters a prospectus covering the Bonds is required by law to be delivered in connection with sales by an Underwriter or dealer, any event relating to or affecting TCC, the Bonds or the Series A Transition Property or of which TCC shall be advised in writing by the Representatives shall occur that in TCC’s reasonable judgment after consultation with Counsel for the Underwriters should be set forth in a supplement to, or an amendment of, the Final Prospectus in order to make the Final Prospectus not misleading in the light of the circumstances when it is delivered to a purchaser, TCC will cause the Issuer, at TCC’s or the Issuer’s expense, to amend or supplement the Final Prospectus by either (A) preparing and furnishing to the Underwriters at TCC’s or the Issuer’s expense a reasonable number of copies of a supplement or supplements or an amendment or amendments to the Final Prospectus or (B) causing the Issuer to make an appropriate filing pursuant to Section 13 or Section 15 of the Exchange Act, which will supplement or amend the Final Prospectus so that, as supplemented or amended, it will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances when the Final Prospectus is delivered to a purchaser, not misleading; provided that should such event relate solely to the activities of any of the Underwriters, then such Underwriters shall assume the expense of preparing and furnishing any such amendment or supplement.

 

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(x) During the period from the date of this Underwriting Agreement to the date that is five days after the Closing Date, TCC will not, without the prior 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 (other than the Bonds).

(xi) TCC will cause the proceeds for the issuance and sale of the Bonds to be applied for the purposes described in the Pricing Prospectus.

(xii) To the extent, if any, that any rating necessary to satisfy the condition set forth in Section 9(aa) of this Underwriting Agreement is conditioned upon the furnishing of documents or the taking of other actions by TCC on or after the Closing Date, TCC shall furnish such documents and take such other actions.

9. Conditions to the Obligations of the Underwriters. The obligations of the Underwriters to purchase the Bonds shall be subject to the accuracy of the representations and warranties on the part of the Issuer and TCC contained in this Underwriting Agreement, on the part of TCC contained in Article III of the Sale Agreement, and on the part of TCC contained in Section 6.01 of the Servicing Agreement as of the Closing Date, to the accuracy of the statements of the Issuer and TCC made in any certificates pursuant to the provisions hereof, to the performance by the Issuer and TCC of their obligations hereunder, and to the following additional conditions:

(a) The Final Prospectus shall have been filed with the Commission pursuant to Rule 424 prior to 5:30 P.M., New York time, on the second business day after the date of this Underwriting Agreement. In addition, all material required to be filed by the Issuer or TCC pursuant to Rule 433(d) under the Securities Act that was prepared by either of them or that was prepared by any Underwriter and timely provided to the Issuer or TCC shall have been filed with the Commission within the applicable time period prescribed for such filing by such Rule 433(d).

(b) No stop order suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for that purpose shall be pending before, or threatened by, the Commission on the Closing Date; and the Underwriters shall have received one or more certificates, dated the Closing Date and signed by an officer of TCC and the Issuer, as appropriate, to the effect that no such stop order is in effect and that no proceedings for such purpose are pending before, or to the knowledge of TCC or the Issuer, as the case may be, threatened by, the Commission.

(c) Thelen Reid & Priest LLP, counsel for the Underwriters, shall have furnished to the Representatives their written opinion (substantially in the form attached as Annex I (a) hereto), dated the Closing Date, with respect to the issuance and sale of the Bonds, the Indenture, the other Issuer Documents, the Registration Statement and other related matters; and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters.

 

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(d) Richards, Layton & Finger, P.A., special Delaware counsel for TCC and the Issuer, shall have furnished to the Representatives their written opinion (substantially in the form attached as Annex I (b) hereto), dated the Closing Date, regarding the filing of a voluntary bankruptcy petition.

(e) Richards, Layton & Finger, P.A., special Delaware counsel for TCC and the Issuer, shall have furnished to the Representatives their written opinion (substantially in the form attached as Annex I (c) hereto), dated the Closing Date, regarding certain Delaware Uniform Commercial Code matters.

(f) Sidley Austin LLP, counsel for the Issuer and TCC, shall have furnished to the Representatives their written opinion (substantially in the form attached as Annex I (d) hereto), dated the Closing Date, regarding certain aspects of the transactions contemplated by the Issuer Documents, including the Indenture and the Trustee’s security interest under the Uniform Commercial Code.

(g) Sidley Austin LLP, counsel for the Issuer and TCC, shall have furnished to the Representatives their written opinion (substantially in the form attached as Annex I (e) hereto), dated the Closing Date, regarding negative assurances and other corporate matters.

(h) Sidley Austin LLP, counsel for the Issuer and TCC, shall have furnished to the Representatives their written opinion (substantially in the form attached as Annex I (f) hereto), dated the Closing Date, i) to the effect that a court sitting in bankruptcy would not order the substantive consolidation of the assets and liabilities of the Issuer with those of TCC in connection with a bankruptcy, reorganization or other insolvency proceeding involving TCC, ii) that if TCC were to become a debtor in such insolvency proceeding, such court would hold that the Transition Property is not property of the estate of TCC and iii) regarding bankruptcy and corporate governance matters.

(i) Bracewell & Giuliani LLP, counsel for the Issuer and TCC, shall have furnished to the Representatives their written opinion (substantially in the form attached as Annex I (g) hereto), dated the Closing Date, regarding certain Texas constitutional matters relating to the Series A Transition Property.

(j) Sidley Austin LLP, counsel for the Issuer and TCC, shall have furnished to the Representatives their written opinion (substantially in the form attached as Annex I (h) hereto), dated the Closing Date, regarding certain federal tax matters.

(k) In-house counsel for TCC and the Issuer shall have furnished to the Representatives their written opinion (substantially in the form attached as Annex I (i) hereto), dated the Closing Date, to the effect that the Series A Transition Property is not subject to the lien of TCC’s Mortgage and Deed of Trust, dated as of November 1, 1944.

(l) Bracewell & Giuliani LLP, counsel for the Issuer and TCC, shall have furnished to the Representatives their written opinion (substantially in the form attached as Annex I (j) hereto), dated the Closing Date, with respect to the characterization of the transfer of the Series A Transition Property by TCC to the Issuer as a “true sale” for Texas law purposes.

 

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(m) Sidley Austin LLP, counsel for the Issuer and TCC, shall have furnished to the Representatives its written respective opinions (substantially in the form attached as Annex I (k) hereto), dated the Closing Date, regarding certain federal constitutional matters relating to the Series A Transition Property.

(n) Stradley, Ronon, Stevens & Young LLP, counsel for the Indenture Trustee, shall have furnished to the Representatives their written opinions (each substantially in the form attached as Annex I (l) hereto), dated the Closing Date, regarding certain matters relating to the Indenture Trustee.

(o) Clark, Thomas & Winters, a Professional Corporation, counsel for TCC and the Issuer, shall have furnished to the representatives their opinion (substantially in the form attached as Annex I (m) hereto), dated the Closing Date, regarding certain Texas regulatory issues.

(p) Clark, Thomas & Winters, a Professional Corporation, counsel for TCC and the Issuer, shall have furnished to the representatives their opinion (substantially in the form attached as Annex I (n) hereto), dated the Closing Date, with respect to the treatment of Retail Electric Provider payments as transition charges.

(q) Bracewell & Giuliani LLP, counsel for the Issuer and TCC, shall have furnished to the Representatives their written opinion (substantially in the form attached as Annex I (o) hereto), dated the Closing Date, regarding enforceability and certain Texas perfection and priority issues.

(r) Sidley Austin LLP, counsel for the Issuer and TCC, shall have furnished to the Representatives their written opinion (substantially in the form attached as Annex I (p) hereto), dated the Closing Date, regarding certain bankruptcy matters relating to the Issuer.

(s) Richards, Layton & Finger, P.A., counsel for the Issuer and TCC, shall have furnished to the Representatives their written opinion (substantially in the form attached as Annex I (r) hereto), dated the Closing Date, regarding certain matters of Delaware law.

(t) Clark, Thomas & Winters, a Professional Corporation, counsel for the Issuer and TCC, shall have furnished to the Representatives their written opinion (substantially in the form attached as Annex I (t) hereto), dated the Closing Date, regarding the constitutionality under the United States Constitution of the Texas Electric Choice Plan (Tex. Util. Code Ann. §§ 11.001-64.158).

(u) Bracewell & Giuliani LLP opinion as to certain Texas tax matters.

(v) Bracewell & Giuliani LLP opinion as to the consequences of the abolishment of the PUCT or the repeal of PURA by operation of the Texas Sunset Act.

 

-21-


(w) Bracewell & Giuliani LLP opinion as to additional corporate matters.

(x) On or before the Closing Date, Deloitte & Touche LLP shall have furnished to the Representatives one or more agreed upon procedure reports regarding certain calculations and computations relating to the Bonds, in form or substance reasonably satisfactory to the Representatives, in each case in respect of which the Representatives shall have made specific requests therefor and shall have provided acknowledgment or similar letters to Deloitte & Touche LLP reasonably necessary in order for Deloitte & Touche LLP to issue such reports.

(y) Subsequent to the respective dates as of which information is given in each of the Registration Statement, the Pricing Prospectus and the Final Prospectus, there shall not have been any change specified in the letters required by subsection (z) of this Section 9 which is, in the judgment of the Representatives, so material and adverse as to make it impracticable or inadvisable to proceed with the offering or the delivery of the Bonds as contemplated by the Registration Statement and the Final Prospectus.

(z) The Issuer LLC Agreement, the Administrative Agreement, the Intercreditor Agreement, the Sale Agreement, the Servicing Agreement and the Indenture and any amendment or supplement to any of the foregoing shall have been executed and delivered.

(aa) Since the respective dates as of which information is given in each of the Registration Statement and in the Pricing Prospectus and as of the Closing Date there shall have been no (i) material adverse change in the business, property or financial condition of TCC and its subsidiaries, taken as a whole, whether or not in the ordinary course of business, or the Issuer or (ii) adverse development concerning the business or assets of TCC and its subsidiaries, taken as a whole, or the Issuer which would be reasonably likely to result in a material adverse change in the prospective business, property or financial condition of TCC and its subsidiaries, taken as a whole, whether or not in the ordinary course of business, or the Issuer or (iii) development which would be reasonably likely to result in a material adverse change, in the Series A Transition Property, the Bonds or the Financing Order.

(bb) At the Closing Date, (i) the Bonds shall be rated at least “Aaa”, “AAA”, and “AAA” by Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor’s, a division of the McGraw-Hill Companies, Inc. (“S&P”) and Fitch, Inc. (“Fitch”), respectively, and the Issuer shall have delivered to the Underwriters a letter from each such rating agency, or other evidence satisfactory to the Underwriters, confirming that the Bonds have such ratings, and (ii) neither Moody’s, S&P nor Fitch shall have, since the date of this Underwriting Agreement, downgraded or publicly announced that it has under surveillance or review, with possible negative implications, its ratings of the Bonds.

(cc) The Issuer and TCC shall have furnished or caused to be furnished to the Representatives at the Closing Date certificates of officers of TCC and the Issuer, reasonably satisfactory to the Representatives, as to the accuracy of the representations

 

-22-


and warranties of the Issuer and TCC herein, in the Sale Agreement, Servicing Agreement and the Indenture at and as of the Closing Date, as to the performance by the Issuer and TCC of all of their obligations hereunder to be performed at or prior to such Closing Date, as to the matters set forth in subsections (b) and (cc) of this Section and as to such other matters as the Representatives may reasonably request.

(dd) An issuance advice letter, in a form consistent with the provisions of the Financing Order, shall have been filed with the PUCT and shall have become effective.

(ee) On or prior to the Closing Date, the 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 Restructuring Act, the Financing Order and other applicable law reflecting the grant of a security interest by the Issuer in the collateral relating to the Bonds to the Indenture Trustee, including the filing of the requisite notices in the office of the Secretary of State of the State of Texas.

(ff) On or prior to the Closing Date, TCC shall have funded the capital subaccount of the Issuer with cash in an amount equal to $8,698,500.

(gg) The Issuer and TCC shall have furnished or caused to be furnished or agree to furnish to the Rating Agencies at the Closing Date such opinions and certificates as the Rating Agencies shall have reasonably requested prior to such Closing Date.

10. Conditions of Issuer’s Obligations. The obligation of the Issuer to deliver the Bonds shall be subject to the conditions that no stop order suspending the effectiveness of the Registration Statement shall be in effect at the Closing Date and no proceeding for that purpose shall be pending before, or threatened by, the Commission at the Closing Date and the issuance advice letter described in Section 9(ff) shall have become effective. In case these conditions shall not have been fulfilled, this Underwriting Agreement may be terminated by the Issuer upon notice thereof to the Underwriters. Any such termination shall be without liability of any party to any other party except as otherwise provided in Sections 8(a)(ii) and 11 hereof.

11. Indemnification and Contribution.

(a) TCC and the Issuer, jointly and severally, shall indemnify, defend and hold harmless each Underwriter, each Underwriter’s officers and directors and each person who controls any Underwriter within the meaning of Section 15 of the Securities Act from and against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act or any other statute or common law and shall reimburse each such Underwriter and controlling person for any reasonable legal or other expenses (including, to the extent hereinafter provided, reasonable counsel fees) as and when incurred by them in connection with investigating any such losses, claims, damages or liabilities or in connection with defending any actions, insofar as such losses, claims, damages, liabilities, expenses or actions arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any omission or alleged omission to state

 

-23-


therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in the Pricing Prospectus, the Final Prospectus and, together with the Pricing Prospectus, the Issuer Free Writing Prospectuses, collectively, or any omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading or (iii) any information prepared by or on behalf of TCC or the Issuer and provided to the Underwriters; provided, however, that the indemnity agreement contained in this Section 11 shall not apply to any such losses, claims, damages, liabilities, expenses or actions arising out of, or based upon, any such untrue statement or alleged untrue statement, or any such omission or alleged omission, in each case if such statement or omission was made in reliance upon and in conformity with information furnished in writing to the Issuer or TCC by any Underwriter, by or through the Representatives, expressly for use in connection with the preparation of the Registration Statement, the Pricing Prospectus, the Final Prospectus or any Issuer Free Writing Prospectus or any amendment or supplement to either thereof, or arising out of, or based upon, statements in or omissions from that part of the Registration Statement that shall constitute the Statement of Eligibility under the Trust Indenture Act of the Indenture Trustee with respect to any indenture qualified pursuant to the Registration Statement; and provided further, that the indemnity agreement contained in this Section 11 shall not inure to the benefit of any Underwriter (or of any officer or director of such Underwriter or of any person controlling such Underwriter within the meaning of Section 15 of the Securities Act) on account of any such losses, claims, damages, liabilities, expenses or actions, joint or several, arising from the sale of the Bonds to any person if a copy of the Pricing Prospectus (including any amendment or supplement thereto if any amendments or supplements thereto shall have been furnished to the Underwriters at or prior to the time of the sale involved) (exclusive of the Incorporated Documents) shall not have been given or sent to such person by or on behalf of such Underwriter with or prior to the sale of the Bonds to such person unless the alleged omission or alleged untrue statement was not corrected in the Pricing Prospectus (including any amendment or supplement thereto if any amendments or supplements thereto shall have been furnished to the Underwriters at or prior to the time of the sale involved) at the time of such sale. The indemnity agreement of TCC and Issuer contained in this Section 11 and the representations and warranties of the Issuer and TCC contained in Sections 3 and 4 hereof shall remain operative and in full force and effect regardless of any termination of this Underwriting Agreement or of any investigation made by or on behalf of any Underwriter, its officers or its directors or any such controlling person, and shall survive the delivery of the Bonds.

(b) Each Underwriter shall severally indemnify, defend and hold harmless TCC and the Issuer, each of TCC’s and Issuer’s officers, directors, and managers, and each person who controls the Issuer or TCC within the meaning of Section 15 of the Securities Act, from and against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act or any other statute or common law and shall reimburse each of them for any reasonable legal or other expenses (including, to the extent hereinafter provided, reasonable counsel fees) as and when incurred by them in connection with investigating any such losses, claims,

 

-24-


damages or liabilities or in connection with defending any actions, insofar as such losses, claims, damages, liabilities, expenses or actions arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement 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 or (ii) any untrue statement or alleged untrue statement of a material fact contained in the Pricing Prospectus, the Final Prospectus and, together with the Pricing Prospectus, the Issuer Free Writing Prospectuses, collectively, or any omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading; if such statement or omission was made in reliance upon and in conformity with information furnished in writing to TCC or Issuer by such Underwriter, through the Representatives, expressly for use in connection with the preparation of the Registration Statement, the Pricing Prospectus, the Final Prospectus or any Issuer Free Writing Prospectus or any amendment or supplement to any of them. The only information furnished to TCC by the Underwriters in writing expressly for use in such foregoing documents is set forth in Schedule V hereto. The indemnity agreement of the respective Underwriters contained in this Section 11 and the representations and warranties of the Underwriters contained in Section 5 hereof shall remain operative and in full force and effect regardless of any termination of this Underwriting Agreement or of any investigation made by or on behalf of TCC or the Issuer, their directors, managers or officers, any such Underwriter, or any such controlling person, and shall survive the delivery of the Bonds.

(c) TCC and the several Underwriters each shall, upon the receipt of notice of the commencement of any action against it or any person controlling it as aforesaid, in respect of which indemnity may be sought on account of any indemnity agreement contained herein, promptly give written notice of the commencement thereof to the party or parties against whom indemnity shall be sought under (a) or (b) above, but the failure to notify such indemnifying party or parties of any such action shall not relieve such indemnifying party or parties from any liability hereunder to the extent such indemnifying party or parties is/are not materially prejudiced as a result of such failure to notify and in any event shall not relieve such indemnifying party or parties from any liability which it or they may have to the indemnified party otherwise than on account of such indemnity agreement. In case such notice of any such action shall be so given, such indemnifying party shall be entitled to participate at its own expense in the defense, or, if it so elects, to assume (in conjunction with any other indemnifying parties) the defense of such action, in which event such defense shall be conducted by counsel chosen by such indemnifying party or parties and reasonably satisfactory to the indemnified party or parties who shall be defendant or defendants in such action, and such defendant or defendants shall bear the fees and expenses of any additional counsel retained by them; but if the indemnifying party shall elect not to assume the defense of such action, such indemnifying party will reimburse such indemnified party or parties for the reasonable fees and expenses of any counsel retained by them; provided, however, if the defendants in any such action (including impleaded parties) include both the indemnified party and the indemnifying party and counsel for the indemnifying party shall have reasonably concluded that there may be a conflict of interest involved in the representation by a single counsel of both the indemnifying party and the indemnified party, the indemnified

 

-25-


party or parties shall have the right to select separate counsel, satisfactory to the indemnifying party, whose reasonable fees and expenses shall be paid by such indemnifying party, to participate in the defense of such action on behalf of such indemnified party or parties (it being understood, however, that the indemnifying party shall not be liable for the fees and expenses of more than one separate counsel (in addition to local counsel) representing the indemnified parties who are parties to such action). Each of TCC, Issuer and the several Underwriters agrees that without the other party’s prior written consent, which consent shall not be unreasonably withheld, it will not settle, compromise or consent to the entry of any judgment in any claim in respect of which indemnification may be sought under the indemnification provisions of this Underwriting Agreement, unless such settlement, compromise or consent (i) includes an unconditional release of such other party from all liability arising out of such claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of such other party.

(d) If the indemnification provided for in subparagraph (a) or (b) above shall be unenforceable under applicable law by an indemnified party, each indemnifying party agrees to contribute to such indemnified party with respect to any and all losses, claims, damages, liabilities and expenses for which each such indemnification provided for in subparagraph (a) or (b) above shall be unenforceable, in such proportion as shall be appropriate to reflect (i) the relative benefits received by TCC and the Issuer on the one hand and the Underwriters on the other hand from the offering of the Bonds pursuant to this Underwriting Agreement or (ii) if an allocation solely on the basis provided by clause (i) is not permitted by applicable law or is inequitable or against public policy, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of each indemnifying party on the one hand and the indemnified party on the other in connection with the statements or omissions which have resulted in such losses, claims, damages, liabilities and expenses and (iii) any other relevant equitable considerations; provided, however, that no indemnified party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any indemnifying party not guilty of such fraudulent misrepresentation. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or the indemnified party and each such party’s relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. TCC, the Issuer and each of the Underwriters agree that it would not be just and equitable if contributions pursuant to this subparagraph (d) were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 11, no Underwriter shall be required to contribute in excess of the amount equal to the excess of (i) the total underwriting fees, discounts and commissions received by it, over (ii) the amount of any damages which such Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission. The obligations of each Underwriter to contribute pursuant to this Section 11 are several and not joint and shall be in the same proportion as such Underwriter’s obligation to underwrite Bonds is to the total number of Bonds set forth in Schedule II hereto.

 

-26-


12. Termination. This Underwriting Agreement may be terminated, at any time prior to the Closing Date with respect to the Bonds by the Representatives by written notice to the Issuer if after the date hereof and at or prior to the Closing Date (a) there shall have occurred any general suspension of trading in securities on the New York Stock Exchange (“NYSE”) or there shall have been established by the NYSE, or the over-the-counter market, or by the Commission any general limitation on prices for such trading or any general restrictions on the distribution of securities, or a general banking moratorium declared by New York or federal authorities or (b) there shall have occurred any (i) material outbreak of hostilities (including, without limitation, an act of terrorism) or (ii) declaration by the United States of war or national or international calamity or crisis, including, but not limited to, a material escalation of hostilities that existed prior to the date of this Underwriting Agreement or (iii) material adverse change in the financial markets in the United States, and the effect of any such event specified in clause (a) or (b) above on the financial markets of the United States shall be such as to materially and adversely affect, in the reasonable judgment of the Representatives, their ability to proceed with the public offering or the delivery of the Bonds on the terms and in the manner contemplated by the Final Prospectus. Any termination hereof pursuant to this Section 12 shall be without liability of any party to any other party except as otherwise provided in Sections 8(a)(vii) and 11 hereof.

13. Absence of Fiduciary Relationship. Each of the Issuer and TCC acknowledges and agrees that the Underwriters are acting solely in the capacity of an arm’s length contractual counterparty to the Issuer and TCC with respect to the offering of the Bonds contemplated hereby (including in connection with determining the terms of the offering) and not as a financial advisor or a fiduciary to, or an agent of, the Issuer or TCC. Additionally, none of the Underwriters is advising the Issuer or TCC as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction. The Issuer and TCC shall consult with their own advisors concerning such matters and shall be responsible for making their own independent investigation and appraisal of the transactions contemplated hereby, and the Underwriters shall have no responsibility or liability to the Issuer or TCC with respect thereto. Any review by the Underwriters of the Issuer or TCC, the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Underwriters and shall not be on behalf of the Issuer or TCC.

14. Notices. All communications hereunder will be in writing and may be given by United States mail, courier service, telecopy, telefax or facsimile (confirmed by telephone or in writing in the case of notice by telecopy, telefax or facsimile) or any other customary means of communication, and any such communication shall be effective when delivered, or if mailed, three days after deposit in the United States mail with proper postage for ordinary mail prepaid, and if sent to the Representatives, to it at the address specified in Schedule I hereto; and if sent to TCC, to it at 1 Riverside Plaza, Columbus, Ohio 43215, Attention: Treasurer; and if sent to the Issuer, to it at 539 North Carancahua Street, Suite 1700, Corpus Christi, Texas, 78478, Attention: Manager. The parties hereto, by notice to the others, may designate additional or different addresses for subsequent communications.

 

-27-


15. Successors. This Underwriting 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.

16. Applicable Law. This Underwriting Agreement will be governed by and construed in accordance with the laws of the State of New York.

17. Counterparts. This Underwriting 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.

18. Integration. This Agreement supersedes all prior agreements and understandings (whether written or oral) among the Issuer, TCC and the Underwriters, or any of them, with respect to the subject matter hereof.

 

-28-


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 TCC, the Issuer and the several Underwriters.

 

Very truly yours,

AEP TEXAS CENTRAL COMPANY

By:   /s/ Stephen P. Smith

Name:

 

Stephen P. Smith

Title:

 

Treasurer

AEP TEXAS CENTRAL TRANSITION FUNDING II LLC
By:   /s/ Stephen P. Smith

Name:

 

Stephen P. Smith

Title:

 

President

The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date specified in Schedule I hereto.

 

-29-


CREDIT SUISSE SECURITIES (USA) LLC

By:   /s/ Wayne Olson

Name:

 

Wayne Olson

Title:

 

Managing Director

J.P. MORGAN SECURITIES INC.

By:   /s/ Marquis Gilmore

Name:

 

Marquis Gilmore

Title:

 

Vice President

GREENWICH CAPITAL MARKETS, INC.
By:   /s/ Al Yoshimura

Name:

 

Al Yoshimura

Title:

 

Managing Director

 

-30-


SCHEDULE I

Underwriting Agreement dated October 4, 2006

Registration Statement No. 333-136787

Representatives:

 

Credit Suisse Securities (USA) LLC

J.P. Morgan Securities Inc.

   Greenwich Capital Markets, Inc.

c/o

Credit Suisse Securities (USA) LLC

Address: 11 Madison Avenue, 4th Floor, New York, New York, 10010

Attention: Wayne Olson

Title, Purchase Price and Description of Bonds:

 

  Title: AEP Texas Central Transition Funding II LLC Senior Secured Transition Bonds, Series A

 

     Total Principal
Amount of
Tranche
   Bond
Rate
    Price to
Public
    Underwriting
Discounts and
Commissions
   Proceeds to Issuer

Per Tranche A-1 Bond

   217,000,000    4.98 %   99.99585 %   0.003250    216,285,745

Per Tranche A-2 Bond

   341,000,000    4.98 %   99.94158 %   0.003600    339,573,188

Per Tranche A-3 Bond

   250,000,000    5.09 %   99.95516 %   0.003850    248,925,400

Per Tranche A-4 Bond

   437,000,000    5.17 %   99.94852 %   0.004200    434,939,632

Per Tranche A-5 Bond

   494,700,000    5.3063 %   99.99937 %   0.003674    493,036,175
                  

Total

   1,739,700,000           1,732,760,140.19

 

Original Issue Discount (if any):    $548,401.91
Redemption provisions:    None
Other provisions:    None
Closing Date, Time and Location:    October 11, 2006, 10:00 a.m.; offices of Sidley Austin LLP; One South Dearborn, Chicago, Illinois, 60603.

 

I-1


SCHEDULE II

Principal Amount of Bonds to be Purchased

 

     Principal Amount
     (in millions)

Underwriter

   Tranche A-1    Tranche A-2    Tranche A-3    Tranche A-4    Tranche A-5    Total

Credit Suisse Securities (USA) LLC

   45    87.72    71.17    121    134.15    459.04

J.P. Morgan Securities Inc.

   45    87.72    71.17    121    134.15    459.04

Greenwich Capital Markets Inc.

   45    87.72    71.17    121    134.15    459.04

Bear, Stearns & Co.

   15    20    20    28    30    113

First Albany Capital Inc.

   15    10    10    10    40    85

Loop Capital Markets, LLC

   25    29.85    5.5    26    16    102.35

ABN AMRO Incorporated

   10    18    0    0    0    28

M.R. Beal & Company

   10    0    0    0    1.25    11.25

Samuel A. Ramirez & Co., Inc.

   5    0    1    10    5    21

Siebert Brandford Shank & Co., L.L.C.

   2    0    0    0    0    2

Total

   217    341    250    437    494.7    1739.7
                             

 

II-1


SCHEDULE III

Schedule of Issuer Free Writing Prospectuses

 

A. Free Writing Prospectuses not required to be filed

Electronic Road Show

 

B. Free Writing Prospectuses Required to be filed pursuant to Rule 433

Preliminary Term Sheet

Pricing Term Sheet, dated October 4, 2006

 

III-1


SCHEDULE IV

DESCRIPTIVE LIST OF UNDERWRITER PROVIDED INFORMATION

 

A: Pricing Prospectus

(a) under the heading “UNDERWRITING THE BONDS” in the Preliminary Prospectus Supplement: (i) the second paragraph immediately thereunder; (ii) the third sentence under the caption “No Assurance as to Resale Price or Resale Liquidity for the Bonds”; (iii) the entire first full paragraph under the caption “Various Types of Underwriter Transactions Which May Affect the Price of the Bonds” (except the last sentence thereof); and (iv) the last sentence of the second full paragraph and the last sentence of the fifth full paragraph under the caption “Various Types of Underwriter Transactions Which May Affect the Price of the Bonds”; and (b) under the heading “OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE TRANSITION BONDS” in the Prospectus, the first sentence under the caption “The Absence of a Secondary Market for a Series of Transition Bonds Might Limit Your Ability to Resell Your Transition Bonds of Such Series.”

 

B. Final Prospectus

(a) the penultimate full paragraph on the cover page of the Prospectus Supplement; (b) under the heading “UNDERWRITING THE BONDS” in the Prospectus Supplement: (i) the first and second paragraphs (including the table) immediately thereunder; (ii) the entire two paragraphs under the caption “The Underwriters’ Sales Price for the Bonds”; (iii) the third sentence under the caption “No Assurance as to Resale Price or Resale Liquidity for the Bonds”; (iii) the entire first full paragraph under the caption “Various Types of Underwriter Transactions Which May Affect the Price of the Bonds” (except the last sentence thereof); and (iv) the last sentence of the second full paragraph and the last sentence of the fifth full paragraph under the caption “Various Types of Underwriter Transactions Which May Affect the Price of the Bonds”; and (c) under the heading “OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE TRANSITION BONDS” in the Prospectus, the first sentence under the caption “The Absence of a Secondary Market for a Series of Transition Bonds Might Limit Your Ability to Resell Your Transition Bonds of Such Series.”

 

IV-1

Indenture

EXHIBIT 4.1

Execution Copy

AEP TEXAS CENTRAL TRANSITION FUNDING II LLC,

Issuer,

and

THE BANK OF NEW YORK,

Indenture Trustee and Securities Intermediary

 


INDENTURE

Dated as of October 11, 2006

 


Issuable in Series


TABLE OF CONTENTS

 

           Page
ARTICLE I   
DEFINITIONS AND INCORPORATION BY REFERENCE   

SECTION 1.01.

  

Definitions

   2

SECTION 1.02.

  

Incorporation by Reference of Trust Indenture Act

   2

SECTION 1.03.

  

Rules of Construction

   2
ARTICLE II   
THE TRANSITION BONDS   

SECTION 2.01.

  

Form

   3

SECTION 2.02.

  

Denominations; Transition Bonds Issuable in Series

   3

SECTION 2.03.

  

Execution, Authentication and Delivery

   5

SECTION 2.04.

  

Temporary Transition Bonds

   5

SECTION 2.05.

  

Registration; Registration of Transfer and Exchange of Transition Bonds

   5

SECTION 2.06.

  

Mutilated, Destroyed, Lost or Stolen Transition Bonds

   7

SECTION 2.07.

  

Persons Deemed Owner

   8

SECTION 2.08.

  

Payment of Principal, Premium, if any, and Interest; Interest on Overdue Principal; Principal, Premium, if any, and Interest Rights Preserved

   8

SECTION 2.09.

  

Cancellation

   9

SECTION 2.10.

  

Outstanding Amount; Authentication and Delivery of Transition Bonds

   10

SECTION 2.11.

  

Book-Entry Transition Bonds

   19

SECTION 2.12.

  

Notices to Clearing Agency

   20

SECTION 2.13.

  

Definitive Transition Bonds

   20

SECTION 2.14.

  

CUSIP Number

   21

SECTION 2.15.

  

Letter of Representations

   21

SECTION 2.16.

  

Special Terms Applicable to Subsequent Transfers of Certain Transition Bonds

   21

SECTION 2.17.

  

Tax Treatment

   22

SECTION 2.18.

  

State Pledge

   22

SECTION 2.19.

  

Security Interests

   22
ARTICLE III   
COVENANTS   

SECTION 3.01.

  

Payment of Principal, Premium, if any, 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


           Page

SECTION 3.05.

  

Protection of Transition Bond Collateral

   26

SECTION 3.06.

  

Opinions as to Transition Bond Collateral

   27

SECTION 3.07.

  

Performance of Obligations; Servicing; SEC Filings

   28

SECTION 3.08.

  

Certain Negative Covenants

   30

SECTION 3.09.

  

Annual Statement as to Compliance

   31

SECTION 3.10.

  

Issuer May Consolidate, etc., Only on Certain Terms

   31

SECTION 3.11.

  

Successor or Transferee

   33

SECTION 3.12.

  

No Other Business

   33

SECTION 3.13.

  

No Borrowing

   34

SECTION 3.14.

  

Servicer’s Obligations

   34

SECTION 3.15.

  

Guarantees, Loans, Advances and Other Liabilities

   34

SECTION 3.16.

  

Capital Expenditures

   34

SECTION 3.17.

  

Restricted Payments

   34

SECTION 3.18.

  

Notice of Events of Default

   34

SECTION 3.19.

  

Further Instruments and Acts

   35

SECTION 3.20.

  

Purchase of Subsequent Transition Property

   35

SECTION 3.21.

  

Inspection

   36

SECTION 3.22.

  

Sale Agreement, Servicing Agreement, Administration Agreement and Intercreditor Agreement Covenants

   37

SECTION 3.23.

  

Taxes

   39
ARTICLE IV   
SATISFACTION AND DISCHARGE; DEFEASANCE   

SECTION 4.01.

  

Satisfaction and Discharge of Indenture; Defeasance

   39

SECTION 4.02.

  

Conditions to Defeasance

   41

SECTION 4.03.

  

Application of Trust Money

   42

SECTION 4.04.

  

Repayment of Moneys Held by Paying Agent

   42
ARTICLE V   
REMEDIES   

SECTION 5.01.

  

Events of Default

   43

SECTION 5.02.

  

Acceleration of Maturity; Rescission and Annulment

   44

SECTION 5.03.

  

Collection of Indebtedness and Suits for Enforcement by Indenture Trustee

   45

SECTION 5.04.

  

Remedies; Priorities

   47

SECTION 5.05.

  

Optional Preservation of the Transition Bond Collateral

   48

SECTION 5.06.

  

Limitation of Suits

   49

SECTION 5.07.

  

Unconditional Rights of Holders To Receive Principal, Premium, if any, and Interest

   49

SECTION 5.08.

  

Restoration of Rights and Remedies

   50

SECTION 5.09.

  

Rights and Remedies Cumulative

   50

SECTION 5.10.

  

Delay or Omission Not a Waiver

   50

SECTION 5.11.

  

Control by Holders

   50

SECTION 5.12.

  

Waiver of Past Defaults

   51

 

ii


           Page

SECTION 5.13.

  

Undertaking for Costs

   51

SECTION 5.14.

  

Waiver of Stay or Extension Laws

   51

SECTION 5.15.

  

Action on Transition Bonds

   52
ARTICLE VI   
THE INDENTURE TRUSTEE   

SECTION 6.01.

  

Duties of Indenture Trustee

   52

SECTION 6.02.

  

Rights of Indenture Trustee

   54

SECTION 6.03.

  

Individual Rights of Indenture Trustee

   54

SECTION 6.04.

  

Indenture Trustee’s Disclaimer

   54

SECTION 6.05.

  

Notice of Defaults

   55

SECTION 6.06.

  

Reports by Indenture Trustee to Holders

   55

SECTION 6.07.

  

Compensation and Indemnity

   56

SECTION 6.08.

  

Replacement of Indenture Trustee and Securities Intermediary

   57

SECTION 6.09.

  

Successor Indenture Trustee by Merger

   58

SECTION 6.10.

  

Appointment of Co-Trustee or Separate Trustee

   59

SECTION 6.11.

  

Eligibility; Disqualification

   60

SECTION 6.12.

  

Preferential Collection of Claims Against Issuer

   60

SECTION 6.13.

  

Representations and Warranties of Indenture Trustee

   60

SECTION 6.14.

  

Annual Report by Independent Registered Public Accountants

   60

SECTION 6.15.

  

Custody of Transition Bond Collateral

   61
ARTICLE VII   
HOLDERS’ LISTS AND REPORTS   

SECTION 7.01.

  

Issuer To Furnish Indenture Trustee Names and Addresses of Holders

   61

SECTION 7.02.

  

Preservation of Information; Communications to Holders

   62

SECTION 7.03.

  

Reports by Issuer

   62

SECTION 7.04.

  

Reports by Indenture Trustee

   63
ARTICLE VIII   
ACCOUNTS, DISBURSEMENTS AND RELEASES   

SECTION 8.01.

  

Collection of Money

   63

SECTION 8.02.

  

Collection Accounts and REP Deposit Accounts

   63

SECTION 8.03.

  

General Provisions Regarding the Collection Accounts

   67

SECTION 8.04.

  

Release of Transition Bond Collateral

   68

SECTION 8.05.

  

Opinion of Counsel

   69

SECTION 8.06.

  

Reports by Independent Registered Public Accountants

   69

 

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           Page
ARTICLE IX   
SUPPLEMENTAL INDENTURES   

SECTION 9.01.

  

Supplemental Indentures Without Consent of Holders

   70

SECTION 9.02.

  

Supplemental Indentures with Consent of Holders

   71

SECTION 9.03.

  

PUCT Condition

   73

SECTION 9.04.

  

Execution of Supplemental Indentures

   74

SECTION 9.05.

  

Effect of Supplemental Indenture

   74

SECTION 9.06.

  

Conformity with Trust Indenture Act

   74

SECTION 9.07.

  

Reference in Transition Bonds to Supplemental Indentures

   74
ARTICLE X   
MISCELLANEOUS   

SECTION 10.01.

  

Compliance Certificates and Opinions, etc.

   75

SECTION 10.02.

  

Form of Documents Delivered to Indenture Trustee

   76

SECTION 10.03.

  

Acts of Holders

   77

SECTION 10.04.

  

Notices, etc., to Indenture Trustee, Issuer and Rating Agencies

   78

SECTION 10.05.

  

Notices to Holders; Waiver

   79

SECTION 10.06.

  

Notices to Irish Stock Exchange

   79

SECTION 10.07.

  

Conflict with Trust Indenture Act

   80

SECTION 10.08.

  

Effect of Headings and Table of Contents

   80

SECTION 10.09.

  

Successors and Assigns

   80

SECTION 10.10.

  

Severability

   80

SECTION 10.11.

  

Benefits of Indenture

   80

SECTION 10.12.

  

Legal Holidays

   80

SECTION 10.13.

  

GOVERNING LAW

   80

SECTION 10.14.

  

Counterparts

   81

SECTION 10.15.

  

Recording of Indenture

   81

SECTION 10.16.

  

Issuer Obligation

   81

SECTION 10.17.

  

No Recourse to Issuer

   81

SECTION 10.18.

  

Basic Documents

   81

SECTION 10.19.

  

No Petition

   82

 

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EXHIBITS AND SCHEDULES

 

EXHIBIT A    Form of Transition Bonds
EXHIBIT B    Form of Series Supplement
EXHIBIT C    Form of Investor Representation Letter
EXHIBIT D    Form of ERISA Representation Letter
EXHIBIT E    Servicing Criteria to be Addressed by Indenture Trustee in Assessment of Compliance
APPENDIX
APPENDIX A    Definitions

 

v


TRUST INDENTURE ACT CROSS REFERENCE TABLE

 

TIA Section

 

INDENTURE SECTION

310

   (a)(1)   6.11
   (a)(2)   6.11
   (a)(3)   6.10(b)(i)
   (a)(4)   N.A.
   (a)(5)   6.11
   (b)   6.12
   (c)   N.A.

311

   (a)   6.13
   (b)   6.13
   (c)   N.A.

312

   (a)   7.01 and 7.02
   (b)   7.02
   (c)   7.02

313

   (a)   7.04
   (b)(1)   7.04
   (b)(2)   7.04
   (c)   7.04
   (d)   7.04

314

   (a)   3.09, 4.01, and 7.03(a)
   (b)   3.06 and 4.01
   (c)(1)   2.10, 4.01 and 11.01(a)
   (c)(2)   2.10, 4.01 and 11.01(a)
   (c)(3)   2.10 4.01 and 11.01(a)
   (d)   2.10, 8.04(b) and 10.01(b)
   (e)   10.01(a)
   (f)   10.01(a)

 

vi


TIA Section

 

INDENTURE SECTION

315

   (a)   6.01(b)(i)(ii)
   (b)   6.05
   (c)   6.01 (a)
   (d)   6.01(c)(i)-(iii)
   (e)   5.13

316

   (a) (last sentence)   Appendix A – definition of “Outstanding”
   (a)(1)(A)   5.11
   (a)(1)(B)   5.12
   (a)(2)   Omitted
   (b)   5.07
   (c)   Appendix A – definition of “Record Date”

317

   (a)(1)   5.03(a)
   (a)(2)   5.03(c)(iv)
   (b)   3.03

318

   (a)   10.07

 

** “N.A.” shall mean “not applicable”.

THIS CROSS REFERENCE TABLE SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO BE PART OF THIS INDENTURE.

 

vii


This INDENTURE dated as of October 11, 2006, by and between AEP TEXAS CENTRAL TRANSITION FUNDING II LLC, a Delaware limited liability company (the “Issuer”), and THE BANK OF NEW YORK, a New York banking corporation, in its capacity as indenture trustee (the “Indenture Trustee”) for the benefit of the Secured Parties (as defined herein) and in its separate capacity as a securities intermediary (the “Securities Intermediary”).

In consideration of the mutual agreements herein contained, each party agrees as follows for the benefit of the other and each of the Holders:

RECITALS OF THE ISSUER

The Issuer has duly authorized the execution and delivery of this Indenture and the creation and issuance of Transition Bonds issuable in Series hereunder, each Series to be of substantially the tenor set forth herein and in the respective Series Supplement relating to each such Series of Transition Bonds.

The Transition Bonds shall be non-recourse obligations and shall be secured by and payable solely out of the proceeds of the Transition Property and the other Transition Bond Collateral. If and to the extent that such proceeds of Transition Property and the other Transition Bond Collateral are insufficient to pay all amounts owing with respect to the Transition Bonds, then, except as otherwise expressly provided hereunder, the Holders shall have no Claim in respect of such insufficiency against the Issuer, and the Holders, by their acceptance of the Transition Bonds, waive any such Claim.

All things necessary to (a) make the Transition Bonds, when executed by the Issuer and authenticated and delivered by the Indenture Trustee hereunder and duly issued by the Issuer, valid obligations, and (b) make this Indenture a valid agreement of the Issuer, in each case, in accordance with their respective terms, have been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

That the Issuer, in consideration of the premises herein contained and of the purchase of the Transition Bonds by the Holders and of other good and lawful consideration, the receipt and sufficiency of which are hereby acknowledged, and to secure, equally and ratably without prejudice, priority or distinction, except as specifically otherwise set forth in this Indenture, the payment of the Transition Bonds, the payment of all other amounts due under or in connection with this Indenture (including, without limitation, all fees, expenses, counsel fees and other amounts due and owing to the Indenture Trustee) and the performance and observance of all of the covenants and conditions contained herein or in such Transition Bonds, has hereby executed and delivered this Indenture and by these presents does hereby and under one or more Series Supplements will convey, grant and assign, transfer and pledge, in each case, in and unto the Indenture Trustee, its successors and assigns forever, for the benefit of the Secured Parties of the related Series, all and singular the property described in one or more Series Supplements (such property with respect to a particular Series hereinafter referred to as the “Series Transition Bond Collateral” and all such property, collectively, hereinafter referred to as the “Transition Bond Collateral”). Each Series Supplement will more particularly describe the obligations of the Issuer secured by the applicable Series Transition Bond Collateral.


AND IT IS HEREBY COVENANTED, DECLARED AND AGREED between the parties hereto that all Transition Bonds are to be issued, countersigned and delivered and that all of the Transition Bond Collateral is to be held and applied, subject to the further covenants, conditions, releases, uses and trusts hereinafter set forth, and the Issuer, for itself and any successor, does hereby covenant and agree to and with the Indenture Trustee and its successors in said trust, for the benefit of the Secured Parties, as follows:

ARTICLE I

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.01. Definitions. Except as otherwise specified herein or as the context may otherwise require, the capitalized terms used herein shall have the respective meanings set forth in Appendix A attached hereto and made a part hereof for all purposes of this Indenture.

SECTION 1.02. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, that provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings:

“indenture securities” means the Transition Bonds.

“indenture security holder” means a Holder.

“indenture to be qualified” means this Indenture.

“indenture trustee” or “institutional trustee” means the Indenture Trustee.

“obligor” on the indenture securities means the Issuer and any other obligor on the indenture securities.

All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions.

SECTION 1.03. Rules of Construction. Unless the context otherwise requires:

(i) a term has the meaning assigned to it;

(ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles on the United States of America as in effect from time to time;

(iii) “or” is not exclusive;

 

2


(iv) “including” means including without limitation;

(v) words in the singular include the plural and words in the plural include the singular; and

(vi) the words “herein,” “hereof,” “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

ARTICLE II

THE TRANSITION BONDS

SECTION 2.01. Form. The Transition Bonds and the Indenture Trustee’s certificate of authentication shall be in substantially the forms set forth in Exhibit A, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture or by the related Series Supplement and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may, consistently herewith, be determined by the officers executing such Transition Bonds, as evidenced by their execution of such Transition Bonds. Any portion of the text of any Transition Bond may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Transition Bond.

The Transition Bonds 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 Transition Bonds, as evidenced by their execution of such Transition Bonds.

Each Transition Bond shall be dated the date of its authentication. The terms of the Transition Bonds set forth in Exhibit A are part of the terms of this Indenture.

SECTION 2.02. Denominations; Transition Bonds Issuable in Series. The Transition Bonds shall be issuable in the Minimum Denomination specified in the applicable Series Supplement and, except as otherwise provided in such Series Supplement in integral multiples thereof.

The Transition Bonds may, at the election of and as authorized by a Responsible Officer of the Issuer, be issued in one or more Series (each comprised of one or more Tranches), and shall be designated generally as the “Transition Bonds” of the Issuer, with such further particular designations added or incorporated in such title for the Transition Bonds of any particular Series or Tranche as a Responsible Officer of the Issuer may determine. Each Transition Bond shall bear upon its face the designation so selected for the Series or Tranche to which it belongs. All Transition Bonds of the same Series shall be identical in all respects except for the denominations thereof, unless such Series is comprised of one or more Tranches, in which case all Transition Bonds of the same Tranche shall be identical in all respects except for the denominations thereof. All Transition Bonds of a particular Series or, if such Series is comprised of one or more Tranches, all Transition Bonds of a particular Tranche thereof, in each case issued under this Indenture, shall be in all respects equally and ratably entitled to the

 

3


benefits hereof without preference, priority, or distinction on account of the actual time or times of authentication and delivery, all in accordance with the terms and provisions of this Indenture.

