-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JW4ONyzJ8VPGtOAeATdvXB8Ul1D+lfs0tEd2u5gAwAFIgLF7ombI/xOL+OmbpMKw xFJ2Hmx67bB/MTEqHwCRMQ== 0000898080-02-000462.txt : 20021223 0000898080-02-000462.hdr.sgml : 20021223 20021223160122 ACCESSION NUMBER: 0000898080-02-000462 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20021219 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20021223 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC CENTRAL INDEX KEY: 0001138120 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-59558 FILM NUMBER: 02867034 BUSINESS ADDRESS: STREET 1: 800 KING STREET CITY: WILMINGTON STATE: DE ZIP: 19899 BUSINESS PHONE: 3024293114 MAIL ADDRESS: STREET 1: 800 KING STREET CITY: WILMINGTON STATE: DE ZIP: 19899 8-K 1 form8k.txt FORM 8K ------------------------------------------------------------------------------- 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): DECEMBER 19, 2002 ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC (Exact Name of Registrant as Specified in its Certificate of Formation) DELAWARE 333-59550 51-0408521 (State or Other (Commission (I.R.S. Employer Jurisdiction of File Number) Identification No.) Formation) ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC P.O. Box 15597 Wilmington, Delaware 19850-5597 (Address of Principal Executive Offices, Including Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (302) 429-3902 ------------------------------------------------------------------------------- ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE The Registrant registered transition bonds under the Securities Act of 1933 by a Registration Statement on Form S-3 (Registration File No. 333-59550) (the"Registration Statement"). Pursuant to the Registration Statement, the Registrant issued and sold $440,000,000 in aggregate principal amount of transition bonds. The transaction was closed on December 19, 2002. In connection with this transaction, the Registrant entered into the material agreements attached hereto as exhibits. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial statements of businesses acquired: Not applicable. (b) Pro forma financial information: Not applicable. (c) Exhibits: A list of the Exhibits filed herewith is attached hereto. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC By: /s/ James P. Lavin ------------------------- Name: James P. Lavin Title: Chief Financial Officer and Manager Date: December 19, 2002 EXHIBIT INDEX The following exhibits are filed herewith: INDEX TO EXHIBITS Exhibit No. Description 1.1 Underwriting Agreement. 3.1 Amended and Restated Limited Liability Company Agreement of Atlantic City Electric Transition Funding LLC. 4.1 Indenture. 4.2 Series Supplement including Form of Transition Bonds. 10.1 Sale Agreement. 10.2 Servicing Agreement. 10.3 Administration Agreement. EX-1.1 3 exh11.txt EXHIBIT 1.1 EXECUTION COPY ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC TRANSITION BONDS SERIES 2002-1 ATLANTIC CITY ELECTRIC COMPANY UNDERWRITING AGREEMENT New York, New York December 11, 2002 To the Representative named in Schedule I hereto of the Underwriters named in Schedule II hereto Ladies and Gentlemen: 1. Introduction. Atlantic City Electric Transition Funding LLC, a Delaware limited liability company (the "Issuer"), proposes to sell to the underwriters named in Schedule II hereto (the "Underwriters"), for whom you (the "Representative") are acting as representative, the principal amount of the securities identified in Schedule I hereto (the "Transition Bonds"). If the firm or firms listed in Schedule II hereto include only the firm listed in Schedule I hereto, then the terms "Underwriters" and "Representative", as used herein, shall each be deemed to refer to such firm. The Issuer is a wholly-owned subsidiary of Atlantic City Electric Company, an operating electric utility incorporated under the laws of the State of New Jersey (the "Company"), and was formed on March 28, 2001 for the purpose of purchasing and owning the Bondable Transition Property, issuing the Transition Bonds, and pledging its interest in the Collateral to The Bank of New York (the "Bond Trustee") under an indenture, to be dated as of December 19, 2002 (as amended and supplemented from time to time, including any Series Supplement, the "Indenture"), between the Issuer and the Bond Trustee, to secure the Transition Bonds. The Transition Bonds will be secured primarily by the Bondable Transition Property. The Initial Bondable Transition Property will be sold by the Company to the Issuer pursuant to a sale agreement, to be dated as of December 19, 2002 (the "Sale Agreement"), and the related bill of sale, between the Company and the Issuer. Subsequent Bondable Transition Property may be sold to the Issuer by the Company pursuant to the Sale Agreement and subsequent bills of sale. The Initial Bondable Transition Property will be serviced pursuant to a servicing agreement, to be dated as of December 19, 2002 (as amended and supplemented from time to time, the "Servicing Agreement"), between the Company, as servicer, and the Issuer. Capitalized terms used and not otherwise defined herein shall have the meanings given to them in the Indenture. 2. Representations and Warranties. Each of the Company and the Issuer represents and warrants to, and agrees with, each Underwriter as set forth below in this Section 2. Certain terms used in this Section 2 are defined in paragraph (c) hereof. (a) If the offering of the Transition Bonds is a Delayed Offering (as specified in Schedule I hereto), paragraph (i) below is applicable and, if the offering of the Transition Bonds is a Non-Delayed Offering (as so specified), paragraph (ii) below is applicable. (i) The Issuer and the Transition Bonds meet the requirements for the use of Form S-3 under the Securities Act of 1933 (the "Act"), and the Issuer has filed with the Securities and Exchange Commission (the "SEC") a registration statement (the file number of which is set forth in Schedule I hereto) on such Form, including a basic prospectus, for registration under the Act of the offering and sale of the Transition Bonds. The Issuer may have filed one or more amendments thereto, and may have used a Preliminary Final Prospectus, each of which has previously been furnished to you. Such registration statement, as so amended, has become effective. The offering of the Transition Bonds is a Delayed Offering and, although the Basic Prospectus may not include all the information with respect to the Transition Bonds and the offering thereof required by the Act and the rules thereunder to be included in the Final Prospectus, the Basic Prospectus includes all such information required by the Act and the rules thereunder to be included therein as of the Effective Date. The Issuer will next file with the SEC pursuant to Rules 415 and 424(b) (2) or (5) a final supplement to the form of prospectus included in such registration statement relating to the Transition Bonds and the offering thereof. As filed, such final prospectus supplement shall include all required information with respect to the Transition Bonds and the offering thereof and, except to the extent the Representative shall agree in writing to a modification, shall be in all substantive respects in the form furnished to you prior to the Execution Time or, to the extent not completed at the Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the Basic Prospectus and any Preliminary Final Prospectus) as the Issuer has advised you, prior to the Execution Time, will be included or made therein. (ii) The Issuer and the Transition Bonds meet the requirements for the use of Form S-3 under the Act and the Issuer has filed with the SEC a registration statement (the file number of which is set forth in Schedule I hereto) on such Form, including a basic prospectus, for registration under the Act of the offering and sale of the Transition Bonds. The Issuer may have filed one or more amendments thereto, including a Preliminary Final Prospectus, each of which has previously been furnished to you. The Issuer will next file with the SEC either (x) a final prospectus supplement relating to the Transition Bonds in accordance with Rules 430A and 424(b)(l) or (4), or (y) prior to the effectiveness of such registration statement, an amendment to such registration statement, including the form of final prospectus supplement. In the case of clause (x), the Issuer has 2 included in such registration statement, as amended at the Effective Date, all information (other than Rule 430A Information) required by the Act and the rules thereunder to be included in the Final Prospectus with respect to the Transition Bonds and the offering thereof. As filed, such final prospectus supplement or such amendment and form of final prospectus supplement shall contain all Rule 430A Information, together with all other such required information, with respect to the Transition Bonds and the offering thereof and, except to the extent the Representative shall agree in writing to a modification, shall be in all substantive respects in the form furnished to you prior to the Execution Time or, to the extent not completed at the Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the Basic Prospectus and any Preliminary Final Prospectus) as the Issuer has advised you, prior to the Execution Time, will be included or made therein. (b) On the Effective Date, the Registration Statement did or will, and when the Final Prospectus is first filed (if required) in accordance with Rule 424(b) and on the Closing Date, the Final Prospectus (and any supplement thereto) will, comply in all material respects with the applicable requirements of the Act, the Securities Exchange Act of 1934 (the "Exchange Act") and the Trust Indenture Act of 1939 (the "Trust Indenture Act") and the respective rules thereunder; on the Effective Date, the Registration Statement did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; on the Effective Date and on the Closing Date, the Indenture did or will comply in all material respects with the requirements of the Trust Indenture Act and the rules thereunder; and, on the Effective Date, the Final Prospectus, if not filed pursuant to Rule 424(b), did not or will not, and on the date of any filing pursuant to Rule 424(b) and on the Closing Date, the Final Prospectus (together with any supplement thereto) will not, include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that neither the Issuer nor the Company makes any representations or warranties as to (i) that part of the Registration Statement which shall constitute the Statements of Eligibility and Qualification (Forms T-l) under the Trust Indenture Act of the Bond Trustee or (ii) the information contained in or omitted from the Registration Statement or the Final Prospectus (or any supplement thereto) in reliance upon and in conformity with information furnished in writing to the Issuer by or on behalf of any Underwriter through the Representative specifically for inclusion in the Registration Statement or the Final Prospectus (or any supplement thereto). (c) The terms which follow, when used in this Agreement, shall have the meanings indicated. The term "Effective Date" shall mean each date that the Registration Statement and any post-effective amendment or amendments thereto became or become effective and each date after the date hereof on which a document incorporated by reference in the Registration Statement is filed. "Execution Time" shall mean the date and time that this Agreement is executed and delivered by the parties hereto. "Basic Prospectus" shall mean the prospectus referred to in paragraph (a) above contained in the 3 Registration Statement at the Effective Date including, in the case of a Non-Delayed Offering, any Preliminary Final Prospectus. "Preliminary Final Prospectus" shall mean any preliminary prospectus supplement to the Basic Prospectus which describes the Transition Bonds and the offering thereof and is used prior to filing of the Final Prospectus. "Final Prospectus" shall mean the prospectus supplement relating to the Transition Bonds that is first filed pursuant to Rule 424(b) after the Execution Time, together with the Basic Prospectus or, if, in the case of a Non-Delayed Offering, no filing pursuant to Rule 424(b) is required, shall mean the form of final prospectus relating to the Transition Bonds, including the Basic Prospectus, included in the Registration Statement at the Effective Date. "Registration Statement" shall mean the registration statement referred to in paragraph (a) above, including incorporated documents, exhibits and financial statements, as amended at the Execution Time (or, if not effective at the Execution Time, in the form in which it shall become effective) and, in the event any post-effective amendment thereto becomes effective prior to the Closing Date (as hereinafter defined), shall also mean such registration statement as so amended. Such term shall include any Rule 430A Information deemed to be included therein at the Effective Date as provided by Rule 430A. "Rule 415", "Rule 424", "Rule 430A" and "Regulation S-K" refer to such rules or regulation under the Act. "Rule 430A Information" means information with respect to the Transition Bonds and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A. Any reference herein to the Registration Statement, the Basic Prospectus, any Preliminary Final Prospectus or the Final Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 which were filed under the Exchange Act on or before the Effective Date of the Registration Statement or the issue date of the Basic Prospectus, any Preliminary Final Prospectus or the Final Prospectus, as the case may be; and any reference herein to the terms "amend", "amendment" or "supplement" with respect to the Registration Statement, the Basic Prospectus, any Preliminary Final Prospectus or the Final Prospectus shall be deemed to refer to and include the filing of any document under the Exchange Act after the Effective Date of the Registration Statement or the issue date of the Basic Prospectus, any Preliminary Final Prospectus or the Final Prospectus, as the case may be, deemed to be incorporated therein by reference. A "Non-Delayed Offering" shall mean an offering of securities which is intended to commence promptly after the effective date of a registration statement, with the result that, pursuant to Rules 415 and 430A, all information (other than Rule 430A Information) with respect to the securities so offered must be included in such registration statement at the effective date thereof. A "Delayed Offering" shall mean an offering of securities pursuant to Rule 415 which does not commence promptly after the effective date of a registration statement, with the result that only information required pursuant to Rule 415 need be included in such registration statement at the effective date thereof with respect to the securities so offered. Whether the offering of the Transition Bonds is a Non-Delayed Offering or a Delayed Offering shall be set forth in Schedule I hereto. 2A. Each Underwriter represents and warrants severally to and agrees with the Company and the Issuer that: 4 (a) As of the date hereof and as of the Closing Date, each Underwriter has complied with all of its obligations under Section 11 hereof. Prior to the delivery of the Preliminary Final Prospectus, no written material of any kind relating to the Transition Bonds will be delivered to potential investors other than Computational Materials and ABS Term Sheets (as such terms are defined in Section 11 hereof). It is understood and agreed between the parties hereto that the only ABS Term Sheets or Computational Materials that have been or will be delivered to prospective investors by the Underwriters are the Computational Materials dated December 5, 2002 that have been delivered by the Issuer to the Representative and that are attached hereto as Exhibit B. 3. Purchase and Sale. Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Issuer agrees to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Issuer, at the purchase price set forth in Schedule I hereto the principal amount of the Transition Bonds set forth opposite such Underwriter's name in Schedule II hereto. Such purchase shall be in accordance with the other terms and conditions set forth in Schedule I hereto 4. Delivery and Payment. Delivery of and payment for the Transition Bonds shall be made on the date and at the time specified in Schedule I hereto, which date and time may be postponed by agreement between the Representative and the Issuer or as provided in Section 9 hereof (such date and time of delivery and payment for the Transition Bonds being herein called the "Closing Date"). Delivery of the Transition Bonds shall be made to the Representative for the respective accounts of the several Underwriters against payment by the several Underwriters through the Representative of the purchase price thereof to the Issuer by wire transfer of immediately available funds. Delivery of the Transition Bonds shall be made at such location as the Representative shall reasonably designate at least one business day in advance of the Closing Date. The Transition Bonds to be so delivered shall be initially represented by Bonds registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"). The interests of beneficial owners of the Transition Bonds will be represented by book entries on the records of DTC and participating members thereof. Definitive Transition Bonds will be available only under limited circumstances. The Issuer agrees to have the Transition Bonds available for inspection, checking and packaging by the Representative in New York, New York, not later than 1:00 PM on the business day prior to the Closing Date. 5. Covenants. (a) Covenants of the Issuer. The Issuer covenants and agrees with the several Underwriters that: (i) The Issuer will use its best efforts to cause the Registration Statement, if not effective at the Execution Time, and any amendment thereto, to become effective. Prior to the termination of the offering of the Transition Bonds, the Issuer will not file any amendment of the Registration Statement or 5 supplement (including the Final Prospectus or any Preliminary Final Prospectus) to the Basic Prospectus unless the Issuer has furnished you a copy for your review prior to filing and will not file any such proposed amendment or supplement to which you reasonably object. Subject to the foregoing sentence, the Issuer will cause the Final Prospectus, properly completed, and any supplement thereto to be filed with the SEC pursuant to the applicable paragraph of Rule 424(b) within the time period prescribed and will provide evidence satisfactory to the Representative of such timely filing. The Issuer will promptly advise the Representative (i) when the Registration Statement, if not effective at the Execution Time, and any amendment thereto, shall have become effective, (ii) when the Final Prospectus, and any supplement thereto, shall have been filed with the SEC pursuant to Rule 424(b), (iii) when, prior to termination of the offering of the Transition Bonds, any amendment to the Registration Statement shall have been filed or become effective, (iv) of any request by the SEC for any amendment of the Registration Statement or supplement to the Final Prospectus or for any additional information, (v) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose and (vi) of the receipt by the Issuer of any notification with respect to the suspension of the qualification of the Transition Bonds for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. The Issuer will use its best efforts to prevent the issuance of any such stop order and, if issued, to obtain as soon as possible the withdrawal thereof. (ii) If, at any time when a prospectus relating to the Transition Bonds is required to be delivered under the Act, any event occurs as a result of which the Final Prospectus as then supplemented would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or if it shall be necessary to amend the Registration Statement or supplement the Final Prospectus to comply with the Act or the Exchange Act or the respective rules thereunder, the Issuer promptly will (i) prepare and file with the SEC, subject to the second sentence of paragraph (a)(i) of this Section 5, an amendment or supplement which will correct such statement or omission or effect such compliance and (ii) supply any supplemented Prospectus to you in such quantities as you may reasonably request. (iii) As soon as practicable, the Issuer will make generally available to the Bondholders and to the Representative an earnings statement or statements of the Issuer which will satisfy the provisions of Section 11(a) of the Act and Rule 158 under the Act. (iv) The Issuer will furnish to the Representative and counsel for the Underwriters, without charge, copies of the Registration Statement (including exhibits thereto) and, so long as delivery of a prospectus by an Underwriter or dealer may be required by the Act, as many copies of any Preliminary Final 6 Prospectus and the Final Prospectus and any supplement thereto as the Representative may reasonably request. The Issuer shall furnish or cause to be furnished to the Representative copies of all reports on Form SR required by Rule 463 under the Act. The Issuer will pay the expenses of printing or other production of all documents specifically relating to the offering of the Transition Bonds under the Act. (v) The Issuer will cooperate in qualifying the Transition Bonds for sale under the laws of such jurisdictions as the Representative may reasonably request, will maintain such qualifications in effect so long as required for the distribution of the Transition Bonds and will arrange for the determination of the legality of the Transition Bonds for purchase by institutional investors; provided that in no event shall the Issuer (a) submit to any State requirements which it deems unduly burdensome or (b) be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action that would subject it to service of process in suits, other than those arising out of the offering or sale of the Transition Bonds, in any jurisdiction where it is not now so subject. (vi) Until the business date set forth on Schedule I hereto, the Issuer will not, without the consent of the Representative, offer, sell or contract to sell, or otherwise dispose of, directly or indirectly, or announce the offering of, any asset-backed securities of a special purpose vehicle (other than the Transition Bonds). (vii) For a period from the date of this Agreement until the retirement of the Transition Bonds, or until such time as the Underwriters shall cease to maintain a secondary market in the Transition Bonds, whichever occurs first, the Issuer will deliver to the Representative the annual statements of compliance and the annual independent auditor's servicing reports furnished to the Issuer or the Bond Trustee pursuant to the Servicing Agreement or the Indenture, as applicable, as soon as such statements and reports are furnished to the Issuer or the Bond Trustee. (viii) So long as any of the Transition Bonds are outstanding, the Issuer will furnish to the Representative (i) as soon as available, a copy of each report filed with the SEC under the Exchange Act, or mailed to Bondholders, (ii) a copy of any filings with the New Jersey Board of Public Utilities (the "BPU") or any other governmental agency or instrumentality relating to the Transition Bonds, and (iii) from time to time, any information concerning the Company or the Issuer, as the Representative may reasonably request. (ix) To the extent, if any, that any rating necessary to satisfy the condition set forth in Section 6(o) of this 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 as are reasonably required. 7 (x) The Issuer will file with the SEC a report on Form 8-K setting forth all Computational Materials and ABS Term Sheets (as such terms are defined in Section 11) provided to the Issuer by an Underwriter and identified by it as such within the time period allotted for such filing pursuant to the No-Action Letters (as defined in Section 11); provided, however, that prior to any filing of the Computational Materials and ABS Terms Sheets by the Issuer, such Underwriter must comply with its obligations pursuant to Section 11 and the Issuer must receive a letter from PricewaterhouseCoopers LLP, certified public accountants, satisfactory in form and substance to the Issuer and such Underwriter, to the effect that such accountants have performed specified procedures, all of which have been agreed to by the Issuer and such Underwriter, as a result of which they have determined that the information included in the Computational Materials and ABS Term Sheets (if any), provided by such Underwriter to the Issuer for filing on Form 8-K pursuant to Section 11 and this subsection (x), and which the accountants have examined in accordance with such agreed upon procedures, is accurate except as to such matters that are not deemed by the Issuer and such Underwriter to be required to be covered by such letter. The Issuer shall file any corrected Computational Materials or ABS Term Sheets described in Section 11(a)(iii) as soon as practicable following receipt thereof. (b) Covenants of the Company. The Company covenants and agrees with the several Underwriters that, to the extent that the Issuer has not already performed such act pursuant to Section 5 (a): (i) The Company will use its best efforts to cause the Registration Statement, if not effective at the Execution Time, and any amendment thereto, to become effective. The Company will use its best efforts to prevent the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement and, if issued, to obtain as soon as possible the withdrawal thereof. (ii) Until the business date set forth on Schedule I hereto, the Company will not, without the consent of the Representative, offer, sell or contract to sell, or otherwise dispose of, directly or indirectly, or announce the offering of, any asset-backed securities of a special purpose vehicle (other than the Transition Bonds). (iii) So long as any of the Transition Bonds are outstanding and the Company is the Servicer, the Company will furnish to the Representative (i) as soon as available, a copy of each report filed with the SEC under the Exchange Act, or mailed to Bondholders, (ii) a copy of any filings with the BPU pursuant to the Financing Order relating to the Transition Bonds, including, without limitation, filings to adjust the Transition Bond Charge from time to time, and (iii) from time to time, any information concerning the Company and, to the extent readily available, the Issuer, as the Representative may reasonably request. 8 (iv) To the extent, if any, that any rating necessary to satisfy the condition set forth in Section 6(o) of this Agreement is conditioned upon the furnishing of documents or the taking of other actions by the Company on or after the Closing Date, the Company shall furnish such documents and take such other actions as are reasonably required. 6. Conditions to the Obligations of the Underwriters. The obligations of the Underwriters to purchase the Transition Bonds shall be subject to the accuracy of the representations and warranties on the part of the Issuer and the Company contained herein as of the Execution Time and the Closing Date and on the part of the Company contained in the Sale Agreement and the Servicing Agreement as of the Closing Date, to the performance by the Issuer and the Company of their respective obligations hereunder and to the following additional conditions: (a) If the Registration Statement has not become effective prior to the Execution Time, unless the Representative agrees in writing to a later time, the Registration Statement will become effective not later than (i) 6:00 PM New York City time, on the date of determination of the public offering price, if such determination occurred at or prior to 3:00 PM New York City time on such date, or (ii) 12:00 Noon on the business day following the day on which the public offering price was determined, if such determination occurred after 3:00 PM New York City time on such date; if filing of the Final Prospectus, or any supplement thereto, is required pursuant to Rule 424(b), the Final Prospectus, and any such supplement, shall have been filed in the manner and within the time period required by Rule 424 (b); and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened. (b) The Representative shall have received opinions of counsel for the Company, portions of which may be delivered by LeBoeuf, Lamb, Greene & MacRae, L.L.P., outside counsel for the Company, and portions of which may be delivered by Randall V. Griffin, in-house counsel for the Company, each dated the Closing Date and each subject to customary qualifications, exceptions, and limitations, in form and substance reasonably satisfactory to the Representative, to the effect that: (i) the Company (a) has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is organized, (b) has all requisite corporate power to own its properties, conduct its business as presently conducted and execute, deliver and perform its obligations under this Agreement, the Sale Agreement, and the Servicing Agreement, as applicable, and (c) is duly qualified to do business, in all jurisdictions (and is in good standing under the laws of all such jurisdictions) to the extent that such qualification and good standing is or shall be necessary to protect the validity and enforceability of this Agreement, the Basic Documents to which the Company is party and each other instrument or agreement necessary or appropriate to the proper administration of this Agreement and the transactions contemplated hereby; 9 (ii) the Sale Agreement and the Servicing Agreement have been duly authorized, executed and delivered by the Company and constitute legal, valid and binding agreements of the Company enforceable against the Company in accordance with their terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium and other similar laws and to equitable principles affecting the rights and remedies of creditors generally); (iii) to the knowledge of such counsel, there is no pending or threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries of a character required to be disclosed in the Registration Statement which is not adequately disclosed in the Final Prospectus, and there is no franchise, contract or other document of a character required to be described in the Registration Statement or Final Prospectus, or to be filed as an exhibit, which is not described or filed as required; (iv) this Agreement has been duly authorized, executed and delivered by the Company; (v) no consent, approval, authorization or order of any court or governmental agency or body is required for the consummation by the Company, of the transactions contemplated herein, except such as have been obtained under the New Jersey Electric Discount and Energy Competition Act (the "Competition Act") and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Transition Bonds by the Underwriters and such other consents, approvals and authorizations as have been obtained; (vi) neither the execution and delivery of this Agreement, the Sale Agreement, or the Servicing Agreement, nor the consummation of the transactions contemplated by this Agreement, the Sale Agreement or the Servicing Agreement, nor the fulfillment of the terms of this Agreement, the Sale Agreement or the Servicing Agreement by the Company will (A) conflict with, result in any breach of any of the terms or provisions of, or constitute (with or without notice or lapse of time) a default under the articles of incorporation, bylaws or other organizational documents of the Company, or conflict with or breach any of the material terms or provisions of, or constitute (with or without notice or lapse of time) a default under, any indenture, material agreement or other material instrument to which the Company is a party or by which the Company is bound, (B) result in the creation or imposition of any lien upon any properties of the Company pursuant to the terms of any such indenture, agreement or other instrument (other than as contemplated by the Basic Documents and the Competition Act), or (C) violate any law or any order, rule or regulation applicable to the Company of any court or of any federal or New Jersey regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Company or any of its properties; 10 (vii) all filings, that are necessary to fully preserve and protect the interests of the Issuer in the Bondable Transition Property have been executed and filed; and (viii) neither the execution and delivery of this Agreement, the Sale Agreement, the Servicing Agreement or the Indenture, nor the issue and sale of the Transition Bonds, nor the consummation of the transactions contemplated by this Agreement, the Sale Agreement, the Servicing Agreement or the Indenture, nor the fulfillment of the terms of this Agreement, the Sale Agreement, the Servicing Agreement or the Indenture, by the Issuer will violate the terms of the Mortgage and Deed of Trust dated January 15, 1937, as amended, between the Company and The Bank of New York, as trustee. In rendering such opinions, such counsel may rely as to matters of fact, to the extent deemed proper, on certificates of responsible officers of the Company. References to the Final Prospectus in this paragraph (b) include any supplements thereto at the Closing Date. (c) The Representative shall have received opinions of counsel for the Issuer, portions of which may be delivered by LeBoeuf, Lamb, Greene & MacRae L.L.P., outside counsel for the Issuer, and portions of which may be delivered by Randall V. Griffin, in-house counsel for the Company, each dated the Closing Date, in form and substance reasonably satisfactory to the Representative, to the effect that: (i) the Issuer has been duly formed and is validly existing as a limited liability company and is in good standing under the laws of the State of Delaware, with all requisite limited liability company power to execute, deliver and perform its obligations under this Agreement, the Sale Agreement, the Servicing Agreement, the Administration Agreement and the Indenture; (ii) the Sale Agreement, the Servicing Agreement, the Administration Agreement and the Indenture have been duly authorized, executed and delivered by the Issuer and constitute legal, valid and binding agreements of the Issuer enforceable against the Issuer in accordance with their terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium and other similar laws and to equitable principles affecting the rights and remedies of creditors generally); and the Transition Bonds have been duly authorized and executed by the Issuer, and when authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Underwriters in accordance with the terms of this Agreement, will constitute legal, valid and binding obligations of the Issuer entitled to the benefits of the Indenture and enforceable against the Issuer in accordance with their terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium and other similar laws and to equitable principles affecting the rights and remedies of creditors generally); 11 (iii) this Agreement has been duly authorized, executed and delivered by the Issuer; (iv) the Indenture has been duly qualified under the Trust Indenture Act; (v) to the knowledge of such counsel, there is no pending or threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator involving the Issuer, or relating to the Transition Bonds, the Competition Act, the bondable stranded costs rate order issued by the BPU to the Company on September 20, 2002 (the "Financing Order") or the use and enjoyment of Bondable Transition Property of a character required to be disclosed in the Registration Statement which is not adequately disclosed in the Final Prospectus, and there is no franchise, contract or other document of a character required to be described in the Registration Statement or Final Prospectus, or to be filed as an exhibit to the Registration Statement, which is not described or filed as required; (vi) the Registration Statement has become effective under the Act; any required filing of the Basic Prospectus, any Preliminary Final Prospectus and the Final Prospectus, and any supplements thereto, pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); to the knowledge of such counsel (and after being advised by the staff of the Commission to such effect), no stop order suspending the effectiveness of the Registration Statement has been issued, no proceedings for that purpose have been instituted or threatened, and the Registration Statement and the Final Prospectus (other than the financial statements and the notes and schedules thereto and other financial and statistical information contained therein and in the Form T-1 as to which such counsel need express no belief) comply as to form in all material respects with the applicable requirements of the Act, the Exchange Act and the Trust Indenture Act and the respective rules thereunder; in addition, such counsel shall confirm, on the basis of certain assumptions, that such counsel has no reason to believe that at the Effective Date the Registration Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or that the Final Prospectus as of its date and the Closing Date includes any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (other than the financial statements and other financial and statistical information contained therein as to which such counsel need express no belief); (vii) no consent, approval, authorization or order of any court or governmental agency or body is required for the consummation by the Issuer of the transactions contemplated herein, except such as have been obtained under the 12 Competition Act and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Transition Bonds by the Underwriters and such other consents, approvals and authorizations as have been obtained; (viii) neither the execution and delivery of this Agreement, the Sale Agreement, the Servicing Agreement, the Administration Agreement or the Indenture, nor the issue and sale of the Transition Bonds, nor the consummation of the transactions contemplated by this Agreement, the Sale Agreement, the Servicing Agreement, the Administration Agreement or the Indenture, nor the fulfillment of the terms of this Agreement, the Sale Agreement, the Servicing Agreement, the Administration Agreement or the Indenture by the Issuer, will (A) conflict with, result in any breach of any of the terms or provisions of, or constitute (with or without notice or lapse of time) a default under the Issuer LLC Agreement, or conflict with or breach any of the terms or provisions of, or constitute (with or without notice or lapse of time) a default under, any indenture, agreement or other instrument known to such counsel and to which the Issuer is a party or by which the Issuer is bound, (B) result in the creation or imposition of any lien upon any properties of the Issuer pursuant to the terms of any such indenture, agreement or other instrument (other than as contemplated by the Basic Documents and the Competition Act), or (C) violate any law or any order, rule or regulation applicable to the Issuer of any court or of any federal or New Jersey or Delaware regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Issuer, or any of its properties; (ix) the Indenture is effective to create in favor of the Bond Trustee for the benefit of the Transition Bondholders a security interest in the Collateral (as defined in the Indenture) consisting of the Bondable Transition Property and (to the extent a security interest therein can be granted under the New Jersey UCC or the Delaware UCC, as applicable) in the proceeds of the Bondable Transition Property; upon the issuance of the Transition Bonds and the giving of value to the Issuer by the Bond Trustee on behalf of the purchasers of the Transition Bonds with respect to the Bondable Transition Property and such proceeds, such security interest in the Bondable Transition Property, and in the portion of the proceeds of the Bondable Transition Property in which a security interest can be perfected by filing in the respective jurisdictions, will be perfected; and based solely on the Search Reports and factual certificates, such perfected security interest will rank prior to any other security interest of any other creditor of the Issuer with respect to the Bondable Transition Property and such portion of such proceeds; (x) the Indenture is effective to create in favor of the Bond Trustee for the benefit of the Transition Bondholders a security interest in the Collateral consisting of the Issuer's rights in the Sale Agreement, the Bill of Sale, the Servicing Agreement and the Administration Agreement (collectively, the "Pledged Contracts"); upon the issuance of the Transition Bonds and the giving of value to the Issuer by the Bond Trustee on behalf of the purchasers of the 13 Transition Bonds with respect to the Pledged Contracts, such security interest in the Pledge Contracts will be perfected; and based solely on the Search Reports and factual certificates, such perfected security interest will rank prior to any other security interest of any other creditor of the Issuer with respect to the Pledged Contracts; (xi) the Indenture is effective to create in favor of the Bond Trustee for the benefit of the Transition Bondholders a security interest in (i) the Collection Account and the Subaccounts (each as defined in the Indenture) for the Series (collectively, the "Accounts") and (ii) to the extent a security interest therein can be granted under the New Jersey UCC, all of the Collateral held in or credited to the Accounts; and assuming that (i) the Bond Trustee in its capacity as securities intermediary is a "securities intermediary" within the meaning of Section 8-102(a)(4) of the New Jersey UCC, (ii) the parties to the Indenture and the Control Agreement (as defined in the Indenture) comply with the terms thereof, and (iii) no person or other entity other than the Bond Trustee in its capacity as trustee under the Indenture obtains and maintains "control" (as defined in Section 8-106 of the New Jersey UCC) of the Accounts or of any such Collateral held therein or credited thereto, then, to the extent the Accounts are "securities accounts" within the meaning of Section 8-501(a) of the New Jersey UCC, the security interests in the Accounts and in any "securities" and "security entitlements" (within the meaning of Section 8-102 of the New Jersey UCC) held therein or credited thereto constituting Collateral will be perfected and will rank prior to any other security interest of any other creditor of the Issuer with respect thereto; (xii) the Issuer is not an "investment company" or under the "control" of an "investment company" as such terms are defined under the Investment Company Act of 1940, as amended; (xiii) the Transition Bonds, the Indenture, the Sale Agreement, the Servicing Agreement, the Issuer LLC Agreement, the Administration Agreement, the Competition Act, and the Financing Order conform to the descriptions thereof contained in the Final Prospectus; and (xiv) the statements included in the Final Prospectus under the captions "Material Income Tax Matters" (other than under the sub-heading "Material State of New Jersey Tax Matters", as to which such counsel need express no opinion) and "ERISA Considerations", to the extent that they constitute matters of law or legal conclusions with respect thereto, provide a fair and accurate summary of such law and conclusions. In rendering such opinions, such counsel may rely as to matters of fact, to the extent deemed proper, on certificates of responsible officers of the Issuer and public officials. References to the Final Prospectus in this paragraph (c) include any supplements thereto at the Closing Date. 14 (d) The Representative and the Issuer have received an opinion of Seward & Kissel, counsel to the Bond Trustee, dated the Closing Date, in form and substance reasonably satisfactory to the Representative, to the effect that: (i) the Bond Trustee is a banking corporation validly existing under the laws of the State of New York; (ii) the Bond Trustee has the requisite power and authority to execute and deliver the Indenture, and the Indenture has been duly executed and delivered by the Bond Trustee, and constitutes a legal, valid and binding obligation of the Bond Trustee enforceable against the Bond Trustee in accordance with its terms except that such enforcement may be limited by bankruptcy, reorganization, insolvency, moratorium, liquidation or other similar laws or equitable principles affecting creditors' rights generally from time to time in effect; and (iii) the Transition Bonds have been duly authenticated by the Trustee. (e) The Representative shall have received from Latham & Watkins, counsel for the Underwriters, such opinion or opinions, dated the Closing Date, with respect to the issuance and sale of the Transition Bonds, the Indenture, the Registration Statement, the Final Prospectus (together with any supplement thereto) and other related matters as the Representative may reasonably require, and the Company and the Issuer shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (f) The Representative and the Bond Trustee shall have received a certificate of the Issuer, signed by the President and the principal financial or accounting officer of the Issuer, dated the Closing Date, to the effect that the signers of such certificate have carefully examined the Registration Statement, the Final Prospectus, any supplement to the Final Prospectus and this Agreement and that: (i) the representations and warranties of the Issuer in this Agreement and in the Indenture are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date, and the Issuer has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date; (ii) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the Issuer's knowledge, threatened; and (iii) since the dates as of which information is given in the Final Prospectus (exclusive of any supplement thereto), there has been no material adverse change in (x) the condition (financial or other), prospects, earnings, business or properties of the Issuer, whether or not arising from transactions in the ordinary course of business, or (y) the Bondable Transition Property, except as set 15 forth in or contemplated in the Final Prospectus (exclusive of any supplement thereto). (g) The Representative and the Bond Trustee shall have received a certificate of the Company, signed by a Vice President and the Treasurer of the Company, dated the Closing Date, to the effect that the signers of such certificate have carefully examined the Registration Statement, the Final Prospectus, any supplement to the Final Prospectus and this Agreement and that: (i) the representations and warranties of the Company in this Agreement, the Sale Agreement and the Servicing Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date; (ii) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the Company's knowledge, threatened; and (iii) since the dates as of which information is given in the Final Prospectus (exclusive of any supplement thereto), there has been no material adverse change in (x) the condition (financial or other), prospects, earnings, business or properties of the Company and its subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, or (y) the Bondable Transition Property, except as set forth in or contemplated in the Final Prospectus (exclusive of any supplement thereto). (h) At the Closing Date, PricewaterhouseCoopers LLP, shall have furnished to the Representative (i) a letter or letters (which may refer to letters previously delivered to the Representative), dated the Closing Date, in form and substance satisfactory to the Representative, confirming that they are independent accountants within the meaning of the Act and the Exchange Act and the respective applicable published rules and regulations thereunder and they have audited the financial statement of the Issuer included in the Registration Statement and the Final Prospectus as set forth in their report included therein and stating in effect that they have performed certain specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature (which is limited to accounting, financial or statistical information derived from the general accounting records of the Company and its subsidiaries) set forth in the Registration Statement and the Final Prospectus, agrees with the accounting records of the Company and its subsidiaries, excluding any questions of legal interpretation, and (ii) the letter, dated the Closing Date, in form and substance satisfactory to the Representative, satisfying the requirements of Section 2.10(b)(vi) of the Indenture. 16 References to the Final Prospectus in this paragraph (i) include any supplement thereto at the date of the letter. In addition, except as provided in Schedule I hereto, at the Execution Time, PricewaterhouseCoopers LLP, shall have furnished to the Representative a letter or letters, dated the Execution Time, in form and substance satisfactory to the Representative, to the effect set forth above. (i) Subsequent to the Execution Time or, if earlier, the dates as of which information is given in the Registration Statement (exclusive of any amendment thereof) and the Final Prospectus (exclusive of any supplement thereto), there shall not have been any change, or any development involving a prospective change, in or affecting either (i) the business, properties or financial condition of the Company or the Issuer or (ii) the Bondable Transition Property, the Transition Bonds, the Financing Order or the Competition Act, the effect of which is, in the judgment of the Representative, so material and adverse as to make it impractical or inadvisable to proceed with the offering or delivery of the Transition Bonds as contemplated by the Registration Statement (exclusive of any amendment thereof) and the Final Prospectus (exclusive of any supplement thereto). (j) The Representative and the Issuer shall have received on the Closing Date an opinion letter or letters of LeBoeuf, Lamb, Greene & MacRae, L.L.P., outside counsel to the Company and the Issuer, dated the Closing Date, in form and substance reasonably satisfactory to the Representative, (i) with respect to the characterization of the transfer of the Bondable Transition Property by the Company to the Issuer as a "true sale" for bankruptcy purposes, and (ii) to the effect that a court would not order the substantive consolidation of the assets and liabilities of the Issuer with those of the Company, in the event of a bankruptcy, reorganization or other insolvency proceeding involving the Company. (k) The Representative and the Issuer shall have received on the Closing Date an opinion letter of LeBoeuf, Lamb, Greene & MacRae, L.L.P., outside counsel for the Company and the Issuer, dated the Closing Date, in form and substance reasonably satisfactory to the Representative, to the effect that: (i) the Financing Order has been duly authorized and adopted by the BPU and is irrevocable; (ii) the decisions of the BPU adopting the Financing Order are non-appealable; and (iii) any state action (whether by legislative action, BPU action, or otherwise ) to revoke or limit the Financing Order, the Bondable Transition Property, or the Transition Bond Charges would be subject to a successful constitutional contract clause and taking clause challenge under the United States and New Jersey Constitutions, and with respect to such additional matters as shall be agreed upon with the Rating Agencies. (l) The Representative and the Issuer shall have received on the Closing Date an opinion letter of LeBoeuf, Lamb, Greene & MacRae, L.L.P., special counsel for the Company with respect to the state tax consequences of the issuance of the Transition Bonds, dated the Closing Date, in form and substance reasonably satisfactory to the 17 Representative, to the effect that the statements included in the Final Prospectus under the caption "Material Income Tax Matters - Material State of New Jersey Tax Matters" to the extent that they constitute matters of law or legal conclusions with respect thereto, provide a fair and accurate summary of such law and conclusions. (m) On or prior to the Closing Date, the Company shall have furnished to the Representative (i) copies of the private letter ruling, dated July 31, 2001, issued by the Internal Revenue Service to the Company, and (ii) copies of the order issued by the SEC to the Company on October 28, 2002 under the Public Utility Holding Company Act of 1935. (n) The Representative and the Bond Trustee shall have received on the Closing Date an opinion letter or letters of Blank Rome Comisky & McCauley LLP, special Delaware counsel to the Issuer, dated the Closing Date, in form and substance reasonably satisfactory to the Representative, to the effect that: (i) if properly presented to a Delaware court, a Delaware court applying Delaware law, would conclude that (x) in order for a person to file a voluntary bankruptcy petition on behalf of the Issuer, the prior unanimous consent of the Managers of the Issuer (including the two Independent Managers), as provided in Section 3.04(b) of the Issuer LLC Agreement (the " Issuer LLC Agreement"), is required, and (y) such provision, contained in Section 3.04(b) of the Issuer LLC Agreement, that requires the unanimous consent of the Managers of the Issuer (including the two 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 the Member and is enforceable against the Member, in accordance with its terms; and (ii) the Issuer LLC Agreement constitutes a legal, valid and binding agreement of the Member, and is enforceable against the Member in accordance with its terms, and with respect to such additional matters as shall be agreed upon with the Rating Agencies. (o) The Transition Bonds shall have been rated in the long-term rating categories by each of the Rating Agencies set forth in Schedule I hereto. (p) On or prior to the Closing Date, the Issuer shall have delivered to the Representative evidence, in form and substance reasonably satisfactory to the Representative, that appropriate filings have been or are being made in accordance with the Competition Act and other applicable law reflecting the grant of a security interest by the Issuer in the Collateral to the Bond Trustee, including the filing of the UCC financing statements in the office of the Secretary of the State of New Jersey and the State of Delaware. (q) On or prior to the Closing Date, the Issuer shall have delivered to the Representative a copy of the Financing Order relating to the Bondable Transition Property. (r) On or prior to the Closing Date, the Issuer shall have furnished to the Representative the documents required pursuant to Section 2.10 of the Indenture. 