No Series of Transition Bonds shall be subordinated in right of payment to any other Series of Transition Bonds.

Each Series of Transition Bonds shall be created by a Series Supplement authorized by a Responsible Officer of the Issuer and establishing the terms and provisions of such Series. The several Series and Tranches thereof may differ as between Series and Tranches, in respect of any of the following matters:

(1) designation of the Series and, if applicable, the Tranches thereof;

(2) the principal amount;

(3) the Transition Bond Interest Rate;

(4) the Payment Dates;

(5) the Scheduled Payment Date;

(6) the Scheduled Final Payment Date;

(7) the Final Maturity Date;

(8) the Series Issuance Date;

(9) the place or places for the payment of interest, principal and premium, if any;

(10) the Transition Bond Collateral;

(11) the Minimum Denominations;

(12) the Expected Amortization Schedule;

(13) provisions with respect to the definitions set forth in Appendix A hereto;

(14) whether or not the Transition Bonds of such Series are to be Book-Entry Transition Bonds and the extent to which Section 2.11 should apply;

(15) to the extent applicable, the extent to which payments on the Transition Bonds of any Tranche of the related Series are subordinate to or pari passu in right of payment of principal and interest to other Tranche of such Series; and

(16) any other provisions expressing or referring to the terms and conditions upon which the Transition Bonds of the applicable Series or Tranche are to be issued under this Indenture that are not in conflict with the provisions of this Indenture and as to which the Rating Agency Condition is satisfied.

 

4


SECTION 2.03. Execution, Authentication and Delivery. The Transition Bonds shall be executed on behalf of the Issuer by any of its Responsible Officers. The signature of any such Responsible Officer on the Transition Bonds may be manual or facsimile.

Transition Bonds bearing the manual or facsimile signature of individuals who were at any time Responsible Officers of the Issuer shall bind the Issuer, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Transition Bonds or did not hold such offices at the date of such Transition Bonds.

At any time and from time to time after the execution and delivery of this Indenture, the Issuer may deliver Transition Bonds executed by the Issuer to the Indenture Trustee pursuant to an Issuer Order for authentication; and the Indenture Trustee shall authenticate and deliver such Transition Bonds as in this Indenture provided and not otherwise.

No Transition Bond shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Transition Bond a certificate of authentication substantially in the form provided for therein executed by the Indenture Trustee by the manual signature of one of its authorized signatories, and such certificate upon any Transition Bond shall be conclusive evidence, and the only evidence, that such Transition Bond has been duly authenticated and delivered hereunder.

SECTION 2.04. Temporary Transition Bonds. Pending the preparation of Definitive Transition Bonds pursuant to Section 2.13, the Issuer may execute, and upon receipt of an Issuer Order the Indenture Trustee shall authenticate and deliver, Temporary Transition Bonds which are printed, lithographed, typewritten, mimeographed or otherwise produced, of the tenor of the Definitive Transition Bonds in lieu of which they are issued and with such variations not inconsistent with the terms of this Indenture as the officers executing such Transition Bonds may determine, as evidenced by their execution of such Transition Bonds.

If Temporary Transition Bonds are issued, the Issuer will cause Definitive Transition Bonds to be prepared without unreasonable delay. After the preparation of Definitive Transition Bonds, the Temporary Transition Bonds shall be exchangeable for Definitive Transition Bonds upon surrender of the Temporary Transition Bonds at the office or agency of the 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 Transition Bonds, the Transition Bond Issuer shall execute and the Indenture Trustee shall authenticate and deliver in exchange therefor a like principal amount of Definitive Transition Bonds of authorized denominations. Until so delivered in exchange, the Temporary Transition Bonds shall in all respects be entitled to the same benefits under this Indenture as Definitive Transition Bonds.

SECTION 2.05. Registration; Registration of Transfer and Exchange of Transition Bonds. The Issuer shall cause to be kept a register (the “Transition Bond Register”) in which, subject to such reasonable regulations as it may prescribe, the Issuer shall provide for the registration of Transition Bonds and the registration of transfers of Transition Bonds. The Indenture Trustee shall be “Transition Bond Registrar” for the purpose of registering Transition Bonds and transfers of Transition Bonds as herein provided. Upon any resignation of any

 

5


Transition Bond Registrar, the Issuer shall promptly appoint a successor or, if it elects not to make such an appointment, assume the duties of Transition Bond Registrar.

If a Person other than the Indenture Trustee is appointed by the Issuer as Transition Bond Registrar, the Issuer will give the Indenture Trustee prompt written notice of the appointment of such Transition Bond Registrar and of the location, and any change in the location, of the Transition Bond Register, and the Indenture Trustee shall have the right to inspect the Transition Bond Register at all reasonable times and to obtain copies thereof, and the Indenture Trustee shall have the right to rely conclusively upon a certificate executed on behalf of the Transition Bond Registrar by a Responsible Officer thereof as to the names and addresses of the Holders and the principal amounts and number of such Transition Bonds (separately stated by Series and Tranche).

Upon surrender for registration of transfer of any Transition Bond at the office or agency of the Issuer to be maintained as provided in Section 3.02, provided that the requirements of Section 8-401 of the UCC are met, the Issuer shall execute, and the Indenture Trustee shall authenticate and the Holder shall obtain from the Indenture Trustee, in the name of the designated transferee or transferees, one or more new Transition Bonds in any Minimum Denominations, of the same Series (and, if applicable, Tranche) and aggregate principal amount.

At the option of the Holder, Transition Bonds may be exchanged for other Transition Bonds in any Minimum Denominations, of the same Series (and, if applicable, Tranche) and aggregate principal amount, upon surrender of the Transition Bonds to be exchanged at such office or agency as provided in Section 3.02. Whenever any Transition Bonds are so surrendered for exchange, the Issuer shall, provided that the requirements of Section 8-401 of the UCC are met, execute and, upon any such execution, the Indenture Trustee shall authenticate and the Holder shall obtain from the Indenture Trustee, the Transition Bonds which the Holder making the exchange is entitled to receive.

All Transition Bonds issued upon any registration of transfer or exchange of other Transition Bonds shall be the valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Transition Bonds surrendered upon such registration of transfer or exchange.

Every Transition Bond presented or surrendered for registration of transfer or exchange shall be duly endorsed by, or be accompanied by (a) a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by the Holder thereof or such Holder’s attorney duly authorized in writing, with such signature guaranteed by an institution which is a member of one of the following recognized Signature Guaranty Programs: (i) The Securities Transfer Agent Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) such other guarantee program acceptable to the Indenture Trustee, and (b) such other documents as the Indenture Trustee may require.

No service charge shall be made to a Holder for any registration of transfer or exchange of Transition Bonds (except as may be required by the rules and regulations of the Irish Stock Exchange with respect to any Transition Bonds listed thereon), but the Issuer or the

 

6


Indenture Trustee may require payment of a sum sufficient to cover any tax or other governmental charge or any fees or expenses of the Indenture Trustee that may be imposed in connection with any registration of transfer or exchange of Transition Bonds, other than exchanges pursuant to Sections 2.04 or 2.06 not involving any transfer.

The preceding provisions of this Section 2.05 notwithstanding, the Issuer shall not be required to make, except to the extent otherwise required by the rules and regulations of the Irish Stock Exchange with respect to any Transition Bonds listed thereon, and the Transition Bond Registrar need not register transfers or exchanges (i) of any Transition Bond that has been submitted within fifteen (15) days preceding the due date for any payment with respect to such Transition Bond until after such due date has occurred or (ii) of Unregistered Transition Bonds unless Section 2.16 has been complied with in connection with such transfer or exchange.

SECTION 2.06. Mutilated, Destroyed, Lost or Stolen Transition Bonds. If (i) any mutilated Transition Bond is surrendered to the Indenture Trustee, or the Indenture Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Transition Bond and (ii) there is delivered to the Indenture Trustee such security or indemnity as may be required by it to hold the Issuer and the Indenture Trustee harmless, then, in the absence of notice to the Issuer, the Transition Bond Registrar or the Indenture Trustee that such Transition Bond has been acquired by a Protected Purchaser, the Issuer shall, provided that the requirements of Section 8-401 of the UCC are met, execute and, upon the Issuer’s written request, the Indenture Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Transition Bond, a replacement Transition Bond of like Series (and, if applicable, Tranche), tenor and principal amount, bearing a number not contemporaneously outstanding; provided, however, that if any such destroyed, lost or stolen Transition Bond, but not a mutilated Transition Bond, shall have become or within seven (7) days shall be due and payable, instead of issuing a replacement Transition Bond, the Issuer may pay such destroyed, lost or stolen Transition Bond when so due or payable without surrender thereof. If, after the delivery of such replacement Transition Bond or payment of a destroyed, lost or stolen Transition Bond pursuant to the proviso to the preceding sentence, a Protected Purchaser of the original Transition Bond in lieu of which such replacement Transition Bond was issued presents for payment such original Transition Bond, the Issuer and the Indenture Trustee shall be entitled to recover such replacement Transition Bond (or such payment) from the Person to whom it was delivered or any Person taking such replacement Transition Bond from such Person to whom such replacement Transition Bond 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 Issuer or the Indenture Trustee in connection therewith.

Upon the issuance of any replacement Transition Bond under this Section 2.06, the Issuer and/or the Indenture Trustee may require the payment by the Holder of such Transition Bond of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including the fees and expenses of the Indenture Trustee and the Transition Bond Registrar) connected therewith.

Every replacement Transition Bond issued pursuant to this Section 2.06 in replacement of any mutilated, destroyed, lost or stolen Transition Bond shall constitute an

 

7


original additional contractual obligation of the Issuer, whether or not the mutilated, destroyed, lost or stolen Transition Bond shall be found at any time or enforced by any Person, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Transition Bonds duly issued hereunder.

The provisions of this Section 2.06 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 Transition Bonds.

SECTION 2.07. Persons Deemed Owner. Prior to due presentment for registration of transfer of any Transition Bond, the Issuer, the Indenture Trustee, the Transition Bond Registrar and any agent of the Issuer or the Indenture Trustee may treat the Person in whose name any Transition Bond is registered (as of the day of determination) as the owner of such Transition Bond for the purpose of receiving payments of principal of and premium, if any, and interest on such Transition Bond and for all other purposes whatsoever, whether or not such Transition Bond be overdue, and neither the Issuer, the Indenture Trustee nor any agent of the Issuer or the Indenture Trustee shall be affected by notice to the contrary.

SECTION 2.08. Payment of Principal, Premium, if any, and Interest; Interest on Overdue Principal; Principal, Premium, if any, and Interest Rights Preserved.

(a) The Transition Bonds shall accrue interest as provided in the related Series Supplement at the applicable Transition Bond Interest Rate, and such interest shall be payable on each applicable Payment Date. Any installment of interest, principal or premium, if any, payable on any Transition Bond which is punctually paid or duly provided for on the applicable Payment Date shall be paid to the Person in whose name such Transition Bond (or one or more Predecessor Transition Bonds) 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 Transition Bond Register on such Record Date or in such other manner as may be provided in the related Series Supplement except that (i) upon application to the Indenture Trustee by any Holder owning Transition Bonds of any Tranche in the principal amount of $10,000,000 or more not later than the applicable Record Date payment will be made by wire transfer to an account maintained by such Holder and (ii) with respect to Book-Entry Transition Bonds, payments will be made by wire transfer in immediately available funds to the account designated by the Holder of the applicable Global Transition Bond unless and until such Global Transition Bond is exchanged for Definitive Transition Bonds (in which event payments shall be made as provided above) and except for the final installment of principal and premium, if any, payable with respect to such Transition Bond 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.

(b) The principal of each Transition Bond of each Series (and, if applicable, Tranche) shall be paid, to the extent funds are available therefor in the applicable Collection Account, in installments on each Payment Date specified in the related Series Supplement; provided that installments of principal not paid when scheduled to be paid in accordance with the Expected Amortization Schedule shall be paid upon receipt of money available for such purpose, in the order set forth in the Expected Amortization Schedule. Failure to pay principal in

 

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accordance with such Expected Amortization Schedule because moneys are not available pursuant to Section 8.02 to make such payments shall not constitute a Default or Event of Default under this Indenture; provided, however that failure to pay the entire unpaid principal amount of the Transition Bonds of a Tranche or Series upon the Final Maturity Date for the related Series shall constitute a Default or Event of Default with respect to such Series under this Indenture. Notwithstanding the foregoing, the entire unpaid principal amount of the Transition Bonds of a Series shall be due and payable, if not previously paid, on the date on which an Event of Default shall have occurred and be continuing with respect to such Series, if the Indenture Trustee or the Holders of the Transition Bonds representing not less than a majority of the Outstanding Amount of the Transition Bonds of such Series have declared the Transition Bonds to be immediately due and payable in the manner provided in Section 5.02. All payments of principal and premium, if any, on the Transition Bonds of any Series shall be made pro rata to the Holders entitled thereto unless otherwise provided in the related Series Supplement with respect to any Tranche of Transition Bonds included in such Series. The Indenture Trustee shall notify the Person in whose name a Transition Bond is registered at the close of business on the Record Date preceding the Payment Date on which the Issuer expects that the final installment of principal of and premium, if any, and interest on such Transition Bond will be paid. Such notice shall be mailed no later than five (5) days prior to such final Payment Date and shall specify that such final installment will be payable only upon presentation and surrender of such Transition Bond and shall specify the place where such Transition Bond may be presented and surrendered for payment of such installment, which, if and so long as any Transition Bonds are listed on the Irish Stock Exchange, shall include the office of the paying agent in Ireland appointed pursuant to Section 3.02.

(c) If interest on the Transition Bonds of any Series is not paid when due, such defaulted interest shall be paid (plus interest on such defaulted interest at the applicable Transition Bond Interest Rate to the extent lawful) to the Persons who are Holders on a subsequent Special Record Date, which date shall be at least fifteen (15) Business Days prior to the Special Payment Date. The Issuer shall fix or cause to be fixed any such Special Record Date and Special Payment Date, and, at least ten (10) days before any such Special Record Date, the Issuer shall mail to each affected Holder a notice that states the Special Record Date, the Special Payment Date and the amount of defaulted interest (plus interest on such defaulted interest) to be paid.

SECTION 2.09. Cancellation. All Transition Bonds surrendered for payment, registration of transfer or exchange shall, if surrendered to any Person other than the Indenture Trustee, be delivered to the Indenture Trustee and shall be promptly canceled by the Indenture Trustee. The Issuer may at any time deliver to the Indenture Trustee for cancellation any Transition Bonds previously authenticated and delivered hereunder which the Issuer may have acquired in any manner whatsoever, and all Transition Bonds so delivered shall be promptly canceled by the Indenture Trustee. No Transition Bonds shall be authenticated in lieu of or in exchange for any Transition Bonds canceled as provided in this Section 2.09, except as expressly permitted by this Indenture. All canceled Transition Bonds may be held or disposed of by the Indenture Trustee in accordance with its standard retention or disposal policy as in effect at the time.

 

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SECTION 2.10. Outstanding Amount; Authentication and Delivery of Transition Bonds. The aggregate Outstanding Amount of Transition Bonds that may be authenticated and delivered under this Indenture shall not exceed the aggregate of the amounts of Transition Bonds that are authorized in each Applicable Financing Order but otherwise shall be unlimited.

Transition Bonds of each Series created and established by a Series Supplement may from time to time be executed by the Issuer and delivered to the Indenture Trustee for authentication and thereupon the same shall be authenticated and delivered by the Indenture Trustee upon Issuer Request and upon delivery by the Issuer to the Indenture Trustee, and receipt by the Indenture Trustee, or the causing to occur by the Issuer, of the following; provided, however, that compliance with such conditions and delivery of such documents shall only be required in connection with the original issuance of a Transition Bond or Transition Bonds of such Series:

(1) Issuer Action. An Issuer Order authorizing and directing the authentication and delivery of the Transition Bonds by the Indenture Trustee and specifying the principal amount of Transition Bonds to be authenticated.

(2) Authorizations. Copies of (x) a Financing Order related to such Series which shall be in full force and effect and be Final, (y) certified resolutions of the Managers or Member of the Issuer authorizing the execution and delivery of each Series Supplement and the execution, authentication and delivery of such Transition Bonds and (z) a duly executed Series Supplement for the applicable Series of Transition Bonds to be issued.

(3) Opinions.

(a) An Opinion of Counsel of external counsel of the Issuer that the Applicable Financing Order is in full force and effect, that the Applicable Financing Order is Final and that no other authorization, approval or consent of any governmental body or bodies at the time having jurisdiction in the premises is required for the valid issuance, authentication and delivery of such Transition Bonds, except for such registrations as are required under the “Blue Sky” and securities laws of any State or such authorizations, approvals or consents of governmental bodies that have been obtained and copies of which have been delivered with such Opinion of Counsel.

(b) An Opinion of Counsel of external counsel of the Issuer 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 Issuer of each of the Basic Documents to which the Issuer is a party and that is executed and delivered in connection with such Transition Bond issuance, except for such authorizations, approvals or consents of governmental bodies that have been obtained and copies of which have been delivered with such Opinion of Counsel.

(4) Authorizing Certificate. An Officer’s Certificate, dated the Series Issuance Date, of the Issuer certifying that (a) the Issuer has duly authorized the execution and delivery of this Indenture and the related Series Supplement and the

 

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execution and delivery of the Transition Bonds of such Series and (b) that the Series Supplement for such Series of Transition Bonds is in the form attached thereto, which Series Supplement shall comply with the requirements of Section 2.02.

(5) The Transition Bond Collateral. The Issuer shall have made or caused to be made all filings with the PUCT and the Texas Secretary of State pursuant to the Financing Order and the Securitization Law and all other filings necessary to perfect the Grant of the Transition Bond Collateral to the Indenture Trustee and the Lien of this Indenture.

(6) Certificates of the Issuer and the Seller.

(a) An Officer’s Certificate, dated as of the Series Issuance Date:

(i) to the effect that (A) the Issuer is not in Default under this Indenture and that the issuance of the Transition Bonds will not result in any Default or in any breach of any of the terms, conditions or provisions of or constitute a default under the Financing Order relating to the Transition Bonds or any indenture, mortgage, deed of trust or other agreement or instrument to which the 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 Issuer is a party or by which it or its property may be bound or to which it or its property may be subject and (B) that all conditions precedent provided in this Indenture relating to the execution, authentication and delivery of the Transition Bonds have been complied with;

(ii) to the effect that the Issuer has not assigned any interest or participation in the Series Transition Bond Collateral except for the Grant contained in the Series Supplement for such Series; the Issuer has the power and right to Grant the Transition Bond Collateral to the Indenture Trustee as security hereunder and thereunder; and the Issuer, subject to the terms of this Indenture, has Granted to the Indenture Trustee a first priority perfected security interest in all of its right, title and interest in and to such Series Transition Bond 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 Issuer or through the Issuer, except Permitted Liens;

(iii) to the effect that the Issuer has appointed the firm of Independent registered public accountants as contemplated in Section 8.06;

(iv) to the effect that attached thereto are duly executed, true and complete copies of the Sale Agreement, the Servicing Agreement, the Administration Agreement and the Intercreditor Agreement which are, to the knowledge of the Issuer, in full force and effect and, to the knowledge of the Issuer, that no party is in default of its obligations under such agreements; and

(v) stating that all filings with the PUCT, the Texas Secretary of State and the Delaware Secretary of State pursuant to the Securitization Law, the UCC

 

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and the Financing Order relating to the Transition Bonds and all UCC financing statements with respect to the Transition Bond Collateral which are required to be filed by the terms of the Financing Order, the Securitization Law, the Sale Agreement, the Servicing Agreement and this Indenture have been filed as required.

(b) An officer’s certificate from the Seller, dated as of the Series Issuance Date, to the effect that, in the case of the Transition Property identified in the related Bill of Sale, immediately prior to the conveyance thereof to the Issuer pursuant to the Sale Agreement:

(i) the Seller was the original and the sole owner of such Transition Property, free and clear of any Lien; the Seller had not assigned any interest or participation in such Transition Property and the proceeds thereof other than to the Issuer pursuant to the Sale Agreement; the Seller has the power, authority and right to own, sell and assign such Transition Property and the proceeds thereof to the Issuer; and the Seller, subject to the terms of the Sale Agreement, has validly sold and assigned to the Issuer all of its right, title and interest in and to such Transition Property and the proceeds thereof, free and clear of any Lien (other than Permitted Liens) and such sale and assignment is absolute and irrevocable and has been perfected; and

(ii) the attached copy of the Financing Order creating such Transition Property is true and complete and is in full force and effect.

(7) Opinion of Tax Counsel. The Seller shall have received and delivered to the Issuer and the Indenture Trustee an opinion of outside tax counsel (as selected by the Seller, and in form and substance reasonably satisfactory to the Issuer and the Indenture Trustee) to the effect that (a) the Issuer will not be subject to United States federal income tax as an entity separate from its sole owner and that the Transition Bonds will be treated as debt of the Issuer’s sole owner for United States federal income tax purposes; (b) for United States federal income tax purposes, the issuance of the Transition Bonds will not result in gross income to the Seller; and (c) in the case of a subsequent issuance of Transition Bonds only, such issuance will not adversely affect the characterization of any then outstanding Transition Bonds as obligations of the Issuer’s sole owner. The opinion of outside tax counsel described above may, if the Seller so chooses, be conditioned on the receipt by the Seller of one or more letter rulings from the Internal Revenue Service (unless the Internal Revenue Service has announced that it will not rule on the issues described in this paragraph) and in rendering such opinion outside tax counsel shall be entitled to rely on the rulings contained in such ruling letters and to rely on the representations made, and information supplied, to the Internal Revenue Service in connection with such letter rulings.

(8) Opinion of Counsel. Unless otherwise specified in a Series Supplement, an Opinion or Opinions of Counsel, portions of which may be delivered by one or more outside counsel for the Issuer, portions of which may be delivered by one or more outside counsel for the Servicer, and portions of which may be delivered by one or more outside

 

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counsel for the Seller, dated the Series Issuance Date, in each case subject to the customary exceptions, qualifications and assumptions contained therein, to the collective effect that:

(a) The Indenture has been duly qualified under the Trust Indenture Act and no qualification of the related Series Supplement is necessary under the Trust Indenture Act.

(b) All instruments furnished to the Indenture Trustee pursuant to the Indenture conform to the requirements set forth in the Indenture and constitute all of the documents required to be delivered under the Indenture for the Indenture Trustee to authenticate and deliver the Transition Bonds. All conditions precedent provided for in the Indenture relating to the authentication and delivery of the Transition Bonds have been complied with.

(c) The Transition Bonds have been duly authorized, executed and delivered by the Issuer and when duly authenticated by the Indenture Trustee in accordance with the provisions of the Indenture and delivered against payment of the purchase price therefor, as provided in the Underwriting Agreement, the Transition Bonds will constitute legal, valid and binding obligations of the Issuer entitled to the benefits provided by the Indenture and the related Series Supplement and will be enforceable against the Issuer in accordance with their terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other laws of general applicability relating to or affecting the enforcement of creditors’ rights and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

(d) Each of the Indenture, each Series Supplement, the Administration Agreement, the Sale Agreement, the Intercreditor Agreement and the Servicing Agreement has been duly authorized, executed and delivered by the Issuer and is a legal, valid and binding agreement of the Issuer, enforceable against the Issuer in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other laws of general applicability relating to or affecting the enforcement of creditors’ rights and by the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Each of the Administration Agreement, the Sale Agreement, the Intercreditor Agreement and the Servicing Agreement has been duly authorized, executed and delivered by TCC and constitutes a legal, valid and binding agreement of TCC, enforceable against TCC in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other laws of general applicability relating to or affecting the enforcement of creditors’ rights and by the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

(e) (i) With respect to the Series Transition Bond Collateral, upon the giving of value by the Holders to the Issuer with respect to such Series Transition Bond Collateral,

 

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the Indenture, together with the related Series Supplement, creates in favor of the Indenture Trustee, for the benefit of the Secured Parties, a valid security interest under Article 9 of the NY UCC in such Series Transition Bond Collateral (to the extent such Series Transition Bond Collateral is of a type in which a security interest can be created under Article 9 of the NY UCC) to secure the payment of the Secured Obligations with respect to the related Series Supplement. Assuming that the collateral described in the financing statement is Transition Bond Collateral pursuant to the Indenture, then insofar as Section 9-509 of the NY UCC is applicable, the Indenture Trustee is authorized to file the financing statement.

(ii) Under Section 9-305(a)(3) of the NY UCC, the local law of the Securities Intermediary’s jurisdiction as specified in Section 8-110(e) of the NY UCC governs perfection, the effect of perfection or nonperfection and priority in the Securities Account and Security Entitlements. Under the Indenture, for purposes of Section 8-110(e) of the NY UCC, the jurisdiction of the Securities Intermediary is the State of New York.

(iii) To the extent that any Collection Account is a Securities Account, the provisions of the Indenture are effective to perfect by control the security interest of the Indenture Trustee, for the benefit of the Secured Parties, in each such Collection Account and the Issuer’s Security Entitlements with respect to the Financial Assets credited to each such Collection Account and, subject to and to the extent provided in Section 9-315 of the NY UCC and the Federal Book-Entry Regulations, identifiable cash proceeds thereof. Such security interest will have priority over any security interest held by a secured party perfected by a means other than control.

(iv) Insofar as Article 9 of the NY UCC is applicable, (A) pursuant to Section 9-301 of the NY UCC, the law of the location of the debtor governs the perfection of a nonpossessory security interest in the Transition Bond Collateral; (B) pursuant to 9-307 of the NY UCC, a registered organization that is organized under the law of a State is deemed to be located in that State for purposes of Section 9-301; (C) the Issuer is a “registered organization” as defined in Section 9-102(a)(70) of the NY UCC organized in the State of Delaware; and (D) therefore, the law of the State of Delaware governs the perfection of a nonpossessory security interest in the Transition Bond Collateral.

(f) The Registration Statement covering the Transition Bonds has become effective under the Securities Act; and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued under the Securities Act and no proceedings for that purpose have been initiated or are pending or threatened by the SEC.

(g) Neither the Issuer nor TCC is now and, assuming that the Issuer uses the net proceeds of the sale of the Transition Bonds for the purpose of acquiring Transition Property in accordance with the terms of the Sale Agreement following the sale of the

 

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Transition Bonds to the Underwriters pursuant to the Underwriting Agreement, neither the Issuer nor TCC will be required to be registered under the Investment Company Act.

(h) No authorization, approval or consent of any federal governmental body or bodies having jurisdiction in the premises is required for the valid issuance, authentication and delivery of the Transition Bonds and for the valid execution and delivery by the Issuer of each of the Basic Documents except for such authorizations, approvals or consents of federal governmental bodies that have been obtained.

(i) Each of the Sale Agreement, the proviso (relating to Liens in Transition Property governed by Texas law) to Section 10.13, and the portions of this Indenture referred to by such proviso, constitutes the legal, valid and binding obligation of each of TCC and the Issuer, to the extent each is a party thereto, enforceable against such parties in accordance with its terms.

(j) In accordance with the Securitization Law, (i) the rights and interests of TCC under the Financing Order related to the Transition Bonds, including the right to impose, collect, and receive the transition charges authorized in the Financing Order related to the Transition Bonds, are assignable and shall become transition property when they are first transferred to the Issuer in connection with the issuance of Transition Bonds; (ii) upon the transfer by TCC of the Transition Property to the Issuer, the Issuer shall have all of the rights of TCC with respect to such Transition Property, including, without limitation, the right to exercise any and all rights and remedies with respect thereto, including the right to impose, collect and receive any amounts payable by any Customer in respect of the Transition Property; (iii) the Financing Order related to the Transition Bonds approves the issuance by the Issuer of the Transition Bonds in an aggregate principal amount which equals or exceeds the initial Outstanding Amount of the Transition Bonds; and (iv) the Transition Bonds are “transition bonds” within the meaning of Section 39.302(6) of the Securitization Law.

(k) No governmental approvals are required for the valid issuance, authentication and delivery of the Transition Bonds or the performance by either TCC or the Issuer of its respective obligations under the Basic Documents, and the proviso (relating to Liens in Transition Property governed by Texas law) to Section 10.13, and the portions of this Indenture referred to by such proviso, to which either TCC or the Issuer is a party, except for (i) the Financing Order related to the Transition Bonds and the governmental approvals expressly contemplated therein and (ii) the filings contemplated by paragraphs (n) and (p) below.

(l) A Texas state court, or a federal court applying Texas conflict-of-law rules, would give effect to the choice of the laws of New York (to the extent so stated therein) as the governing law in each of the Indenture, each Series Supplement, the Servicing Agreement and the Underwriting Agreement.

(m) Under the terms of Section 39.309(c) of the Securitization Law, the transfer of the Transition Property by TCC to the Issuer is perfected under Section

 

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39.309(c) of the Securitization Law against all third parties, including subsequent judicial or other lien creditors.

(n) A valid and enforceable lien and security interest in the Series Transition Bond Collateral has been created and has attached in favor of the Indenture Trustee (on behalf of the Secured Parties) by the Financing Order related to the Transition Bonds and the execution and delivery of this Indenture and the related Series Supplement by the Issuer in connection with the issuance and funding of the Transition Bonds. Such Lien has been perfected in accordance with Section 39.309(b) of the Securitization Law and in accordance with the Financing Order. Such Lien has priority in the order of filing and takes precedence over any subsequent judicial or other lien creditor. Based on lien searches conducted in the appropriate office, such Lien is first priority.

(o) UCC lien searches identify no secured party who has filed with the Secretary of State of Texas naming TCC or the Issuer as debtor and describing any of the Transition Bond Collateral.

(p) The Transition Property Notices related to the Transition Bonds are in appropriate form for filing pursuant to the Section 39.309 of the Securitization Law and pursuant to Chapter 96 of the Rules of the Secretary of State of Texas with respect to the Transition Property.

(q) The 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, and is in good standing in the State of Texas.

(r) The LLC Agreement constitutes a valid and binding agreement of TCC and is enforceable against TCC, in its capacity as member of the Issuer, in accordance with its terms.

(s) Under the LLC Act and the LLC Agreement, the Issuer has the limited liability company power and authority to execute and deliver each of the Indenture, the Sale Agreement, the Servicing Agreement, the Underwriting Agreement and the Transition Bonds and to perform its obligations thereunder. Under the LLC Act and the LLC Agreement, the execution and delivery by the Issuer of each of the Indenture, the Sale Agreement, the Servicing Agreement, the Underwriting Agreement and the Transition Bonds, and the performance by the Issuer of its obligations thereunder, have been duly authorized by all necessary limited liability company action on the part of the Issuer.

(t) Neither the execution or delivery by the Issuer of each of the Indenture, the Sale Agreement, the Servicing Agreement, the Underwriting Agreement or the Transition Bonds nor the compliance by the Issuer with the terms thereof, nor the consummation by the Issuer of any of the transactions contemplated thereby requires the consent or approval of, the giving of notice to, the registration with, or the taking of any other action with respect to any Delaware court, or Delaware governmental or Delaware regulatory authority or Delaware agency under the laws of the State of Delaware, except

 

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for the filing of the Certificate of Formation with the Secretary of State, which Certificate of Formation has been duly filed.

(u) Neither the execution and delivery by the Issuer of the Indenture, the Sale Agreement, the Servicing Agreement, the Underwriting Agreement or the Transition Bonds nor the compliance by the Issuer with the terms thereof, nor the consummation by the Issuer of any of the transactions contemplated thereby conflicts with or constitutes a breach of or default under the Certificate of Formation or the LLC Agreement, or violates any law, governmental rule or regulation of the State of Delaware.

(v) After due inquiry, limited to, and solely to the extent disclosed thereupon, court dockets for active cases of the Court of Chancery of the State of Delaware in and for New Castle County, Delaware, of the Superior Court of the State of Delaware in and for New Castle County, Delaware, and of the United States District Court sitting in the State of Delaware, such counsel is not aware of any legal or governmental proceeding pending against the Issuer.

(w) If properly presented to a Delaware court, a Delaware court applying Delaware law would conclude that (i) in order for any Person to file a voluntary bankruptcy petition on behalf of the Issuer, the affirmative vote of TCC and the affirmative vote of all the Managers, including the two (2) Independent Managers, as provided in Section 1.08(b) of the LLC Agreement, is required and (ii) such provision, contained in Section 1.08(b) of the LLC Agreement that requires the affirmative vote of TCC and the affirmative vote of all the Managers, including the two (2) Independent Managers, in order for a Person to file a voluntary bankruptcy petition on behalf of the Issuer, constitutes a legal, valid and binding agreement of TCC, and is enforceable against TCC, in accordance with its terms.

(x) Under the LLC Act and the LLC Agreement, the bankruptcy (as defined in the LLC Act) or dissolution of TCC will not, by itself, cause the Issuer to be dissolved or its affairs to be wound up.

(y) While under the LLC Act, on application to a court of competent jurisdiction, a judgment creditor of TCC may be able to charge TCC’s share of any profits and losses of the Issuer and TCC’s right to receive distributions of Issuer assets (“TCC’s Interest”), to the extent so charged, the judgment creditor has only the right to receive any distribution or distributions to which the Member would otherwise have been entitled in respect of such Member’s Interest. Under the LLC Act, no creditor of TCC shall have any right to obtain possession of, or otherwise exercise legal or equitable remedies with respect to, the property of the Issuer. Thus, under the LLC Act, a judgment creditor of TCC may not satisfy its claims against TCC by asserting a claim against the assets of the Issuer.

(z) Under the LLC Act (i) the Issuer is a separate legal entity, and (ii) the existence of the Issuer as a separate legal entity shall continue until the cancellation of its Certificate of Formation.

 

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(aa) The Delaware Financing Statements are in an appropriate form for filing in the State of Delaware under Section 9-502(a) and 9-516 of the Delaware UCC.

(bb) Insofar as Article 9 of the Delaware UCC is applicable (without regard to conflict of laws principles), upon the filing of the Delaware Financing Statements, the Indenture Trustee will have a perfected security interest in the Issuer’s rights in that portion of the Series Transition Bond Collateral described in the Delaware Financing Statements that may be perfected by the filing of a UCC financing statement and the proceeds thereof (as defined in Section 9-102(a)(64) of the Delaware UCC), and such security interest will be prior to any other security interest granted by the Issuer that is perfected solely by the filing of financing statements under the Delaware UCC. Insofar as Article 9 of the Delaware UCC is applicable (without regard to conflict of laws principles), the Delaware Secretary of State is the appropriate place to file a financing statement to perfect a security interest except for as-extracted collateral or timber to be cut (as described in Section 9-501(a)(1)(A) of the Delaware UCC) or fixture filings where the collateral is goods that are or are to become fixtures (as described in Section 9-501(a)(1)(B) of the Delaware UCC).

(cc) UCC lien searches have been conducted in the proper filing office and against the proper debtor necessary to identify those Persons who under the Delaware UCC have on file financing statements against the Issuer covering the Series Transition Bond Collateral. The UCC lien searches identify no secured party who has filed a financing statement naming the Issuer as debtor and describing the Series Transition Bond Collateral.

(dd) Insofar as Article 9 of the Delaware UCC is applicable (without regard to conflict of laws principles), the provisions of the Indenture are sufficient to constitute authorization by the Issuer of the filing of the Delaware Financing Statements for purposes of Section 9-509 of the Delaware UCC.

(ee) Insofar as Article 9 of the Delaware UCC is applicable (without regard to conflict of laws principles), for purposes of the Delaware UCC, the Issuer is a “registered organization” (as defined in Section 9-102(a)(70) of the Delaware UCC).

(9) Accountant’s Certificate or Letter. One or more certificates or letters, addressed to the Issuer complying with the requirements of Section 10.01(a), of a firm of Independent registered public accountants of recognized national reputation to the effect that (a) such accountants are Independent with respect to the Issuer within the meaning of this Indenture, and are independent public accountants within the meaning of the standards of The American Institute of Certified Public Accountants, and (b) with respect to the Transition Bond Collateral, they have applied such procedures as instructed by the addressee’s of such certificate or letter.

(10) Rating Agency Condition. The Indenture Trustee shall receive evidence reasonably satisfactory to it that the Rating Agency Condition will be satisfied with respect to the issuance of such new Series.

 

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(11) Requirements of Series Supplement. Such other funds, accounts, documents, certificates, agreements, instruments or opinions as may be required by the terms of the Series Supplement creating such Series.

(12) Required Capital Level. Evidence satisfactory to the Indenture Trustee that the Required Capital Level for such Series has been credited to the related Capital Subaccount for such Series.

(13) Other Requirements. Such other documents, certificates, agreements, instruments or opinions as the Indenture Trustee may reasonably require.

SECTION 2.11. Book-Entry Transition Bonds. Unless the applicable Series Supplement provides otherwise, all of the related Series of Transition Bonds shall be issued in Book-Entry Form, and the Issuer shall execute and the Indenture Trustee shall, in accordance with this Section 2.11 and the Issuer Order with respect to such Series, authenticate and deliver one or more Global Transition Bonds, evidencing the Transition Bonds of such Series which (i) shall be an aggregate original principal amount equal to the aggregate original principal amount of such Transition Bonds to be issued pursuant to the applicable Issuer Order, (ii) shall be registered in the name of the Clearing Agency therefor or its nominee, which shall initially be Cede & Co., as nominee for The Depository Trust Company, the initial Clearing Agency, (iii) shall be delivered by the Indenture Trustee pursuant to such Clearing Agency’s or such nominee’s instructions, and (iv) shall bear a legend substantially to the effect set forth in Exhibit A.

Each Clearing Agency designated pursuant to this Section 2.11 must, at the time of its designation and at all times while it serves as Clearing Agency hereunder, be a “clearing agency” registered under the Exchange Act and any other applicable statute or regulation.

No Holder of any Series of Transition Bonds issued in Book-Entry Form shall receive a Definitive Transition Bond representing such Holder’s interest in any such Transition Bonds, except as provided in Section 2.13. Unless (and until) certificated, fully registered Transition Bonds of any Series (the “Definitive Transition Bonds”) have been issued to the Holders of such Series pursuant to Section 2.13 or pursuant to any applicable Series Supplement relating thereto:

(a) the provisions of this Section 2.11 shall be in full force and effect;

(b) the Issuer, the Servicer, the Paying Agent, the Transition Bond Registrar and the Indenture Trustee may deal with the Clearing Agency for all purposes (including the making of distributions on the Transition Bonds of such Series and the giving of instructions or directions hereunder) as the authorized representatives of the Holders of such Series;

(c) to the extent that the provisions of this Section 2.11 conflict with any other provisions of this Indenture, the provisions of this Section 2.11 shall control;

(d) the rights of Holders of such Series shall be exercised only through the Clearing Agency and the Clearing Agency Participants and shall be limited to those established by law and agreements between such Holders and the Clearing Agency and/or the Clearing

 

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Agency Participants. Pursuant to the Letter of Representations, unless and until Definitive Transition Bonds are issued pursuant to Section 2.13, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit distributions of principal and interest on the Book-Entry Transition Bonds to such Clearing Agency Participants; and

(e) whenever this Indenture requires or permits actions to be taken based upon instruction or directions of the Holders evidencing a specified percentage of the Outstanding Amount of any Series of Transition Bonds, the Clearing Agency shall be deemed to represent such percentage only to the extent that it has received instructions to such effect from the Holders and/or the Clearing Agency Participants owning or representing, respectively, such required percentage of the beneficial interest in such Series of Transition Bonds and has delivered such instructions to a Responsible Officer of the Indenture Trustee.

SECTION 2.12. Notices to Clearing Agency. Unless and until Definitive Transition Bonds shall have been issued to Holders of such Series pursuant to Section 2.13, whenever notice, payment, or other communication to the holders of Book-Entry Transition Bonds of any Series is required under this Indenture, the Indenture Trustee, the Servicer and the Paying Agent, as applicable, shall give all such notices and communications specified herein to be given to Holders of such Series to the Clearing Agency.

SECTION 2.13. Definitive Transition Bonds. If (a) (i) the Issuer advises the Indenture Trustee in writing that the Clearing Agency is no longer willing or able to properly discharge its responsibilities under any Letter of Representations and (ii) the Issuer is unable to locate a qualified successor Clearing Agency, (b) the Issuer, at its option, advises the Indenture Trustee in writing that, with respect to any Series, it elects to terminate the book-entry system through the Clearing Agency or (c) after the occurrence of an Event of Default hereunder, Holders holding Transition Bonds aggregating not less than a majority of the aggregate Outstanding Amount of any Series of Transition Bonds maintained as Book-Entry Transition Bonds advise the Indenture Trustee, the Issuer and the Clearing Agency (through the Clearing Agency Participants) in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of the Holders of such Series, the Issuer shall notify the Clearing Agency, the Indenture Trustee and all such Holders of such Series in writing of the occurrence of any such event and of the availability of Definitive Transition Bonds of such Series to the Holders of such Series requesting the same. Upon surrender to the Indenture Trustee of the Global Transition Bonds of such Series by the Clearing Agency accompanied by registration instructions from such Clearing Agency for registration, the Issuer shall execute, and the Indenture Trustee shall authenticate and deliver, Definitive Transition Bonds of such Series in accordance with the instructions of the Clearing Agency. None of the Issuer, the Transition Bond Registrar, the Paying Agent or the Indenture Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be fully protected in relying on, such instructions. Upon the issuance of Definitive Transition Bonds of any Series, the Indenture Trustee shall recognize the Holders of the Definitive Transition Bonds as Holders hereunder.

Definitive Transition Bonds will be transferable and exchangeable at the offices of the Transition Bonds Registrar or, with respect to any Transition Bonds on the Irish Stock

 

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Exchange, at the offices of the transfer agent appointed pursuant to Section 3.02. With respect to any transfer of such listed Transition Bonds, the new Definitive Transition Bonds registered in the names specified by the transferee and the original transferor shall be available at the offices of such transfer agent.

SECTION 2.14. CUSIP Number. The Issuer in issuing any Transition Bond or Series of Transition Bonds may use a “CUSIP” number and, if so used, the Indenture Trustee shall use the CUSIP number provided to it by the Issuer in any notices to the Holders thereof as a convenience to such Holders; provided, that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Transition Bonds and that reliance may be placed only on the other identification numbers printed on the Transition Bonds. The Issuer shall promptly notify the Indenture Trustee in writing of any change in the CUSIP number with respect to any Transition Bond.

SECTION 2.15. Letter of Representations. Notwithstanding anything to the contrary in this Indenture or any Series Supplement, the parties hereto shall comply with the terms of each Letter of Representations applicable to such party.

SECTION 2.16. Special Terms Applicable to Subsequent Transfers of Certain Transition Bonds.

(a) Certain Series of Transition Bonds may not be registered under the Securities Act, or the securities laws of any other jurisdiction. Consequently, such Unregistered Transition Bonds shall not be transferable other than pursuant to an exemption from the registration requirements of the Securities Act and satisfaction of certain other provisions specified herein or in the related Series Supplement. Unless otherwise provided in the related Series Supplement, no sale, pledge or other transfer of any Unregistered Transition Bond (or interest therein) may be made by any Person unless either (i) such sale, pledge or other transfer is made (A) to a “qualified institutional buyer” (as defined under Rule 144A under the Securities Act) or (B) to an “institutional accredited investor” (as described in Rule 501(a)(l), (2), (3) or (7) under the Securities Act) which executes and delivers a certificate to such effect in the form attached hereto as Exhibit C or (ii) such sale, pledge or other transfer is otherwise made in a transaction exempt from, or not subject to, the registration requirements of the Securities Act, in which case the Indenture Trustee shall require a written Opinion of Counsel (which shall not be at the expense of the Issuer, the Servicer or the Indenture Trustee) satisfactory to the Issuer and the Indenture Trustee to the effect that such transfer will not violate the Securities Act. None of the Seller, the Issuer, the Indenture Trustee or the Servicer shall be obligated to register any Unregistered Transition Bonds under the Securities Act, qualify any Unregistered Transition Bonds under the securities laws of any State or provide registration rights to any purchaser or holder thereof.

(b) Unless otherwise provided in the related Series Supplement, the Unregistered Transition Bonds may not be acquired by or for the account of a Restricted Plan and, by accepting and holding an Unregistered Transition Bond, the Holder of an Unregistered Transition Bond in global form shall be deemed to have represented and warranted that it is not a Restricted Plan and, the Holder of an Unregistered Transition Bond in definitive form shall

 

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execute and deliver to the Indenture Trustee a certificate to such effect in the form attached hereto as Exhibit D.

(c) Unless otherwise provided in the related Series Supplement, Unregistered Transition Bonds shall be issued in the form of Definitive Transition Bonds, shall be in fully registered form and Sections 2.11 and 2.12 shall not apply thereto.

(d) Each Unregistered Transition Bond shall bear legends to the effect set forth in subsections (a) and (b) (if subsection (b) is applicable) above.

SECTION 2.17. Tax Treatment. The Issuer and the Indenture Trustee, by entering into this Indenture, and the Holders and any Persons holding a beneficial interest in any Transition Bond, by acquiring any Transition Bond or interest therein, (a) express their intention that, solely for the purposes of federal taxes and, to the extent consistent with applicable state, local and other tax law, solely for the purposes of state, local and other taxes, the Transition Bonds qualify under applicable tax law as indebtedness of the Member secured by the Transition Bond Collateral and (b) solely for the purposes of federal taxes and, to the extent consistent with applicable state, local and other tax law, solely for purposes of state, local and other taxes, so long as any of the Transition Bonds are outstanding, agree to treat the Transition Bonds as indebtedness of the Member secured by the Transition Bond Collateral unless otherwise required by appropriate taxing authorities.

SECTION 2.18. State Pledge. Under the laws of the State of Texas in effect on the Closing Date, the State of Texas has agreed for the benefit of the Holders, pursuant to Section 39.310 of the Securitization Law, as follows:

“Transition bonds are not a debt or obligation of the state and are not a charge on its full faith and credit or taxing power. The state pledges, however, for the benefit and protection of financing parties and the electric utility, that it will not take or permit any action that would impair the value of transition property, or, except as permitted by Section 39.307, reduce, alter, or impair the transition charges to be imposed, collected, and remitted to financing parties, until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with the related transition bonds have been paid and performed in full. Any party issuing transition bonds is authorized to include this pledge in any documentation relating to those bonds.”

The Issuer hereby acknowledges that the purchase of any Transition Bond by a Holder or the purchase of any beneficial interest in a Transition Bond by any Person and the Indenture Trustee’s obligations to perform hereunder are made in reliance on such agreement and pledge by the State of Texas.

SECTION 2.19. Security Interests. The Issuer hereby makes the following representations and warranties. Other than the security interests granted to the Indenture Trustee pursuant to this Indenture, the Issuer has not pledged, granted, sold, conveyed or otherwise assigned any interests or security interests in the Transition Bond Collateral and no security agreement, financing statement or equivalent security or Lien instrument listing the Issuer as debtor covering all or any part of the Transition Bond Collateral is on file or of record in any

 

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jurisdiction, except such as may have been filed, recorded or made by the Issuer in favor of the Indenture Trustee on behalf of the Secured Parties in connection with this Indenture. This Indenture constitutes a valid and continuing lien on, and first priority perfected security interest in, the Transition Bond Collateral in favor of the Indenture Trustee on behalf of the Secured Parties, which lien and security interest is prior to all other Liens and is enforceable as such as against creditors of and purchasers from the Issuer in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors’ rights generally or by general equitable principles, whether considered in a proceeding at law or in equity and by an implied covenant of good faith and fair dealing. With respect to all Series Transition Bond Collateral, this Indenture, together with the related Series Supplement, creates a valid and continuing first priority perfected security interest (as defined in the UCC and as such term is used in the Securitization Law) in such Series Transition Bond Collateral, which security interest is prior to all other Liens and is enforceable as such as against creditors of and purchasers from the Issuer in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors’ rights generally or by general equitable principles, whether considered in a proceeding at law or in equity and by an implied covenant of good faith and fair dealing. The Issuer has good and marketable title to the Transition Bond Collateral free and clear of any Lien, claim or encumbrance of any Person other than Permitted Liens. All of the Transition Bond Collateral constitutes either Transition Property or accounts, deposit accounts, investment property or general intangibles (as each such term is defined in the UCC) except that proceeds of the Transition Bond Collateral may also take the form of instruments. The Issuer has taken, or caused the Servicer to take, all action necessary to perfect the security interest in the Series Transition Bond Collateral granted to the Indenture Trustee, for the benefit of the Secured Parties of each related Series. The Issuer has filed (or has caused the Servicer to file) all appropriate financing statements in the proper filing offices in the appropriate jurisdictions under applicable law in order to perfect the security interest in the Transition Bond Collateral granted to the Indenture Trustee. The Issuer has not authorized the filing of and is not aware, after due inquiry, of any financing statements against the Issuer that include a description of the Transition Bond Collateral other than those filed in favor of the Indenture Trustee. The Issuer is not aware of any judgment or tax Lien filings against the Issuer. Each Collection Account (including all subaccounts thereof) constitutes a “securities account” within the meaning of the UCC. The Issuer has taken all steps necessary to cause the Securities Intermediary of each such securities account to identify in its records the Indenture Trustee as the person having a security entitlement against the Securities Intermediary in such securities account, no Collection Account is in the name of any person other than the Indenture Trustee, and the Issuer has not consented to the Securities Intermediary of any Collection Account to comply with entitlement orders of any person other than the Indenture Trustee. All of the Series Transition Bond Collateral constituting investment property has been and will have been credited to the applicable Collection Account or a subaccount thereof, and the Securities Intermediary for each Collection Account has agreed to treat all assets credited to each Collection Account as “financial assets” within the meaning of the UCC. Accordingly, the Indenture Trustee has a first priority perfected security interest in each Collection Account, all funds and financial assets on deposit therein, and all securities entitlements relating thereto. The representations and warranties set forth in this Section 2.19 shall survive the execution and delivery of this Indenture and the issuance of any Transition

 

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Bonds, shall be deemed re-made on each date on which any funds in each Collection Account are distributed to Issuer or otherwise released from the Lien of the Indenture and may not be waived by any party hereto except pursuant to a supplemental indenture executed in accordance with Article IX and as to which the Rating Agency Condition has been satisfied.

ARTICLE III

COVENANTS

SECTION 3.01. Payment of Principal, Premium, if any, and Interest. The principal of and premium, if any, and interest on the Transition Bonds shall be duly and punctually paid by the Issuer, or the Servicer on behalf of the Issuer, in accordance with the terms of the Transition Bonds and this Indenture; provided that except on the Final Maturity Date or upon the acceleration of the Transition Bonds following the occurrence of an Event of Default, the Issuer shall only be obligated to pay the principal of such Transition Bonds on each Payment Date therefor to the extent moneys are available for such payment pursuant to Section 8.02. Amounts properly withheld under the Code or other tax laws by any Person from a payment to any Holder of interest or principal or premium, if any, shall be considered as having been paid by the Issuer to such Holder for all purposes of this Indenture.

SECTION 3.02. Maintenance of Office or Agency. The Issuer shall maintain in the Borough of Manhattan, the City of New York, an office or agency at the Corporate Trust Office where Transition Bonds may be surrendered for registration of transfer or exchange. The Issuer hereby initially appoints the Indenture Trustee to serve as its agent for the foregoing purposes. The Issuer shall give prompt written notice to the Indenture Trustee of the location, and of any change in the location, of any such office or agency. If at any time the Issuer shall fail to maintain any such office or agency or shall fail to furnish the Indenture Trustee with the address thereof, such surrenders may be made at the office of the Indenture Trustee located at the Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee as its agent to receive all such surrenders.

To the extent any of the Transition Bonds are listed on the Irish Stock Exchange and the rules of such exchange so require, (a) the Issuer will maintain in Ireland (i) an office and a transfer agent where Transition Bonds may be surrendered for registration of transfer or exchange, (ii) an office and a listing agent where notices and demands to or upon the Issuer in respect of the Transition Bonds and this Indenture may be served, and (iii) an office and a paying agent where payments in respect of the Transition Bonds may be made and (b) any reference in this Indenture to the office or agency of the Issuer referred to in this Section 3.02 shall also refer to such offices, and the transfer, listing and paying agents, of the Issuer in Ireland, as applicable. The Issuer shall give the Indenture Trustee and any other agent appointed under this Section 3.02 written notice of the location and identity, and of any change in the location or identity, of any such office or agency.

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 Transition Bonds that are to be made from amounts withdrawn from the applicable Collection Account pursuant to Section 8.02(d) shall be made on behalf of the Issuer by the Indenture Trustee or by another

 

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Paying Agent, and no amounts so withdrawn from such applicable Collection Account for payments with respect to any Transition Bonds shall be paid over to the Issuer except as provided in this Section 3.03 and Section 8.02.

The Issuer will cause each Paying Agent other than the Indenture Trustee to execute and deliver to the Indenture Trustee an instrument in which such Paying Agent shall agree with the Indenture Trustee (and if the Indenture Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of this Section 3.03, that such Paying Agent will:

(i) hold all sums held by it for the payment of amounts due with respect to the Transition Bonds in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided and pay such sums to such Persons as herein provided;

(ii) give the Indenture Trustee written notice of any Default by the Issuer of which it has actual knowledge in the making of any payment required to be made with respect to the Transition Bonds;

(iii) at any time during the continuance of any such Default, upon the written request of the Indenture Trustee, forthwith pay to the Indenture Trustee all sums so held in trust by such Paying Agent;

(iv) immediately resign as a Paying Agent and forthwith pay to the Indenture Trustee all sums held by it in trust for the payment of Transition Bonds if at any time the Paying Agent determines that it has ceased to meet the standards required to be met by a Paying Agent at the time of such determination; and

(v) comply with all requirements of the Code and other tax laws with respect to the withholding from any payments made by it on any Transition Bonds of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith.

The Issuer may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, by Issuer Order direct any Paying Agent to pay to the Indenture Trustee all sums held in trust by such Paying Agent, such sums to be held by the Indenture Trustee upon the same trusts as those upon which the sums were held by such Paying Agent; and upon such payment by any Paying Agent to the Indenture Trustee, such Paying Agent shall be released from all further liability with respect to such money.

Subject to applicable laws with respect to escheat of funds, any money held by the Indenture Trustee or any Paying Agent in trust for the payment of any amount due with respect to any Transition Bond and remaining unclaimed for two (2) years after such amount has become due and payable shall be discharged from such trust and be paid to the Issuer on an Issuer Request; and, subject to Section 10.16, the Holder of such Transition Bond shall thereafter, as an unsecured general creditor, look only to the Issuer for payment thereof (but only to the extent of the amounts so paid to the Issuer), and all liability of the Indenture Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the Indenture Trustee or such Paying Agent, before being required to make any such repayment, may at the

 

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expense of the Issuer, cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than thirty (30) days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Issuer. The Indenture Trustee may also adopt and employ, at the expense of the Issuer, any other reasonable means of notification of such repayment (including mailing notice of such repayment to Holders whose right to or interest in moneys due and payable but not claimed is determinable from the records of the Indenture Trustee or of any Paying Agent, at the last address of record for each such Holder).

SECTION 3.04. Existence. The Issuer shall keep in full effect its existence, rights and franchises as a limited liability company under the laws of the State of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes, organized under the laws of any other State or of the United States of America, in which case the Issuer will keep in full effect its existence, rights and franchises under the laws of such other jurisdiction) and will obtain and preserve its qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Indenture, the other Basic Documents, the Transition Bonds, the Transition Bond Collateral and each other instrument or agreement referenced herein or therein.

SECTION 3.05. Protection of Transition Bond Collateral. The Issuer shall from time to time execute and deliver all such supplements and amendments hereto and all filings with the PUCT or the Texas Secretary of State pursuant to the Financing Order or to the Securitization Law and all financing statements, continuation statements, instruments of further assurance and other instruments, and shall take such other action necessary or advisable to:

(i) maintain or preserve the Lien and security interest (and the priority thereof) of this Indenture and the related Series Supplement or carry out more effectively the purposes hereof;

(ii) perfect, publish notice of or protect the validity of any Grant made or to be made by this Indenture;

(iii) enforce any of the Transition Bond Collateral;

(iv) preserve and defend title to the Transition Bond Collateral and the rights of the Indenture Trustee and the Holders in such Transition Bond Collateral against the Claims of all Persons and parties, including, without limitation, the challenge by any party to the validity or enforceability of any Financing Order, any Tariff, the Transition Property or any proceeding relating thereto and institute any action or proceeding necessary to compel performance by the PUCT or the State of Texas of any of its obligations or duties under the Securitization Law, the State Pledge, or any Financing Order or Tariff; or

(v) pay any and all taxes levied or assessed upon all or any part of the Transition Bond Collateral.

 

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The Issuer hereby designates the Indenture Trustee its agent and attorney-in-fact to execute or authorize, as the case may be, any filings with the PUCT or the Texas Secretary of State, financing statements, continuation statements or other instrument required pursuant to this Section 3.05, it being understood that the Indenture Trustee shall have no such obligation or any duty to prepare such documents.

SECTION 3.06. Opinions as to Transition Bond Collateral.

(a) On the Series Issuance Date for each Series (including the Closing Date), the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel of external counsel of the Issuer either stating that, in the opinion of such counsel, such action has been taken with respect to the recording and filing of this Indenture, any indentures supplemental hereto, and any other requisite documents, and with respect to the execution and filing of any filings with the PUCT or the Texas Secretary of State pursuant to the Securitization Law and the Applicable Financing Order and any financing statements and continuation statements, as are necessary to perfect and make effective the Lien, and the first priority perfected security interest created by this Indenture and the related Series Supplement, and no other Lien or security interest is equal or prior to the Lien and security interest of the Indenture Trustee in the Series Transition Bond Collateral, and reciting the details of such action, or stating that, in the opinion of such counsel, no such action is necessary to make effective such Lien and security interest.

(b) Within ninety (90) days after the beginning of each calendar year beginning with the calendar year beginning January 1, 2007, the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel of external counsel of the Issuer either stating that, in the opinion of such counsel, such action has been taken with respect to the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto and any other requisite documents and with respect to the execution and filing of any filings with the PUCT or the Texas Secretary of State pursuant to the Securitization Law and the Applicable Financing Order and any financing statements and continuation statements as are necessary to maintain the Lien created by this Indenture and reciting the details of such action or stating that, in the opinion of such counsel, no such action is necessary to maintain such Lien. Such Opinion of Counsel shall also describe the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto and any other requisite documents and the execution and filing of any filings with the PUCT or the Texas Secretary of State, financing statements and continuation statements that will, in the opinion of such counsel, be required within the twelve-month period following the date of such opinion to maintain the Lien created by this Indenture.

(c) Prior to the effectiveness of any amendment to the Sale Agreement, the Intercreditor Agreement or the Servicing Agreement, the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel of external counsel of the Issuer either (i) stating that, in the opinion of such counsel, all filings, including UCC financing statements and other filings with the PUCT and the Texas Secretary of State pursuant to the Securitization Law or the Applicable Financing Order, have been executed and filed that are necessary fully to preserve and protect the Lien and security interest of the Issuer and the Indenture Trustee in the Transition Property and the Transition Bond Collateral, respectively, and the proceeds thereof, and reciting the details of such filings or referring to prior Opinions of Counsel in which such details are given,

 

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or (ii) stating that, in the opinion of such counsel, no such action shall be necessary to preserve and protect such Lien and security interest.

SECTION 3.07. Performance of Obligations; Servicing; SEC Filings.

(a) The Issuer (i) shall diligently pursue any and all actions to enforce its rights under each instrument or agreement included in the Transition Bond Collateral and (ii) shall not take any action and shall use its best efforts not to permit any action to be taken by others that would release any Person from any of such Person’s covenants or obligations under any such instrument or agreement or that would result in the amendment, hypothecation, subordination, termination or discharge of, or impair the validity or effectiveness of, any such instrument or agreement, except, in each case, as expressly provided in this Indenture, any Series Supplement, the Sale Agreement, the Servicing Agreement or such other instrument or agreement.

(b) The Issuer may contract with other Persons to assist it in performing its duties under this Indenture, and any performance of such duties by a Person identified to the Indenture Trustee herein or in an Officer’s Certificate shall be deemed to be action taken by the Issuer. Initially, the Issuer has contracted with the Servicer to assist the Issuer in performing its duties under this Indenture.

(c) The Issuer shall punctually perform and observe all of its obligations and agreements contained in this Indenture, the related Series Supplement, the other Basic Documents and in the instruments and agreements included in the Transition Bond Collateral, including filing or causing to be filed all filings with the PUCT or the Texas Secretary of State pursuant to the Securitization Law or the Financing Order, all UCC financing statements and continuation statements required to be filed by it by the terms of this Indenture, the related Series Supplement, the Sale Agreement and the Servicing Agreement in accordance with and within the time periods provided for herein and therein.

(d) If the Issuer shall have knowledge of the occurrence of a Servicer Default under the Servicing Agreement, the Issuer shall promptly give written notice thereof to the Indenture Trustee and the Rating Agencies, and shall specify in such notice the response or action, if any, the Issuer has taken or is taking with respect of such default. If a Servicer Default shall arise from the failure of the Servicer to perform any of its duties or obligations under the Servicing Agreement with respect to the Transition Property, the Transition Bond Collateral or the Transition Charges, the Issuer shall take all reasonable steps available to it to remedy such failure.

(e) As promptly as possible after the giving of notice of termination to the Servicer and the Rating Agencies of the Servicer’s rights and powers pursuant to Section 7.01 of the Servicing Agreement, the Indenture Trustee may and shall, at the written direction of the Holders evidencing not less than a majority of the Outstanding Amount of the Transition Bonds of all Series and subject to the terms of the Intercreditor Agreement, appoint a successor Servicer (the “Successor Servicer”), and such Successor Servicer shall accept its appointment by a written assumption in a form acceptable to the Issuer and the Indenture Trustee. A Person shall qualify as a Successor Servicer only if such Person satisfies the requirements of the Servicing

 

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Agreement. If within thirty (30) days after the delivery of the notice referred to above, a new Servicer shall not have been appointed, the Indenture Trustee may petition the PUCT or a court of competent jurisdiction to appoint a Successor Servicer. In connection with any such appointment, TCC may make such arrangements for the compensation of such Successor Servicer as it and such successor shall agree, subject to the limitations set forth in Section 8.02 and in the Servicing Agreement.

(f) Upon any termination of the Servicer’s rights and powers pursuant to the Servicing Agreement, the Indenture Trustee shall promptly notify the Issuer, the Holders and the Rating Agencies. As soon as a Successor Servicer is appointed, the Indenture Trustee shall notify the Issuer, the Holders and the Rating Agencies of such appointment, specifying in such notice the name and address of such Successor Servicer.

(g) The Issuer shall (or shall cause the Sponsor to) post on its website and file with or furnish to the SEC in periodic reports and other reports as are required from time to time under Section 13 or Section 15(d) of the Exchange Act (without regard to the number of Holders of Transition Bonds to the extent permitted by and consistent with the Issuer’s and the Sponsor’s obligations under applicable law) the following information with respect to each Series of Outstanding Transition Bonds to the extent such information is reasonably available to the Issuer:

(i) statements of any remittances of Transition Charges made to the Indenture Trustee (to be included in a Form 10-D or Form 10-K);

(ii) a statement reporting the balances in each Collection Account and in each subaccount of each Collection Account as of the end of each quarter or the most recent date available (to be included in a Form 10-D or Form 10-K);

(iii) a statement showing the balance of Outstanding Transition Bonds that reflects the actual periodic payments made on each Series of the Transition Bonds versus the expected periodic payments (to be included in the next Form 10-D or Form 10-K filed);

(iv) the Servicer’s Certificate and the Monthly Servicer’s Certificate which are required to be submitted pursuant to the Servicing Agreement (to be filed with a Form 10-D, Form 10-K or Form 8-K);

(v) the text (or a link to the website where a reader can find the text) of each filing of a True-Up Adjustment and the results of each such filing following the issuance of the Series of Transition Bonds;

(vi) any change in the long-term or short-term credit ratings of the Servicer assigned by the Rating Agencies (to be filed or furnished in a Form 8-K);

(vii) material legislative or regulatory developments directly relevant to the Outstanding Transition Bonds (to be filed or furnished in a Form 8-K); and

 

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(viii) a quarterly statement either affirming that, to the Issuer’s or the Sponsor’s knowledge, as applicable, in all material respects, for each materially significant REP (to be included in each Form 10-D and each Form 10-K) (A) each such REP has been billed in compliance with the requirements outlined in the Applicable Financing Order, (B) each such REP has made payments in compliance with the requirements outlined in the Applicable Financing Order, and (C) each such REP satisfies the creditworthiness requirements of the Applicable Financing Order, or if clauses (A), (B) and (C) has not occurred, such quarterly statements shall describe the Servicer’s actions.

(h) The Issuer shall make all filings required under the Securitization Law relating to the transfer of the ownership or security interest in the Transition Property other than those required to be made by the Seller or the Servicer pursuant to the Basic Documents.

SECTION 3.08. Certain Negative Covenants. So long as any Transition Bonds are Outstanding, the Issuer shall not:

(i) except as expressly permitted by this Indenture and the other Basic Documents, sell, transfer, exchange or otherwise dispose of any of the properties or assets of the Issuer, including those included in the Transition Bond Collateral, unless directed to do so by the Indenture Trustee in accordance with Article V;

(ii) claim any credit on, or make any deduction from the principal or premium, if any, or interest payable in respect of, the Transition Bonds (other than amounts properly withheld from such payments under the Code or other tax laws) or assert any claim against any present or former Holder by reason of the payment of the taxes levied or assessed upon any part of the Transition Bond Collateral;

(iii) terminate its existence or dissolve or liquidate in whole or in part, except in a transaction permitted by Section 3.10;

(iv) (A) permit the validity or effectiveness of this Indenture or the other Basic Documents to be impaired, or permit the Lien of this Indenture and the related Series Supplement to be amended, hypothecated, subordinated, terminated or discharged, or permit any Person to be released from any covenants or obligations with respect to the Transition Bonds under this Indenture except as may be expressly permitted hereby, (B) permit any Lien (other than the Lien of this Indenture or the related Series Supplement) to be created on or extend to or otherwise arise upon or burden the Transition Bond Collateral or any part thereof or any interest therein or the proceeds thereof (other than tax liens arising by operation of law with respect to amounts not yet due) or (C) permit the Lien of any Series Supplement not to constitute a valid first priority perfected security interest in the Series Transition Bond Collateral;

(v) enter into any swap, hedge or similar financial instrument;

(vi) elect to be classified as an association taxable as a corporation for federal income tax purposes or otherwise take any action, file any tax return, or make any election inconsistent with the treatment of the Issuer, for purposes of federal taxes and, to

 

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the extent consistent with applicable state tax law, state income and franchise tax purposes, as a disregarded entity that is not separate from the sole owner of the Issuer;

(vii) change its name, identity or structure or the location of its chief executive office, unless at least ten (10) days’ prior to the effective date of any such change the Issuer delivers to the Indenture Trustee such documents, instruments or agreements, executed by the Issuer, as are necessary to reflect such change and to continue the perfection of the security interest of this Indenture and the related Series Supplement;

(viii) take any action which is subject to a Rating Agency Condition without satisfying the Rating Agency Condition; or

(ix) voluntarily suspend or terminate its filing obligations with the SEC as described in Section 3.07(g).

SECTION 3.09. Annual Statement as to Compliance. The Issuer will deliver to the Indenture Trustee and the Rating Agencies not later than March 30 of each year (commencing with March 30, 2007), an Officer’s Certificate stating, as to the Responsible Officer signing such Officer’s Certificate, that:

(i) a review of the activities of the Issuer during the preceding twelve (12) months ended December 31 (or, in the case of the first such Officer’s Certificate, since the Series Issuance Date) and of performance under this Indenture has been made; and

(ii) to the best of such Responsible Officer’s knowledge, based on such review, the Issuer has in all material respects complied with all conditions and covenants under this Indenture throughout such twelve-month period (or such shorter period in the case of the first such Officer’s Certificate), or, if there has been a default in the compliance of any such condition or covenant, specifying each such default known to such Responsible Officer and the nature and status thereof.

SECTION 3.10. Issuer May Consolidate, etc., Only on Certain Terms.

(a) The Issuer shall not consolidate or merge with or into any other Person, unless:

(i) the Person (if other than the Issuer) formed by or surviving such consolidation or merger shall (A) be a Person organized and existing under the laws of the United States of America or any State, (B) expressly assume, by an indenture supplemental hereto, executed and delivered to the Indenture Trustee, in form and substance satisfactory to the Indenture Trustee, the performance or observance of every agreement and covenant of this Indenture and the related Series Supplement on the part of the Issuer to be performed or observed, all as provided herein and in the applicable Series Supplement, and (C) assume all obligations and succeed to all rights of the Issuer under the Sale Agreement, the Servicing Agreement and each other Basic Document to which the Issuer is a party;

 

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(ii) immediately after giving effect to such merger or consolidation, no Default, Event of Default or Servicer Default shall have occurred and be continuing;

(iii) the Rating Agency Condition shall have been satisfied with respect to such merger or consolidation;

(iv) the Issuer shall have delivered to TCC, the Indenture Trustee and the Rating Agencies an opinion or opinions of outside tax counsel (as selected by the Issuer, in form and substance reasonably satisfactory to TCC and the Indenture Trustee, and which may be based on a ruling from the Internal Revenue Service (unless the Internal Revenue Service has announced that it will not rule on the issues described in this paragraph)) to the effect that the consolidation or merger will not result in a material adverse federal or state income tax consequence to the Issuer, TCC, the Indenture Trustee or the then existing Bondholders;

(v) any action as is necessary to maintain the Lien and the first priority perfected security interest in the Transition Bond Collateral created by this Indenture and the related Series Supplement shall have been taken as evidenced by an Opinion of Counsel of external counsel of the Issuer delivered to the Indenture Trustee; and

(vi) the Issuer shall have delivered to the Indenture Trustee an Officer’s Certificate and an Opinion of Counsel of external counsel of the Issuer each stating that such consolidation or merger and such supplemental indenture comply with this Indenture, the related Series Supplement and that all conditions precedent herein provided for in this Section 3.10(a) with respect to such transaction have been complied with (including any filing required by the Exchange Act).

(b) Except as specifically provided herein, the Issuer shall not sell, convey, exchange, transfer or otherwise dispose of any of its properties or assets included in the Transition Bond Collateral, to any Person, unless:

(i) the Person that acquires the properties and assets of the Issuer, the conveyance or transfer of which is hereby restricted shall (A) be a United States citizen or a Person organized and existing under the laws of the United States of America or any State, (B) expressly assumes, by an indenture supplemental hereto, executed and delivered to the Indenture Trustee, in form and substance satisfactory to the Indenture Trustee, the performance or observance of every agreement and covenant of this Indenture on the part of the Issuer to be performed or observed, all as provided herein and in the applicable Series Supplements, (C) expressly agrees by means of such supplemental indenture that all right, title and interest so sold, conveyed, exchanged, transferred or otherwise disposed of shall be subject and subordinate to the rights of Holders, (D) unless otherwise provided in the supplemental indenture referred to in clause (B) above, expressly agrees to indemnify, defend and hold harmless the Issuer and the Indenture Trustee against and from any loss, liability or expense arising under or related to this Indenture, the related Series Supplements and the Transition Bonds, (E) expressly agrees by means of such supplemental indenture that such Person (or if a group of Persons, then one specified Person) shall make all filings with the SEC (and any other

 

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appropriate Person) required by the Exchange Act in connection with the Transition Bonds and (F) if such sale, conveyance, exchange, transfer or disposal relates to the Issuer’s rights and obligations under the Sale Agreement or the Servicing Agreement, assume all obligations and succeed to all rights of the Issuer under the Sale Agreement and the Servicing Agreement, as applicable;

(ii) immediately after giving effect to such transaction, no Default, Event of Default or Servicer Default shall have occurred and be continuing;

(iii) the Rating Agency Condition shall have been satisfied with respect to such transaction;

(iv) the Issuer shall have delivered to TCC, the Indenture Trustee and the Rating Agencies an opinion or opinions of outside tax counsel (as selected by the Issuer, in form and substance reasonably satisfactory to TCC and the Indenture Trustee, and which may be based on a ruling from the Internal Revenue Service) to the effect that the disposition will not result in a material adverse federal or state income tax consequence to the Issuer, TCC, the Indenture Trustee or the then existing Bondholders;

(v) any action as is necessary to maintain the Lien and the first priority perfected security interest in the Transition Bond Collateral created by this Indenture and the related Series Supplement shall have been taken as evidenced by an Opinion of Counsel of external counsel of the Issuer delivered to the Indenture Trustee; and

(vi) the Issuer shall have delivered to the Indenture Trustee an Officer’s Certificate and an Opinion of Counsel of external counsel of the Issuer each stating that such sale, conveyance, exchange, transfer or other disposition and such supplemental indenture comply with this Indenture and the related Series Supplement and that all conditions precedent herein provided for in this Section 3.10(b) with respect to such transaction have been complied with (including any filing required by the Exchange Act).

SECTION 3.11. Successor or Transferee.

(a) Upon any consolidation or merger of the Issuer in accordance with Section 3.10(a), the Person formed by or surviving such consolidation or merger (if other than the Issuer) shall succeed to, and be substituted for, and may exercise every right and power of, the Issuer under this Indenture with the same effect as if such Person had been named as the Issuer herein.

(b) Except as set forth in Section 6.07, upon a sale, conveyance, exchange, transfer or other disposition of all the assets and properties of the Issuer in accordance with Section 3.10(b), the Issuer will be released from every covenant and agreement of this Indenture and the other Basic Documents to be observed or performed on the part of the Issuer with respect to the Transition Bonds and the Transition Property immediately following the consummation of such acquisition upon the delivery of written notice to the Indenture Trustee from the Person acquiring such assets and properties stating that the Issuer is to be so released.

SECTION 3.12. No Other Business. The Issuer shall not engage in any business other than financing, purchasing, owning and managing the Transition Property and the other

 

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Transition Bond Collateral and the issuance of the Transition Bonds in the manner contemplated by the Financing Order and this Indenture and the Basic Documents and activities incidental thereto.

SECTION 3.13. No Borrowing. The Issuer shall not issue, incur, assume, guarantee or otherwise become liable, directly or indirectly, for any indebtedness except for the Transition Bonds and any other indebtedness expressly permitted by or arising under the Basic Documents.

SECTION 3.14. Servicer’s Obligations. The Issuer shall enforce the Servicer’s compliance with and performance of all of the Servicer’s material obligations under the Servicing Agreement.

SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities. Except as otherwise contemplated by the Sale Agreement, the Servicing Agreement or this Indenture, the Issuer shall not make any loan or advance or credit to, or guarantee (directly or indirectly or by an instrument having the effect of assuring another’s payment or performance on any obligation or capability of so doing or otherwise), endorse or otherwise become contingently liable, directly or indirectly, in connection with the obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or agree contingently to do so) any stock, obligations, assets or securities of, or any other interest in, or make any capital contribution to, any other Person.

SECTION 3.16. Capital Expenditures. Other than the purchase of Transition Property from the Seller on each Series Issuance Date and other than expenditures made out of available funds in an aggregate amount not to exceed $25,000 in any calendar year, the Issuer shall not make any expenditure (by long-term or operating lease or otherwise) for capital assets (either realty or personalty).

SECTION 3.17. Restricted Payments. The Issuer shall not, directly or indirectly, (a) pay any dividend or make any distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, to any owner of an interest in the Issuer or otherwise with respect to any ownership or equity interest or similar security in or of the Issuer, (b) redeem, purchase, retire or otherwise acquire for value any such ownership or equity interest or similar security or (c) 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 or would be caused thereby, the Issuer may make, or cause to be made, any such distributions to any owner of an interest in the Issuer or otherwise with respect to any ownership or equity interest or similar security in or of the Issuer using funds distributed to the Issuer pursuant to Section 8.02(e)(xi) to the extent that such distributions would not cause the balance of the applicable Capital Subaccount to decline below the Required Capital Level for the related Series. The Issuer will not, directly or indirectly, make payments to or distributions from any Collection Account except in accordance with this Indenture and the other Basic Documents.

SECTION 3.18. Notice of Events of Default. The Issuer agrees to give the Indenture Trustee, the PUCT and the Rating Agencies and, to the extent that the rules and regulations of the Irish Stock Exchange so require, any agent in Ireland appointed pursuant to Section 3.02, prompt written notice of each Default or Event of Default hereunder as provided in

 

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Section 5.01, 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 3.19. Further Instruments and Acts. Upon request of the Indenture Trustee, the Issuer shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture and to maintain the first priority perfected security interest of the Indenture Trustee in the Transition Bond Collateral.

SECTION 3.20. Purchase of Subsequent Transition Property.

(a) The Issuer may from time to time purchase Subsequent Transition Property from the Seller pursuant to the Sale Agreement, subject to the conditions specified in paragraph (b) below.

(b) The Issuer shall be permitted to purchase from the Seller Subsequent Transition Property and the proceeds thereof only upon the satisfaction of each of the following conditions on or prior to the related Subsequent Transfer Date:

(i) the Seller shall have provided the Issuer, the Indenture Trustee and the Rating Agencies with an Addition Notice, which shall be given not later than ten (10) days prior to the related Subsequent Transfer Date, specifying the Subsequent Transfer Date for such Subsequent Transition Property and the aggregate amount of the Transition Charges related to such Subsequent Transition Property, and shall have provided any information reasonably requested by any of the foregoing Persons with respect to the Subsequent Transition Property then being conveyed to the Issuer;

(ii) the Securitization Law, the Sale Agreement and the related Financing Order shall be in full force and effect and a filing shall have been made pursuant to Section 39.309(d) of the Securitization Law;

(iii) as of such Subsequent Transfer Date, the Seller shall not be insolvent and will not have been made insolvent by such sale and transfer and the Seller is not aware of any pending insolvency with respect to itself;

(iv) the Rating Agency Condition shall have been satisfied with respect to such sale and transfer;

(v) the Seller shall have received and delivered to the Issuer and the Indenture Trustee an opinion of outside tax counsel (as selected by the Seller, and in form and substance reasonably satisfactory to the Issuer and the Indenture Trustee) to the effect that (A) the Issuer will not be subject to United States federal income tax as an entity separate from its sole owner and that the Transition Bonds will be treated as debt of the Issuer’s sole owner for United States federal income tax purposes, (B) for United States federal income tax purposes, the issuance of the Transition Bonds will not result in gross income to the Seller, and (C) in the case of a subsequent issuance of Transition Bonds only, such issuance will not adversely affect the characterization of any then outstanding Transition Bonds as obligations of the Issuer’s sole owner; the opinion of outside tax

 

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counsel described above may, if the Seller so chooses, be conditioned on the receipt by the Seller of one or more letter rulings from the Internal Revenue Service (unless the Internal Revenue Service has announced that it will not rule on the issues described in this paragraph) and in rendering such opinion outside tax counsel shall be entitled to rely on the rulings contained in such ruling letters and to rely on the representations made, and information supplied, to the Internal Revenue Service in connection with such letter rulings;

(vi) as of such Subsequent Transfer Date, no breach by the Seller of its representations, warranties or covenants in the Sale Agreement and no Servicer Default shall exist;

(vii) as of such Subsequent Transfer Date, the Issuer shall have sufficient funds available to pay the purchase price for the Subsequent Transition Property to be conveyed on such date and all conditions to the issuance of one or more Series of Transition Bonds intended to provide such funds set forth in Section 2.10 of this Indenture shall have been satisfied;

(viii) the Issuer shall have delivered to the Indenture Trustee an Officer’s Certificate confirming the satisfaction of each condition precedent specified in this Section 3.20(b);

(ix) (A) the Issuer shall have delivered to the Rating Agencies any Opinions of Counsel requested by the Rating Agencies and (B) the Issuer shall have delivered to the Indenture Trustee the Opinion of Counsel required by Section 3.06(c); and

(x) The Seller and the Issuer shall have taken any action required to maintain the Lien and the first priority perfected ownership interest of the Issuer in the Subsequent Transition Property and the proceeds thereof, and the Issuer shall have taken any action required to maintain the Lien and the first priority perfected security interest of the Indenture Trustee in the Subsequent Transition Property and the proceeds thereof.

SECTION 3.21. Inspection. The Issuer agrees that, on reasonable prior notice, it will permit any representative of the Indenture Trustee, during the Issuer’s normal business hours, to examine all the books of account, records, reports and other papers of the Issuer, to make copies and extracts therefrom, to cause such books to be audited annually by Independent registered public accountants, and to discuss the Issuer’s affairs, finances and accounts with the Issuer’s officers, employees and Independent registered public accountants, all at such reasonable times and as often as may be reasonably requested. The Indenture Trustee shall and shall cause its representatives to hold in confidence all such information except to the extent disclosure may be required by law (and all reasonable applications for confidential treatment are unavailing) and except to the extent that the Indenture Trustee may reasonably determine that such disclosure is consistent with its obligations hereunder. Notwithstanding anything herein to the contrary, the preceding sentence shall not be construed to prohibit (a) disclosure of any and all information that is or becomes publicly known, or information obtained by the Indenture Trustee from sources other than the Issuer, provided such parties are rightfully in possession of such information, (b) disclosure of any and all information (i) if required to do so by any

 

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applicable statute, law, rule or regulation, (ii) pursuant to any subpoena, civil investigative demand or similar demand or request of any court or regulatory authority exercising its proper jurisdiction, (iii) in any preliminary or final offering circular, registration statement preceding sentence or other document a copy of which has been filed with the SEC or (iv) to any affiliate, independent or internal auditor, agent, employee or attorney of the Indenture Trustee having a need to know the same, provided that such parties agree to be bound by the confidentiality provisions contained in this Section 3.21, or (c) any other disclosure authorized by the Issuer.

SECTION 3.22. Sale Agreement, Servicing Agreement, Administration Agreement and Intercreditor Agreement Covenants.

(a) The Issuer agrees to take all such lawful actions to enforce its rights under the Sale Agreement, the Servicing Agreement, the Administration Agreement and the Intercreditor Agreement and to compel or secure the performance and observance by the Seller, the Servicer, the Administrator and TCC of each of their respective obligations to the Issuer under or in connection with the Sale Agreement, the Servicing Agreement, the Administration Agreement and the Intercreditor Agreement in accordance with the terms thereof. So long as no Event of Default occurs and is continuing, but subject to Section 3.22(f), the Issuer may exercise any and all rights, remedies, powers and privileges lawfully available to the Issuer under or in connection with the Sale Agreement, the Servicing Agreement, the Administration Agreement and the Intercreditor Agreement; provided that such action shall not adversely affect the interests of the Holders in any material respect.

(b) If an Event of Default occurs and is continuing, the Indenture Trustee may, and at the direction (which direction shall be in writing) of Holders of a majority of the Outstanding Amount of the Transition Bonds of all Series or Tranches affected thereby shall, exercise all rights, remedies, powers, privileges and claims of the Issuer against the Seller, TCC, the Administrator and the Servicer, as the case may be, under or in connection with the Sale Agreement, the Servicing Agreement, the Administration Agreement and the Intercreditor Agreement, including the right or power to take any action to compel or secure performance or observance by the Seller, TCC, the Administrator or the Servicer of each of their obligations to the Issuer thereunder and to give any consent, request, notice, direction, approval, extension or waiver under the Sale Agreement, the Servicing Agreement, the Administration Agreement and the Intercreditor Agreement, and any right of the Issuer to take such action shall be suspended.

(c) Except as set forth in Section 3.22(e), with the prior written consent of the Indenture Trustee and the consent of the PUCT pursuant to Section 9.03, the Administration Agreement, the Sale Agreement, the Intercreditor Agreement (except that any amendment to the Intercreditor Agreement shall not require the consent of the PUCT) and the Servicing Agreement may be amended in accordance with the provisions thereof, so long as the Rating Agency Condition is satisfied in connection therewith, at any time and from time to time, without the consent of the Holders of Transition Bonds of the related Series; provided that such amendment, as evidenced by an Opinion of Counsel of external counsel of the Issuer, shall not adversely affect the interest of any Holder of Transition Bonds of that Series in any material respect.

(d) Except as set forth in Section 3.22(e), if the Issuer, the Seller, TCC, the Administrator, the Servicer or any other party to the respective agreement proposes to amend,

 

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modify, waive, supplement, terminate or surrender, or agree to any amendment, modification, waiver, supplement, termination or surrender of, the terms of the Sale Agreement, the Intercreditor Agreement, the Administration Agreement, or the Servicing Agreement, or waive timely performance or observance by the Seller, TCC, the Administrator or the Servicer under the Sale Agreement, the Intercreditor Agreement, the Administration Agreement or the Servicing Agreement, in each case in such a way as would materially and adversely affect the interests of any Holder of Transition Bonds of any Series, the Issuer shall first notify the Rating Agencies of the proposed amendment, modification, waiver, supplement, termination or surrender and shall promptly notify the Indenture Trustee and the PUCT in writing and the Indenture Trustee shall notify the Holders of the Transition Bonds of such Series of the proposed amendment, modification, waiver, supplement, termination or surrender and whether the Rating Agency Condition has been satisfied with respect thereto. The Indenture Trustee shall consent to such proposed amendment, modification, waiver, supplement, termination or surrender only with the prior written consent of the Holders of a majority of the Outstanding Amount of Transition Bonds of the Series or Tranches materially and adversely affected thereby and, if the proposed amendment, modification, waiver, supplement, termination or surrender, other than with respect to the Intercreditor Agreement, would increase ongoing qualified costs as defined in the Financing Order, the consent of the PUCT pursuant to Section 9.03. If any such amendment, modification, waiver, supplement, termination or surrender shall be so consented to by the Indenture Trustee or such Holders, the 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. If and for so long as any of the Transition Bonds are listed on the Irish Stock Exchange and the rules of that exchange so require, notice of such proposed action will be published by an agent to be appointed by the Issuer in accordance with such rules promptly following its effectiveness.

(e) If the Issuer or the Servicer proposes to amend, modify, waive, supplement, terminate or surrender, or to agree to any amendment, modification, supplement, termination, waiver or surrender of, the process for True-Up Adjustments, the Issuer shall notify the PUCT and the Indenture Trustee in writing and the Indenture Trustee shall notify the Holders of the Transition Bonds of such proposal and the Indenture Trustee shall consent thereto only with the consent of the PUCT pursuant to Section 9.03 and the prior written consent of the Holders of a majority of the Outstanding Amount of Transition Bonds of the Series or Tranches affected thereby and only if the Rating Agency Condition has been satisfied with respect thereto.

(f) Promptly following a default by the Seller under the Sale Agreement, by the Administrator under the Administration Agreement, by TCC or any successor to TCC under the Intercreditor Agreement or the occurrence of a Servicer Default under the Servicing Agreement, and at the Issuer’s expense, the Issuer agrees to take all such lawful actions as the Indenture Trustee may request to compel or secure the performance and observance by each of the Seller, TCC, the Administrator or the Servicer of their obligations under and in accordance with the Sale Agreement, the Servicing Agreement, the Administration Agreement and the Intercreditor Agreement, as the case may be, in accordance with the terms thereof, and to exercise any and all rights, remedies, powers and privileges lawfully available to the Issuer under or in connection with such agreements to the extent and in the manner directed by the Indenture Trustee, including the transmission of notices of any default by the Seller, TCC, the Administrator or the Servicer, respectively, thereunder and the institution of legal or

 

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administrative actions or Proceedings to compel or secure performance of their obligations under the Sale Agreement, the Servicing Agreement, the Administration Agreement or the Intercreditor Agreement, as applicable.

Before consenting to any amendment, modification, supplement, termination, waiver or surrender under Sections 3.22(d) or (e), the Indenture Trustee shall be entitled to receive, and subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an Opinion of Counsel stating that such action is authorized or permitted by this Indenture.

SECTION 3.23. Taxes. So long as any of the Transition Bonds are Outstanding, the Issuer shall pay all 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 Bond Collateral; provided that no such tax need be paid if the Issuer is contesting the same in good faith by appropriate proceedings promptly instituted and diligently conducted and if the Issuer has established appropriate reserves as shall be required in conformity with generally accepted accounting principles.

ARTICLE IV

SATISFACTION AND DISCHARGE; DEFEASANCE

SECTION 4.01. Satisfaction and Discharge of Indenture; Defeasance.

(a) This Indenture shall cease to be of further effect with respect to the Transition Bonds of any Series and the Indenture Trustee, on reasonable written demand of and at the expense of the Issuer, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture with respect to the Transition Bonds of such Series, when:

(i) either

(A) all Transition Bonds of such Series theretofore authenticated and delivered (other than (1) Transition Bonds that have been destroyed, lost or stolen and that have been replaced or paid as provided in Section 2.06 and (2) Transition Bonds for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Issuer and thereafter repaid to the Issuer or discharged from such trust, as provided in the last paragraph of Section 3.03) have been delivered to the Indenture Trustee for cancellation; or

(B) either (1) the Scheduled Final Payment Date has occurred with respect to all Transition Bonds of such Series not theretofore delivered to the Indenture Trustee for cancellation or (2) such Transition Bonds will be due and payable on their respective Scheduled Final Payment Dates within one year, and in any such case, the Issuer has irrevocably deposited or caused to be irrevocably deposited in trust with the Indenture Trustee (i) cash and/or (ii) U.S. Government Obligations which through the scheduled payments of principal and interest in respect thereof in accordance with their terms are in an amount sufficient to pay

 

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principal, interest and premium, if any, on such Transition Bonds not theretofore delivered to the Indenture Trustee for cancellation and all other sums payable hereunder by the Issuer with respect to such Transition Bonds when scheduled to be paid and to discharge the entire indebtedness on such Transition Bonds when due;

(ii) the Issuer has paid or caused to be paid all other sums payable hereunder by the Issuer with respect to such Series; and

(iii) the Issuer has delivered to the Indenture Trustee an Officer’s Certificate, an Opinion of Counsel of external counsel of the Issuer and (if required by the TIA or the Indenture Trustee) an Independent Certificate from a firm of registered public accountants, each meeting the applicable requirements of Section 10.01(a) and each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture with respect to Transition Bonds of such Series have been complied with.

(b) Subject to Sections 4.01(c) and 4.02, the Issuer at any time may terminate (i) all its obligations under this Indenture with respect to the Transition Bonds of any Series (“Legal Defeasance Option”) or (ii) its obligations under Sections 3.04, 3.05, 3.06, 3.07, 3.08, 3.09, 3.10, 3.12, 3.13, 3.14, 3.15, 3.16, 3.17, 3.18 and 3.19 and the operation of Section 5.01(iii) (“Covenant Defeasance Option”) with respect to any Series of Transition Bonds. The Issuer may exercise the Legal Defeasance Option with respect to any Series of Transition Bonds notwithstanding its prior exercise of the Covenant Defeasance Option with respect to such Series.

If the Issuer exercises the Legal Defeasance Option with respect to any Series, the maturity of the Transition Bonds of such Series may not be accelerated because of an Event of Default. If the Issuer exercises the Covenant Defeasance Option with respect to any Series, the maturity of the Transition Bonds of such Series may not be accelerated because of an Event of Default specified in Section 5.01(iii).

Upon satisfaction of the conditions set forth herein to the exercise of the Legal Defeasance Option or the Covenant Defeasance Option with respect to any Series of Transition Bonds, the Indenture Trustee, on reasonable written demand of and at the expense of the 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 Transition Bonds, (iii) rights of Holders to receive payments of principal, premium, if any, and interest, (iv) Sections 4.03 and 4.04, (v) the rights, obligations and immunities of the Indenture Trustee hereunder (including the rights of the Indenture Trustee under Section 6.07 and the obligations of the Indenture Trustee under Section 4.03) and (vi) the rights of Holders as beneficiaries hereof with respect to the property deposited with the Indenture Trustee payable to all or any of them, shall survive until the Transition Bonds of the Series as to which this Indenture or certain obligations hereunder have been satisfied and discharged pursuant to Section

 

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4.01(a) or 4.01(b) have been paid in full. Thereafter the obligations in Sections 6.07 and 4.04 with respect to such Series shall survive.