18 (s) Prior to the Closing Date, the Issuer and the Company shall have furnished to the Representative such further information, certificates, opinions and documents as the Representative may reasonably request, including any documents provided to the Rating Agencies. If any of the conditions specified in this Section 6 shall not have been fulfilled in all respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all respects satisfactory in form and substance to the Representative and counsel for the Underwriters, this Agreement and all obligations of the Underwriters hereunder may be canceled at, or at any time prior to, the Closing Date by the Representative. Notice of such cancellation shall be given to the Issuer in writing or by telephone or telegraph confirmed in writing. The documents required to be delivered by this Section 6 shall be delivered at the offices of LeBoeuf, Lamb, Greene & MacRae, L.L.P., 125 West 55th Street, New York, New York 10019-5389 on the Closing Date. 7. Reimbursement of Underwriters' Expenses. If the sale of the Transition Bonds provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 6 hereof is not satisfied, because of any termination pursuant to Section 10 hereof or because of any refusal, inability or failure on the part of the Company or the Issuer to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Underwriters under Section 9 hereof, the Company and the Issuer will, jointly and severally, reimburse the Underwriters upon demand for all out-of -pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Transition Bonds. 8. Indemnification and Contribution. (a) The Company and the Issuer will, jointly and severally, indemnify and hold harmless each Underwriter, the directors, officers, members, employees and agents of each Underwriter, and each person who controls any Underwriter, within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Transition Bonds as originally filed or in any amendment thereof, or in the Basic Prospectus, any Preliminary Final Prospectus or the Final Prospectus, or in any amendment thereof or supplement thereto, or the Computational Materials and ABS Term Sheets (as defined in Section 11 hereof), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and will reimburse each such indemnified party, as incurred, for any legal or other expenses incurred by them in connection with 19 investigating or defending any such loss, claim, damage, liability or action; provided, however, that neither the Company nor the Issuer will be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Issuer or the Company by or on behalf of any Underwriter through the Representative specifically for inclusion therein; provided further, that with respect to any untrue statement or omission of material fact made in any Preliminary Final Prospectus, the indemnity agreement contained in this Section 8(a) shall not inure to the benefit of any Underwriter or any person controlling such Underwriter from whom the person asserting any such loss, claim, damage or liability purchased the Transition Bonds that are the subject thereof, to the extent that any such loss, claim, damage or liability of such Underwriter occurs under the circumstance where it shall have been determined by a court of competent jurisdiction by final and nonappealable judgment that (w) the Company or the Issuer had previously furnished copies of the Final Prospectus to the Representative, (x) delivery of the Final Prospectus was required by the Act to be made to such person, (y) the untrue statement or omission of a material fact contained in the Preliminary Final Prospectus was corrected in the Final Prospectus and (z) there was not sent or given to such person, at or prior to the written confirmation of the sale of such Transition Bonds to such person, a copy of the Final Prospectus. This indemnity agreement will be in addition to any liability which the Company and the Issuer may otherwise have. (b) Each Underwriter severally agrees to indemnify and hold harmless the Company and the Issuer, each of their directors, each of their officers who signs the Registration Statement, and each person who controls the Company or the Issuer within the meaning of either the Act or the Exchange Act, to the same extent as the foregoing indemnity from the Company and the Issuer to each Underwriter, but only with reference to written information relating to such Underwriter furnished to the Issuer or the Company by or on behalf of such Underwriter through the Representative specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which any Underwriter may otherwise have. The Issuer and the Company acknowledge that the statements set forth in the third, fourth, fifth, sixth and seventh paragraphs under the heading "Underwriting The Series 2002-1 Bonds" and in the fourth paragraph under the heading "Plan of Distribution" in any Preliminary Final Prospectus or the Final Prospectus constitute the only information furnished in writing by or on behalf of the several Underwriters for inclusion in the documents referred to in the foregoing indemnity. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and 20 defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be reasonably satisfactory to the indemnified party. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 8 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Company, the Issuer and the Underwriters agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which the Issuer and one or more of the Underwriters may be subject in such proportion as is appropriate to reflect the relative benefits received by the Issuer and the Company on the one hand and by the Underwriters on the other hand from the offering of the Transition Bonds. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Company, the Issuer and the Underwriters shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Issuer and the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Issuer and the Company shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses) of the Transition Bonds, and benefits received by 21 the Underwriters shall be deemed to be equal to the total underwriting discounts and commissions, in each case as set forth on the cover page of the Final Prospectus. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the Issuer and the Company on the one hand or the Underwriters on the other hand. The Company, the Issuer and the Underwriters agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter in connection with the offering of the Transition Bonds exceeds the amount of damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person who controls an Underwriter within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of an Underwriter shall have the same rights to contribution as such Underwriter, and each person who controls the Issuer or the Company within the meaning of either the Act or the Exchange Act, each officer of the Issuer or the Company who shall have signed the Registration Statement and each director of the Issuer or the Company shall have the same rights to contribution as the Issuer or the Company, subject in each case to the applicable terms and conditions of this paragraph (d). (e) The Underwriters' respective obligations to contribute pursuant to this Section 8 are several in proportion to the respective principal amount of Transition Bonds they have purchased hereunder, and not joint. 9. Default by an Underwriter. If any one or more Underwriters shall fail to purchase and pay for any of the Transition Bonds agreed to be purchased by such Underwriter or Underwriters hereunder and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the nondefaulting Underwriters shall be obligated severally to take up and pay for (in the respective proportions which the amount of Transition Bonds set forth opposite their names in Schedule II hereto bears to the aggregate amount of Transition Bonds set forth opposite the names of all the remaining Underwriters) the Transition Bonds which the defaulting Underwriter or Underwriters agreed but failed to purchase; provided, however, that in the event that the aggregate amount of Transition Bonds which the defaulting Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of the aggregate amount of Transition Bonds set forth in Schedule II hereto, the nondefaulting Underwriters shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Transition Bonds, and if such nondefaulting Underwriters do not purchase all the Transition Bonds, this Agreement will terminate without liability to any nondefaulting Underwriter, the Issuer or the Company. In the event of a default by any Underwriter as set forth in this Section 9, the Closing Date shall be postponed for such period, not exceeding three days, as the Representative shall determine in order that the required changes in the Registration Statement and the Final Prospectus or in any other documents or 22 arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Underwriter of its liability, if any, to the Issuer and the Company and any nondefaulting Underwriter for damages occasioned by its default hereunder. 10. Termination. This Agreement shall be subject to termination in the absolute discretion of the Representative, by notice given to the Issuer prior to delivery of and payment for the Transition Bonds, if prior to such time (i) there shall have occurred any change, or any development involving a prospective change, in or affecting either (A) the business, properties or financial condition of the Issuer or the Company or (B) the Bondable Transition Property, the Transition Bonds, the Financing Order or the Competition Act, the effect of which, in the judgment of the Representative, materially impairs the investment quality of the Transition Bonds or makes it impractical or inadvisable to market the Transition Bonds, (ii) trading in the Company's Common Stock shall have been suspended by the SEC or the New York Stock Exchange or trading in securities generally on the New York Stock Exchange shall have been suspended or limited or minimum prices shall have been established on such Exchange, (iii) a banking moratorium shall have been declared either by federal, New York State or New Jersey State authorities, or (iv) there shall have occurred a material disruption in securities settlement, payment or clearance services in the United States, or (v) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war or any change in financial markets or other calamity or crisis the effect of which on financial markets is such as to make it, in the judgment of the Representative, impracticable or inadvisable to proceed with the offering or delivery of the Transition Bonds as contemplated by the Final Prospectus (exclusive of any supplement thereto). 11. Computational Materials and ABS Term Sheets. (a) In connection with the offering of the Transition Bonds, each Underwriter may prepare and provide to prospective investors (i) items similar to computational materials ("Computational Materials") as defined in the no-action letter of May 20, 1994 issued by the SEC to Kidder, Peabody Acceptance Corporation I, Kidder, Peabody & Co. Incorporated and Kidder Structured Asset Corporation, as made applicable to other issuers and underwriters by the SEC in response to the request of the Public Securities Association dated May 24, 1994, as well as the PSA Letter referred to below (collectively, the "No-Action Letters") and (ii) items similar to ABS term sheets ("ABS Term Sheets") as defined in the no-action letter of February 17, 1995 issued by the SEC to the Public Securities Association, subject to the following conditions: (i) All Computational Materials and ABS Terms Sheets provided to prospective investors that are required to be filed pursuant to the No-Action Letters shall bear a legend substantially in the form attached hereto as Exhibit A. The Issuer shall have the right to require additional specific legends or notations to appear on any Computational Materials or ABS Terms 23 Sheets, the right to require changes regarding the use of terminology and the right to determine the types of information appearing therein. Notwithstanding the foregoing, this subsection (i) will be satisfied if all Computational Materials and ABS Term Sheets referred to herein bear a legend in a form previously approved in writing by the Issuer. (ii) Such Underwriter shall provide to the Issuer, for approval by the Issuer, representative forms of all Computational Materials and ABS Term Sheets at least two business days prior to their first use. Such Underwriter shall provide to the Issuer, for filing on Form 8-K as provided in Section 5(a)(x), copies (in such format as required by the Issuer) of all Computational Materials and ABS Term Sheets that are required to be filed with the SEC pursuant to the No-Action Letters. The Underwriter may provide copies of the foregoing in a consolidated or aggregated form including all information required to be filed if filing in such format is permitted by the No-Action Letters. All Computational Materials and ABS Term Sheets described in this subsection (ii) must be provided to the Issuer not later than 10:00 a.m. New York City time at least two business days before filing thereof is required pursuant to the terms of this Agreement. Such Underwriter shall not provide to any investor or prospective investor in the Transition Bonds any Computational Materials or ABS Term Sheets on or after the day on which Computational Materials or ABS Term Sheets are required to be provided to the Issuer pursuant to this paragraph (ii) (other than copies of Computational Materials or ABS Term Sheets previously submitted to the Issuer in accordance with this paragraph (ii) for filing pursuant to Section 5(a)(x)), unless such Computational Materials or ABS Term Sheets are preceded or accompanied by the delivery of a Final Prospectus to such investor or prospective investor. (iii) The Issuer shall not be obligated to file any Computational Materials or ABS Term Sheets that have been determined to contain any material error or omission, provided that, at the request of any Underwriter, the Issuer will file Computational Materials or ABS Term Sheets that contain a material error or omission if clearly marked "SUPERSEDED BY MATERIALS DATED _________" and accompanied by corrected Computational Materials or ABS Term Sheets that are marked, "MATERIAL PREVIOUSLY DATED _________, AS CORRECTED." If, within the period during which a prospectus relating to the Transition Bonds is required to be delivered under the Act, any Computational Materials or ABS Term Sheets are determined, in the reasonable judgment of the Issuer or such Underwriter, to contain a material error or omission, such Underwriter shall prepare a corrected version of such Computational Materials or ABS Term Sheets, shall circulate such corrected Computational Materials or ABS Term Sheets to all recipients of the prior versions thereof that either indicated orally to such Underwriter they would purchase all or any portion of the Transition Bonds, or actually purchased all or any portion thereof, and shall deliver copies of such corrected Computational Materials or ABS Term Sheets (marked, "AS CORRECTED") to the Issuer for filing with the SEC in a subsequent Form 8-K submission (subject to the Issuer's obtaining an accountant's comfort letter in respect of such corrected Computational Materials or ABS Term Sheets). 24 (iv) Each Underwriter shall be deemed to have represented, as of the Closing Date, that, except for Computational Materials and ABS Term Sheets provided to the Issuer pursuant to subsection (ii) above, such Underwriter did not provide any prospective investors with any information in written or electronic form in connection with the offering of the Transition Bonds that is required to be filed with the SEC in accordance with the No-Action Letters. (v) In the event of any delay in the delivery by any Underwriter to the Issuer of all Computational Materials and ABS Term Sheets required to be delivered in accordance with subsection (ii) above, or in the delivery of the accountant's comfort letter in respect thereof pursuant to Section 5(a)(x), the Issuer shall have the right to delay the release of the Final Prospectus to investors or to any Underwriter, to delay the Closing Date and to take other appropriate actions, in each case set forth in Section 5(a)(x), to file the Computational Materials and ABS Term Sheets by the time specified therein. (b) Each Underwriter further represents and warrants that, if and to the extent it has provided any prospective investors with any Computational Materials or ABS Term Sheets prior to the date hereof in connection with the offering of the Transition Bonds, all of the conditions set forth in clause (a) of this Section 11 have been satisfied with respect thereto. 12. Representations and Indemnities to Survive. The respective agreements, representations, warranties, indemnities and other statements of the Company or its officers, the Issuer or its officers and of the Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or of the Company, the Issuer or any of the officers, directors or controlling persons referred to in Section 9 hereof, and will survive delivery of and payment for the Transition Bonds. The provisions of Sections 3, 7 and 8 hereof shall survive the termination or cancellation of this Agreement. 13. Notices. All communications hereunder will be in writing and may be given by United States mail, courier service, telegram, telex, telemessage, telecopy, telefax, cable or facsimile (confirmed by telephone or in writing in the case of notice by telegram, telex, telemessage, telecopy, telefax, cable or facsimile) or any other customary means of communication, and any such communication shall be effective when delivered, or if mailed, three days after deposit in the United States mail with proper postage for ordinary mail prepaid, and if sent to the Representative, to them at the address specified in Schedule I hereto; and if sent to the Company, to it at Atlantic City Electric Company, 800 King Street, Post Office Box 231, Wilmington, Delaware 19899-0231, Attention: Treasurer; and if sent to the Issuer, to it at Atlantic City Electric Transition Funding LLC, P.O. Box 15597, Wilmington, Delaware 19850-5597, Attention: President. The parties hereto, by notice to the others, may designate additional or different addresses for subsequent communications. 14. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling 25 persons referred to in Section 8 hereof, and no other person will have any right or obligation hereunder. 15. Applicable Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York. 16. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be deemed an original, which taken together shall constitute one and the same instrument. 26 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Company, the Issuer and the several Underwriters. Very truly yours, ATLANTIC CITY ELECTRIC COMPANY, by /s/ Roberta S. Brown ----------------------------------- Name: Roberta S. Brown Title: Vice President ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC, by /s/ Roberta S. Brown ----------------------------------- Name: Robert S. Brown Title: Vice President 27 The foregoing Agreement is hereby confirmed and accepted as of the date specified in Schedule I hereto. MORGAN STANLEY & CO. INCORPORATED by __________________________ Name: Title: for themselves and the other several Underwriters, if any, named in Schedule II to the foregoing Agreement. 28 SCHEDULE I Underwriting Agreement dated December 11, 2002 Registration Statement No. 333-59558 Representative: Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Attention: Jack Kattan with a copy to: Morgan Stanley & Co. Incorporated 1221 Avenue of the Americas New York, New York 10020 Attention: Michelle Wilke, Esq. Title, Purchase Price and Description of Bonds: Title: Atlantic City Electric Transition Funding LLC $440,000,000 Transition Bonds, Series 2002-1 Principal Amount, Price to Public, Underwriting Discounts and Commissions, Purchase Price to the Issuer, and Required Ratings:
Required Underwriting Purchase Ratings Principal Price to Discounts and Price to (Moody's/S&P/ Amount of Class Public Commissions the Issuer Fitch) --------------- --------- ------------- ---------- ----------- Class A-1 Bonds $ 109,000,000 99.98402% 0.475% 99.50902% Aaa/AAA/AAA Class A-2 Bonds $ 66,000,000 99.94089% 0.475% 99.46589% Aaa/AAA/AAA Class A-3 Bonds $ 118,000,000 99.91990% 0.550% 99.36990% Aaa/AAA/AAA Class A-4 Bonds $ 147,000,000 99.95284% 0.725% 99.22784% Aaa/AAA/AAA Total $ 440,000,000
Expenses: The Issuer will pay or cause to be paid all expenses incident to the performance of the obligations of the Issuer and the Company under this Agreement, including, without limitation, (i) the fees, disbursements and expenses of counsel for the Issuer and the Company in connection with the issuance and sale of the Transition Bonds, (ii) all fees and expenses incurred in connection with the registration and delivery of the Transition Bonds under the Act, and all other fees or expenses in connection with the preparation and filing of the Registration Statement, the Preliminary Final Prospectus, the Final Prospectus and amendments and supplements to any of the foregoing, including all printing costs associated therewith, and the mailing and delivering of copies thereof to the Underwriters and dealers, in the quantities specified, (iii) all costs and expenses related to the transfer and delivery of the Transition Bonds to the Underwriters, including any transfer or other taxes payable thereon, (iv) the costs of printing or producing any "blue sky" memorandum in connection with the offer and sale of the Transition Bonds under state securities laws and all expenses in connection with the qualification of the Transition Bonds for the offer and sale under state securities laws as provided in Section 5(a)(v), including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the "blue sky" memorandum, (v) the cost of printing the Transition Bonds, (vi) the costs and charges of any transfer agent, registrar or depository, (vii) the fees and expenses of the rating agencies incurred in connection with the issuance and sale of the Transition Bonds, (viii) the costs arising out of any Computational Materials and ABS Term Sheets distributed by the Underwriters in connection with the purchase and sale of the Transition Bonds, and (xi) all other costs and expenses incident to the performance of the obligations of the Issuer and the Company under this Agreement for which provision is not otherwise made herein. The Underwriters will be reimbursed by the Issuer for reasonable out-of-pocket expenses and Underwriters' Counsel fees. Original Issue Discount (if any): Redemption provisions: 5% clean-up call Closing Date, Time and Location: December 19, 2002, 10:00 a.m., Eastern Standard Time, at the offices of LeBoeuf, Lamb, Greene & MacRae, L.L.P., 125 West 55th Street, New York, NY 10019-5389 Type of Offering: Delayed Offering Date referred to in Section 5(a) (vi) and Section 5(b)(ii) after which the Issuer and the Company may offer or sell asset-backed securities in a special purpose vehicle without the consent of the Representative: December 31, 2002 SCHEDULE II Principal Amount of Bonds to be Purchased
Class A-1 Class A-2 Class A-3 Class A-4 Underwriters Bonds Bonds Bonds Bonds Total - ------------ Morgan Stanley & Co. $ 65,400,000 $39,600,000 $ 70,800,000 $ 88,200,000 $264,000,000 Incorporated Banc of America Securities 9,810,000 5,940,000 10,620,000 13,230,000 39,600,000 Banc One Capital Markets, Inc. 9,810,000 5,940,000 10,620,000 13,230,000 39,600,000 Credit Suisse First Boston 11,990,000 7,260,000 12,980,000 16,170,000 48,400,000 Corporation PNC Capital Markets, Inc. 2,180,000 1,320,000 2,360,000 2,940,000 8,800,000 Wachovia Securities, Inc. 9,810,000 5,940,000 10,620,000 13,230,000 39,600,000 Total............................$109,000,000 $66,000,000 $118,000,000 $147,000,000 $440,000,000
EXHIBIT A This information is furnished on a confidential basis and may not be reproduced in whole or in part and is being delivered to a specific number of prospective sophisticated investors in order to assist them in determining whether they have an interest in the type of security described herein. It has been prepared solely for information purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any trading strategy. This material is based on information provided by Atlantic City Electric Transition Funding LLC and Atlantic City Electric Company with respect to the expected characteristics of the transition property securing these securities. The actual characteristics and performance of the transition property will differ from the assumptions used in preparing these materials, which are hypothetical in nature. Changes in the assumptions may have a material impact on the information set forth in these materials. Morgan Stanley & Co. Incorporated makes no representation or warranty with respect to the appropriateness, usefulness, accuracy or completeness of the information, or with respect to the terms of any future offer of securities conforming to the terms hereof. Any such offer of securities would be made pursuant to a definitive Prospectus and Prospectus Supplement prepared by the issuer which could contain material information not contained herein and to which the prospective purchasers are referred. In the event of any such offering, this information shall be deemed superseded, amended and supplemented in its entirety by such Prospectus and Prospectus Supplement. Such Prospectus and Prospectus Supplement will contain all material information in respect of any securities offered thereby and any decision to invest in such securities should be made solely in reliance upon such Prospectus and Prospectus Supplement. The information contained in this material may be based on assumptions regarding market conditions and other matters as reflected therein and is therefore subject to change. We make no representations regarding the reasonableness of such assumptions or the likelihood that any of such assumptions will coincide with actual market conditions or events, and this material should not be relied on for such purposes. No representation is made that any returns indicated will be achieved. Changes to the assumptions may have a material impact on any returns detailed. Although the analyses herein may not show a negative return on the securities referred to herein, such securities are not principal protected and, in certain circumstances, investors in such securities may suffer a complete or partial loss on their investment. Morgan Stanley & Co. Incorporated disclaims any and all liability relating to this information, including without limitation any express or implied representations or warranties for, statements contained in, and omissions from, this information. Additional information is available upon request. Morgan Stanley & Co. Incorporated and others associated with it may have positions in, and may effect transactions in, securities and instruments of issuers mentioned herein and may also perform or seek to perform investment banking services for the issuers of such securities and instruments. Past performance is not necessarily indicative of future results. Price and availability are subject to change without notice. Information contained in this material is current as of the date appearing on this material only. Information in this material regarding any assets backing any securities discussed herein supercedes all prior information regarding such assets. Morgan Stanley & Co. Incorporated is acting as the lead underwriter and not acting as agent for the issuer or its affiliates in connection with the proposed transaction. To our readers worldwide: In addition, please note that this publication has been issued by Morgan Stanley & Co. Incorporated, approved by Morgan Stanley International Limited, a member of The Securities and Futures Authority, and by Morgan Stanley Japan Ltd. We recommend that such investors obtain the advice of their Morgan Stanley & Co. Incorporated, Morgan Stanley International or Morgan Stanley Japan Ltd. representative about the investments concerned. NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND FUTURES AUTHORITY. EXHIBIT B [Computational Materials] EX-3.1 4 exh31.txt EXHIBIT 3.1 EXECUTION COPY ==================================================================== AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT of ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC Dated as of December 19, 2002 ===================================================================== TABLE OF CONTENTS Page ARTICLE I Definitions..........................................................1 Section 1.01. Capitalized Terms............................................1 Section 1.02. Other Definitional Provisions................................5 ARTICLE II Formation of the Limited Liability Company..........................6 Section 2.01. Formation; Filings...........................................6 Section 2.02. Name and Office..............................................7 Section 2.03. Business Purpose.............................................7 Section 2.04. Term.........................................................8 Section 2.05. Tax Treatment; No State Law Partnership......................8 Section 2.06. Authority of Member..........................................8 Section 2.07. Liability to Third Parties...................................8 Section 2.08. No Personal Liability of any Member, Special Member, Manager, Etc.........................................8 Section 2.09. Separateness.................................................9 Section 2.10. Limited Liability and Bankruptcy Remoteness.................10 ARTICLE III Management........................................................10 Section 3.01. Management by Managers......................................10 Section 3.02. Acts by Managers............................................11 Section 3.03. Number and Qualifications...................................11 Section 3.04. Independent Managers........................................11 Section 3.05. Appointment and Vacancy.....................................12 Section 3.06. Term........................................................12 Section 3.07. Removal.....................................................12 Section 3.08. Resignation.................................................12 Section 3.09. Place of Meetings of Managers...............................12 Section 3.10. Meetings of Managers........................................12 Section 3.11. Quorum; Majority Vote.......................................13 Section 3.12. Methods of Voting; Proxies..................................13 Section 3.13. Actions Without a Meeting...................................13 Section 3.14. Telephone and Similar Meetings..............................13 Section 3.15. Compensation of Managers....................................13 Section 3.16. Managers....................................................13 ARTICLE IV Officers...........................................................14 Section 4.01. Designation; Term; Qualifications...........................14 Section 4.02. Removal and Resignation.....................................14 Section 4.03. Vacancies...................................................14 Section 4.04. Compensation................................................14 i ARTICLE V Member..............................................................14 Section 5.01. Powers......................................................14 Section 5.02. Compensation of Member......................................15 Section 5.03. Actions by the Member.......................................15 Section 5.04. Control by Member...........................................15 Section 5.05. Special Member..............................................15 ARTICLE VI Common Interest; Capital Contributions.............................16 Section 6.01. General.....................................................16 Section 6.02. Rights on Liquidation, Dissolution or Winding Up............16 Section 6.03. Redemption..................................................17 Section 6.04. Voting Rights...............................................17 Section 6.05. Capital Contributions.......................................17 ARTICLE VII Allocations; Distributions; Expenses; Taxes; Books; Records; and Bank Accounts..........................................................17 Section 7.01. Allocations.................................................17 Section 7.02. Distributions...............................................17 Section 7.03. Limitation Upon Distributions...............................17 Section 7.04. Expenses....................................................17 Section 7.05. Tax Elections...............................................18 Section 7.06. Annual Tax Information......................................18 Section 7.07. Tax Matters Member..........................................18 Section 7.08. Maintenance of Books........................................18 Section 7.09. Reports.....................................................19 Section 7.10. Bank and Investment Accounts................................19 ARTICLE VIII Indemnification..................................................19 Section 8.01. Mandatory Indemnification of the Member, the Special Members, and the Managers...................................19 Section 8.02. Mandatory Advancement of Expenses...........................20 Section 8.03. Indemnification of Officers, Employees and Agents...........20 Section 8.04. Nonexclusivity of Rights....................................20 Section 8.05. Contract Rights.............................................20 Section 8.06. Insurance...................................................20 Section 8.07. Savings Clause..............................................21 Section 8.08. Other Ventures..............................................21 Section 8.09. Other Arrangements Not Excluded.............................21 ARTICLE IX Miscellaneous Provisions...........................................21 Section 9.01. Offset......................................................21 Section 9.02. Notices.....................................................21 Section 9.03. Effect of Waiver or Consent.................................22 Section 9.04. Governing Law; Severability.................................22 Section 9.05. No Bankruptcy Petition; No Dissolution......................22 ii Section 9.06. Amendment...................................................23 Section 9.07. Headings and Sections.......................................23 Section 9.08. Binding Agreement...........................................23 SCHEDULE A: SCHEDULE OF CAPITAL CONTRIBUTIONS OF MEMBER .....................A-1 SCHEDULE B: CERTIFICATE OF COMMON INTEREST...................................B-1 SCHEDULE C: MANAGERS.........................................................C-1 SCHEDULE D: OFFICERS.........................................................D-1 iii AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT of ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC, a Delaware Limited Liability Company AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT, dated as of December 19, 2002 (as it may be further amended, supplemented or otherwise modified and in effect from time to time, this "Agreement"), of ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC, a Delaware limited liability company (the "Company"), having its principal office at 800 King Street, Wilmington, Delaware 19899. WHEREAS, Atlantic City Electric Company ("ACE"), as sole Member, (i) on March 28, 2001 caused to be filed a Certificate of Formation of the Company with the Delaware Secretary of State and (ii) executed a Limited Liability Company Agreement, dated as of April 11, 2001 (the "Original LLC Agreement"); and WHEREAS, this Agreement amends and restates the Original LLC Agreement in all respects, and from and after the date hereof constitutes the governing instrument of the Company; NOW THEREFORE, the Member (as defined below) hereby amends and restates the Original LLC Agreement as follows: ARTICLE I Definitions Section 1.01. Capitalized Terms. For all purposes of this Agreement, the following terms shall have the following meanings: "ACE" means Atlantic City Electric Company, a New Jersey corporation, and its permitted successors and assigns. "Act" means the Delaware Limited Liability Company Act, as amended, as in effect on the date hereof (currently Chapter 18 of Title 6, Sections 18-101 through 18-1109 of the Delaware Code) and as it may be amended hereafter, from time to time, and any successor law. "Administration Agreement" means the Administration Agreement, dated as of December 19, 2002, between the Company and PHI Service Company, as administrator, as the same may be amended, supplemented or otherwise modified and in effect from time to time. "Affiliate" means, with respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person. For 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. "Agreement" means this Amended and Restated Limited Liability Company Agreement of the Company, as the same may be further amended, supplemented or otherwise modified and in effect from time to time. "Bankruptcy" means, with respect to any Person, that such Person (i) makes an assignment for the benefit of creditors, (ii) files a voluntary petition in bankruptcy, (iii) is adjudged bankrupt or insolvent, or has entered against it an order for relief, in any bankruptcy or insolvency proceedings, (iv) files a petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation or similar relief under any statute, law or regulation, (v) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against it in any proceeding of this nature, (vi) seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator of the Person or of all or any substantial part of its properties, or (vii) if 120 days after the commencement of any proceeding against the Person seeking reorganization, arrangement, composition, readjustment, liquidation or similar relief under any statute, law or regulation, the proceeding has not been dismissed, or if within 90 days after the appointment without such Person's consent or acquiescence of a trustee, receiver or liquidator of such Person or of all or any substantial part of its properties, the appointment is not vacated or stayed, or if within 90 days after the expiration of any such stay, the appointment is not vacated. The foregoing definition of "Bankruptcy" is intended to replace and shall supersede and shall be deemed to replace the definition of "Bankruptcy" set forth in Sections 18-101(1) and 18-304 of the Act. "Basic Documents" means this Agreement, the Certificate of Formation, the Indenture, the Sale Agreement, any Bill of Sale, the Servicing Agreement, the Administration Agreement, any Hedge Agreement and any Interest Rate Swap Agreement, each as the same may be further amended, supplemented or otherwise modified and in effect from time to time. "Bill of Sale" means the bill of sale, issued by ACE to the Company as of December 19, 2002, pursuant to the Sale Agreement, together with any other bill of sale delivered in accordance therewith. "Bondable Transition Property" means the irrevocable right of ACE to charge, collect and receive, and be paid from collections of, the transition bond charge in the amount necessary to provide for the full recovery of the bondable stranded costs that have been determined to be recoverable in the BPU Financing Orders, all rights of ACE under the BPU Financing Orders, including without limitation all rights to obtain periodic adjustments of the transition bond charge pursuant to the Competition Act, and all revenues, collections, payments, money and proceeds arising under, or with respect to, all of the foregoing. "Bonds" has the meaning set forth in Section 2.03(a). "BPU" means the State of New Jersey Board of Public Utilities, and any successor. 2 "BPU Financing Orders" means, collectively, the bondable stranded costs rate order issued by the BPU in favor of ACE on September 20, 2002 pursuant to the Competition Act, any subsequent bondable stranded costs rate orders issued by the BPU in favor of ACE pursuant to the Competition Act, and any order supplemental to any of the foregoing. "Business Day" means any day other than a Saturday, Sunday or other day on which banks are authorized or required by law to be closed in New York City, New York or, with respect to any payments on any Bonds listed on the Luxembourg Stock Exchange, in Luxembourg. "Certificate of Formation" means the Certificate of Formation of the Company, which was filed in accordance with the Act with the Secretary of State of the State of Delaware on March 28, 2001, as the same may be amended or supplemented from time to time. "Code" means the Internal Revenue Code of 1986, as amended, or any successor law. "Common Interest" means the limited liability company interest of the Member in the Company as described in Article VI. The Company shall have one class of Common Interest. "Company" means Atlantic City Electric Transition Funding LLC, a Delaware limited liability company. "Competition Act" means the New Jersey Electric Discount and Energy Competition Act, New Jersey Statutes Annotated, title 48, chapter 3, article 7, as in effect from time to time. "Fiscal Year" means, unless the Managers shall at any time determine otherwise pursuant to the requirements of the Code, a calendar year. "GAAP" means the generally accepted accounting principles promulgated or adopted by the Financial Accounting Standards Board and its successors from time to time. "Governmental Authority" means any federal, state, local or foreign court or governmental department, commission, board, bureau, agency, authority, instrumentality or regulatory body. "Hedge Agreement" means any Hedge Agreement, as defined in and permitted by the Indenture or any Supplement. "Indenture" means the Indenture, dated as of December 19, 2002, between the Company and the Trustee, as the same may be amended, modified or supplemented from time to time. "Independent Manager" means, with respect to the Company, a Manager who is not, and within the previous five years was not (except solely by virtue of such Person's serving as, or being an Affiliate of any other Person serving as, an independent director or manager, as 3 applicable, of a bankruptcy-remote special purpose entity that is an Affiliate of ACE or the Company), (i) a stockholder, member, partner, director, officer, employee, Affiliate, customer, supplier, material creditor or independent contractor of, or any Person that has received any benefit in any form whatever from (other than in such Manager's capacity as a ratepayer or customer of ACE in the ordinary course of business), or any Person that has provided any service in any form whatsoever to, or any material creditor (or any Affiliate of any material creditor) of, the Company, ACE, or any of their Affiliates, or (ii) any Person owning legally or beneficially, directly or indirectly, any outstanding shares of common stock, any limited liability company interests or any partnership interests, as applicable, of the Company, ACE or any of their Affiliates, or (iii) a member of the immediate family of any person described above; provided that the indirect or beneficial ownership of stock through a mutual fund or similar diversified investment vehicle with respect to which the owner does not have discretion or control over the investments held by such diversified investment vehicle shall not preclude such owner from being an Independent Manager, or (iv) any Person who controls the Company, ACE, or their Affiliates. For purposes of this definition, "material creditor" means a natural person or business entity to which the Company, ACE or any of their Affiliates has outstanding indebtedness for borrowed money or credit on open account in a sum sufficiently large as would reasonably be expected to influence the judgment of the proposed Independent Manager adversely to the interests of the Company when the interests of that Person are adverse to those of the Company. "Interest Rate Swap Agreement" means any Interest Rate Swap Agreement, as defined in and permitted by the Indenture or any Supplement. "Manager" means any manager of the Company, including any Independent Manager. "Member" means ACE, in its capacity as a member in the Company under this Agreement, or any successor thereto as a member pursuant to Article VI; provided, however, the term "Member" shall not include the Special Members. "Person" means any natural person, corporation, business trust, joint venture, association, company, partnership, limited liability company, joint stock company, corporation, trust, unincorporated organization or Governmental Authority. "Proceeding" shall have the meaning set forth in Section 8.01(a). "Rating Agency Condition" means, with respect to any action, the notification in writing by the Trustee to each Rating Agency of such action and the notification by each Rating Agency to the Trustee and the Issuer that such action will not result in a reduction or withdrawal of the then current rating by such Rating Agency of any Outstanding Series or Class of Transition Bonds; provided that, except where such action includes the issuance of Transition Bonds of a new Series (either as a Financing Issuance or as a Refunding Issuance), the Rating Agency Condition shall be satisfied with respect to Moody's by providing Moody's 10 Business Days' prior written notice of such action. 4 "Sale Agreement" means the Bondable Transition Property Sale Agreement, dated as of December 19, 2002, between ACE, as seller, and the Company, as the same may be amended, supplemented or otherwise modified and in effect from time to time. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the United States Securities and Exchange Commission promulgated thereunder, and any successor law or regulations. "Series" means each series of Bonds issued and authenticated pursuant to the Indenture and a related Supplement. "Servicing Agreement" means the Bondable Transition Property Servicing Agreement, dated as of December 19, 2002, between the Company and ACE, as servicer, as the same may be amended, supplemented or otherwise modified and in effect from time to time. "Special Member" means, upon such person's admission to the Company as a member of the Company pursuant to Section 5.05, a person acting as Independent Manager, in such person's capacity as a member of the Company. A "Special Member" shall have the rights and duties expressly set forth in this Agreement. "State" means any one of the 50 states of the United States of America or the District of Columbia. "Supplement" means a supplement to the Indenture complying (to the extent applicable) with the terms of Article 9 of the Indenture. "Treasury Regulations" means 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. "Trustee" means the party named as such in the Indenture until a successor replaces it in accordance with the applicable provisions of the Indenture and thereafter means the successor serving thereunder. "Underwriting Agreement" means the Underwriting Agreement dated as of December 11, 2002, among the Seller, the Issuer and Morgan Stanley & Co. Incorporated, on behalf of itself and as the representative of the several underwriters named therein. Section 1.02. Other Definitional Provisions. (a) Unless otherwise defined herein, all capitalized terms herein shall have the meanings ascribed thereto in the Indenture. (b) All terms defined in this Agreement shall have the meanings herein assigned to them when used in any certificate or other document made or delivered pursuant hereto except where otherwise expressly provided therein. 5 (c) As used in this Agreement and in any certificate or other documents made or delivered pursuant hereto or thereto, accounting terms not defined in this Agreement or in any such certificate or other document, and accounting terms partly defined in this Agreement or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of accounting terms in this Agreement or in any such certificate or other document are inconsistent with the meanings of such terms under GAAP, the definitions contained in this Agreement or in any such certificate or other document shall control. (d) The words "hereof", "herein", "hereunder", and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. (e) References in this Agreement to articles, sections and schedules are to the articles, sections and schedules of or to this Agreement unless otherwise specified. (f) The term "including" means "including without limitation" and "or" is used in the inclusive sense. (g) The definitions contained in this Agreement are applicable to the singular as well as the plural forms of the defined terms, and personal pronouns refer to all persons regardless of gender. (h) Any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein. ARTICLE II Formation of the Limited Liability Company Section 2.01. Formation; Filings. Pursuant to the Act and in accordance with the further terms and provisions hereof, the Member and, when signed by the Special Members, the Special Members, hereby continue the Company as a limited liability company. The Certificate of Formation of the Company has been executed and filed with the Secretary of State of the State of Delaware by Diana C. DeAngelis, as an "authorized person" within the meaning of the Act. The Member shall execute or cause to be executed from time to time all other instruments, certificates, notices and documents, and shall do or cause to be done all such filing, recording, publishing and other acts, in each case, as may be necessary or appropriate from time to time to comply with all applicable requirements for the formation and/or operation and, when appropriate, termination of a limited liability company in the State of Delaware and all other jurisdictions where the Company shall desire to conduct its business. 