SECTION 4.02. Conditions to Defeasance. The Issuer may exercise the Legal Defeasance Option or the Covenant Defeasance Option with respect to any Series of Transition Bonds only if:

(a) the Issuer has irrevocably deposited or caused to be irrevocably deposited in trust with the Indenture Trustee (i) cash and/or (ii) U.S. Government Obligations which through the scheduled payments of principal and interest in respect thereof in accordance with their terms are in an amount sufficient to pay principal, interest and premium, if any, on such Transition Bonds not therefore delivered to the Indenture Trustee for cancellation and all other sums payable hereunder by the Issuer with respect to such Transition Bonds when scheduled to be paid and to discharge the entire indebtedness on such Transition Bonds when due;

(b) the Issuer delivers to the Indenture Trustee a certificate from a nationally recognized firm of Independent registered public accountants expressing its opinion that the payments of principal and interest when due and without reinvestment of the deposited U.S. Government Obligations plus any deposited cash without investment will provide cash at such times and in such amounts (but, in the case of the Legal Defeasance Option only, not more than such amounts) as will be sufficient to pay in respect of the Transition Bonds of such Series (i) principal in accordance with the Expected Amortization Schedule therefor, (ii) interest when due and (iii) all other sums payable hereunder by the Issuer with respect to such Transition Bonds;

(c) in the case of the Legal Defeasance Option, ninety-five (95) days pass after the deposit is made and during the ninety-five (95)-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 Issuer shall have delivered to the Indenture Trustee an Opinion of Counsel of external counsel of the Issuer stating that (i) the Issuer has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of execution of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Transition Bonds of such Series will not recognize income, gain or loss for federal income tax purposes as a result of such legal defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred;

(f) in the case of an exercise of the Covenant Defeasance Option, the Issuer shall have delivered to the Indenture Trustee an Opinion of Counsel of external counsel of the Issuer to the effect that the Holders of the Transition Bonds of such Series will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred;

 

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(g) the Issuer delivers to the Indenture Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that all conditions precedent to the satisfaction and discharge of the Transition Bonds of such Series to the extent contemplated by this Article IV have been complied with;

(h) the Issuer delivers to the Indenture Trustee an Opinion of Counsel of external counsel of the Issuer to the effect that (i) in a case under the Bankruptcy Code in which TCC (or any of its Affiliates, other than the Issuer) is the debtor, the court would hold that the deposited moneys or U.S. Government Obligations would not be in the bankruptcy estate of TCC (or any of its Affiliates, other than the Issuer, that deposited the moneys or U.S. Government Obligations); and (ii) in the event TCC (or any of its Affiliates, other than the Issuer, that deposited the moneys or U.S. Government Obligations) were to be a debtor in a case under the Bankruptcy Code, the court would not disregard the separate legal existence of TCC (or any of its Affiliates, other than the Issuer, that deposited the moneys or U.S. Government Obligations) and the Issuer so as to order substantive consolidation under the Bankruptcy Code of the Issuer’s assets and liabilities with the assets and liabilities of TCC or such other Affiliate; and

(i) the Rating Agency Condition shall have been satisfied with respect to the exercise of any Legal Defeasance Option or Covenant Defeasance Option.

Notwithstanding any other provision of this Section 4.02, no delivery of moneys or U.S. Government Obligations to the Indenture Trustee shall terminate any obligation of the Issuer to the Indenture Trustee under this Indenture or the related Series Supplement or any obligation of the Issuer to apply such moneys or U.S. Government Obligations under Section 4.03 until such Transition Bonds shall have been redeemed in accordance with the provisions of this Indenture and the related Series Supplement.

SECTION 4.03. Application of Trust Money. All moneys or U.S. Government Obligations deposited with the Indenture Trustee pursuant to Section 4.01 or 4.02 shall be held in trust and applied by it, in accordance with the provisions of the Transition Bonds and this Indenture, to the payment, either directly or through any Paying Agent, as the Indenture Trustee may determine, to the Holders of the particular Transition Bonds for the payment of which such moneys have been deposited with the Indenture Trustee, of all sums due and to become due thereon for principal, premium, if any, and interest; but such moneys need not be segregated from other funds except to the extent required herein or in the Servicing Agreement or required by law. Notwithstanding anything to the contrary in this Article IV, the Indenture Trustee shall deliver or pay to the Issuer from time to time upon Issuer Request any moneys or U.S. Government Obligations held by it pursuant to Section 4.02 which, in the opinion of a nationally recognized firm of Independent registered public accountants expressed in a written certification thereof delivered to the Indenture Trustee (and not at the cost or expense of the Indenture Trustee), are in excess of the amount thereof which would be required to be deposited for the purpose for which such moneys or U.S. Government Obligations were deposited, provided that any such payment shall be subject to the satisfaction of the Rating Agency Condition.

SECTION 4.04. Repayment of Moneys Held by Paying Agent. In connection with the satisfaction and discharge of this Indenture or the Covenant Defeasance Option or Legal Defeasance Option with respect to the Transition Bonds of any Series, all moneys then held by

 

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any Paying Agent other than the Indenture Trustee under the provisions of this Indenture or the Intercreditor Agreement with respect to such Transition Bonds shall, upon demand of the Issuer, be paid to the Indenture Trustee to be held and applied according to Section 3.03 and thereupon such Paying Agent shall be released from all further liability with respect to such moneys.

ARTICLE V

REMEDIES

SECTION 5.01. Events of Default. “Event of Default” with respect to any Series, wherever used herein, means any one or more 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 Transition Bond when the same becomes due and payable (whether such failure to pay interest is caused by a shortfall in Transition Charges received or otherwise), and such default shall continue for a period of five (5) Business Days; or

(ii) default in the payment of the then unpaid principal of any Transition Bond of any Tranche or Series on the Final Maturity Date for such Tranche or Series; or

(iii) default in the observance or performance of any covenant or agreement of the Issuer made in this Indenture (other than defaults specified in clauses (i) or (ii) above), and such default shall continue or not be cured, for a period of thirty (30) days after the earlier of (A) the date that there shall have been given, by registered or certified mail, to the Issuer by the Indenture Trustee or to the Issuer and the Indenture Trustee by the Holders of at least 25 percent of the Outstanding Amount of the Transition Bonds of such Series, a written notice specifying such default and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder or (B) the date that the Issuer has actual knowledge of the default; or

(iv) any representation or warranty of the Issuer made in this Indenture or in any certificate or other writing delivered pursuant hereto or in connection herewith proving to have been incorrect in any material respect as of the time when the same shall have been made, and the circumstance or condition in respect of which such misrepresentation or warranty was incorrect shall not have been eliminated or otherwise cured, within thirty (30) days after the earlier of (A) the date that there shall have been given, by registered or certified mail, to the Issuer by the Indenture Trustee or to the Issuer and the Indenture Trustee by the Holders of at least 25 percent of the Outstanding Amount of the Transition Bonds of such Series, a written notice specifying such incorrect representation or warranty and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder or (B) the date the Issuer has actual knowledge of the default, or

 

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(v) the filing of a decree or order for relief by a court having jurisdiction in the premises in respect of the Issuer or any substantial part of the Transition Bond Collateral in an involuntary case or proceeding 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 Issuer or for any substantial part of the Transition Bond Collateral, or ordering the winding-up or liquidation of the Issuer’s affairs, and such decree or order shall remain unstayed and in effect for a period of ninety (90) consecutive days; or

(vi) the commencement by the 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 Issuer to the entry of an order for relief in an involuntary case or proceeding under any such law, or the consent by the Issuer to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Issuer or for any substantial part of the Transition Bond Collateral, or the making by the Issuer of any general assignment for the benefit of creditors, or the failure by the Issuer generally to pay its debts as such debts become due, or the taking of action by the Issuer in furtherance of any of the foregoing; or

(vii) any act or failure to act by the State of Texas or any of its agencies (including the PUCT), officers or employees which violates or is not in accordance with the State Pledge; or

(viii) any other event designated as such in a Series Supplement.

The Issuer shall deliver to a Responsible Officer of the Indenture Trustee and to the Rating Agencies, within five (5) days after a Responsible Officer of the Issuer has knowledge of the occurrence thereof, written notice in the form of an Officer’s Certificate of any event (I) which is an Event of Default under clauses (i), (ii), (iii), (vi), (vii), or (viii) or (II) which with the giving of notice, the lapse of time, or both, would become an Event of Default under clause (iv) or (v), including, in each case, the status of such Event of Default and what action the Issuer is taking or proposes to take with respect thereto. An Event of Default with respect to one Series of Transition Bonds will not automatically trigger an Event of Default with respect to any other Outstanding Series of Transition Bonds.

SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default under clause (vii) of Section 5.01) should occur and be continuing with respect to any Series, then and in every such case the Indenture Trustee or the Holders representing not less than a majority of the Outstanding Amount of the Transition Bonds of such Series may declare the Transition Bonds of such Series to be immediately due and payable, by a notice in writing to the Issuer (and to the Indenture Trustee if given by Holders), and upon any such declaration the unpaid principal amount of the Transition Bonds of such Series, together with accrued and unpaid interest thereon through the date of acceleration, shall become immediately due and payable.

At any time after such declaration of acceleration of maturity has been made and before a judgment or decree for payment of the money due has been obtained by the Indenture

 

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Trustee as hereinafter in this Article V provided, the Holders representing not less than a majority of the Outstanding Amount of the Transition Bonds of such Series, by written notice to the Issuer and the Indenture Trustee, may rescind and annul such declaration and its consequences if:

(i) the Issuer has paid or deposited with the Indenture Trustee a sum sufficient to pay:

(A) all payments of principal of and premium, if any, and interest on all Transition Bonds of such Series due and owing at such time as if such Event of Default had not occurred and was not continuing and all other amounts that would then be due hereunder or upon such Transition Bonds if the Event of Default giving rise to such acceleration had not occurred; and

(B) all sums paid or advanced by the Indenture Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and counsel; and

(ii) all Events of Default with respect to such Series, other than the nonpayment of the principal of the Transition Bonds of such Series that has become due solely by such acceleration, have been cured or waived as provided in Section 5.12.

No such rescission shall affect any subsequent default or impair any right consequent thereto.

SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee.

(a) If an Event of Default under Section 5.01(i) or (ii) has occurred and is continuing with respect to any Series, subject to Section 10.19, the Indenture Trustee, in its own name and as trustee of an express trust, may institute a Proceeding for the collection of the sums so due and unpaid, and may prosecute such Proceeding to judgment or final decree, and, subject to the limitations on recourse set forth herein, may enforce the same against the Issuer or other obligor upon such Transition Bonds and collect in the manner provided by law out of the property of the Issuer or other obligor upon such Transition Bonds, whereever situated the moneys payable, or the related Series Transition Bond Collateral and the proceeds thereof, the whole amount then due and payable on the Transition Bonds of such Series for principal, premium, if any, and interest, with interest upon the overdue principal and premium, if any, and, to the extent payment at such rate of interest shall be legally enforceable, upon overdue installments of interest, at the respective rate borne by the Transition Bonds of such Series or the applicable Tranche of such Series and in addition thereto such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and counsel.

(b) If an Event of Default (other than Event of Default under clause (vii) of Section 5.01) occurs and is continuing with respect to any Series, the Indenture Trustee shall, as more particularly provided in Section 5.04, in its discretion, proceed to protect and enforce its rights and the rights of the Holders of such Series, by such appropriate Proceedings as the

 

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Indenture Trustee shall deem most effective to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy or legal or equitable right vested in the Indenture Trustee by this Indenture and the related Series Supplement or by law, including foreclosing or otherwise enforcing the Lien of the Series Transition Bond Collateral securing such Series of Transition Bonds or applying to a court of competent jurisdiction for sequestration of revenues arising with respect to such Transition Property.

(c) If an Event of Default under Section 5.01(v) or (vi) has occurred and is continuing, the Indenture Trustee, irrespective of whether the principal of any Transition Bonds of any Series shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Indenture Trustee shall have made any demand pursuant to the provisions of this Section 5.04, shall be entitled and empowered, by intervention in any Proceedings related to such Event of Default or otherwise:

(i) to file and prove a claim or claims for the whole amount of principal, premium, if any, and interest owing and unpaid in respect of the Transition Bonds and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee (including any claim for reasonable compensation to the Indenture Trustee and each predecessor Indenture Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee, except as a result of negligence or bad faith) and of the Holders allowed in such Proceedings;

(ii) unless prohibited by applicable law and regulations, to vote on behalf of the Holders in any election of a trustee in bankruptcy, a standby trustee or Person performing similar functions in any such Proceedings;

(iii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute all amounts received with respect to the claims of the Holders and of the Indenture Trustee on their behalf; and

(iv) to file such proofs of claim and other papers and documents as may be necessary or advisable in order to have the claims of the Indenture Trustee or the Holders allowed in any judicial proceeding relative to the Issuer, its creditors and its property.

and any trustee, receiver, liquidator, custodian or other similar official in any such Proceeding is hereby authorized by each of such Holders to make payments to the Indenture Trustee, and, in the event that the Indenture Trustee shall consent to the making of payments directly to such Holders, to pay to the Indenture Trustee such amounts as shall be sufficient to cover reasonable compensation to the Indenture Trustee, each predecessor Indenture Trustee and their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee except as a result of negligence or bad faith.

 

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(d) Nothing herein contained shall be deemed to authorize the Indenture Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Transition Bonds or the rights of any Holder thereof or to authorize the Indenture Trustee to vote in respect of the claim of any Holder in any such proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar Person.

(e) All rights of action and of asserting claims under this Indenture, or under any of the Transition Bonds of any Series, may be enforced by the Indenture Trustee without the possession of any of the Transition Bonds of such Series or the production thereof in any trial or other Proceedings relative thereto, and any such action or proceedings instituted by the Indenture Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Indenture Trustee, each predecessor Indenture Trustee and their respective agents and attorneys, shall be for the ratable benefit of the Holders of the Transition Bonds of such Series.

(f) In any Proceedings brought by the Indenture Trustee (and also any Proceedings involving the interpretation of any provision of this Indenture to which the Indenture Trustee shall be a party), the Indenture Trustee shall be held to represent all the Holders of the Transition Bonds, and it shall not be necessary to make any Holder a party to any such Proceedings.

SECTION 5.04. Remedies; Priorities.

(a) If an Event of Default (other than an Event of Default under clause (vii) of Section 5.01) shall have occurred and be continuing with respect to a Series, the Indenture Trustee may do one or more of the following (subject to Section 5.05):

(i) institute Proceedings in its own name and as trustee of an express trust for the collection of all amounts then payable on the Transition Bonds of such Series or under this Indenture with respect thereto, whether by declaration of acceleration or otherwise, and, subject to the limitations on recovery set forth herein, enforce any judgment obtained, and collect from the Issuer or any other obligor moneys adjudged due upon such Transition Bonds;

(ii) institute Proceedings from time to time for the complete or partial foreclosure of this Indenture with respect to the Series Transition Bond Collateral;

(iii) exercise any remedies of a secured party under the UCC, the Securitization Law or any other applicable law and take any other appropriate action to protect and enforce the rights and remedies of the Indenture Trustee and the Holders of the Transition Bonds of such Series;

(iv) at the written direction of the Holders of a majority of the Outstanding Amount of the Transition Bonds of such Series, sell the Series Transition Bond 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; and

 

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(v) exercise all rights, remedies, powers, privileges and claims of the Issuer against the Seller, the Administrator, TCC or the Servicer under or in connection with, and pursuant to the terms of, the Sale Agreement, the Administration Agreement, the Intercreditor Agreement or the Servicing Agreement;

provided, however, that the Indenture Trustee may not sell or otherwise liquidate any portion of the Transition Bond Collateral following such an Event of Default, other than an Event of Default described in Section 5.01(i), or (ii), with respect to any Series unless (A) the Holders of 100 percent of the Outstanding Amount of the Transition Bonds of all Series consent thereto, (B) the proceeds of such sale or liquidation distributable to the Holders of all Series are sufficient to discharge in full all amounts then due and unpaid upon such Transition Bonds for principal, premium, if any, and interest after taking into account payment of all amounts due prior thereto pursuant to the priorities set forth in Section 8.02(e) or (C) the Indenture Trustee determines that the Transition Bond Collateral will not continue to provide sufficient funds for all payments on the Transition Bonds of all Series as they would have become due if the Transition Bonds had not been declared due and payable, and the Indenture Trustee obtains the written consent of Holders of 66-2/3 percent of the Outstanding Amount of the Transition Bonds of all Series. In determining such sufficiency or insufficiency with respect to clause (B) and (C), the Indenture Trustee may, but need not, obtain and conclusively rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Transition Bond Collateral for such purpose.

(b) If an Event of Default under clause (vii) of Section 5.01 shall have occurred and be continuing, the Indenture Trustee, for the benefit of the Secured Parties of the related Series, shall be entitled and empowered to the extent permitted by applicable law, to institute or participate in Proceedings necessary to compel performance of or to enforce the State Pledge and to collect any monetary damages incurred by the Holders or the Indenture Trustee as a result of any such Event of Default, and may prosecute any such Proceeding to final judgment or decree. Such remedy shall be the only remedy that the Indenture Trustee may exercise if the only Event of Default that has occurred and is continuing is an Event of Default under Section 5.01(vii).

(c) If the Indenture Trustee collects any money pursuant to this Article V, it shall pay out such money in accordance with the priorities set forth in Section 8.02(e).

SECTION 5.05. Optional Preservation of the Transition Bond Collateral. If the Transition Bonds of any Series have been declared to be due and payable under Section 5.02 following an Event of Default and such declaration and its consequences have not been rescinded and annulled, the Indenture Trustee may, but need not, elect to maintain possession of the related Series Transition Bond Collateral. It is the desire of the parties hereto and the Holders that there be at all times sufficient funds for the payment of principal of and premium, if any, and interest on the Transition Bonds, and the Indenture Trustee shall take such desire into account when determining whether or not to maintain possession of the Series Transition Bond Collateral. In determining whether to maintain possession of the Series Transition Bond Collateral or sell or liquidate the same, the Indenture Trustee may, but need not, obtain and conclusively rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Series Transition Bond Collateral for such purpose.

 

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SECTION 5.06. Limitation of Suits. No Holder of any Transition Bond of any Series shall have any right to institute any Proceeding, judicial or otherwise, to avail itself of any remedies provided in the Securitization Law or to avail itself of the right to foreclose on the Transition Bond Collateral or otherwise enforce the Lien and the security interest on the Transition Bond Collateral with respect to this Indenture and the related Series Supplement, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless:

(i) such Holder previously has given written notice to the Indenture Trustee of a continuing Event of Default with respect to such Series;

(ii) the Holders of not less than a majority of the Outstanding Amount of the Transition Bonds of all Series have made written request to the Indenture Trustee to institute such Proceeding in respect of such Event of Default in its own name as Indenture Trustee hereunder;

(iii) such Holder or Holders have offered to the Indenture Trustee indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in complying with such request;

(iv) the Indenture Trustee for sixty (60) days after its receipt of such notice, request and offer of indemnity has failed to institute such Proceedings; and

(v) no direction inconsistent with such written request has been given to the Indenture Trustee during such sixty-day period by the Holders of a majority of the Outstanding Amount of the Transition Bonds of all Series;

it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided.

In the event the Indenture Trustee shall receive conflicting or inconsistent requests and indemnity from two or more groups of Holders, each representing less than a majority of the Outstanding Amount of the Transition Bonds of all Series, the Indenture Trustee in its sole discretion may determine what action, if any, shall be taken, notwithstanding any other provisions of this Indenture.

SECTION 5.07. Unconditional Rights of Holders To Receive Principal, Premium, if any, and Interest. Notwithstanding any other provisions in this Indenture, the Holder of any Transition Bond shall have the right, which is absolute and unconditional, (a) to receive payment of (i) the interest, if any, on such Transition Bond on the due dates thereof expressed in such Transition Bond or in this Indenture or (ii) the unpaid principal, if any, of such Transition Bonds on the Final Maturity Date therefor and (b) to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder.

 

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SECTION 5.08. Restoration of Rights and Remedies. If the Indenture Trustee or any Holder has instituted any Proceeding to enforce any right or remedy under this Indenture and such Proceeding has been discontinued or abandoned for any reason or has been determined adversely to the Indenture Trustee or to such Holder, then and in every such case the Issuer, the Indenture Trustee and the Holders shall, subject to any determination in such Proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Indenture Trustee and the Holders shall continue as though no such Proceeding had been instituted.

SECTION 5.09. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Indenture Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

SECTION 5.10. Delay or Omission Not a Waiver. No delay or omission of the Indenture Trustee or any Holder to exercise any right or remedy accruing upon any Default or Event of Default shall impair any such right or remedy or constitute a waiver of any such Default or Event of Default or an acquiescence therein. Every right and remedy given by this Article V or by law to the Indenture Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Indenture Trustee or by the Holders, as the case may be.

SECTION 5.11. Control by Holders. The Holders of not less than a majority of the Outstanding Amount of the Transition Bonds of an affected Series or Tranche shall have the right to direct the time, method and place of conducting any Proceeding for any remedy available to the Indenture Trustee with respect to the Transition Bonds of such Series or Tranche or Tranches or exercising any trust or power conferred on the Indenture Trustee with respect to such Series or Tranche or Tranches; provided that:

(i) such direction shall not be in conflict with any rule of law or with this Indenture and shall not involve the Indenture Trustee in any personal liability or expense;

(ii) subject to other conditions specified in Section 5.04, any direction to the Indenture Trustee to sell or liquidate any Series Transition Bond Collateral shall be by the Holders representing not less than 100 percent of the Outstanding Amount of the Transition Bonds of the affected Series;

(iii) if the conditions set forth in Section 5.05 have been satisfied and the Indenture Trustee elects to retain the Series Transition Bond Collateral pursuant to Section 5.05, then any direction to the Indenture Trustee by Holders representing less than 100 percent of the Outstanding Amount of the Transition Bonds of all Series to sell or liquidate the Series Transition Bond Collateral shall be of no force and effect; and

 

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(iv) the Indenture Trustee may take any other action deemed proper by the Indenture Trustee that is not inconsistent with such direction;

provided, however, that, the Indenture Trustee’s duties shall be subject to Section 6.01, and the Indenture Trustee need not take any action that it determines might involve it in liability or might materially adversely affect the rights of any Holders not consenting to such action. Furthermore and without limiting the foregoing, the Indenture Trustee shall not be required to take any action for which it reasonably believes that it will not be indemnified to its satisfaction against any cost, expense or liabilities.

SECTION 5.12. Waiver of Past Defaults. Prior to the declaration of the acceleration of the maturity of the Transition Bonds of all Series as provided in Section 5.02, the Holders representing not less than a majority of the Outstanding Amount of the Transition Bonds of an affected Series or Tranche, together with the PUCT, may waive any past Default or Event of Default and its consequences except a Default (a) in payment of principal of or premium, if any, or interest on any of the Transition Bonds or (b) in respect of a covenant or provision hereof which cannot be modified or amended without the consent of the Holder of each Transition Bond of all Series or Tranches affected. In the case of any such waiver, the Issuer, the Indenture Trustee and the Holders shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereto.

Upon any such waiver, such Default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured and not to have occurred, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto.

SECTION 5.13. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Transition Bond by such Holder’s acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Indenture Trustee for any action taken, suffered or omitted by it as Indenture Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 5.13 shall not apply to (a) any suit instituted by the Indenture Trustee, (b) any suit instituted by any Holder, or group of Holders, in each case holding in the aggregate more than ten (10) percent of the Outstanding Amount of the Transition Bonds of a Series or (c) any suit instituted by any Holder for the enforcement of the payment of (i) interest on any Transition Bond on or after the due dates expressed in such Transition Bond and in this Indenture or (ii) the unpaid principal, if any, of any Transition Bond on or after the Final Maturity Date therefor.

SECTION 5.14. Waiver of Stay or Extension Laws. The 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

 

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wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Issuer (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Indenture Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

SECTION 5.15. Action on Transition Bonds. The Indenture Trustee’s right to seek and recover judgment on the Transition Bonds or under this Indenture shall not be affected by the seeking, obtaining or application of any other relief under or with respect to this Indenture. Neither the Lien of this Indenture nor any rights or remedies of the Indenture Trustee or the Holders shall be impaired by the recovery of any judgment by the Indenture Trustee against the Issuer or by the levy of any execution under such judgment upon any portion of the Transition Bond Collateral or any other assets of the Issuer.

ARTICLE VI

THE INDENTURE TRUSTEE

SECTION 6.01. Duties of Indenture Trustee.

(a) If an Event of Default has occurred and is continuing, the Indenture Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.

(b) Except during the continuance of an Event of Default:

(i) the Indenture Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Indenture Trustee; and

(ii) in the absence of bad faith on its part, the Indenture Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Indenture Trustee and conforming to the requirements of this Indenture.

(c) The Indenture Trustee may not be relieved from liability for its own negligent action, its own bad faith, its own negligent failure to act or its own willful misconduct, except that:

(i) this paragraph (c) does not limit the effect of paragraph (b) of this Section 6.01;

(ii) the Indenture Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Indenture Trustee was negligent in ascertaining the pertinent facts; and

 

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(iii) the Indenture Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it hereunder.

(d) Every provision of this Indenture that in any way relates to the Indenture Trustee is subject to paragraphs (a), (b) and (c) of this Section 6.01.

(e) The Indenture Trustee shall not be liable for interest on any money received by it except as the Indenture Trustee may agree in writing with the Issuer.

(f) Money held in trust by the Indenture Trustee need not be segregated from other funds held by the Indenture Trustee except to the extent required by law or the terms of this Indenture, the Sale Agreement, the Servicing Agreement, the Administration Agreement or the Intercreditor Agreement.

(g) No provision of this Indenture shall require the Indenture Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayments of such funds or indemnity satisfactory to it against such risk or liability is not reasonably assured to it.

(h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Indenture Trustee shall be subject to the provisions of this Section 6.01 and to the provisions of the TIA.

(i) In the event that the Indenture Trustee is also acting as Paying Agent or Transition Bond Registrar hereunder, the protections of this Article VI shall also be afforded to the Indenture Trustee in its capacity as Paying Agent or Transition Bond Registrar.

(j) Except for the express duties of the Indenture Trustee with respect to the administrative functions set forth in the Basic Documents, the Indenture Trustee shall have no obligation to administer, service or collect Transition Property or to maintain, monitor or otherwise supervise the administration, servicing or collection of the Transition Property.

(k) Under no circumstance shall the Indenture Trustee be liable for any indebtedness of the Issuer, the Servicer or the Seller evidenced by or arising under the Transition Bonds or the Basic Documents.

(l) On or before March 15th of each fiscal year ending December 31, the Indenture Trustee shall (i) deliver to the Issuer a report (in form and substance reasonably satisfactory to the Issuer and addressed to the Issuer and signed by an authorized officer of the Indenture Trustee) regarding the Indenture Trustee’s assessment of compliance, during the immediately preceding fiscal year ending December 31, with each of the applicable servicing criteria specified on Exhibit E hereto as required under Rules 13a-18 and 15d-18 of the Exchange Act and Item 1122 of Regulation AB and (ii) deliver to the Issuer a report of an Independent registered public accounting firm reasonably acceptable to the Issuer that attests to and reports on, in accordance with Rules 1-02(a)(3) and 2-02(g) of Regulation S-X under the Securities Act and the Exchange Act, the assessment of compliance made by the Indenture Trustee and delivered pursuant to clause (i).

 

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SECTION 6.02. Rights of Indenture Trustee. (a) The Indenture Trustee may conclusively rely and shall be fully protected in relying on any document believed by it to be genuine and to have been signed or presented by the proper person. The Indenture Trustee need not investigate any fact or matter stated in such document.

(b) Before the Indenture Trustee acts or refrains from acting, it may require and shall be entitled to receive an Officer’s Certificate or an Opinion of Counsel of external counsel of the Issuer (at no cost or expense to the Indenture Trustee) that such action is required or permitted hereunder. The Indenture Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officer’s Certificate or Opinion of Counsel.

(c) The Indenture Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a custodian or nominee, and the Indenture Trustee shall not be responsible for any misconduct or negligence on the part of, or for the supervision of, any such agent, attorney, custodian or nominee appointed with due care by it hereunder.

(d) The Indenture Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided, however, that the Indenture Trustee’s conduct does not constitute willful misconduct, negligence or bad faith.

(e) The Indenture Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Transition Bonds 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 Indenture Trustee shall be under no obligation to take any action or exercise any of the rights or powers vested in it by this Indenture or any other Basic Document, or to institute, conduct or defend any litigation hereunder or thereunder or in relation hereto or thereto, at the request, order or direction of any of the Bondholders pursuant to the provisions of this Indenture and the related Series Supplement or otherwise, unless it shall have grounds to believe in its discretion that security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby is to its satisfaction assured to it.

SECTION 6.03. Individual Rights of Indenture Trustee. The Indenture Trustee in its individual or any other capacity may become the owner or pledgee of Transition Bonds and may otherwise deal with the Issuer or its Affiliates with the same rights it would have if it were not Indenture Trustee. Any Paying Agent, Transition Bond Registrar, co-registrar or co-paying agent or agent appointed under Section 3.02 may do the same with like rights. However, the Indenture Trustee must comply with Sections 6.11 and 6.12.

SECTION 6.04. Indenture Trustee’s Disclaimer. The Indenture Trustee shall not be responsible for and makes no representation (other than as set forth in Section 6.13) as to the validity or adequacy of this Indenture or the Transition Bonds, it shall not be accountable for the Issuer’s use of the proceeds from the Transition Bonds, and it shall not be responsible for any

 

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statement of the Issuer in the Indenture or in any document issued in connection with the sale of the Transition Bonds or in the Transition Bonds other than the Indenture Trustee’s certificate of authentication. The Indenture Trustee shall not be responsible for the form, character, genuineness, sufficiency, value or validity of any of the Transition Bond Collateral, or for or in respect of the Transition Bonds (other than the certificate of authentication for the Transition Bonds) or the Basic Documents and the Indenture Trustee shall in no event assume or incur any liability, duty or obligation to any Holder, other than as expressly provided in this Indenture. The Indenture Trustee shall not be liable for the default or misconduct of the Issuer, the Seller, the Servicer or any other Person under the Basic Documents or otherwise, and the Indenture Trustee shall have no obligation or liability to perform the obligations of such Persons.

SECTION 6.05. Notice of Defaults.

(a) If a Default occurs and is continuing with respect to any Series and if it is actually known to a Responsible Officer of the Indenture Trustee, the Indenture Trustee shall mail to the PUCT, each Rating Agency and each Bondholder of all Series notice of the Default within ninety (90) days after actual notice of such Default was received by a Responsible Officer of the Indenture Trustee. Except in the case of a Default in payment of principal of and premium, if any, or interest on any Transition Bond, the Indenture Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of Holders. Except for an Event of Default under Sections 5.01(i) or (ii) that occur at a time when the Indenture Trustee is acting as the Paying Agent, and except as provided in the first sentence of this Section 6.05, in no event shall the Indenture Trustee be deemed to have knowledge of a Default.

(b) If a Default occurs and is continuing with respect to any Series and if it is actually known to a Responsible Officer of the Indenture Trustee, the Indenture Trustee shall promptly, but no more frequently than monthly, mail to the PUCT notice of any legal fees or other expenses incurred by the Indenture Trustee in defending or prosecuting any actual or threatened litigation, including any administrative proceeding, in respect of the Transition Bonds or the Transition Bond Collateral relating to such Series.

SECTION 6.06. Reports by Indenture Trustee to Holders.

(a) So long as Transition Bonds are Outstanding and the Indenture Trustee is the Transition Bond Registrar and Paying Agent, upon the written request of any Holder or the Issuer, within the prescribed period of time for tax reporting purposes after the end of each calendar year, it shall deliver to each relevant current or former Holder such information in its possession as may be required to enable such Holder to prepare its federal income and any applicable local or state tax returns. If the Transition Bond Registrar and Paying Agent is other than the Indenture Trustee, such Transition Bond Registrar and Paying Agent, within the prescribed period of time for tax reporting purposes after the end of each calendar year, shall deliver to each relevant current or former Holder such information in its possession as may be required to enable such Holder to prepare its federal income and any applicable local or state tax returns.

 

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(b) With respect to each Series of Transition Bonds, on or prior to each Payment Date or Special Payment Date therefor, the Indenture Trustee will deliver to the PUCT and each Holder of such Transition Bonds on such Payment Date or Special Payment Date a statement as provided and prepared by the Servicer which will include (to the extent applicable) the following information (and any other information so specified in the applicable Series Supplement) as to the Transition Bonds of such Series with respect to such Payment Date or Special Payment Date or the period since the previous Payment Date, as applicable:

(i) the amount of the payment to Holders allocable to principal, if any;

(ii) the amount of the payment to Holders allocable to interest;

(iii) the aggregate Outstanding Amount of such Transition Bonds, before and after giving effect to any payments allocated to principal reported under clause (i) above;

(iv) the difference, if any, between the amount specified in clause (iii) above and the Outstanding Amount specified in the related Expected Amortization Schedule;

(v) any other transfers and payments to be made on such Payment Date or Special Payment Date, including amounts paid to the Indenture Trustee and to the Servicer; and

(vi) the amounts on deposit in the applicable Capital Subaccount and the applicable Excess Funds Subaccount, after giving effect to the foregoing payments.

(c) If any Transition Bonds are listed on the Irish Stock Exchange and rules of such exchange so require, the Issuer shall arrange for publication in accordance with such rules a notice that such statement shall be available with the Issuer’s listing agent in Ireland appointed pursuant to Section 3.02.

(d) The Issuer shall send a copy of each of the Certificate of Compliance delivered to it pursuant to Section 3.03 of the Servicing Agreement and the Annual Accountant’s Report delivered to it pursuant to Section 3.04 of the Servicing Agreement to the Rating Agencies. A copy of such certificate and report may be obtained by any Holder by a request in writing to the Indenture Trustee.

(e) The Indenture Trustee may consult with counsel, and the advice or opinion of such counsel with respect to legal matters relating to this Indenture and the Transition Bonds shall be full and complete authorization and protection from liability with respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel.

SECTION 6.07. Compensation and Indemnity. The Issuer shall pay to the Indenture Trustee from time to time reasonable compensation for its services. The Indenture Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust. The Issuer shall reimburse the Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses,

 

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disbursements and advances of the Indenture Trustee’s agents, counsel, accountants and experts. The Issuer shall indemnify and hold harmless the Indenture Trustee and its officers, directors, employees and agents against any and all cost, damage, loss, liability, tax or expense (including reasonable attorney’s fees and expenses) incurred by it in connection with the administration and the enforcement of this Indenture and the Indenture Trustee’s rights, powers and obligations under this Indenture and the related Series Supplement and the performance of its duties hereunder and obligations under or pursuant to this Indenture and the related Series Supplement. The Indenture Trustee shall notify the Issuer as soon as is reasonably practicable of any claim for which it may seek indemnity. Failure by the Indenture Trustee to so notify the Issuer shall not relieve the Issuer of its obligations hereunder. The Issuer shall defend the claim and the Indenture Trustee may have separate counsel and the Issuer shall pay the reasonable fees and expenses of such counsel. The Issuer need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Indenture Trustee through the Indenture Trustee’s own willful misconduct, negligence or bad faith. The rights of the Indenture Trustee set forth in this Section 6.07 are subject to and limited by the priority of payments set forth in Section 8.02(e).

The payment obligations to the Indenture Trustee pursuant to this Section 6.07 shall survive the discharge of this Indenture and any Series Supplement or the earlier resignation or removal of the Indenture Trustee. When the Indenture Trustee incurs expenses after the occurrence of a Default specified in Section 5.01(v) or (vi) with respect to the Issuer, the expenses are intended to constitute expenses of administration under the Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency or similar law.

SECTION 6.08. Replacement of Indenture Trustee and Securities Intermediary.

(a) The Indenture Trustee may resign at any time upon thirty (30) days’ prior written notice to the Issuer subject to clause (c) below. The Holders of a majority of the Outstanding Amount of the Transition Bonds of all Series may remove the Indenture Trustee by so notifying the Indenture Trustee and may appoint a successor Indenture Trustee. The Issuer shall remove the Indenture Trustee if:

(i) the Indenture Trustee fails to comply with Section 6.11;

(ii) the Indenture Trustee is adjudged a bankrupt or insolvent;

(iii) a receiver or other public officer takes charge of the Indenture Trustee or its property;

(iv) the Indenture Trustee otherwise becomes incapable of acting; or

(v) the Indenture Trustee fails to provide to the Issuer any information reasonably requested by the Issuer pertaining to the Indenture Trustee and necessary for the Issuer or the Sponsor to comply with its reporting obligations under the Exchange Act and Regulation AB and such failure is not resolved to the Issuer’s and the Indenture Trustee’s mutual satisfaction within a reasonable period of time.

Any removal or resignation of the Indenture Trustee shall also constitute a removal or resignation of the Securities Intermediary.

 

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(b) If the Indenture Trustee gives notice of resignation or is removed or if a vacancy exists in the office of Indenture Trustee for any reason (the Indenture Trustee in such event being referred to herein as the retiring Indenture Trustee), the Issuer shall promptly appoint a successor Indenture Trustee and Securities Intermediary.

(c) A successor Indenture Trustee shall deliver a written acceptance of its appointment as the Indenture Trustee and as the Securities Intermediary to the retiring Indenture Trustee and to the Issuer. Thereupon the resignation or removal of the retiring Indenture Trustee shall become effective, and the successor Indenture Trustee shall have all the rights, powers and duties of the Indenture Trustee and Securities Intermediary, as applicable, under this Indenture and the Intercreditor Agreement. No resignation or removal of the Indenture Trustee pursuant to this Section 6.08 shall become effective until acceptance of the appointment by a successor Indenture Trustee having the qualifications set forth in Section 6.11. The successor Indenture Trustee shall mail a notice of its succession to Holders. The retiring Indenture Trustee shall promptly transfer all property held by it as Indenture Trustee (including unless otherwise agreed by the successor Indenture Trustee, all REP Deposit Accounts held by the Indenture Trustee) to the successor Indenture Trustee.

(d) If a successor Indenture Trustee does not take office within sixty (60) days after the retiring Indenture Trustee resigns or is removed, the retiring Indenture Trustee, the Issuer or the Holders of a majority in Outstanding Amount of the Transition Bonds of all Series may petition any court of competent jurisdiction for the appointment of a successor Indenture Trustee.

(e) If the Indenture Trustee fails to comply with Section 6.11, any Holder may petition any court of competent jurisdiction for the removal of the Indenture Trustee and the appointment of a successor Indenture Trustee.

(f) Notwithstanding the replacement of the Indenture Trustee pursuant to this Section 6.08, the Issuer’s obligations under Section 6.07 shall continue for the benefit of the retiring Indenture Trustee.

SECTION 6.09. Successor Indenture Trustee by Merger. If the Indenture Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation or banking association without any further act shall be the successor Indenture Trustee; provided, however, that if such successor Indenture Trustee is not eligible under Section 6.11, then the successor Indenture Trustee shall be replaced in accordance with Section 6.08. Notice of any such event shall be promptly given to each Rating Agency by the successor Indenture Trustee and any agent in Ireland appointed pursuant to Section 3.02.

In case at the time such successor or successors by merger, conversion, consolidation or transfer shall succeed to the trusts created by this Indenture any of the Transition Bonds shall have been authenticated but not delivered, any such successor to the Indenture Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Transition Bonds so authenticated; and in case at that time any of the Transition Bonds shall not have been authenticated, any successor to the Indenture Trustee may authenticate

 

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such Transition Bonds either in the name of any predecessor hereunder or in the name of the successor to the Indenture Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Transition Bonds or in this Indenture provided that the certificate of the Indenture Trustee shall have.

SECTION 6.10. Appointment of Co-Trustee or Separate Trustee.

(a) Notwithstanding any other provisions of this Indenture, at any time, for the purpose of meeting any legal requirement of any jurisdiction in which any part of the trust created by this Indenture or the Transition Bond Collateral may at the time be located, the Indenture Trustee shall have the power and may execute and deliver all instruments to appoint one or more Persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the trust created by this Indenture or the Transition Bond Collateral, and to vest in such Person or Persons, in such capacity and for the benefit of the Secured Parties, such title to the Transition Bond Collateral, or any part hereof, and, subject to the other provisions of this Section 6.10, such powers, duties, obligations, rights and trusts as the Indenture Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 6.11 and no notice to Holders of the appointment of any co-trustee or separate trustee shall be required under Section 6.08.

(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 Indenture Trustee shall be conferred or imposed upon and exercised or performed by the Indenture Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Indenture Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed the Indenture Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Transition Bond Collateral or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Indenture Trustee;

(ii) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and

(iii) the Indenture Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee.

(c) Any notice, request or other writing given to the Indenture Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Indenture and the conditions of this Article VI. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Indenture Trustee or separately, as may

 

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be provided therein, subject to all the provisions of this Indenture, specifically including every provision of this Indenture relating to the conduct of, affecting the liability of, or affording protection to, the Indenture Trustee. Every such instrument shall be filed with the Indenture Trustee.

(d) Any separate trustee or co-trustee may at any time constitute the Indenture Trustee, its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Indenture on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Indenture Trustee, to the extent permitted by law, without the appointment of a new or successor trustee.

SECTION 6.11. Eligibility; Disqualification. The Indenture Trustee shall at all times satisfy the requirements of TIA § 310(a)(1) and § 310(a)(5) and Section 26(a)(1) of the Investment Company Act. The Indenture Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition and it shall have a long term debt rating of “Baa3” or better by Moody’s “BBB-” or better by Standard & Poor’s and, if Fitch provides a rating thereon, “BBB-” or better by Fitch. The Indenture Trustee shall comply with TIA § 310(b), including the optional provision permitted by the second sentence of TIA § 310(b)(9); provided, however, that there shall be excluded from the operation of TIA § 310(b)(1) any indenture or indentures under which other securities of the Issuer are outstanding if the requirements for such exclusion set forth in TIA § 310(b)(1) are met.

SECTION 6.12. Preferential Collection of Claims Against Issuer. The Indenture Trustee shall comply with TIA § 311(a), excluding any creditor relationship listed in TIA § 311(b). An Indenture Trustee who has resigned or been removed shall be subject to TIA § 311(a) to the extent indicated therein.

SECTION 6.13. Representations and Warranties of Indenture Trustee. The Indenture Trustee hereby represents and warrants that:

(a) the Indenture Trustee is a banking corporation validly existing and in good standing under the laws of the State of New York; and

(b) the Indenture Trustee has full power, authority and legal right to execute, deliver and perform this Indenture and the Basic Documents to which the Indenture Trustee is a party and has taken all necessary action to authorize the execution, delivery, and performance by it of this Indenture and such Basic Documents.

SECTION 6.14. Annual Report by Independent Registered Public Accountants. In the event the firm of Independent registered public accountants requires the Indenture Trustee to agree or consent to the procedures performed by such firm pursuant to Section 3.05 of the Servicing Agreement, the Indenture Trustee shall deliver such letter of agreement or consent in conclusive reliance upon the direction of the Issuer in accordance with Section 3.05 of the Servicing Agreement. In the event such firm requires the Indenture Trustee to agree to the procedures performed by such firm, the Issuer shall direct the Indenture Trustee in writing to so

 

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agree; it being understood and agreed that the Indenture Trustee will deliver such letter of agreement in conclusive reliance upon the direction of the Issuer, and the Indenture Trustee makes no independent inquiry or investigation to, and shall have no obligation or liability in respect of, the sufficiency, validity or correctness of such procedures.

SECTION 6.15. Custody of Transition Bond Collateral. The Indenture Trustee shall hold such of the Transition Bond Collateral (and any other collateral that may be granted to the Indenture Trustee) as consists of instruments, deposit accounts, negotiable documents, money, goods, letters of credit, and advices of credit in the State of New York. The Indenture Trustee shall hold such of the Transition Bond Collateral as constitute investment property through the Securities Intermediary (which, as of the date hereof, is The Bank of New York). The initial Securities Intermediary, hereby agrees (and each future Securities Intermediary shall agree) with the Indenture Trustee that (a) such investment property shall at all times be credited to a securities account of the Indenture Trustee, (b) the Securities Intermediary shall treat the Indenture Trustee as entitled to exercise the rights that comprise each financial asset credited to such securities account, (c) all property credited to such securities account shall be treated as a financial asset, (d) the Securities Intermediary shall comply with entitlement orders originated by the Indenture Trustee without the further consent of any other person or entity, (e) the Securities Intermediary will not agree with any person other than the Indenture Trustee to comply with entitlement orders originated by such other person, (f) such securities accounts and the property credited thereto shall not be subject to any Lien, right of set-off in favor of the Securities Intermediary or anyone claiming through it (other than the Indenture Trustee), and (g) such agreement shall be governed by the internal laws of the State of New York. Terms used in the preceding sentence that are defined in the UCC and not otherwise defined herein shall have the meaning set forth in the UCC. Except as permitted by this Section 6.15, or elsewhere in this Indenture, the Indenture Trustee shall not hold Transition Bond Collateral through an agent or a nominee.

ARTICLE VII

HOLDERS’ LISTS AND REPORTS

SECTION 7.01. Issuer To Furnish Indenture Trustee Names and Addresses of Holders. The Issuer will furnish or cause to be furnished to the Indenture Trustee (a) not more than five (5) days after the earlier of (i) each Record Date with respect to each Series and (ii) six (6) months after the last Record Date with respect to each Series, a list, in such form as the Indenture Trustee may reasonably require, of the names and addresses of the Bondholders of such Series as of such Record Date, (b) at such other times as the Indenture Trustee may request in writing, within thirty (30) days after receipt by the Issuer of any such request, a list of similar form and content as of a date not more than ten (10) days prior to the time such list is furnished; provided, however, that so long as the Indenture Trustee is the Transition Bond Registrar, no such list shall be required to be furnished. In addition, the Issuer shall furnish such list to any listing, transfer or paying agent appointed under Section 3.02 to the extent such information is required by the rules and regulations of the Irish Stock Exchange.

 

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SECTION 7.02. Preservation of Information; Communications to Holders.

(a) The Indenture Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of the Holders contained in the most recent list furnished to the Indenture Trustee as provided in Section 7.01 and the names and addresses of Holders received by the Indenture Trustee in its capacity as Transition Bond Registrar. The Indenture Trustee may destroy any list furnished to it as provided in such Section 7.01 upon receipt of a new list so furnished.

(b) Holders may communicate pursuant to TIA § 312(b) with other Holders with respect to their rights under this Indenture or under the Transition Bonds. In addition, upon the written request of any Holder or group of Holders of any Series or of all Outstanding Series of Transition Bonds evidencing not less than 10 percent of the Outstanding Amount of the Transition Bonds of that Series or all Series, as applicable, the Indenture Trustee shall afford the Holder or Holders making such request a copy of a current list of Holders of that Series or all Outstanding Series, as applicable, for purposes of communicating with other Holders with respect to their rights hereunder.

(c) The Issuer, the Indenture Trustee and the Transition Bond Registrar shall have the protection of TIA § 312(c).

SECTION 7.03. Reports by Issuer.

(a) The Issuer shall:

(i) so long as the Issuer or the Sponsor is required to file such documents with the SEC, provide to the Indenture Trustee and, if and so long as any Transition Bonds are listed on the Irish Stock Exchange and its rules so require, with the listing agent of the Issuer in Ireland appointed pursuant to Section 3.02, within fifteen (15) days after the Issuer is required to file the same with the SEC, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may from time to time by rules and regulations prescribe) which the Issuer or the Sponsor may be required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act;

(ii) provide to the Indenture Trustee, file with the SEC and, if and so long as any Transition Bonds are listed on the Irish Stock Exchange and its rules so require, the listing agent of the Issuer in Ireland appointed pursuant to Section 3.02, in accordance with rules and regulations prescribed from time to time by the SEC such additional information, documents and reports with respect to compliance by the Issuer with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and

(iii) supply to the Indenture Trustee (and the Indenture Trustee shall transmit by mail to all Holders described in TIA § 313(c)) and, if and so long as any Transition Bonds are listed on the Irish Stock Exchange and its rules so require, to the listing agent of the Issuer in Ireland appointed pursuant to Section 3.02, such summaries of any information, documents and reports required to be filed by the Issuer pursuant to clauses (i) and (ii) of this Section 7.03(a) as may be required by rules and regulations prescribed from time to time by the SEC.

 

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(b) Unless the Issuer otherwise determines, the fiscal year of the Issuer shall end on December 31 of each year.

SECTION 7.04. Reports by Indenture Trustee. If required by TIA § 313(a), within sixty (60) days after March 30 of each year, commencing with the year after the issuance of the Transition Bonds of any Series, the Indenture Trustee shall mail to each Bondholder of such Series as required by TIA § 313(c) a brief report dated as of such date that complies with TIA § 313(a). The Indenture Trustee also shall comply with TIA § 313(b); provided, however, that the initial report so issued shall be delivered not more than twelve (12) months after the initial issuance of each Series.

A copy of each report at the time of its mailing to Holders shall be filed by the Servicer with the SEC and each stock exchange, if any, on which the Transition Bonds are listed. The Issuer shall notify the Indenture Trustee in writing if and when the Transition Bonds are listed on any stock exchange.

ARTICLE VIII

ACCOUNTS, DISBURSEMENTS AND RELEASES

SECTION 8.01. Collection of Money. Except as otherwise expressly provided herein, the Indenture Trustee may demand payment or delivery of, and shall receive and collect, directly and without intervention or assistance of any fiscal agent or other intermediary, all money and other property payable to or receivable by the Indenture Trustee pursuant to this Indenture and the other Basic Documents. The Indenture Trustee shall apply all such money received by it as provided in this Indenture. Except as otherwise expressly provided in this Indenture, if any default occurs in the making of any payment or performance under any agreement or instrument that is part of the Transition Bond Collateral, the Indenture Trustee may take such action as may be appropriate to enforce such payment or performance, subject to Article VI, including the institution and prosecution of appropriate Proceedings. Any such action shall be without prejudice to any right to claim a Default or Event of Default under this Indenture and any right to proceed thereafter as provided in Article V.

SECTION 8.02. Collection Accounts and REP Deposit Accounts.

(a) Prior to the Series Issuance Date for each Series of Transition Bonds issued hereunder, the Issuer shall open or cause to be opened, at the Indenture Trustee’s office located at the Corporate Trust Office, or at another Eligible Institution, one or more segregated trust accounts in the Indenture Trustee’s name for the deposit of Estimated TC Collections, TC Collections and all other amounts received with respect to the Series Transition Bond Collateral related to such Series (each, a “Collection Account”). Each Collection Account will consist of three subaccounts: a general subaccount (the “General Subaccount”), an excess funds subaccount (the “Excess Funds Subaccount”) and a capital subaccount (the “Capital Subaccount” and, together with the General Subaccount and the Excess Funds Subaccount, the “Subaccounts”).

 

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For administrative purposes, the Subaccounts for any Series may be established by the Indenture Trustee as separate accounts. Such separate accounts will be recognized individually as a Subaccount and collectively as the “Collection Account” for such Series. Prior to or concurrently with the issuance of any Series of Transition Bonds, the Member shall deposit into the applicable Capital Subaccount an amount equal to the Required Capital Level for such Series. All amounts in the applicable Collection Account not allocated to any other subaccount shall be allocated to the applicable General Subaccount. Prior to the initial Payment Date for any Series, all amounts in the applicable Collection Account (other than funds deposited into the applicable Capital Subaccount, up to the Required Capital Level for any Series of Transition Bonds) shall be allocated to the applicable General Subaccount. All references to the Collection Account shall mean and be references to the applicable Collection Account for any Series and shall be deemed to include reference to all subaccounts contained therein. Withdrawals from and deposits to each of the foregoing subaccounts of the applicable Collection Account shall be made as set forth in Section 8.02(d) and (e). Each Collection Account shall at all times be maintained in an Eligible Account, will be under the sole dominion and exclusive control of the Indenture Trustee, and only the Indenture Trustee shall have access to each such Collection Account for the purpose of making deposits in and withdrawals from each such Collection Account in accordance with this Indenture. Funds in the Collection Accounts shall not be commingled with any other moneys. All moneys deposited from time to time in each Collection Account, all deposits therein pursuant to this Indenture, and all investments made in Eligible Investments as directed in writing by the Issuer with such moneys, including all income or other gain from such investments, shall be held by the Indenture Trustee in the applicable Collection Account as part of the Series Transition Bond Collateral as herein provided. The Indenture Trustee shall have no liability in respect of losses incurred as a result of the liquidation of any Eligible Investment prior to its stated maturity or its date of redemption or the failure of the Issuer or the Servicer to provide timely written investment direction.

(b) The Securities Intermediary hereby confirms that (i) each Collection Account is, or at inception will be established as, a “securities account” as such term is defined in Section 8-501(a) of the UCC, (ii) it is a “securities intermediary” (as such term is defined in Section 8-102(a) (14) of the UCC) and is acting in such capacity with respect to such accounts, and (iii) the Indenture Trustee for the benefit of the Secured Parties is the sole “entitlement holder” (as such term is defined in Section 8-102(a)(7) of the UCC) with respect to such accounts and no other Person shall have the right to give “entitlement orders” (as such term is defined in Section 8-102(a)(8)) with respect to such accounts. The Securities Intermediary hereby further agrees that each item of property (whether investment property, financial asset, security, instrument or cash) received by it will be credited to the applicable Collection Account and shall be treated by it as a “financial asset” within the meaning of Section 8-102(a)(9) of the UCC. Notwithstanding anything to the contrary, New York State shall be deemed to be the location and jurisdiction of the Securities Intermediary for purposes of Section 8-110 of the UCC, and each Collection Account (as well as the securities entitlements related thereto) shall be governed by the laws of the State of New York.

(c) The Indenture Trustee shall have sole dominion and exclusive control over all moneys in each Collection Account and shall apply such amounts therein as provided in this Section 8.02. The Indenture Trustee shall also pay from each applicable Collection Account any amounts requested to be paid by or to the Servicer pursuant to Section 6.11(c)(ii) of the Servicing Agreement.

 

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(d) TC Collections shall be deposited in the applicable General Subaccount as provided in Section 6.11 of the Servicing Agreement. All deposits to and withdrawals from each applicable Collection Account, all allocations to the subaccounts of each such Collection Account and any amounts to be paid to the Servicer under Section 8.02(c) shall be made by the Indenture Trustee in accordance with the written instructions provided by the Servicer in the Monthly Servicer’s Certificate, the Servicer’s Certificate or upon other written notice provided by the Servicer pursuant to Section 6.11(c)(ii) of the Servicing Agreement, as applicable.

(e) On each Payment Date for any Series of Transition Bonds, the Indenture Trustee shall apply all amounts on deposit in each applicable Collection Account, including all net earnings thereon, to pay the following amounts, in accordance with the Servicer’s Certificate, in the following priority:

(i) all amounts owed by the Issuer to the Indenture Trustee (including legal fees and expenses) shall be paid to the Indenture Trustee (subject to Section 6.07) in an amount not to exceed annually the amount set forth in the related Series Supplement or such greater amount as approved by the PUCT in any Applicable Financing Order, such amounts to be withdrawn from each Collection Account pro rata based on the respective Outstanding Amounts of each Series;

(ii) the Servicing Fee with respect to the related Series for such Payment Date and all unpaid Servicing Fees with respect to such Series for prior Payment Dates shall be paid to the Servicer;

(iii) the Administration Fee for such Payment Date shall be paid to the Administrator and the Independent Manager Fee for such Payment Date shall be paid to the Independent Managers, pro rata, such amounts to be withdrawn from each Collection Account pro rata based on the respective Outstanding Amounts of each Series;

(iv) all other Operating Expenses for such Payment Date not described above shall be paid to the parties to which such Operating Expenses are owed, pro rata, such amounts to be withdrawn from each Collection Account pro rata based on the respective Outstanding Amounts of each Series;

(v) Periodic Interest for such Payment Date, including any overdue Periodic Interest (together with, to the extent lawful, interest on such overdue Periodic Interest at the applicable Transition Bond Interest Rate), with respect to the related Series of Transition Bonds shall be paid to the Holders of such Series of Transition Bonds;

(vi) principal due and payable on the Transition Bonds of the related Series as a result of an Event of Default or on the Final Maturity Date of the Transition Bonds of such Series shall be paid to the Holders of such Series of Transition Bonds;

 

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(vii) Periodic Principal for such Payment Date, including any overdue Periodic Principal, with respect to the related Series of Transition Bonds shall be paid to the Holders of such Series of Transition Bonds, pro rata;

(viii) any other unpaid Operating Expenses, fees, expenses and indemnity amounts owed to the Indenture Trustee, such amounts to be withdrawn from each Collection Account pro rata based on the respective Outstanding Amounts of each Series;

(ix) the amount, if any, by which the Required Capital Level with respect to the applicable Series of Transition Bonds exceeds the amount in the applicable Capital Subaccount as of such Payment Date shall be allocated to the applicable Capital Subaccount;

(x) if there is a positive balance after making the foregoing allocations, an amount not to exceed the lesser of such balance and the investment earnings on the applicable Capital Subaccount shall be paid to the Issuer; provided that no Event of Default has occurred or is continuing;

(xi) the balance, if any, shall be allocated to the applicable Excess Funds Subaccount for distribution on subsequent Payment Dates; and

(xii) after principal of and premium, if any, and interest on all Transition Bonds of the related Series, and all of the other foregoing amounts, have been paid in full, including, without limitation, amounts due and payable to the Indenture Trustee under Section 6.07 or otherwise, the balance (including all amounts then held in the applicable Capital Subaccount and the applicable Excess Funds Subaccount), if any, shall be paid to the Issuer, free from the Lien of this Indenture and the related Series Supplement.

All payments to the Holders of a Series pursuant to clauses (v), (vi) and (vii) above shall be made to such Holders pro rata based on the respective amounts of interest and/or principal owed, unless, in the case of a Series comprised of two or more Tranches, the Series Supplement for such Series provides otherwise. Payments in respect of principal of and premium, if any, and interest on any Tranche of Transition Bonds will be made on a pro rata basis among all the Holders of such Tranche.

The amounts paid during any calendar year pursuant to clauses (i), (ii), (iii), (iv) and (viii) may not exceed the amounts approved in the Series Supplement with respect to any Series unless the PUCT approves a different aggregate amount for such payments.

(f) If on any Payment Date of any Series funds on deposit in the applicable General Subaccount are insufficient to make the payments contemplated by clauses (i) through (viii) of Section 8.02(e) above, the Indenture Trustee shall (i) first, draw from amounts on deposit in the applicable Excess Funds Subaccount and (ii) second, draw from amounts on deposit in the applicable Capital Subaccount, in each case, up to the amount of such shortfall in order to make the payments contemplated by clauses (i) through (viii) of Section 8.02(e). In addition, if on any Payment Date of any Series funds on deposit in the applicable General Subaccount are insufficient to make the allocations contemplated by clause (ix) above, the Indenture Trustee shall draw from amounts on deposit in the applicable Excess Funds Subaccount to make such allocations.

 

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(g) The Indenture Trustee, shall, as directed by the Servicer under Section 3.05(e) of the Servicing Agreement, maintain one or more segregated accounts in the Indenture Trustee’s name (the “REP Deposit Accounts”) at its office located at the Corporate Trust Office, or at another Eligible Institution, for REP deposits provided pursuant to any Financing Order or Tariff, each such account for the benefit of the Indenture Trustee. Pursuant to and in accordance with the Applicable Financing Order, amounts received from any REP as a security deposit shall be deposited into the applicable REP Deposit Account. To the extent permitted by each Applicable Financing Order, Tariff and PUCT Regulations, the REP Deposit Accounts shall at all times be maintained in Eligible Accounts, shall be subject to a perfected first priority security interest in favor of the Indenture Trustee for the benefit of the Secured Parties, and shall be under the sole dominion and exclusive control of the Indenture Trustee. Funds in the REP Deposit Accounts shall not be commingled with any other moneys. All or a portion of the funds in the REP Deposit Accounts shall be invested in Eligible Investments and reinvested by the Indenture Trustee in Eligible Investments pursuant to the written direction of the Servicer (or, absent such direction, in accordance with Section 8.03(c); provided, however, that (i) such Eligible Investments shall not mature or be redeemed later than the Business Day prior to the next Payment Date for the related Series of Transition Bonds and (ii) such Eligible Investments shall not be sold, liquidated or otherwise disposed of at a loss prior to the maturity or the date of redemption thereof. All moneys deposited from time to time in the REP Deposit Accounts and all investments made in Eligible Investments with such moneys, including all income or other gain from such investments, shall be held by the Indenture Trustee in a REP Deposit Account as part of the Transition Bond Collateral as herein provided and shall only be allocated and released upon the direction of the Servicer in accordance with Section 3.05(e) of the Servicing Agreement as required or permitted by this Indenture, each Applicable Financing Order, each applicable Tariff, or other applicable PUCT Regulations. Any loss resulting from investment made in Eligible Investments with moneys in a REP Deposit Account shall be charged to such REP Deposit Account. The Indenture Trustee shall release property from a REP Deposit Account only as and to the extent directed by the Servicer pursuant to the Applicable Financing Order and the Servicing Agreement and as required or permitted by this Indenture. The Indenture Trustee shall have no liability in respect of losses incurred as a result of the liquidation of any Eligible Investment prior to its stated maturity or its date of redemption or the failure of the Issuer or the Servicer to provide timely written investment direction.

SECTION 8.03. General Provisions Regarding the Collection Accounts.

(a) So long as no Default or Event of Default shall have occurred and be continuing, all or a portion of the funds in each Collection Account shall be invested in Eligible Investments and reinvested by the Indenture Trustee upon Issuer Order; provided, however, that (i) such Eligible Investments shall not mature or be redeemed later than the Business Day prior to the next Payment Date or Special Payment Date, if applicable, for the related Series of Transition Bonds and (ii) such Eligible Investments shall not be sold, liquidated or otherwise disposed of at a loss prior to the maturity or the date of redemption thereof. All income or other gain from investments of moneys deposited in any Collection Account shall be deposited by the Indenture Trustee in such Collection Account, and any loss resulting from such investments shall

 

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be charged to such Collection Account. The Issuer will not direct the Indenture Trustee to make any investment of any funds or to sell any investment held in any Collection Account unless the security interest Granted and perfected in such account will continue to be perfected in such investment or the proceeds of such sale, in either case without any further action by any Person, and, in connection with any direction to the Indenture Trustee to make any such investment or sale, if requested by the Indenture Trustee, the Issuer shall deliver to the Indenture Trustee an Opinion of Counsel of external counsel of the Issuer (at the Issuer’s cost and expense) to such effect. In no event shall the Indenture Trustee be liable for the selection of Eligible Investments or for investment losses incurred thereon. The Indenture Trustee shall have no liability in respect of losses incurred as a result of the liquidation of any Eligible Investment prior to its stated maturity or its date of redemption or the failure of the Issuer or the Servicer to provide timely written investment direction. The Indenture Trustee shall have no obligation to invest or reinvest any amounts held hereunder in the absence of written investment direction pursuant to an Issuer Order.

(b) Subject to Section 6.01(c), the Indenture Trustee shall not in any way be held liable by reason of any insufficiency in any Collection Account resulting from any loss on any Eligible Investment included therein except for losses attributable to the Indenture Trustee’s failure to make payments on such Eligible Investments issued by the Indenture Trustee, in its commercial capacity as principal obligor and not as trustee, in accordance with their terms.

(c) If (i) the Issuer shall have failed to give written investment directions for any funds on deposit in any Collection Account to the Indenture Trustee by 11:00 a.m. Eastern Time (or such other time as may be agreed by the Issuer and Indenture Trustee) on any Business Day; or (ii) a Default or Event of Default shall have occurred and be continuing with respect to the Transition Bonds of any Series but the Transition Bonds of such Series shall not have been declared due and payable pursuant to Section 5.02, then the Indenture Trustee shall, to the fullest extent practicable, invest and reinvest funds in such Collection Account in one or more money market funds described under clause (d) of the definition of “Eligible Investments” pursuant to the most recent written investment directions delivered by the Issuer to the Indenture Trustee with respect to such type of Eligible Investments; provided that if the Issuer has never delivered written investment directions to the Indenture Trustee, the Indenture Trustee shall not invest or reinvest such funds in any investments.

(d) The parties hereto acknowledge that the Servicer may, pursuant to the Servicing Agreement, select Eligible Investments on behalf of the Issuer.

SECTION 8.04. Release of Transition Bond Collateral.

(a) So long as the Issuer is not in default hereunder and no Default hereunder would occur as a result of such action, the Issuer, through the Servicer, may collect, sell or otherwise dispose of written-off receivables, at any time and from time to time in the ordinary course of business, without any notice to, or release or consent by, the Indenture Trustee, but only as and to the extent permitted by the Basic Documents; provided, however, that any and all proceeds of such dispositions shall become Transition Bond Collateral and be deposited to the applicable General Subaccount immediately upon receipt thereof by the Issuer or any other Person, including the Servicer. Without limiting the foregoing, the Servicer, may, at any time

 

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and from time to time without any notice to, or release or consent by, the Indenture Trustee, sell or otherwise dispose of any Transition Bond Collateral which is part of a Bill previously written-off as a defaulted or uncollectible account in accordance with the terms of the Servicing Agreement and the requirements of the proviso in the immediately preceding sentence.

(b) The Indenture Trustee may, and when required by the provisions of this Indenture shall, execute instruments to release property from the Lien of this Indenture, or convey the Indenture Trustee’s interest in the same, in a manner and under circumstances that are not inconsistent with the provisions of this Indenture. No party relying upon an instrument executed by the Indenture Trustee as provided in this Article VIII shall be bound to ascertain the Indenture Trustee’s authority, inquire into the satisfaction of any conditions precedent or see to the application of any moneys. The Indenture Trustee shall release property from the Lien of this Indenture pursuant to this Section 8.04(b) only upon receipt of an Issuer Request accompanied by an Officer’s Certificate, an Opinion of Counsel of external counsel of the Issuer (at the Issuer’s cost and expense) and (if required by the TIA) Independent Certificates in accordance with TIA §§ 314(c) and 314(d)(1) meeting the applicable requirements of Section 10.01.

(c) The Indenture Trustee shall, at such time as there are no Transition Bonds of a Series Outstanding and all sums payable to the Indenture Trustee pursuant to Section 6.07 or otherwise have been paid, release any remaining portion of the Series Transition Bond Collateral that secured such Transition Bonds from the Lien of this Indenture, release to the Issuer or any other Person entitled thereto any funds or investments then on deposit in or credit to the applicable Collection Account and, subject to the instructions of the Servicer, shall release the REP Deposit Accounts in accordance with Section 8.02.

SECTION 8.05. Opinion of Counsel. The Indenture Trustee shall receive at least seven (7) days’ notice when requested by the Issuer to take any action pursuant to Section 8.04, accompanied by copies of any instruments involved, and the Indenture Trustee shall also require, as a condition to such action, an Opinion of Counsel of external counsel of the Issuer, in form and substance satisfactory to the Indenture Trustee, stating the legal effect of any such action, outlining the steps required to complete the same, and concluding that all conditions precedent to the taking of such action have been complied with and such action will not materially and adversely impair the security for the Transition Bonds or the rights of the Holders in contravention of the provisions of this Indenture and the related Series Supplement; provided, however, that such Opinion of Counsel shall not be required to express an opinion as to the fair value of the Transition Bond Collateral. Counsel rendering any such opinion may rely, without independent investigation, on the accuracy and validity of any certificate or other instrument delivered to the Indenture Trustee in connection with any such action.

SECTION 8.06. Reports by Independent Registered Public Accountants. As of the Closing Date, the Issuer shall appoint a firm of Independent registered public accountants of recognized national reputation for purposes of preparing and delivering the reports or certificates of such accountants required by this Indenture and the related Series Supplements. In the event such firm requires the Indenture Trustee to agree to the procedures performed by such firm, the Issuer shall direct the Indenture Trustee in writing to so agree; it being understood and agreed that the Indenture Trustee will deliver such letter of agreement in conclusive reliance upon the

 

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direction of the Issuer, and the Indenture Trustee makes no independent inquiry or investigation to, and shall have no obligation or liability in respect of, the sufficiency, validity or correctness of such procedures. Upon any resignation by, or termination by the Issuer of, such firm the Issuer shall provide written notice thereof to the Indenture Trustee and shall promptly appoint a successor thereto that shall also be a firm of Independent registered public accountants of recognized national reputation. If the Issuer shall fail to appoint a successor to a firm of Independent registered public accountants that has resigned or been terminated within fifteen (15) days after such resignation or termination, the Indenture Trustee shall promptly notify the Issuer of such failure in writing. If the Issuer shall not have appointed a successor within ten (10) days thereafter the Indenture Trustee shall promptly appoint a successor firm of Independent registered public accountants of recognized national reputation; provided that the Indenture Trustee shall have no liability with respect to such appointment. The fees of such Independent registered public accountants and its successor shall be payable by the Issuer.

ARTICLE IX

Supplemental Indentures

SECTION 9.01. Supplemental Indentures Without Consent of Holders.

(a) Without the consent of the Holders of any Transition Bonds but with prior notice to the Rating Agencies, the Issuer and the Indenture Trustee, when authorized by an Issuer Order, and, if the contemplated amendment may in the judgment of the PUCT increase ongoing qualified costs, with the consent of the PUCT pursuant to Section 9.03 (which consent shall not be required with regard to the first Series Supplement), 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 TIA as in force at the date of the execution thereof), in form satisfactory to the Indenture Trustee, for any of the following purposes:

(i) to correct or amplify the description of any property, including, without limitation, the Transition Bond Collateral, at any time subject to the Lien of this Indenture, or better to assure, convey and confirm unto the Indenture Trustee any property subject or required to be subjected to the Lien of this Indenture and the related Series Supplement, or to subject to the Lien of this Indenture and the related Series Supplement additional property;

(ii) to evidence the succession, in compliance with the applicable provisions hereof, of another person to the Issuer, and the assumption by any such successor of the covenants of the Issuer herein and in the Transition Bonds;

(iii) to add to the covenants of the Issuer, for the benefit of the Secured Parties, or to surrender any right or power herein conferred upon the Issuer;

(iv) to convey, transfer, assign, mortgage or pledge any property to or with the Indenture Trustee;

(v) to cure any ambiguity, to correct or supplement any provision herein or in any supplemental indenture, including any Series Supplement, which may be inconsistent

 

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with any other provision herein or in any supplemental indenture, including any Series Supplement, or to make any other provisions with respect to matters or questions arising under this Indenture or in any supplemental indenture; provided that (i) such action shall not, as evidenced by an Opinion of Counsel of external counsel of the Issuer, adversely affect in any material respect the interests of the Holders of the Transition Bonds and (ii) the Rating Agency Condition shall have been satisfied with respect thereto;

(vi) to evidence and provide for the acceptance of the appointment hereunder by a successor trustee with respect to the Transition Bonds and to add to or change any of the provisions of this Indenture as shall be necessary to facilitate the administration of the trusts hereunder by more than one trustee, pursuant to the requirements of Article VI;

(vii) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under the TIA or under any similar or successor federal statute hereafter enacted and to add to this Indenture such other provisions as may be expressly required by the TIA;

(viii) to set forth the terms of any Tranche or any Series that has not theretofore been authorized by a Series Supplement;

(ix) to qualify the Transition Bonds for registration with a Clearing Agency; or

(x) to satisfy any Rating Agency requirements.

The Indenture Trustee is hereby authorized to join in the execution of any such supplemental indenture and to make any further appropriate agreements and stipulations that may be therein contained.

(b) The Issuer and the Indenture Trustee, when authorized by an Issuer Order, may, also without the consent of any of the Holders of the Transition Bonds, with the consent of the PUCT pursuant to Section 9.03, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture or of modifying in any manner the rights of the Holders of the Transition Bonds under this Indenture; provided, however, that (i) such action shall not, as evidenced by an Opinion of Counsel of nationally recognized counsel of the Issuer experienced in structured finance transactions, adversely affect in any material respect the interests of the Holders and (ii) the Rating Agency Condition shall have been satisfied with respect thereto.

SECTION 9.02. Supplemental Indentures with Consent of Holders. The Issuer and the Indenture Trustee, when authorized by an Issuer Order, also may, with the consent of the PUCT pursuant to Section 9.03, with prior notice to the Rating Agencies and with the consent of the Holders of not less than a majority of the Outstanding Amount of the Transition Bonds of each Series or Tranche to be affected, by Act of such Holders delivered to the Issuer and the Indenture Trustee, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture or of modifying in any manner the rights of the Holders of the Transition Bonds under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Transition Bond of each Series or Tranche affected thereby:

(i) change the date of payment of any installment of principal of or premium, if any, or interest on any Transition Bond of such Series or Tranche, or reduce the principal amount thereof, the interest rate thereon or premium, if any, with respect thereto, change the provisions of this Indenture and the related applicable Series Supplement relating to the application of collections on, or the proceeds of the sale of, the Transition Bond Collateral to payment of principal of or premium, if any, or interest on the Transition Bonds, or change any place of payment where, or the coin or currency in which, any Transition Bond or the interest thereon is payable, or impair the right to institute suit for the enforcement of the provisions of this Indenture requiring the application of funds available therefor, as provided in Article V, to the payment of any such amount due on the Transition Bonds on or after the respective due dates thereof;

 

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(ii) reduce the percentage of the Outstanding Amount of the Transition Bonds or of a Series or Tranche thereof, the consent of the Holders of which is required for any such supplemental indenture, or the consent of the Holders of which is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture;

(iii) reduce the percentage of the Outstanding Amount of the Transition Bonds required to direct the Indenture Trustee to direct the Issuer to sell or liquidate the Transition Bond Collateral pursuant to Section 5.04;

(iv) modify any provision of this Section 9.02 except to increase any percentage specified herein or to provide that those provisions of this Indenture or the other Basic Documents referenced in this Section 9.02 cannot be modified or waived without the consent of the Holder of each Outstanding Transition Bond affected thereby;

(v) modify any of the provisions of this Indenture in such manner as to affect the calculation of the amount of any payment of interest, principal or premium, if any, due on any Transition Bond on any Payment Date (including the calculation of any of the individual components of such calculation) or change the Expected Amortization Schedules or Final Maturity Dates of any Tranche or Series of Transition Bonds;

(vi) decrease the Required Capital Level with respect to any Series;

(vii) permit the creation of any Lien ranking prior to or on a parity with the Lien of this Indenture with respect to any part of the Transition Bond Collateral or, except as otherwise permitted or contemplated herein, terminate the Lien of this Indenture on any property at any time subject hereto or deprive the Holder of any Transition Bond of the security provided by the Lien of this Indenture; or

(viii) cause any material adverse federal income tax consequence to the Seller, the Issuer, the Managers, the Indenture Trustee or the then existing Holders.

It shall not be necessary for any Act of Holders under this Section 9.02 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.

 

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Promptly after the execution by the Issuer and the Indenture Trustee of any supplemental indenture pursuant to this Section 9.02, the Issuer shall mail to the Rating Agencies and the Holders of the Transition Bonds to which such supplemental indenture relates a notice setting forth in general terms the substance of such supplemental indenture. Any failure of the Issuer to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. If and so long as any Transition Bonds are listed on the Irish Stock Exchange and the rules of such exchange so require, the Issuer shall arrange for publication in accordance with such rules of a notice that the notice regarding the Supplemental Indenture shall be available with the Issuer’s listing agent in Ireland appointed pursuant to Section 3.02.

SECTION 9.03. PUCT Condition. Notwithstanding anything to the contrary in Section 9.01 or 9.02, no supplemental indenture (other than the initial Series Supplement) shall be effective unless the process set forth in this Section 9.03 has been followed.

(a) At least thirty-one (31) days prior to the effectiveness of any such supplemental indenture and after obtaining the other necessary approvals set forth in Section 9.01 or 9.02, as applicable, except for the consent of the Indenture Trustee and the Holders if the consent of the Holders is required or sought by the Indenture Trustee in connection with such supplemental indenture, the Issuer shall have delivered to the PUCT’s executive director and general counsel written notification of any proposed supplemental indenture, which notification shall contain:

(i) a reference to Docket No. 32475 and to any other Docket No. under which a Financing Order has been issued;

(ii) an Officer’s Certificate stating that the proposed supplemental indenture has been approved by all parties to this Indenture; and

(iii) a statement identifying the person to whom the PUCT or its staff is to address any response to the proposed supplemental indenture or to request additional time.

(b) The PUCT or its staff shall, within thirty (30) days of receiving the notification complying with Section 9.03(a) above, either:

(i) provide notice of its determination that the proposed supplemental indenture will not under any circumstances have the effect of increasing the ongoing qualified costs related to the Transition Bonds,

(ii) provide notice of its consent or lack of consent to the person specified in Section 9.03(a)(iii) above, or

(iii) be conclusively deemed to have consented to the proposed supplemental indenture,

unless, within thirty (30) days of receiving the notification complying with Section 9.03(a) above, the PUCT or its staff delivers to the office of the person specified in Section 9.03(a)(iii)

 

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above a written statement requesting an additional amount of time not to exceed thirty (30) days in which to consider whether to consent to the proposed supplemental indenture. If the PUCT or its staff requests an extension of time in the manner set forth in the preceding sentence, then the PUCT shall either provide notice of its consent or lack of consent or notice of its determination that the proposed supplemental indenture will not under any circumstances increase ongoing qualified costs to the person specified in Section 9.03(a)(iii) above no later than the last day of such extension of time or be conclusively deemed to have consented to the proposed supplemental indenture on the last day of such extension of time. Any supplemental indenture requiring the consent of the PUCT shall become effective on the later of (i) the date proposed by the parties to such supplemental indenture and (ii) the first day after the expiration of the thirty (30)-day period provided for in this Section 9.03(b), or, if such period has been extended pursuant hereto, the first day after the expiration of such period as so extended.

(c) Following the delivery of a notice to the PUCT by the Issuer under Section 9.03(a) above, the Issuer shall have the right at any time to withdraw from the PUCT further consideration of any notification of a proposed supplemental indenture. Such withdrawal shall be evidenced by the prompt written notice thereof by the Issuer to the PUCT, the Indenture Trustee and the Servicer.

SECTION 9.04. Execution of Supplemental Indentures. In executing, or permitting the additional trusts created by, any supplemental indenture permitted by this Article IX or the modifications thereby of the trusts created by this Indenture, the Indenture Trustee shall be entitled to receive, and subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Indenture Trustee may, but shall not be obligated to, enter into any such supplemental indenture that affects the Indenture Trustee’s own rights, duties, liabilities or immunities under this Indenture or otherwise.

SECTION 9.05. Effect of Supplemental Indenture. Upon the execution of any supplemental indenture pursuant to the provisions hereof, this Indenture shall be and be deemed to be modified and amended in accordance therewith with respect to each Series or Tranche of Transition Bonds affected thereby, and the respective rights, limitations of rights, obligations, duties, liabilities and immunities under this Indenture of the Indenture Trustee, the Issuer and the Holders shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes.

SECTION 9.06. Conformity with Trust Indenture Act. Every amendment of this Indenture and every supplemental indenture executed pursuant to this Article IX shall conform to the requirements of the TIA as then in effect so long as this Indenture shall then be qualified under the TIA.

SECTION 9.07. Reference in Transition Bonds to Supplemental Indentures. Transition Bonds authenticated and delivered after the execution of any supplemental indenture pursuant to this Article IX may, and if required by the Indenture Trustee shall, bear a notation in form approved by the Indenture Trustee as to any matter provided for in such supplemental

 

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indenture. If the Issuer or the Indenture Trustee shall so determine, new Transition Bonds so modified as to conform, in the opinion of the Indenture Trustee and the Issuer, to any such supplemental indenture may be prepared and executed by the Issuer and authenticated and delivered by the Indenture Trustee in exchange for Outstanding Transition Bonds.

ARTICLE X

Miscellaneous

SECTION 10.01. Compliance Certificates and Opinions, etc.

(a) Upon any application or request by the Issuer to the Indenture Trustee to take any action under any provision of this Indenture, the Issuer shall furnish to the Indenture Trustee (i) an Officer’s Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, (ii) an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with and (iii) (if required by the TIA) an Independent Certificate from a firm of registered public accountants meeting the applicable requirements of this Section 10.01, except that, in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture, no additional certificate or opinion need be furnished.

Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include:

(i) a statement that each signatory of such certificate or opinion has read or has caused to be read such covenant or condition and the definitions herein relating thereto;

(ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(iii) a statement that, in the opinion of each such signatory, such signatory has made such examination or investigation as is necessary to enable such signatory to express an informed opinion as to whether or not such covenant or condition has been complied with; and

(iv) a statement as to whether, in the opinion of each such signatory, such condition or covenant has been complied with.

(b) (i) Prior to the deposit of any Transition Bond Collateral or other property or securities with the Indenture Trustee that is to be made the basis for the release of any property or securities subject to the Lien of this Indenture, the Issuer shall, in addition to any obligation imposed in Section 10.01(a) or elsewhere in this Indenture, furnish to the Indenture Trustee an Officer’s Certificate certifying or stating the opinion of each person signing such certificate as to the fair value (within ninety (90) days of such deposit) to the Issuer of the Transition Bond Collateral or other property or securities to be so deposited.

 

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(ii) Whenever the Issuer is required to furnish to the Indenture Trustee an Officer’s Certificate certifying or stating the opinion of any signer thereof as to the matters described in clause (i) above, the Issuer shall also deliver to the Indenture Trustee an Independent Certificate as to the same matters, if the fair value to the 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 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 Transition Bonds of all Series, but such a certificate need not be furnished with respect to any securities so deposited, if the fair value thereof to the Issuer as set forth in the related Officer’s Certificate is less than the lesser of (A) $25,000 or (B) one percent of the Outstanding Amount of the Transition Bonds of all Series.

(iii) Whenever any property or securities are to be released from the Lien of this Indenture other than pursuant to Section 8.02(e), the Issuer shall also furnish to the Indenture Trustee an Officer’s Certificate certifying or stating the opinion of each person signing such certificate as to the fair value (within ninety (90) days of such release) of the property or securities proposed to be released and stating that in the opinion of such person the proposed release will not impair the security under this Indenture in contravention of the provisions hereof.

(iv) Whenever the Issuer is required to furnish to the Indenture Trustee an Officer’s Certificate certifying or stating the opinion of any signatory thereof as to the matters described in clause (iii) above, the Issuer shall also furnish to the Indenture Trustee an Independent Certificate as to the same matters if the fair value of the property or securities and of all other property with respect to such Series, or securities released from the Lien of this Indenture (other than pursuant to Section 8.02(e)) 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 Transition Bonds of all Series, but such certificate need not be furnished in the case of any release of property or securities if the fair value thereof as set forth in the related Officer’s Certificate is less than the lesser of (A) $25,000 or (B) one percent of the then Outstanding Amount of the Transition Bonds of all Series.

(v) Notwithstanding Section 2.16 or any other provision of this Section 10.01, the Indenture Trustee may (A) collect, liquidate, sell or otherwise dispose of the Transition Property and the other Transition Bond Collateral as and to the extent permitted or required by the Basic Documents and (B) make cash payments out of each Collection Account as and to the extent permitted or required by the Basic Documents.

SECTION 10.02. Form of Documents Delivered to Indenture Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

 

76


Any certificate or opinion of a Responsible Officer of the Issuer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his or her certificate or opinion is based are erroneous. Any such certificate of a Responsible Officer or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Servicer or the Issuer stating that the information with respect to such factual matters is in the possession of the Servicer or the Issuer, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

Whenever in this Indenture, in connection with any application or certificate or report to the Indenture Trustee, it is provided that the Issuer shall deliver any document as a condition of the granting of such application, or as evidence of the 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 Issuer to have such application granted or to the sufficiency of such certificate or report. The foregoing shall not, however, be construed to affect the Indenture Trustee’s right to rely conclusively upon the truth and accuracy of any statement or opinion contained in any such document as provided in Article VI.

Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

SECTION 10.03. Acts of Holders.

(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and except as herein otherwise expressly provided such action shall become effective when such instrument or instruments are delivered to the Indenture Trustee, and, where it is hereby expressly required, to the Issuer. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Indenture Trustee and the Issuer, if made in the manner provided in this Section 10.03.

(b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner that the Indenture Trustee deems sufficient.

(c) The ownership of Transition Bonds shall be proved by the Transition Bond Register.

 

77


(d) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Transition Bonds shall bind the Holder of every Transition Bond issued upon the registration thereof or in exchange therefor or in lieu thereof, in respect of anything done, omitted or suffered to be done by the Indenture Trustee or the Issuer in reliance thereon, whether or not notation of such action is made upon such Transition Bond.

SECTION 10.04. Notices, etc., to Indenture Trustee, Issuer and Rating Agencies.

(a) Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other documents provided or permitted by this Indenture to be made upon, given or furnished to or filed with:

(i) the Indenture Trustee by any Holder or by the Issuer shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing by facsimile transmission, first-class mail or overnight delivery service to or with the Indenture Trustee at the Corporate Trust Office,

(ii) the Issuer by the Indenture Trustee or by any Holder shall be sufficient for every purpose hereunder if in writing and mailed, first-class, postage prepaid, to the Issuer addressed to: AEP Texas Central Transition Funding II LLC at 539 N. Carancahua Street, Suite 1700, Corpus Christi, Texas 78478, Attention: Manager, Telephone: (361) 881-5398, Facsimile: (361) 880-6128, or at any other address previously furnished in writing to the Indenture Trustee by the Issuer. The Issuer shall promptly transmit any notice received by it from the Holders to the Indenture Trustee, or

(iii) the PUCT by the Seller, the Issuer or the Indenture Trustee shall be sufficient for every purpose hereunder if in writing and mailed, first-class, postage prepaid, to the PUCT addressed to: to 1701 N. Congress Avenue, Austin, Texas 78711-3326, Attention of Executive Director and General Counsel, telephone: (512) 936-7040, facsimile: (512) 936-7036.

(b) Notices required to be given to the Rating Agencies by the Issuer or the Indenture Trustee shall be in writing, facsimile, personally delivered or mailed by certified mail, return receipt requested to:

(i) in the case of Moody’s, to: Moody’s Investors Service, Inc., ABS Monitoring Department, 99 Church Street, New York, New York 10007, Telephone: (212) 553-3686, Facsimile (212) 553-0573,

(ii) in the case of Standard & Poor’s, to: Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., 55 Water Street, 41st Floor, New York, New York 10041, Attention: Asset Backed Surveillance Department, Telephone: (212) 438-2000, Facsimile: (212) 438-2665,

(iii) in the case of Fitch, to Fitch Ratings, One State Street Plaza, New York, New York 10004, Attention: ABS Surveillance, Telephone: (212) 908-0500, Facsimile: (212) 908-0355, and

 

78


(iv) as to each of the foregoing, at such other address as shall be designated by written notice to the other parties.

SECTION 10.05. Notices to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class, postage prepaid to each Holder affected by such event, at such Holder’s address as it appears on the Transition Bond Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice nor any defect in any notice so mailed to any particular Holder shall affect the sufficiency of such notice with respect to other Holders, and any notice that is mailed in the manner herein provided shall conclusively be presumed to have been duly given.

Where this Indenture provides for notice in any manner, such notice may be waived in writing by any Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Indenture Trustee but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such a waiver.

In case, by reason of the suspension of regular mail service as a result of a strike, work stoppage or similar activity, it shall be impractical to mail notice of any event of Holders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a sufficient giving of such notice.

Where this Indenture provides for notice to the Rating Agencies, failure to give such notice shall not affect any other rights or obligations created hereunder, and shall not under any circumstance constitute a Default or Event of Default.

SECTION 10.06. Notices to Irish Stock Exchange.

(a) If and for so long as any Transition Bonds are listed on the Irish Stock Exchange and the rules of such exchange so require, the Issuer shall notify the Irish Stock Exchange and any agent appointed pursuant to Section 3.02 if any rating assigned to such Transition Bonds is reduced or withdrawn and shall arrange for such notice to be published pursuant to the rules of such exchange.

(b) If and for so long as any Transition Bonds are listed on the Irish Stock Exchange and the rules of such exchange so require, the Issuer shall, or shall cause the Servicer to, make available to the Holders of such Transition Bonds and shall deposit upon written request on file with the Issuer’s listing agent in Ireland appointed pursuant to Section 3.02 copies of the Basic Documents, all reports provided to Holders pursuant to this Indenture, the prospectus related to such Transition Bonds, the reports of Independent registered public accountants obtained with respect to the Issuer pursuant to this Indenture, the financial information regarding TCC in its annual report on Form 10-K for the fiscal year ended most recently prior to the date of this Indenture and copies of each annual report of TCC on Form 10-K for subsequent fiscal years. The Issuer shall, or shall cause the Servicer to, deposit with the Chief Registrar of the

 

79


District Court of Ireland prior to the listing of any Transition Bonds on the Irish Stock Exchange a copy of the certificate of Formation of the Issuer, the LLC Agreement and any legal notices relating to the issuance of such Transition Bonds.

SECTION 10.07. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision hereof that is required to be included in this Indenture by any of the provisions of the TIA, such required provision shall control.

The provisions of TIA §§ 310 through 317 that impose duties on any person (including the provisions automatically deemed included herein unless expressly excluded by this Indenture) are a part of and govern this Indenture, whether or not physically contained herein.

SECTION 10.08. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

SECTION 10.09. Successors and Assigns. All covenants and agreements in this Indenture and the Transition Bonds by the Issuer shall bind its successors and assigns, whether so expressed or not. All agreements of the Indenture Trustee in this Indenture shall bind its successors.

SECTION 10.10. Severability. Any provision in this Indenture or in the Transition Bonds 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 remainder of such provision (if any) or the remaining provisions hereof (unless such construction shall be unreasonable), and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

SECTION 10.11. Benefits of Indenture. Nothing in this Indenture or in the Transition Bonds, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, and the Holders, and any other party secured hereunder, and any other Person with an ownership interest in any part of the Transition Bond Collateral, any benefit or any legal or equitable right, remedy or claim under this Indenture.

SECTION 10.12. Legal Holidays. In any case where the date on which any payment is due shall not be a Business Day, then (notwithstanding any other provision of the Transition Bonds or this Indenture) payment need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date on which nominally due, and no interest shall accrue for the period from and after any such nominal date.

SECTION 10.13. GOVERNING LAW. THIS INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS; PROVIDED THAT THE CREATION, ATTACHMENT AND PERFECTION OF ANY

 

80


LIENS CREATED HEREUNDER IN TRANSITION PROPERTY, AND ALL RIGHTS AND REMEDIES OF THE INDENTURE TRUSTEE AND THE HOLDERS WITH RESPECT TO SUCH TRANSITION PROPERTY, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.

SECTION 10.14. Counterparts. This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

SECTION 10.15. Recording of Indenture. If this Indenture is subject to recording in any appropriate public recording offices, such recording is to be effected by the Issuer and at its expense accompanied by an Opinion of Counsel at the Issuer’s cost and expense (which may be counsel to the Indenture Trustee or any other counsel reasonably acceptable to the Indenture Trustee or, if requested by the Indenture Trustee, external counsel of the Issuer) to the effect that such recording is necessary either for the protection of the Holders or any other Person secured hereunder or for the enforcement of any right or remedy granted to the Indenture Trustee under this Indenture.

SECTION 10.16. Issuer Obligation. No recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer or the Indenture Trustee on the Transition Bonds or under this Indenture or any certificate or other writing delivered in connection herewith or therewith, against (i) the Indenture Trustee or the Managers in their respective individual capacities, (ii) any owner of a membership interest in the Issuer (including TCC) or (iii) any shareholder, partner, owner, beneficiary, agent, officer, or employee of the Indenture Trustee, the Managers or any owner of a membership interest in the Issuer (including TCC) in its respective individual capacity, or of any successor or assign of any of them in their respective individual or corporate capacities, except as any such Person may have expressly agreed in writing (it being understood that none of the Indenture Trustee, the Managers or TCC has any such obligations in their respective individual or corporate capacities).

SECTION 10.17. No Recourse to Issuer. Notwithstanding any provision of this Indenture or any Series Supplement to the contrary, Holders shall have no recourse against the Issuer, but shall look only to the Transition Bond Collateral with respect to any amounts due to the Holders hereunder and under the Transition Bonds.

SECTION 10.18. Basic Documents. The Indenture Trustee is hereby authorized to execute and deliver the Intercreditor Agreement and the Servicing Agreement and to execute and deliver any other Basic Document which it is requested to acknowledge and, upon receipt of an Issuer Request, to modify the Intercreditor Agreement in order to add as parties thereto any other trustees for holders of transition bonds issued by Affiliates of TCC so long as such modification does not materially and adversely affect any Holder’s rights in and to any Tranche or Series of Transition Bonds, or otherwise hereunder. Such request shall be accompanied by an Opinion of Counsel of external counsel of the Issuer, upon which the Indenture Trustee may rely conclusively with no duty of independent investigation or inquiry, to the effect that the Intercreditor Agreement does not materially and adversely affect any Holder’s rights in and to any Tranche or Series Transition Bonds or otherwise hereunder. The Intercreditor Agreement shall be binding on the Holders.

 

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SECTION 10.19. No Petition. The Indenture Trustee, by entering into this Indenture, each Holder, by accepting a Transition Bond (or interest therein) issued hereunder, hereby covenant and agree that they shall not, prior to the date which is one year and one day after the termination of this Indenture, acquiesce, petition or otherwise invoke or cause the Issuer or any Manager to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against the Issuer under any insolvency law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of its respective property, or ordering the dissolution, winding up or liquidation of the affairs of the Issuer. Nothing in this paragraph shall preclude, or be deemed to estop, such Holder or the Indenture Trustee (A) from taking or omitting to take any action prior to such date in (i) any case or proceeding voluntarily filed or commenced by or on behalf of the Issuer under or pursuant to any such law or (ii) any involuntary case or proceeding pertaining to the Issuer which is filed or commenced by or on behalf of a Person other than such Holder and is not joined in by such Holder (or any person to which such holder shall have assigned, transferred or otherwise conveyed any part of the obligations of the Issuer hereunder) under or pursuant to any such law, or (B) from commencing or prosecuting any legal action which is not an involuntary case or proceeding under or pursuant to any such law against the Issuer or any of its properties.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Indenture to be duly executed by their respective officers thereunto duly authorized and duly attested, all as of the day and year first above written.