6 Section 2.02. Name and Office. (a) The name of the Company shall be "Atlantic City Electric Transition Funding LLC." All business of the Company shall be conducted in such name and all contracts, property and other assets of the Company shall be held in that name and the Member shall not have any ownership interests in such contracts, property or other assets in its individual name. (b) The address of the registered office of the Company in the State of Delaware is 800 King Street, Wilmington, Delaware 19899. (c) The Company may also have offices at such other places both within and without the State of Delaware as the Member may from time to time determine. Section 2.03. Business Purpose. The nature of the business or purpose to be conducted or promoted by the Company is to engage exclusively in the following business and financial activities: (a) to authorize, issue, sell and deliver one or more Series or classes of transition bonds pursuant to the Competition Act ("Bonds") under the Indenture and, in connection therewith, to execute and deliver Supplements, including Supplements providing for the issuance of additional Series of Bonds, each as permitted by and in accordance with the terms of the Indenture; (b) to purchase and own Bondable Transition Property and pledge the same and other collateral to the Trustee pursuant to the terms and conditions of the Basic Documents; (c) to negotiate, authorize, execute, deliver, assume the obligations under, and perform, the Basic Documents and any other agreement or instrument or document relating to the activities set forth in clauses (a) and (b) above, including but not limited to agreements with third-party credit enhancers and Hedge Agreement and Interest Rate Swap Agreement counterparties relating to any Series or Class of Bonds; provided that each party to any agreement with the Company shall covenant that such party shall not, prior to the date that is one year and one day after the termination of the Indenture and the payment in full of any Series of the Bonds and any other amounts owed under the Indenture, including without limitation any amounts owed to third-party credit enhancers, and any amounts owed under any Hedge Agreement or Interest Rate Swap Agreement, acquiesce, petition or otherwise invoke or cause the Company to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against the Company under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Company or any substantial part of the property of the Company; or ordering the winding up or liquidation of the affairs of the Company; and provided, further, that the Company shall be permitted to incur additional indebtedness or other liabilities to service providers and trade creditors in the ordinary course of business in connection with the foregoing activities, payable as Operating Expenses pursuant to the Indenture, in an aggregate amount not to exceed in any calendar year $10,000 unless the Rating Agency Condition shall have been satisfied with respect to such excess; and 7 (d) to engage in any activity and to exercise any powers permitted to limited liability companies under the laws of the State of Delaware that are related or incidental to the foregoing and necessary, convenient or advisable to accomplish the foregoing. Section 2.04. Term. The term of the Company shall continue until the Company is dissolved and liquidated in accordance with the Act, subject to Sections 6.03 and 9.05. The existence of the Company as a separate legal entity shall continue until the cancellation of the Certificate of Formation in accordance with the Act. Section 2.05. Tax Treatment; No State Law Partnership. (a) The Member, the Special Members and the Managers intend that the Company be disregarded as an entity separate from its sole Member under Treasury Regulations Section 301.7701-3(b)(1) for federal, state and local income tax purposes. All provisions of this Agreement shall be interpreted and construed so as to effectuate such treatment. Neither the Member, any Special Member or any Manager shall make an election for the Company to be treated as an association taxable as a corporation under Treasury Regulations Section 301.7701-3(a). (b) The Member, the Special Members and the Managers intend that the Company shall not be a partnership (including without limitation a general partnership or a limited partnership) or joint venture, and no partnership or joint venture shall exist among the Member, any Special Member and any Managers or any subgroup thereof with respect to the business of the Company for any purposes. No provisions of this Agreement shall be construed to suggest otherwise. Section 2.06. Authority of Member. Subject to Section 3.04, the Member, acting in such capacity, shall have the authority or power to act for or on behalf of the Company, to do any act that would be binding on the Company, or to incur any expenditures, debts, liabilities or obligations on behalf of the Company. Section 2.07. Liability to Third Parties. Except as otherwise expressly provided by the Act, neither the Member, any Special Member nor any Manager shall be liable for the debts, obligations or liabilities of the Company (whether arising in contract, tort or otherwise), including without limitation under a judgment, decree or order of a court, by reason of being the Member or acting as a Special Member or Manager of the Company. Section 2.08. No Personal Liability of any Member, Special Member, Manager, Etc. (a) Neither the Member nor any Special Member shall be subject in such capacity to any personal liability whatsoever to any Person in connection with the assets or the acts, obligations or affairs of the Company, (b) the Member and each Special Member shall have the same limitation of personal liability as is extended to stockholders of a private corporation for profit incorporated under the General Corporation Law of the State of Delaware, and (c) no Manager or officer of the Company shall be subject in such capacity to any personal liability whatsoever to any Person, other than the Company or its Member, in connection with the assets or the affairs of the Company; and, subject to the provisions of Article VIII, all such Persons shall look solely to the assets of the Company for satisfaction of claims of any nature arising in 8 connection with the affairs of the Company; provided that such protection from personal liability shall apply to the fullest extent permitted by applicable law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide greater or broader indemnification rights than such law permitted the Company to provide prior to such amendment). Section 2.09. Separateness. (a) Except as provided in the Basic Documents, the funds and other assets of the Company shall not be commingled with those of any other entity and the Company shall maintain with commercial banking institutions its own bank accounts separate from those of the Member and any other Person. (b) The Company shall act solely through its duly authorized Member, Special Members, Managers, officers and agents in the conduct of its business, shall take all reasonable steps to continue its identity as a separate legal entity, shall conduct its business in its own name and so as not to mislead others as to the identity of the entity or assets with which they are concerned, and shall correct any known misunderstanding regarding its separate identity. Neither the Member nor any of its Affiliates shall be appointed to act as agent of the Company except as contemplated by the Basic Documents, in which case the capacity of such agent shall be clearly identified. (c) The Company shall maintain separate records, books of account and financial statements, and shall not commingle its records and books of account with the records and books of account of the Member or any other entity. (d) The Managers shall hold appropriate meetings to authorize all of its limited liability company actions (which meetings may be held by telephone conference call), and shall observe all other formalities required by the Basic Documents and applicable law with respect to action taken on behalf of the Company. Without limiting the foregoing, the Company shall observe all of the formalities required by this Agreement. (e) The Company shall at all times ensure that its capitalization is adequate in light of its business and purpose and shall make it apparent to third parties that it is an entity with assets and liabilities distinct from those of the Member and its Affiliates, any Special Member, any Manager or any other Person. (f) Neither the Member, any Special Member or any Manager shall guarantee, become liable on, or hold itself out as being liable for the debts of the Company or make loans or advances to the Company, except in each case as contemplated by the Basic Documents, it being understood that in any event the Member may lend or provide funds to the Company in connection with the organization of the Company and may elect to make capital contributions to the Company in connection with issuances of Bonds. (g) The Company shall not guarantee, become liable on, or hold itself out as being liable for the debts of any other Person, shall not pledge its assets for the benefit of any entity, and shall not make loans or advances to, or acquire obligations or securities of, the Member, any Special Member or any Manager, except as contemplated by the Basic Documents. 9 (h) The Company shall pay its operating expenses and liabilities out of its own funds as provided in the Indenture, including fees and expenses of the Administrator pursuant to the Administration Agreement and the Servicer pursuant to the Servicing Agreement. (i) The Company shall ensure that, to the extent that it jointly contracts with the Member or any Affiliate thereof to do business with vendors or service providers or shares employees or office space or other overhead items with any such Persons, the costs so incurred shall be allocated fairly among such Persons, and each such Person shall bear its fair share of such costs. (j) The Company shall not form, acquire or hold any subsidiaries. (k) The Company shall maintain an arm's length relationship with its Affiliates. (l) The Company shall use its own separate stationery, invoices and other business forms. (m) The Company shall pay the salaries of its own employees, if any, except as otherwise provided in the Basic Documents, and shall file its own tax and information returns if and to the extent it is required to do so under applicable federal, state or local tax laws. (n) The Company shall comply with all restrictions on its business and operations as set forth in Sections 2.03 and 3.04. Failure of the Company, the Member, any Special Member or any Manager on behalf of the Company to comply with any of the foregoing covenants or any of the covenants contained in this Agreement shall not affect the status of the Company as a separate legal entity or the limited liability of the Member, any Special Member or any Manager. Section 2.10. Limited Liability and Bankruptcy Remoteness. Without limiting the generality of Section 2.09, the Company shall be operated in such a manner as the Managers deem reasonable and necessary or appropriate to preserve (a) the limited liability of ACE (or its successor) as the Member in the Company and the limited liability of the Special Members, (b) the separateness of the Company from the business of ACE (or its successor), as the Member of the Company, or any other Affiliate thereof and (c) until the expiration of the period of one year and one day specified in Section 9.05, the bankruptcy-remote status of the Company. ARTICLE III Management Section 3.01. Management by Managers. The powers of the Company shall be exercised by or under the authority of, and the business and affairs of the Company shall be managed under the direction of, the Managers. 10 Section 3.02. Acts by Managers. (a) The Managers shall be obliged to devote only as much of their time to the Company's business as shall be reasonably required in light of the Company's business and objectives. A Manager shall perform his or her duties as a Manager in good faith, in a manner he or she reasonably believes to be in the best interests of the Company, and with such care as an ordinarily prudent person in a like position would use under similar circumstances. (b) Every Manager is an agent of the Company for the purpose of its business, and the act of every Manager, including the execution in the name of the Company of any instrument for carrying on the business of the Company, binds the Company, unless such act is in contravention of this Agreement or unless the Manager so acting otherwise lacks the authority to act for the Company and the person with whom he or she is dealing has knowledge of the fact that he or she has no such authority. (c) The Managers shall have the right and authority to take all actions that the Managers deem necessary, useful or appropriate for the day-to-day management and conduct of the Company's business. (d) The Managers may exercise all powers of the Company and do all such lawful acts and things as are not by the Act, other applicable law or this Agreement directed or required to be exercised or done by the Member. All instruments, contracts, agreements and documents providing for the acquisition or disposition of property of the Company shall be valid and binding on the Company if executed by one or more of the Managers. All instruments, contracts, agreements and documents of whatsoever type executed on behalf of the Company shall be executed in the name of the Company by one or more Managers. Section 3.03. Number and Qualifications. The number of Managers of the Company shall not be less than three nor more than five, as may be determined by the Member from time to time, but no decrease in the number of Managers shall have the effect of shortening the term of any incumbent Manager. Section 3.04. Independent Managers. (a) The Company shall have at all times at least two individuals who are each Independent Managers. The Independent Managers may not delegate their duties, authorities or responsibilities hereunder. If any Independent Manager resigns, dies or becomes incapacitated, or such position is otherwise vacant, no action requiring the unanimous affirmative vote of the Managers shall be taken until a successor Independent Manager is appointed by the Member and qualifies and approves such action. (b) Notwithstanding any other provision of this Agreement and any provision of law that otherwise so empowers the Company, the Member, any Special Member, any Manager or any other Person, the Company shall not, and neither the Member nor any Special Member, Manager nor any other Person on behalf of the Company shall, without the prior unanimous consent of the Managers, including each of the Independent Managers, do any of the following: (i) engage in any business or activity other than those set forth in Article II; (ii) except as provided in the Basic Documents, incur any indebtedness, other than the Bonds, obligations 11 under agreements with third party credit enhancers and swap or hedge agreement counterparties relating to any Series of Bonds and ordinary course expenses as set forth in Article II, or assume or guarantee any indebtedness of any other entity; (iii) make a general assignment for the benefit of creditors; (iv) file a petition commencing a voluntary bankruptcy case; (v) file a petition or answer seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation; (vi) file an answer or other pleading admitting or failing to contest the material allegations of a petition filed against it in any proceeding seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, or the entry of any order appointing a trustee, liquidator or receiver of it or of its assets or any substantial portion thereof; (vii) seek, consent to or acquiesce in the appointment of a trustee, receiver or liquidator of it or of all or any substantial part of its assets; (viii) consolidate or merge with or into any other entity or convey or transfer substantially all of its properties and assets substantially as an entirety to any entity; or (ix) amend this Agreement or take action in furtherance of any such action. With regard to any action contemplated by the preceding sentence, or with regard to any action taken or determination made at any time when the Company is insolvent, each Manager shall, to the fullest extent permitted by law, owe its primary fiduciary duty to the Company (including the creditors of the Company). Section 3.05. Appointment and Vacancy. The Member shall appoint each manager, including any Manager to be appointed by reason of an increase in the number of Managers. Section 3.06. Term. Each Manager shall hold office until his or her successor shall be selected by the Member and qualified, or until his or her earlier death, resignation or removal as provided in this Agreement. Section 3.07. Removal. Subject to Section 3.04 (a) and Section 3.15 of this Agreement, the Member may remove, with or without cause, any Manager. Section 3.08. Resignation. Any Manager may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein or, if no time is specified therein, at the time of its receipt by the remaining Managers; provided that the resignation of an Independent Manager shall not be effective until a replacement Independent Manager has been appointed. The acceptance of a resignation shall not be necessary to make it effective, unless so expressly provided in the resignation. Section 3.09. Place of Meetings of Managers. Any meetings of the Managers may be held either within or without the State of Delaware at such place or places as shall be determined from time to time by resolution of the Managers. Section 3.10. Meetings of Managers. Meetings of the Managers may be held when called by any Managers or Manager. The Manager or Managers calling any meeting shall cause notice to be given of such meeting, including therein the time, date and place of such meeting, to each Manager at least two Business Days before such meeting. The business to be transacted at, or the purpose of, any meeting of the Managers shall be specified in the notice or waiver of notice of any such meeting. If fewer than all of the Managers are present in person, by 12 telephone or by proxy, business transacted at any such meeting shall be confined to the business or purposes specifically stated in the notice or waiver of notice of such meeting. Section 3.11. Quorum; Majority Vote. At all meetings of the Managers, the presence in person, by telephone or by proxy of a majority of the Managers shall be necessary and sufficient to constitute a quorum for the transaction of business unless a greater number is required by this Agreement or by law. The act of a majority of the Managers present in person, by telephone or by proxy at a meeting at which a quorum is present in person, by telephone or by proxy shall be the act of the Managers, except as otherwise provided by law or this Agreement. If a quorum shall not be present in person, by telephone or by proxy at any meeting of the Managers, the Managers present in person, by telephone or by proxy at the meeting may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present in person, by telephone or by proxy. Section 3.12. Methods of Voting; Proxies. A Manager may vote either in person, by telephone or by proxy executed in writing by the Manager; provided that the Person designated to act as proxy for an Independent Manager must be an Independent Manager. Section 3.13. Actions Without a Meeting. Any action required or permitted to be taken at a meeting of the managers may be taken without a meeting, without prior notice, and without a vote, if a consent in writing, setting forth the action so taken, is signed by the Managers having not fewer than the minimum number of votes that would be necessary to take the action at a meeting at which all Managers entitled to vote on the action were present and voted. Copies of any such consents shall be filed with the minutes and permanent records of the Company. Section 3.14. Telephone and Similar Meetings. The Managers, or members of any committee thereof, may participate in and hold meetings by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Such participation in any such meeting shall constitute presence in person at such meeting, except where a Person participates in such meeting for the express purpose of objecting to the transaction of any business on the ground that such meeting is not lawfully called or convened. Section 3.15. Compensation of Managers. The Managers other than the Independent Managers shall not be compensated by the Company for their services on behalf of the Company. The Independent Managers shall be paid monthly fees from the revenues of the Company and shall be reimbursed for their reasonable expenses. These expenses include without limitation the reasonable compensation, expenses and disbursements of such agents, representatives, experts and counsel as the Independent Managers may employ in the exercise and performance of their rights and duties under this Agreement and the Other Basic Documents. Section 3.16. Managers. The Member and each Manager shall take all actions necessary from time to time to ensure that at all times the number of Managers shall be not less than three nor more than five; provided, however, that pursuant to Section 3.04, the Company shall at all times have at least two Independent Managers. The Managers upon the execution of this Agreement shall be Thomas S. Shaw, James P. Lavin, Barbara S. Graham, 13 Dean A. Christiansen (who shall serve as an Independent Manager) and Orlando Figueroa (who shall serve as an Independent Manager). ARTICLE IV Officers Section 4.01. Designation; Term; Qualifications. The Managers may, from time to time, designate one or more Persons to be officers of the Company. Any officer so designated shall have such title and authority and perform such duties as the Managers may, from time to time, delegate to them. Each officer shall hold office for the term for which such officer is designated and until his or her successor shall be duly designated and shall qualify or until his or her death, resignation or removal as provided in this Agreement. Any Person may hold any number of offices. No officer need be a Manager, the Member, a Delaware resident, or a United States citizen. The persons identified on Schedule D are hereby designated the initial officers of the Company. Section 4.02. Removal and Resignation. Any officer of the Company may be removed as such, with or without cause, by the Managers at any time. Any officer of the Company may resign as such at any time upon written notice to the Company. Such resignation shall be made in writing and shall take effect at the time specified therein or, if no time is specified therein, at the time of its receipt by the Managers. Section 4.03. Vacancies. Any vacancy occurring in any office of the Company may be filled by the Managers. Section 4.04. Compensation. The compensation, if any, of the officers of the Company shall be fixed from time to time by the Managers. ARTICLE V Member Section 5.01. Powers. Subject to the provisions of this Agreement and the Act, all powers shall be exercised by or under the authority of, and the business and affairs of the Company shall be controlled by, the Member pursuant to Section 5.03. Pursuant to Section 3.01, the Member has delegated such powers to the Managers. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the Member shall have the following powers, subject to Section 3.04 in all cases: First: To select and remove the Managers and prescribe such powers and duties for them as may be consistent with the Act and other applicable law and this Agreement. Second: To conduct, manage and control the affairs and business of the Company, and to make such rules and regulations therefor consistent with the Act and other applicable law and this Agreement. 14 Third: To change the registered office of the Company in Delaware from one location to another; to fix and locate from time to time one or more other offices of the Company; and to designate any place within or without the State of Delaware for the conduct of the business of the Company. Section 5.02. Compensation of Member. The Company shall have authority to pay to the Member reasonable compensation for the Member's services to the Company. It is understood that the compensation paid to the Member under the provisions of this Section shall be determined without regard to the income of the Company, shall not be deemed to constitute distributions to the recipient of any profit, loss or capital of the Company and shall be considered as an operating expense of the Company. Section 5.03. Actions by the Member. All actions of the Member may be taken by written resolution of the Member signed on behalf of the Member by an authorized officer of the Member and filed with the minutes and permanent records of the Company. Section 5.04. Control by Member. To the extent the Member takes any action with respect to the Company (including by means of its appointment of any individual Manager or its control or employment of any individual Manager in any other capacity), the Member, or any such Manager, as applicable, shall act in good faith in accordance with the terms of this Agreement, and make decisions with respect to the business and daily operations of the Company independent of, and not dictated by, in the case of any such Manager, the Member, or in either case any Affiliate of the foregoing, and, to the fullest extent permitted by law, any such Manager shall bear a fiduciary duty to the Company (including its creditors) under the circumstances set forth in Section 3.04. Section 5.05. Special Member. Upon the occurrence of any event that causes the Member to cease to be a member of the Company, each person acting as an Independent Manager pursuant to Section 3.04 shall, without any action of any Person and simultaneously with the Member ceasing to be a member of the Company, automatically be admitted to the Company as a special member (a "Special Member") and shall continue the Company without dissolution. No Special Member may resign from the Company or transfer its rights as Special Member unless (a) a successor Special Member has been admitted to the Company as Special Member by executing a counterpart to this Agreement, and (b) such successor has also accepted its appointment as Independent Manager, provided, however, the Special Members shall automatically cease to be members of the Company upon the admission to the Company of a substitute Member. Each Special Member shall be a member of the Company that has no interest in the profits, losses and capital of the Company and has no right to receive any distributions of Company assets. Pursuant to Section 18-301 of the Act, a Special Member shall not be required to make any capital contributions to the Company and shall not receive a limited liability company interest in the Company. A Special Member, in its capacity as Special Member, may not bind the Company. Except as required by any mandatory provision of the Act, each Special Member, in its capacity as Special Member, shall have no right to vote on, approve or otherwise consent to any action by, or matter relating to, the Company, including without limitation the merger, consolidation or conversion of the Company. In order to implement the admission to the Company of each Special Member pursuant to this Section 5.05, each person acting as an Independent Manager pursuant to Section 3.04 shall execute a 15 counterpart to this Agreement. Prior to its admission to the Company as Special Member, each person acting as an Independent Manager pursuant to Section 3.04 shall not be a member of the Company. ARTICLE VI Common Interest; Capital Contributions Section 6.01. General. The Common Interest constitutes personal property and shall be freely transferable and assignable in whole but not in part upon registration of such transfer and assignment on the books of the Company in accordance with the procedures established for such purpose by the Managers of the Company. Upon registration of the transfer and assignment of the Common Interest on the books of the Company, the transferee/assignee shall be and become the sole Member of the Company and shall have the rights and powers, and be subject to the restrictions and liabilities, of the Member under this Agreement and the Act, and the transferor/assignor shall cease to be the Member, each as of the date of such registration. Notwithstanding the foregoing, the Common Interest may not be transferred unless the Rating Agency Condition shall have been satisfied with respect to such transfer. The Common Interest of the Member in the Company shall be evidenced by a certificate in the form set forth in Schedule B. Section 6.02. Rights on Liquidation, Dissolution or Winding Up. (a) In the event of any liquidation, dissolution or winding up of the Company, the Member shall be entitled to all remaining assets of the Company available for distribution to the Member after payment of all liabilities, debts and obligations of the Company to creditors, as set forth in Section 18-804 of the Act. (b) Neither the sale of all or substantially all of the property or business of the Company, nor the merger or consolidation of the Company into or with another Company or other entity, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purpose of this Section 6.03. (c) The commencement of a bankruptcy, insolvency, receivership or other similar proceeding by or against the Company, any Special Member or the Member shall not result in the dissolution of the Company or in the cessation of the interest of the Member in the Company. The withdrawal or resignation of the Member or any Special Member or the dissolution of the Member or any Special Member shall not, by itself, constitute a dissolution of the Company. (d) Subject to Section 5.05, upon the occurrence of any event that causes the last remaining member of the Company to cease to be a member of the Company, to the fullest extent permitted by law, the personal representative of such member is hereby authorized to, and shall, within ninety (90) days after the occurrence of the event that terminated the continued membership of such member in the Company, agree in writing (i) to continue the Company and (ii) to the admission of the personal representative or its nominee or designee, as the case may be, as a substitute member of the Company, effective as of the occurrence of the event that 16 terminated the continued membership of the last remaining member of the Company in the Company. (e) Notwithstanding any other provision of this Agreement, the bankruptcy of the Member or any Special Member shall not cause the Member or Special Member, respectively, to cease to be a member of the Company and upon the occurrence of such an event, the business of the Company shall continue without dissolution. Section 6.03. Redemption. The Common Interest shall not be redeemable. Section 6.04. Voting Rights. The Member shall have the sole right to vote on all matters as to which members of a limited liability company shall be entitled to vote pursuant to the Act and other applicable law. Section 6.05. Capital Contributions. The Member may make capital contributions in cash in such amounts as the Member may agree to from time to time. To the extent that the Member makes an additional capital contribution to the Company, the Member shall revise Schedule A to reflect the amount contributed by the Member. The Member shall not be required to make any additional capital contributions to the Company. ARTICLE VII Allocations; Distributions; Expenses; Taxes; Books; Records; and Bank Accounts Section 7.01. Allocations. All items of income, gain, loss, deduction, and credit of the Company for each Fiscal Year shall be allocated to the Member. Any credit available for federal income tax purposes shall be allocated to the Member in the same manner. Section 7.02. Distributions. The Member shall be entitled to receive, out of the assets of the Company legally available therefor, when, as and if declared by the Managers, distributions payable in cash in such amounts, if any, as the Managers shall declare. Section 7.03. Limitation Upon Distributions. Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not be required to make a distribution to the Member on account of its interest in the Company if such distribution would violate Section 18-607 of the Act or any other applicable law or any Basic Document. Section 7.04. Expenses. Except as otherwise provided in this Agreement, and subject to the provisions of the Basic Documents, the Company shall be responsible for all expenses and the allocation thereof including without limitation: (a) all expenses incurred by the Member or its Affiliates in organizing the Company; (b) all expenses related to the payment of the principal of and interest on the Bonds issued by the Company; 17 (c) all expenses related to the business of the Company and all routine administrative expenses of the Company, including any amounts payable under the Administration Agreement and the Servicing Agreement, the maintenance of books and records of the Company, and the preparation and dispatch to the Member of financial reports, tax returns and notices required pursuant to this Agreement; (d) all expenses incurred in connection with any litigation or arbitration involving the Company (including the cost of any investigation and preparation) and the amount of any judgment or settlement paid in connection therewith; (e) all expenses for indemnity or contribution payable by the Company to any person; (f) all expenses incurred in connection with the collection of amounts due to the Company from any person; (g) all expenses incurred in connection with the preparation of amendments to this Agreement; (h) all expenses incurred in connection with the liquidation, dissolution and winding up of the Company; and (i) all expenses otherwise allocated in good faith to the Company by the Managers. Section 7.05. Tax Elections. The Managers shall make the following elections on behalf of the Company: (a) To elect the calendar year as the Company's Fiscal Year; (b) To elect the accrual method of accounting; (c) To elect to treat all organization and start-up costs of the Company as deferred expenses amortizable over sixty (60) months under Section 195 of the Code; and (d) To elect with respect to such other federal, state and local tax matters as the Managers shall agree upon from time to time. Section 7.06. Annual Tax Information. The Managers shall cause the Company to deliver to the Member all information necessary for the preparation of the Member's federal or state income tax return. Section 7.07. Tax Matters Member. The Member shall communicate and negotiate with the Internal Revenue Service on any tax matter on behalf of the Member and the Company. Section 7.08. Maintenance of Books. The Company shall keep books and records of accounts in accordance with GAAP and shall keep minutes of the proceedings of 18 the Member, the Managers and each committee of the Managers. The Fiscal Year shall be the accounting year of the Company. Section 7.09. Reports. Within sixty (60) days following the end of each Fiscal Year during the term of the Company, the Managers shall cause to be furnished to the Member a balance sheet, an income statement and a statement of changes in Member's capital account for, or as of the end of, that Fiscal Year. Such financial statements shall be prepared in accordance with the accounting method selected by the Managers consistently applied (except as therein noted), and shall be accompanied by an audit report from a nationally recognized accounting firm. The Managers also may cause to be prepared or delivered such other reports as they may deem appropriate. The Company shall bear the costs of all such financial statements and reports. Section 7.10. Bank and Investment Accounts. The Managers shall establish and maintain one or more separate bank and investment accounts and arrangements for Company funds in the Company name with such financial institutions and firms as the Managers determine. ARTICLE VIII Indemnification Section 8.01. Mandatory Indemnification of the Member, the Special Members, and the Managers. Any Person who was or is a party or is threatened to be made a party to, or is involved in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative (hereafter a "Proceeding"), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding, by reason of the fact that such Person is or was the Member, a Special Member or a Manager, or by reason of the fact that the Member, such Special Member or such Manager is or was serving at the request of the Company as a member, director, manager, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, limited liability company, partnership, joint venture, trust, sole proprietorship, employee benefit plan or other enterprise, shall be indemnified by the Company to the fullest extent permitted by applicable law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide greater or broader indemnification rights than such law permitted the Company to provide prior to such amendment) against judgments, penalties (including without limitation excise and similar taxes and punitive damages), fines, settlements and reasonable expenses (including without limitation attorneys' fees) actually incurred by such Person in connection with such Proceeding. It is expressly acknowledged that the indemnification provided in this Article VIII could involve indemnification for negligence or under theories of strict liability subject to the exclusions set forth in Section 8.09(a). Notwithstanding anything herein to the contrary, for so long as any Bonds are outstanding, no payment from funds of the Company (as distinct from funds from other sources, such as insurance) of any indemnity under this Article VIII shall be payable except out of funds available for payment of Company expenses as provided in the Indenture. 19 Section 8.02. Mandatory Advancement of Expenses. Expenses incurred by a Person of the type entitled to be indemnified under Section 8.01 in defending any Proceeding shall be paid or reimbursed by the Company in advance of the final disposition of the Proceeding, without any determination as to such Person's ultimate entitlement to indemnification under Section 8.01, upon receipt of a written affirmation by such Person of such Person's good faith belief that such Person has met the standard of conduct necessary for indemnification under applicable law and a written undertaking by or on behalf of such Person to repay all amounts so advanced if it shall ultimately be determined that such Person is not entitled to be indemnified by the Company as authorized in Section 8.01 or otherwise. The written undertaking shall be an unlimited general obligation of the Person but need not be secured and shall be accepted without reference to financial ability to make repayment. Section 8.03. Indemnification of Officers, Employees and Agents. The Company shall indemnify and pay and advance expenses to an officer, employee or agent of the Company to the same extent and subject to the same conditions under which it may indemnify and pay and advance expenses to the Member, any Special Member or any Manager under this Article VIII; and the Company shall indemnify and pay and advance expenses to any Person who is or was an officer, employee or agent of the Company and who is or was serving at the request of the Company as a member, manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic limited liability company, partnership, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any liability asserted against such Person and incurred by such Person in such a capacity or arising out of such Person's status as such to the same extent and subject to the same conditions that the Company may indemnify and pay and advance expenses to the Member, any Special Member or any Manager under this Article VIII. Section 8.04. Nonexclusivity of Rights. The indemnification and advancement and payment of expenses provided by this Article VIII (a) shall not be deemed exclusive of any other rights to which the Member, a Special Member, a Manager or other Person seeking indemnification may be entitled under any statute, agreement, decision of the Member or disinterested Managers, or otherwise both as to action in such Person's official capacity and as to action in another capacity while holding such office, (b) shall continue as to any Person who has ceased to serve in the capacity that initially entitled such Person to indemnity and advancement and payment of expenses, and (c) shall inure to the benefit of the heirs, executors, administrators, successors and assigns of the Member, such Special Member, such Manager or such other Person. Section 8.05. Contract Rights. The rights granted pursuant to this Article VIII shall be deemed to be contract rights, and no amendment, modification or repeal of this Article VIII shall have the effect of limiting or denying any such rights with respect to actions taken or Proceedings arising prior to any such amendment, modification or repeal. Section 8.06. Insurance. The Company may purchase and maintain insurance or other arrangement or both, at its expense, on behalf of itself or any Person who is or was serving as the Member, a Special Member or a Manager, officer, employee or agent of the Company, or is or was serving at the request of the Company as a member, manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another 20 foreign or domestic limited liability company, partnership, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise, against any liability, expense or loss, whether or not the Company would have the power to indemnify such Person against such liability under the provisions of this Article VIII. Section 8.07. Savings Clause. If this Article VIII or any portion of this Agreement shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify and hold harmless the Member, each Special Member, each Manager or any other Person indemnified pursuant to this Article VIII as to costs, charges and expenses (including without limitation attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, to the fullest extent permitted by any applicable portion of this Article VIII that shall not have been invalidated and to the fullest extent permitted by applicable law. Section 8.08. Other Ventures. It is expressly agreed that the Member, any Special Member, any Manager and any Affiliates, officers, directors, managers, stockholders, partners or employees of the Member, any Special Member or any Manager, may engage in other business ventures of every nature and description, whether or not in competition with the Company, independently or with others, and the Company shall not have any rights in and to any independent venture or activity or the income or profits derived therefrom. Section 8.09. Other Arrangements Not Excluded. The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this Article VIII: (a) Does not exclude any other rights to which a Person seeking indemnification or advancement of expenses may be entitled under any agreement, decision of the Member or otherwise, for either an action of the Member, any Special Member or any Manager, officer, employee or agent in the official capacity of such Person or an action in another capacity while holding such position, except that indemnification, unless ordered by a court, may not be made to or on behalf of the Member, any Special Member or any Manager if a final adjudication established that its acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action; and (b) Continues for a person who has ceased to be the Member, a Special Member or a Manager, officer, employee or agent and inures to the benefit of the successors, heirs, executors and administrators of such a person. ARTICLE IX Miscellaneous Provisions Section 9.01. Offset. Whenever the Company is to pay any sum to the Member, any amounts the Member owes the Company may be deducted from such sum before payment. Section 9.02. Notices. Except as expressly set forth to the contrary in this Agreement, all notices, requests, or consents provided for or permitted to be given under this Agreement shall be in writing and shall be given either by depositing such writing in the United 21 States mail, addressed to the recipient, postage paid, and registered or certified with return receipt requested or by delivering such writing to the recipient in person, by reputable overnight courier, or by facsimile transmission; and a notice, request or consent given under this Agreement shall be effective on receipt by the Person to whom sent. All notices, requests, and consents to be sent to the Member shall be sent to or made to 800 King Street, P.O. Box 231, Wilmington, Delaware 19899, Attention: General Counsel or such other address as the Member may specify by notice to the Company and the Managers. Any notice, request, or consent to the Company or the Managers must be given to the Managers at the following address: 800 King Street, Wilmington, Delaware 19899, Attention: Managers. Whenever any notice is required to be given by law or this Agreement, a written waiver thereof, signed by the Person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Section 9.03. Effect of Waiver or Consent. A waiver or consent, express or implied, to or of any breach or default by any Person in the performance by such Person of its obligations with respect to the Company shall not be a consent or waiver to or of any other breach or default in the performance by such Person of the same or any other obligations of such Person with respect to the Company. Section 9.04. Governing Law; Severability. THIS AGREEMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE, EXCLUDING ANY CONFLICT OF LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION. In the event of a direct conflict between the provisions of this Agreement and any mandatory provision of the Act, then the applicable provision of the Act shall control. If any provision of this Agreement or the application thereof to any Person or circumstance is held invalid or unenforceable to any extent, the remainder of this Agreement and the application of that provision to other Persons or circumstances shall not be affected thereby and such provision shall be enforced to the fullest extent permitted by law. Section 9.05. No Bankruptcy Petition; No Dissolution. (a) The Member, each Special Member and each Manager hereby covenants and agrees (or shall be deemed to have hereby covenanted and agreed) that such Member, Special Member or Manager shall not, prior to the date that is one year and one day after the termination of the Indenture and the payment in full of all of the outstanding Bonds, all other amounts owed under the Indenture (including without limitation all amounts owed to third-party credit enhancers) and all amounts owed by the Company under all Hedge Agreements and Interest Rate Swap Agreements, acquiesce, petition or otherwise invoke or cause the Company to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against the Company under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of the property of the Company, or ordering the winding up or liquidation of the affairs of the Company; provided, however, that nothing in this Section 9.05 shall constitute a waiver of any right to indemnification, reimbursement or other payment from the Company pursuant to this Agreement. 22 (b) To the fullest extent permitted by law, the Member, each Special Member and each Manager hereby covenants and agrees (or shall be deemed to have hereby covenanted and agreed) that, until the termination of the Indenture and the payment in full of all Series of the Bonds, any other amounts owed under the Indenture, including without limitation, any amounts owed to third-party credit enhancers, and any amounts owed under any Hedge Agreement or Interest Rate Swap Agreement, the Member, such Special Member and such Manager shall not consent to, or make application for, or institute or maintain any action for, the dissolution of the Company under Section 18-801 or 18-802 of the Act or otherwise. (c) In the event that the Member, any Special Member or any Manager takes action in violation of this Section 9.05, the Company shall file an answer with the court or otherwise properly contest the taking of such action and raise the defense that the Member, the Special Member or the Manager, as the case may be, has agreed in writing not to take such action and should be estopped and precluded therefrom and such other defenses, if any, as its counsel advises that it may assert. (d) The provisions of this Section 9.05 shall survive the termination of this Agreement and the resignation, withdrawal or removal of the Member, any Special Member or any Manager. Nothing herein contained shall preclude participation by the Member, any Special Member or a Manager in assertion or defense of its claims in any such proceeding involving the Company. Section 9.06. Amendment. This Agreement may not be amended, except in writing by the member and the Company, upon prior approval of the Trustee and with prior notice to the Rating Agencies (as defined in the Indenture). Section 9.07. Headings and Sections. The headings in this Agreement are inserted for convenience only and are in no way intended to describe, interpret, define, or limit the scope, extent or intent of this Agreement or any provision hereof. Section 9.08. Binding Agreement. Notwithstanding any other provision of this Agreement, the Member agrees that this Agreement constitutes a legal, valid and binding agreement of the Member, and is enforceable against the Member by the Independent Managers, in accordance with its terms. In addition, the Independent Managers shall be intended beneficiaries of this Agreement. IN WITNESS WHEREOF, this Agreement is hereby executed by the undersigned as of December 19, 2002. MEMBER: ATLANTIC CITY ELECTRIC COMPANY By: /s/ Roberta S. Brown ------------------------------------ Name: Roberta S. Brown Title: Vice President 23 COMPANY: ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC By: /s/ Roberta S. Brown ------------------------------------ Name: Roberta S. Brown Title: Manager 24 Agreed and Consented to by the Special Members and Independent Managers: /s/ Dean A. Christiansen ------------------------------------ Dean A. Christiansen /s/ Orlando Figueroa ------------------------------------ Orlando Figueroa 25 SCHEDULE A SCHEDULE OF CAPITAL CONTRIBUTIONS OF MEMBER COMMON INTEREST Capital Common Interest Capital Member's Name Contribution Percentage Account - ------------------------------ ------------ ---------------- ------------ Atlantic City Electric Company $2,200,000 100% $2,200,000 A-1 SCHEDULE B CERTIFICATE OF COMMON INTEREST of ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC A Limited Liability Company Organized under the Laws of the State of Delaware This Certificate is issued and shall be held subject to the provisions of (i) the Certificate of Formation of ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC, a limited liability company organized under the laws of the State of Delaware (the "Company"), filed on March 28, 2001 with the Secretary of State of the State of Delaware, as amended or supplemented from time to time and (ii) the Limited Liability Company Agreement dated as of April 11, 2001 of the Company, as amended and restated on December 19, 2002, as amended or supplemented from time to time. This Certificate of Common Interest certifies that Atlantic City Electric Company is the registered holder of the entire Common Interest of the Company, which Common Interest shall be transferable only on the books of the Company by the holder hereof in person or by a duly authorized attorney upon surrender of this Certificate with a proper endorsement. IN WITNESS WHEREOF, this Company has caused this Certificate to be signed by one of its duly authorized Managers this ____ day of _______, ____. ------------------------------------ Title: Manager B-1 ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC For Value Received the undersigned hereby sells, assigns and transfers unto _____________________________________________________________ the entire Common Interest of the Company represented by the within Certificate and does hereby irrevocably constitute and appoint ___________________________________________________________ Attorney, to transfer said Common Interest on the books of the Company with full power of substitution in the premises. Dated: ________________ ____________________________________ B-2 SCHEDULE C MANAGERS Names 1. Thomas S. Shaw 2. James P. Lavin 3. Barbara S. Graham 4. Dean A. Christiansen (Independent Manager) 5. Orlando Figueroa (Independent Manager) C-1 SCHEDULE D OFFICERS Names Office Thomas S. Shaw Chairman Joseph M. Rigby President & COO Roberta S. Brown Vice President James P. Lavin CFO Kirk J. Emge General Counsel Donna J. Kinzel Treasurer Jeffery E. Snyder Assistant Treasurer Ellen Sheriff Rogers Secretary Diana C. DeAngelis Assistant Secretary Nina J. Clements Assistant Secretary D-1 EX-4.1 5 exh41.txt EXHIBIT 4.1 EXECUTION COPY ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC, Issuer and THE BANK OF NEW YORK, Trustee --------------------- INDENTURE Dated as of December 19, 2002 --------------------- Securing Transition Bonds Issuable in Series TABLE OF CONTENTS Article I DEFINITIONS AND INCORPORATION BY REFERENCE...........................2 Section 1.01. DEFINITIONS...................................................2 Section 1.02. INCORPORATION BY REFERENCE OF THE TRUST INDENTURE ACT.........2 Section 1.03. RULES OF CONSTRUCTION.........................................2 Article II THE TRANSITION BONDS................................................3 Section 2.01. FORM 3 Section 2.02. EXECUTION, AUTHENTICATION AND DELIVERY........................4 Section 2.03. DENOMINATIONS; TRANSITION BONDS ISSUABLE IN SERIES............4 Section 2.04. TEMPORARY TRANSITION BONDS....................................5 Section 2.05. REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE...........6 Section 2.06. MUTILATED, DESTROYED, LOST OR STOLEN TRANSITION BONDS.........7 Section 2.07. PERSONS DEEMED OWNER..........................................8 Section 2.08. PAYMENT OF PRINCIPAL AND INTEREST; INTEREST ON OVERDUE PRINCIPAL; PRINCIPAL AND INTEREST RIGHTS PRESERVED..........8 Section 2.09. CANCELLATION..................................................9 Section 2.10. AMOUNT; AUTHENTICATION AND DELIVERY OF TRANSITION BONDS.......9 Section 2.11. BOOK-ENTRY TRANSITION BONDS..................................14 Section 2.12. NOTICES TO CLEARING AGENCY...................................15 Section 2.13. DEFINITIVE TRANSITION BONDS..................................15 Article III COVENANTS.........................................................16 Section 3.01. PAYMENT OF PRINCIPAL AND INTEREST............................16 Section 3.02. MAINTENANCE OF OFFICE OR AGENCY..............................16 Section 3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST.......................17 Section 3.04. EXISTENCE....................................................18 Section 3.05. PROTECTION OF COLLATERAL.....................................18 Section 3.06. OPINIONS AS TO COLLATERAL....................................18 Section 3.07. PERFORMANCE OF OBLIGATIONS...................................19 Section 3.08. NEGATIVE COVENANTS...........................................19 Section 3.09. ANNUAL STATEMENT AS TO COMPLIANCE............................20 Section 3.10. ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS..........20 Section 3.11. SUCCESSOR OR TRANSFEREE......................................21 Section 3.12. NO OTHER BUSINESS............................................22 Section 3.13. NO BORROWING.................................................22 Section 3.14. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES............22 Section 3.15. CAPITAL EXPENDITURES.........................................22 Section 3.16. RESTRICTED PAYMENTS..........................................22 Section 3.17. NOTICE OF EVENTS OF DEFAULT..................................22 i Section 3.18. INSPECTION...................................................23 Section 3.19. [RESERVED]...................................................23 Section 3.20. SALE AGREEMENT, SERVICING AGREEMENT, ADMINISTRATION AGREEMENT, HEDGE AGREEMENT AND INTEREST RATE SWAP AGREEMENT COVENANTS........................................23 Section 3.21. TAXES........................................................26 Section 3.22. SEPARATE ENTITY..............................................26 Article IV SATISFACTION AND DISCHARGE; DEFEASANCE.............................26 Section 4.01. SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE..........26 Section 4.02. CONDITIONS TO DEFEASANCE.....................................28 Section 4.03. APPLICATION OF TRUST MONEY...................................30 Section 4.04. REPAYMENT OF MONEYS HELD BY PAYING AGENT.....................30 Article V REMEDIES............................................................30 Section 5.01. EVENTS OF DEFAULT............................................30 Section 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT...........31 Section 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE....................................................32 Section 5.04. REMEDIES.....................................................34 Section 5.05. OPTIONAL PRESERVATION OF THE COLLATERAL......................35 Section 5.06. LIMITATION OF PROCEEDINGS....................................35 Section 5.07. UNCONDITIONAL RIGHTS OF TRANSITION BONDHOLDERS TO RECEIVE PRINCIPAL AND INTEREST.....................................36 Section 5.08. RESTORATION OF RIGHTS AND REMEDIES...........................36 Section 5.09. RIGHTS AND REMEDIES CUMULATIVE...............................36 Section 5.10. DELAY OR OMISSION NOT A WAIVER...............................36 Section 5.11. CONTROL BY TRANSITION BONDHOLDERS............................36 Section 5.12. WAIVER OF PAST DEFAULTS......................................37 Section 5.13. UNDERTAKING FOR COSTS........................................37 Section 5.14. WAIVER OF STAY OR EXTENSION LAWS.............................38 Section 5.15. ACTION ON TRANSITION BONDS...................................38 Article VI THE TRUSTEE........................................................38 Section 6.01. DUTIES AND LIABILITIES OF TRUSTEE............................38 Section 6.02. RIGHTS OF TRUSTEE............................................39 Section 6.03. INDIVIDUAL RIGHTS OF TRUSTEE.................................40 Section 6.04. TRUSTEE'S DISCLAIMER.........................................40 Section 6.05. NOTICE OF DEFAULTS...........................................40 Section 6.06. REPORTS BY TRUSTEE TO HOLDERS................................40 Section 6.07. COMPENSATION AND INDEMNITY...................................42 Section 6.08. REPLACEMENT OF TRUSTEE.......................................42 Section 6.09. SUCCESSOR TRUSTEE BY MERGER..................................43 Section 6.10. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE................44 Section 6.11. ELIGIBILITY; DISQUALIFICATION................................45 ii Section 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE ISSUER.........45 Section 6.13. REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE................45 Section 6.14. TRUSTEE ACTIONS IN CAPACITY OF REGISTRAR OR PAYING AGENT.....45 Article VII TRANSITION BONDHOLDERS' LISTS AND REPORTS.........................45 Section 7.01. ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF TRANSITION BONDHOLDERS................................................45 Section 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO TRANSITION BONDHOLDERS................................................46 Section 7.03. REPORTS BY ISSUER............................................46 Section 7.04. REPORTS BY TRUSTEE...........................................47 Section 7.05. PROVISION OF SERVICER REPORTS................................47 Article VIII ACCOUNTS, DISBURSEMENTS AND RELEASES.............................47 Section 8.01. COLLECTION OF MONEY..........................................47 Section 8.02. COLLECTION ACCOUNT...........................................47 Section 8.03. RELEASE OF COLLATERAL........................................54 Section 8.04. ISSUER OPINION OF COUNSEL....................................54 Section 8.05. REPORTS BY INDEPENDENT ACCOUNTANTS...........................55 Article IX SUPPLEMENTAL INDENTURES............................................55 Section 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF TRANSITION BONDHOLDERS................................................55 Section 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF TRANSITION BONDHOLDERS................................................57 Section 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES.........................58 Section 9.04. EFFECT OF SUPPLEMENTAL INDENTURE.............................59 Section 9.05. CONFORMITY WITH TRUST INDENTURE ACT..........................59 Section 9.06. REFERENCE IN TRANSITION BONDS TO SUPPLEMENTAL INDENTURES.....60 Article X REDEMPTION OF TRANSITION BONDS......................................60 Section 10.01. OPTIONAL REDEMPTION BY ISSUER...............................60 Section 10.02. MANDATORY REDEMPTION BY ISSUER..............................60 Section 10.03. FORM OF REDEMPTION NOTICE...................................60 Section 10.04. PAYMENT OF REDEMPTION PRICE.................................61 Article XI MISCELLANEOUS......................................................61 Section 11.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC...................61 Section 11.02. FORM OF DOCUMENTS DELIVERED TO TRUSTEE......................62 Section 11.03. ACTS OF TRANSITION BONDHOLDERS..............................63 Section 11.04. NOTICES, ETC., TO TRUSTEE, ISSUER AND RATING AGENCIES.......63 Section 11.05. NOTICES TO TRANSITION BONDHOLDERS; WAIVER...................64 Section 11.06. NOTICES TO LUXEMBOURG STOCK EXCHANGE........................64 Section 11.07. ALTERNATE PAYMENT AND NOTICE PROVISIONS.....................65 iii Section 11.08. CONFLICT WITH TRUST INDENTURE ACT...........................65 Section 11.09. EFFECT OF HEADINGS AND TABLE OF CONTENTS....................65 Section 11.10. SUCCESSORS AND ASSIGNS......................................65 Section 11.11. SEVERABILITY................................................66 Section 11.12. BENEFITS OF INDENTURE.......................................66 Section 11.13. LEGAL HOLIDAYS..............................................66 Section 11.14. GOVERNING LAW...............................................66 Section 11.15. COUNTERPARTS................................................66 Section 11.16. ISSUER OBLIGATION...........................................66 Section 11.17. NO PETITION.................................................66 Section 11.18. PREFUNDING..................................................66 APPENDIX A MASTER DEFINITIONS iv INDENTURE, dated as of December 19, 2002, by and between ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC, a Delaware limited liability company, as Issuer, and The Bank of New York, a New York banking corporation, in its capacity as trustee for the benefit of the Holders of the Transition Bonds and as agent for itself and any counterparty under any Interest Rate Swap Agreement (the "Trustee"). The Issuer has duly authorized the execution and delivery of this Indenture to provide for one or more Series of Transition Bonds, issuable as provided in this Indenture. Each such Series of Transition Bonds will be issued only under a separate Series Supplement to this Indenture duly executed and delivered by the Issuer and the Trustee. The Issuer and the Trustee are entering into this Indenture, and the Trustee is accepting the trusts created hereby, each for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, and each intends to be legally bound hereby. GRANTING CLAUSE The Issuer hereby Grants to the Trustee as trustee for the benefit of (i) the Holders of the Transition Bonds from time to time issued and outstanding, (ii) the Trustee and (iii) any counterparty under any Interest Rate Swap Agreement, a security interest in all of the Issuer's right, title and interest whether now owned or hereafter acquired, in, to and under: (a) all Bondable Transition Property, including without limitation the Bondable Transition Property transferred by the Seller to the Issuer from time to time pursuant to the Sale Agreement and all proceeds thereof; (b) the Sale Agreement; (c) all Bills of Sale delivered by the Seller pursuant to the Sale Agreement; (d) the Servicing Agreement; (e) the Administration Agreement; (f) any Interest Rate Swap Agreement; (g) the Collection Account and all subaccounts thereof (including without limitation the General Subaccount, each Series Overcollateralization Subaccount, each Series Capital Subaccount, each Series Reserve Subaccount, each Series Subaccount, any Class Subaccount and any Defeasance Subaccount), and all cash, securities, instruments, investment property or other assets deposited in or credited to the Collection Account or any Subaccount from time to time or purchased with funds therefrom; (h) all investment property and all other property of whatever kind owned from time to time by the Issuer other than: (w) any cash released to any counterparty under any Interest Rate Swap Agreement by the Trustee from any related Class Subaccount pursuant to the provisions of this Indenture or any Series Supplement, (x) any cash or other property released to the Issuer by the Trustee from the Collection Account and any Subaccount, (y) any payment received by the Issuer pursuant to any Hedge Agreement and (z) the proceeds from the sale of the Transition Bonds used to pay (1) the costs of issuance of the Transition Bonds and the Upfront Transaction Costs and Capital Reduction Costs (as such terms are defined in the BPU Financing Orders), (2) any amount payable by the Issuer pursuant to any Hedge Agreement and (3) the purchase price of the Bondable Transition Property paid pursuant to the Sale Agreement; (i) all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing; and (j) all payments on or under and all proceeds of every kind and nature whatsoever in respect of any or all of the foregoing, including all proceeds of its conversion, voluntary or involuntary, into cash or other liquid property, all cash proceeds, accounts, accounts receivable, general intangibles, notes, drafts, acceptances, chattel paper, checks, deposit accounts, insurance proceeds, condemnation awards, rights to payment of any and every kind and other forms of obligations and receivables, instruments and other property that at any time constitute all or part of or are included in the proceeds of any of the foregoing (collectively, the "Collateral"); provided that any Collateral in the Collection Account applied in favor of or released to the Issuer in accordance with Section 8.02 or any other provision of this Indenture or any Series Supplement shall not be subject to the lien of this Indenture. Such Grants are made to the Trustee to have and to hold in trust to secure the payment of principal of, and interest on, and any other amounts owing in respect of, the Transition Bonds and all fees, expenses, counsel fees and other amounts due and owing to the Trustee and, if and to the extent provided in any Series Supplement, any amounts due and owing to any counterparty under any Interest Rate Swap Agreement (collectively, the "Secured Obligations"), equally and ratably without prejudice, preference, priority or distinction, except as expressly provided in this Indenture and to secure performance by the Issuer of all of the Issuer's obligations under this Indenture with respect to the Transition Bonds, all as provided in this Indenture. The Trustee, as trustee on behalf of the Holders of the Transition Bonds, and acting on behalf of itself and any counterparty under any Interest Rate Swap Agreement acknowledges such Grant, accepts the trusts hereunder in accordance with the provisions hereof and agrees to perform its duties herein required. Article I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. DEFINITIONS. Capitalized terms used but not otherwise defined in this Indenture have the respective meanings set forth in Appendix A hereto unless the context otherwise requires. Section 1.02. INCORPORATION BY REFERENCE OF THE TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. Each of the following TIA terms used in this Indenture has the following meaning: "Commission" means the U.S. Securities and Exchange Commission, and any successor thereof. "indenture securities" means the Transition Bonds. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule have the meanings assigned to them by such definitions. Section 1.03. RULES OF CONSTRUCTION. (a) An accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect from time to time; (b) "including" means including without limitation, and "or" is used in the inclusive sense; 2 (c) with respect to terms defined in Appendix A hereto, words in the singular include the plural and words in the plural include the singular, and personal pronouns refer to all persons regardless of gender; (d) unless otherwise specified, references herein to sections or articles are to the sections or articles of this Indenture; and (e) 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. (a) The Transition Bonds and the Trustee's certificate of authentication shall be in substantially the forms set forth in Exhibit A to the related Series Supplement, 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 Manager of the Issuer executing such Transition Bonds, as evidenced by such Manager's 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. Each Transition Bond shall be dated the date of its authentication. (b) 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 Manager executing such Transition Bonds, as evidenced by such Manager's execution of such Transition Bonds. (c) Each Transition Bond shall bear upon its face the designation so selected for the Series and Class, if any, to which it belongs. The terms of all Transition Bonds of the same Series shall be identical, unless such Series is made up of more than one Class, in which case the terms of all Transition Bonds of the same Class shall be identical. (d) Each Transition Bond shall state that the Competition Act provides that the State of New Jersey pledges and agrees with the holders of the Transition Bonds that "the State will not limit, alter or impair any bondable transition property or other rights vested in an electric public utility or an assignee or pledgee thereof or a financing entity or vested in the holders of any transition bonds pursuant to a bondable stranded costs rate order until such transition bonds, together with the interest and acquisition or redemption premium, if any, thereon, are fully paid and discharged or until such agreements are fully performed on the part of the electric public utility, any assignee or pledgee thereof or the financing entity or in any way limit, alter, impair or reduce the value or amount of the bondable transition property approved by a bondable stranded costs rate order". 3 Section 2.02. EXECUTION, AUTHENTICATION AND DELIVERY. (a) The Transition Bonds shall be executed on behalf of the Issuer by a Manager. The signature of any such Manager on the Transition Bonds may be manual or facsimile. (b) Transition Bonds bearing the manual or facsimile signature of individuals who were at any time Managers 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. (c) At any time and from time to time after the execution and delivery of this Indenture, the Issuer may deliver Transition Bonds executed on behalf of the Issuer to the Trustee pursuant to an Issuer Order for authentication; and the Trustee shall authenticate and deliver such Transition Bonds as in this Indenture and such Issuer Order provided and not otherwise. (d) 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 in the related Series Supplement executed by the 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. (e) In the event that either (i) any of the Transition Bonds are listed on the Luxembourg Stock Exchange and the rules and regulations of such exchange so require or (ii) the Trustee no longer maintains an office in the Borough of Manhattan, The City of New York, another Person may be appointed (in the case of clause (i) pursuant to Section 3.02(b) and in the case of clause (ii) by the Trustee with the consent of the Issuer) as authenticating agent, and upon such appointment any such other Person shall be authorized hereunder on behalf of the Trustee to authenticate and deliver Transition Bonds in accordance with the terms hereof. Each reference in this Indenture to authentication by the Trustee includes authentication by any such other Person, and each such agent shall have the same rights as the Paying Agent and Transition Bond Registrar to deal with the Issuer or any Affiliate thereof. Section 2.03. DENOMINATIONS; TRANSITION BONDS ISSUABLE IN SERIES. (a) The Transition Bonds of each Series shall be issuable as registered Transition Bonds in the Authorized Denominations specified in the Series Supplement therefor. (b) The Transition Bonds may, at the election of and as authorized by a Manager and set forth in a Series Supplement, be issued in one or more Series (each of which may be comprised of one or more Classes), 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 Class as a Manager may determine, as set forth in the Series Supplement therefor. (c) Each Series of Transition Bonds shall be created by a Series Supplement authorized by a Manager and establishing the terms and provisions of such Series and, if applicable, any Classes thereof. All Series and all Classes of each Series shall have the same Payment Dates and Adjustment Dates. The several Series and any Classes thereof may differ as between Series and Classes, in respect of any of the following matters: (i) designation of the Series and each Class thereof; 4 (ii) the aggregate initial principal amount of the Transition Bonds of the Series and each Class thereof; (iii) the Interest Rate of the Series and each Class thereof or the formula, if any, used to calculate the applicable Interest Rate or Interest Rates for the Series and each Class thereof; (iv) the Expected Final Payment Date of the Series and each Class thereof; (v) the Final Maturity Date of the Series and each Class thereof; (vi) the Series Issuance Date of the Series; (vii) the place or places for payments with respect to the Series and each Class thereof; (viii) the Authorized Denominations for the Series and each Class thereof; (ix) the provisions, if any, for redemption by the Issuer of the Series and each Class thereof; (x) the Expected Amortization Schedule for the Series and each Class thereof; (xi) the Overcollateralization Amount with respect to the Series for each Payment Date through the Final Maturity Date thereof; (xii) the Required Capital Amount with respect to the Series; (xiii) the Calculation Dates; (xiv) the credit enhancement, if any, applicable to the Series and each Class thereof; and (xv) any other terms of the Series or each Class that are not inconsistent with the provisions of this Indenture. Section 2.04. TEMPORARY TRANSITION BONDS. (a) Pending the preparation of definitive Transition Bonds pursuant to Section 2.13, or in the case of Transition Bonds held in a book-entry only system by a Clearing Agency, a Manager may execute, and upon receipt of an Issuer Order the Trustee shall authenticate and deliver, temporary Transition Bonds that 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 Manager executing such Transition Bonds may determine, as evidenced by such Manager's execution of such Transition Bonds. (b) If temporary Transition Bonds are issued, the Issuer shall cause definitive Transition Bonds to be prepared without unreasonable delay except where temporary Transition Bonds are held by a Clearing Agency. After the preparation of definitive Transition Bonds, the temporary 5 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 any Holder. Upon surrender for cancellation of any one or more temporary Transition Bonds, a Manager shall execute and the Trustee shall authenticate and deliver in exchange therefor a like Series (and if applicable, Class) and aggregate initial principal amount of definitive Transition Bonds in Authorized Denominations. Until so exchanged, 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. (a) 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 Trustee shall be the registrar (the Trustee or any successor thereof in such capacity, the "Transition Bond Registrar") for the purpose of registering Transition Bonds and transfers of Transition Bonds as herein provided. Upon any resignation of any 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. (b) If a Person other than the Trustee is appointed by the Issuer as Transition Bond Registrar, the Issuer shall give the Trustee and any transfer, paying or listing agent of the Issuer appointed pursuant to Section 3.02(b) 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; the Trustee and any such agent shall have the right to inspect the Transition Bond Register at all reasonable times and to obtain copies thereof; and the Trustee and any such agent shall have the right conclusively to rely upon a certificate executed on behalf of the Transition Bond Registrar by a duly authorized officer thereof as to the names and addresses of the Holders of the Transition Bonds and the original and Outstanding principal amounts and number of such Transition Bonds (separately stated by Series and, if applicable, Class). (c) 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, a Manager on behalf of the Issuer shall execute, and the Trustee shall authenticate and the Transition Bondholder shall obtain from the Trustee, in the name of the designated transferee or transferees, one or more new Transition Bonds in any Authorized Denominations, of a like Series (and, if applicable, Class) and aggregate initial principal amount. (d) At the option of the Holder, Transition Bonds may be exchanged for other Transition Bonds of a like Series (and, if applicable, Class) and aggregate initial principal amount in Authorized Denominations, upon surrender of the Transition Bonds to be exchanged at the office or agency of the Issuer to be maintained as provided in Section 3.02. Whenever any Transition Bonds are so surrendered for exchange, a Manager on behalf of the Issuer shall execute, and the Trustee shall authenticate and the Transition Bondholder shall obtain from the Trustee, the Transition Bonds that the Transition Bondholder making the exchange is entitled to receive. (e) All Transition Bonds issued upon any registration of transfer or exchange of 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. 6 (f) Every Transition Bond presented or surrendered for registration of transfer or exchange shall be duly endorsed by, or be accompanied by a written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing, with such signature guaranteed by an Eligible Guarantor Institution in the form set forth in such Transition Bond. (g) 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 Luxembourg Stock Exchange with respect to any Transition Bonds listed thereon), but, other than in respect of exchanges pursuant to Section 2.04 or 9.06 not involving any transfer, the Issuer may require payment by such Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Transition Bonds, including the fees and expenses of the Trustee. (h) The preceding provisions of this Section 2.05 notwithstanding, except to the extent otherwise required by the rules and regulations of the Luxembourg Stock Exchange with respect to any Transition Bonds listed thereon, the Issuer shall not be required to make, and the Transition Bond Registrar need not register, transfers or exchanges of Transition Bonds selected for redemption or transfers or exchanges of any Transition Bond for a period of 15 days preceding the date on which final payment of principal is to be made with respect to such Transition Bond. Section 2.06. MUTILATED, DESTROYED, LOST OR STOLEN TRANSITION BONDS. (a) If (i) any mutilated Transition Bond is surrendered to the Trustee, or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Transition Bond, and (ii) there is delivered to the Trustee such security or indemnity as may be required by it to hold the Issuer and the Trustee harmless, then, in the absence of notice to the Issuer, the Transition Bond Registrar or the Trustee that such Transition Bond has been acquired by a protected purchaser, a Manager on behalf of the Issuer shall execute, and upon a Manager's written request the 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, Class), tenor and initial principal amount in Authorized Denominations, 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 days shall be due and payable, or shall have been called for redemption, instead of issuing a replacement Transition Bond, the Issuer may pay such destroyed, lost or stolen Transition Bond when so due or payable or upon the Redemption Date 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 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 Trustee in connection therewith. (b) 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 original additional contractual obligation of the Issuer, whether or not the mutilated, destroyed, lost or stolen 7 Transition Bond shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Transition Bonds duly issued hereunder. (c) 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 Trustee and any agent of the Issuer or the 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 interest on such Transition Bond and for all other purposes whatsoever, whether or not such Transition Bond be overdue, and neither the Issuer or the Trustee nor any agent of the Issuer or the Trustee shall be affected by notice to the contrary. Section 2.08. PAYMENT OF PRINCIPAL AND INTEREST; INTEREST ON OVERDUE PRINCIPAL; PRINCIPAL AND INTEREST RIGHTS PRESERVED. (a) The Transition Bonds shall accrue interest as provided in the form of Transition Bond attached to the Series Supplement for such Transition Bonds, at the applicable Interest Rate specified therein, and such interest shall be payable on each Payment Date as specified therein. Any installment of interest or principal payable on any Transition Bond that is punctually paid or duly provided for by the Issuer 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, in the manner specified in the related Series Supplement, and if not specified therein, either (i) 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 (ii) with respect to Transition Bonds registered on such Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.), payments shall be made by wire transfer in immediately available funds to the account designated by such nominee, except for the final installment of principal payable with respect to such Transition Bond on a Payment Date, which shall be payable as provided in clause (b) below. The funds represented by any such checks or other amounts returned undelivered shall be held in accordance with Section 3.03. (b) The principal of each Transition Bond of each Series (and, if applicable, Class) shall be payable in installments on each Payment Date specified in the Expected Amortization Schedule included in the form of Transition Bond attached to the Series Supplement for such Transition Bonds, but only to the extent that moneys are available for such payment pursuant to Section 8.02. Failure to pay in accordance with such Expected Amortization Schedule because moneys are not so available pursuant to Section 8.02 to make such payments shall not constitute a Default or Event of Default under this Indenture. Notwithstanding the foregoing, the entire Outstanding principal amount of the Transition Bonds of any Series or Class shall be due and payable, if not previously paid, either: (i) on the Final Maturity Date therefor, (ii) on the date on which the Transition Bonds of all Series have been declared immediately due and payable in accordance with Section 5.02 or (iii) on the Redemption Date, if any, therefor. The Trustee shall notify in writing the Person in whose name a Transition Bond is registered, at the close of business on the second Record Date preceding the Payment Date on which the Issuer expects the final installment of principal of and interest on such Transition Bond to be paid. Such notice shall be mailed no later than five days prior to such final Payment Date, shall specify that such final installment of principal will be payable only 8 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, so long as any Transition Bonds are listed on the Luxembourg Stock Exchange, shall include the office of the paying agent in Luxembourg appointed pursuant to Section 3.02(b). The listing agent appointed pursuant to Section 3.02(b) shall also arrange for such notice to be published in an Authorized Newspaper not later than the fifth day of the month of the expected payment of such final installment. Notices in connection with redemptions of Transition Bonds shall also be mailed to Transition Bondholders as provided in Section 10.03. (c) If the Issuer defaults in a payment of interest on the Transition Bonds of any Series or in the payment of any amount payable to any counterparty under any Interest Rate Swap Agreement, the Issuer shall pay defaulted interest, plus interest on such defaulted interest at the applicable Interest Rate in any lawful manner. The Issuer may pay such defaulted interest to the Persons who, on a subsequent special record date (which date shall be at least five Business Days prior to the payment date), are Transition Bondholders at the rate specified in the related Series Supplement. In addition, the Issuer may pay amounts to any counterparty under any Interest Rate Swap Agreement, at the rate specified in the related Interest Rate Swap Agreement. In the case of a default in a payment of interest on the Transition Bonds of any Series, the Issuer shall fix or cause to be fixed any such special record date and payment date, and, at least 15 days before any such special record date, the Issuer shall mail to the Trustee and to each affected Transition Bondholder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. Section 2.09. CANCELLATION. All Transition Bonds surrendered for payment, registration of transfer, exchange or redemption shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by the Trustee. The Issuer may at any time deliver to the Trustee for cancellation any Transition Bonds previously authenticated and delivered hereunder that the Issuer may have acquired in any manner whatsoever, and all Transition Bonds so delivered shall be promptly canceled by the Trustee. No Transition Bonds shall be authenticated in lieu of or in exchange for any Transition Bonds canceled pursuant to this Section 2.09, except as expressly permitted by this Indenture. All canceled Transition Bonds may be held or disposed of by the Trustee in accordance with its standard retention or disposal policy as in effect at the time unless the Issuer shall direct by an Issuer Order that they be destroyed or returned to it; provided that such Issuer Order is timely and the Transition Bonds have not been previously disposed of by the Trustee. Section 2.10. AMOUNT; AUTHENTICATION AND DELIVERY OF TRANSITION BONDS. (a) The Issuer may at any time and from time to time issue hereunder Transition Bonds of a new Series either as a Financing Issuance or a Refunding Issuance. (b) Transition Bonds of a new Series may from time to time be executed by a Manager on behalf of the Issuer and delivered to the Trustee for authentication, and thereupon the same shall be authenticated and delivered by the Trustee upon Issuer Request and upon delivery by the Issuer, at the Issuer's expense, to the Trustee of the following: (i) Issuer Action. An Issuer Order authorizing and directing the authentication and delivery of the Transition Bonds by the Trustee and specifying the principal amount of Transition Bonds to be authenticated. 9 (ii) Authorizing Certificate. A certified resolution of the Managers authorizing the execution and delivery of the Series Supplement for the Transition Bonds applied for and the execution, authentication and delivery of such Transition Bonds. (iii) Series Supplement. A Series Supplement for the Series of Transition Bonds being issued, which shall set forth the provisions and form of the Transition Bonds of such Series (and, if applicable, each Class thereof). (iv) Certificates of the Issuer and the Seller. (A) An Issuer Officer's Certificate dated as of the Series Issuance Date, stating: (1) that no Default has occurred and is continuing under this Indenture and that the issuance of the Transition Bonds being issued will not result in any Default; (2) that the Issuer has not assigned any interest or participation in the Collateral except for the Grant contained in this Indenture; that the Issuer has the power and authority to Grant the Collateral to the Trustee as security hereunder; and that the Issuer, subject to the terms of this Indenture, has Granted to the Trustee a security interest in all right, title and interest in, to and under the Collateral free and clear of any Lien except the Lien of this Indenture; (3) that the Issuer has appointed the firm of Independent certified public accountants as contemplated in Section 8.05; (4) that attached thereto are duly executed, true and complete copies of the Sale Agreement and the Servicing Agreement; (5) that all financing statements with respect to the Collateral which are required to be filed under the New Jersey UCC, the Delaware UCC and the uniform commercial code of any other jurisdiction by the terms of the Sale Agreement, the Servicing Agreement or this Indenture have been or will be filed as required; and (6) that all conditions precedent provided in this Indenture relating to the authentication and delivery of the Transition Bonds have been complied with. (B) An Officer's Certificate from the Seller, dated as of the Series Issuance Date, to the effect that, with respect to the Bondable Transition Property to be transferred to the Issuer on such date, immediately prior to the conveyance thereof to the Issuer pursuant to the Sale Agreement: (1) the Seller was the sole owner of such Bondable Transition Property and such ownership interest was perfected; such Bondable Transition Property will be validly transferred and sold to the Issuer free and 10 clear of all Liens (other than Liens created by the Issuer in favor of the Trustee pursuant to this Indenture or by the Seller in favor of the Issuer pursuant to the Sale Agreement) and such transfer will be perfected; the Seller has the power and authority to own, sell and assign such Bondable Transition Property to the Issuer; the Seller has duly authorized such sale and assignment to the Issuer; and the Seller's state of incorporation is the State of New Jersey; (2) the attached copy of the BPU Financing Order creating such Bondable Transition Property is true and correct and such order is in full force and effect; and (3) the representations and warranties contained in Sections 3.08(b), (d)(iv), (d)(v) and (f)(i)-(iii) of the Sale Agreement are true as if made on the date of conveyance of such Bondable Transition Property. (v) Issuer Opinion of Counsel. An Issuer Opinion of Counsel, portions of which may be delivered by counsel for the Issuer and portions of which may be delivered by counsel for the Seller and/or the Servicer, dated as of the Series Issuance Date, subject to customary qualifications, substantially to the collective effect that: (A) the Issuer has the power and authority to execute and deliver the related Series Supplement and this Indenture and to issue the Transition Bonds being issued, each of the related Series Supplement and this Indenture and each of such Transition Bonds has been duly authorized, executed and delivered, and the Issuer is duly organized, is validly existing as a limited liability company and in good standing under the laws of the jurisdiction of its organization and is qualified to do business in any jurisdiction wherein it is required to be so qualified; (B) no authorization, approval or consent of any governmental body is required for the valid issuance, authentication or delivery of the Transition Bonds being issued, except for any such authorization, approval or consent as has already been obtained and as may be required under the blue sky and other securities laws of any state; (C) the Transition Bonds being issued, when executed and authenticated in accordance with the provisions of this Indenture and delivered, will constitute valid and binding obligations of the Issuer entitled to the benefits of this Indenture and the related Series Supplement; (D) the BPU Financing Order authorizing the issuance of the Transition Bonds being issued is final and nonappealable; (E) this Indenture (including the related Series Supplement) has been duly authorized, executed and delivered and is a valid and binding agreement of the Issuer, enforceable against the Issuer in accordance with its terms except as such enforceability may be subject to bankruptcy, insolvency, reorganization and other similar laws affecting the rights of creditors generally and general principles of equity 11 (regardless of whether such enforceability is considered in a proceeding in equity or at law); (F) the Sale Agreement and Bill of Sale relating to such issuance have been duly authorized, executed and delivered and is a valid and binding agreement of the Seller, enforceable against the Seller in accordance with its terms except as such enforceability may be subject to bankruptcy, insolvency, reorganization and other similar laws affecting the rights of creditors generally and general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law); (G) the Servicing Agreement has been duly authorized, executed and delivered and is a valid and binding agreement of the Servicer, enforceable against the Servicer in accordance with its terms except as such enforceability may be subject to bankruptcy, insolvency, reorganization and other similar laws affecting the rights of creditors generally and general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law); (H) each of the following is the case: (1) the provisions of the Sale Agreement together with the related Bill of Sale are effective to create, in favor of the Issuer, a valid security interest (as such term is defined in Section 1-201 of the New Jersey UCC) in the Seller's rights in the Bondable Transition Property described in the Bill of Sale, which security interest if characterized as a transfer for security will secure the amount paid by the Issuer for such Bondable Transition Property, it being noted that the term "security interest" for purposes of this clause (H) includes both a sale and a transfer for security of an account and no opinion need be expressed as to the proper characterization of the transfer of such Bondable Transition Property by the Seller to the Issuer, (2) the security interest in favor of the Issuer in such Bondable Transition Property has been perfected, and (3) no other security interest of any other creditor of the Seller (other than the Lien created by the Seller in favor of the Issuer pursuant to the Sale Agreement) is equal or prior to the security interest of the Issuer in such Bondable Transition Property; (I) upon the giving of value by the Trustee to the Issuer with respect to the Collateral, (1) this Indenture creates in favor of the Trustee, to secure payment of the Transition Bonds being issued, a valid security interest in the rights of the Issuer in, to and under that portion of the Collateral subject to Article 9 of the New Jersey UCC or Article 9 of the Delaware UCC, including the Transferred Bondable Transition Property (collectively, the "Article 9 Collateral"), 12 (2) upon filing of the related financing statements in accordance with the New Jersey UCC and the Delaware UCC, such security interest in the Article 9 Collateral will be perfected, and (3) based solely on a review of search reports under the New Jersey UCC and the Delaware UCC and factual certificates of officers of the Issuer and of ACE, no other security interest of any other creditor of the Issuer is equal or prior to the security interest of the Trustee for the benefit of the Transition Bondholders in the Article 9 Collateral; (J) this Indenture has been duly qualified under the Trust Indenture Act and either the Series Supplement for the Transition Bonds being issued, has been duly qualified under the Trust Indenture Act or no such qualification of such Series Supplement is necessary; (K) all instruments furnished to the Trustee hereunder conform to the requirements of this Indenture and constitute all of the documents required to be delivered hereunder for the Trustee to authenticate and deliver such Transition Bonds being issued, and all conditions precedent provided for in this Indenture relating to the authentication and delivery of the Transition Bonds have been complied with; (L) either (1) the registration statement covering the Transition Bonds being issued is effective under the Securities Act of 1933 and, to the best of such counsel's knowledge and information, no stop order suspending the effectiveness of such registration statement has been issued under the Securities Act of 1933 nor have proceedings therefor been instituted or threatened by the Commission or (2) the Transition Bonds being issued are exempt from the registration requirements under the Securities Act of 1933; and (M) the Issuer is not now and, following the issuance of the Transition Bonds will not be, required to be registered under the Investment Company Act of 1940. (vi) Accountant's Certificate or Opinion. A letter addressed to the Issuer and the Trustee, complying with the requirements of Section 11.01, of a firm of Independent certified public accountants of recognized national reputation to the effect that (A) such accountants are Independent with respect to the 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 Collateral, they have made such recalculations of calculations and information provided by the Issuer as they have deemed necessary for the purpose of determining, and have determined, that, based on the assumptions used in calculating the Transition Bond Charge with respect to the related Transferred Bondable Transition Property, and taking into account amounts available as of the Series Issuance Date in the Subaccounts for each Series (after giving effect to the issuance of such new Series and the application of the proceeds therefrom), the Transition 13 Bond Charge will be sufficient to pay (1) assumed Operating Expenses when incurred, plus (2) any amounts due under any Hedge Agreement, if any, or any Interest Rate Swap Agreement, if any, when due, plus (3) any deposits required to be made of Overcollateralization Amounts into the Overcollateralization Subaccount for such new Series as set forth in the related Series Supplement and any deposits required to be made of Overcollateralization Amounts for then outstanding Series of Transition Bonds, if any, as set forth in their respective overcollateralization schedules, plus (4) interest on the Transition Bonds of such new Series at their respective Interest Rates when due as set forth in the related Series Supplement and on all then outstanding Series of Transition Bonds, if any, when due, plus (5) principal of the Transition Bonds of such new Series in accordance with the Expected Amortization Schedule set forth in the related Series Supplement and of all then outstanding Series of Transition Bonds, if any, in accordance with their respective Expected Amortization Schedules, plus (6) any deposits required to be made in the Capital Subaccounts for all then outstanding Series of Transition Bonds, if any, and found such calculations to be mathematically correct. (vii) Required Capital Amount. Evidence satisfactory to the Trustee that the Required Capital Amount for such Series has been credited to the Capital Subaccount for such Series. (viii) Rating Agency Approval. Written notice from each Rating Agency that such action will not result in a reduction or withdrawal of the then current rating by such Rating Agency of any Outstanding Series or Class of Transition Bonds. (ix) Bill of Sale. If the issuance of an additional Series of Transition Bonds is a Financing Issuance, the Bill of Sale delivered to the Issuer under the Sale Agreement with respect to the Bondable Transition Property being purchased with the proceeds of such Financing Issuance. (x) Moneys for Refunding. If the issuance of a Series of Transition Bonds is a Refunding Issuance, the amount of money necessary to pay the outstanding principal balance of and interest on the Transition Bonds being refunded to the Redemption Date for the Transition Bonds being refunded upon redemption, such money to be deposited into a separate account with the Trustee. Section 2.11. BOOK-ENTRY TRANSITION BONDS. Unless otherwise specified in the related Series Supplement, each Series of Transition Bonds, upon original issuance, shall be issued in the form of a typewritten Transition Bond or Transition Bonds representing the Book-Entry Transition Bonds, to be held by the Trustee as custodian for The Depository Trust Company, the initial Clearing Agency, except as otherwise provided in the DTC Agreement. Such Transition Bond shall initially be registered on the Transition Bond Register in the name of Cede & Co., the nominee of the initial Clearing Agency, and no Transition Bond Owner shall receive a definitive Transition Bond representing such Transition Bond Owner's interest in such Transition Bond except as provided in Section 2.13. Unless and until definitive, fully registered Transition Bonds (the "Definitive Transition Bonds") have been issued to Transition Bondholders pursuant to Section 2.13: (a) the provisions of this Section 2.11 shall be in full force and effect; 14 (b) the Transition Bond Registrar and the Trustee shall be entitled to deal with the Clearing Agency for all purposes of this Indenture (including the payment of principal of and interest on the Transition Bonds and the giving of instructions or directions hereunder) as the sole Holder of the Transition Bonds, and shall have no obligation to the Transition Bond Owners; (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 Transition Bond Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Transition Bond Owners and the Clearing Agency or the Clearing Agency Participants. Pursuant to the DTC Agreement, unless and until Definitive Transition Bonds are issued pursuant to Section 2.13, the initial Clearing Agency shall make book-entry transfers among the Clearing Agency Participants and receive and transmit payments of principal of and interest on the Transition Bonds to such Clearing Agency Participants; and (e) whenever this Indenture requires or permits actions to be taken based upon instructions or directions of Holders of Transition Bonds evidencing a specified percentage of the Outstanding Amount of the Transition Bonds or a Series or Class thereof, the Clearing Agency shall be deemed to represent such percentage only to the extent that it has received instructions to such effect from Transition Bond Owners or Clearing Agency Participants owning or representing, respectively, such required percentage of the beneficial interest in the Transition Bonds or such Series or Class and has delivered such instructions to the Trustee. Section 2.12. NOTICES TO CLEARING AGENCY. Whenever a notice or other communication to the Transition Bondholders is required under this Indenture, unless and until Definitive Transition Bonds shall have been issued to Transition Bond Owners pursuant to Section 2.13, the Trustee shall give all such notices and communications specified herein to be given to Transition Bondholders to the Clearing Agency and shall have no obligation to the Transition Bond Owners. Section 2.13. DEFINITIVE TRANSITION BONDS. (a) If (i) the Issuer advises the Trustee in writing that the Clearing Agency is no longer willing or able to properly discharge its responsibilities as depository with respect to any Series or Class of Transition Bonds and the Issuer is unable to locate a qualified successor, (ii) the Issuer, at its option, advises the Trustee in writing that it elects to terminate the book-entry system through the Clearing Agency with respect to any Series or Class of Transition Bonds or (iii) after the occurrence of an Event of Default, Transition Bond Owners representing beneficial interests aggregating at least a majority of the Outstanding Amount of the Transition Bonds of all Series advise the Trustee through the Clearing Agency in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of the Transition Bond Owners, then the Clearing Agency shall notify all affected Transition Bond Owners and the Trustee of the occurrence of any such event and of the availability of Definitive Transition Bonds to affected Transition Bond Owners requesting the same. Upon surrender to the Trustee of the typewritten Transition Bond or Transition Bonds representing the Book-Entry Transition Bonds by the Clearing Agency, accompanied by registration instructions, a Manager on behalf of the Issuer shall execute and the Trustee shall authenticate the Definitive Transition Bonds in accordance with the instructions of the Clearing Agency. None of the Issuer, the Transition Bond Registrar or the Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Any Definitive 15 Transition Bonds listed on the Luxembourg Stock Exchange shall be made available to the Transition Bond Owners through the office of the transfer agent appointed pursuant to Section 3.02(b). Upon the issuance of Definitive Transition Bonds, the Trustee shall recognize the Holders of the Definitive Transition Bonds as Transition Bondholders. (b) Definitive Transition Bonds shall be transferable and exchangeable at the offices of the Transition Bond Registrar or, with respect to any Transition Bonds listed on the Luxembourg Stock Exchange, at the offices of the transfer agent appointed pursuant to Section 3.02(b). 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. Article III COVENANTS Section 3.01. PAYMENT OF PRINCIPAL AND INTEREST. The Issuer shall duly and punctually pay the principal of and interest on the Transition Bonds in accordance with the terms of the Transition Bonds and this Indenture; provided that except on the Final Maturity Date or the Redemption Date for a Series or Class of Transition Bonds or upon the acceleration of the Transition Bonds pursuant to Section 5.02, the Issuer shall be obligated to pay the principal of such Transition Bonds on each Payment Date therefor only to the extent moneys are available for such payment pursuant to Section 8.02. Amounts properly withheld under the Code by any Person from a payment to any Transition Bondholder of interest or principal shall be considered as having been paid by the Issuer to such Transition Bondholder for all purposes of this Indenture. Section 3.02. MAINTENANCE OF OFFICE OR AGENCY. (a) The Issuer shall maintain in the Borough of Manhattan, The City of New York, an office or agency where Transition Bonds may be surrendered for registration of transfer or exchange, and where notices and demands to or upon the Issuer in respect of the Transition Bonds and this Indenture may be served. The Issuer hereby initially appoints the Trustee to serve as its agent for the foregoing purposes. The Issuer shall give prompt written notice to the Trustee and any agent appointed pursuant to clause (b) below of the location and identity, and of any change in the location or identity, 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 Trustee and each such agent with the address thereof, such surrenders, notices and demands may be made or served at the Corporate Trust Office, and the Issuer hereby appoints the Trustee as its agent to receive all such surrenders, notices and demands. (b) To the extent any of the Transition Bonds are listed on the Luxembourg Stock Exchange and the rules of such exchange so require, (i) the Issuer shall maintain in Luxembourg (A) an office and a transfer agent where Transition Bonds may be surrendered for registration of transfer or exchange, (B) 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 (C) an office and a paying agent where payments in respect of the Transition Bonds may be made and (ii) any reference in this Indenture to the office or agency of the Issuer referenced in Section 3.02(a) or this Section 3.02(b) shall also refer to such offices, and the transfer, listing and paying agents, of the Issuer in Luxembourg, as applicable. The Issuer shall give the Trustee and any other agent appointed under this Section 3.02(b) prompt written notice of the location and identity, and of any change in the location or identity, of any such office or agency. 16 Section 3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST. (a) As provided in Section 8.02(a), all payments of principal of and interest on the Transition Bonds that are to be made from amounts withdrawn from the Collection Account pursuant to Section 8.02(e) or Section 4.03 shall be made on behalf of the Issuer by the Trustee or by another Paying Agent, and no amounts so withdrawn from the Collection Account for payments of Transition Bonds shall be paid over to the Issuer except as provided in this Section 3.03 and in Section 8.02. (b) The Issuer shall cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee (and if the 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 principal of or interest on 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 Trustee written notice of any Default by the Issuer (or any other obligor upon the Transition Bonds) of which such Paying Agent 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 Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; (iv) immediately resign as a Paying Agent and forthwith pay to the Trustee all sums held by such Paying Agent in trust for the payment of Transition Bonds if at any time such Paying Agent ceases to meet the standards required to be met by a Paying Agent at the time of its appointment; and (v) comply with all requirements of the Code with respect to the withholding from any payments made by it on any Transition Bonds of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith. (c) 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 Trustee all sums held in trust by such Paying Agent, such sums to be held by the 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 Trustee, such Paying Agent shall be released from all further liability with respect to such money. (d) Subject to applicable laws with respect to escheat of funds, any money held by the Trustee or any Paying Agent in trust for the payment of any amount of principal of or interest on any Transition Bond and remaining unclaimed for two years after such amount has become due and payable shall be discharged from such trust and be paid to the Issuer upon Issuer Order; and 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 Trustee or such Paying Agent with respect to such trust money shall thereupon cease; 17 provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the 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, and (if any Transition Bonds are listed on the Luxembourg Stock Exchange) in an Authorized Newspaper, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining shall be repaid to the Issuer. The 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 Transition Bonds have been called but have not been surrendered for redemption or whose right to or interest in moneys due and payable but not claimed is determinable from the records of the Trustee or of any Paying Agent, at the last address of record for each such Holder). Section 3.04. EXISTENCE. Subject to Section 3.10, 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 the United States of America or any state thereof, in which case the Issuer shall keep in full effect its existence, rights and franchises under the laws of such jurisdiction) and shall 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 Transition Bonds, the Collateral and each other instrument or agreement included herein or therein. Section 3.05. PROTECTION OF COLLATERAL. (a) The Issuer shall from time to time execute and deliver all such supplements and amendments hereto and all such filings, financing statements, continuation statements, instruments of further assurance and other instruments, and shall take such other action as may be necessary or advisable to: (i) maintain and preserve the Grant, Lien and security interest (and the priority thereof) of this Indenture or carry out more effectively the purposes hereof;. (ii) perfect, publish notice of or protect the validity of any Grant made or to be made by this Indenture; (iii) enforce any of the Collateral, including any Interest Rate Swap Agreement; (iv) preserve and defend title to the Collateral and the rights of the Trustee and the Transition Bondholders in the Collateral against the claims of all Persons and parties; or (v) pay any and all taxes levied or assessed upon all or any part of the Collateral. (b) The Issuer hereby designates the Trustee its agent and attorney-in-fact to execute any filing with the BPU, financing statement, continuation statement or other instrument required by the Trustee pursuant to this Section 3.05. Section 3.06. OPINIONS AS TO COLLATERAL. (a) On or before March 31 in each calendar year, while any Series is outstanding, commencing March 31, 2003, the Issuer shall furnish to the Trustee an Issuer Opinion of Counsel either stating that, in the opinion of such counsel, such action has been taken with respect to the execution and filing of any filings pursuant to the New Jersey UCC and the Delaware UCC of financing statements and continuation statements as is 18 necessary to maintain the Lien and security interest, and the priority thereof, created by this Indenture and reciting the details of such action or stating that in the opinion of such counsel no such action is necessary to maintain such Lien and security interest, and the priority thereof. Such Issuer Opinion of Counsel shall also describe the execution and filing of any filings pursuant to the New Jersey UCC and Delaware UCC of financing statements and continuation statements that will, in the opinion of such counsel, be required to maintain the Lien and security interest of this Indenture until March 31 in the following calendar year. (b) Prior to the effectiveness of any amendment to the Sale Agreement or the Servicing Agreement, the Issuer shall furnish to the Trustee an Issuer Opinion of Counsel either (i) stating that, in the opinion of such counsel, all filings, including filings pursuant to the New Jersey UCC and the Delaware UCC, have been executed and filed that are necessary fully to preserve and protect the interest of the Issuer and the Trustee in the Transferred Bondable Transition Property and the proceeds thereof, and reciting the details of such filings or referring to prior Opinions of Counsel in which such details are given, or (ii) stating that, in the opinion of such counsel, no such action shall be necessary to preserve and protect such interest. Section 3.07. PERFORMANCE OF OBLIGATIONS. (a) The Issuer (i) shall diligently pursue any and all actions to enforce its rights under each instrument or agreement included in the 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, the Sale Agreement, the Servicing Agreement, any other Basic Document, or any Hedge Agreement or Interest Rate Swap 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 Trustee in an Issuer Officer's Certificate shall be deemed to be action taken by the Issuer. Initially, the Issuer has contracted with the Administrator 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 the Sale Agreement, the Servicing Agreement, any Hedge Agreement, any Interest Rate Swap Agreement and in all other instruments and agreements included in the Collateral. Section 3.08. NEGATIVE COVENANTS. The Issuer shall not: (a) except as expressly permitted by this Indenture, any other Basic Document or any Hedge Agreement or Interest Rate Swap Agreement, add, sell, transfer, exchange or otherwise dispose of any of the Collateral, unless directed to do so by the Trustee in accordance with Article V; (b) claim any credit on, or make any deduction from the principal, interest or premium, if any, payable in respect of, the Transition Bonds (other than amounts properly withheld from such payments under the Code or pursuant to any Interest Rate Swap Agreement) or assert any claim against any present or former Transition Bondholder by reason of the payment of taxes levied or assessed upon the Issuer; or 19 (c) (i) permit the validity or effectiveness of this Indenture to be impaired, or permit the Lien of this Indenture to be amended, hypothecated, subordinated, terminated or discharged, or permit any Person to be released from any covenants or obligations with respect to the Transition Bonds under this Indenture except as may be expressly permitted hereby, (ii) permit any Lien (other than the Lien created by this Indenture) to be created on or extend to or otherwise arise upon or burden the Collateral or any part thereof, any interest therein or the proceeds thereof or (iii) permit the Lien of this Indenture not to constitute a continuing valid first priority security interest in the Collateral. Section 3.09. ANNUAL STATEMENT AS TO COMPLIANCE. The Issuer shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Issuer (commencing with the fiscal year 2002), an Issuer Officer's Certificate stating, as to the Manager signing such Issuer Officer's Certificate, that (a) a review of the activities of the Issuer during such fiscal year (or relevant portion thereof) and of performance under this Indenture has been made under such Manager's supervision; and (b) to the best of such Manager's knowledge, based on such review, the Issuer has complied with all conditions and covenants under this Indenture throughout such fiscal year (or relevant portion thereof), or, if there has been a default in complying with any such condition or covenant, describing each such default and the nature and status thereof. Section 3.10. ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. The Issuer shall not consolidate or merge with or into any other Person or sell substantially all of its assets to any other Person or dissolve, unless: (a) the Person (if other than the Issuer) formed by or surviving such consolidation or merger or to whom substantially all of such assets are sold shall be a Person organized and existing under the laws of the United States of America or any state thereof and shall expressly assume by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of, and interest and premium if any on, all Transition Bonds and 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 Supplement or Series Supplements; (b) the Person (if other than the Issuer) formed by or surviving such consolidation or merger or to whom substantially all of such assets are sold shall expressly assume all obligations and succeed to all rights of the Issuer under the Sale Agreement, the Administration Agreement, the Servicing Agreement, any Hedge Agreement and any Interest Rate Swap Agreement pursuant to an assignment and assumption agreement executed and delivered to the Trustee, in form satisfactory to the Trustee; (c) immediately after giving effect to such consolidation, merger or sale, no Default or Event of Default shall have occurred and be continuing; (d) the Rating Agency Condition shall have been satisfied with respect to such consolidation, merger or sale; 20 (e) the Issuer shall have received an Issuer Opinion of Counsel (and shall have delivered copies thereof to the Trustee) to the effect that such consolidation, merger or sale will not have any material adverse tax consequence to the Issuer or any Transition Bondholder, complies with this Indenture and all of the conditions precedent herein relating to such transaction and will result in the Trustee maintaining a continuing valid first priority security interest in the Collateral; (f) neither the Bondable Transition Property nor any of the BPU Financing Orders nor the rights of the Seller, the Servicer or the Issuer under the Competition Act or under any BPU Financing Order shall be impaired thereby; and (g) any action as is necessary to maintain the Lien and security interest created by this Indenture shall have been taken. Section 3.11. SUCCESSOR OR TRANSFEREE. (a) Upon any consolidation or merger of the Issuer in accordance with Section 3.10, 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) Upon any sale by the Issuer of substantially all of its assets in a sale that complies with Section 3.10, such party shall be released from every covenant and agreement of this Indenture to be observed or performed on the part of such party with respect to the Transition Bonds and from every covenant and agreement of the Sale Agreement, the Administration Agreement, the Servicing Agreement, any other Basic Document, and any Hedge Agreement or Interest Rate Swap Agreement to be observed or performed on the part of the Issuer. 21 Section 3.12. NO OTHER BUSINESS. The Issuer shall not engage in any business other than purchasing and owning Bondable Transition Property, issuing Transition Bonds from time to time, pledging its interest in the Collateral to the Trustee under this Indenture in order to secure the Transition Bonds, entering into the Basic Documents, any Hedge Agreement or Interest Rate Swap Agreement and any other agreements relating to the Transition Bonds, performing its obligations hereunder and thereunder and performing any other activities that are necessary, suitable or convenient to accomplish these purposes or are 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, obligations under any Hedge Agreement or Interest Rate Swap Agreement or under any other credit enhancement agreements, and except as otherwise contemplated by the Basic Documents. Section 3.14. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES. Except as contemplated by the Basic Documents or any Hedge Agreement or Interest Rate Swap Agreement, 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, other than any Eligible Investments. Section 3.15. CAPITAL EXPENDITURES. The Issuer shall not make any expenditure (by long-term or operating lease or otherwise) for capital assets (either realty or personalty) other than Bondable Transition Property purchased from the Seller pursuant to, and in accordance with, the Sale Agreement. Section 3.16. 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 a beneficial interest in the Issuer or otherwise with respect to any ownership or equity interest in, or ownership security of, the Issuer, (b) redeem, purchase, retire or otherwise acquire for value any such ownership or equity interest or 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 otherwise result from such payment, the Issuer may make, or cause to be made, any such dividends or distributions to any owner of a beneficial interest in the Issuer or otherwise with respect to any ownership or equity interest or security in or of the Issuer using funds that either have been applied in favor of or released to the Issuer in accordance with Section 8.02 or any other provision of this Indenture or any Series Supplement or are otherwise not subject to the Lien of this Indenture, to the extent that such dividends or distributions would not cause amounts on deposit in the Capital Subaccount for any then outstanding Series of Transition Bonds to fall below the Required Capital Amount with respect to such Series. The Issuer shall not, directly or indirectly, make payments to or distributions from the Collection Account except in accordance with this Indenture, the other Basic Documents or any Hedge Agreement or Interest Rate Swap Agreement. Section 3.17. NOTICE OF EVENTS OF DEFAULT. The Issuer shall deliver to the Trustee, the Rating Agencies and (to the extent the rules and regulations of the Luxembourg Stock Exchange so require) any agent in Luxembourg appointed pursuant to Section 3.02(b) written notice 22 in the form of an Issuer Officer's Certificate of any Default or Event of Default, its status and what action the Issuer is taking or proposes to take with respect thereto within five Business Days after the occurrence thereof. Section 3.18. INSPECTION. The Issuer shall, on reasonable prior notice, permit any representative of the 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 certified public accountants, and to discuss the Issuer's affairs, finances and accounts with the Issuer's officers, employees and Independent certified public accountants, all at such reasonable times and as often as may be reasonably requested. The Trustee shall, and shall cause its representatives to, hold in confidence all such information except, upon notice to the Issuer, to the extent that (i) disclosure of such information may be required by law and all reasonable applications for confidential treatment are unavailing or (ii) the Trustee may reasonably determine that disclosure of such information is consistent with its obligations hereunder. Section 3.19. [RESERVED]. Section 3.20. SALE AGREEMENT, SERVICING AGREEMENT, ADMINISTRATION AGREEMENT, HEDGE AGREEMENT AND INTEREST RATE SWAP AGREEMENT COVENANTS. (a) The Issuer shall take all lawful action to enforce its rights under the Sale Agreement, the Servicing Agreement, the Administration Agreement, any Hedge Agreement and any Interest Rate Swap Agreement and to compel or secure the performance and observance by the Seller and the Servicer and any counterparty under any Hedge Agreement and any Swap Agreement, of their respective obligations to the Issuer under or in connection therewith in accordance with the terms thereof. So long as no Event of Default occurs and is continuing, but subject to Section 3.20(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, any Hedge Agreement and any Interest Rate Swap Agreement. (b) If an Event of Default occurs and is continuing, the Trustee may, and, at the written direction of (i) with respect to the Sale Agreement, the Servicing Agreement the Administration Agreement or any Hedge Agreement, the Holders of a majority of the Outstanding Amount of the Transition Bonds of all Series or (ii) with respect to any Interest Rate Swap Agreement, the Holders of that percentage of the Outstanding Amount of the Transition Bonds of the related Class specified in the related Series Supplement, shall, exercise all rights, remedies, powers, privileges and claims of the Issuer against the Seller, the Servicer, the Administrator or any counterparty under any Hedge Agreement or Interest Rate Swap Agreement in connection with the Sale Agreement, the Servicing Agreement, the Administration Agreement, such Hedge Agreement or such Interest Rate Swap Agreement, as the case may be, including the right or power to take any action to compel or secure performance or observance by, as the case may be, the Seller, the Servicer, the Administrator, or such counterparty of each of their respective obligations to the Issuer thereunder, and to give any consent, request, notice, direction, approval, extension or waiver thereunder, and any right of the Issuer to take any such action shall be suspended. (c) With the consent of the Trustee, the Sale Agreement, the Servicing Agreement and the Administration Agreement may be amended at any time and from time to time, so long as the Rating Agency Condition is satisfied with respect to such amendment, without the consent of the 23 Transition Bondholders or the counterparty under any Hedge Agreement or any Interest Rate Swap Agreement. However, such amendment may not adversely affect in any material respect (i) the interest of any Transition Bondholder without the consent of the Holders of a majority of the Outstanding Amount of the Transition Bonds of each Series or Class materially and adversely affected thereby, or (ii) the interest of any counterparty under any Interest Rate Swap Agreement without the consent of each such counterparty materially and adversely affected thereby. Further, with the consent of the Trustee and the counterparty under any Hedge Agreement or Interest Rate Swap Agreement, such Hedge Agreement or Interest Rate Swap Agreement, as the case may be, may be amended at any time and from time to time, so long as the Rating Agency Condition is satisfied with respect to such amendment; provided, however, that no such amendment may adversely affect in any material respect the interest of any Transition Bondholder or any counterparty under any Hedge Agreement or Interest Rate Swap Agreement without the consent of 66-2/3% of the Holders of the Outstanding Amount of the Transition Bonds of each Series or Class and each such counterparty materially and adversely affected thereby. (d) If the Issuer, the Seller or the Servicer proposes to amend, 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 Servicing Agreement, the Administration Agreement or any Hedge Agreement or Interest Rate Swap Agreement, or propose to waive timely performance or observance thereunder by the Seller, the Servicer or the relevant counterparty, respectively, in each case in such a way as would materially and adversely affect the interests of any Class of any Series of Transition Bondholders or the counterparty under any Hedge Agreement or Interest Rate Swap Agreement, the Issuer shall first notify the Rating Agencies of the proposed amendment, modification, waiver, supplement, termination or surrender. Upon satisfaction of the Rating Agency Condition with respect to such proposed action, the Issuer shall notify the Trustee in writing, and the Trustee shall notify the Transition Bondholders and each counterparty under such Hedge Agreement or Interest Rate Swap Agreement, if applicable, in writing, of such proposed action and that the Rating Agency Condition has been satisfied with respect thereto. With respect to any such proposed action related to the Sale Agreement, the Servicing Agreement or the Administration Agreement, the Trustee shall consent to such proposed action only (i) with the written consent of the Holders of a majority of the Outstanding Amount of the Transition Bonds of each Class of each Series, and each counterparty under any Hedge Agreement or Interest Rate Swap Agreement, in each case if such counterparty is materially and adversely affected thereby and (ii) upon satisfaction of the Rating Agency Condition. With respect to any such proposed action related to any Hedge Agreement or Interest Rate Swap Agreement, the Trustee shall consent to such proposed action only (x) with the written consent of the Holders representing 66-2/3% of the Outstanding Amount of the Transition Bonds of the related Series or Class, as the case may be, and each counterparty under such Hedge Agreement or Interest Rate Swap Agreement, as the case may be, materially and adversely affected thereby and (y) upon satisfaction of the Rating Agency Condition with respect to such action. If any such amendment, modification, supplement, waiver, termination or surrender shall be so consented to by the Trustee or such Holders, the Issuer shall execute and deliver, in its own name and at its own expense, such agreements, instruments, consents and other documents as may be necessary or appropriate in the circumstances. For so long as any of the Transition Bonds are listed on the Luxembourg Stock Exchange and the rules of that exchange so require, notice of such proposed action shall be published by an agent to be appointed by the Issuer in an Authorized Newspaper promptly following its effectiveness. (e) If the Issuer or the Servicer proposes to amend, modify, waive, supplement, terminate or surrender in any material respect, or to agree to any material amendment, modification, waiver, 24 supplement, termination or surrender of, the Transition Bond Charge Adjustment Process, the Issuer shall notify the Trustee in writing, and the Trustee shall notify the Transition Bondholders in writing, of such proposal, and the Trustee shall consent thereto only with the written consent of the Holders of a majority of the Outstanding Amount of the Transition Bonds of each Series materially and adversely affected thereby and only if the Rating Agency Condition has been satisfied with respect thereto. (f) Promptly following a default by, as applicable, the Seller, the Servicer or a counterparty under the Sale Agreement, the Servicing Agreement, any Hedge Agreement or any Interest Rate Swap Agreement, and at the Issuer's expense, the Issuer shall take all such lawful actions as the Trustee may request to compel or secure the performance and observance by the Seller, the Servicer or such counterparty, as the case may be, of its obligations to the Issuer thereunder or in connection therewith in accordance with the terms thereof, and to exercise any and all rights, remedies, powers and privileges lawfully available to the Issuer thereunder or in connection therewith, to the extent and in the manner directed by the Trustee, including the transmission of notices of default on the part of the Seller, the Servicer or such counterparty, as the case may be, thereunder and the institution of legal or administrative actions or proceedings to compel or secure its performance of its obligations thereunder. (g) If the Issuer shall have actual knowledge of the occurrence of a Servicer Default under the Servicing Agreement or an event of default, termination event or downgrade event under any Hedge Agreement or Interest Rate Swap Agreement, the Issuer shall promptly give written notice thereof to the Trustee and the Rating Agencies, and shall specify in such notice what action, if any, the Issuer is taking with respect to such default or other event. (h) 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 Bondable Transition Property or the Transition Bond Charge, the Issuer shall take all reasonable steps available to it to remedy such failure. The Issuer shall not take any action to terminate the Servicer's rights and powers under the Servicing Agreement following a Servicer Default without the prior written consent of the Trustee and of the Holders of a majority of the Outstanding Amount of the Transition Bonds of all Series. (i) 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 6.01 of the Servicing Agreement, the Trustee, with the written consent of the Holders of Transition Bonds evidencing not less than a majority of the Outstanding Amount of the Transition Bonds of all Series, may 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 Trustee. A person shall qualify as a Successor Servicer only if such Person satisfies the requirements of Section 6.04 of the Servicing Agreement. In connection with any such appointment, the Issuer may make such arrangements for the compensation of such Successor Servicer as it and such Successor Servicer shall agree, subject to the limitations set forth below and in the Servicing Agreement, and in accordance with Section 6.04 of the Servicing Agreement, the Issuer shall enter into an agreement with such Successor Servicer for the servicing of the Bondable Transition Property (such agreement to be in form and substance satisfactory to the Trustee). (j) Upon termination of the Servicer's rights and powers pursuant to the Servicing Agreement, the Trustee shall promptly notify the Issuer, the Transition Bondholders and the Rating 25 Agencies of such termination. As soon as a Successor Servicer is appointed, the Issuer shall notify the Trustee, the Transition Bondholders and the Rating Agencies in writing of such appointment, specifying in such notice the name and address of such Successor Servicer. (k) The Issuer shall not take any action to terminate or assign the rights and powers of any counterparty under any Interest Rate Swap Agreement or replace any such counterparty following an event of default, termination event or downgrade event under such Interest Rate Swap Agreement without (i) the prior written consent of the Trustee and of any Holders of Transition Bonds whose consent is required under the Series Supplement for the related Series and Class, and (ii) satisfying any other requirements set forth in such Series Supplement and Interest Rate Swap Agreement. (l) Upon termination or assignment of the rights and powers of any counterparty under any Interest Rate Swap Agreement pursuant to such Interest Rate Swap Agreement, the Trustee shall promptly inform the Issuer, the Transition Bondholders of the related Class and the Rating Agencies in writing of such termination or assignment. As soon as a replacement counterparty is appointed, the Issuer shall notify the Trustee, the Transition Bondholders of the related Class and the Rating Agencies in writing of such appointment, specifying in such notice the name and address of such replacement counterparty. Section 3.21. TAXES. So long as any of the Transition Bonds are outstanding, the Issuer shall pay all material taxes, assessments and governmental charges imposed upon it or any of its properties or assets or with respect to any of its franchises, business, income or property before any penalty accrues thereon if the failure to pay any such taxes, assessments and governmental charges would, after any applicable grace periods, notices or other similar requirements, result in a Lien on the Collateral. Section 3.22. SEPARATE ENTITY. The Issuer shall take all reasonable steps to continue its identity as a separate legal entity and to make it apparent to third persons that it is an entity with assets and liabilities distinct from those of the Seller, other Affiliates or any other Persons. Article IV SATISFACTION AND DISCHARGE; DEFEASANCE Section 4.01. SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE. (a) The Transition Bonds of any Series, all payment obligations with respect thereto and this Indenture as it applies to such Series shall cease to be of further effect and the Lien hereunder shall be released with respect to such Series, interest shall cease to accrue on the Transition Bonds of such Series and the Trustee, on 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 26 segregated and held in trust by the Issuer and thereafter repaid to the Issuer or discharged from such trust, as provided in Section 3.03(d)) have been delivered to the Trustee for cancellation; or (B) the Expected Final Payment Date or Redemption Date has occurred with respect to all Transition Bonds of such Series not theretofore delivered to the Trustee for cancellation, and the Issuer has irrevocably deposited or caused to be irrevocably deposited with the Trustee cash, in trust for such purpose, in an amount sufficient to pay and discharge the entire indebtedness on such Transition Bonds not theretofore delivered to the Trustee on the Expected Final Payment Date or Redemption Date, as applicable, therefor; (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 Trustee an Issuer Officer's Certificate, an Issuer Opinion of Counsel and (if required by the TIA or the Trustee) an Independent Certificate from a firm of certified public accountants, each meeting the applicable requirements of Section 11.01 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 (other than with respect to amounts in the Defeasance Subaccount), 3.07, 3.08, 3.09, 3.10, 3.12, 3.13, 3.14, 3.15, 3.16, 3.17, 3.18 and 3.20 and the operation of Section 5.01(d) ("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. (c) 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 (i) accelerated pursuant to Section 5.02 or (ii) except as provided in Section 4.02, redeemed. 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(d). (d) 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 Trustee, on 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. (e) Notwithstanding Sections 4.01(a) and 4.01(b), (i) the rights of registration of transfer and exchange, (ii) the rights of substitution of mutilated, destroyed, lost or stolen Transition Bonds, (iii) the rights of Transition Bondholders to receive payments of principal and interest, but only from the amounts deposited with the Trustee for such payments, (iv) Sections 4.03 and 4.04, (v) the rights, obligations and immunities of the Trustee hereunder (including the rights of the Trustee under Section 6.07 and the obligations of the Trustee under Section 4.03) and (vi) the rights of Transition 27 Bondholders under this Indenture with respect to the property deposited with the 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 4.01(a) or 4.01(b) and 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. (a) The Issuer may exercise the Legal Defeasance Option or the Covenant Defeasance Option with respect to any Series of Transition Bonds only if: (i) the Issuer irrevocably deposits or causes to be deposited in trust with the Trustee cash or U.S. Government Obligations for the payment of principal of and interest and premium, if any, on such Series of Transition Bonds to the Expected Final Payment Date or Redemption Date therefor, as applicable, such deposit to be made in the Defeasance Subaccount for such Series of Transition Bonds; (ii) the Issuer delivers to the Trustee a certificate from a nationally recognized firm of Independent accountants expressing its opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited cash without investment will provide cash at such times and in such amounts (but, in the case of the Legal Defeasance Option only, not more than such amounts) as will be sufficient to pay in respect of the Transition Bonds of such Series (A) subject to clause (B), principal in accordance with the Expected Amortization Schedule therefor, (B) if such Series is to be redeemed, the Redemption Price therefor on the Redemption Date therefor and (C) interest when due; (iii) in the case of the Legal Defeasance Option, 95 days pass after the deposit is made and during such 95 day period no Default specified in Section 5.01(e) or 5.01(f) occurs that is continuing at the end of such period; provided, however, that in determining whether a default under Section 5.01(e) has occurred, the requirement that the decree or order shall remain unstayed and in effect for 90 days shall be disregarded; (iv) no Default has occurred and is continuing on the day of such deposit and after giving effect thereto; (v) in the case of the Legal Defeasance Option, the Issuer delivers to the Trustee an Issuer Opinion of Counsel stating that (A) the Issuer has received from, or there has been published by, the Internal Revenue Service a ruling, or (B) 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 the exercise of such Legal Defeasance Option 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; (vi) in the case of the Covenant Defeasance Option, the Issuer delivers to the Trustee an Issuer Opinion of Counsel 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 the exercise of such Covenant Defeasance Option and will be subject to federal income tax 28 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; (vii) the Issuer delivers to the Trustee an Issuer Officer's Certificate and an Issuer 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; and (viii) the Issuer has given ten Business Days' prior written notice to the Rating Agencies. (b) Notwithstanding any other provision of this Section 4.02 to the contrary, no delivery of cash or U.S. Government Obligations to the Trustee under this Section 4.02 shall terminate any obligations of the Issuer under this Indenture with respect to any Transition Bonds that are to be redeemed prior to the Expected Final Payment Date therefor until such Transition Bonds shall have been irrevocably called or designated for redemption on a date thereafter on which such Transition Bonds may be redeemed in accordance with the provisions of this Indenture and either (i) proper notice of such redemption shall have been given in accordance with the provisions of this Indenture or (ii) the Issuer shall have given the Trustee, in form satisfactory to the Trustee, irrevocable instructions to give, in the manner and at the times prescribed herein, notice of redemption of such Series. 29 Section 4.03. APPLICATION OF TRUST MONEY. All moneys or U.S. Government Obligations deposited with the Trustee pursuant to Section 4.01 or 4.02 with respect to any Series of Transition Bonds shall be held in trust in the Defeasance Subaccount for such Series and applied by the Trustee, in accordance with the provisions of the Transition Bonds and this Indenture, to the payment, either directly or through any Paying Agent, as the Trustee may determine, to the Holders of the particular Transition Bonds for the payment or redemption of which such moneys or obligations, as the case may be, have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest. Such moneys or obligations, as the case may be, shall be segregated and held apart solely for paying such Transition Bonds, and such Transition Bonds shall not be entitled to any amounts on deposit in the Collection Account other than amounts on deposit in the Defeasance Subaccount for such Transition Bonds. 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 any Paying Agent other than the Trustee under the provisions of this Indenture with respect to such Transition Bonds shall, upon demand of the Issuer, be paid to the Trustee to be held and applied according to Section 3.03 and thereupon such Paying Agent shall be released from all further liability with respect to such moneys. Article V REMEDIES Section 5.01. EVENTS OF DEFAULT. "Event of Default" wherever used herein means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the payment of any interest on any Transition Bond when the same becomes due and payable and the continuation of such default for five Business Days; (b) default in the payment of the then unpaid principal of any Transition Bond of any Series or Class on the Final Maturity Date therefor; (c) default in the payment of the Redemption Price for any Transition Bond on the Redemption Date therefor; (d) default in the observance or performance of any covenant or agreement of the Issuer made in this Indenture (other than a covenant or agreement, a default in the observance or performance of which is specifically dealt with in clause (a), (b) or (c) above), or 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 made, and any such default or materially incorrect representation or warranty, as the case may be, shall continue or not be cured, for a period of 30 days after the earlier of (i) the date on which there shall have been given, by registered or certified mail, to the Issuer and the Trustee by the Holders of at least 25% of the Outstanding Amount of the Transition Bonds of any Series or Class, a written notice specifying such default or materially incorrect representation or warranty, as the case may be, and requiring it to be remedied and stating that such notice is a "Notice of Default" 30 hereunder and (ii) the date on which an officer of the Issuer has acquired actual knowledge of the default; (e) 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 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 for the Issuer or for any substantial part of the 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 90 consecutive days; (f) the commencement by the Issuer of a voluntary case or proceeding 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 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 for the Issuer or for any substantial part of the Collateral, or the making by the Issuer of any 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 (g) any act or failure to act by the State of New Jersey or any of its agencies (including the BPU), officers or employees that violates or is not in accordance with the pledge and agreement of the State of New Jersey in Section 17.a. of the Competition Act. Section 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. (a) If an Event of Default (other than an Event of Default under Section 5.01(g)) occurs and is continuing, then and in every such case either the Trustee or the Holders of Transition Bonds representing not less than a majority of the Outstanding Amount of the Transition Bonds of all Series may, but need not, declare all the Transition Bonds to be immediately due and payable, by a notice in writing to the Issuer (and to the Trustee if given by Transition Bondholders), and upon any such declaration the unpaid principal amount of the Transition Bonds of all Series, together with accrued and unpaid interest thereon through the date of acceleration, shall become immediately due and payable. (b) 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 Trustee as contemplated hereafter in this Article V, the Holders of Transition Bonds representing a majority of the Outstanding Amount of the Transition Bonds of all Series, by written notice to the Issuer and the Trustee, may rescind and annul such declaration and its consequences, provided that: (i) the Issuer has paid or deposited with the Trustee, for deposit in the General Subaccount of the Collection Account, a sum sufficient to pay (A) all of the principal of, and interest and premium, if any, on all Transition Bonds of all Series and all other amounts that would then be due hereunder and under such Transition Bonds if the Event of Default giving rise to such acceleration had not occurred; and 31 (B) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee and its agents and counsel; and (ii) all Events of Default, other than the nonpayment of the principal of the Transition Bonds of all Series that has become due solely by such acceleration, have been cured or waived as provided in Section 5.12. (c) 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 TRUSTEE. (a) The Issuer covenants that if (i) Default is made in the payment of any interest on any Transition Bond when such interest becomes due and payable and such Default continues for five Business Days, (ii) Default is made in the payment of the then unpaid principal of any Transition Bond on the Final Maturity Date therefor or (iii) Default is made in the payment of the Redemption Price for any Transition Bond on the Redemption Date therefor, the Issuer shall, upon demand of the Trustee, pay to it, for the benefit of the Holders of the Transition Bonds of such Series, such amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee and its agents and counsel and the whole amount then due and payable on such Transition Bonds for principal and interest, with interest upon the overdue principal and, to the extent payment at such rate of interest shall be legally enforceable, upon overdue installments of interest, at the respective Interest Rate of such Series or the applicable Class of such Series. (b) In case the Issuer shall fail forthwith to pay the amounts specified in clause (a) above upon such demand, the 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 final judgment or decree, and 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, wherever situated, the moneys adjudged or decreed to be payable. (c) If an Event of Default occurs and is continuing, the Trustee may, as more particularly provided in Section 5.04, in its discretion, proceed to protect and enforce its rights and the rights of the Transition Bondholders, by such appropriate Proceedings as the 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 Trustee by this Indenture or by law including foreclosing or otherwise enforcing the Lien on the Bondable Transition Property securing the Transition Bonds or applying to the BPU or a court of competent jurisdiction for sequestration of revenues arising with respect to such Bondable Transition Property. (d) In case there shall be pending, relative to the Issuer or any other obligor upon the Transition Bonds or any Person having or claiming an ownership interest in the Collateral, Proceedings under Title 11 of the United States Code or any other applicable federal or state bankruptcy, insolvency or other similar law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Issuer or its property or such other obligor or Person, or in case of any other 32 comparable judicial Proceedings relative to the Issuer or other obligor upon the Transition Bonds, or to the creditors or property of the Issuer or such other obligor, the Trustee, irrespective of whether the principal of any Transition Bonds shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 5.03, shall be entitled and empowered, by intervention in such Proceedings or otherwise: (i) to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Transition Bonds and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation to the Trustee and each predecessor Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee, except as a result of negligence or bad faith) and of the Transition Bondholders allowed in such Proceedings; (ii) unless prohibited by applicable law and regulations, to vote on behalf of the Holders of Transition Bonds in any election of a trustee, 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 Transition Bondholders and of the Trustee on their behalf; and (iv) to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee or the Holders of Transition Bonds allowed in any judicial proceedings 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 Transition Bondholders to make payments to the Trustee, and, in the event that the Trustee shall consent to the making of payments directly to such Transition Bondholders, to pay to the Trustee such amounts as shall be sufficient to cover reasonable compensation to the Trustee, each predecessor Trustee and their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith. (e) Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Transition Bondholder any plan of reorganization, arrangement, adjustment or composition affecting the Transition Bonds or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Transition Bondholder in any such proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar Person. (f) All rights of action and of asserting claims under this Indenture, or under any of the Transition Bonds, may be enforced by the Trustee without the possession of any of the Transition Bonds or the production thereof in any trial or other Proceedings relative thereto, and any Proceedings instituted by the 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 33 compensation of the Trustee, each predecessor Trustee and their respective agents and attorneys, shall be for the ratable benefit of the Holders of the Transition Bonds. (g) In any Proceedings brought by the Trustee (and also any Proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party), the Trustee shall be held to represent all the Holders of the Transition Bonds, and it shall not be necessary to make any Transition Bondholder a party to any such Proceedings. Section 5.04. REMEDIES. (a) If an Event of Default other than Section 5.01(g) occurs and is continuing, the 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 or under this Indenture with respect thereto, whether by declaration or otherwise, enforce any judgment obtained, and collect from the Issuer and any other obligor upon such Transition Bonds moneys adjudged due; (ii) institute Proceedings from time to time for the complete or partial foreclosure of this Indenture with respect to the Collateral; (iii) exercise any remedies of a secured party under the New Jersey UCC, the Delaware UCC, the Competition Act or any other applicable law and take any other appropriate action to protect and enforce the rights and remedies of the Trustee and the Holders of the Transition Bonds; (iv) sell the Collateral or any portion thereof or rights or interest therein, at one or more public or private sales called and conducted in any manner permitted by law; and (v) exercise all rights, remedies, powers, privileges and claims of the Issuer against, as applicable, the Seller, the Servicer, the Administrator or any counterparty under, as the case may be, the Sale Agreement, the Servicing Agreement, the Administration Agreement, any Hedge Agreement or any Interest Rate Swap Agreement, as provided in Section 3.20(b); provided, however, that the Trustee may not sell or otherwise liquidate any portion of the Collateral following an Event of Default, other than an Event of Default described in Section 5.01(a), 5.01(b) or 5.01(c), with respect to any Series unless (A) the Holders of 100% of the Outstanding Amount of the Transition Bonds of all Series consent in writing thereto, (B) the proceeds of such sale or liquidation distributable to the Transition Bondholders of all Series are sufficient to discharge in full all amounts then due and unpaid upon such Transition Bonds for principal, interest and premium, if any, or (C) the Trustee determines that the 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 Trustee obtains the consent of Holders of 66-2/3% of the Outstanding Amount of the Transition Bonds of all Series. In determining such sufficiency or insufficiency with respect to clauses (B) and (C) of this proviso, the Trustee may, but need not, obtain and conclusively rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Collateral for such purpose. Upon any sale or other liquidation of the Collateral or 34 any portion thereof, the Trustee shall apply the net proceeds of such sale or liquidation in accordance with Section 8.02(e). (b) If an Event of Default under Section 5.01(g) occurs and is continuing, the Trustee, for the benefit of the Holders, shall be entitled and empowered to the extent permitted by applicable law to institute or participate in Proceedings reasonably necessary to compel performance of or to enforce the pledge and agreement of the State of New Jersey in Section 17.a of the Competition Act and to collect any monetary damages incurred by the Holders or the 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 Trustee may exercise if the only Event of Default that has occurred and is continuing is an Event of Default under Section 5.01(g). Section 5.05. OPTIONAL PRESERVATION OF THE COLLATERAL. If the Transition Bonds 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 Trustee may, but need not, elect, as provided in Section 5.11(c), to maintain possession of the Collateral and not sell or liquidate the same. It is the desire of the parties hereto and the Transition Bondholders that there be at all times sufficient funds for the payment of principal of and interest on the Transition Bonds, and the Trustee shall take such desire into account when determining whether or not to maintain possession of the Collateral or sell or liquidate the same. In determining whether to maintain possession of the Collateral or sell or liquidate the same, the Trustee may, but need not, obtain and conclusively rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Collateral for such purpose. Section 5.06. LIMITATION OF PROCEEDINGS. No Holder of any Transition Bond of any Series or Class shall have any right to institute any Proceeding, judicial or otherwise, with respect to this Indenture (including under the Competition Act or for the appointment of a receiver or trustee), or to foreclose on the Bondable Transition Property or otherwise enforce the Lien on the Collateral, or for any other remedy under this Indenture, unless: (i) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (ii) the Holders of not less than 25% of the Outstanding Amount of the Transition Bonds of all Series have made written request to the Trustee to institute such Proceeding in respect of such Event of Default in its own name as Trustee hereunder; (iii) such Holder or Holders have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in complying with such request; (iv) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute such Proceeding; and (v) no direction inconsistent with such written request has been given to the Trustee during such 60 day period by the Holders of a majority of the Outstanding Amount of the Transition Bonds of all Series; 35 it being understood and intended that no one or more Holders of Transition Bonds shall have any right in any manner whatever by virtue of, or by availing themselves of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Transition Bonds 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. (b) In the event the Trustee shall receive conflicting or inconsistent requests and indemnity from two or more groups of Holders of Transition Bonds, each representing less than a majority of the Outstanding Amount of the Transition Bonds of all Series, the 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 TRANSITION BONDHOLDERS TO RECEIVE PRINCIPAL AND INTEREST. Notwithstanding any other provisions in this Indenture, the Holder of any Transition Bond shall have the right, which is absolute and unconditional and which shall not be impaired without the consent of such Holder: (a) to receive payment of (i) the interest, if any, on such Transition Bond on or after the due dates thereof expressed in such Transition Bond or in this Indenture, (ii) the unpaid principal, if any, of such Transition Bonds on or after the Final Maturity Date therefor and (iii) in the case of redemption, the unpaid principal, if any, and interest, if any, on such Transition Bond on or after the Redemption Date therefor; and (b) to institute suit for the enforcement of any such payment. Section 5.08. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any Transition Bondholder 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 Trustee or to such Transition Bondholder, then and in every such case the Issuer, the Trustee and the Transition Bondholders 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 Trustee and the Transition Bondholders 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 Trustee or to the Transition Bondholders 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 Trustee or any Transition Bondholder 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 Trustee or to the Transition Bondholders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Transition Bondholders, as the case may be. Section 5.11. CONTROL BY TRANSITION BONDHOLDERS. The Holders of a majority of the Outstanding Amount of the Transition Bonds of all Series (or, if less than all Series or Classes are affected, of the affected Series or Class or Classes) shall have the right to direct the time, 36 method and place of conducting any Proceeding for any remedy available to the Trustee with respect to the Transition Bonds of such Series or Class or Classes or exercising any trust or power conferred on the Trustee with respect to such Series or Class or Classes; provided that: (a) such direction shall not be in conflict with any rule of law or with this Indenture; (b) subject to the express terms of Section 5.04, any direction to the Trustee to sell or liquidate the Collateral shall be by the Holders of Transition Bonds representing not less than 100% of the Outstanding Amount of the Transition Bonds of all Series; (c) if the conditions set forth in Section 5.05 have been satisfied and the Trustee elects to retain the Collateral pursuant to such Section 5.05 and elects not to sell or liquidate the same, then any direction to the Trustee by Holders of Transition Bonds representing less than 100% of the Outstanding Amount of the Transition Bonds of all Series to sell or liquidate the Collateral shall be of no force and effect; and (d) the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction; provided, further, that, subject to Section 6.01, the Trustee need not take any action that it determines might involve it in liability for which it reasonably believes it will not be reasonably satisfactorily indemnified against the costs, expenses and liabilities that might be incurred by it in complying with this request. The Trustee also need not take any action that it determines might materially and adversely affect the rights of any Transition Bondholders not consenting to such action. Section 5.12. WAIVER OF PAST DEFAULTS. (a) 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 of not less than a majority of the Outstanding Amount of the Transition Bonds of all Series may waive (by written notice to the Issuer with a copy to the Trustee) any past Default or Event of Default and its consequences except a Default (i) in payment of principal of, or interest or any premium on, any of the Transition Bonds or (ii) in respect of a covenant or provision hereof that cannot be modified or amended without the consent of all Holders of Transition Bonds of all Series or Classes affected. In the case of any such waiver, the Issuer, the Trustee and the Holders of the Transition Bonds 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. (b) 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 Trustee for any action taken, suffered or omitted by it as 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 37 apply to (a) any suit instituted by the Trustee, (b) any suit instituted by any Transition Bondholder, or group of Transition Bondholders, in each case holding in the aggregate more than 10% of the Outstanding Amount of the Transition Bonds of a Series or (c) any suit instituted by any Transition Bondholder 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, (ii) the unpaid principal, if any, of any Transition Bond on or after the Final Maturity Date therefor or (iii) in the case of redemption, the unpaid principal of and interest on any Transition Bond on or after the Redemption 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 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 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 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 Trustee or the Transition Bondholders shall be impaired by the recovery of any judgment by the Trustee against the Issuer or by the levy of any execution under such judgment upon any portion of the Collateral or upon any of the assets of the Issuer. Article VI THE TRUSTEE Section 6.01. DUTIES AND LIABILITIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the 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 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 Trustee; and (ii) in the absence of bad faith on its part, the 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 Trustee and conforming to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) this clause (c) does not limit the effect of clause (b) of this Section 6.01; 38 (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 5.11. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to clauses (a), (b) and (c) of this Section 6.01. (e) The Trustee shall not be liable for interest on any money received by it except as provided in this Indenture or as the Trustee may agree in writing with the Issuer. (f) Money held in trust by the Trustee need not be segregated from other funds held by the Trustee except to the extent required by law or the terms of this Indenture, the Sale Agreement, the Servicing Agreement, any Hedge Agreement or any Interest Rate Swap Agreement. (g) No provision of this Indenture shall require the 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 reasonably satisfactorily indemnity 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 Trustee shall be subject to the provisions of this Section 6.01 and to the provisions of the TIA. (i) Under no circumstances shall the Trustee be liable for any indebtedness of the Issuer, the Servicer or the Seller evidenced by or arising under the Transition Bonds, any Basic Document or any Hedge Agreement or Interest Rate Swap Agreement. Section 6.02. RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely on any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in any such document. (b) Before the Trustee acts or refrains from acting, it may require an Issuer Officer's Certificate or an Issuer Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on an Issuer Officer's Certificate or an Issuer Opinion of Counsel. (c) The 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 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 thereunder. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers; provided, however, that the Trustee's conduct does not constitute willful misconduct, negligence or bad faith. 39 (e) The 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. Section 6.03. INDIVIDUAL RIGHTS OF TRUSTEE. The 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 Trustee. Any agent in Luxembourg appointed pursuant to Section 3.02(b) may do the same with like rights. However, the Trustee must comply with Sections 6.11 and 6.12. Section 6.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Transition Bonds. The Trustee shall not be accountable for the Issuer's use of the proceeds from the Transition Bonds, and the Trustee shall not be responsible for any statement of the Issuer in this Indenture or in any document issued in connection with the sale of the Transition Bonds or in the Transition Bonds other than the Trustee's certificate of authentication. The Trustee shall not be responsible for the form, character, genuineness, sufficiency, value or validity of any of the Collateral or for or in respect of the validity or sufficiency of the Transition Bonds (other than the certificate of authentication for the Transition Bonds), the Basic Documents or any Hedge Agreement or Interest Rate Swap Agreement, and the Trustee shall in no event assume or incur any liability, duty or obligation to any Holder of a Transition Bond, in each case other than as expressly provided for in this Indenture. The Trustee shall not be liable for the default or misconduct of the Issuer, the Seller, the Servicer or the Member or any Manager under any Basic Document, any Hedge Agreement or Interest Rate Swap Agreement or otherwise, or for the default or misconduct of any counterparty under any Hedge Agreement or Interest Rate Swap Agreement, and the Trustee shall have no obligation or liability to perform the obligations of the Issuer. Section 6.05. NOTICE OF DEFAULTS. If a Default occurs and is continuing with respect to any Class or Series and if it is actually known to a Responsible Officer of the Trustee, the Trustee shall mail to each Rating Agency and to each Holder of Transition Bonds of all Series notice of the Default within 90 days after it occurs or, in the case of a Default that becomes an Event of Default before the lapse of 90 days, as soon as practicable after such Default becomes an Event of Default and is actually known by a Responsible Officer of the Trustee. Except in the case of a Default in payment of principal of or interest on any Transition Bond and subject to the requirements of the preceding sentence, the 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 Transition Bondholders. Section 6.06. REPORTS BY TRUSTEE TO HOLDERS. (a) The Trustee shall deliver to each Holder of Transition Bonds such information as may be required to enable such Holder to prepare its federal and state income tax returns. (b) With respect to each outstanding Series and Class of Transition Bonds, on or prior to each Payment Date therefor, the Trustee shall prepare and deliver a statement prepared by the Trustee to each Holder of Transition Bonds of such Series and Class which shall include (to the extent applicable) information with respect to total receipts for Transition Bond Charges, expenses paid, allocation of net Transition Bond Charges among all Series and the following additional information (and any other information so specified in the Series Supplement for such Series) as to 40 the Transition Bonds of each outstanding Series and Class as of such Payment Date or the period since the previous Payment Date, as specified: (i) the amount paid to Holders of the Transition Bonds of such Series and Class in respect of principal on such Payment Date; such amount to be expressed as a dollar amount per thousand; (ii) the amount paid to Holders of the Transition Bonds of such Series and Class in respect of interest on such Payment Date; such amount to be expressed as a dollar amount per thousand; (iii) the Transition Bond Balance for such Series and Class as of such Payment Date, after giving effect to the payments and deposits to be made on such Payment Date and the projected Transition Bond Balance for such Series and Class as of such Payment Date; (iv) the amount on deposit in the Overcollateralization Subaccount for such Series and the Scheduled Overcollateralization Level for such Series as of such Payment Date, after giving effect to the payments and deposits to be made on such Payment Date; (v) the amount on deposit in the Capital Subaccount for such Series as of such Payment Date, after giving effect to the payments and deposits to be made on such Payment Date, and the required capital amount for such Series; (vi) the amount, if any, on deposit in the Reserve Subaccount for such Series as of such Payment Date, after giving effect to the payments and deposits to be made on such Payment Date and any amounts transferred from the Reserve Subaccount of such Series to make payments on other Series since the previous Payment Date; (vii) the amount to be paid to each counterparty under any Hedge Agreement or Interest Rate Swap Agreement on such Payment Date; (viii) the amount paid to the Trustee since the previous Payment Date to and including such Payment Date; (ix) the amount paid to the Issuer since the previous Payment Date to and including such Payment Date; (x) the amount paid to the Servicer since the previous Payment Date to and including such Payment Date; (xi) the amount paid to the Administrator since the previous Payment Date to and including such Payment Date; (xii) the amount paid to the Independent Managers since the previous Payment Date to and including such Payment Date; and (xiii) any other transfers and payments made pursuant to this Indenture since the previous Payment Date. 41 (c) If any Transition Bonds are listed on the Luxembourg Stock Exchange and the rules of such exchange so require, the listing agent appointed pursuant to Section 3.02(b) shall arrange for publication in an Authorized Newspaper that such statement shall be available with the Issuer's listing agent in Luxembourg appointed pursuant to Section 3.02(b). (d) The Trustee's responsibility for disbursing the information described in clause (b) above to Holders of Transition Bonds is limited to the availability, timeliness and accuracy of the information provided by the Servicer pursuant to Section 3.05 and the Issuer Annex. Section 6.07. COMPENSATION AND INDEMNITY. (a) The Issuer shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Issuer shall reimburse the Trustee for all reasonable out-of-pocket expenses, disbursements and advances incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. The Issuer shall indemnify and hold harmless the Trustee and its officers, directors, employees and agents, from and against any and all costs, damages, expenses, losses, liabilities or other amounts whatsoever (including reasonable counsel fees and expenses) incurred by the Trustee in connection with the administration of this trust, the enforcement of this trust and all of the Trustee's rights, powers and duties under this Indenture and the performance by the Trustee of the duties and obligations of the Trustee under or pursuant to this Indenture. The Trustee shall notify the Issuer promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Issuer shall not relieve the Issuer of its obligations hereunder. (b) The Issuer shall defend such claim and the Trustee may have separate counsel and the Issuer shall pay the fees and expenses of such counsel. The Issuer need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee (i) through the Trustee's own willful misconduct, negligence or bad faith or (ii) to the extent the Trustee was reimbursed for or indemnified against any such loss, liability or expense by the Seller pursuant to the Sale Agreement or by the Servicer pursuant to the Servicing Agreement. (c) When the Trustee incurs expenses after the occurrence of an Event of Default specified in Section 5.01(e) or 5.01(f) with respect to the Issuer, the expenses are intended to constitute expenses of administration under Title 11 of the United States Code or any other applicable federal or state bankruptcy, insolvency or similar law. (d) The obligations of the Issuer under this Section 6.07 shall survive the termination of this Indenture or the earlier resignation or removal of the Trustee with respect to services, expenses and indemnifiable claims performed, incurred or arising, as the case may be, prior to such termination or resignation. Section 6.08. REPLACEMENT OF TRUSTEE. (a) The Trustee may resign at any time upon 30 days' prior written notice by so notifying the Issuer. The Issuer may remove the Trustee with or without cause at any time, with prior notice to the Rating Agencies, upon 30 days' prior written notice, and shall remove the Trustee if: (i) the Trustee fails to comply with Section 6.11; 42 (ii) the Trustee is adjudged a bankrupt or insolvent; (iii) a receiver or other public officer takes charge of the Trustee or its property; or (iv) the Trustee otherwise becomes incapable of acting. (b) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to hereinafter as the "Retiring Trustee"), the Issuer shall promptly appoint a successor Trustee. (c) The Holders of a majority in Outstanding Amount of the Transition Bonds of all Series may remove the Trustee by so notifying the Issuer and the Trustee in writing and such Holders may appoint a successor Trustee. (d) A successor Trustee shall deliver a written acceptance of its appointment to the Retiring Trustee and to the Issuer. Thereupon the resignation or removal of the Retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. No resignation or removal of the Trustee shall become effective until the acceptance of the appointment by a successor Trustee. The successor Trustee shall mail a notice of its succession to Transition Bondholders. The Retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee. (e) If a successor Trustee does not take office within 60 days after the Retiring Trustee resigns or is removed, the Retiring 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 Trustee. (f) If the Trustee fails to comply with Section 6.11, any Transition Bondholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (g) Notwithstanding the replacement of the Trustee pursuant to this Section 6.08, the Issuer's obligations under Section 6.07 shall continue for the benefit of the Retiring Trustee. Section 6.09. SUCCESSOR TRUSTEE BY MERGER. (a) If the 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 shall, without any further act be the successor Trustee. Notice of any such event shall be promptly given by the successor Trustee to each Rating Agency and any agent in Luxembourg appointed pursuant to Section 3.02(b). (b) 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 Trustee may adopt the certificate of authentication of any Retiring 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 Trustee may authenticate such Transition Bonds either in the name of any Retiring Trustee hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the 43 full force and effect granted by the Transition Bonds or by this Indenture and this force and effect shall be equal to any certificate issued by the Trustee. 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 Collateral may at the time be located, the Trustee shall have the power and may execute and deliver all instruments to appoint one or more Persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the Collateral, and to vest in such Person or Persons, in such capacity and for the benefit of the Transition Bondholders, such title to the 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 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 the Transition Bondholders of the appointment of any co-trustee or separate trustee shall be required under Section 6.08. Notice of any such appointment shall be promptly given to each Rating Agency by the Trustee. (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 Trustee shall be conferred or imposed upon and exercised or performed by the 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 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 Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Collateral or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Trustee; (ii) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and (iii) the 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 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 Trustee or separately, as may be provided therein, subject to all the provisions of this Indenture, specifically including every provision of this Indenture relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee. (d) Any separate trustee or co-trustee may at any time constitute the 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 Agreement on its behalf and in its name. If any separate trustee or co-trustee 44 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 Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. Section 6.11. ELIGIBILITY; DISQUALIFICATION. The Trustee shall at all times satisfy the requirements of TIA Section 310(a) and Section 26(a)(i) of the Investment Company Act of 1940. The 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 "BBB-" or better by Standard & Poor's, "Baa3" or better by Moody's and "BBB-" or better by Fitch. The Trustee shall comply with TIA Section 310(b), including the optional provision permitted by the second sentence of TIA Section 310(b)(9); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities of the Issuer are outstanding if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. Section 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE ISSUER. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee that has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated. Section 6.13. REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE. The Trustee hereby represents and warrants that: (a) the Trustee is a banking corporation validly existing and in good standing under the laws of the State of New York; and (b) the Trustee has full power, authority and legal right to execute, deliver and perform this Indenture and the Basic Documents to which the 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. TRUSTEE ACTIONS IN CAPACITY OF REGISTRAR OR PAYING AGENT. In the event that the Trustee is also acting in the capacity of Paying Agent or Registrar hereunder, (i) the duties, obligations, standards of care and liability imposed upon the Trustee under this Article VI and (ii) the rights, protections, immunities and indemnities afforded to the Trustee under this Article VI shall, as the case may be, be imposed upon or afforded to the Trustee in its capacity as Paying Agent or Registrar. Article VII TRANSITION BONDHOLDERS' LISTS AND REPORTS Section 7.01. ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF TRANSITION BONDHOLDERS. The Issuer shall furnish or cause to be furnished to the Trustee (a) not more than five days after the earlier of (i) each Record Date with respect to each Series and (ii) three months after the last Record Date with respect to each Series, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Transition Bonds of such Series as of such Record Date, (b) at such other times as the Trustee may request in writing, within 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 10 days prior to the time such list is furnished; provided, however, that so long 45 as the 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(b) to the extent such information is required by the rules and regulations of the Luxembourg Stock Exchange. Section 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO TRANSITION BONDHOLDERS. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of the Holders of Transition Bonds contained in the most recent list furnished to the Trustee as provided in Section 7.01 and the names and addresses of Holders of Transition Bonds received by the Trustee in its capacity as Transition Bond Registrar. The Trustee may destroy any list furnished to it as provided in such Section 7.01 upon receipt of a new list so furnished. (b) Transition Bondholders may communicate with other Transition Bondholders pursuant to Section 312(b) of the TIA with respect to their rights under this Indenture or under the Transition Bonds. (c) The Issuer, the Trustee and the Transition Bond Registrar shall have the protection of Section 312(c) of the TIA. Section 7.03. REPORTS BY ISSUER. (a) The Issuer shall: (i) file with the Trustee and, so long as any Transition Bonds are listed on the Luxembourg Stock Exchange and its rules so require, with the listing agent of the Issuer in Luxembourg appointed pursuant to Section 3.02(b), within 15 days after the Issuer is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) that the Issuer may be required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act; (ii) file with the Trustee, the Commission and, so long as any Transition Bonds are listed on the Luxembourg Stock Exchange, the listing agent in Luxembourg appointed pursuant to Section 3.02(b), in accordance with rules and regulations prescribed from time to time by the Commission or the Luxembourg Stock Exchange, respectively, 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 Trustee (and the Trustee shall transmit by mail to all Transition Bondholders described in TIA Section 313(c)) and, so long as any Transition Bonds are listed on the Luxembourg Stock Exchange and its rules so require, to the listing agent of the Issuer in Luxembourg appointed pursuant to Section 3.02(b), 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 Commission. (b) Unless the Issuer otherwise determines, the fiscal year of the Issuer shall end on December 31 of each year. 46 Section 7.04. REPORTS BY TRUSTEE. (a) If required by TIA Section 313(a), within 60 days after the end of each fiscal year of the Issuer, commencing with the year after the issuance of the Transition Bonds of any Series, the Trustee shall mail to each Holder of Transition Bonds of such Series as required by TIA Section 313(c) a brief report dated as of such date that complies with TIA Section 313(a). The Trustee also shall comply with TIA Section 313(b); provided, however, that the initial report so issued shall be delivered not more than 12 months after the initial issuance of each Series. (b) A copy of each report at the time of its mailing to Transition Bondholders shall be filed by the Trustee with the Commission and each stock exchange, if any, on which the Transition Bonds are listed (to the extent required by the rules of such exchange). The Issuer shall notify the Trustee in writing if and when the Transition Bonds are listed on any stock exchange. Section 7.05. PROVISION OF SERVICER REPORTS. Upon the written request of any Transition Bondholder to the Trustee addressed to the Corporate Trust Office, the Trustee shall provide such Transition Bondholder with a copy of the Issuer Officer's Certificate referred to in Section 3.05 of the Servicing Agreement and the Annual Accountant's Report referred to in Section 3.06 of the Servicing Agreement. If any Transition Bonds are listed on the Luxembourg Stock Exchange and rules of such exchange so require, the listing agent appointed pursuant to Section 3.02(b) shall also arrange for publication in an Authorized Newspaper that a copy of such Issuer Officer's Certificate and such Annual Accountant's Report shall be available with the Issuer's listing agent in Luxembourg appointed pursuant to Section 3.02(b). Article VIII ACCOUNTS, DISBURSEMENTS AND RELEASES Section 8.01. COLLECTION OF MONEY. Except as otherwise expressly provided herein, the 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 Trustee pursuant to this Indenture. The 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 Collateral, the Trustee may take such action as may be appropriate to enforce such payment or performance, including the institution and prosecution of appropriate Proceedings. Any such action shall be without prejudice to any right to claim a Default or Event of Default under this Indenture and any right to proceed thereafter as provided in Article V. Section 8.02. COLLECTION ACCOUNT. (a) (i) On or prior to the Series Issuance Date for the first Series issued hereunder, the Issuer shall open, at the Trustee's Corporate Trust Office, or at another Eligible Institution, one or more segregated trust accounts in the Trustee's name for the benefit of the Holders (collectively, the "Collection Account"). The Collection Account shall initially be divided into subaccounts, which need not be separate accounts: a general subaccount (the "General Subaccount"), an overcollateralization subaccount for each Series of Transition Bonds (each, a "Series Overcollateralization Subaccount" or "Overcollateralization Subaccount"), a capital subaccount for each Series of Transition Bonds (each, a "Series Capital Subaccount" or "Capital Subaccount"), a reserve subaccount for each Series of Transition Bonds (each, a "Series Reserve Subaccount" or "Reserve Subaccount"), a series subaccount for each Series of Transition Bonds (each, a "Series Subaccount") and a class subaccount for any Class of any Series of Transition Bonds that has a floating rate of interest if and as specified in the related Series Supplement (each, a "Class 47 Subaccount"). On or prior to the Series Issuance Date for each Series issued after the Series Issuance Date for the first Series issued hereunder, the Issuer shall establish for such Series an additional Series Subaccount, a Series Overcollateralization Subaccount, a Series Capital Subaccount, a Series Reserve Subaccount and, if and as specified in the related Series Supplement, a Class Subaccount for any Class of such Series that has a floating rate of interest, each as Subaccounts of the Collection Account. Prior to depositing funds or U.S. Government Obligations in the Collection Account pursuant to Section 4.01 or 4.02, the Issuer shall establish defeasance subaccounts (each, a "Defeasance Subaccount") for each Series for which funds shall be deposited, as subaccounts of the Collection Account. All amounts in the Collection Account not allocated to any other Subaccount shall be allocated to the General Subaccount. Prior to the initial Payment Date for the Series 2002-1 Transition Bonds, all amounts in the Collection Account (other than funds deposited into the Capital Subaccount for such Series, up to the Required Capital Amount) shall be allocated to the General Subaccount. All payments received by the Trustee from any counterparty under any Interest Rate Swap Agreement with respect to any Class of floating rate Transition Bonds shall be deposited in the Class Subaccount, if any, for such Class unless otherwise specified in the related Series Supplement. All references to the Collection Account shall be deemed to include reference to all subaccounts contained therein. Withdrawals from and deposits to each of the foregoing subaccounts of the Collection Account shall be made as set forth in Sections 4.01, 4.02, 4.03 and this Section 8.02. The Collection Account shall at all times be an Eligible Securities Account and only the Trustee shall have access to the Collection Account for the purpose of making deposits in and withdrawals from the Collection Account in accordance with this Indenture. Funds in the Collection Account shall not be commingled by the Issuer with any other moneys, and shall not be commingled by the Trustee. All moneys deposited from time to time in the Collection Account, all deposits therein pursuant to this Indenture, and all investments made in Eligible Investments with such moneys, including all income or other gain from such investments, shall be held by the Trustee in the Collection Account as part of the Collateral as herein provided. (ii) The Collection Account shall be a securities account and shall be established only with a securities intermediary (as defined in Section 8-102(a)(14) of the New Jersey UCC) that agrees with the Trustee that (A) the Collection Account shall be a securities account of the Trustee, (B) all property credited to the Collection Account and each Subaccount thereunder shall be treated as a financial asset, (C) such securities intermediary shall treat the Trustee as entitled to exercise the rights that comprise each financial asset credited to the Collection Account and each Subaccount thereunder, (D) such securities intermediary shall comply with entitlement orders originated by the Trustee without the further consent of any other person or entity, (E) such securities intermediary shall not agree with any person other than the Trustee to comply with entitlement orders originated by such other person, (F) the Collection Account, each Subaccount thereunder and all property credited to any of them shall not be subject to any Lien, security interest, right of set-off in favor of such securities intermediary or anyone claiming through it (other than the Trustee), and (G) such agreement shall be governed by the laws of the State of New Jersey. The Collection Account and each Subaccount thereunder shall be under the control (within the meaning of Section 8-106 of the New Jersey UCC) of the Trustee. If at any time, the Collection Account or any Subaccount thereunder ceases to be an Eligible Securities Account and a Responsible Officer of the Trustee has actual knowledge of such fact, the Trustee shall, within ten (10) days, establish a new Collection Account or Subaccount, as the case may be, as an Eligible Securities Account. Notwithstanding the foregoing provisions of this Section 8.02(a)(ii) and without limiting the effect of Section 3.05, if after the date hereof changes in applicable law or in accepted practices for the maintenance and preservation of security 48 interests make it necessary or advisable to take specified action supplemental to or in substitution for the aforementioned action in order to maintain and preserve the Grant, Lien and security interest (including the priority thereof) created by this Indenture with respect to the Collection Account, any Subaccount thereunder or any of the Collateral held therein or credited thereto, then the Issuer and the Trustee shall be authorized to take such specified action, provided that the Issuer shall furnish to the Trustee an Issuer Opinion of Counsel stating that, in the opinion of such counsel, such specified action will not adversely affect the Lien created by this Indenture. (b) All or a portion of the funds in the Collection Account shall be invested in Eligible Investments and, so long as no Default or Event of Default has occurred and is continuing, shall be reinvested by the Trustee upon Issuer Order; provided, however, that no funds in the Defeasance Subaccount for any Series of Transition Bonds shall be invested in Eligible Investments or otherwise, except that U.S. Government Obligations deposited by the Issuer with the Trustee pursuant to Section 4.01 or 4.02 shall remain as such. Except as provided in Section 8.02(e)(xii), all income or other gain from investments of moneys deposited in the Collection Account shall be deposited by the Trustee in the Collection Account, and any loss resulting from such investments shall be charged to the Collection Account. The Issuer shall not direct the Trustee to make any investment of any funds or to sell any investment held in the Collection Account unless the security interest granted and perfected in such account will continue to be perfected in such investment or the proceeds of such sale, in either case without any further action by any Person, and, in connection with any direction to the Trustee to make any such investment or sale, if requested by the Trustee, the Issuer shall deliver to the Trustee an Issuer Opinion of Counsel, acceptable to the Trustee, to such effect. Subject to Section 6.01(c), the Trustee shall not in any way be held liable for the selection of Eligible Investments or for investment losses incurred thereon except for losses attributable to the Trustee's failure to make payments on such Eligible Investments issued by the Trustee, in its commercial capacity as principal obligor and not as Trustee, in accordance with their terms. The Trustee shall have no liability in respect of losses incurred as a result of the liquidation of any Eligible Investment prior to its stated maturity or the failure of the Issuer to provide timely written investment directions pursuant to an Issuer Order (it being understood that investment directions may, at the Issuer's election, be given either in the form of standing instructions to be carried out in the absence of contrary instructions or in the form of instructions to be carried out with respect to particular funds on deposit). The 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; provided, however, that if (i) the Issuer shall have failed to give investment directions for any funds on deposit in the Collection Account to the Trustee by 11:00 a.m. (prevailing New York City time) (or such other time as may be agreed by the Issuer and Trustee) on any Business Day, or (ii) a Default or Event of Default shall have occurred and be continuing but the Transition Bonds shall not have been declared due and payable pursuant to Section 5.02, then the Trustee shall, to the fullest extent practicable, invest and reinvest funds in the Collection Account in one or more Eligible Investments of the kind described in clause (d) of the definition thereof. (c) Any TBC Collections remitted by the Servicer to the Trustee, any Indemnity Amounts remitted to the Trustee by the Seller or the Servicer or otherwise received by the Trustee or the Issuer, any other proceeds of Collateral received by the Servicer, the Issuer or the Trustee, and any amounts paid by any counterparty under any Hedge Agreement or Interest Rate Swap Agreement received by the Servicer, the Issuer or the Trustee, shall be deposited in the General Subaccount. 49 (d) Monthly, by 12:00 noon (prevailing New York City time) on the 20th day of each calendar month (other than a month in which a Payment Date occurs), or if such day is not a Business Day, the next Business Day thereafter, beginning January 20, 2003 (each, a "Monthly Fee Disbursement Date"), the Trustee shall, at the written direction of the Servicer, apply all amounts on deposit into the General Subaccount and, if and to the extent necessary and available, any investment earnings on the subaccounts in the Collection Account (other than the Series Capital Subaccounts) in the following priority: (i) to the Trustee, the fee owed to the Trustee for all Series for such month and any unpaid monthly trustee fees for prior months, plus any expenses payable to the Trustee hereunder, including legal fees and expenses and Indemnity Amounts (provided that Indemnity Amounts shall be limited to $10,000,000 in the aggregate for all Payment Dates and Monthly Fee Disbursement Dates with respect to all Series, unless the payment of any additional amounts shall satisfy the Rating Agency Condition), and any other amounts due and owing to the Trustee pursuant to the Basic Documents for such month; (ii) to the Issuer, the monthly fees for the Independent Managers and any unpaid monthly Independent Manager fees for prior months; (iii) to the Servicer, the Monthly Servicing Fee and any unpaid Monthly Servicing Fees for prior months; (iv) to the Administrator, the monthly administration fee payable under the Administration Agreement and any unpaid monthly Administrator fees for prior months; (v) to the Persons entitled thereto (or, to the extent such Persons have already been paid by the Issuer, to the Issuer), so long as no Event of Default has occurred and is continuing or would be caused by such payment, all Operating Expenses other than those described in clauses (i) through (iv) above (up to an aggregate amount of $100,000 for all Series under this clause (v) and Section 8.02(e)(v) for each quarterly interest period ending in a Payment Date) including all current and past due amounts. Of the total amount applied on any Monthly Fee Disbursement Date pursuant to each of clauses (i) through (v) of this Section 8.02(d), each outstanding Series of Transition Bonds shall be deemed to have paid, pursuant to each such clause, a portion of such total amount equal to the product of (A) the total amount applied pursuant to such clause on such date times (B) the fraction (x) whose numerator is the principal amount of Transition Bonds of such Series as of the immediately preceding Payment Date and (y) whose denominator is the aggregate principal amount of Transition Bonds of all Series as of the immediately preceding Payment Date. In addition, if on any Monthly Fee Disbursement Date amounts available in the general subaccount of the Collection Account (including available investment earnings in the subaccounts (other than the Capital Subaccounts) of the Collection Account) are insufficient to pay a Series' share of the monthly fees and expenses listed in clauses (i) through (v) of this Section 8.02(d), the Trustee shall, at the written direction of the Servicer, draw from funds on deposit in the Reserve Subaccount for such Series up to the amount necessary to make such payments. (e) On the Business Day preceding each Payment Date, the Trustee, at the written direction of the Servicer, shall deposit into the General Subaccount any investment earnings on the subaccounts in the Collection Account (including without limitation the Capital Subaccounts) and, 50 after taking into account such deposits and the amounts remitted on such Business Day by the Servicer pursuant to Section 3.03 of the Servicing Agreement, shall allocate to the Series Subaccount for each outstanding Series of Transition Bonds an amount equal to (x) the amount of funds on deposit in the General Subaccount times (y) the fraction whose numerator is the Revenue Requirement for such Series during the Measure Period to which such Payment Date relates (giving effect to any redetermination of Revenue Requirements pursuant to Section 6 of the Issuer Annex) and whose denominator is the Total Revenue Requirement during such Measure Period. By 12:00 noon (prevailing New York City time) on the Payment Date immediately following such Business Day, the Trustee shall, at the written direction of the Servicer, apply the amount so allocated to each Series Subaccount in the following priority: (i) to the Trustee, such Series' share of the fee owed to the Trustee for the month in which such Payment Date occurs, plus any unpaid Trustee fees, plus such Series' share of any expenses payable to the Trustee hereunder, including legal fees and expenses, Indemnity Amounts (provided that Indemnity Amounts shall be limited to $10,000,000 in the aggregate for all Payment Dates and Monthly Fee Disbursement Dates with respect to all Series, unless the payment of any additional amounts shall satisfy the Rating Agency Condition), and any other amounts due and owing to the Trustee pursuant to the Basic Documents for such month; (ii) to the Issuer, such Series' share of the monthly fees for the Independent Managers and any unpaid Independent Manager fees; (iii) to the Servicer, such Series' share of the Monthly Servicing Fee and any unpaid Monthly Servicing Fees; (iv) to the Administrator, such Series' share of the monthly administration fee payable under the Administration Agreement and any unpaid Administrator fees, plus reimbursement of the Administrator's fees and expenses; (v) to the Persons entitled thereto (or, to the extent such Persons have already been paid by the Issuer, to the Issuer), so long as no Event of Default has occurred and is continuing or would be caused by such payment, such Series' share of all Operating Expenses other than those described in clauses (i) through (iv) above (up to an aggregate amount of $100,000 for all Series under this clause (v) and Section 8.02(d)(v) for each quarterly interest period ending on a Payment Date) including all current and past due amounts; (vi) to the Transition Bondholders of such Series, the Interest payable on each Class of such Series on such Payment Date plus any previously accrued and unpaid interest on each such Class (provided that, in the case of any floating rate Class for which an Interest Rate Swap Agreement is in effect, such amount shall equal the amount specified, and the payee of such amount shall be the payee specified, in the related Series Supplement as payable on such Payment Date); (vii) to the Transition Bondholders of such Series, the Principal of each Class of such Series of Transition Bonds payable as a result of acceleration pursuant to Section 5.02, any Principal of any Class of such Series of Transition Bonds payable on the Final Maturity Date of such Class, and any Principal of any Class of such Series of Transition Bonds payable on the Redemption Date for such Class; 51 (viii) to the Transition Bondholders of such Series, the Principal scheduled to be paid on each Class of such Series of Transition Bonds on such Payment Date according to the related Expected Amortization Schedules, excluding any amounts provided for pursuant to Section 8.02(e)(vii); (ix) to the Persons entitled thereto (or, to the extent such Persons have already been paid by the Issuer, to the Issuer), such Series' share (as determined below) of any remaining unpaid Operating Expenses; (x) to the Capital Subaccount for such Series, the amounts, if any, necessary to restore the balance in such account to its Required Capital Amount; (xi) to the Overcollateralization Subaccount for such Series, the amount, if any, necessary to bring the balance in such account to such Series' Scheduled Overcollateralization Level; (xii) to the Issuer, free and clear of the Lien of this Indenture, so long as no Event of Default has occurred and is continuing, an amount equal to investment earnings on amounts in the Capital Subaccount for such Series; (xiii) to the Reserve Subaccount for such Series, any remaining amounts; provided that such amounts shall be subject to reallocation on such Payment Date to another Series as may be necessary to prevent or mitigate a Default pursuant to Section 5.01(a) or (b) on such Payment Date (such funds to be drawn pro rata, in the case of a surplus of funds in more than one Series Reserve Subaccount, based on the amount of funds on deposit in each such Subaccount on such Payment Date after giving effect to all intra-Series allocations of funds from such Subaccounts pursuant to Section 8.02(f)(i) required to prevent or mitigate Defaults pursuant to Section 5.01(a) or (b) on such Payment Date); and (xiv) in the event such Series of Transition Bonds shall have been paid in full on such Payment Date, the balance, if any, in the Series Subaccount, Capital Subaccount, Overcollateralization Subaccount and Reserve Subaccount for such Series shall be released on such Payment Date to the Issuer free and clear of the Lien of this Indenture or, to the extent, if any, specified in the Series Supplements for one or more Series, shall be allocated on such Payment Date to the Series Subaccounts of one or more other Series. Of the total amount applied on any Payment Date (for all Series of Transition Bonds) pursuant to each of clauses (i) through (v) and clauses (ix) and (x) of this Section 8.02(e), the portion of such total amount representing the share of each outstanding Series of Transition Bonds for purposes of this Section 8.02(e) shall be an amount equal to the product of (A) the total amount applied pursuant to such clause (for all Series of Transition Bonds) on such date times (B) the fraction (x) whose numerator is the principal amount of Transition Bonds of such Series as of the immediately preceding Payment Date and (y) whose denominator is the aggregate principal amount of Transition Bonds as of the immediately preceding Payment Date. (f) If, on any Payment Date, funds on deposit in any Series Subaccount for any Series for which the allocation made on such Payment Date pursuant to Section 8.02(e) are insufficient to make the payments and allocations contemplated by Section 8.02(e)(i) through (xiii) with respect to such Series, the Trustee shall, at the written direction of the Servicer, draw from amounts on deposit in the 52 following subaccounts for such Series in the following order up to the amount of such shortfall in order to make such payments and allocations: (i) from the Reserve Subaccount for such Series, for payments and allocations contemplated by Section 8.02(e)(i) through (xiii), with respect to such Series, (ii) from the Overcollateralization Subaccount for such Series, for payments and allocations contemplated by Section 8.02(e)(i) through (viii) and 8.02(e)(x), with respect to such Series, and (iii) from the Capital Subaccount for such Series, for payments and allocations contemplated by Section 8.02(e)(i) through (viii), with respect to such Series. (g) If on any Payment Date the funds available for allocations and payments with respect to one or more Series of Transition Bonds (after giving effect to all allocations pursuant to the proviso to Section 8.02(e)(xiii) and pursuant to Section 8.02(f)) are insufficient to prevent or cure a Default or Event of Default pursuant to Section 5.01(a) or (b), the Trustee shall, at the written direction of the Servicer, draw from funds on deposit in the Reserve Subaccount for each other Series of Transition Bonds in respect of whose payment obligations no such Default or Event of Default exists or requires prevention (or which, if it exists or requires prevention, can be cured or prevented using less than all of the funds on deposit in the Reserve Subaccount for such Series) up to the amount necessary to make such payments. In the event that funds in more than one Series Reserve Subaccount are available for such an allocation, such funds shall be drawn pro rata from such Reserve Subaccounts based on amounts remaining in each such Subaccount after allocations have been made therefrom to cure or prevent a Default or Event of Default in respect of the payment obligations of the Series to which such Reserve Subaccount relates. (h) Distributions on each Payment Date of interest and principal pursuant to clauses (vi), (vii) and (viii) of Section 8.02(e) shall be allocated pro rata among Series and among Classes within each Series based on amounts payable in respect of each Series and each Class under such clauses (vi), (vii) and (viii), respectively, as reflected in the Revenue Requirements (it being understood that, if the maturity of the Transition Bonds is accelerated pursuant to Section 5.02 or if the Transition Bonds are redeemed pursuant to Section 10.01 or 10.02, the Servicer will recalculate the Revenue Requirements so as to take into account such acceleration or redemption, as the case may be, and furnish the same in writing to the Trustee); provided that, in the case of a floating rate Class, the interest distributable to such Class pursuant to Section 8.02(e)(vi) shall be based on a fixed rate of interest if so specified in the related Series Supplement; provided, further, that, if and to the extent the Series Supplement for a particular Series of Transition Bonds comprising two or more Classes so specifies, distributions of principal to the Classes of such Series shall be allocated in a sequential manner or in credit priorities. Notwithstanding any other provisions of this Section 8.02, upon an acceleration of the maturity of the Transition Bonds and the sale or other liquidation of the Collateral, the total outstanding principal balance of and interest accrued on all outstanding Series and Classes shall be payable without priority of interest over principal or principal over interest and without regard to Series or Class, in the proportion that (i) the total outstanding principal balance of and interest accrued on each Series and Class bears to (ii) the total outstanding principal balances of and interest accrued on all Series and Classes; provided that (x) the Series Supplement for a particular Series comprising two or more Classes may establish priorities among Classes within such Series in the event of an acceleration of the maturity of the Transition Bonds and the sale or other liquidation of the Collateral and (y) if a Series includes one or more floating rate Classes, interest for purposes of 53 this sentence shall mean net swap payments with respect to such Class or Classes if and to the extent specified in the related Series Supplement. (i) Notwithstanding any provision of this Section 8.02, if any Class of any Series of Transition Bonds has a floating rate of interest, then the Series Supplement relating to such Series shall specify the priority and other terms governing the basis, if any, on which (i) amounts in the Series Subaccount, Reserve Subaccount, Overcollateralization Subaccount and Capital Subaccount for such Series shall be allocable to the Class Subaccount, if any, for such Series. (j) Notwithstanding any provision of this Section 8.02, if a Hedge Agreement is entered into with respect to any Series, then the Series Supplement relating to such Series shall specify the terms governing the allocation of amounts payable to or received from the counterparty under such Hedge Agreement and the basis, if any, on which amounts in the Reserve Subaccount, Overcollateralization Subaccount and Capital Subaccount for such Series shall be allocable to such counterparty. Section 8.03. RELEASE OF COLLATERAL. (a) All money and other property withdrawn from the Collection Account by the Trustee for payment to the Issuer as provided in this Indenture in accordance with Section 8.02 shall be deemed released from this Indenture when so withdrawn and applied in accordance with the provisions of Article VIII, without further notice to, or release or consent by, the Trustee. (b) Other than as provided for in clause (a) above, the Trustee shall release property from the Lien of this Indenture only as and to the extent permitted by the Basic Documents, any Hedge Agreement or any Interest Rate Swap Agreement, and only upon receipt of an Issuer Request accompanied by an Issuer Officer's Certificate, an Issuer Opinion of Counsel and Independent Certificates in accordance with TIA Sections 314(c) and 314(d)(1) meeting the applicable requirements of Section 11.01 or an Issuer Opinion of Counsel in lieu of such Independent Certificates to the effect that the TIA does not require any such Independent Certificate. (c) Subject to the payment of its fees and expenses pursuant to Section 6.07, the 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 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 Trustee as provided in this Article VIII shall be bound to ascertain the Trustee's authority, inquire into the satisfaction of any conditions precedent or see to the application of any moneys. (d) Subject to Section 8.03(b), the Trustee shall, at such time as there are no Transition Bonds Outstanding and all sums due the Trustee pursuant to Section 6.07 have been paid, release any remaining portion of the Collateral that secured the Transition Bonds from the Lien of this Indenture and release to the Issuer or any other Person entitled thereto any funds or investments then on deposit in or credited to the Collection Account upon Issuer Order. Section 8.04. ISSUER OPINION OF COUNSEL. The Trustee shall receive at least five days' notice when requested by the Issuer to take any action pursuant to Section 8.03, accompanied by copies of any instruments involved, and the Trustee shall also require, as a condition to such action, an Issuer Opinion of Counsel, in form and substance satisfactory to the Trustee, stating the legal effect of any such action, outlining the steps required to complete the same, and concluding that 54 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 Transition Bondholders in contravention of the provisions of this Indenture; provided, however, that such Issuer Opinion of Counsel shall not be required to express an opinion as to the fair value of the Collateral. Counsel rendering any such opinion may rely, without independent investigation, on the accuracy and validity of any certificate or other instrument delivered to the Trustee in connection with any such action. Section 8.05. REPORTS BY INDEPENDENT ACCOUNTANTS. The Issuer shall appoint a firm of Independent certified public accountants of recognized national reputation for purposes of preparing and delivering the reports or certificates of such accountants required by this Indenture and the related Series Supplements. Upon any resignation by such firm, the Issuer shall promptly appoint a successor thereto that shall also be a firm of Independent certified public accountants of recognized national reputation. If the Issuer shall fail to appoint a successor to a firm of Independent certified public accountants that has resigned within 15 days after such resignation, the Trustee shall promptly notify the Issuer of such failure in writing. If the Issuer shall not have appointed a successor within ten days thereafter, the Trustee shall promptly appoint a successor firm of Independent certified public accountants of recognized national reputation. The fees of such firm of Independent certified public accountants and its successor shall be payable by the Issuer. Article IX SUPPLEMENTAL INDENTURES Section 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF TRANSITION BONDHOLDERS. (a) Without the consent of the Holders of any Transition Bonds or the counterparty under any Hedge Agreement or Interest Rate Swap Agreement but with prior notice to the Rating Agencies, the Issuer and the Trustee, when authorized by an Issuer Order, at any time and from time to time, may enter into one or more indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as in force at the date of the execution thereof), in form satisfactory to the Trustee, for any of the following purposes: (i) to correct or amplify the description of the Collateral, to better assure, convey and confirm unto the Trustee the Collateral (including without limitation by eliminating or modifying the requirements specified in Section 8.02(a)(ii), provided that the Issuer shall furnish to the Trustee an Issuer Opinion of Counsel stating that, in the opinion of such counsel, such elimination or modification, as the case may be, will not adversely affect the Lien created by this Indenture), or to subject to the Lien of this Indenture additional property; (ii) to evidence the succession, in compliance with the applicable provisions hereof, of another person to the Issuer, and the assumption by any applicable successor of the covenants of the Issuer contained herein and in the Transition Bonds; (iii) to add to the covenants of the Issuer, for the benefit of the Transition Bondholders, or to surrender any right or power herein conferred upon the Issuer; (iv) to convey, transfer, assign, mortgage or pledge any property to the Trustee for the benefit of the Transition Bondholders, the Trustee and any counterparty under any Interest Rate Swap Agreement; 55 (v) to cure any ambiguity, to correct or supplement any provision herein or in any Supplemental Indenture that may be inconsistent with any other provision herein or in any Supplemental Indenture or to make any other provisions with respect to matters or questions arising under this Indenture or in any Supplemental Indenture; provided, however, that (i) such action shall not, as evidenced by an Issuer Opinion of Counsel, adversely affect in any material respect the interests of any Transition Bondholder or any counterparty under any Hedge Agreement or Interest Rate Swap Agreement and (ii) the Rating Agency Condition shall have been satisfied with respect to such action; (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 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 Series that has not theretofore been authorized by a Supplemental Indenture, provided that the Rating Agency Condition shall have been satisfied with respect to such action; (ix) to provide for any Interest Rate Swap Agreements with respect to any Series or Class of Transition Bonds that bears a floating rate of interest or any Series or Class with specified credit enhancement; provided, however, that: (A) such action shall not, as evidenced by an Issuer Opinion of Counsel, adversely affect in any material respect the interests of any Transition Bondholder or any counterparty under any Hedge Agreement or any Interest Rate Swap Agreement and (B) the Rating Agency Condition shall have been satisfied with respect thereto; or (x) to authorize the appointment of any listing agent, transfer agent or paying agent or additional registrar for any Class of any Series of Transition Bonds required or advisable in connection with the listing of any Class or any Series of Transition Bonds on the Luxembourg Stock Exchange in accordance with Section 3.02(b) or on any other stock exchange, and otherwise to amend this Indenture to incorporate any changes requested or required by any governmental authority, stock exchange authority, listing agent, transfer agent or paying agent or additional registrar for any Class or any Series of Transition Bonds in connection with that listing. (b) Subject to 9.02(a), the Issuer and the Trustee may enter into one or more indentures supplemental hereto, without the consent of the Holders of any Transition Bonds, to add provisions to or change in any manner or eliminate any provisions hereof, or to modify, in any manner the rights of Transition Bondholders hereunder; provided, however, that: (1) such action shall not, as evidenced by an Issuer Opinion of Counsel, in any manner adversely affect in any material respect 56 the interests of any Transition Bondholder and (2) the Rating Agency Condition shall have been satisfied with respect to such action. (c) The 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. Section 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF TRANSITION BONDHOLDERS. (a) The Issuer and the Trustee, when authorized by an Issuer Order, also may, upon satisfaction of the Rating Agency Condition (in each case, accompanied by the form of the proposed supplemental indenture) 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 Class to be affected, by Act of such Holders delivered to the Issuer and the 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 Class affected thereby and each counterparty under any Hedge Agreement or Interest Rate Swap Agreement affected thereby: (i) change the date of payment of any installment of principal of, or interest or premium, if any, on any Transition Bond, or reduce the principal amount thereof, the interest rate thereon or the redemption price or the premium with respect thereto, change the provisions of this Indenture and the related applicable Supplemental Indenture or Series Supplement relating to the application of collections on, or the proceeds of the sale of, the Collateral to payment of principal of, or interest or premium, if any, on the Transition Bonds, change the coin or currency in which, any Transition Bond or the interest thereon is payable or change the provisions of any Interest Rate Swap Agreement relating to the amount, calculation or timing of payments; (ii) 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 (or, in the case of redemption, on or after the Redemption Date); (iii) reduce the percentage of the Outstanding Amount of the Transition Bonds or of a Series or Class 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 provisions of this Indenture or defaults hereunder and their consequences provided for in this Indenture or modify or alter the provisions of the proviso to the definition of the term "Outstanding"; (iv) reduce the percentage of the Outstanding Amount of the Transition Bonds required to direct the Trustee to direct the Issuer to sell or liquidate the Collateral pursuant to Section 5.04 or to preserve the Collateral pursuant to Section 5.05; (v) reduce the percentage of the Outstanding Amount of a Series or Class of Transition Bonds, the consent of the Holders of which is required for any amendments to the 57 Sale Agreement, the Administration Agreement, the Servicing Agreement, any Hedge Agreement or any Interest Rate Swap Agreement; (vi) modify any of the provisions of this Indenture in such manner so as to affect the amount of any payment of interest or principal payable on any Transition Bond on any Payment Date or change the Redemption Dates, Expected Amortization Schedules or Final Maturity Date of any Series or Class of Transition Bonds, or the method of calculation of interest on any floating rate Transition Bond; (vii) decrease the Overcollateralization Amount or Required Capital Amount with respect to any Series or the Scheduled Overcollateralization Level with respect to any Payment Date; (viii) modify the provisions of this Indenture regarding the voting of Transition Bonds held by the Issuer, the Seller, any Affiliate of either of them or any obligor on the Transition Bonds; (ix) decrease the percentage of the aggregate principal amount of Transition Bonds required to amend the provisions of this Indenture that specify the applicable percentage of the aggregate principal amount of the Transition Bonds necessary to amend this Indenture, any other Basic Documents or any Hedge Agreement or Interest Rate Swap Agreement; (x) 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 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 (xi) alter any of the allocations of revenues, indemnity payments, fees or similar amounts among Series. (b) It shall not be necessary for any Act of Transition Bondholders 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. (c) Promptly after the execution by the Issuer and the Trustee of any Supplemental Indenture pursuant to this Section 9.02, the Trustee shall mail to the Holders of the Transition Bonds to which such amendment or Supplemental Indenture relates a notice setting forth in general terms the substance of such Supplemental Indenture. Any failure of the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. If any Transition Bonds are listed on the Luxembourg Stock Exchange and the rules of such exchange so require, the listing agent appointed pursuant to Section 3.02(b) shall arrange for publication in an Authorized Newspaper that such notice shall be available with the Issuer's listing agent in Luxembourg appointed pursuant to Section 3.02(b). Section 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or permitting the additional trusts created by, any Supplemental Indenture permitted by this Article IX or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to 58 receive, and subject to Sections 6.01 and 6.02 shall be fully protected in relying upon, an Issuer Opinion of Counsel stating that the execution of such Supplemental Indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such Supplemental Indenture that affects the Trustee's own rights, duties, liabilities or immunities under this Indenture or otherwise. Section 9.04. EFFECT OF SUPPLEMENTAL INDENTURE. Upon the execution of any Supplemental Indenture pursuant to the provisions hereof, this Indenture shall be and be deemed to be modified and amended in accordance therewith with respect to each Series or Class of Transition Bonds affected thereby, and the respective rights, limitations of rights, obligations, duties, liabilities and immunities under this Indenture of the Trustee, the Issuer, the Holders of the Transition Bonds and any counterparty under any Hedge Agreement or Interest Rate Swap Agreement shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such Supplemental Indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 9.05. CONFORMITY WITH TRUST INDENTURE ACT. Every amendment of this Indenture and every Supplemental Indenture executed pursuant to this Article IX shall conform to the requirements of the TIA as then in effect so long as this Indenture shall then be qualified under the TIA. 59 Section 9.06. 