 

AEP TEXAS CENTRAL TRANSITION

FUNDING II LLC, as Issuer

By:  

/s/ Stephan T. Haynes

 

Name: Stephan T. Haynes

 

Title: Treasurer

THE BANK OF NEW YORK, as Indenture

Trustee and as Securities Intermediary

By:  

/s/ Catherine Murray

 

Name: Catherine Murray

 

Title: Assistant Vice President

Signature Page to

Indenture


STATE OF NEW YORK

   )
   ) ss:

COUNTY OF MANHATTAN

   )

On the 11th day of October, 2006, before me, David C. House, a Notary Public in and for said county and state, personally appeared Stephan T. Haynes, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person and officer whose name is subscribed to the within instrument and acknowledged to me that such person executed the same in such person’s authorized capacity, and that by the signature on the instrument The Bank of New York, a national banking association, and the entity upon whose behalf the person acted, executed this instrument.

WITNESS my hand and official seal.

 

/s/ David C. House

Notary Public
My commission has no expiration date.


STATE OF OHIO

   )
   ) ss:

COUNTY OF FRANKLIN

   )

On the 5th day of October, 2006, before me, John Rooney, a Notary Public in and for said county and state, personally appeared Catherine Murray, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity as a manager of AEP Texas Central Transition Funding II LLC, and that by his signature on the instrument AEP Texas Central Transition Funding II LLC, a Delaware limited liability company and the entity upon whose behalf such person acted, executed this instrument.

WITNESS my hand and official seal.

 

/s/ John Rooney

Notary Public
My commission expires: March 20, 2010


EXHIBIT A

FORM OF TRANSITION BOND

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE REGISTERED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO THE NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY 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 AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

 

REGISTERED No.             

  $            

SEE REVERSE FOR CERTAIN DEFINITIONS

CUSIP NO.

THE PRINCIPAL OF THIS SERIES [        ], TRANCHE [ - ] (“THIS TRANCHE [ - ] TRANSITION BOND”) WILL BE PAID IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS TRANCHE [ - ] TRANSITION BOND AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE HOLDER OF THIS TRANSITION BOND HAS NO RECOURSE TO THE ISSUER HEREOF AND AGREES TO LOOK ONLY TO THE TRANSITION BOND COLLATERAL, AS DESCRIBED IN THE INDENTURE AND THE SERIES SUPPLEMENT REFERRED TO ON THE REVERSE HEREOF, FOR PAYMENT OF ANY AMOUNTS DUE HEREUNDER. ALL OBLIGATIONS OF THE ISSUER OF THIS TRANCHE [ - ] TRANSITION BOND UNDER THE TERMS OF THE INDENTURE WILL BE RELEASED AND DISCHARGED UPON PAYMENT IN FULL HEREOF OR AS OTHERWISE PROVIDED IN SECTION 3.10(b) OR ARTICLE IV OF THE INDENTURE. THE HOLDER OF THIS TRANCHE [ - ] TRANSITION BOND HEREBY COVENANTS AND AGREES THAT PRIOR TO THE DATE WHICH IS ONE (1) YEAR AND ONE (1) DAY AFTER THE PAYMENT IN FULL OF THE SERIES [        ] TRANCHE [ - ] TRANSITION BONDS, IT WILL NOT INSTITUTE AGAINST, OR JOIN ANY OTHER

 

EXHIBIT A

1


PERSON IN INSTITUTING AGAINST, THE ISSUER ANY BANKRUPTCY, REORGANIZATION, ARRANGEMENT, INSOLVENCY OR LIQUIDATION PROCEEDINGS OR OTHER SIMILAR PROCEEDING UNDER THE LAWS OF THE UNITED STATES OR ANY STATE OF THE UNITED STATES. NOTHING IN THIS PARAGRAPH SHALL PRECLUDE, OR BE DEEMED TO ESTOP, SUCH HOLDER (A) FROM TAKING OR OMITTING TO TAKE ANY ACTION PRIOR TO SUCH DATE IN (I) ANY CASE OR PROCEEDING VOLUNTARILY FILED OR COMMENCED BY OR ON BEHALF OF THE ISSUER UNDER OR PURSUANT TO ANY SUCH LAW OR (II) ANY INVOLUNTARY CASE OR PROCEEDING PERTAINING TO THE ISSUER WHICH IS FILED OR COMMENCED BY OR ON BEHALF OF A PERSON OTHER THAN SUCH HOLDER AND IS NOT JOINED IN BY SUCH HOLDER (OR ANY PERSON TO WHICH SUCH HOLDER SHALL HAVE ASSIGNED, TRANSFERRED OR OTHERWISE CONVEYED ANY PART OF THE OBLIGATIONS OF THE ISSUER HEREUNDER) UNDER OR PURSUANT TO ANY SUCH LAW, OR (B) FROM COMMENCING OR PROSECUTING ANY LEGAL ACTION WHICH IS NOT AN INVOLUNTARY CASE OR PROCEEDING UNDER OR PURSUANT TO ANY SUCH LAW AGAINST THE ISSUER OR ANY OF ITS PROPERTIES.

AEP TEXAS CENTRAL TRANSITION FUNDING II LLC TRANSITION BONDS,

SERIES [        ], Tranche [   -   ].

 

INTEREST

RATE

 

ORIGINAL PRINCIPAL

AMOUNT

 

FINAL MATURITY

DATE

AEP Texas Central Transition Funding II LLC, a limited liability company created under the laws of the State of Delaware (herein referred to as the “Issuer”), for value received, hereby promises to pay to [            ], or registered assigns, the Original Principal Amount shown above [in semi-annual installments] on the Payment Dates and in the amounts specified on the reverse hereof or, if less, the amounts determined pursuant to Section 8.02 of the Indenture, in each year, commencing on the date determined as provided on the reverse hereof and ending on or before the Final Maturity Date shown above and to pay interest, at the Interest Rate shown above, on each                      and                      or if any such day is not a Business Day, the next succeeding Business Day, commencing on [            ] and continuing until the earlier of the payment in full of the principal hereof and the Final Maturity Date (each a “Payment Date”), on the principal amount of this Series [        ], Tranche [ - ] Transition Bond (hereinafter referred to as this “Tranche [ - ] Transition Bond”). Interest on this Tranche [ - ] Transition Bond 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 the date of issuance. Interest will be computed on the basis of [specify method of computation]. Such principal of and interest on this Tranche [ - ] Transition Bond shall be paid in the manner specified on the reverse hereof.

 

EXHIBIT A

2


The principal of and interest on this Tranche [ - ] Transition Bond 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 Issuer with respect to this Tranche [ - ] Transition Bond shall be applied first to interest due and payable on this Tranche [ - ] Transition Bond as provided above and then to the unpaid principal of and premium, if any, on this Tranche [ - ] Transition Bond, all in the manner set forth in the Indenture.

Reference is made to the further provisions of this Tranche [ - ] Transition Bond set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Tranche [ - ] Transition Bond.

Unless the certificate of authentication hereon has been executed by the Indenture Trustee whose name appears below by manual signature, this Tranche [ - ] Transition Bond shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose.

IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in facsimile, by its Responsible Officer.

 

Date:

    AEP TEXAS CENTRAL TRANSITION FUNDING II LLC
   

By:

    
       

Name:

       

Title:

 

EXHIBIT A

3


INDENTURE TRUSTEE’S CERTIFICATE OF AUTHENTICATION

Dated:                              ,             

This is one of the Series [        ], Tranche [ - ] Transition Bonds, designated above and referred to in the within-mentioned Indenture.

 

THE BANK OF NEW YORK, as Indenture Trustee

By:     
 

Name:

 

Title:

 

EXHIBIT A

4


REVERSE OF TRANSITION BOND* 1

This Series [        ], Tranche [ - ] Transition Bond is one of a duly authorized issue of Transition Bonds of the Issuer (herein called the “Transition Bonds”), issued and to be issued in one or more Series, which Series are issuable in one or more Tranches, and the Series [        ] Transition Bonds consists of [        ] Tranches, including this Tranche [ - ] Transition Bond (herein called the “Tranche [ - ] Transition Bonds”), all issued and to be issued under that certain Indenture dated as of October 11, 2006, (as supplemented by the Series Supplement (as defined below), the “Indenture”), between the Issuer and The Bank of New York in its capacity, as indenture trustee (the “Indenture Trustee”, which term includes any successor indenture trustee under the Indenture), and in its separate capacity as a securities intermediary (the “Securities Intermediary”, which term includes any successor securities intermediary under the Indenture) to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights and obligations thereunder of the Issuer, the Indenture Trustee and the Holders of the Transition Bonds. For purposes herein, “Series Supplement” means that certain Series Supplement dated as of October 11, 2006, between the Issuer and the Indenture Trustee. All terms used in this Tranche [ - ] Transition Bond that are defined in the Indenture, as amended, restated, supplemented or otherwise modified from time to time, shall have the meanings assigned to such terms in the Indenture.

The Tranche [ - ] Transition Bonds, the other Tranches of Series [        ] Transition Bonds (all of such Tranches being referred to herein as “Series [        ] Transition Bonds”) and any other Series of Transition Bonds issued by the Issuer are and will be equally and ratably secured by the Series Transition Bond Collateral pledged as security therefor as provided in the Indenture.

The principal of this Tranche [ - ] Transition Bond shall be payable on each Payment Date only to the extent that amounts in the applicable Collection Account are available therefor, and only until the outstanding principal balance thereof on the preceding Payment Date (after giving effect to all payments of principal, if any, made on the preceding Payment Date) has been reduced to the principal balance specified in the Expected Amortization Schedule which is attached to the related Series Supplement as Schedule A, unless payable earlier because an Event of Default shall have occurred and be continuing and the Indenture Trustee or the Bondholders representing not less than a majority of the Outstanding Amount of the Transition Bonds of this Series have declared such Transition Bonds to be immediately due and payable in accordance with Section 5.02 of the Indenture (unless such declaration shall have been rescinded and annulled in accordance with Section 5.02 of the Indenture). However, actual principal payments may be made in lesser than expected amounts and at later than expected times as determined pursuant to Section 8.02 of the Indenture. The entire unpaid principal amount of this Tranche [ - ] Transition Bond shall be due and payable on the Final Maturity Date hereof. Notwithstanding the foregoing, the entire unpaid principal amount of the Transition Bonds shall be due and payable, if not then previously paid, on the date on which an Event of Default shall have


* The form of the reverse of a Transition Bond is substantially as follows, unless otherwise specified in the related Series Supplement.

 

EXHIBIT A

5


occurred and be continuing and the Indenture Trustee or the Holders of the Transition Bonds representing not less than a majority of the Outstanding Amount of the Transition Bonds of this Series have declared the Transition Bonds of this Series to be immediately due and payable in the manner provided in Section 5.02 of the Indenture (unless such declaration shall have been rescinded and annulled in accordance with Section 5.02 of the Indenture). All principal payments on the Tranche [ - ] Transition Bonds shall be made pro rata to the Tranche [ - ] Holders entitled thereto based on the respective principal amounts of the Tranche [ - ] Transition Bonds held by them.

Payments of interest on this Tranche [ - ] Transition Bond due and payable on each Payment Date, together with the installment of principal or premium, if any, shall be made by check mailed first-class, postage prepaid, to the Person whose name appears as the Registered Holder of this Tranche [ - ] Transition Bond (or one or more Predecessor Transition Bonds) on the Transition Bond Register as of the close of business on the Record Date or in such other manner as may be provided in the Indenture or the related Series Supplement, except that (i) upon application to the Indenture Trustee by any Holder owning a Global Transition Bond evidencing this Tranche [ - ] Transition Bond in the principal amount of $10,000,000 or more not later than the applicable Record Date payment will be made by wire transfer to an account maintained by such Holder and (ii) if this Tranche [ - ] Transition Bond is held in Book-Entry Form, payments will be made by wire transfer in immediately available funds to the account designated by the Holder of the applicable Global Transition Bond evidencing this Tranche [ - ] Transition Bond unless and until such Global Transition Bond is exchanged for Definitive Transition Bonds (in which event payments shall be made as provided above) and except for the final installment of principal and premium, if any, payable with respect to this Tranche [ - ] Transition Bond 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 Transition Bond Register as of the applicable Record Date without requiring that this Tranche [ - ] Transition Bond be submitted for notation of payment. Any reduction in the principal amount of this Tranche [ - ] Transition Bond (or any one or more Predecessor Transition Bonds) effected by any payments made on any Payment Date shall be binding upon all future Holders of this Tranche [ - ] Transition Bond and of any Transition Bond issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not noted hereon. If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount of this Tranche [ - ] Transition Bond on a Payment Date, then the Indenture Trustee, in the name of and on behalf of the 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 (5) days prior to such final Payment Date and shall specify that such final installment will be payable only upon presentation and surrender of this Tranche [ - ] Transition Bond and shall specify the place where this Tranche [ - ] Transition Bond may be presented and surrendered for payment of such installment.

The Issuer shall pay interest on overdue installments of interest at the Transition Bond Interest Rate to the extent lawful.

 

EXHIBIT A

6


This Transition Bond is a “transition bond” as such term is defined in the Securitization Law. Principal and interest due and payable on this Transition Bond are payable from and secured primarily by Transition Property created and established by a Financing Order obtained from the Public Utility Commission of Texas pursuant to the Securitization Law. Transition Property consists of the rights and interests of the Seller in the relevant Financing Order, including the right to impose, collect and recover certain charges (defined in the Securitization Law as “Transition Charges”) to be included in regular electric utility bills of existing and future electric service customers within the service territory of AEP Texas Central Company, a Texas electric utility, or its successors or assigns, as more fully described in the Financing Order.

The Securitization Law provides that: “Transition bonds are not a debt or obligation of the state and are not a charge on its full faith and credit or taxing power. The state pledges, however, for the benefit and protection of financing parties and the electric utility, that it will not take or permit any action that would impair the value of transition property, or, except as permitted by Section 39.307, reduce, alter, or impair the transition charges to be imposed, collected, and remitted to financing parties, until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with the related transition bonds have been paid and performed in full. Any party issuing transition bonds is authorized to include this pledge in any documentation relating to those bonds.”

As a result of the foregoing pledge, the State of Texas may not, except as provided in the succeeding sentence, in any way reduce, alter or impair the Transition Charges until the Transition Bonds, together with interest thereon, are fully paid and discharged. Notwithstanding the immediately preceding sentence, the State of Texas would be allowed to effect a temporary impairment of the Holders’ rights if it could be shown that such impairment was necessary to advance a significant and legitimate public purpose.

The Issuer and TCC hereby acknowledge that the purchase of this Transition Bond by the Holder hereof or the purchase of any beneficial interest herein by any Person are made in reliance on the foregoing pledge.

As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Tranche [ - ] Transition Bond may be registered on the Transition Bond Register upon surrender of this Tranche [ - ] Transition Bond for registration of transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed by, or accompanied by (a) a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by the Holder hereof or 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 Indenture Trustee, and (b) such other documents as the Indenture Trustee may require, and thereupon one or more new Tranche [ - ] Transition Bonds 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 Tranche [

 

EXHIBIT A

7


- ] Transition Bond, 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 Sections 2.04 or 2.06 of the Indenture not involving any transfer.

Each Transition Bond holder, by acceptance of a Transition Bond, covenants and agrees that no recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer or the Indenture Trustee on the Transition Bonds or under the Indenture or any certificate or other writing delivered in connection therewith, against (i) the Indenture Trustee or the Managers in their respective individual capacities, (ii) any owner of a membership interest in the Issuer (including TCC) or (iii) any shareholder, partner, owner, beneficiary, agent, officer or employee of the Indenture Trustee, the Managers or any owner of a membership interest in the Issuer (including TCC) in its respective individual or corporate capacities, or of any successor or assign of any of them in their individual or corporate capacities, except as any such Person may have expressly agreed in writing (it being understood that none of the Indenture Trustee, the Managers or TCC has any such obligations in their respective individual or corporate capacities).

Prior to the due presentment for registration of transfer of this Tranche [ - ] Transition Bond, the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture Trustee may treat the Person in whose name this Tranche [ - ] Transition Bond is registered (as of the day of determination) as the owner hereof for the purpose of receiving payments of principal of and premium, if any, and interest on this Tranche [ - ] Transition Bond and for all other purposes whatsoever, whether or not this Tranche [ - ] Transition Bond be overdue, and neither the Issuer, the Indenture Trustee nor any such agent shall be affected by notice to the contrary.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Transition Bonds under the Indenture at any time by the Issuer with the consent of the Bondholders representing not less than a majority of the Outstanding Amount of all Transition Bonds at the time outstanding of each Series or Tranche to be affected. The Indenture also contains provisions permitting the Bondholders representing specified percentages of the Outstanding Amount of the Transition Bonds of all Series, on behalf of the Holders of all the Transition Bonds, to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Tranche [ - ] Transition Bond (or any one of more Predecessor Transition Bonds) shall be conclusive and binding upon such Holder and upon all future Holders of this Tranche [ - ] Transition Bond and of any Transition Bond 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 Tranche [ - ] Transition Bond. The Indenture also permits the Indenture Trustee to amend or waive certain terms and conditions set forth in the Indenture without the consent of Holders of the Transition Bonds issued thereunder.

The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Issuer on this Tranche [ - ] Transition Bond and (b) certain restrictive

 

EXHIBIT A

8


covenants and the related Events of Default, upon compliance by the Issuer with certain conditions set forth herein, which provisions apply to this Tranche [ - ] Transition Bond.

The term “Issuer” as used in this Tranche [ - ] Transition Bond includes any successor to the Issuer under the Indenture.

The Issuer is permitted by the Indenture, under certain circumstances, to merge or consolidate, subject to the rights of the Indenture Trustee and the Bondholders under the Indenture.

The Tranche [ - ] Transition Bonds are issuable only in registered form in denominations as provided in the Indenture and the related Series Supplement subject to certain limitations therein set forth.

THIS TRANCHE [ - ] TRANSITION BOND, THE INDENTURE AND THE RELATED SERIES SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS; PROVIDED THAT THE CREATION, ATTACHMENT AND PERFECTION OF ANY LIENS CREATED UNDER THE INDENTURE IN TRANSITION PROPERTY, AND ALL RIGHTS AND REMEDIES OF THE INDENTURE TRUSTEE AND THE HOLDERS WITH RESPECT TO SUCH TRANSITION PROPERTY, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.

No reference herein to the Indenture and no provision of this Tranche [ - ] Transition Bond or of the Indenture shall alter or impair the obligation, which is absolute and unconditional, to pay the principal of and interest on this Tranche [ - ] Transition Bond at the times, place, and rate, and in the coin or currency herein prescribed.

The Holder of this Tranche [ - ] Transition Bond by the acceptance hereof agrees that, notwithstanding any provision of the Indenture or the related Series Supplement to the contrary, the Holder shall have no recourse against the Issuer, but shall look only to the Transition Bond Collateral, with respect to any amounts due to the Holder under this Tranche [ - ] Transition Bond.

The Issuer and the Indenture Trustee, by entering into the Indenture, and the Holders and any Persons holding a beneficial interest in any Tranche [ - ] Transition Bond, by acquiring any Tranche [ - ] Transition Bond or interest therein, (i) express their intention that, solely for the purpose of federal taxes and, to the extent consistent with applicable state, local and other tax law, solely for the purpose of state, local and other taxes, the Tranche [ - ] Transition Bonds qualify under applicable tax law as indebtedness of the sole owner of the Issuer secured by the Transition Bond Collateral and (ii) solely for purposes of federal taxes and, to the extent consistent with applicable state, local and other tax law, solely for purposes of state, local

 

EXHIBIT A

9


and other taxes, so long as any of the Tranche [] Transition Bonds are outstanding, agree to treat the Tranche [] Transition Bonds as indebtedness of the sole owner of the Issuer secured by the Transition Bond Collateral unless otherwise required by appropriate taxing authorities.

 

EXHIBIT A

10


ABBREVIATIONS

The following abbreviations, when used in the inscription of the face of this Tranche [ - ] Transition Bond, shall be construed as though they were written out in full according to applicable laws or regulations.

 

TEN COM    as tenants in common
TEN ENT    as tenants by the entireties
JT TEN   

as joint tenants with right of survivorship and not as tenants

in common

UNIF GIFT MIN ACT   

___________________ Custodian ______________________

        (Custodian)                                                      (minor)

  

Under Uniform Gifts to Minor Act (____________________)

                                                                         (State)

Additional abbreviations may also be used though not in the above list.

 

EXHIBIT A

11


ASSIGNMENT

Social Security or taxpayer I.D. or other identifying number of assignee                                         

FOR VALUE RECEIVED, the undersigned2 hereby sells, assigns and transfers unto

(name and address of assignee)

the within Tranche [ - ] Transition Bond and all rights thereunder, and hereby irrevocably constitutes and appoints             , attorney, to transfer said Tranche [ - ] Transition Bond on the books kept for registration thereof, with full power of substitution in the premises.

 

Dated:                             

       
   

Signature Guaranteed:

         

2 TRANSITION BOND: The signature to this assignment must correspond with the name of the registered owner as it appears on the face of the within Tranche [ - ] Transition Bond in every particular, without alteration, enlargement or any change whatsoever.

NOTE: Signature(s) must be guaranteed by an institution which is a member of one of the following recognized Signature Guaranty Programs: (i) The Securities Transfer Agent Medallion Program (STAMP), (ii) The New York Stock Exchange Medallion Program (MSP), (iii) the Stock Exchange Medallion Program (SEMP) or (iv) such other guarantee program acceptable to the Indenture Trustee.

 

EXHIBIT A

12


EXHIBIT B

FORM OF SERIES SUPPLEMENT

This SERIES SUPPLEMENT dated as of October 11, 2006 (this “Supplement”), by and between AEP TEXAS CENTRAL TRANSITION FUNDING II LLC, a limited liability company created under the laws of the State of Delaware (the “Issuer”), and The Bank of New York, a New York banking corporation (“BNY”), in its capacity as indenture trustee (the “Indenture Trustee”) for the benefit of the Secured Parties under the Indenture dated as of October 11, 2006, by and between the Issuer and BNY, in its capacity as Indenture Trustee and in its separate capacity as a securities intermediary (the “Indenture”).

PRELIMINARY STATEMENT

Section 9.01 of the Indenture provides, among other things, that the Issuer and the Indenture Trustee may at any time and from time to time enter into one or more indentures supplemental to the Indenture for the purposes of authorizing the issuance by the Issuer of a Series of Transition Bonds and specifying the terms thereof. The Issuer has duly authorized the creation of a Series of Transition Bonds with an initial aggregate principal amount of $1,739,700,000 to be known as AEP Texas Central Transition Funding II LLC Transition Bonds, Series [        ] (the “Series [        ] Transition Bonds”), and the Issuer and the Indenture Trustee are executing and delivering this Supplement in order to provide for the Series [        ] Transition Bonds.

All terms used in this Supplement that are defined in the Indenture, either directly or by reference therein, have the meanings assigned to them therein, except to the extent such terms are defined or modified in this Supplement or the context clearly requires otherwise. In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Indenture, the terms and provisions of this Supplement shall govern.

GRANTING CLAUSE

With respect to the Series [        ] Transition Bonds, the Issuer hereby Grants to the Indenture Trustee, as Indenture Trustee for the benefit of the Secured Parties of the Series [        ] Transition Bonds, all of the Issuer’s right, title and interest (whether now owned or hereafter acquired or arising) in and to (a) the Transition Property created under and pursuant to the Applicable Financing Order, and transferred by the Seller to the Issuer pursuant to the Sale Agreement (including, to the fullest extent permitted by law, the right to impose, collect and receive Transition Charges, all revenues, collections, claims, rights, payments, money or proceeds of or arising from the Transition Charges authorized in the Applicable Financing Order and any Tariffs filed pursuant thereto and any contractual rights to collect such Transition Charges from Customers and REPs), (b) all Transition Charges related to such Transition Property, (c) the Sale Agreement and each Bill of Sale executed in connection therewith and all property and interests in property transferred under the Sale Agreement and such Bills of Sale with respect to such Transition Property and the Series [        ] Transition Bonds, (d) the Servicing Agreement, the Intercreditor Agreement, the Administration Agreement and any subservicing,

 

EXHIBIT B

1


agency, intercreditor, administration or collection agreements executed in connection therewith, to the extent related to the foregoing Transition Property and the Series [        ] Transition Bonds, (e) the Collection Account for such Series, all subaccounts thereof and all amounts of cash, instruments, investment property or other assets on deposit therein or credited thereto from time to time and all financial assets and securities entitlements carried therein or credited thereto, (f) all rights to compel the Servicer to file for and obtain adjustments to the Transition Charges in accordance with Section 39.307 of the Securitization Law, the Applicable Financing Order or any Tariff filed in connection therewith, (g) all deposits, guarantees, surety bonds, letters of credit and other forms of credit support provided by or on behalf of REPs pursuant to such Applicable Financing Order or Tariff, including investment earnings thereon and all amounts on deposit in the REP Deposit Accounts; (h) all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, whether such claims, demands, causes and choses in action constitute Transition Property, accounts, general intangibles, instruments, contract rights, chattel paper or proceeds of such items or any other form of property, (i) all accounts, chattel paper, deposit accounts, documents, general intangibles, goods, instruments, investment property, letters of credit, letters-of-credit rights, money, commercial tort claims and supporting obligations related to the foregoing, (j) all payments on or under, and all proceeds in respect of, any or all of the foregoing; it being understood that the following do not constitute Series Transition Bond Collateral: (i) cash that has been released pursuant to Section 8.02(e)(xi) of the Indenture and, following retirement of all Outstanding Series of Transition Bonds, cash that has been released pursuant to Section 8.02(e)(xii) of the Indenture and (ii) amounts deposited with the Issuer on any Series Issuance Date, including the Closing Date, for payment of costs of issuance with respect to the related Series (together with any interest earnings thereon), it being understood that such amounts described in clauses (i) and (ii) above shall not be subject to Section 3.17 of the Indenture.

The foregoing Grant is made in trust to secure the payment of principal of and premium, if any, interest on, and any other amounts owing in respect of, the Series [        ] Transition Bonds and all fees, expenses, counsel fees and other amounts due and payable to the Indenture Trustee (collectively, the “Secured Obligations”) equally and ratably without prejudice, priority or distinction, except as expressly provided in the Indenture, to secure compliance with the provisions of the Indenture with respect to the Series [        ] Transition Bonds, all as provided in the Indenture and to secure the performance by the Issuer of all of its obligations under the Indenture. The Indenture and this Series Supplement constitutes a security agreement within the meaning of the Securitization Law and under the UCC to the extent that the provisions of the UCC are applicable hereto.

The Indenture Trustee, as indenture trustee on behalf of the Secured Parties of the Series [        ] Transition Bonds, acknowledges such Grant and accepts the trusts under this Supplement and the Indenture in accordance with the provisions of this Supplement and the Indenture.

SECTION 1. Designation. The Series [        ] Transition Bonds shall be designated generally as the Transition Bonds, Series [        ] and further denominated as Tranches [        ] through [        ].

 

EXHIBIT B

2


SECTION 2. Initial Principal Amount; Transition Bond Interest Rate; Scheduled Payment Date; Final Maturity Date. The Transition Bonds of each Tranche of the Series [        ] shall have the initial principal amount, bear interest at the rates per annum and shall have the Scheduled Payment Dates and the Final Maturity Dates set forth below:

 

Tranche

  

Initial
Principal
Amount

  

Transition Bond
Interest
Rate

  

Scheduled
Payment
Date

  

Final
Maturity
Date

The Transition Bond Interest Rate shall be computed on the basis of a 360-day year of twelve 30-day months.

SECTION 3. Authentication Date; Payment Dates; Expected Amortization Schedule for Principal; Periodic Interest; No Premium; Other Terms.

(a) Authentication Date. The Series [        ] Transition Bonds that are authenticated and delivered by the Indenture Trustee to or upon the order of the Issuer on [        ] (the “Series Issuance Date”) shall have as their date of authentication [        ].

(b) Payment Dates. The Payment Dates for the Series [        ]Transition Bonds are                      and                      of each year or, if any such date is not a Business Day, the next succeeding Business Day, commencing on [        ] and continuing until the earlier of repayment of the Series [        ], Tranche [        ] Transition Bonds in full and the Final Maturity Date for the Series [        ], Tranche [        ] Transition Bonds.

(c) Expected Amortization Schedule for Principal. Unless an Event of Default shall have occurred and be continuing on each Payment Date, the Indenture Trustee shall distribute to the Holders of record as of the related Record Date amounts payable pursuant to Section 8.02(e) of the Indenture as principal, in the following order and priority: [(1) to the holders of the Tranche A-1 Transition Bonds, until the Outstanding Amount of such Tranche of Transition Bonds thereof has been reduced to zero; (2) to the holders of the Tranche A-2 Transition Bonds, until the Outstanding Amount of such Tranche of Transition Bonds thereof has been reduced to zero; (3) to the holders of the Tranche A-3 Transition Bonds, until the Outstanding Amount of such Tranche of Transition Bonds thereof has been reduced to zero; (4) to the holders of the Tranche A-4 Transition Bonds, until the Outstanding Amount of such Tranche of Transition Bonds thereof has been reduced to zero; and (5) to the holders of the Tranche A-5 Transition Bonds, until the Outstanding Amount of such Tranche of Transition Bonds thereof has been reduced to zero;] provided, however, that in no event shall a principal payment pursuant to this Section 3(c) on any Tranche on a Payment Date be greater than the amount necessary to reduce the Outstanding Amount of such Tranche of Transition Bonds to the amount specified in the Expected Amortization Schedule which is attached as Schedule A hereto for such Tranche and Payment Date.

(d) Periodic Interest. Periodic Interest will be payable on each Tranche of the Series [        ] Transition Bonds on each Payment Date in an amount equal to [one-half] of the

 

EXHIBIT B

3


product of (i) the applicable Transition Bond Interest Rate and (ii) the Outstanding Amount of the related Tranche of Transition Bonds 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 Tranche of Series [        ] Transition Bonds on such preceding Payment Date; provided, however, that with respect to the Initial Payment Date, or, if no payment has yet been made, interest on the outstanding principal balance will accrue from and including the Series Issuance Date to, but excluding, the following Payment Date.

[(e) Book-Entry Transition Bonds. The Series [        ] Transition Bonds shall [not] be Book-Entry Transition Bonds and the applicable provisions of Section 2.11 of the Indenture shall [not] apply to such Transition Bonds.]

(f) Waterfall Caps. The amount payable with respect to the Series [        ] Transition Bonds pursuant to Section 8.02(e)(i) shall not exceed $1,000,000 annually. The amounts payable in respect of the Indenture Trustee’s fees and expenses pursuant to Section 8.02(e)(i), the Servicing Fee pursuant to Section 8.02(e)(ii), the Administration Fee and the Independent Manager Fee pursuant to Section 8.02(e)(iii), the ordinary periodic Operating Expenses pursuant Section 8.02(e)(iv) and the remaining Operating Expenses pursuant to Section 8.02(e)(ix) shall not exceed [                ] in the aggregate annually (provided that if TCC is no longer the Servicer, such amount shall be increased by the excess of the amount of the Servicing Fee payable to the successor Servicer over the amount of the Servicing Fee payable to TCC) unless the PUCT approve a different aggregate amount of such payments.

SECTION 4. Minimum Denominations. The Series [        ] Transition Bonds shall be issuable in the Minimum Denomination and integral multiples thereof.

SECTION 5. Certain Defined Terms. Article I of the Indenture provides that the meanings of certain defined terms used in the Indenture shall, when applied to the Transition Bonds of a particular Series, be as defined in Appendix A to the Indenture. Additionally, Article II of the Indenture provides that with respect to a particular Series of Transition Bonds, certain terms will have the meanings specified in the related Supplement. With respect to the Series [        ] Transition Bonds, the following definitions shall apply:

Minimum Denomination” shall mean $100,000.

Transition Bond Interest Rate” has the meaning set forth in Section 2 of this Supplement.

Payment Date” has the meaning set forth in Section 3(b) of this Supplement.

Periodic Interest” has the meaning set forth in Section 3(d) of this Supplement.

Series Issuance Date” has the meaning set forth in Section 3(a) of this Supplement.

 

EXHIBIT B

4


SECTION 6. Delivery and Payment for the Series [        ] Transition Bonds; Form of the Series [        ] Transition Bonds. The Indenture Trustee shall deliver the Series [ ] Transition Bonds to the Issuer when authenticated in accordance with Section 2.03 of the Indenture. The Series [        ] Transition Bonds of each Tranche shall be in the form of Exhibits [A-1 through A-_] hereto.

SECTION 7. Ratification of Agreement. As supplemented by this Supplement, the Indenture is in all respects ratified and confirmed and the Indenture, as so supplemented by this Supplement, shall be read, taken, and construed as one and the same instrument. This Supplement amends, modifies and supplemented the Indenture only in so far as it relates to the Series [        ] Transition Bonds.

SECTION 8. Counterparts. This Supplement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument.

SECTION 9. GOVERNING LAW. THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS; PROVIDED THAT THE CREATION, ATTACHMENT AND PERFECTION OF ANY LIENS CREATED UNDER THE INDENTURE IN TRANSITION PROPERTY, AND ALL RIGHTS AND REMEDIES OF THE INDENTURE TRUSTEE AND THE HOLDERS WITH RESPECT TO SUCH TRANSITION PROPERTY, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.

SECTION 10. Issuer Obligation. No recourse may be taken directly or indirectly, by the Holders with respect to the obligations of the Issuer on the Transition Bonds, under the Indenture or under this Supplement or any certificate or other writing delivered in connection herewith or therewith, against (i) the Indenture Trustee or the Managers in their respective individual capacities, (ii) any owner of a beneficial interest in the Issuer (including TCC) or (iii) any shareholder, partner, owner, beneficiary, agent, officer, director, employee or agent of the Indenture Trustee, the Managers or any owner of a beneficial interest in the Issuer (including TCC) in its individual capacity, or of any successor or assign of any of them in their respective individual or corporate capacities, except as any such Person may have expressly agreed (it being understood that none of the Indenture Trustee, the Managers and TCC have any such obligations in their respective individual or corporate capacities).

 

EXHIBIT B

5


IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Supplement to be duly executed by their respective officers thereunto duly authorized as of the first day of the month and year first above written.

 

AEP TEXAS CENTRAL TRANSITION

FUNDING II LLC, as Issuer

By:     
 

Name:

 

Title:

THE BANK OF NEW YORK, as Indenture Trustee

By:     
 

Name:

 

Title:

 

EXHIBIT B

6


SCHEDULE A

EXPECTED AMORTIZATION SCHEDULE

OUTSTANDING PRINCIPAL BALANCE

 

DATE

   TRANCHE    TRANCHE    TRANCHE    TRANCHE    TRANCHE

Series Issuance

   $                         $                         $                         $                         $                     

Date

              

_______ ____, 200_

              

_______ ____, 200_

              

_______ ____, 200_

              

_______ ____, 200_

              

 

EXHIBIT B

7


EXHIBIT C

FORM OF INVESTOR LETTER OF REPRESENTATION

[Date]

The Bank of New York,

    as Indenture Trustee

101 Barclay Street, Floor 8W

New York, New York 10286

Attention: [                    ]

AEP Texas Central Transition Funding II LLC,

    as Issuer

539 N. Carancahua Street, Suite 1700

Corpus Christi, Texas, 78478

 

  Re: AEP Texas Central Transition Funding II LLC Transition Bonds - Series [            ], Tranche [_-_]

Ladies and Gentlemen:

[                            ] (the “Purchaser”) intends to purchase from [                            ] the [designate Transition Bond] (the “Transition Bond”), issued pursuant to that certain Indenture (the “Indenture”), dated as of October 11, 2006, among AEP Texas Central Transition Funding II LLC, as Issuer (the “Issuer”), and The Bank of New York, a New York banking corporation, as indenture trustee (the “Indenture Trustee”) and that certain Series Supplement, dated as of [                    ], 2006 (the “Series Supplement”) among the Issuer and the Indenture Trustee. Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Indenture and, if not defined therein, as defined in the Series Supplement.

In connection with the proposed transfer, the Purchaser represents and warrants to the Issuer and the Indenture Trustee that on [insert date of transfer], the Purchaser is either:

(a) a “qualified institutional buyer” as such term is defined in Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), or

(b) an “institutional accredited investor” as described in Rule 501(a)(l), (2), (3) or (7) under the Securities Act.

 

EXHIBIT C

1


Very truly yours,

 

[PURCHASER]

By:     
 

Name:

 

Title:

 

EXHIBIT C

2


EXHIBIT D

FORM OF ERISA REPRESENTATION LETTER

[Date]

The Bank of New York,

    as Indenture Trustee

101 Barclay Street, Floor 8W

New York, New York 10286

Attention: [                    ]

AEP Texas Central Transition Funding II LLC,

    as Issuer

539 N. Carancahua Street, Suite 1700

    Corpus Christi, Texas, 78478

 

  Re: AEP Texas Central Transition Funding II LLC Transition Bonds - Series [            ], Tranche [_-_]

Ladies and Gentlemen:

[                            ] (the “Purchaser”) intends to purchase from [                            ] the [designate Transition Bond] (the “Transition Bond”), issued pursuant to that certain Indenture (the “Indenture”), dated as of October 11, 2006, 2006, among AEP Texas Central Transition Funding II LLC, as Issuer (the “Issuer”), and The Bank of New York, a New York banking corporation, as indenture trustee (the “Indenture Trustee”) and that certain Series Supplement, dated as of [                    ], 2006 (the “Series Supplement”) among the Issuer and the Indenture Trustee. Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Indenture and, if not defined therein, as defined in the Series Supplement.

In connection with the proposed transfer, the Purchaser represents and warrants to the Issuer and the Indenture Trustee that the Purchaser is not, and on [insert date of transfer] will not be, and on such date will not be investing the funds of, (a) an “employee benefit plan” as defined in and subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), (b) a “plan” as defined in and subject to Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”), (c) an entity whose underlying assets include the assets of such employee benefit plan or plan or (d) a governmental or church plan which is subject to any federal, state or local law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code.

 

EXHIBIT D

1


Very truly yours,

 

[PURCHASER]

By:     
 

Name:

 

Title:

 

EXHIBIT D

2


EXHIBIT E

SERVICING CRITERIA TO BE ADDRESSED

BY INDENTURE TRUSTEE IN ASSESSMENT OF COMPLIANCE

 

Reg AB
Reference
  

Servicing Criteria

  

Applicable Indenture
Trustee

Responsibility

   General Servicing Considerations   
1122(d)(1)(i)    Policies and procedures are instituted to monitor any performance or other triggers and events of default in accordance with the transaction agreements.   
1122(d)(1)(ii)    If any material servicing activities are outsourced to third parties, policies and procedures are instituted to monitor the third party’s performance and compliance with such servicing activities.   
1122(d)(1)(iii)    Any requirements in the transaction agreements to maintain a back-up servicer for the pool assets are maintained.   
1122(d)(1)(iv)    A fidelity bond and errors and omissions policy is in effect on the party participating in the servicing function throughout the reporting period in the amount of coverage required by and otherwise in accordance with the terms of the transaction agreements.   
   Cash Collection and Administration   
1122(d)(2)(i)    Payments on pool assets are deposited into the appropriate custodial bank accounts and related bank clearing accounts no more than two (2) business days following receipt, or such other number of days specified in the transaction agreements.    X
1122(d)(2)(ii)    Disbursements made via wire transfer on behalf of an obligor or to an investor are made only by authorized personnel.    X
1122(d)(2)(iii)    Advances of funds or guarantees regarding collections, cash flows or distributions, and any interest or other fees charged for such advances, are made, reviewed and approved as specified in the transaction agreements.   
1122(d)(2)(iv)    The related accounts for the transaction, such as cash reserve accounts or accounts established as a form of overcollateralization, are separately maintained (e.g., with respect to commingling of cash) as set forth in the transaction agreements.    X
1122(d)(2)(v)    Each custodial account is maintained at a federally insured depository institution as set forth in the transaction agreements. For purposes of this criterion, “federally insured depository institution” with respect to a foreign financial institution means a foreign financial institution that meets the requirements of Rule 13k-1(b)(1) of the Securities Exchange Act.   
1122(d)(2)(vi)    Unissued checks are safeguarded so as to prevent unauthorized access.   
1122(d)(2)(vii)    Reconciliations are prepared on a monthly basis for all asset-backed securities related bank accounts, including custodial accounts and related bank clearing accounts. These reconciliations are (A) mathematically accurate; (B) prepared within thirty (30) calendar days after the bank statement cutoff date, or such other number of days specified in the transaction agreements; (C) reviewed and approved by someone other than the person who prepared the reconciliation; and (D) contain explanations for reconciling items. These reconciling items are resolved within ninety (90) calendar days of their original identification, or such other number of days specified in the transaction agreements.   
   Investor Remittances and Reporting   
1122(d)(3)(i)    Reports to investors, including those to be filed with the SEC, are maintained in accordance with the transaction agreements and applicable SEC requirements. Specifically, such reports (A) are prepared in accordance with timeframes and other terms set forth in the transaction agreements; (B) provide information calculated in accordance with the terms specified in the transaction agreements; (C) are filed with the SEC as required by its rules and regulations; and (D) agree with investors’ or the trustee’s records as to the total unpaid principal balance and number of pool assets serviced by the servicer.   
1122(d)(3)(ii)    Amounts due to investors are allocated and remitted in accordance with timeframes, distribution priority and other terms set forth in the transaction agreements.    X
1122(d)(3)(iii)    Disbursements made to an investor are posted within two (2) business days to the servicer’s investor records, or such other number of days specified in the transaction agreements.    X

 

EXHIBIT E

1


Reg AB Reference   

Servicing Criteria

  

Applicable Indenture
Trustee

Responsibility

1122(d)(3)(iv)    Amounts remitted to investors per the investor reports agree with cancelled checks, or other form of payment, or custodial bank statements.    X
   Pool Asset Administration   
1122(d)(4)(i)    Collateral or security on pool assets is maintained as required by the transaction agreements or related pool asset documents.    X*
1122(d)(4)(ii)    Pool assets and related documents are safeguarded as required by the transaction agreements.   
1122(d)(4)(iii)    Any additions, removals or substitutions to the asset pool are made, reviewed and approved in accordance with any conditions or requirements in the transaction agreements.   
1122(d)(4)(iv)    Payments on pool assets, including any payoffs, made in accordance with the related pool asset documents are posted to the servicer’s obligor records maintained no more than two (2) business days after receipt, or such other number of days specified in the transaction agreements, and allocated to principal, interest or other items (e.g., escrow) in accordance with the related pool asset documents.   
1122(d)(4)(v)    The servicer’s records regarding the pool assets agree with the servicer’s records with respect to an obligor’s unpaid principal balance.   
1122(d)(4)(vi)    Changes with respect to the terms or status of an obligor’s pool assets (e.g., loan modifications or re-agings) are made, reviewed and approved by authorized personnel in accordance with the transaction agreements and related pool asset documents.   
1122(d)(4)(vii)    Loss mitigation or recovery actions (e.g., forbearance plans, modifications and deeds in lieu of foreclosure, foreclosures and repossessions, as applicable) are initiated, conducted and concluded in accordance with the timeframes or other requirements established by the transaction agreements.   
1122(d)(4)(viii)    Records documenting collection efforts are maintained during the period a pool asset is delinquent in accordance with the transaction agreements. Such records are maintained on at least a monthly basis, or such other period specified in the transaction agreements, and describe the entity’s activities in monitoring delinquent pool assets including, for example, phone calls, letters and payment rescheduling plans in cases where delinquency is deemed temporary (e.g., illness or unemployment).   
1122(d)(4)(ix)    Adjustments to interest rates or rates of return for pool assets with variable rates are computed based on the related pool asset documents.   
1122(d)(4)(x)    Regarding any funds held in trust for an obligor (such as escrow accounts): (A) such funds are analyzed, in accordance with the obligor’s pool asset documents, on at least an annual basis, or such other period specified in the transaction agreements; (B) interest on such funds is paid, or credited, to obligors in accordance with applicable pool asset documents and state laws; and (C) such funds are returned to the obligor within thirty (30) calendar days of full repayment of the related pool assets, or such other number of days specified in the transaction agreements.   
1122(d)(4)(xi)    Payments made on behalf of an obligor (such as tax or insurance payments) are made on or before the related penalty or expiration dates, as indicated on the appropriate bills or notices for such payments, provided that such support has been received by the servicer at least thirty (30) calendar days prior to these dates, or such other number of days specified in the transaction agreements.   
1122(d)(4)(xii)    Any late payment penalties in connection with any payment to be made on behalf of an obligor are paid from the servicer’s funds and not charged to the obligor, unless the late payment was due to the obligor’s error or omission.   
1122(d)(4)(xiii)    Disbursements made on behalf of an obligor are posted within two (2) business days to the obligor’s records maintained by the servicer, or such other number of days specified in the transaction agreements.   
1122(d)(4)(xiv)    Delinquencies, charge-offs and uncollectible accounts are recognized and recorded in accordance with the transaction agreements.   
1122(d)(4)(xv)    Any external enhancement or other support, identified in Item 1114(a)(1) through (3) or Item 1115 of Regulation AB, is maintained as set forth in the transaction agreements.   

 

* With respect to its custodial functions relating to the Collection Account and the REP Deposit Account.

 

EXHIBIT E

2


APPENDIX A

DEFINITIONS

This is Appendix A to the Indenture.

A. Defined Terms. As used in the Indenture, the Sale Agreement, the LLC Agreement, the Servicing Agreement, any Series Supplement or any other Basic Document as hereinafter defined, as the case may be (unless the context requires a different meaning), the following terms have the following meanings:

Act” is defined in Section 10.03(a) of the Indenture.

Actual TC Collections” means, with respect to Billed TCs in any Reconciliation Period, the amount of such Billed TCs less the amounts held back under the Tariffs by an applicable REP to reflect potential write-offs calculated for such Reconciliation Period.

Addition Notice” means, with respect to the transfer of Subsequent Transition Property to the Issuer pursuant to Section 2.02 of the Sale Agreement, notice, which shall be given by the Seller to the Issuer and the Rating Agencies not later than ten (10) days prior to the related Subsequent Transfer Date, specifying the Subsequent Transfer Date for such Subsequent Transition Property.

Administration Agreement” means the Administration Agreement, dated as of October 11, 2006, by and between TCC and the Issuer, as the same may be amended, restated, supplemented or otherwise modified from time to time.

Administration Fee” is defined in Section 4 of 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.

Agency Office” means the office of the Issuer maintained pursuant to Section 3.02 of the Indenture.

Amendatory Tariff” means a revision to service riders or any other notice filing filed with the PUCT in respect of a Tariff pursuant to a True-Up Adjustment.

Annual Accountant’s Report” is defined in Section 3.04 of the Servicing Agreement.

Annual True-Up Adjustment” means each adjustment to the Transition Charges made pursuant to the terms of the related Tariff in accordance with Section 4.01(b)(i) of the Servicing Agreement.


Annual True-Up Adjustment Date” means the first billing cycle of September of each year, commencing in September 2007 (or, in the case of any subsequent Series, the corresponding billing cycle for such Series based on its Series Issuance Date).