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 Trustee shall, bear a notation in form approved by the Trustee as to any matter provided for in such Supplemental Indenture. If the Issuer or the Trustee shall so determine, new Transition Bonds so modified as to conform, in the opinion of the Trustee and the Issuer, to any such Supplemental Indenture may be prepared and executed by the Issuer and authenticated and delivered by the Trustee in exchange for Outstanding Transition Bonds. Article X REDEMPTION OF TRANSITION BONDS Section 10.01. OPTIONAL REDEMPTION BY ISSUER. If and to the extent provided in the related Series Supplement, and if no Interest Rate Swap Agreement with respect to any Class of that Series is in effect, the Issuer may, at its option, redeem all, but not less than all, of the Transition Bonds of a Series on any Payment Date if, after giving effect to payments that would otherwise be made on such Payment Date, the Outstanding Amount of any such Series of Transition Bonds has been reduced to a percentage of the initial principal balance of such Series below the percentage specified in such Series Supplement. The redemption price in any case shall be equal to the outstanding principal amount of the Bonds to be redeemed plus accrued and unpaid interest thereon at the Interest Rate to the Redemption Date (the "Redemption Price"). If the Issuer elects to redeem the Transition Bonds of a Series pursuant to this Section 10.01, it shall furnish written notice of such election to (a) the Trustee, not later than 25 days prior to the Redemption Date for such redemption and (b) to the Rating Agencies, not later than 10 days prior to such Redemption Date, whereupon all such Transition Bonds shall be due and payable on such Redemption Date upon the furnishing of a written notice complying with Section 10.03 to each Holder of the Transition Bonds of such Series pursuant to this Section 10.01. Section 10.02. MANDATORY REDEMPTION BY ISSUER. The Issuer shall redeem the Transition Bonds of a Series on the Redemption Date or Dates, if any, in the amounts required, if any, and at the redemption price specified in the Series Supplement for such Series, which in any case shall be not less than the outstanding principal amount of the Bonds to be redeemed, plus accrued interest thereon to such Redemption Date. If the Issuer is required to redeem the Transition Bonds of a Series pursuant to this Section 10.02, it shall furnish notice of such requirement to the Trustee not later than 25 days prior to the Redemption Date for such redemption whereupon all such Transition Bonds shall be due and payable on the Redemption Date upon the furnishing of a notice complying with Section 10.03 to each Holder of the Transition Bonds of such Series pursuant to this Section 10.02. Section 10.03. FORM OF REDEMPTION NOTICE. (a) Unless otherwise specified in the Series Supplement relating to a Series of Transition Bonds, notice of redemption under Section 10.01 or 10.02 shall be given by the Trustee by first-class mail, postage prepaid, mailed not less than five days nor more than 45 days prior to the applicable Redemption Date to each Holder of Transition Bonds to be redeemed, as of the close of business on the Record Date preceding the applicable Redemption Date at such Holder's address appearing in the Transition Bond Register. (b) All notices of redemption shall state: (i) the Redemption Date; 60 (ii) the Series and amount of the Transition Bonds to be redeemed; (iii) the Redemption Price; and (iv) the place where Transition Bonds to be redeemed are to be surrendered for payment of the Redemption Price and accrued interest (which shall be the office or agency of the Issuer to be maintained as provided in Section 3.02). (c) Notice of redemption of the Transition Bonds to be redeemed shall be given by the Trustee in the name and at the expense of the Issuer. For so long as any Transition Bonds are listed on the Luxembourg Stock Exchange and the rules of such exchange so require, the listing agent appointed pursuant to Section 3.02(b) shall arrange that such notice will also be given by publication in an Authorized Newspaper at least ten days prior to the Redemption Date. Failure to give notice of redemption, or any defect therein, to any Holder of any Transition Bond selected for redemption shall not impair or affect the validity of the redemption of any other Transition Bond. Notice of optional redemption shall be irrevocable once given. Section 10.04. PAYMENT OF REDEMPTION PRICE. If notice of redemption has been duly mailed or duly waived by the Holders of all Transition Bonds called for redemption, then the Transition Bonds called for redemption shall be payable on the applicable Redemption Date at the applicable Redemption Price. No further interest shall accrue on the principal amount of any Transition Bonds called for redemption after the Redemption Date, and the Holders of such Transition Bonds shall have no rights with respect thereto, if payment of the Redemption Price has been duly provided for on or before the Redemption Date declared therefor. Notwithstanding the foregoing, the Holders of the Transition Bonds shall be entitled to payment of interest on the Redemption Price accrued at the related Interest Rates to the extent the Issuer fails to pay the Redemption Price on the Redemption Date. Payment of the Redemption Price shall be made by the Trustee to or upon the order of the Holders of the Transition Bonds called for redemption upon surrender of such Transition Bonds, and the Transition Bonds so redeemed shall cease to be of further effect and the Lien hereunder shall be released with respect to such Transition Bonds. Article XI MISCELLANEOUS Section 11.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC. (a) Upon any application or request by the Issuer to the Trustee to take any action under any provision of this Indenture, the Issuer shall furnish to the Trustee (i) an Issuer 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 Issuer Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with and (iii) (if required by the TIA) an Independent Certificate from a firm of certified public accountants meeting the applicable requirements of this Section 11.01, 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. (b) Every certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include: 61 (i) 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 covenant or condition has been complied with. Section 11.02. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. (a) 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. (b) Any certificate or opinion of an Authorized 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 certificate or opinion is based are erroneous. Any such certificate of an Authorized Officer or Issuer 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 Seller or a Manager or Managers, stating that the information with respect to such factual matters is in the possession of the Servicer, the Seller or the Issuer, unless such Authorized Officer or counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. (c) 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. (d) Whenever in this Indenture, in connection with any application or certificate or report to the 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 Trustee's right conclusively to rely upon the truth and accuracy of any statement or opinion contained in any such document as provided in Article VI. 62 Section 11.03. ACTS OF TRANSITION BONDHOLDERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Transition Bondholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Transition Bondholders 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 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 Transition Bondholders 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 Trustee and the Issuer, if made in the manner provided in this Section 11.03. (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 Trustee deems sufficient. (c) The ownership of Transition Bonds shall be proved by the Transition Bond Register. (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 Trustee or the Issuer in reliance thereon, whether or not notation of such action is made upon such Transition Bond. Section 11.04. NOTICES, ETC., TO TRUSTEE, ISSUER AND RATING AGENCIES. (a) Any request, demand, authorization, direction, notice, consent, waiver or Act of Transition Bondholders or other documents provided or permitted by this Indenture to be made upon, given or furnished to or filed with: (i) the Trustee by any Transition Bondholder or by the Issuer, or (ii) the Issuer by the Trustee or by any Transition Bondholder, shall be sufficient for every purpose hereunder if in English and in writing, and sent by United States first-class mail, reputable overnight courier service, facsimile transmission or electronic mail (confirmed by telephone, United States first-class mail or reputable overnight courier service in the case of notice by facsimile transmission or electronic mail) or any other customary means of communication, and any such request, demand, authorization, direction, notice, consent, waiver or Act shall be effective when delivered or transmitted, or if mailed, five days after deposit in the United States first-class mail with proper postage for first-class mail prepaid, in the case of the Trustee, addressed to the Trustee at its Corporate Trust Office, and in the case of the Issuer, addressed to: Atlantic City Electric Transition Funding LLC, 800 King Street, P.O. Box 231, Wilmington, Delaware 19899, Attention: Managers, or at any other address previously furnished in writing to the Trustee by the Issuer. The Issuer shall promptly transmit any notice received by it from the Transition Bondholders to the Trustee. (b) Notices required to be given to the Rating Agencies by the Issuer, the Trustee or a Manager shall be in writing, delivered personally, via facsimile transmission, by reputable overnight courier or by first-class mail, postage prepaid, to (until notice of a different address is received from 63 the relevant Rating Agency in writing by the Trustee and the Issuer): (i) in the case of Moody's: Moody's Investors Service, Inc., Attention: ABS Monitoring Department, 99 Church Street, New York, New York 10007; (ii) in the case of Standard & Poor's: Standard & Poor's Corporation, 55 Water Street, New York, NY 10041, Attention: Asset Backed Surveillance Department and (iii) in the case of Fitch: Fitch, Inc., One State Street Plaza, New York, New York 10004, Attention: ABS Surveillance. Section 11.05. NOTICES TO TRANSITION BONDHOLDERS; WAIVER. (a) Where this Indenture provides for notice to Transition Bondholders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and delivered by first-class mail, postage prepaid, to each Transition Bondholder affected by such event, at the address of such Transition Bondholder 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 Transition Bondholders is given by mail, neither the failure to mail such notice nor any defect in any notice so mailed to any particular Transition Bondholder shall affect the sufficiency of such notice with respect to other Transition Bondholders, and any notice that is mailed in the manner herein provided shall conclusively be presumed to have been duly given. (b) 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 Transition Bondholders shall be filed with the Trustee but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such a waiver. (c) In case it shall be impractical to deliver notice in accordance with clause (a) of this Section 11.05 to the Holders of Transition Bonds 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 Trustee shall be deemed to be a sufficient giving of such notice. (d) Where this Indenture provides for notice to the Rating Agencies, failure to give such notice shall not affect any other rights or obligations created hereunder, and shall not under any circumstance constitute a Default or Event of Default. Section 11.06. NOTICES TO LUXEMBOURG STOCK EXCHANGE. (a) For so long as any Transition Bonds are listed on the Luxembourg Stock Exchange and to the extent the rules of such exchange so require, the Issuer shall notify the Luxembourg Stock Exchange and any agent appointed pursuant to Section 3.02(b) if any rating assigned to such Transition Bonds is reduced or withdrawn and shall arrange for such notice to be published in an Authorized Newspaper. (b) For so long as any Transition Bonds are listed on the Luxembourg Stock Exchange and the rules of such exchange so require, the listing agent appointed pursuant to Section 3.02(b) shall make available to the Holders of such Transition Bonds, and shall maintain at its offices, copies of the Basic Documents, all Hedge Agreements and Interest Rate Swap Agreements, all reports provided to Transition Bondholders pursuant to this Indenture, the prospectus related to such Transition Bonds, the reports of independent certified public accountants obtained with respect to the Issuer pursuant to this Indenture, the financial information regarding ACE (and, to the extent required as aforesaid, any direct or indirect parent company of ACE) in its annual report on Form 10-K for the fiscal year ended December 31, 2001 and copies of each annual report of ACE (and any such parent) on Form 10-K for subsequent fiscal years. The listing agent appointed pursuant to 64 Section 3.02(b) shall deposit with the Chief Registrar of the District Court of Luxembourg prior to listing on the Luxembourg Stock Exchange a copy of the Issuer Certificate of Formation, the Issuer LLC Agreement and any legal notices relating to the issuance of such Transition Bonds. Section 11.07. ALTERNATE PAYMENT AND NOTICE PROVISIONS. Notwithstanding any provision of this Indenture or any of the Transition Bonds to the contrary, the Issuer may enter into any agreement with any Holder of a Transition Bond providing for a method of payment, or notice by the Trustee or any Paying Agent to such Holder, that is different from the methods provided for in this Indenture for such payments or notices. The Issuer shall furnish to the Trustee a copy of each such agreement and the Trustee shall cause payments to be made and notices to be given in accordance with such agreements. Section 11.08. CONFLICT WITH TRUST INDENTURE ACT. (a) 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. (b) The provisions of TIA Sections 310 through 317 that impose duties on any person (including the provisions automatically deemed included herein unless expressly excluded by this Indenture) are a part of and govern this Indenture, whether or not physically contained herein. Section 11.09. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 11.10. SUCCESSORS AND ASSIGNS. (a) All covenants and agreements in this Indenture and the Transition Bonds by the Issuer shall bind its successors and permitted assigns, whether so expressed or not. (b) All agreements of the Trustee in this Indenture shall bind its successors. (c) The Trustee shall provide prior notice to the Rating Agencies of any assignment of its obligations under this Agreement. 65 Section 11.11. SEVERABILITY. In case any provision in this Indenture or in the Transition Bonds shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 11.12. 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 Transition Bondholders, and any other party secured hereunder, and any other Person with an ownership interest in any part of the Collateral, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 11.13. 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 11.14. GOVERNING LAW. THIS INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. Section 11.15. COUNTERPARTS. This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Section 11.16. ISSUER OBLIGATION. No recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer or the Trustee on the Transition Bonds or under this Indenture or any certificate or other writing delivered in connection herewith or therewith, against (i) the Member or any Manager, employee or agent of the Issuer or (ii) any stockholder, officer, director, employee or agent of the Trustee (it being understood that none of the Trustee's obligations are in its individual capacity). Section 11.17. NO PETITION. The Trustee, by entering into this Indenture, and each Transition Bondholder, by accepting a Transition Bond, hereby covenants and agrees (or shall be deemed to have covenanted and agreed) that it shall not at any time institute against the Issuer, or join in the institution against the Issuer of, or acquiesce, petition or otherwise invoke or cause the Issuer to invoke the process of any court or governmental authority for the purpose of commencing or sustaining a case against the Issuer under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of the property of the Issuer or ordering the winding up or liquidation of the affairs of the Issuer. Section 11.18. PREFUNDING. If and to the extent specified in a Series Supplement, the Issuer may elect to issue Transition Bonds in a principal amount that, on the date of issuance, exceeds the aggregate amount of Bondable Transition Property created under the related BPU Financing Order or other such orders then in effect. The incremental amount of Transition Bonds issued over the amount of Bondable Transition Property then created would be issued in anticipation of a subsequent authorization by the BPU, within a period of time specified in the related Series 66 Supplement, of additional Bondable Transition Property in the same incremental amount. In the event of such an incremental issuance, the Issuer would immediately deposit the bond proceeds from the sale of such incremental issuance into a separate prefunding account (the "Prefunding Account") to be owned by the Issuer and administered by the Trustee. ACE may in its discretion provide additional credit enhancement for the incremental principal amount of such Transition Bonds. Amounts in the Prefunding Account would be used, to the extent necessary, to meet obligations on the Transition Bonds of such Series in the manner set forth in the related Series Supplement. If following such an issuance but within the time period specified in the related Series Supplement, the BPU approves the creation of additional Bondable Transition Property in an amount equal to the incremental amount of Transition Bonds issued, ACE shall sell such additional Bondable Transition Property to the Issuer pursuant to the Sale Agreement and a Bill of Sale, and ACE shall receive in consideration thereof all amounts in the Prefunding Account. If, however, the BPU shall not have approved the creation of additional Bondable Transition Property in the incremental amount within such time period, then at the end of such time period all amounts in the Prefunding Account shall be applied to redeem the incremental principal amount of Transition Bonds of such Series and pay accrued interest thereon on the terms set forth in the related Series Supplement. 67 IN WITNESS WHEREOF, the Issuer and the Trustee have caused this Indenture to be duly executed and delivered by a Manager and an officer, respectively, thereof, each thereunto duly authorized, all as of the day and year first above written. ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC, as Issuer By: /s/ James P. Lavin --------------------- Name: /s/ James P. Lavin ------------------- Title: Manager THE BANK OF NEW YORK, as Trustee By: /s/ Cassandra Shedd --------------------------- Name: Cassandra Shedd ------------------------- Title: Assistant Vice President ------------------------ 68 APPENDIX A MASTER DEFINITIONS The definitions contained in this Appendix A are applicable to the singular as well as the plural forms of such terms. "ACE" means Atlantic City Electric Company, a New Jersey corporation, and its permitted successors and assigns. "Act" has the meaning specified in Section 11.03(a) of the Indenture. "Adjustment Date" means (i) October 1 of each year beginning October 1, 2003 until October 1, 2019, (ii) so long as any Series 2002-1 Transition Bonds are outstanding, January 1, April 1, July 1 and October 1 of each year, beginning October 1, 2020, (iii) any other dates designated as Adjustment Dates in any Series Supplement, and (iv) any other day that is 30 days after a Calculation Date. "Adjustment Request" means an application filed by the Servicer with the BPU for a Transition Bond Charge Adjustment pursuant to Section 5(b) or (e) of the Issuer Annex. "Administration Agreement" means the Administration Agreement dated as of December 19, 2002, between the Issuer and PHI Service Company, as administrator, as the same may be amended or supplemented from time to time. "Administrator" means PHI Service Company, as administrator under the Administration Agreement, and each successor to PHI Service Company, in the same capacity, pursuant to Section 5.08 of the Administration Agreement. "Advice Letter" means, with respect to any Series of Transition Bonds, the Issuance Advice Letter, in the form specified in the BPU Financing Order authorizing the issuance of Transition Bonds of such Series, filed with the BPU at the time of the issuance of such Series. "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. "Annual Accountant's Report" has the meaning assigned to that term in Section 3.07 of the Servicing Agreement. "Authorized Denominations" means, with respect to any Series or Class of Transition Bonds, $1,000 and integral multiples of $1.00 above that amount, provided, however, that one bond of each Class may have a denomination of less than $1,000, or such other denominations as may be specified in the Series Supplement therefor. "Authorized Newspaper" means the Luxemburger Wort or any other newspaper published in Luxembourg on a daily basis. A-1 "Authorized Officer" means, with respect to the Issuer, (a) any Manager and, (b) any person designated as an "Officer" under the Issuer LLC Agreement and authorized thereby to act on behalf of the Issuer. "Basic Documents" means the Formation Documents, the Sale Agreement, any Bills of Sale, the Servicing Agreement, the Administration Agreement, the Indenture, as each may be amended or supplemented from time to time. "Billing Month" means a calendar month during which the Transition Bond Charge is billed to Customers. "Bill of Sale" means any bill of sale issued by the Seller to the Issuer pursuant to the Sale Agreement evidencing the sale of Bondable Transition Property by the Seller to the Issuer. "Bondable Stranded Costs" has the meaning assigned to that term in the Competition Act and the BPU Financing Orders. "Bondable Transition Property" has the meaning assigned to that term in the Competition Act and the BPU Financing Orders. "Bondable Transition Property Documentation" means all documents relating to the Transferred Bondable Transition Property, including copies of the Petition and the BPU Financing Orders and all documents filed with the BPU in connection with any Transition Bond Charge Adjustment. "Book-Entry Transition Bonds" means beneficial interests in the Transition Bonds, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 2.11 of the Indenture. "BPU" means the State of New Jersey Board of Public Utilities or its successor. "BPU Financing Orders" means the bondable stranded costs rate order issued by the BPU in favor of ACE on September 20, 2002 pursuant to the Competition Act, any subsequent bondable stranded costs rate orders issued by the BPU in favor of ACE pursuant to the Competition Act, and any order supplemental to any of the foregoing. "BPU Regulations" means any regulations, orders, guidelines or directives promulgated, issued or adopted by the BPU. "Business Day" means any day other than a Saturday, Sunday or a day on which banking institutions in The City of New York, New York or with respect to any Transition Bonds listed on the Luxembourg Stock Exchange, in Luxembourg, are required or authorized by law or executive order to remain closed. "Calculation Date" means (i) September 1 of each year beginning September 1, 2003 until September 1, 2019, (ii) so long as any Series 2002-1 Transition Bonds are outstanding, March 1, June 1, September 1 and December 1 of each year, beginning September 1, 2020, (iii) any other dates designated as Calculation Dates in any Series Supplement, and (iv) any other date on which the Servicer files an Adjustment Request. A-2 "Capital Subaccount" with respect to any Series has the meaning specified in Section 8.02(a) of the Indenture. "Class" means, with respect to any Series, any one of the classes of Transition Bonds of that Series, as specified in the Series Supplement for that Series. "Class Final Maturity Date" means the Final Maturity Date of a Class, as specified in the Series Supplement for the related Series. "Class Subaccount," with respect to a Class within a Series, has the meaning specified in Section 8.02(a) of the Indenture and, if established for such Series and Class, in the Series Supplement for such Series. "Clearing Agency" means an organization registered as a "clearing agency" pursuant to Section 17A of the Exchange Act. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and Treasury Regulations promulgated thereunder. "Collateral" has the meaning specified in the Granting Clause of the Indenture. "Collection Account" has the meaning specified in Section 8.02(a) of the Indenture. "Collection Period" means the period from and including the first day of a calendar month to but excluding the first day of the next calendar month. "Collections Curve" means an annually prepared forecast, with respect to each Billing Month, of the percentages of amounts billed in such Billing Month that are expected to be received during such Billing Month and each of the following six months. "Collections Curve Payment" means, with respect to any Billing Month, the sum of the amounts paid to the Trustee during such Billing Month and each of the following six months based on the Collections Curve then in effect. "Commission" means the U.S. Securities and Exchange Commission, and any successor thereof. "Competition Act" means the Electric Discount and Energy Competition Act, New Jersey Statutes Annotated, title 48, chapter 3, article 7, as in effect from time to time. "Corporate Trust Office" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at date of the execution of the Indenture is located at 101 Barclay Street, Floor 8 West, New York, New York 10286, Attn: Asset Backed Securities (phone: (212) 815-2484; fax: (212) 815-3883), or at such other address as the Trustee may designate from time to time by notice to the Transition Bondholders and the Issuer, or A-3 the principal corporate trust office of any successor Trustee (the address of which the successor Trustee will notify the Transition Bondholders and the Issuer in writing). "Covenant Defeasance Option" has the meaning specified in Section 4.01(b) of the Indenture. "Curve Payment Shortfall" means, for a particular Billing Month, the amount, if any, by which the actual TBC Collections in respect of a Billing Month exceed the Collections Curve Payments made to the Trustee in respect of that Billing Month, as determined on the Reconciliation Date for that Billing Month. "Customer" means each person who is a retail consumer of electricity and who accesses ACE's transmission and distribution system, regardless of whether such consumer elects to purchase electricity from a Third Party. "Daily Remittance Date" means, if the Servicer has not satisfied the conditions of Section 5.10(b) of the Servicing Agreement, each Business Day commencing on the second Business Day following the date on which the Servicer begins remittance procedures under Section 3.03(a)(ii) 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. "Defeasance Subaccount" has the meaning specified in Section 8.02(a) of the Indenture. "Definitive Transition Bonds" has the meaning specified in Section 2.11 of the Indenture. "Delaware UCC" means the Uniform Commercial Code, as in effect in the State of Delaware, as amended from time to time. "DTC Agreement" means the agreement between the Issuer, the Trustee and The Depository Trust Company, as the initial Clearing Agency, dated on or about December 19, 2002, relating to the Transition Bonds, as the same may be amended or supplemented from time to time. "Eligible Guarantor Institution" means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution," including (as such terms are defined therein): (a) a bank; (b) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; (c) a credit union; (d) a national securities exchange, registered securities association or clearing agency; or (e) a savings association that is a participant in a securities transfer association. A-4 "Eligible Institution" means: (a) the corporate trust department of the Trustee, so long as any of the securities of the Trustee have a credit rating from each Rating Agency in one of its generic rating categories which signifies investment grade, or (b) a depositary 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) with respect to any Eligible Investment having a maturity of greater than one month, a long-term unsecured debt rating of "AA-" by Standard & Poor's and Fitch and "Aa3" by Moody's, or (B) with respect to any Eligible Investment having a maturity one month or less, a certificate of deposit rating of "A-1+" by Standard & Poor's, "F1+" by Fitch 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. "Eligible Investments" mean book-entry securities, negotiable instruments or securities represented by instruments in bearer or registered form 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 or certificates of deposit of any depository institution or trust company (any depositary institution or trust company being referred to in this definition as a "financial institution") incorporated under the laws of the United States of America or any state thereof (or any domestic branch of a foreign bank) and subject to supervision and examination by federal or state banking or depositary institution authorities; provided, however, that at the time of the investment or contractual commitment to invest therein, the commercial paper or other short-term unsecured debt obligations of such financial institution (other than such obligations the rating of which is based on the credit of a Person other than such financial institution) shall have a credit rating from each of the Rating Agencies in the highest investment category granted thereby; (c) commercial paper or other short-term unsecured debt obligations of any corporation organized under the laws of the United States of America (other than ACE) whose ratings, at the time of the investment or contractual commitment to invest therein, from each of the Rating Agencies are in the highest rating category granted thereby; A-5 (d) investments in money market funds having a rating from each of the Rating Agencies in the highest rating category granted thereby (including funds for which the Trustee or any of its Affiliates act as investment manager or advisor); (e) bankers' acceptances issued by any depositary institution or trust company referred to in clause (b) above; (f) 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 a financial institution (acting as principal) incorporated under the laws of the United States of America or any state thereof (or any domestic branch of a foreign bank) and subject to supervision and examination by federal or state banking or depositary institution authorities; provided, however, that at the time of the investment or contractual commitment to invest therein, the commercial paper or other short-term unsecured debt obligations of such financial institution (other than such obligations the rating of which is based on the credit of a Person other than such financial institution) shall have a credit rating from each of the Rating Agencies in the highest investment category granted thereby; (g) repurchase obligations with respect to any security or whole loan entered into with (i) a financial institution (acting as principal) described in clause (b) above, (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 P-1 by Moody's and A-1+ by Standard & Poor's at the time of entering into the 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 P-1 by Moody's and A-1+ by Standard & Poor's and F1+ by Fitch at the time of purchase; or (h) any other investment permitted by each Rating Agency; provided, however, that, unless otherwise permitted by each Rating Agency, upon the failure of any Eligible Institution to maintain any applicable rating set forth in this definition or the definition of Eligible Institution, the related investments at such institution shall be reinvested in Eligible Investments at a successor Eligible Institution within 10 days, and provided, further, that, any Eligible Investment must not: A-6 (i) be sold, liquidated or otherwise disposed of at a loss, prior to the maturity thereof, or (ii) mature later than (i) the date on which the proceeds of such Eligible Investment will be required to be on deposit in the Collection Account in order for the Trustee to make all required and scheduled payments and deposits into Subaccounts under the Indenture, if such Eligible Investment is held by an Affiliate of the Trustee, or (ii) the Business Day prior to the date on which the proceeds of such Eligible Investment will be required to be on deposit in the Collection Account in order for the Trustee to make all required and scheduled payments and deposits into Subaccounts under the Indenture, if such Eligible Investment is not held by an Affiliate of the Trustee. "Eligible Securities Account" means either: (a) a segregated trust account with an Eligible Institution or (b) a segregated trust account with the corporate trust department of a depositary 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 depositary institution shall have a credit rating from each Rating Agency in one of its generic rating categories which signifies investment grade. "Event of Default" has the meaning specified in Section 5.01 of the Indenture. "Excess Curve Payment" means, for a particular Billing Month, the amount, if any, by which the Collections Curve Payments made to the Trustee in respect of that Billing Month exceed the actual TBC Collections in respect of that Billing Month, as determined on the Reconciliation Date for that Billing Month. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Executive Officer" means, with respect to any corporation, the chief executive officer, chief operating officer, chief financial officer, chief information officer, president, executive vice president, any vice president, the secretary or the treasurer of such corporation; and with respect to any limited liability company, any manager thereof. "Expected Amortization Schedule" means, with respect to each Series or, if applicable, each Class of Transition Bonds, the expected amortization schedule for principal thereof, as specified in Schedule A to the Series Supplement for such Series. "Expected Final Payment Date" means, with respect to each Series or, if applicable, each Class of Transition Bonds, the Payment Date related to the date when all interest and principal is scheduled to be paid with respect to that Series or Class in accordance with the Expected Amortization Schedule, as specified in the Series Supplement therefor. "FDIC" means the Federal Deposit Insurance Corporation or its successor. A-7 "Final Maturity Date" means, for each Series or, if applicable, each Class of Transition Bonds, the Payment Date related to the date by which all principal of and interest on such Series or Class of Transition Bonds is required to be paid, as specified in the Series Supplement therefor. "Financing Issuance" means an issuance of a new Series of Transition Bonds under the Indenture to provide funds to finance the purchase by the Issuer of Bondable Transition Property. "Fitch" means Fitch, Inc. or its successor. "Formation Document" means the Issuer LLC Agreement, the Issuer Certificate of Formation and any other document pursuant to which the Issuer is formed or governed, as each may be amended or supplemented from time to time. "General Subaccount" has the meaning specified in Section 8.02(a) of the Indenture. "Grant" means mortgage, pledge, bargain, sell, warrant, alienate, remise, release, convey, assign, transfer, create, and grant a lien upon and a security interest in and right of set-off against, deposit, set over and confirm. A Grant of the Collateral or of any other agreement or instrument 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 principal, interest and other payments in respect of the Collateral and all other moneys payable thereunder, to give and receive notices and other communications, to make waivers or other agreements, to exercise all rights and options, to bring Proceedings in the name of the Granting party or otherwise and generally to do and receive anything that the Granting party is or may be entitled to do or receive thereunder or with respect thereto. "Hedge Agreement" means, with respect to any Series, the document or documents, if any, identified as a "Hedge Agreement" in the Series Supplement for such Series. "Holder" or "Transition Bondholder" means the Person in whose name a Transition Bond of any Series or Class is registered in the Transition Bond Register. "Indemnification Event" means an event which triggers ACE's obligation to indemnify the Issuer and the Trustee, for itself and on behalf of the Transition Bondholders, and each of their respective managers, officers, employees, directors and agents, pursuant to Section 5.01 of the Sale Agreement. "Indemnity Amount" means the amount of any indemnification obligation payable under the Basic Documents or any Hedge Agreement or Interest Rate Swap Agreement. "Indenture" means the Indenture dated as of December 19, 2002, between the Issuer and the Trustee, as the same may be amended or supplemented from time to time by one or more Supplemental Indentures, and shall include each Series Supplement and the forms and terms of the Transition Bonds established thereunder. "Independent" means, when used with respect to any specified Person, that the Person (a) is in fact independent of the Issuer, any other obligor upon the Transition Bonds, ACE and any Affiliate of any of the foregoing Persons, A-8 (b) does not have any direct financial interest or any material indirect financial interest in the Issuer, any such other obligor, ACE or any Affiliate of any of the foregoing Persons, and (c) is not connected with the Issuer, any such other obligor, ACE or any Affiliate of any of the foregoing Persons as an officer, employee, promoter, underwriter, trustee, partner, director or other Person performing similar functions. "Independent Certificate" means a certificate or opinion to be delivered to the Trustee under the circumstances described in, and otherwise complying with, the applicable requirements of Section 11.01 of the Indenture, made by an Independent appraiser or other expert appointed by an Issuer Order and approved by the Trustee in the exercise of reasonable care, and such opinion or certificate shall state that the signer has read the definition of "Independent" in this Appendix A and that the signer is Independent within the meaning thereof. "Independent Manager" has the meaning set forth in the Issuer LLC Agreement. "Initial Purchase Price" has the meaning set forth in Section 2.01 of the Sale Agreement. "Initial Transfer Date" means the Series Issuance Date for the Series 2002-1 Transition Bonds, i.e., December 19, 2002. "Initial Transferred Bondable Transition Property" means the Bondable Transition Property sold by the Seller to the Issuer as of the Initial Transfer Date pursuant to the Sale Agreement and the Bill of Sale delivered on or prior to the Initial Transfer Date as identified in such Bill of Sale. "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 in effect on or after December 19, 2002, 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 90 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 in effect on or after December 19, 2002, 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. "Interest" means, for any Payment Date for any Series or Class of Transition Bonds, the sum, without duplication, of (a) an amount equal to the amount of interest accrued at the applicable Interest Rate from the prior Payment Date with respect to that Series or Class; A-9 (b) any unpaid interest, to the extent permitted by applicable law, plus any interest accrued on this unpaid interest at the applicable Interest Rate, to the extent permitted by applicable law; (c) if the Transition Bonds have been declared due and payable, all accrued and unpaid interest thereon; and (d) with respect to a Series or Class to be redeemed prior to the next Payment Date, the amount of interest that will be payable as interest on such Series or Class upon such redemption. "Interest Rate" means, with respect to each Series or Class of Transition Bonds, the rate at which interest accrues on the principal balance of Transition Bonds of such Series or Class, as specified in the Series Supplement therefor. "Interest Rate Swap Agreement" means any ISDA Master Agreement, together with the related schedules and confirmations, between the Issuer and the counterparty thereunder, as same may be amended or supplemented from time to time, with respect to any Series or Class of Transition Bonds as provided in the Series Supplement for such Series or Class, as the case may be. "Issuer" means Atlantic City Electric Transition Funding LLC, a Delaware limited liability company, or its successor under the Indenture or the party named as such in the Indenture until a successor replaces it and, thereafter, means the successor. "Issuer Annex" means Annex 1 of the Servicing Agreement. "Issuer Certificate of Formation" means the Certificate of Formation of the Issuer, which was filed with the Delaware Secretary of State's Office on March 28, 2001, as the same may be amended or supplemented from time to time. "Issuer LLC Agreement" means the Amended and Restated Limited Liability Company Agreement between the Issuer and ACE, as sole Member, dated as of December 19, 2002, as the same may be amended or supplemented from time to time. "Issuer Officer's Certificate" means a certificate signed by any Authorized Officer of the Issuer, under the circumstances described in, and otherwise complying with, the applicable requirements of Section 11.01 of the Indenture, and delivered to the Trustee. Unless otherwise specified, any reference in the Indenture to an Officer's Certificate shall be to an Officer's Certificate of any Authorized Officer of the Issuer. "Issuer Opinion of Counsel" means one or more written opinions of counsel who may, except as otherwise expressly provided in the Indenture, be employees of or counsel to the Issuer or the Seller and who shall be reasonably satisfactory to the Trustee, and which opinion or opinions shall be addressed to the Trustee, and shall be in a form reasonably satisfactory to the Trustee. "Issuer Order" or "Issuer Request" means a written order or request, respectively, signed in the name of the Issuer by any one of its Authorized Officers and delivered to the Trustee. "Legal Defeasance Option" has the meaning specified in Section 4.01(b) of the Indenture. A-10 "Lien" means a security interest, lien, charge, pledge, equity or encumbrance of any kind. "Losses" means collectively, any and all liabilities, obligations, losses, damages, payments, costs or expenses of any kind whatsoever. "Manager" has the meaning set forth in the Issuer LLC Agreement. "Market Transition Charge" means the market transition charge that ACE may impose on Customers pursuant to the Competition Act and the Restructuring Order. "Measure Period" means any period beginning on an Adjustment Date and ending on the date immediately preceding the next Adjustment Date. "Member" means ACE, as the sole member of the Issuer, in its capacity as such member under the Issuer LLC Agreement. "Monthly Remittance Date" means the 15th day of each calendar month (or if such day is not a Business Day, the next Business Day). "Monthly Servicing Fee" means the fee payable to the Servicer on a monthly basis for services rendered, in accordance with Section 5.07 of the Servicing Agreement. "Moody's" means Moody's Investors Service Inc., or its successor. "MTC-Tax" means the tax component, to recover federal income and state corporation business taxes associated with the Market Transition Charge and the Transition Bond Charge, that ACE is entitled to impose under the Restructuring Order and under the BPU Financing Orders. "New Jersey UCC" means the Uniform Commercial Code, as in effect in the State of New Jersey, as amended from time to time. "Officers' Certificate" means a certificate signed by (a) the chairman of the board, the president, the vice chairman of the board, any executive vice president or any vice president and (b) a treasurer, assistant treasurer, secretary or assistant secretary, in each case of the Servicer or Seller, as applicable. "Operating Expenses" means, with respect to the Issuer, all fees, costs, expenses and indemnity payments owed by the Issuer, including, without limitation, all amounts owed by the Issuer to the Trustee, the Monthly Servicing Fee, the fees and expenses payable by the Issuer to the Administrator under the Administration Agreement, the fees and expenses payable by the Issuer to the Independent Managers and Special Members of the Issuer, fees of the Rating Agencies, legal fees and expenses of the Servicer pursuant to Section 3.10 of the Servicing Agreement, legal and accounting fees, costs and expenses of the Issuer, and legal, accounting or other fees, costs and expenses of the Seller (including, without limitation, any costs and expenses incurred by the Seller pursuant to Section 4.08 of the Sale Agreement) under or in connection with the Basic Documents, any Hedge Agreement or Interest Rate Swap Agreement or the BPU Financing Orders. "Opinion of Counsel" means one or more written opinions of counsel who may be an employee of or counsel to ACE or the Issuer, or any other Person (as the context may require), which counsel shall be reasonably acceptable to the Trustee, the Issuer or the Rating Agencies, as A-11 applicable, and which opinion or opinions shall be in form reasonably satisfactory to the Trustee, if applicable. "Outstanding" with respect to Transition Bonds means, as of the date of determination, all Transition Bonds theretofore authenticated and delivered under the 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 Trustee or any Paying Agent in trust for the Holders of such Transition Bonds; provided, however, that if such Transition Bonds are to be redeemed, notice of such redemption has been duly given pursuant to the Indenture or provision therefor, satisfactory to the Trustee, made; and (c) Transition Bonds in exchange for or in lieu of other Transition Bonds which have been authenticated and delivered pursuant to the Indenture unless proof satisfactory to the 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 Class thereof have given any request, demand, authorization, direction, notice, consent or waiver under the Indenture or under or with respect to any other Basic Document or any Hedge Agreement or Interest Rate Swap Agreement, Transition Bonds owned by the Issuer, any other obligor upon the Transition Bonds, ACE or any Affiliate of any of the foregoing Persons shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be fully protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Transition Bonds that a Responsible Officer of the 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 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, ACE or any Affiliate of any of the foregoing Persons. "Outstanding Amount" means, with respect to one or more Classes or Series, the aggregate principal amount of, as the context requires, all Outstanding Transition Bonds of such Class or Classes or of such Series or group of Series. "Overcollateralization" means, with respect to any Payment Date and any Series, the amount, if any, that, if deposited to the Overcollateralization Subaccount for such Series on such Payment Date, would cause the balance in such subaccount on such Payment Date to equal the Scheduled Overcollateralization Level for such Series on such Payment Date. "Overcollateralization Amount" means, with respect to any Series, the amount specified as such in Schedule B to the Series Supplement therefor. "Overcollateralization Subaccount" with respect to any Series has the meaning specified in Section 8.02(a) of the Indenture. A-12 "Paying Agent" means the Trustee or any other Person, including any Person appointed pursuant to Section 3.02(b) of the Indenture, that meets the eligibility standards for the Trustee specified in Section 6.11 of the Indenture and is authorized by the Issuer to make the payments of principal of or premium, if any, or interest on the Transition Bonds on behalf of the Issuer. "Payment Date" means January 20, April 20, July 20 and October 20, or, if any such date is not a Business Day, the next succeeding Business Day. "Person" means any individual, corporation, estate, partnership, joint venture, association, joint stock company, trust (including any beneficiary thereof), business trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof. "Petition" means the petition filed by ACE with the BPU, dated June 25, 2001. "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. "Principal" means, with respect to any Payment Date and each Series or Class of Transition Bonds: (a) the amount of principal scheduled to be paid on such Payment Date in accordance with the Expected Amortization Schedule; (b) the amount of principal due on the Final Maturity Date of any Series or Class on such Payment Date; (c) the amount of principal due as a result of the occurrence and continuance of an Event of Default and acceleration of the Transition Bonds; (d) the amount of principal and premium, if any, due as a result of a redemption of Transition Bonds on such Payment Date; and (e) any overdue payments of principal. "Proceeding" means any suit in equity, action at law or other judicial or administrative proceeding. "Rating Agency" means, as of any date, any rating agency rating the Transition Bonds of any Class or Series at the time of issuance thereof at the request of the Issuer. 