Applicable Financing Order” means, with respect to any Series, the Financing Order authorizing the creation of the Transition Property pledged as collateral for such Series.

Applicable REP” means, with respect to each Customer taking service from a REP, the REP, if any, responsible for billing and collecting all charges to such Customer, including the Transition Charges.

Application” means the Application of TCC for a Financing Order to securitize regulatory assets and other qualified costs filed by TCC with the PUCT dated March 3, 2006 pursuant to the Securitization Law, or any subsequent similar Application of TCC.

Bankruptcy Code” means Title 11 of the United States Code (11 U.S.C. § 101 et seq.), as amended from time to time.

Basic Documents” means the Indenture, the Administration Agreement, the Sale Agreement, the Certificate of Formation, the LLC Agreement, the Servicing Agreement, the Intercreditor Agreement, each Series Supplement, each Letter of Representations, each Underwriting Agreement and all other documents and certificates delivered in connection therewith.

Benefit Plan” means, with respect to any Person, any defined benefit plan (as defined in Section 3(35) of ERISA) that (a) is or was at any time during the past six years maintained by such Person or any ERISA Affiliate of such person, or to which contributions by any such Person are or were at any time during the past six (6) years required to be made or under which such Person has or could have any liability or (b) is subject to the provisions of Title IV of ERISA.

Bill of Sale” means a bill of sale substantially in the form of Exhibit A to the Sale Agreement.

Billed TCs” is defined in Annex I to the Servicing Agreement.

Billing Period” means the period created by dividing the calendar year into twelve (12) consecutive periods of approximately twenty-one (21) Servicer Business Days.

Bills” means each of the regular monthly bills, summary bills, opening bills and closing bills issued to Customers by TCC or REPs or to REPs by TCC on its own behalf and in its capacity as Servicer.

Book-Entry Form” means, with respect to any Transition Bond or Series of Transition Bonds, that such Transition Bond or Series is not certificated and the ownership and transfers thereof shall be made through book entries by a Clearing Agency as described in Section 2.11 of the Indenture and the applicable Series Supplement pursuant to which such Transition Bond or Series was issued.

 

2


Book-Entry Transition Bonds” means any Transition Bonds issued in Book-Entry Form; provided, however, that after the occurrence of a condition whereupon book-entry registration and transfer are no longer permitted and Definitive Transition Bonds are to be issued to the Holder of such Transition Bonds, such Transition Bonds shall no longer be “Book-Entry Transition Bonds”.

Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions in Dallas, Texas, New York, New York, or Columbus, Ohio are, or DTC is, authorized or obligated by law, regulation or executive order to remain closed.

Calculation Period” for any Series means initially, the period commencing on its Series Issuance Date and ending on the last day of the billing cycle of August 2007 (or, in the case of any subsequent Series, ending on the last day of the corresponding billing cycle for such Series based on its Series Issuance Date) and, thereafter, each period of twelve (12) Collection Periods ending immediately preceding the next Annual True-Up Adjustment Date; provided, that, if an Interim True-Up Adjustment is required, then the Calculation Period for such Interim True-Up Adjustment shall mean the period of six (6) Collection Periods commencing with the period during which such Interim True-Up Adjustment is implemented and ending on the date immediately preceding the next Annual True-Up Adjustment Date.

Capital Contribution” means the amount of cash contributed to the Issuer by TCC as specified in the LLC Agreement.

Capital Subaccount” is defined in Section 8.02(a) of the Indenture.

Certificate of Compliance” means the certificate referred to in Section 3.03 of the Servicing Agreement and substantially in the form of Exhibit B attached to the Servicing Agreement.

Certificate of Formation” means the Certificate of Formation filed with the Secretary of State of the State of Delaware on June 14, 2006 pursuant to which the Issuer was formed.

Claim” means a “claim” as defined in Section 101(5) of the Bankruptcy Code.

Clearing Agency” means an organization registered as a “clearing agency” pursuant to Section 17A of the Exchange Act.

Clearing Agency Participant” means a securities broker, dealer, bank, trust company, clearing corporation or other financial institution or other Person for whom from time to time a Clearing Agency effects book entry transfers and pledges of securities deposited with the Clearing Agency.

Closing Bill” is defined in Annex I to the Servicing Agreement.

Closing Date” means October 11, 2006.

Code” means the Internal Revenue Code of 1986, as amended.

 

3


Collection Account” means, with respect to any Series, the account established and maintained by the Indenture Trustee in accordance with Section 8.02(a) of the Indenture and any subaccounts contained therein.

Collection Period” means any period commencing on the first Servicer Business Day of any Billing Period and ending on the last Servicer Business Day of such Billing Period.

Corporate Trust Office” means the principal office of the Indenture Trustee at which, at any particular time, its corporate trust business shall be administered, which office as of the Closing Date is located at 101 Barclay Street, Floor 8W, New York, New York 10286, Attention: Catherine Murray, Telephone: (212) 815-8319, Facsimile: (212) 815-2493 or at such other address as the Indenture Trustee may designate from time to time by notice to the Holders of Transition Bonds and the Issuer, or the principal corporate trust office of any successor trustee by like notice.

Covenant Defeasance Option” is defined in Section 4.01(b) of the Indenture.

Customers” means all existing and future retail customers of TCC and all other existing and future retail customers who are obligated to pay Transition Charges pursuant to any Financing Order or any Tariff.

Daily Remittance” is defined in Section 6.11(a) of the Servicing Agreement.

Default” means any occurrence that is, or with notice or the lapse of time or both would become, an Event of Default as defined in Section 5.01 of the Indenture.

Definitive Transition Bonds” means Transition Bonds issued in definitive form in accordance with Section 2.13 of the Indenture.

Delaware Financing Statements” means one or more Uniform Commercial Code financing statements to be filed in the appropriate filing office in the State of Delaware.

Delaware UCC” means the Uniform Commercial Code as in effect on the date hereof in the State of Delaware.

Depositing REP” means a REP who provides a cash deposit pursuant to a Section 3.05(e) of the Servicing Agreement.

DTC” means The Depository Trust Company or any successor thereto.

Eligible Account” means either a segregated non-interest-bearing trust account (a) with an Eligible Institution or (b) with the corporate trust department of a depository institution organized under the laws of the United States of America or any State (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.

 

4


Eligible Institution” means:

(a) the corporate trust department of the Indenture Trustee or a subsidiary thereof, so long as any of the securities of the Indenture Trustee or a subsidiary thereof have a credit rating from each Rating Agency in one of its generic rating categories which signifies investment grade; or

(b) a depository institution organized under the laws of the United States of America or any State (or any domestic branch of a foreign bank), which (i) has either (A) a long-term unsecured debt rating of AAA by Standard & Poor’s and A2 by Moody’s, and if rated by Fitch, AAA by Fitch 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 Indenture Trustee may be considered an Eligible Institution for the purposes of clause (a) of this definition.

Eligible Investments” mean instruments or investment property which evidence:

(a) direct obligations of, and obligations fully and unconditionally guaranteed as to timely payment by, the United States of America;

(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 TCC or any of its Affiliates) having, at the time of the investment or contractual commitment to invest therein, a rating from each of the Rating Agencies from which a rating is available in the highest investment category granted thereby;

(d) investments in money market funds having a rating in the highest investment category granted thereby (including funds for which the Indenture Trustee or any of its Affiliates is investment manager or advisor) from Moody’s, Standard & Poor’s and Fitch, if rated by Fitch;

(e) repurchase obligations with respect to any security that is a direct obligation of, or fully guaranteed by, the United States of America or any agency or instrumentality thereof the obligations of which are backed by the full faith and credit of the United States of America, in either case entered into with depository institutions or trust companies meeting the requirements of clause (b) of the definition of Eligible Institutions;

 

5


(f) repurchase obligations with respect to any security or whole loan entered into with:

(i) a depository institution or trust company (acting as principal) meeting the requirements of clause (b) of the definition of Eligible Institutions,

(ii) a broker/dealer (acting as principal) registered as a broker or dealer under Section 15 of the Exchange Act (any broker/dealer being referred to in this definition as a “broker/dealer”), the unsecured short-term debt obligations of which are rated at least “P-1” by Moody’s, “A-1+” by Standard & Poor’s and, if Fitch provides a rating thereon, “F-1+” by Fitch at the time of entering into this repurchase obligation, or

(iii) an unrated broker/dealer, acting as principal, that is a wholly-owned subsidiary of a non-bank or bank holding company the unsecured short-term debt obligations of which are rated at least “P-1” by Moody’s, “A-1+” by Standard & Poor’s and, if Fitch provides a rating thereon, “F-1+” by Fitch at the time of purchase so long as the obligations of such unrated broker/dealer are unconditionally guaranteed by such non-bank or bank holding company; and

(g) any other investment permitted by each of the Rating Agencies;

in each case maturing not later than the Business Day immediately preceding the next Payment Date or Special Payment Date, if applicable (for the avoidance of doubt, investments in money market funds or similar instruments which are redeemable on demand shall be deemed to satisfy the foregoing requirement). Notwithstanding the foregoing, any securities or investments which mature in thirty-two (32) days or more shall not be “Eligible Investments” unless the issuer thereof has a long-term unsecured debt rating of at least A1 from Moody’s and A+ from Standard & Poor’s, any securities or investments described in clauses (b) through (f) above which have maturities of less than or equal to three (3) months shall not be “Eligible Investments” unless the issuer thereof has a long-term and short-term unsecured debt rating of at least A1/P-1 from Moody’s and any securities or investments described in clauses (b) through (f) above which have maturities of more than three (3) months shall not be an “Eligible Investment” unless the issuer thereof has a long-term and short-term unsecured debt rating of at least Aa3/P-1 from Moody’s.

ERCOT” means the Electric Reliability Council of Texas or any successor thereto.

ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

ERISA Affiliate” means with respect to any Person at any time, each trade or business (whether or not incorporated) that would, at that time, be treated together with such Person as a single employer under Section 401 of ERISA or Section 414(b), (c), (m) or (o) of the Code.

Estimated TC Collections” means the sum of the payments in respect of Transition Charges which are deemed to have been received by the Servicer, directly or

 

6


indirectly (including through a REP), from or on behalf of Customers, calculated in accordance with Annex I of the Servicing Agreement.

Event of Default” is defined in Section 5.01 of the Indenture.

Excess Funds Subaccount” is defined in Section 8.02(a) of the Indenture.

Excess Remittance” means the amount, if any, calculated for a particular Reconciliation Period, by which all Estimated TC Collections remitted to the Collection Account during such Reconciliation Period exceed Actual TC Collections received by the Servicer during such Reconciliation Period.

Exchange Act” means the Securities Exchange Act of 1934, as amended.

Expected Amortization Schedule” means, with respect to any Series, the expected amortization schedule set forth in the related Series Supplement.

FDIC” means the Federal Deposit Insurance Corporation or any successor thereto.

Federal Book-Entry Regulations” means 31 C.F.R. Part 357 et seq. (Department of Treasury).

Federal Book-Entry Securities” means securities issued in book-entry form by the United States Treasury.

Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Servicer from three (3) federal funds brokers of recognized standing selected by it.

FERC” means the Federal Energy Regulatory Commission or any successor thereto.

Final” means, with respect to any Financing Order, that such Financing Order has become final, is not being appealed and that the time for filing an appeal therefrom has expired.

Final Maturity Date” means, with respect to any Series or Tranche of Transition Bonds, the Final Maturity Date therefor, as specified in the related Series Supplement.

Financial Asset” means “financial asset” as set forth in Section 8-102(a)(9) of the NY UCC.

 

7


Financing Order” means, as the context may require, (i) the Initial Financing Order and/or (ii) any Subsequent Financing Order.

Fitch” means Fitch Ratings or any successor thereto.

General Subaccount” is defined in Section 8.02(a) of the Indenture.

Global Transition Bond” means a Transition Bond evidencing all or any part of a Series of Transition Bonds to be issued to the Holders thereof in Book-Entry Form, which Global Transition Bond shall be issued to the Clearing Agency, or its nominee, for such Series, in accordance with Section 2.11 of the Indenture and the applicable Series Supplement pursuant to which the Transition Bond is issued.

Governmental Authority” means any nation or government, any federal, state, local or other political subdivision thereof and any court, administrative agency or other instrumentality or entity exercising executive, legislative, judicial, regulatory or administrative function of government.

Grant” means mortgage, pledge, bargain, sell, warrant, alienate, remise, release, convey, grant, transfer, create, and grant a lien upon and a security interest in and right of set-off against, deposit, set over and confirm pursuant to the Indenture and the related Series Supplement. A Grant of the Transition Bond Collateral or of any other agreement or instrument included therein shall include all rights, powers and options (but none of the obligations) of the Granting party thereunder, including the immediate and continuing right to claim for, collect, receive and give receipt for payments in respect of the Transition Bond Collateral and all other moneys payable thereunder, to give and receive notices and other communications, to make waivers or other agreements, to exercise all rights and options, to bring Proceedings in the name of the Granting party or otherwise and generally to do and receive anything that the Granting party is or may be entitled to do or receive thereunder or with respect thereto.

Holder” or “Bondholder” means the Person in whose name a Transition Bond is registered on the Transition Bond Register.

Indenture” means the Indenture, dated as of October 11, 2006, by and between the Issuer and The Bank of New York, a New York banking corporation, as Indenture Trustee and as Securities Intermediary as originally executed and, as from time to time supplemented or amended by one or more Series Supplements or indentures supplemental thereto entered into pursuant to the applicable provisions of the Indenture, as so supplemented or amended, or both, and shall include the forms and terms of the Transition Bonds established thereunder.

Indenture Trustee” means The Bank of New York, a New York banking corporation, as indenture trustee for the benefit of the Secured Parties, or any successor indenture trustee under the Indenture.

Independent” means, when used with respect to any specified Person, that the Person (a) is in fact independent of the Issuer, any other obligor on the Transition Bonds, 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 Issuer, any such other

 

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obligor, the Seller, the Servicer or any Affiliate of any of the foregoing Persons and (c) is not connected with the 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 (other than as an independent director or manager) or person performing similar functions.

Independent Certificate” means a certificate or opinion to be delivered to the Indenture Trustee under the circumstances described in, and otherwise complying with, the applicable requirements of Section 10.01 of the Indenture, made by an Independent appraiser or other expert appointed by an Issuer Order and consented to by the Indenture Trustee, and such opinion or certificate shall state that the signer has read the definition of “Independent” in the Indenture and that the signer is Independent within the meaning thereof.

Independent Manager” is defined in Section 4.01 of the LLC Agreement.

Independent Manager Fee” is defined in Section 4.01(a) of the LLC Agreement.

Indirect Participant” means a securities broker, dealer, bank, trust company or other Person that clears through or maintains a custodial relationship with a Clearing Agency Participant, either directly or indirectly.

Initial Financing Order” means the Final Financing Order dated June 21, 2006 issued by the PUCT pursuant to the Securitization Law, Docket No. 32475.

Initial Tariff” means the initial Tariff filed with the PUCT to evidence the Transition Charges pursuant to the Initial Financing Order.

Initial Transition Property” means all Transition Property created in favor of the Issuer pursuant to the Initial Financing Order, including the right to impose, collect and receive the Transition Charges authorized in the Initial Financing Order.

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 sixty (60) consecutive days; or (b) the commencement by such Person of a voluntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by such Person to the entry of an order for relief in an involuntary case under any such law, or the consent by such Person to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person or for any substantial part of its property, or the making by such Person of any general assignment for the benefit of creditors, or the failure by such Person generally to pay its debts as such debts become due, or the taking of action by such Person in furtherance of any of the foregoing.

Insolvency Law” means any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect.

 

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Intercreditor Agreement” means the Intercreditor Agreement, dated as of October 11, 2006, by and among the Issuer, TCC, the Indenture Trustee, AEP Texas Central Transition Funding I, LLC and U.S. Bank National Association, as the same may be amended, restated, supplemented or otherwise modified from time to time.

Interim True-Up Adjustment” means each adjustment to the Transition Charges made pursuant to the terms of the related Tariff and in accordance with Section 4.01(b)(iii) of the Servicing Agreement.

Interim True-Up Adjustment Date” means the effective date of any Interim True-Up Adjustment.

Internal Revenue Service” means the Internal Revenue Service of the United States of America.

Investment Company Act” means the Investment Company Act of 1940, as amended.

Investment Earnings” means investment earnings on funds deposited in the Collection Account net of losses and investment expenses.

Issuance Advice Letter” means any Issuance Advice Letter filed with the PUCT pursuant to the Securitization Law with respect to any Transition Charges.

Issuer” means AEP Texas Central Transition Funding II LLC, a Delaware limited liability company, named as such in the Indenture until a successor replaces it and, thereafter, means the successor and, for purposes of any provision contained herein and required by the TIA, each other obligor on the Transition Bonds.

Issuer Order” and “Issuer Request” mean a written order or request signed in the name of the Issuer by any one of its Responsible Officers and delivered to the Indenture Trustee or Paying Agent, as applicable.

Legal Defeasance Option” is defined in Section 4.01(b) of the Indenture.

Letter of Representations” means any applicable agreement between the Issuer and the applicable Clearing Agency, with respect to such Clearing Agency’s rights and obligations (in its capacity as a Clearing Agency) with respect to any Book-Entry Transition Bonds, as the same may be amended, supplemented, restated or otherwise modified from time to time.

Lien” means a security interest, lien, mortgage, charge, pledge, claim, equity or encumbrance of any kind.

LLC Act” means the Delaware Limited Liability Company Act, as amended.

 

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LLC Agreement” means the Amended and Restated Limited Liability Company Agreement of AEP Texas Central Transition Funding II LLC, dated as of September 25, 2006, as the same may be amended, restated, supplemented or otherwise modified from time to time.

Manager” means each manager of the Issuer under the LLC Agreement.

Member” has the meaning specified in the first paragraph of the LLC Agreement.

Minimum Denomination” means, with respect to any Transition Bond, the minimum denomination therefor specified in the applicable Series Supplement, which minimum denomination shall be not less than $100,000, except for one transition bond of each tranche which may be of smaller denomination, and, except as otherwise provided in such Series Supplement integral multiples thereof.

Monthly Servicer’s Certificate” means a certificate, substantially in the form of Exhibit A to the Servicing Agreement, completed and executed by a Responsible Officer of the Servicer pursuant to Section 3.01(b)(i) of the Servicing Agreement.

Moody’s” means Moody’s Investors Service, Inc. or any successor thereto.

Net TC Write-Offs” means, for any Reconciliation Period, an amount equal to the product of (i) the Net Write-Off Percentage for such period times (ii) total Billed TCs attributable to such Reconciliation Period.

Net Write-Off Percentage” for any Reconciliation Period means the Servicer’s actual system wide charge-off percentage, as adjusted for recoveries on previously written-off bills.

Non-Standard True-Up Adjustment” means any special adjustment to the Transition Charges to reallocate the amounts of such Transition Charges among TC Customer Tranches pursuant to the terms of the related Tariff under the heading “Non-Standard True-Up Procedure” and in accordance with Section 4.01(b)(ii) of the Servicing Agreement.

Non-Standard True-Up Adjustment Date” means the earlier of (i) the date revised Transition Charges are approved and effective pursuant to a final order of the PUCT in the related Non-Standard True-Up Adjustment proceeding and (ii) the first billing cycle of September of the applicable year, commencing in September 2007 (or, in the case of any subsequent Series, the corresponding billing cycle for such Series based on its Series Issuance Date).

Notice of Default” is defined in Section 5.01 of the Indenture.

NY UCC” means the Uniform Commercial Code as in effect on the date hereof in the State of New York.

Officer’s Certificate” means a certificate signed by a Responsible Officer of the Issuer under the circumstances described in, and otherwise complying with, the applicable

 

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requirements of Section 10.01 of the Indenture, and delivered to the Indenture Trustee. Unless otherwise specified, any reference in the Indenture to an Officer’s Certificate shall be to an Officer’s Certificate of any Responsible Officer of the party delivering such certificate.

Operating Expenses” means all unreimbursed fees, costs and expenses of the Issuer, including all amounts owed by the Issuer to the Indenture Trustee, any Manager, the Servicing Fee, the Administration Fee, legal and accounting fees, Rating Agency fees, costs and expenses of the Issuer and TCC and any franchise taxes owed on investment income in the Collection Account.

Opinion of Counsel” means one or more written opinions of counsel who may, except as otherwise expressly provided in the Basic Documents, be employees of or counsel to the party providing such opinion of counsel, which counsel shall be reasonably acceptable to the party receiving such opinion of counsel, and shall be in form and substance reasonably acceptable to such party.

Outstanding” means, as of the date of determination, all Transition Bonds theretofore authenticated and delivered under this Indenture except:

(a) Transition Bonds theretofore canceled by the Transition Bond Registrar or delivered to the Transition Bond Registrar for cancellation;

(b) Transition Bonds or portions thereof the payment for which money in the necessary amount has been theretofore deposited with the Indenture Trustee or any Paying Agent in trust for the Holders of such Transition Bonds; and

(c) Transition Bonds in exchange for or in lieu of other Transition Bonds which have been issued pursuant to this Indenture unless proof satisfactory to the Indenture Trustee is presented that any such Transition Bonds are held by a Protected Purchaser;

provided that in determining whether the Holders of the requisite Outstanding Amount of the Transition Bonds or any Series or Tranche thereof have given any request, demand, authorization, direction, notice, consent or waiver hereunder or under any Basic Document, Transition Bonds owned by the Issuer, any other obligor upon the Transition Bonds, the Member, the Seller, the Servicer or any Affiliate of any of the foregoing Persons shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Indenture Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Transition Bonds that the Indenture Trustee actually knows to be so owned shall be so disregarded. Transition Bonds so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Indenture Trustee the pledgee’s right so to act with respect to such Transition Bonds and that the pledgee is not the Issuer, any other obligor upon the Transition Bonds, the Member, the Seller, the Servicer or any Affiliate of any of the foregoing Persons.

Outstanding Amount” means the aggregate principal amount of all Transition Bonds or, if the context requires, all Transition Bonds of a Series or Tranche, Outstanding at the date of determination.

 

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Paying Agent” means with respect to the Indenture, the Indenture Trustee and any other Person appointed as a paying agent for the Transition Bonds pursuant to the Indenture.

Payment Date” means, with respect to any Series or Tranche of Transition Bonds, the dates specified in the related Series Supplement; provided that if any such date is not a Business Day, the Payment Date shall be the Business Day immediately succeeding such date.

Periodic Billing Requirement” means, for any Calculation Period, the aggregate amount of Transition Charges calculated by the Servicer as necessary to be billed during such period in order to collect the Periodic Payment Requirements on or before the end of the Collection Period immediately preceding the next Annual True-Up Adjustment Date.

Periodic Interest” means, with respect to any Payment Date and any Series of Transition Bonds, the periodic interest for such Payment Date and Series as specified in the related Series Supplement.

Periodic Payment Requirement” for any Calculation Period means the total dollar amount of TC Collections reasonably calculated by the Servicer in accordance with Section 4.01 of the Servicing Agreement as necessary to be received during such period (after giving effect to the allocation and distribution of amounts on deposit in the Excess Funds Subaccount at the time of calculation and which will be available for payments on the Transition Bonds at the end of such Calculation Period and including any shortfalls in Periodic Payment Requirements for any prior Calculation Period) in order to ensure that, as of the last Payment Date occurring in such Calculation Period, (1) all accrued and unpaid interest on the Transition Bonds then due shall have been paid in full, (2) the Outstanding Amount of the Transition Bonds is equal to the Projected Unrecovered Balance, (3) the balance on deposit in the Capital Subaccount equals the aggregate Required Capital Level and (4) all other fees and expenses due and owing and required or allowed to be paid under Section 8.02 of the Indenture as of such date shall have been paid in full; provided that, with respect to any Annual True-Up Adjustment or Interim True-Up Adjustment occurring after the last Scheduled Final Payment Date for any Transition Bonds, the Periodic Payment Requirements shall be calculated to ensure that sufficient Transition Charges will be collected to retire such Transition Bonds in full as of the earlier of (x) the Payment Date preceding the next Annual True-Up Adjustment Date and (y) the Final Maturity Date for such Transition Bonds.

Periodic Principal” means, with respect to any Payment Date and any Series of Transition Bonds, the excess, if any, of the Outstanding Amount of such Series of Transition Bonds over the outstanding Unrecovered Balance specified for such Payment Date on the Expected Amortization Schedule.

Permitted Lien” means the Lien created by the Indenture.

Permitted Successor” is defined in Section 5.02 of the Sale Agreement.

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.

 

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Predecessor Transition Bond” means, with respect to any particular Transition Bond, every previous Transition Bond evidencing all or a portion of the same debt as that evidenced by such particular Transition Bond, and, for the purpose of this definition, any Transition Bond authenticated and delivered under Section 2.06 of the Indenture in lieu of a mutilated, lost, destroyed or stolen Transition Bond shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Transition Bond.

Proceeding” means any suit in equity, action at law or other judicial or administrative proceeding.

Projected Unrecovered Balance” means, as of any Payment Date, the sum of the projected outstanding principal amount of each Series of Transition Bonds for such Payment Date set forth in the Expected Amortization Schedule.

Protected Purchaser” has the meaning specified in Section 8-303 of the UCC.

PUCT” means the Public Utility Commission of Texas, or any Governmental Authority succeeding to the duties of such agency.

PUCT Regulations” means the regulations, including proposed or temporary regulations, promulgated under the Utilities Code.

Qualified Costs” means all qualified costs as defined in Section 39.302 of the Utilities Code.

Rating Agency” , with respect to any Series or Tranche of Transition Bonds, means any of Moody’s, Standard & Poor’s or Fitch which provides a rating with respect to such Series of Transition Bonds. 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 Issuer, notice of which designation shall be given to the Indenture Trustee and the Servicer.

Rating Agency Condition” means, with respect to any action, the notification in writing to each Rating Agency of such action, and written confirmation from Standard & Poor’s to the Servicer, the Indenture Trustee and the Issuer that such action will not result in a suspension, reduction or withdrawal of the then current rating by such Rating Agency of any Series or Tranche of Transition Bonds.

Reconciliation Period” means, with respect to any Collection Period, the twelve-month period ending the first day of such Collection Period; provided, that the initial Reconciliation Period shall commence on the Closing Date and that a shorter Reconciliation Period may be established pursuant to Section 8.01(b) of the Servicing Agreement.

Record Date” means, with respect to a Payment Date, in the case of Definitive Transition Bonds, the close of business on the last day of the calendar month preceding the calendar month in which such Payment Date occurs, and in the case of Book-Entry Transition Bonds, one Business Day prior to the applicable Payment Date.

 

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Registered Holder” means the Person in whose name a Transition Bond is registered on the Transition Bond Register.

Registration Statement” means the registration statement, Form S-3 Registration No. 333-136787, filed with the SEC for registration under the Securities Act relating to the offering and sale of the Transition Bonds, and including all amendments thereto.

Regulation AB” means the rules of the SEC promulgated under Subpart 229.1100 – Asset Backed Securities (Regulation AB), 17 C.F.R. §§229.1100-229.1123, as such may be amended from time to time.

Remittance Requirement” means, with respect to any Third-Party Collector, the requirement that such Third-Party Collector remit Transition Charges to the Servicer within a prescribed number of days of billing by the Servicer in accordance with, if applicable, the Financing Order, Tariffs, other tariffs and any other PUCT Regulations.

Remittance Shortfall” means the amount, if any, calculated for a particular Reconciliation Period, by which Actual TC Collections received by the Servicer during such Reconciliation Period exceed all Estimated TC Collections remitted to the Collection Account during such Reconciliation Period.

REP” means a retail electric provider as defined in Section 31.002(17) of the Utilities Code and shall include any REP that acts as the provider of last resort.

REP Credit Requirements” means the credit and collection policies applicable to REPs under the Financing Order, Tariffs and other PUCT Regulations.

REP Deposit Accounts” is defined in Section 8.02(g) of the Indenture.

REP Deposit Requirements” means the deposit, credit rating and alternative credit support requirements applicable to REPs under the Financing Order, Tariffs and other PUCT Regulations.

Required Capital Level” means, with respect to each Series of Transition Bonds, an amount equal to 0.50% of the initial principal amount of such Series, or such other amount as may be permitted or required under the Applicable Financing Order and applicable Internal Revenue Service rulings, deposited into the Capital Subaccount by the Member prior to or upon the issuance of such Series.

Requirement of Law” means any foreign, federal, state or local laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued or promulgated by any Governmental Authority or common law.

Responsible Officer” means with respect to (a) the Issuer, any Manager or any duly authorized officer; (b) the Indenture Trustee, any officer within the Corporate Trust Office of such trustee (including the President, any Vice President, Assistant Vice President, Secretary or Assistant Treasurer, Trust Officer or any other officer of the Indenture Trustee customarily performing functions similar to those performed by persons who at the time shall be such

 

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officers, respectively, and that has direct responsibility for the administration of the Indenture and also, with respect to a particular matter, any other officer to whom such matter is referred to because of such officer’s knowledge and familiarity with the particular subject); (c) any corporation (other than the Indenture Trustee), the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Treasurer, the Assistant Treasurer or any other duly authorized officer of such Person who has been authorized to act in the circumstances; (d) any partnership, any general partner thereof; and (e) any other Person (other than an individual or the Indenture Trustee), any duly authorized officer or member of such Person, as the context may require, who is authorized to act in matters relating to such Person.

Restricted Plan” means (a) an “employee benefit plan” as defined in and subject to Title I of ERISA, (b) a “plan” as defined in and subject to section 4975 of the Code, (c) an entity whose underlying assets include the assets of such employee benefit plan or plan or (d) a governmental or church plan which is subject to any federal, state or local law that is substantially similar to the provisions of section 406 of ERISA or section 4975 of the Code.

Retirement of the Transition Bonds” means any day on which the final distribution is made to the Indenture Trustee in respect of the last Outstanding Transition Bonds.

Sale Agreement” means the Transition Property Purchase and Sale Agreement, dated as of October 11, 2006, by and between TCC and the Issuer, as the same may be amended, restated, supplemented or otherwise modified from time to time.

Scheduled Final Payment Date” means, with respect to each Series or, if applicable, each Tranche of Transition Bonds, the date when all interest and principal is scheduled to be paid with respect to that Series or Tranche in accordance with the Expected Amortization Schedule, as specified in the Series Supplement therefor. For the avoidance of doubt, the Scheduled Final Payment Date with respect to any Series or Tranche shall be the last Scheduled Payment Date set forth in the Expected Amortization Schedule relating to such Series or Tranche.

Scheduled Payment Date” is defined in the applicable Series Supplement with respect to each Series or Tranche of Transition Bonds.

SEC” means the U.S. Securities and Exchange Commission.

Secretary of State” means the Secretary of State of the State of Delaware or the Secretary of State of the State of Texas, as the case may be, or any Governmental Authority succeeding to the duties of such offices.

Secured Obligations” is defined in each Series Supplement, a form of which is attached as Exhibit B to the Indenture.

Secured Parties” means, with respect to each Series, the Indenture Trustee, the relevant Bondholders and any credit enhancer described in the applicable Series Supplement.

Securities Account” means the Collection Account (to the extent it constitutes a securities account as defined in the NY UCC and Federal Book-Entry Regulations).

 

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Securities Act” means the Securities Act of 1933, as amended.

Securities Intermediary” means The Bank of New York, a New York banking corporation, solely in the capacity of a “securities intermediary” as defined in the NY UCC and Federal Book-Entry Regulations or any successor securities intermediary under the Indenture.

Securitization Law” means Subchapter G of Chapter 39 of the Texas Utilities Code, §§39.301 -39.313, as amended from time to time.

Security Entitlement” means “security entitlement” (as defined in Section 8-102(a)(17) of the NY UCC) with respect to Financial Assets now or hereafter credited to the Securities Account and, with respect to Federal Book-Entry Regulations, with respect to Federal Book-Entry Securities now or hereafter credited to the Securities Account, as applicable.

Seller” is defined in Section 1.01 of the Sale Agreement.

Series” means each series of Transition Bonds issued and authenticated pursuant to the Indenture and a related Series Supplement.

Series Issuance Date” means, with respect to any Series, the date on which the Transition Bonds of such Series are to be originally issued in accordance with Section 2.10 of the Indenture and the related Series Supplement.

Series Supplement” means an indenture supplemental to the Indenture that authorizes the issuance of a particular Series of Transition Bonds.

Series Transition Bond Collateral” has the meaning specified in the preamble of the Indenture.

Servicer” means TCC, as Servicer under the Servicing Agreement, or any successor Servicer to the extent permitted under the Servicing Agreement.

Servicer Business Day” means any day other than a Saturday, Sunday or holiday on which the Servicer maintains normal office hours and conducts business.

Servicer Default” is defined in Section 7.01 of the Servicing Agreement.

Servicer’s Certificate” means a certificate, substantially in the form of Exhibit C to the Servicing Agreement, completed and executed by a Responsible Officer of the Servicer pursuant to Section 4.01(c)(ii) of the Servicing Agreement.

Servicing Agreement” means the Transition Property Servicing Agreement, dated as of October 11, 2006, by and between the Issuer and TCC, as the same may be amended, restated, supplemented or otherwise modified from time to time.

Servicing Fee” means the fee payable to the Servicer on each Payment Date for services rendered during the period from, but not including, the preceding Payment Date (or

 

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from the Closing Date in the case of the first Payment Date) to and including the current Payment Date, determined pursuant to Section 6.06 of the Servicing Agreement.

Servicing Standard” means the obligation of the Servicer to calculate, apply, remit and reconcile proceeds of the Transition Property, including TC Payments, and all other Transition Bond Collateral for the benefit of the Issuer and the Holders (i) with the same degree of care and diligence as the Servicer applies with respect to payments owed to it for its own account, (ii) in accordance with all applicable procedures and requirements established by the PUCT for collection of electric utility tariffs and (iii) in accordance with the other terms of the Servicing Agreement.

Special Member” is defined in Section 1.02 of the LLC Agreement.

Special Payment” means with respect to any Series or Tranche of Transition Bonds, any payment of principal of or interest on (including any interest accruing upon default), or any other amount in respect of, the Transition Bonds of such Series or Tranche that is not actually paid within five (5) days of the Payment Date applicable thereto.

Special Payment Date” means the date on which a Special Payment is to be made by the Indenture Trustee to the Holders.

Special Record Date” means with respect to any Special Payment Date, the close of business on the fifteenth (15th) day (whether or not a Business Day) preceding such Special Payment Date.

Sponsor” means TCC, in its capacity as “sponsor” of the Transition Bonds within the meaning of Regulation AB.

Standard & Poor’s” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor thereto.

State” means any one of the fifty states of the United States of America or the District of Columbia.

State Pledge” means the pledge of the State of Texas as set forth in Section 39.310 of the Securitization Law.

Subaccounts” is defined in Section 8.02(a) of the Indenture.

Subsequent Closing Date” means any date (other than the Closing Date) specified in a Series Supplement under which Transition Bonds of any Series or Tranche are issued.

Subsequent Creation Date” means any date on which Subsequent Transition Property is created in favor of TCC pursuant to a Subsequent Financing Order.

Subsequent Financing Order” means a financing order (other than the Initial Financing Order) issued hereafter by the PUCT in favor of TCC.

 

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Subsequent Sale” means the sale of Initial Transition Property or Subsequent Transition Property after the Closing Date, subject to the satisfaction of the conditions specified in the Sale Agreement and the Indenture.

Subsequent Tariff” means a Tariff filed with the PUCT in connection with a Subsequent Financing Order.

Subsequent Transfer Date” means any date on which a Subsequent Sale will be effective, as specified in an Addition Notice.

Subsequent Transition Property” means Transition Property (identified in the related Bill of Sale) sold by the Seller to the Issuer as of a Subsequent Transfer Date pursuant to the Sale Agreement.

Successor Servicer” is defined in Section 3.07(e) of the Indenture.

Tariff” means any rate tariff filed with the PUCT pursuant to the Securitization Law to evidence any Transition Charges.

TCC” means AEP Texas Central Company, a Texas corporation, and any of its successors or permitted assigns.

TC Collections” means Transition Charges received by the Servicer to be remitted to the Collection Account.

TC Customer Class” means each customer class identified as a separate rate class in any Tariff.

TC Payments” means the payments made by Customers based on the Transition Charges.

Temporary Transition Bonds” means Transition Bonds executed, and upon the receipt of an Issuer Order, authenticated and delivered by the Indenture Trustee pending the preparation of Definitive Transition Bonds pursuant to Section 2.04 of the Indenture.

Termination Notice” is defined in Section 7.01 of the Servicing Agreement.

Texas UCC” means the Uniform Commercial Code as in effect on the date hereof in the State of Texas.

Third-Party Collector” means each third party, including each REP, which, pursuant to any Tariff, any other tariffs filed with the PUCT, or any agreement with TCC, is obligated to bill, pay or collect Transition Charges.

Tranche” means, with respect to any Series of Transition Bonds, any one of the tranches of Transition Bonds of that Series.

 

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Transition Bond Collateral” has the meaning specified in the preamble of the Indenture.

Transition Bond Interest Rate” means, with respect to any Series or Tranche of Transition Bonds, the rate at which interest accrues on the Transition Bonds of such Series or Tranche, as specified in the related Series Supplement.

Transition Bond Register” means the register maintained pursuant to Section 2.05 of the Indenture, providing for the registration of the Transition Bonds and transfers and exchanges thereof.

Transition Bond Registrar” means the registrar at any time of the Transition Bond Register, appointed pursuant to Section 2.05 of the Indenture.

Transition Bonds” means one or more Series of Transition Bonds authorized by the Initial Financing Order and any Subsequent Financing Order and issued under the Indenture.

Transition Charge” means any transition charge as defined in Section 39.302(7) of the Securitization Law which is authorized by a Financing Order.

Transition Property” means all transition property as defined in Section 39.302(8) of the Securitization Law created pursuant to a Financing Order and sold or otherwise conveyed to the Issuer under the Sale Agreement, including the Initial Transition Property and any Subsequent Transition Property pursuant to the Sale Agreement. As used in the Basic Documents, unless the context requires otherwise, the term “Transition Property” when used with respect to TCC includes the contract rights of TCC that exist prior to the time that such rights are first transferred in connection with the issuance of the Transition Bonds, at which time they become transition property in accordance with Section 39.304 of the Securitization Law.

Transition Property Notices” means transition property notices filed with the Secretary of State of Texas pursuant to Section 39.309 of the Securitization Law.

Transition Property Records” is defined in Section 5.01 of the Servicing Agreement.

Treasury Regulations” means the regulations, including proposed or temporary regulations, promulgated under the Code. References herein to specific provisions of proposed or temporary regulations shall include analogous provisions of final Treasury Regulations or other successor Treasury Regulations.

True-Up Adjustment” means any Annual True-Up Adjustment, Interim True-Up Adjustment or Non-Standard True-Up Adjustment, as the case may be.

Trust Indenture Act” or “TIA” means the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990, as in force on the Closing Date, unless otherwise specifically provided.

 

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UCC” means, unless the context otherwise requires, the Uniform Commercial Code, as in effect in the relevant jurisdiction, as amended from time to time.

Underwriters” means the underwriters who purchase Transition Bonds of any Series or Tranche from the Issuer and sell such Transition Bonds in a public offering.

Underwriting Agreement” means (i) with respect to the initial Series, the Underwriting Agreement, dated as of October 4, 2006, by and among TCC, the Underwriter party thereto, on its own behalf and as representative of the several underwriters named therein, and the Issuer, as the same may be amended, supplemented or modified from time to time and (ii) with respect to any subsequent Series, an underwriting agreement by and among TCC, the Underwriter party or parties thereto, on its own behalf and as representative of the several underwriters named therein, and the Issuer, as the same may be amended, supplemented or modified from time to time.

Unrecovered Balance” means, as of any Payment Date, the sum of the outstanding principal amount of each Series of Transition Bonds less the amount in the Excess Funds Subaccount available to make principal payments on such Series of Transition Bonds.

Unregistered Transition Bonds” means any Transition Bonds not registered under the Securities Act or the securities laws of any other jurisdiction.

Utilities Code” means the Texas Utilities Code, as amended from time to time.

U.S. Government Obligations” means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the option of the issuer thereof.

Weighted Average Days Outstanding” means the weighted average number of days TCC’s monthly bills to retail customers (or, following the advent of customer choice, monthly bills to REPs) remain outstanding during the calendar year immediately preceding the calculation thereof pursuant to Section 4.01(b)(i) of the Servicing Agreement. The initial Weighted Average Days Outstanding shall be thirty-five (35) days until updated pursuant to Section 4.01(b)(i) of the Servicing Agreement.

B. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with United States generally accepted accounting principles. To the extent that the definitions of accounting terms in any Basic Document are inconsistent with the meanings of such terms under generally accepted accounting principles or regulatory accounting principles, the definitions contained in such Basic Document shall control. As used in the Basic Documents, the term “including” means “including without limitation,” and other forms of the verb “to include” have correlative meanings. All references to any Person shall include such Person’s permitted successors.

C. Computation of Time Periods. Unless otherwise stated in any of the Basic Documents, as the case may be, in the computation of a period of time from a specified date to a

 

21


later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”.

D. Reference; Captions. The words “hereof”, “herein” and “hereunder” and words of similar import when used in any Basic Document shall refer to such Basic Document as a whole and not to any particular provision of such Basic Document; and references to “Section”, “subsection”, “Schedule” and “Exhibit” in any Basic Document are references to Sections, subsections, Schedules and Exhibits in or to such Basic Document unless otherwise specified in such Basic Document. The various captions (including the tables of contents) in each Basic Document are provided solely for convenience of reference and shall not affect the meaning or interpretation of any Basic Document.

E. The definitions contained in this Appendix A are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter forms of such terms.

 

22

Series Supplement

EXHIBIT 4.2

Execution Copy

SERIES SUPPLEMENT

This SERIES SUPPLEMENT dated as of October 11, 2006 (this “Series Supplement”), by and between AEP TEXAS CENTRAL TRANSITION FUNDING II LLC, a limited liability company created under the laws of the State of Delaware (the “Issuer”), and The Bank of New York, a New York banking corporation (“BNY”), in its capacity as indenture trustee (the “Indenture Trustee”) for the benefit of the Secured Parties under the Indenture dated as of October 11, 2006, by and between the Issuer and BNY, in its capacity as Indenture Trustee and in its separate capacity as a securities intermediary (the “Indenture”).

PRELIMINARY STATEMENT

Section 9.01 of the Indenture provides, among other things, that the Issuer and the Indenture Trustee may at any time and from time to time enter into one or more indentures supplemental to the Indenture for the purposes of authorizing the issuance by the Issuer of a Series of Transition Bonds and specifying the terms thereof. The Issuer has duly authorized the creation of a Series of Transition Bonds with an initial aggregate principal amount of $1,739,700,000 to be known as AEP Texas Central Transition Funding II LLC Senior Secured Transition Bonds, Series A (the “Series A Transition Bonds”), and the Issuer and the Indenture Trustee are executing and delivering this Series Supplement in order to provide for the Series A Transition Bonds.

All terms used in this Series Supplement that are defined in the Indenture, either directly or by reference therein, have the meanings assigned to them therein, except to the extent such terms are defined or modified in this Series Supplement or the context clearly requires otherwise. In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Indenture, the terms and provisions of this Series Supplement shall govern.

GRANTING CLAUSE

With respect to the Series A Transition Bonds, the Issuer hereby Grants to the Indenture Trustee, as Indenture Trustee for the benefit of the Secured Parties of the Series A Transition Bonds, all of the Issuer’s right, title and interest (whether now owned or hereafter acquired or arising) in and to (a) the Transition Property created under and pursuant to the Applicable Financing Order, and transferred by the Seller to the Issuer pursuant to the Sale Agreement (including, to the fullest extent permitted by law, the right to impose, collect and receive Transition Charges, all revenues, collections, claims, rights, payments, money or proceeds of or arising from the Transition Charges authorized in the Applicable Financing Order and any Tariffs filed pursuant thereto and any contractual rights to collect such Transition Charges from Customers and REPs), (b) all Transition Charges related to such Transition Property, (c) the Sale Agreement and each Bill of Sale executed in connection therewith and all property and interests in property transferred under the Sale Agreement and such Bills of Sale with respect to such Transition Property and the Series A Transition Bonds, (d) the Servicing Agreement, the Intercreditor Agreement, the Administration Agreement and any subservicing, agency, intercreditor, administration or collection agreements executed in connection therewith, to the extent related to the foregoing Transition Property and the Series A Transition Bonds, (e)


the Collection Account for such Series, all subaccounts thereof and all amounts of cash, instruments, investment property or other assets on deposit therein or credited thereto from time to time and all financial assets and securities entitlements carried therein or credited thereto, (f) all rights to compel the Servicer to file for and obtain adjustments to the Transition Charges in accordance with Section 39.307 of the Securitization Law, the Applicable Financing Order or any Tariff filed in connection therewith, (g) all deposits, guarantees, surety bonds, letters of credit and other forms of credit support provided by or on behalf of REPs pursuant to such Applicable Financing Order or Tariff, including investment earnings thereon and all amounts on deposit in the REP Deposit Accounts; (h) all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, whether such claims, demands, causes and choses in action constitute Transition Property, accounts, general intangibles, instruments, contract rights, chattel paper or proceeds of such items or any other form of property, (i) all accounts, chattel paper, deposit accounts, documents, general intangibles, goods, instruments, investment property, letters of credit, letters-of-credit rights, money, commercial tort claims and supporting obligations related to the foregoing, (j) all payments on or under, and all proceeds in respect of, any or all of the foregoing; it being understood that the following do not constitute Series Transition Bond Collateral: (i) cash that has been released pursuant to Section 8.02(e)(xi) of the Indenture and, following retirement of all Outstanding Series of Transition Bonds, cash that has been released pursuant to Section 8.02(e)(xii) of the Indenture and (ii) amounts deposited with the Issuer on any Series Issuance Date, including the Closing Date, for payment of costs of issuance with respect to the related Series (together with any interest earnings thereon), it being understood that such amounts described in clauses (i) and (ii) above shall not be subject to Section 3.17 of the Indenture.

The foregoing Grant is made in trust to secure the payment of principal of and premium, if any, interest on, and any other amounts owing in respect of, the Series A Transition Bonds and all fees, expenses, counsel fees and other amounts due and payable to the Indenture Trustee (collectively, the “Secured Obligations”) equally and ratably without prejudice, priority or distinction, except as expressly provided in the Indenture, to secure compliance with the provisions of the Indenture with respect to the Series A Transition Bonds, all as provided in the Indenture and to secure the performance by the Issuer of all of its obligations under the Indenture. The Indenture and this Series Supplement constitutes a security agreement within the meaning of the Securitization Law and under the UCC to the extent that the provisions of the UCC are applicable hereto.

The Indenture Trustee, as indenture trustee on behalf of the Secured Parties of the Series A Transition Bonds, acknowledges such Grant and accepts the trusts under this Series Supplement and the Indenture in accordance with the provisions of this Series Supplement and the Indenture.

SECTION 1. Designation. The Series A Transition Bonds shall be designated generally as the Transition Bonds, Series A and further denominated as Tranches A-1 through A-5.

SECTION 2. Initial Principal Amount; Transition Bond Interest Rate; Scheduled Payment Date; Final Maturity Date. The Transition Bonds of each Tranche of the Series A shall

 

2


have the initial principal amount, bear interest at the rates per annum and shall have the Scheduled Payment Dates and the Final Maturity Dates set forth below:

 

Tranche

   Initial Principal
Amount
   Transition Bond
Interest Rate
    Scheduled
Payment Date
   Final
Maturity Date

Tranche A-1

   $ 217,000,000    4.98 %   January 1, 2010    January 1, 2012

Tranche A-2

   $ 341,000,000    4.98 %   July 1, 2013    July 1, 2015

Tranche A-3

   $ 250,000,000    5.09 %   July 1, 2015    July 1, 2017

Tranche A-4

   $ 437,000,000    5.17 %   January 1, 2018    January 1, 2020

Tranche A-5

   $ 494,700,000    5.3063 %   July 1, 2020    July 1, 2021

The Transition Bond Interest Rate shall be computed on the basis of a 360-day year of twelve (12) 30-day months.

SECTION 3. Authentication Date; Payment Dates; Expected Amortization Schedule for Principal; Periodic Interest; No Premium; Other Terms.

(a) Authentication Date. The Series A Transition Bonds that are authenticated and delivered by the Indenture Trustee to or upon the order of the Issuer on October 11, 2006 (the “Series Issuance Date”) shall have as their date of authentication October 11, 2006.

(b) Payment Dates. The Payment Dates for the Series A Transition Bonds are January 1 and July 1 of each year or, if any such date is not a Business Day, the next succeeding Business Day, commencing on July 1, 2007 and continuing until the earlier of repayment of the Series A, Tranche A-5 Transition Bonds in full and the Final Maturity Date for the Series A, Tranche A-5 Transition Bonds.

(c) Expected Amortization Schedule for Principal. Unless an Event of Default shall have occurred and be continuing on each Payment Date, the Indenture Trustee shall distribute to the Holders of record as of the related Record Date amounts payable pursuant to Section 8.02(e) of the Indenture as principal, in the following order and priority: (1) to the holders of the Tranche A-1 Transition Bonds, until the Outstanding Amount of such Tranche of Transition Bonds thereof has been reduced to zero; (2) to the holders of the Tranche A-2 Transition Bonds, until the Outstanding Amount of such Tranche of Transition Bonds thereof has been reduced to zero; (3) to the holders of the Tranche A-3 Transition Bonds, until the Outstanding Amount of such Tranche of Transition Bonds thereof has been reduced to zero; (4) to the holders of the Tranche A-4 Transition Bonds, until the Outstanding Amount of such Tranche of Transition Bonds thereof has been reduced to zero; and (5) to the holders of the Tranche A-5 Transition Bonds, until the Outstanding Amount of such Tranche of Transition Bonds thereof has been reduced to zero; provided, however, that in no event shall a principal payment pursuant to this Section 3(c) on any Tranche on a Payment Date be greater than the amount necessary to reduce the Outstanding Amount of such Tranche of Transition Bonds to the

 

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amount specified in the Expected Amortization Schedule which is attached as Schedule A hereto for such Tranche and Payment Date.

(d) Periodic Interest. Periodic Interest will be payable on each Tranche of the Series A Transition Bonds on each Payment Date in an amount equal to one-half of the product of (i) the applicable Transition Bond Interest Rate and (ii) the Outstanding Amount of the related Tranche of Transition Bonds 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 Tranche of Series A Transition Bonds on such preceding Payment Date; provided, however, that with respect to the Initial Payment Date, or, if no payment has yet been made, interest on the outstanding principal balance will accrue from and including the Series Issuance Date to, but excluding, the following Payment Date.

(e) Book-Entry Transition Bonds. The Series A Transition Bonds shall be Book-Entry Transition Bonds and the applicable provisions of Section 2.11 of the Indenture shall apply to such Transition Bonds.

(f) Waterfall Caps. The amount payable with respect to the Series A Transition Bonds pursuant to Section 8.02(e)(i) shall not exceed $1,000,000 annually. The amounts payable in respect of the Indenture Trustee’s fees and expenses pursuant to Section 8.02(e)(i), the Servicing Fee pursuant to Section 8.02(e)(ii), the Administration Fee and the Independent Manager Fee pursuant to Section 8.02(e)(iii), the ordinary periodic Operating Expenses pursuant to Section 8.02(e)(iv) and the remaining Operating Expenses pursuant to Section 8.02(e)(ix) shall not exceed $1,209,850 in the aggregate annually (provided that if TCC is no longer the Servicer, such amount shall be increased by the excess of the amount of the Servicing Fee payable to the successor Servicer over the amount of the Servicing Fee payable to TCC) unless the PUCT approves a different aggregate amount of such payments.

SECTION 4. Minimum Denominations. The Series A Transition Bonds shall be issuable in the Minimum Denomination and integral multiples thereof.

SECTION 5. Certain Defined Terms. Article I of the Indenture provides that the meanings of certain defined terms used in the Indenture shall, when applied to the Transition Bonds of a particular Series, be as defined in Appendix A to the Indenture. Additionally, Article II of the Indenture provides that with respect to a particular Series of Transition Bonds, certain terms will have the meanings specified in the related Series Supplement. With respect to the Series A Transition Bonds, the following definitions shall apply:

Minimum Denomination” shall mean $100,000.

Transition Bond Interest Rate” has the meaning set forth in Section 2 of this Series Supplement.

Payment Date” has the meaning set forth in Section 3(b) of this Series Supplement.

Periodic Interest” has the meaning set forth in Section 3(d) of this Series Supplement.

 

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Series Issuance Date” has the meaning set forth in Section 3(a) of this Series Supplement.

SECTION 6. Delivery and Payment for the Series A Transition Bonds; Form of the Series A Transition Bonds. The Indenture Trustee shall deliver the Series A Transition Bonds to the Issuer when authenticated in accordance with Section 2.03 of the Indenture. The Series A Transition Bonds of each Tranche shall be in the form of Exhibits A-1 through A-5 hereto.

SECTION 7. Ratification of Agreement. As supplemented by this Series Supplement, the Indenture is in all respects ratified and confirmed and the Indenture, as so supplemented by this Series Supplement, shall be read, taken, and construed as one and the same instrument. This Series Supplement amends, modifies and supplemented the Indenture only in so far as it relates to the Series A Transition Bonds.

SECTION 8. Counterparts. This Series Supplement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument.

SECTION 9. GOVERNING LAW. THIS SERIES SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS; PROVIDED THAT THE CREATION, ATTACHMENT AND PERFECTION OF ANY LIENS CREATED UNDER THE INDENTURE IN TRANSITION PROPERTY, AND ALL RIGHTS AND REMEDIES OF THE INDENTURE TRUSTEE AND THE HOLDERS WITH RESPECT TO SUCH TRANSITION PROPERTY, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.

SECTION 10. Issuer Obligation. No recourse may be taken directly or indirectly, by the Holders with respect to the obligations of the Issuer on the Transition Bonds, under the Indenture or under this Series Supplement or any certificate or other writing delivered in connection herewith or therewith, against (i) the Indenture Trustee or the Managers in their respective individual capacities, (ii) any owner of a beneficial interest in the Issuer (including TCC) or (iii) any shareholder, partner, owner, beneficiary, agent, officer, director, employee or agent of the Indenture Trustee, the Managers or any owner of a beneficial interest in the Issuer (including TCC) in its individual capacity, or of any successor or assign of any of them in their respective individual or corporate capacities, except as any such Person may have expressly agreed (it being understood that none of the Indenture Trustee, the Managers and TCC have any such obligations in their respective individual or corporate capacities).

 

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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Series Supplement to be duly executed by their respective officers thereunto duly authorized as of the first day of the month and year first above written.

 

AEP TEXAS CENTRAL TRANSITION

FUNDING II LLC, as Issuer

By:  

/s/ Stephan T. Haynes

 

Name: Stephan T. Haynes

 

Title: Treasurer

THE BANK OF NEW YORK, as Indenture Trustee
By:  

/s/ Catherine Murray

  Name: Catherine Murray
  Title: Assistant Vice President

Signature Page to

Series Supplement


SCHEDULE A

EXPECTED AMORTIZATION SCHEDULE

OUTSTANDING PRINCIPAL BALANCE PER TRANCHE

 

Semi-Annual

Payment Date

   Tranche A-1
Balance
   Tranche A-2
Balance
   Tranche A-3
Balance
   Tranche A-4
Balance
   Tranche A-5
Balance

Issuance Date

   $ 217,000,000    $ 341,000,000    $ 250,000,000    $ 437,000,000    $ 494,700,000

7/1/2007

   $ 191,502,599    $ 341,000,000    $ 250,000,000    $ 437,000,000    $ 494,700,000

1/1/2008

   $ 146,597,600    $ 341,000,000    $ 250,000,000    $ 437,000,000    $ 494,700,000

7/1/2008

   $ 116,771,725    $ 341,000,000    $ 250,000,000    $ 437,000,000    $ 494,700,000

1/1/2009

   $ 66,753,041    $ 341,000,000    $ 250,000,000    $ 437,000,000    $ 494,700,000

7/1/2009

   $ 33,257,771    $ 341,000,000    $ 250,000,000    $ 437,000,000    $ 494,700,000

1/1/2010

   $ 0    $ 320,241,665    $ 250,000,000    $ 437,000,000    $ 494,700,000

7/1/2010

      $ 283,000,263    $ 250,000,000    $ 437,000,000    $ 494,700,000

1/1/2011

      $ 224,733,965    $ 250,000,000    $ 437,000,000    $ 494,700,000

7/1/2011

      $ 183,518,567    $ 250,000,000    $ 437,000,000    $ 494,700,000

1/1/2012

      $ 120,776,762    $ 250,000,000    $ 437,000,000    $ 494,700,000

7/1/2012

      $ 75,377,617    $ 250,000,000    $ 437,000,000    $ 494,700,000

1/1/2013

      $ 7,938,087    $ 250,000,000    $ 437,000,000    $ 494,700,000

7/1/2013

      $ 0    $ 208,096,401    $ 437,000,000    $ 494,700,000

1/1/2014

         $ 135,635,225    $ 437,000,000    $ 494,700,000

7/1/2014

         $ 80,970,371    $ 437,000,000    $ 494,700,000

1/1/2015

         $ 3,082,300    $ 437,000,000    $ 494,700,000

7/1/2015

         $ 0    $ 380,247,750    $ 494,700,000

1/1/2016

            $ 296,555,609    $ 494,700,000

7/1/2016

            $ 231,168,152    $ 494,700,000

1/1/2017

            $ 141,284,773    $ 494,700,000

7/1/2017

            $ 69,962,039    $ 494,700,000

1/1/2018

            $ 0    $ 468,181,163

7/1/2018

               $ 390,548,566

1/1/2019

               $ 287,031,686

7/1/2019

               $ 202,590,727

1/1/2020

               $ 91,578,112

7/1/2020

               $ 0

SCHEDULE A

Transition Property Servicing Agreement

EXHIBIT 99.1

Execution Copy

TRANSITION PROPERTY SERVICING AGREEMENT

by and between

AEP TEXAS CENTRAL TRANSITION FUNDING II LLC,

Issuer

and

AEP TEXAS CENTRAL COMPANY,

Servicer

Dated as of October 11, 2006


TABLE OF CONTENTS

 

           Page
ARTICLE I   
DEFINITIONS   
SECTION 1.01.    Definitions    1
ARTICLE II   
APPOINTMENT AND AUTHORIZATION   
SECTION 2.01.    Appointment of Servicer; Acceptance of Appointment    2
SECTION 2.02.    Authorization    2
SECTION 2.03.    Dominion and Control Over the Transition Property    2
ARTICLE III   
ROLE OF SERVICER   
SECTION 3.01.    Duties of Servicer    3
SECTION 3.02.    Servicing and Maintenance Standards    5
SECTION 3.03.    Annual Reports on Compliance with Regulation AB    6
SECTION 3.04.    Annual Report by Independent Registered Public Accountants    6
SECTION 3.05.    Monitoring of Third-Party Collectors    7
ARTICLE IV   
SERVICES RELATED TO TRUE-UP ADJUSTMENTS   
SECTION 4.01.    True-Up Adjustments    10
SECTION 4.02.    Limitation of Liability    14
ARTICLE V   
THE TRANSITION PROPERTY   
SECTION 5.01.    Custody of Transition Property Records    15
SECTION 5.02.    Duties of Servicer as Custodian    15
SECTION 5.03.    Custodian’s Indemnification    17
SECTION 5.04.    Effective Period and Termination    17

 

i


ARTICLE VI   
THE SERVICER   
SECTION 6.01.    Representations and Warranties of Servicer    17
SECTION 6.02.    Indemnities of Servicer; Release of Claims    19
SECTION 6.03.    Binding Effect of Servicing Obligations    21
SECTION 6.04.    Limitation on Liability of Servicer and Others    22
SECTION 6.05.    TCC Not to Resign as Servicer    22
SECTION 6.06.    Servicing Compensation    22
SECTION 6.07.    Compliance with Applicable Law    23
SECTION 6.08.    Access to Certain Records and Information Regarding Transition Property    24
SECTION 6.09.    Appointments    24
SECTION 6.10.    No Servicer Advances    24
SECTION 6.11.    Remittances    24
SECTION 6.12.    Maintenance of Operations    25
ARTICLE VII   
DEFAULT   
SECTION 7.01.    Servicer Default    25
SECTION 7.02.    Appointment of Successor    27
SECTION 7.03.    Waiver of Past Defaults    28
SECTION 7.04.    Notice of Servicer Default    28
SECTION 7.05.    Cooperation with Successor    28
ARTICLE VIII   
MISCELLANEOUS PROVISIONS   
SECTION 8.01.    Amendment    28
SECTION 8.02.    PUCT Condition    29
SECTION 8.03.    Maintenance of Accounts and Records    30
SECTION 8.04.    Notices    30
SECTION 8.05.    Assignment    31
SECTION 8.06.    Limitations on Rights of Others    31
SECTION 8.07.    Severability    32
SECTION 8.08.    Separate Counterparts    32
SECTION 8.09.    Headings    32
SECTION 8.10.    GOVERNING LAW    32
SECTION 8.11.    Assignment to Indenture Trustee    32
SECTION 8.12.    Nonpetition Covenants    32
SECTION 8.13.    Limitation of Liability    33

 

ii


EXHIBITS AND SCHEDULES

 

Exhibit A    Form of Monthly Servicer’s Certificate
Exhibit B    Form of Certificate of Compliance
Exhibit C    Form of Servicer Certificate
Schedule 4.01(a)    Expected Amortization Schedule
ANNEXES
Annex I    Servicing Procedures

 

iii


This TRANSITION PROPERTY SERVICING AGREEMENT (this “Agreement”), dated as of October 11, 2006, is between AEP TEXAS CENTRAL TRANSITION FUNDING II LLC, a Delaware limited liability company, as issuer (the “Issuer”), and AEP TEXAS CENTRAL COMPANY (“TCC”), a Texas corporation, as servicer (the “Servicer”).

RECITALS

WHEREAS, pursuant to the Securitization Law and the Initial Financing Order, TCC, in its capacity as seller (the “Seller”), and the Issuer are concurrently entering into the Sale Agreement pursuant to which the Seller is selling and the Issuer is purchasing certain Transition Property created pursuant to the Securitization Law and the Initial Financing Order described therein, and the Seller may sell other Transition Property to the Issuer pursuant to the Sale Agreement;

WHEREAS, in connection with its ownership of the Transition Property and in order to collect the associated Transition Charges, the Issuer desires to engage the Servicer to carry out the functions described herein (such functions or similar functions currently performed by the Servicer for itself with respect to its own charges to its customers and for AEP Texas Central Funding LLC with respect to a prior transaction under the Securitization Law) and the Servicer desires to be so engaged;

WHEREAS, the Issuer desires to engage the Servicer to act on its behalf in obtaining Annual True-Up Adjustments, Non-Standard True-Up Adjustments and Interim True-Up Adjustments from the PUCT and the Servicer desires to be so engaged;

WHEREAS, the TC Collections initially will be commingled with other funds collected by the Servicer;

WHEREAS, certain parties may have an interest in such commingled collections, and such parties have entered into an Intercreditor Agreement as of the date hereof that allows the Servicer to allocate the collected, commingled funds according to each party’s interest; and

WHEREAS, the PUCT, or its attorney, will enforce this Agreement for the benefit of the Customers to the extent permitted by law;

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01. Definitions.

(a) Unless otherwise defined herein, capitalized terms used herein shall have the meanings assigned to them in that certain Indenture (including Appendix A thereto) dated as of the date hereof between the Issuer and The Bank of New York, a New York banking corporation, in its capacity as the indenture trustee (the “Indenture Trustee”) and in its separate capacity as a


securities intermediary (the “Securities Intermediary”), as the same may be amended, restated, supplemented or otherwise modified from time to time.

(b) All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein.

(c) The words “hereof,” “herein,” “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement; Section, Schedule, Exhibit, Annex and Attachment references contained in this Agreement are references to Sections, Schedules, Exhibits, Annexes and Attachments in or to this Agreement unless otherwise specified; and the term “including” shall mean “including without limitation.”

(d) The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms.

(e) Non-capitalized terms used herein which are defined in the Utilities Code shall, as the context requires, have the meanings assigned to such terms in the Utilities Code, but without giving effect to amendments to the Utilities Code after the date hereof which have a material adverse effect on the Issuer or the Holders.

ARTICLE II

APPOINTMENT AND AUTHORIZATION

SECTION 2.01. Appointment of Servicer; Acceptance of Appointment. The 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 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 Issuer to (a) execute and deliver, on behalf of itself and/or the Issuer, as the case may be, any and all instruments, documents or notices, and (b) on behalf of itself and/or the Issuer, as the case may be, make any filing and participate in proceedings of any kind with any Governmental Authority, including with the PUCT. The Issuer shall execute and deliver to the Servicer such documents as have been prepared by the Servicer for execution by the Issuer and shall furnish the Servicer with such other documents as may be in the Issuer’s possession, in each case 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 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 Issuer shall have dominion and control over the Transition Property, and the Servicer, in accordance with the terms hereof, is acting solely as the

 

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servicing agent and custodian for the 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 Agreement, that would contravene the Utilities Code, the PUCT Regulations or the Applicable Financing Order, that is not consistent with its customary procedures and practices, or that shall impair the rights of the Issuer in the Transition Property, in each case unless such action is required by applicable law or court or regulatory order.

ARTICLE III

ROLE OF SERVICER

SECTION 3.01. Duties of Servicer. The Servicer, as agent for the Issuer, shall have the following duties:

(a) Duties of Servicer Generally. The Servicer’s duties in general shall include management, servicing and administration of the Transition Property; obtaining meter reads, calculating usage (including demand and including any such usage by Customers served by a REP), billing, collections and posting of all payments in respect of the Transition Property; responding to inquiries by Customers, REPs, the PUCT, or any other Governmental Authority with respect to the Transition Property; delivering Bills to Customers or REPs; investigating and handling delinquencies (and furnishing reports with respect to such delinquencies to the Issuer), processing and depositing collections and making periodic remittances; furnishing periodic reports to the Issuer, the Indenture Trustee and the Rating Agencies; making all filings with the PUCT and taking such other action as may be necessary to perfect the Issuer’s ownership interests in and the Indenture Trustee’s first priority lien and security interest on the Transition Property; making all filings and taking such other action as may be necessary to perfect and maintain the perfection and priority of the Indenture Trustee’s lien on and security interest in all Transition Bond Collateral; selling as the agent for the Issuer as its interests may appear defaulted or written off accounts in accordance with the Servicer’s usual and customary practices; taking all necessary action in connection with True-Up Adjustments as set forth herein; and performing such other duties as may be specified under the Applicable Financing Order to be performed by it. Anything to the contrary notwithstanding, the duties of the Servicer set forth in this Agreement shall be qualified in their entirety by any PUCT Regulations, the Applicable Financing Orders, and the federal securities laws and the rules and regulations promulgated thereunder, including without limitation, Regulation AB, as in effect at the time such duties are to be performed. Without limiting the generality of this Section 3.01(a), in furtherance of the foregoing, the Servicer 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, collections, payment processing and remittance set forth in Annex I hereto, as it may be amended from time to time. For the avoidance of doubt, the term “usage” when used herein refers to both kilowatt hour consumption and kilowatt demand.

(b) Reporting Functions.

(i) Monthly Servicer’s Certificate. On or before the twenty-fifth calendar day of each month (or if such day is not a Servicer Business Day, on the immediately preceding Servicer Business Day), the Servicer shall prepare and deliver to the Issuer, the Indenture Trustee and the Rating Agencies a written

 

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report substantially in the form of Exhibit A hereto (a “Monthly Servicer’s Certificate”) setting forth certain information relating to TC Payments received by the Servicer during the Collection Period immediately preceding such date; provided, however, that for any month in which the Servicer is required to deliver a Servicer’s Certificate pursuant to Section 4.01(c)(ii), the Servicer shall prepare and deliver the Monthly Servicer’s Certificate no later than the date of delivery of such Servicer’s Certificate.

(ii) Notification of Laws and Regulations. The Servicer shall immediately notify the Issuer, the Indenture Trustee and the Rating Agencies in writing of any Requirements of Law or PUCT Regulations hereafter promulgated that have a material adverse effect on the Servicer’s ability to perform its duties under this Agreement.

(iii) Other Information. Upon the reasonable request of the Issuer, the Indenture Trustee or any Rating Agency, the Servicer shall provide to the Issuer, the Indenture Trustee or such Rating Agency, 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 to enable the Issuer, the Indenture Trustee or the Rating Agencies to monitor the performance by the Servicer hereunder. In addition, so long as any of the Transition Bonds of any Series are outstanding, the Servicer shall provide the Issuer and the Indenture Trustee, within a reasonable time after written request therefor, any information available to the Servicer or reasonably obtainable by it that is necessary to calculate the Transition Charges applicable to each TC Customer Class.

(iv) Preparation of Reports. The Servicer shall prepare and deliver such additional reports as required under this Agreement, including a copy of each Servicer’s Certificate described in Section 4.01(c)(ii), the annual Certificate of Compliance described in Section 3.03, and the Annual Accountant’s Report described in Section 3.04. In addition, the Servicer shall prepare, procure, deliver and/or file, or cause to be prepared, procured, delivered or filed, any reports, attestations, exhibits, certificates or other documents required to be delivered or filed with the SEC (and/or any other Governmental Authority) by the Issuer or the Sponsor under the federal securities or other applicable laws or in accordance with the Basic Documents, including, but without limiting the generality of foregoing, filing with the SEC, if applicable, a copy or copies of (i) the Monthly Servicer’s Certificates described in Section 3.01(b) (under Form 10-D or any other applicable form), (ii) the Servicer’s Certificates described in Section 4.01(c)(ii) (under Form 10-D or any other applicable form), (iii) the annual statements of compliance, attestation reports and other certificates described in Section 3.03, and (iv) the Annual Accountant’s Report (and any attestation required under Regulation AB) described in Section 3.04. In addition, the appropriate officer or officers of the Servicer shall (in its separate capacity as Servicer) sign the Sponsor’s annual report on Form 10-K (and any other applicable SEC or other reports, attestations, certifications and other documents),

 

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to the extent that the Servicer’s signature is required by, and consistent with, the federal securities law and/or any other applicable law.

(c) Opinions of Counsel. The Servicer shall deliver to the Issuer and the Indenture Trustee:

(i) promptly after the execution and delivery of this Agreement and of each amendment hereto, promptly after the execution of each Sale Agreement and of each amendment thereto and on each Subsequent Transfer Date, an Opinion of Counsel from external counsel of the Issuer either (A) to the effect that, in the opinion of such counsel, all filings, including filings with the PUCT and the Texas Secretary of State and all filings pursuant to the UCC, that are necessary under the UCC and the Securitization Law to fully preserve, protect and perfect the Liens of the Indenture Trustee in the Transition Property have been authorized, executed and filed, and reciting the details of such filings or referring to prior Opinions of Counsel in which such details are given, or (B) to the effect that, in the opinion of such counsel, no such action shall be necessary to preserve and protect such Liens; and

(ii) within ninety (90) days after the beginning of each calendar year beginning with the first calendar year beginning more than three (3) months after the date hereof, an Opinion of Counsel from external counsel of the Issuer, dated as of a date during such ninety (90)-day period, either (A) to the effect that, in the opinion of such counsel, all filings, including filings with the PUCT and the Texas Secretary of State and all filings pursuant to the UCC, have been executed and filed that are necessary under the UCC and the Securitization Law to fully preserve, protect and perfect the Liens of the Indenture Trustee in the Transition Property, and reciting the details of such filings or referring to prior Opinions of Counsel in which such details are given, or (B) to the effect that, in the opinion of such counsel, no such action shall be necessary to preserve, protect and perfect such Liens.

Each Opinion of Counsel referred to in clause (i) or (ii) above shall specify any action necessary (as of the date of such opinion) to be taken in the following year to preserve and protect such interest or Lien.

SECTION 3.02. Servicing and Maintenance Standards. On behalf of the Issuer, the Servicer shall (a) manage, service, administer and make collections in respect of the Transition Property with reasonable care and in material compliance with applicable Requirements of Law, including all applicable PUCT 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 Texas in performing its duties as Servicer; (c) use all reasonable efforts, consistent with its customary servicing procedures, to enforce, and maintain rights in respect of, the Transition Property and to bill and collect the Transition Charges; (d) comply with all Requirements of Law, including all applicable PUCT Regulations and guidelines, applicable to and binding on it relating to the Transition Property; (e) file all PUCT notices described in the

 

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Securitization Law and file and maintain the effectiveness of UCC financing statements with respect to the property transferred from time to time under the Sale Agreement, and (f) take such other action on behalf of the Issuer to ensure that the Lien of the Indenture Trustee on the Transition Bond Collateral remains perfected and of first priority. 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 Issuer’s expense but subject to the priority of payment set forth in Section 8.02(e) of the Indenture.

SECTION 3.03. Annual Reports on Compliance with Regulation AB.

(a) The Servicer shall deliver to the Issuer, the Indenture Trustee and the Rating Agencies, on or before the earlier of (a) March 31 of each year or (b) with respect to each calendar year during which the Sponsor’s annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations thereunder, the date on which the annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations thereunder, certificates from a Responsible Officer of the Servicer (i) containing, and certifying as to, the statements of compliance required by Item 1123 (or any successor or similar items or rule) of Regulation AB, as then in effect and (ii) containing, and certifying as to, the statements and assessment of compliance required by Item 1122(a) (or any successor or similar items or rule) of Regulation AB, as then in effect.

(b) The Servicer shall use commercially reasonable efforts to obtain from each other party participating in the servicing function any additional certifications as to the statements and assessment required under Item 1122 or Item 1123 of Regulation AB to the extent required in connection with the filing of the annual report on Form 10-K; provided, however, that a failure to obtain such certifications shall not be a breach of the Servicer’s duties hereunder. The parties acknowledge that the Indenture Trustee’s certifications shall be limited to the Item 1122 certifications described in Exhibit E of the Indenture.

(c) The initial Servicer, in its capacity as Sponsor, shall post on its website and file with or furnish to the SEC, in periodic reports and other reports as are required from time to time under Section 13 or Section 15(d) of the Exchange Act (without regard to the number of Holders of Transition Bonds to the extent permitted by and consistent with the Sponsor’s obligations under applicable law), the information described in Section 3.07(g) of the Indenture with respect to each Series of Outstanding Transition Bonds to the extent such information is reasonably available to the Sponsor. The initial Servicer, in its capacity as Sponsor, shall not voluntarily suspend or terminate its filing obligations as Sponsor with the SEC as described in this Section 3.03(c). The covenants of the initial Servicer, in its capacity as Sponsor, pursuant to this Section 3.03(c) shall survive the resignation, removal or termination of the initial Servicer as Servicer hereunder.

SECTION 3.04. Annual Report by Independent Registered Public Accountants.

(a) The Servicer, at its own expense in partial consideration of the Servicing Fee paid to it, shall cause a firm of Independent registered public accountants (which may

 

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provide other services to the Servicer or the Seller) to prepare annually, and the Servicer shall deliver annually to the Issuer, the Indenture Trustee and the Rating Agencies on or before the earlier of (a) March 31 of each year, beginning March 31, 2007, or (b) with respect to each calendar year during which the Sponsor’s annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations thereunder, the date on which the annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rule and regulations thereunder, a report addressed to the Servicer (the “Annual Accountant’s Report”) 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 (12) months ended December 31 (or, in the case of the first Annual Accountant’s Report to be delivered on or before March 31, 2007, the period of time from the date of this Agreement until December 31, 2006), identifying the results of such procedures and including any exceptions noted. In the event that the accounting firm providing such report requires the Indenture Trustee to agree or consent to the procedures performed by such firm, the Issuer shall direct the Indenture Trustee in writing to so agree; it being understood and agreed that the Indenture Trustee will deliver such letter of agreement or consent in conclusive reliance upon the direction of the Issuer, and the Indenture Trustee will not make any independent inquiry or investigation as to, and shall have no obligation or liability in respect of the sufficiency, validity or correctness of such procedures.

(b) The Annual Accountant’s Report shall also indicate that the accounting firm providing such report is independent of the Servicer in accordance with the Rules of the Public Company Accounting Oversight Board, and shall include the attestation report required under Item 1122(b) of Regulation AB (or any successor or similar items or rule), as then in effect.

SECTION 3.05. Monitoring of Third-Party Collectors. From time to time, until the Retirement of the Transition Bonds, the Servicer shall, in accordance with the Servicing Standard, take all actions with respect to Third-Party Collectors required to be taken by the Servicer as set forth, if applicable, in any agreement with the Servicer, the Applicable Financing Orders, Tariffs, other tariffs and any other PUCT Regulations in effect from time to time and implement such additional procedures and policies as are necessary to ensure that the obligations of all Third-Party Collectors in connection with Transition Charges are properly enforced in accordance with, if applicable, the terms of any agreement with the Servicer, the Applicable Financing Orders, Tariffs, other tariffs and any other PUCT Regulations in effect from time to time. Such procedures and policies shall include the following:

(a) Maintenance of Records and Information. In addition to any actions required by the Tariffs, PUCT Regulations or other applicable law, the Servicer shall:

(i) maintain adequate records for promptly identifying and contacting each Third-Party Collector;

(ii) maintain records of end-user Customers which are billed by Third-Party Collectors to permit prompt transfer of billing responsibilities in the event of default by such Third-Party Collectors;

 

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(iii) maintain adequate records for enforcing compliance by all Third-Party Collectors with their obligations with respect to Transition Charges, including compliance with all Remittance Requirements, REP Credit Requirements and REP Deposit Requirements; and

(iv) provide to each Third-Party Collector such information necessary for such Third-Party Collector to confirm the Servicer’s calculation of Transition Charges and remittances, including, if applicable, charge-off amounts.

The Servicer shall update the records described above no less frequently than quarterly.

(b) Credit and Collection Policies. The Servicer shall, to the fullest extent permitted under the Initial Financing Order or any Subsequent Financing Order, as applicable, impose such terms with respect to credit and collection policies applicable to Third-Party Collectors as may be reasonably necessary to prevent the then-current rating of the Transition Bonds of any Series from being downgraded, withdrawn or suspended. The Servicer shall, in accordance with and to the extent permitted by the Utilities Code, applicable PUCT Regulations and the terms of the Initial Financing Order and any Subsequent Financing Order, include and impose the above-described terms in all tariffs filed under the Utilities Code which would allow REPs or other utilities to issue single bills which include Transition Charges to TCC’s Customers. The Servicer shall periodically review the need for modified or additional terms based upon, among other things, (i) the relative amount of TC Payments received through REPs relative to the Periodic Billing Requirement, (ii) the historical payment and default experience of each REP and (iii) such other credit and collection policies to which the REPs are subject, and if permitted by applicable law, will set out any such modified or additional terms in a supplemental tariff filed with the PUCT.

(c) Monitoring of Performance and Payment by REPs. In addition to any actions required by the Tariffs, PUCT Regulations or other applicable law, the Servicer shall undertake to do the following:

(i) The Servicer shall require each REP to pay all Transition Charges (less any applicable charge-off allowances) billed to such REP in accordance with the provisions of the Initial Tariff, each Subsequent Tariff and PUCT Regulations (whether or not disputed). The Servicer shall monitor compliance by each REP with all Remittance Requirements, REP Credit Requirements and REP Deposit Requirements and take prompt action to enforce such requirements.

(ii) Where a REP is responsible for billing the Customers, the Servicer shall, consistent with its customary billing practices, bill each Applicable REP no less frequently than the billing cycle otherwise applicable to such Customers.

(iii) The Servicer shall work with REPs to resolve any disputes using the dispute resolution procedures established in the Initial Tariff, each Subsequent Tariff and any PUCT Regulations, in accordance with the Servicing Standard.

(d) Enforcement of REP Obligations. The Servicer shall, in accordance with the terms of the Initial Tariff and each Subsequent Tariff, ensure that each REP remits all TC

 

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Payments which it is obligated to remit to the Servicer. In the event of any default by any REP, the Servicer shall enforce all rights set forth in and take all other steps permitted by, if applicable, the Applicable Financing Orders, Tariffs, other tariffs and any other PUCT Regulations as it determines, in accordance with the Servicing Standard, are reasonably necessary to ensure the prompt payment of TC Payments by such REP and to preserve the rights of the Holders with respect thereto, including, where appropriate, terminating the right of any REP to bill and collect Transition Charges or petitioning the PUCT to impose such other remedies or penalties as may be available under the circumstances. Any agreement entered into between the Servicer and a defaulted REP will be limited to the terms of this Agreement and will satisfy the Rating Agency Condition. In the event the Servicer has actual knowledge that a REP is in default, including due to the downgrade by the Rating Agencies of any party providing credit support for such REP, the Servicer shall promptly notify a Responsible Officer of the Indenture Trustee in writing of the same and, shall, if applicable, instruct the Indenture Trustee either to:

(i) withdraw from such REP’s REP Deposit Account and deposit into the applicable Collection Accounts the lesser of (x) the amount of cash on deposit in such REP Deposit Account and allocable to the Transition Property at such time and (y) the amount of any Transition Charges then due and payable by such REP; or

(ii) make demand under any letter of credit, guarantee or other credit support up to the lesser of (x) the amount of such letter of credit, guarantee or other credit support and (y) the amount of any Transition Charges then due and payable by such REP, and forward the amounts received, if any, as a result of such demand to the applicable Collection Accounts.

The Indenture Trustee shall, within two (2) Business Days of receipt of such written notice, withdraw such funds from the REP Deposit Account or make demand under such credit support, as applicable, and deposit such funds withdrawn or received, as applicable, into the applicable Collection Accounts.

(e) Maintenance of REP Deposit Accounts. The Servicer shall cause the entity acting as Indenture Trustee to maintain one or more REP Deposit Accounts as described in Section 8.02(g) of the Indenture. The Servicer shall provide written direction to the Indenture Trustee regarding the allocation and release of funds on deposit in the REP Deposit Accounts, as permitted or required by the Indenture, this Agreement, the Intercreditor Agreement, or any Applicable Financing Order, Tariff or PUCT Regulations. The Indenture Trustee shall be entitled to conclusively rely on any such written directions from the Servicer. The Servicer will seek and use reasonable best efforts to obtain, from any REP which wishes to satisfy its credit support requirements by making a deposit to a REP Deposit Account, a written security agreement stating that (i) by making such deposit the REP has granted a security interest in such deposit in favor of the Indenture Trustee, and (ii) the Indenture Trustee, in holding such deposit as collateral, will have the rights and remedies of a secured party under Article 9 of the UCC with respect to such collateral, and the Servicer will promptly forward any such agreement to the Indenture Trustee.

 

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(f) Affiliated Third-Party Collectors. In performing its obligations under this Section 3.05, the Servicer shall deal with any Third-Party Collectors which are Affiliates of the Servicer on terms which are no more favorable in the aggregate to such affiliated Third-Party Collector than those used by the Servicer in its dealings with Third-Party Collectors that are not affiliates of the Servicer.

ARTICLE IV

SERVICES RELATED TO TRUE-UP ADJUSTMENTS

SECTION 4.01. True-Up Adjustments. From time to time, until the Retirement of the Transition Bonds, the Servicer shall identify the need for Annual True-Up Adjustments, Interim True-Up Adjustments and Non-Standard True-Up Adjustments for each Series and shall take all reasonable action to obtain and implement such True-Up Adjustments, all in accordance with the following:

(a) Expected Amortization Schedule. The Expected Amortization Schedule for the initial Series of Transition Bonds is attached hereto as Schedule 4.01(a). In connection with the Issuer’s issuance of any additional Series of Transition Bonds after the Closing Date, the Servicer, on or prior to the Series Issuance Date therefor, shall revise the Expected Amortization Schedule to add a new schedule for each new Series of Transition Bonds and set forth, as of each Payment Date through the latest Scheduled Final Payment Date for any Series of Transition Bonds, the aggregate principal amounts of the Transition Bonds of all Series, including such additional Series, expected to be outstanding on such Payment Date. If the Expected Amortization Schedule is revised as set forth above, the Servicer shall send a copy of such revised Expected Amortization Schedule to the Issuer, the Indenture Trustee and the Rating Agencies promptly thereafter.

(b) True-Up Adjustments.

(i) Annual True-Up Adjustments and Filings. Each year no later than fifteen (15) days prior to the first billing cycle of September (or, in the case of any subsequent Series, the corresponding billing cycle for such Series based on its Series Issuance Date) the Servicer shall: (A) update the data and assumptions underlying the calculation of the Transition Charges, including projected electricity usage during the next Calculation Period for each TC Customer Class and including interest and estimated expenses and fees of the Issuer to be paid during such period, the Weighted Average Days Outstanding and write-offs; (B) determine the Periodic Payment Requirements and Periodic Billing Requirement for the next Calculation Period based on such updated data and assumptions; (C) determine the Transition Charges to be allocated to each TC Customer Class during the next Calculation Period based on such Periodic Billing Requirement and the terms of the Applicable Financing Orders and the Tariffs filed pursuant thereto and in doing so the Servicer shall use the method of allocating Transition Charges then in effect, including as applicable, the result of the implementation of the most recent Non-Standard True-Up Adjustment; (D) make all required notice and other filings with the PUCT to reflect the revised Transition Charges, including any Amendatory Tariffs, and (E) take all reasonable actions and make

 

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all reasonable efforts to effect such Annual True-Up Adjustment and to enforce the provisions of the Securitization Law and the Applicable Financing Orders; provided, however, that if the Servicer determines that the forecasted billing units for one or more of the TC Customer Classes for an upcoming period decreases by more than 10% compared to the billing units for the threshold period set forth in the Applicable Financing Order, the Servicer shall implement a Non-Standard True-Up Adjustment and, if such Non-Standard True-Up Adjustment shall be made in the time period provided for Annual True-Up Adjustments pursuant to this Section 4.01(b)(i), such Non-Standard True-Up Adjustment shall also qualify as an Annual True-Up Adjustment for purposes of this Agreement. The Servicer shall implement the revised Transition Charges, if any, resulting from such Annual True-Up Adjustment as of the Annual True-Up Adjustment Date.

(ii) Non-Standard True-Up Adjustments and Filings. In the event that the Servicer determines that a Non-Standard True-Up Adjustment is required, the Servicer shall, no later than ninety (90) days prior to the first billing cycle of September (or, in the case of any subsequent Series of transition bonds, the corresponding billing cycle for each Series based on its Series Issuance Date) (A) recalculate the Transition Charges to reallocate such Transition Charges among TC Customer Classes in accordance with the procedures for Non-Standard True-Up Adjustments set forth in the Applicable Financing Order and TC Tariff; (B) make all required notice and other filings with the PUCT to reflect the revised Transition Charges, including any Amendatory Tariffs; and (C) take all reasonable actions and make all reasonable efforts to effect such Non-Standard True-Up Adjustment and to enforce the provisions of the Securitization Law and all Applicable Financing Orders. The Servicer shall implement the revised Transition Charges, if any, resulting from such Non-Standard True-Up Adjustment on the Non-Standard True-Up Adjustment Date. For the avoidance of doubt, no Annual True-Up Adjustment or Interim True-Up Adjustment shall be considered a Non-Standard True-Up Adjustment solely because Transition Charges are allocated under such Annual True-Up Adjustment or Interim True-Up Adjustment in the same manner as in a preceding Non-Standard True-Up Adjustment.

(iii) Interim True-Up Adjustments and Filings. Within the 30-day period ending on March 1, 2007 (or in the case of any subsequent Series, the corresponding period based on its Series Issuance Date) and, beginning in 2008, within the 30-day period preceding the date which is six months after the date of the Annual True-Up Adjustment described above (or three months, six months and nine months after the Annual True-Up Adjustment during the fourteenth (14th) and fifteenth (15th) year of any Series of Transition Bonds), the Servicer shall compare the anticipated Unrecovered Balance, as of the next Payment Date and after giving effect to payments to be made on such Payment Date, to the Projected Unrecovered Balance as of such Payment Date. The Servicer shall, no later than fifteen (15) days prior to the end of such thirty (30) day period, make a mandatory Interim True-Up Adjustment if the Servicer determines (i) that such Unrecovered Balance will be less than the Projected Unrecovered Balance as of such Payment Date, (ii) that the outstanding principal amount of the Transition Bonds

 

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plus amounts on deposit in the applicable Excess Funds Subaccount will exceed 105% of such Projected Unrecovered Balance as of such Payment Date, (iii) that any Outstanding Series or Tranche of Transition Bonds will not be paid in full by its Expected Final Payment Date or (iv) that an undercollection of Transition Charges exists and that such undercollection, regardless of cause, must be corrected in order to ensure timely payment of any Outstanding Series or Tranche of Transition Bonds based on Rating Agency and Bondholder considerations (including a mandatory Interim True-Up Adjustment in connection with each semi-annual Payment Date (or quarterly in the fourteenth and fifteenth years of such Transition Bonds) if the Servicer forecasts that TC Collections during the next semi-annual period or quarterly period, as applicable, will be insufficient (a) to make all scheduled payments of interest, principal and other amounts in respect of any Outstanding Series or Tranche of Transition Bonds and (b) to replenish the applicable Capital Subaccount for such Series to the Required Capital Level). If the Servicer determines that an Interim True-Up Adjustment is required under the immediately preceding sentence, then the Servicer shall: (A) update the data and assumptions underlying the calculation of the Transition Charges, including projected electricity usage during the next Calculation Period for each TC Customer Class and including interest and estimated expenses and fees of the Issuer to be paid during such period, the rate of delinquencies and write-offs; (B) determine the Periodic Payment Requirement and Periodic Billing Requirement for the next Calculation Period based on such updated data and assumptions; (C) determine the Transition Charges to be allocated to each TC Customer Class during the next Calculation Period based on such Periodic Billing Requirement and the terms of the Applicable Financing Orders and the Tariffs filed pursuant thereto, and in doing so the Servicer shall use the method of allocating Transition Charges then in effect, including as applicable, the result of the implementation of the most recent Non-Standard True-Up Adjustment; (D) make all required notice and other filings with the PUCT to reflect the revised Transition Charges, including any Amendatory Tariffs; and (E) take all reasonable actions and make all reasonable efforts to effect such Interim True-Up Adjustment and to enforce the provisions of the Securitization Law and the Applicable Financing Orders which relate thereto. The Servicer shall implement the revised Transition Charges, if any, resulting from such Interim True-Up Adjustment on the Interim True-Up Adjustment Date. The Servicer may not implement Interim True-Up Adjustments more frequently than every six (6) months; provided that the Servicer may implement Interim True-Up Adjustments quarterly for any Transition Bonds remaining Outstanding during the fourteenth (14th) and fifteenth (15th) years after the issuance of such Transition Bonds.

(c) Reports.

(i) Notification of Amendatory Tariff Filings and True-Up Adjustments. Whenever the Servicer files an Amendatory Tariff with the PUCT or implements revised Transition Charges with notice to the PUCT without filing an Amendatory Tariff if permitted by any Applicable Financing Order, the Servicer shall send a copy of such filing or notice (together with a copy of all notices and documents which, in the Servicer’s reasonable judgment, are material to the adjustments effected by such Amendatory Tariff or notice) to the Issuer, the Indenture Trustee and the Rating Agencies concurrently therewith. If, for any

 

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reason any revised Transition Charges are not implemented and effective on the applicable date set forth herein, the Servicer shall notify the Issuer, the Indenture Trustee and each Rating Agency by the end of the second Servicer Business Day after such applicable date.

(ii) Servicer’s Certificate. Not later than five (5) Servicer Business Days prior to each Payment Date or Special Payment Date, the Servicer shall deliver a written report, for each Series of Transition Bonds, substantially in the form of Exhibit C hereto (the “Servicer’s Certificate”) to the Issuer, the Indenture Trustee and the Rating Agencies which shall include all of the following information (to the extent applicable and including any other information so specified in the applicable Series Supplement) as to the Transition Bonds of such Series with respect to such Payment Date or Special Payment Date or the period since the previous Payment Date, as applicable:

 

  (a) the amount of the payment to Holder allocable to principal, if any;

 

  (b) the amount of the payment to Holders allocable to interest;

 

  (c) the aggregate Outstanding Amount of such Transition Bonds, before and after giving effect to any payments allocated to principal reported under clause (a) above;

 

  (d) the difference, if any, between the amount specified in clause (c) above and the Outstanding Amount specified in the related Expected Amortization Schedule;

 

  (e) any other transfers and payments to be made on such Payment Date or Special Payment Date, including amounts paid to the Indenture Trustee and to the Servicer; and

 

  (f) the amounts on deposit in the applicable Capital Subaccount and the applicable Excess Funds Subaccount, after giving effect to the foregoing payments.

(iii) Reports to Customers.

(A) After each revised Transition Charge has gone into effect pursuant to a True-Up Adjustment, the Servicer shall, to the extent and in the manner and time frame required by applicable PUCT Regulations, if any, cause to be prepared and delivered to Customers any required notices announcing such revised Transition Charges.

(B) The Servicer shall comply with the requirements of each Financing Order and Tariff with respect to the identification of Transition Charges on Bills. In addition, at least once each year, the Servicer shall (to the extent that it does not separately identify the Transition Charges as being owned by the Issuer in the

 

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Bills reg