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 Trustee, the Member and the Servicer. "Rating Agency Condition" means, with respect to any action, the notification in writing by the Trustee to each Rating Agency of such action and the notification by each Rating Agency to the Trustee and the Issuer that such action will not result in a reduction or withdrawal of the then current A-13 rating by such Rating Agency of any Outstanding Series or Class of Transition Bonds; provided that, except where such action includes the issuance of Transition Bonds of a new Series (either as a Financing Issuance or as a Refunding Issuance), the Rating Agency Condition shall be satisfied with respect to Moody's by providing Moody's 10 Business Days' prior written notice of such action. "Reconciliation Date" for a particular Billing Month means the fifteenth day (or if that day is not a Business Day, the next succeeding Business Day) of the calendar month that is seven months after such Billing Month. "Record Date" has, with respect to any Series, the meaning set forth in the related Series Supplement. "Redemption Date" means, with respect to each Series or Class of Transition Bonds, the date for the redemption of the Transition Bonds of such Series or Class pursuant to Section 10.01 or 10.02 of the Indenture or the Series Supplement for such Series or Class, which in each case shall be a Payment Date. "Redemption Price" has the meaning set forth in Section 10.01 of the Indenture. "Refunding Issuance" means an issuance of a new Series of Transition Bonds under the Indenture to pay the cost of refunding, through redemption or payment on the Expected Final Payment Date for a Series or Class of Transition Bonds, all or part of the Transition Bonds of such Series or Class to the extent permitted by the terms thereof. "Registered Holder" means, as of any date, the Person in whose name a Transition Bond is registered in the Transition Bond Register on such date. A Payment Date "relates" to a Measure Period in each of the following circumstances: (i) if such Measure Period is one year in length, each of the second, third, fourth and fifth Payment Dates to occur after the first day in such Measure Period relates to such Measure Period; (ii) if such Measure Period is one calendar quarter in length, the first Payment Date to occur following the end of such Measure Period relates to such Measure Period; and (iii) if such Measure Period is one month in length, the first Payment Date to occur following the end of the calendar quarter in which such Measure Period falls relates to such Measure Period. "Released Parties" has the meaning specified in Section 5.02(e) of the Servicing Agreement. "Remittance Date" means a Daily Remittance Date or a Monthly Remittance Date, as applicable. "Required Capital Amount" means, with respect to any Series, the amount required to be deposited in the Capital Subaccount for such Series on the Series Issuance Date of such Series, as specified in the related Series Supplement. "Reserve Subaccount" with respect to any Series has the meaning specified in Section 8.02(a) of the Indenture. "Responsible Officer" means, with respect to the Trustee, any officer within the Corporate Trust Office of the Trustee, including any vice president, assistant vice president, secretary, assistant secretary, or any other officer of the Trustee customarily performing functions similar to those A-14 performed by any of the above designated officers and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Restructuring Order" means the decision and order of the BPU issued on March 30, 2001 pursuant to Section 13 of the Competition Act. "Retiring Trustee" has the meaning specified in Section 6.08(b) of the Indenture. "Revenue Requirement" means, for any Series with respect to any Measure Period, the aggregate amount estimated in good faith by the Servicer, pursuant to the Issuer Annex, to be payable in respect of such Series pursuant to Sections 8.02(d) and 8.02(e) of the Indenture during such Measure Period. "Sale Agreement" means the Bondable Transition Property Sale Agreement dated as of December 19, 2002, between the Seller and the Issuer, as the same may be amended or supplemented from time to time. "Scheduled Overcollateralization Level" means, with respect to each Series and any Payment Date, the amount with respect to such Series set forth as such in Schedule B to the Series Supplement for such Series. "Scheduled Transition Bond Balance" means, as of any date, the sum of the amounts provided for in the Expected Amortization Schedules for each outstanding Series of Transition Bonds as of such date. "Seller" means ACE, in its capacity as seller of the Bondable Transition Property to the Issuer pursuant to the Sale Agreement. "Series" means the Series 2002-1 Transition Bonds and any subsequent series of Transition Bonds issued by the Issuer and authenticated by the Trustee pursuant to the Indenture, as specified in the Series Supplement therefor. "Series Capital Subaccount" with respect to each Series has the meaning specified in Section 8.02(a) of the Indenture and in the related Series Supplement. "Series Final Maturity Date" means the Final Maturity Date for a Series. "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 Series Supplement for such Series. "Series Overcollateralization Subaccount" with respect to each Series has the meaning specified in Section 8.02(a) of the Indenture and in the related Series Supplement. "Series Reserve Subaccount" with respect to each Series has the meaning specified in Section 8.02(a) of the Indenture and in the related Series Supplement. "Series Subaccount" with respect to each Series has the meaning specified in Section 8.02(a) of the Indenture and in the related Series Supplement. A-15 "Series Supplement" means any Supplemental Indenture that authorizes a particular Series of Transition Bonds, as the same may be amended or supplemented from time to time. "Servicer" means ACE, as the servicer of the Bondable Transition Property, and each successor to ACE (in the same capacity) pursuant to Section 5.03 or 6.04 of the Servicing Agreement. "Servicer Default" means an event specified in Section 6.01 of the Servicing Agreement. "Servicing Agreement" means the Servicing Agreement dated as of December 19, 2002, between the Issuer and the Servicer, as the same may be amended or supplemented from time to time. "Special Member" has the meaning set forth in the Issuer LLC Agreement. "Standard & Poor's" or "S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc., or its successor. "state" in the jurisdictional sense means any one of the 50 states of the United States of America or the District of Columbia. "Subaccount" means any of the subaccounts of the Collection Account specified in Section 8.02 of the Indenture. "Subsequent Purchase Price" means, in relation to a Subsequent Sale, the price specified in the related Bill of Sale, to be paid by the Issuer for the Subsequent Transferred Bondable Transition Property purchased and sold in such Subsequent Sale. "Subsequent Sale" means any sale of Bondable Transition Property by the Seller to the Issuer after the Initial Transfer Date. "Subsequent Transfer Date" means a date on which a sale of Subsequent Transferred Bondable Transition Property is effective, as specified in the written notice relating to such sale contemplated in Section 2.02(e) of the Sale Agreement. "Subsequent Transferred Bondable Transition Property" means Bondable Transition Property sold by the Seller to the Issuer as of a Subsequent Transfer Date pursuant to the Sale Agreement and a Bill of Sale delivered on or prior to the related Subsequent Transfer Date as identified in such Bill of Sale. "Successor Servicer" means a successor Servicer appointed by the Trustee pursuant to Section 6.04 of the Servicing Agreement which succeeds to all the rights and duties of the Servicer under the Servicing Agreement. "Supplemental Indenture" means a supplemental indenture entered into by the Issuer and the Trustee pursuant to Article IX of the Indenture. "Target Payment Date" has the meaning specified in Section 5(a) of the Issuer Annex. A-16 "TBC Collections" means amounts received by the Servicer in respect of the Transition Bond Charge. "Termination Notice" has the meaning specified in Section 6.01 of the Servicing Agreement. "Third Party" means any third party, including any electric generation supplier, providing billing or metering services, licensed by the BPU pursuant to relevant provisions of the Competition Act, the BPU Regulations and the BPU Financing Orders. "Total Revenue Requirement" means, as of any date of determination, the sum of the Revenue Requirements for all Series outstanding as of such date. "Transfer Date" means the Initial Transfer Date or any Subsequent Transfer Date, as applicable. "Transferred Bondable Transition Property" means, collectively, all Bondable Transition Property that has been sold, assigned and transferred to the Issuer pursuant to the Sale Agreement. "Transition Bond" means any of the transition bonds (as defined in the Competition Act) issued by the Issuer pursuant to the Indenture. "Transition Bond Balance" means, as of any date, the aggregate Outstanding Amount of all Series of Transition Bonds on such date. "Transition Bond Charge" means the Transition Bond Charge authorized by the BPU to be imposed on all Customers by ACE or its successor to recover Bondable Stranded Costs pursuant to the Competition Act and the BPU Financing Orders. "Transition Bond Charge Adjustment" means each adjustment to Transition Bond Charge related to the Transferred Bondable Transition Property made in accordance with Section 4.01 of the Servicing Agreement and the Issuer Annex. "Transition Bond Charge Adjustment Process" means the process by which adjustments are made to the Transition Bond Charge or to the formula governing such adjustments, in either case pursuant to Section 4.01 of the Servicing Agreement and the Issuer Annex, the Competition Act, the Petition and the BPU Financing Orders. "Transition Bond Owner" means, with respect to a Book-Entry Transition Bond, the Person who is the beneficial owner of such Book-Entry Transition Bond, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). "Transition Bond Register" has the meaning specified in Section 2.05(a) of the Indenture. "Transition Bond Registrar" has the meaning specified in Section 2.05(a) of the Indenture. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as in force on the date of the Indenture, unless otherwise specifically provided therein. A-17 "Trustee" means The Bank of New York, a New York banking corporation, in the capacity specified in the first paragraph of the Indenture, or any successor Trustee under the Indenture. "Underwriting Agreement" means the Underwriting Agreement dated as of December 11, 2002, among the Seller, the Issuer and Morgan Stanley & Co. Incorporated, on behalf of itself and as the representative of the several underwriters named therein. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or 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 issuer's option. A-18 EX-4.2 6 exh42.txt EXHIBIT 4.2 EXECUTION COPY ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC, Issuer and THE BANK OF NEW YORK, Trustee ------------------------------ 2002-1 SERIES SUPPLEMENT Dated as of December 19, 2002 ------------------------------ 2002-1 SERIES SUPPLEMENT dated as of December 19, 2002 (this "Supplement"), by and between ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC, a Delaware limited liability company (the "Issuer"), and The Bank of New York, a New York banking corporation (the "Trustee"), as Trustee under the Indenture dated as of December 19, 2002, between the Issuer and the Trustee (the "Indenture"). PRELIMINARY STATEMENT Section 9.01 of the Indenture provides, among other things, that the Issuer and the 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 execution and delivery of this Supplement and the creation of a Series of Transition Bonds with an initial aggregate principal amount of $440,000,000 to be known as the Issuer's Transition Bonds, Series 2002-1 (the "Series 2002-1 Transition Bonds"). All acts and all things necessary to make the Series 2002-1 Transition Bonds, when duly executed by the Issuer and authenticated by the Trustee as provided in the Indenture and this Supplement and issued by the Issuer, the valid, binding and legal obligations of the Issuer and to make this Supplement a valid and enforceable supplement to the Indenture have been done, performed and fulfilled, and the execution and delivery hereof have been in all respects duly and lawfully authorized. The Issuer and the Trustee are executing and delivering this Supplement in order to provide for the Series 2002-1 Transition Bonds. In order to secure the payment of principal of and interest on the Series 2002-1 Transition Bonds issued and to be issued under the Indenture and/or any Series Supplement, the Issuer hereby confirms the Grant to the Trustee, for the benefit of the Holders of the Series 2002-1 Transition Bonds from time to time issued and Outstanding, of all of the Issuer's right, title and interest in, to and under the Collateral, including without limitation the Bondable Transition Property transferred by the Seller to the Issuer as of the Initial Transfer Date pursuant to the Sale Agreement and all proceeds thereof. The Trustee, on behalf of the Holders of the Series 2002-1 Transition Bonds, acknowledges the confirmation of such Grant, accepts the trusts hereunder in accordance with the provisions hereof and agrees to perform its duties required in the Indenture and this Supplement. SECTION 1. DEFINITIONS. 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. SECTION 2. OTHER DEFINITIONAL PROVISIONS. "Authorized Denominations" means $1,000 and integral multiples of $1.00 above that amount, provided, however, that one Series 2002-1 Transition Bond of each Class may have a denomination of less than $1,000. "Expected Amortization Schedule" means Schedule A to this Supplement. "Expected Final Payment Date" means, with respect to any Class of the Series 2002-1 Transition Bonds, the expected final Payment Date indicated for such Class in Section 4 of this Supplement. "Final Maturity Date" means, with respect to any Class of the Series 2002-1 Transition Bonds, the final maturity date indicated for such Class in Section 4 of this Supplement. "Interest Rate" means, for any Class of the Series 2002-1 Transaction Bonds, the percentage amount indicated for such Class in Section 4 of this Supplement. "Overcollateralization Amount" has the meaning set forth in Section 5(d) of this Supplement. "Record Date" means, with respect to any Payment Date, the Business Day prior to such Payment Date or, with respect to any Definitive Transition Bonds, the last Business Day of the month preceding such Payment Date. "Required Capital Amount" has the meaning set forth in Section 5(e) of this Supplement. "Series Issuance Date" has the meaning set forth in Section 3(b) of this Supplement. SECTION 3. DESIGNATION; SERIES ISSUANCE DATES. (a) Designation. The Series 2002-1 Transition Bonds shall be designated generally as the Issuer's Transition Bonds, Series 2002-1, and further denominated as Class A-1, Class A-2, Class A-3 and Class A-4. (b) Series Issuance Date. The Series 2002-1 Transition Bonds that are authenticated and delivered by the Trustee to or upon the order of the Issuer on December 19, 2002 (the "Series Issuance Date") shall have as their date of authentication December 19, 2002. SECTION 4. INITIAL PRINCIPAL AMOUNT; INTEREST RATE; EXPECTED FINAL PAYMENT DATE; FINAL MATURITY DATES. The Transition Bonds of each Class of the Series 2002-1 Transition Bonds shall have the initial principal amounts, bear interest at the respective Interest Rates and have the respective Expected Final Payment Dates and Final Maturity Dates set forth below:
Initial Principal Expected Final Final Class Amount Interest Rate Payment Date Maturity Date A-1 $109,000,000 2.890% 7/20/2008 7/20/2010 A-2 $66,000,000 4.210% 4/20/2011 4/20/2013 A-3 $118,000,000 4.910% 7/20/2015 7/20/2017 A-4 $147,000,000 5.550% 10/20/2021 10/20/2023
2 SECTION 5. PAYMENT DATES; EXPECTED AMORTIZATION SCHEDULE FOR PRINCIPAL; INTEREST; OVERCOLLATERALIZATION AMOUNT; REQUIRED CAPITAL AMOUNT. (a) Payment Dates. The Payment Dates for each Class of the Series 2002-1 Transition Bonds are January 20, April 20, July 20 and October 20 of each year, or, if any such date is not a Business Day, the next succeeding Business Day, commencing on October 20, 2003 and continuing until the earlier of repayment of such Class in full and the applicable Final Maturity Date. (b) Expected Amortization Schedule for Principal. Except in the case of an optional redemption pursuant to Section 10.01 or 10.02 of the Indenture, unless an acceleration upon an Event of Default has occurred and is continuing and the unpaid principal amount of all Series of Transition Bonds has been declared to be due and payable together with accrued and unpaid interest thereon, on each Payment Date the Trustee shall distribute to the Series 2002-1 Transition Bondholders of record as of the related Record Date the amounts payable as principal on the Series 2002-1 Transition Bonds in accordance with the Expected Amortization Schedule; provided that if as of such Payment Date one or more Classes of Series 2002-1 Transition Bonds did not receive a scheduled payment of principal on a previous Payment Date and amounts are payable in respect of more than one such Class in accordance with the Expected Amortization Schedule, principal payments shall be allocated in a sequential manner as follows: (i) to the holders of Series 2002-1 Transition Bonds, Class A-1, until this Class is retired in full; (ii) to the holders of Series 2002-1 Transition Bonds, Class A-2, until this Class is retired in full; (iii) to the holders of Series 2002-1 Transition Bonds, Class A-3, until this Class is retired in full; and (iv) to the holders of Series 2002-1 Transition Bonds, Class A-4, until this Class is retired in full; provided, further, that no principal payment shall be made on any Class of Series 2002-1 Transition Bonds in excess of the amount necessary to reduce the Outstanding Amount of such Class to the amount specified for such Class and such Payment Date in the Expected Amortization Schedule. In the case of an optional redemption pursuant to Section 10.01 or 10.02 of the Indenture or an acceleration upon an Event of Default pursuant to Section 5.02 of the Indenture, if the amounts available to make payments of principal on the Series 2002-1 Transition Bonds are insufficient to make such payments in full, the Trustee shall pay principal on each Class of the Series 2002-1 Transition Bondholders pro rata based on the Outstanding Amount of each such Class as of such date, if such date is a Payment Date, and otherwise as of the most recent Payment Date after giving effect to all payments of principal made to the Holders of Transition Bonds as of such most recent Payment Date. (c) Interest. On the initial Payment Date, interest shall be payable, on each Class of the Series 2002-1 Transition Bonds, in an amount equal to the product of: (1) the fraction (x) whose numerator is number of days (determined on the basis of a 360-day year of twelve 30-day months) from and including the Series Issuance Date to but excluding the initial Payment Date and (y) whose denominator is 360, times (2) the product of (x) the Interest Rate for such Class times (y) the Outstanding Amount of such Class as of the Series Issuance Date. 3 On each succeeding Payment Date, interest shall be payable, on each Class of the Series 2002-1 Transition Bonds, in an amount equal to the product of: (1) the fraction (x) whose numerator is number of days (determined on the basis of a 360-day year of twelve 30-day months) from and including the preceding Payment Date to but excluding the current Payment Date and (y) whose denominator is 360, times (2) the product of (x) the Interest Rate for such Class times (y) the Outstanding Amount of such Class as of the close of business on the preceding Payment Date after giving effect to all payments of principal made to the Holders of such Class on such preceding Payment Date. If the amounts available to make payments of interest on the Series 2002-1 Transition Bonds are insufficient to make such payments in full, the Trustee shall make payments of interest to each Class of such Transition Bonds pro rata based on the respective amounts of interest payable on each such Class. Interest on the Series 2002-1 Transition Bonds shall be calculated on the basis of a 360-day year of twelve 30-day months. (d) Overcollateralization Amount. The Overcollateralization Amount for the Series 2002-1 Transition Bonds with respect to each Payment Date shall be as set forth in Schedule B hereto. (e) Required Capital Amount; Series 2002-1 Capital Subaccount. The Required Capital Amount for the Series 2002-1 Transition Bonds shall be $2,200,000. (f) No Premium. No premium shall be payable in connection with the early redemption of the Series 2002-1 Transition Bonds. SECTION 6. AUTHORIZED DENOMINATIONS. The Series 2002-1 Transition Bonds shall be issuable in the Authorized Denominations. SECTION 7. REDEMPTION. (a) Mandatory Redemption. The Series 2002-1 Transition Bonds shall not be subject to mandatory redemption. (b) Optional Redemption. The Issuer may redeem the Series 2002-1 Transition Bonds at its option, on any Payment Date in accordance with Section 10.01 of the Indenture if, after giving effect to payments that would otherwise be made on such Payment Date, the Outstanding Amount of such Series has been reduced to less than five percent of the initial Outstanding Amount of such Series. SECTION 8. CREDIT ENHANCEMENT. No credit enhancement (other than the Overcollateralization Amount, the Required Capital Amount and any adjustments to the Transition Bond Charge approved by the BPU as contemplated in the Servicing Agreement) is provided for the Series 2002-1 Transition Bonds. 4 SECTION 9. DELIVERY AND PAYMENT FOR THE SERIES 2002-1 TRANSITION BONDS; FORM OF THE SERIES 2002-1 TRANSITION BONDS. The Trustee shall deliver the Series 2002-1 Transition Bonds to the Issuer when authenticated in accordance with Section 2.02 of the Indenture. The Series 2002-1 Transition Bonds shall be in the form of Exhibit A. SECTION 10. LISTING AGENT, PAYING AGENT, TRANSFER AGENT. For so long as any Series 2002-1 Transition Bonds are listed on the Luxembourg Stock Exchange and the rules and regulations of such exchange so require, the Issuer shall retain a listing agent, a transfer agent and a paying agent in Luxembourg appointed pursuant to Section 3.02(b) of the Indenture. SECTION 11. CONFIRMATION OF INDENTURE. As supplemented by this Supplement, the Indenture is in all respects ratified and confirmed and the Indenture, as so supplemented by this Supplement, shall be read, taken and construed as one and the same instrument. SECTION 12. 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 13. GOVERNING LAW. THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. 5 IN WITNESS WHEREOF, the Issuer and the Trustee have caused this Supplement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC, as Issuer By: /s/ Roberta S. Brown ---------------------------------- Name: Roberta S. Brown --------------------------- Title: Manager THE BANK OF NEW YORK, not in its individual capacity but solely as Trustee on behalf of the Transition Bondholders, By: /s/ Cassandra Shedd ---------------------------------- Name: Cassandra Shedd --------------------------- Title: Assistant Vice President --------------------------- 6 SCHEDULE A Expected Amortization Schedule Scheduled Amortization Requirement All amounts are in United States Dollars
Payment Date Class A-1 Class A-2 Class A-3 Class A-4 Balance Balance Balance Balance Closing $ 109,000,000 $ 66,000,000 $ 118,000,000 $ 147,000,000 10/20/2003 94,506,475 66,000,000 118,000,000 147,000,000 01/20/2004 89,083,098 66,000,000 118,000,000 147,000,000 04/20/2004 84,850,403 66,000,000 118,000,000 147,000,000 07/20/2004 80,822,308 66,000,000 118,000,000 147,000,000 10/20/2004 75,199,510 66,000,000 118,000,000 147,000,000 01/20/2005 70,395,013 66,000,000 118,000,000 147,000,000 04/20/2005 65,786,770 66,000,000 118,000,000 147,000,000 07/20/2005 61,332,279 66,000,000 118,000,000 147,000,000 10/20/2005 55,228,061 66,000,000 118,000,000 147,000,000 01/20/2006 50,160,529 66,000,000 118,000,000 147,000,000 04/20/2006 45,410,379 66,000,000 118,000,000 147,000,000 07/20/2006 40,810,223 66,000,000 118,000,000 147,000,000 10/20/2006 34,553,081 66,000,000 118,000,000 147,000,000 01/20/2007 29,314,188 66,000,000 118,000,000 147,000,000 04/20/2007 24,389,271 66,000,000 118,000,000 147,000,000 07/20/2007 19,608,191 66,000,000 118,000,000 147,000,000 10/20/2007 13,151,615 66,000,000 118,000,000 147,000,000 01/20/2008 7,723,572 66,000,000 118,000,000 147,000,000 04/20/2008 2,620,913 66,000,000 118,000,000 147,000,000 07/20/2008 0 63,653,120 118,000,000 147,000,000 10/20/2008 0 56,989,689 118,000,000 147,000,000 01/20/2009 0 51,335,945 118,000,000 147,000,000 04/20/2009 0 45,996,416 118,000,000 147,000,000 07/20/2009 0 40,764,622 118,000,000 147,000,000 10/20/2009 0 33,813,498 118,000,000 147,000,000 01/20/2010 0 27,875,006 118,000,000 147,000,000 04/20/2010 0 22,253,011 118,000,000 147,000,000 07/20/2010 0 16,734,980 118,000,000 147,000,000 10/20/2010 0 9,487,864 118,000,000 147,000,000 01/20/2011 0 3,253,344 118,000,000 147,000,000 04/20/2011 0 0 115,333,066 147,000,000 07/20/2011 0 0 109,509,581 147,000,000 10/20/2011 0 0 101,936,809 147,000,000 01/20/2012 0 0 95,363,846 147,000,000 04/20/2012 0 0 89,091,317 147,000,000 07/20/2012 0 0 82,906,232 147,000,000 10/20/2012 0 0 74,960,452 147,000,000 01/20/2013 0 0 68,013,126 147,000,000 04/20/2013 0 0 61,362,517 147,000,000 07/20/2013 0 0 54,795,395 147,000,000 10/20/2013 0 0 46,455,534 147,000,000 01/20/2014 0 0 39,112,651 147,000,000 04/20/2014 0 0 32,062,533 147,000,000 07/20/2014 0 0 25,091,722 147,000,000 10/20/2014 0 0 16,335,444 147,000,000 01/20/2015 0 0 8,574,749 147,000,000 04/20/2015 0 0 1,102,735 147,000,000 07/20/2015 0 0 0 140,705,612 10/20/2015 0 0 0 131,499,550 01/20/2016 0 0 0 123,274,970 Payment Date Class A-1 Class A-2 Class A-3 Class A-4 Balance Balance Balance Balance 04/20/2016 0 0 0 115,322,517 07/20/2016 0 0 0 107,427,133 10/20/2016 0 0 0 97,706,153 01/20/2017 0 0 0 91,349,967 04/20/2017 0 0 0 86,573,479 07/20/2017 0 0 0 81,894,976 10/20/2017 0 0 0 76,073,742 01/20/2018 0 0 0 71,546,056 04/20/2018 0 0 0 67,561,123 07/20/2018 0 0 0 63,625,424 10/20/2018 0 0 0 58,734,980 01/20/2019 0 0 0 54,286,881 04/20/2019 0 0 0 49,940,720 07/20/2019 0 0 0 45,622,602 10/20/2019 0 0 0 40,320,085 01/20/2020 0 0 0 35,551,619 04/20/2020 0 0 0 30,929,943 07/20/2020 0 0 0 26,334,739 10/20/2020 0 0 0 20,748,941 01/20/2021 0 0 0 15,692,991 04/20/2021 0 0 0 10,779,405 07/20/2021 0 0 0 5,888,475 10/20/2021 0 0 0 0
Schedule A-2 SCHEDULE B Schedule of Overcollateralization Requirement All amounts are in United States Dollars
-------------------------------------------- -------------------------------------------- Overcollaterization Overcollaterization Payment Date Amount Payment Date Amount -------------------------------------------- -------------------------------------------- -------------------------------------------- -------------------------------------------- Closing $0 10/20/2012 1,157,895 -------------------------------------------- -------------------------------------------- 10/20/2003 115,789 01/20/2013 1,186,842 -------------------------------------------- -------------------------------------------- 01/20/2004 144,737 04/20/2013 1,215,789 -------------------------------------------- -------------------------------------------- 04/20/2004 173,684 07/20/2013 1,244,737 -------------------------------------------- -------------------------------------------- 07/20/2004 202,632 10/20/2013 1,273,684 -------------------------------------------- -------------------------------------------- 10/20/2004 231,579 01/20/2014 1,302,632 -------------------------------------------- -------------------------------------------- 01/20/2005 260,526 04/20/2014 1,331,579 -------------------------------------------- -------------------------------------------- 04/20/2005 289,474 07/20/2014 1,360,526 -------------------------------------------- -------------------------------------------- 07/20/2005 318,421 10/20/2014 1,389,474 -------------------------------------------- -------------------------------------------- 10/20/2005 347,368 01/20/2015 1,418,421 -------------------------------------------- -------------------------------------------- 01/20/2006 376,316 04/20/2015 1,447,368 -------------------------------------------- -------------------------------------------- 04/20/2006 405,263 07/20/2015 1,476,316 -------------------------------------------- -------------------------------------------- 07/20/2006 434,211 10/20/2015 1,505,263 -------------------------------------------- -------------------------------------------- 10/20/2006 463,158 01/20/2016 1,534,211 -------------------------------------------- -------------------------------------------- 01/20/2007 492,105 04/20/2016 1,563,158 -------------------------------------------- -------------------------------------------- 04/20/2007 521,053 07/20/2016 1,592,105 -------------------------------------------- -------------------------------------------- 07/20/2007 550,000 10/20/2016 1,621,053 -------------------------------------------- -------------------------------------------- 10/20/2007 578,947 01/20/2017 1,650,000 -------------------------------------------- -------------------------------------------- 01/20/2008 607,895 04/20/2017 1,678,947 -------------------------------------------- -------------------------------------------- 04/20/2008 636,842 07/20/2017 1,707,895 -------------------------------------------- -------------------------------------------- 07/20/2008 665,789 10/20/2017 1,736,842 -------------------------------------------- -------------------------------------------- 10/20/2008 694,737 01/20/2018 1,765,789 -------------------------------------------- -------------------------------------------- 01/20/2009 723,684 04/20/2018 1,794,737 -------------------------------------------- -------------------------------------------- 04/20/2009 752,632 07/20/2018 1,823,684 -------------------------------------------- -------------------------------------------- 07/20/2009 781,579 10/20/2018 1,852,632 -------------------------------------------- -------------------------------------------- 10/20/2009 810,526 01/20/2019 1,881,579 -------------------------------------------- -------------------------------------------- 01/20/2010 839,474 04/20/2019 1,910,526 -------------------------------------------- -------------------------------------------- 04/20/2010 868,421 07/20/2019 1,939,474 -------------------------------------------- -------------------------------------------- 07/20/2010 897,368 10/20/2019 1,968,421 -------------------------------------------- -------------------------------------------- 10/20/2010 926,316 01/20/2020 1,997,368 -------------------------------------------- -------------------------------------------- 01/20/2011 955,263 04/20/2020 2,026,316 -------------------------------------------- -------------------------------------------- 04/20/2011 984,211 07/20/2020 2,055,263 -------------------------------------------- -------------------------------------------- 07/20/2011 1,013,158 10/20/2020 2,084,211 -------------------------------------------- -------------------------------------------- 10/20/2011 1,042,105 01/20/2021 2,113,158 -------------------------------------------- -------------------------------------------- 01/20/2012 1,071,053 04/20/2021 2,142,105 -------------------------------------------- -------------------------------------------- 04/20/2012 1,100,000 07/20/2021 2,171,053 -------------------------------------------- -------------------------------------------- 07/20/2012 1,128,947 10/20/2021 2,200,000 -------------------------------------------- --------------------------------------------
Exhibit A to Series Supplement Form of Bond REGISTERED $ No. R-__ CUSIP NO. ______ SEE REVERSE FOR CERTAIN DEFINITIONS THE PRINCIPAL OF THIS CLASS A-[ ] TRANSITION BOND SHALL BE PAID IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS A-[ ] TRANSITION BOND AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE HOLDER OF THIS CLASS A-[ ] 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 CLASS A-[ ] TRANSITION BONDS, IT WILL NOT INSTITUTE AGAINST, OR JOIN ANY OTHER PERSON IN INSTITUTING AGAINST, THE ISSUER ANY BANKRUPTCY, REORGANIZATION, ARRANGEMENT, INSOLVENCY OR LIQUIDATION PROCEEDINGS OR OTHER SIMILAR PROCEEDING UNDER THE LAWS OF THE UNITED STATES OR ANY STATE OF THE UNITED STATES. TRANSFERS OF THIS GLOBAL TRANSITION BOND SHALL BE LIMITED TO TRANSFERS IN THE CLEARING AGENCY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL TRANSITION BOND SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE. ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC TRANSITION BONDS, SERIES 2002-1, CLASS A-[ ]. Interest Original Principal Expected Final Maturity Date Rate Amount Payment Date ATLANTIC CITY ELECTRIC Transition Funding LLC, a limited liability company formed and existing under the laws of the State of Delaware (herein referred to as the "Issuer"), for value received, hereby promises to pay to the Registered Holder hereof, or registered assigns, the principal amount shown above in quarterly installments on the Payment Dates (as defined below) and in the amounts determined as specified on the reverse hereof or, if less, the amounts determined pursuant to Section 8.02(e) of the Indenture referred to on the reverse hereof, in each year, commencing on October 20, 2003 and ending on or before the Final Maturity Date, to pay the entire unpaid principal hereof on the Final Maturity Date and to pay interest, at the Interest Rate shown above at a fixed rate, on each January 20, April 20, July 20 and October 20, or, if any such day is not a Business Day, the next succeeding Business Day, commencing on October 20, 2003 and continuing until the earlier of the payment of the principal hereof and the Final Maturity Date hereof (each a "Payment Date"), on the principal amount of this Class A-[ ] Transition Bond outstanding from time to time. Interest shall be computed (i) for the initial Payment Date, on the basis of the number of days (determined on the basis of a 360-day year of twelve 30-day months) from and including the Series Issuance Date to but excluding the initial Payment Date, divided by 360, multiplied by [ ]%, multiplied by the Outstanding Amount of the Class A-[ ] Transition Bonds as of the Series Issuance Date and (ii) for each succeeding Payment Date, on the basis of the number of days (determined on the basis of a 360-day year of twelve 30-day months) from and including the preceding Payment Date to but excluding the current Payment Date, divided by 360, multiplied by [ ]%, multiplied by the Outstanding Amount of the Class A-[ ] 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 Class A-[ ] Transition Bonds on such preceding Payment Date. Such principal of and interest on this Class A-[ ] Transition Bond shall be paid in the manner specified on the reverse hereof. The principal of and interest on this Class A-[ ] 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 Class A-[ ] Transition Bond shall be applied first to interest due and payable on this Class A-[ ] Transition Bond as provided above and then to the unpaid principal of this Class A-[ ] Transition Bond, all in the manner set forth in Section 8.02 of the Indenture and the Series Supplement referred to on the reverse hereof. Reference is made to the further provisions of this Class A-[ ] Transition Bond set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Class A-[ ] Transition Bond. Exhibit A-2 Unless the certificate of authentication hereon has been executed by the Trustee whose name appears below by manual signature, this Class A-[ ] Transition Bond shall not be entitled to any benefit under the Indenture 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 an authorized Manager of the Issuer. Dated: , 2 --------------- -- --- ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC By: ------------------------------- Name: -------------------------- Title: Manager Exhibit A-3 TRUSTEE'S CERTIFICATE OF AUTHENTICATION , 2 - ------------- -- --- This is one of the Class A-[ ] Transition Bonds of the Series 2002-1 Transition Bonds, designated above and referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, not in its individual capacity but solely as Trustee on behalf of the Transition Bondholders, By: ------------------------------- Name: -------------------------- Title: --------------------------- Exhibit A-4 REVERSE OF TRANSITION BOND This Class A-[ ] Transition Bond is one of a duly authorized issue of Transition Bonds of the Issuer, designated as its Transition Bonds (herein called the "Transition Bonds"), issued and to be issued in one or more Series, which Series are issuable in one or more Classes. The Series 2002-1 Transition Bonds consist of four Classes, including the Class A-[ ] Transition Bonds (herein called the "Class A-[ ] Transition Bonds"). The Class A-[ ] Transition Bonds have been issued under an indenture dated as of December 19, 2002, and a series supplement thereto dated as of December 19, 2002 (such series supplement, as supplemented or amended, the "Series Supplement" and, collectively with such indenture, as supplemented or amended, the "Indenture"), each between the Issuer and The Bank of New York, a New York banking corporation, as Trustee (the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the Collateral pledged, the nature and extent of the security, the respective rights, obligations and immunities thereunder of the Issuer, the Trustee and the Holders of the Transition Bonds and the terms and conditions under which additional Transition Bonds may be issued. All terms used in this Class A-[ ] Transition Bond that are defined in the Indenture, as supplemented or amended, shall have the meanings assigned to them in the Indenture. The Class A-[ ] Transition Bonds, the other Classes of Series 2002-1 Transition Bonds and any other Series of Transition Bonds issued by the Issuer are and will be equally and ratably secured by the Collateral pledged as security therefor as provided in the Indenture. The principal of this Class A-[ ] Transition Bond shall be payable on each Payment Date only to the extent that amounts in the Collection Account are available therefor, and only until the outstanding principal balance of the Class A-[ ] Transition Bonds on such Payment Date (after giving effect to all payments of principal made on such Payment Date) has been reduced to the principal balance specified in the Expected Amortization Schedule attached to the Series Supplement as Schedule A, unless payable earlier either because (i) an Event of Default has occurred and is continuing and the Trustee or the Holders of Transition Bonds representing not less than a majority of the Outstanding Amount of the Transition Bonds of all Series have declared the Transition Bonds to be immediately due and payable in accordance with Section 5.02 of the Indenture, or (ii) the Issuer, at its option, has called for the redemption of the Series 2002-1 Transition Bonds in whole pursuant to Section 7(b) of the Series Supplement and Section 10.01 of the Indenture. However, actual principal payments may be made in lesser than expected amounts and at later than expected times as determined pursuant to Section 8.02(e) of the Indenture. The entire unpaid principal amount of this Class A-[ ] Transition Bond shall be due and payable on the earlier of the Final Maturity Date hereof and the Redemption Date, if any. 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 occurred and be continuing and the Trustee or the Holders of the Transition Bonds of all Series representing not less than a majority of the Outstanding Amount of the Transition Bonds have declared the Exhibit A-5 Transition Bonds to be immediately due and payable in accordance with Section 5.02 of the Indenture. Except in the case of an optional redemption pursuant to Section 10.01 of the Indenture, unless an acceleration upon an Event of Default has occurred and is continuing and the unpaid principal amount of all Series of Transition Bonds has been declared to be due and payable together with accrued and unpaid interest thereon, on each Payment Date the Trustee shall distribute to the Series 2002-1 Transition Bondholders of record as of the related Record Date the amounts payable as principal on the Series 2002-1 Transition Bonds in accordance with the Expected Amortization Schedule; provided that if as of such Payment Date one or more Classes of Series 2002-1 Transition Bonds did not receive a scheduled payment of principal on a previous Payment Date and amounts are payable in respect of more than one such Class in accordance with the Expected Amortization Schedule, principal payments shall be allocated in a sequential manner as specified in, and subject to the limitations set forth in, Section 5(b) of the Series Supplement. In the case of an optional redemption pursuant to Section 10.01 of the Indenture or an acceleration upon an Event of Default pursuant to Section 5.02 of the Indenture, if the amounts available to make payments of principal on the Series 2002-1 Transition Bonds are insufficient to make such payments in full, the Trustee shall pay principal on each Class of the Series 2002-1 Transition Bondholders pro rata based on the Outstanding Amount of each such Class as of such date, if such date is a Payment Date, and otherwise as of the most recent Payment Date after giving effect to all payments of principal made to the Holders of Transition Bonds as of such most recent Payment Date. Payments of interest on this Class A-[ ] Transition Bond due and payable on each Payment Date, together with the installment of principal, if any, payable on this Class A-[ ] Transition Bond on such Payment Date, shall be made by check mailed first-class, postage prepaid, to the Person whose name appears as the Registered Holder of this Class A-[ ] Transition Bond (or one or more predecessors of such Transition Bond) in 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 Series Supplement, except that with respect to Class A-[ ] Transition Bonds registered on the Record Date in the name of a Clearing Agency, payments shall be made by wire transfer in immediately available funds to the account designated by such Clearing Agency and except for the final installment of principal payable with respect to this Class A-[ ] 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 in the Transition Bond Register as of the applicable Record Date without requiring that this Class A-[ ] Transition Bond be submitted for notation of payment. Any reduction in the principal amount of this Class A-[ ] Transition Bond (or any one or more predecessors to such Transition Bond) effected by any payments made on any Payment Date shall be binding upon all future Holders of this Class A-[ ] Transition Bond and of any Class A-[ ] 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 Class A-[ ] Transition Bond on a Payment Date, then the Trustee, in the name of and on behalf of the Issuer, shall notify the Person who was the Registered Holder hereof as of the second preceding Record Date to such Payment Date by notice mailed no later than five days prior to such final Payment Date and shall specify that such final installment will be payable to the Registered Holder hereof as of the Record Date Exhibit A-6 immediately preceding such final Payment Date and only upon presentation and surrender of this Class A-[ ] Transition Bond and shall specify the place where this Class A-[ ] Transition Bond may be presented and surrendered for payment of such installment. The Issuer shall pay interest on overdue installments of interest on this Class A-[ ] Transition Bond at the Interest Rate for Class A-[ ] to the extent lawful. The Class A-[ ] Transition Bonds may be redeemed, in whole but not in part, in certain circumstances as provided in Section 7(b) of the Series Supplement and Section 10.01 of the Indenture. This Class A-[ ] Transition Bond is a "transition bond" as such term is defined in the Competition Act. Principal and interest due and payable on this Transition Bond are payable from and secured primarily by bondable transition property authorized by a bondable stranded costs rate order issued by the State of New Jersey Board of Public Utilities pursuant to the Competition Act. The bondable transition property securing the Transition Bonds includes the irrevocable right to impose and collect a nonbypassable, usage-based charge (defined in the Competition Act as a "transition bond charge") to be included in electric utility bills of customers of Atlantic City Electric Company, a New Jersey corporation. The Competition Act provides that: "The State of New Jersey does hereby pledge and agree with the holders of any transition bonds issued under the authority of this act, with the pledgee, owner or assignee of bondable transition property, with any financing entity which has issued transition bonds with respect to which a bondable stranded costs rate order has been issued and with any person who may enter into agreements with an electric public utility or an assignee or pledgee thereof or a financing entity pursuant to this act, that the State will not limit, alter or impair any bondable transition property or other rights vested in an electric public utility or an assignee or pledgee thereof or a financing entity or vested in the holders of any transition bonds pursuant to a bondable stranded costs rate order until such transition bonds, together with the interest and acquisition or redemption premium, if any, thereon, are fully paid and discharged or until such agreements are fully performed on the part of the electric public utility, any assignee or pledgee thereof or the financing entity or in any way limit, alter, impair or reduce the value or amount of the bondable transition property approved by a bondable stranded costs rate order ...." As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Class A-[ ] Transition Bond may be registered in the Transition Bond Register upon surrender of this Class A-[ ] 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 written instrument of transfer in form satisfactory to the Trustee duly executed by the Holder hereof or his attorney duly authorized in writing, with such signature guaranteed by an Eligible Exhibit A-7 Guarantor Institution, and thereupon one or more new Class A-[ ] Transition Bonds of any Authorized Denominations and in the same aggregate initial principal amount shall be issued to the designated transferee or transferees. No service charge shall be charged for any registration of transfer or exchange of this Class A-[ ] 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 registration of transfer or exchange. Prior to the due presentment for registration of transfer of this Class A-[ ] Transition Bond, the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the Person in whose name this Class A-[ ] Transition Bond is registered (as of the day of determination) as the owner hereof for the purpose of receiving payments of principal of and interest on this Class A-[ ] Transition Bond and for all other purposes whatsoever, whether or not this Class A-[ ] Transition Bond may be overdue, and neither the Issuer, the 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 Holders of Transition Bonds representing a majority of the Outstanding Amount of all Transition Bonds at the time Outstanding of each Series or Class to be affected and upon satisfaction of the Rating Agency Condition. The Indenture also contains provisions permitting the Holders of Transition Bonds 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 Class A-[ ] Transition Bond (or any one of more predecessors of such transition bonds) shall be conclusive and binding upon such Holder and upon all future Holders of this Class A-[ ] Transition Bond and of any Class A-[ ] 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 Class A-[ ] Transition Bond. The Indenture also permits the 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 Issuer is permitted by the Indenture, under certain circumstances, to merge, consolidate or sell substantially all of its assets, subject to the rights of the Trustee and the Holders of Transition Bonds under the Indenture. The term "Issuer" as used in this Class A-[ ] Transition Bond includes any successor to the Issuer under the Indenture. The Class A-[ ] Transition Bonds are issuable only in registered form in Authorized Denominations as provided in the Indenture and the Series Supplement, subject to certain limitations therein set forth. This Class A-[ ] Transition Bond, the Indenture and the Series Supplement shall be construed in accordance with the laws of the State of New Jersey, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder and thereunder shall be determined in accordance with such laws. Exhibit A-8 No reference herein to the Indenture, and no provision of this Class A-[ ] Transition Bond or of the Indenture, shall alter or impair the right of the Holder hereof, which is absolute and unconditional and which shall not be impaired without the consent of such Holder: (a) to receive payment of (i) the interest on this Transition Bond on or after the due dates thereof expressed in this Transition Bond or in the Indenture, (ii) the unpaid principal of this Transition Bond on or after the Final Maturity Date herefor and (iii) in the case of redemption, the unpaid principal and interest on this Transition Bond on or after the Redemption Date hereof; and (b) to institute suit for the enforcement of any such payment. Exhibit A-9 ASSIGNMENT Social Security or taxpayer I.D. or other identifying number of assignee: FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto __ (name and address of assignee) the within Class A-[ ] Transition Bond and all rights thereunder, and hereby irrevocably constitutes and appoints (name and address of appointee) attorney, to transfer said Class A-[ ] Transition Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated: * - -------------- ---------------------------------- Signature Guaranteed: - -------------- ----------------------------------- * NOTE: The signature to this assignment must correspond with the name of the registered owner as it appears on the face of the within Class A-[ ] Transition Bond in every particular, without alteration, enlargement or any change whatsoever. Exhibit A-10 EX-10.1 7 exh101.txt EXHIBIT 10.1 EXECUTION COPY ================================================================================ BONDABLE TRANSITION PROPERTY SALE AGREEMENT between ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC Issuer and ATLANTIC CITY ELECTRIC COMPANY Seller Dated as of December 19, 2002 ================================================================================ TABLE OF CONTENTS Page Article I Definitions..........................................................1 Section 1.01. Definitions......................................1 Section 1.02. Other Definitional Provisions....................1 Article II Conveyance of Transferred Bondable Transition Property..............2 Section 2.01. Conveyance of Initial Transferred Bondable Transition Property and Subsequent Transferred Bondable Transition Property.....................2 Section 2.02. Conditions to Conveyance of Bondable Transition Property.........................................3 Article III Representations and Warranties of Seller...........................5 Section 3.01. Organization and Good Standing...................5 Section 3.02. Due Qualification................................5 Section 3.03. Power and Authority..............................5 Section 3.04. Binding Obligation...............................5 Section 3.05. No Violation.....................................5 Section 3.06. No Proceedings...................................6 Section 3.07. Approvals........................................6 Section 3.08. The Transferred Bondable Transition Property.....6 Section 3.09. Solvency.........................................9 Section 3.10. Limitation on Representations and Warranties.....9 Article IV Covenants of the Seller............................................10 Section 4.01. Seller's Existence..............................10 Section 4.02. No Liens or Conveyances.........................10 Section 4.03. Use of Proceeds.................................10 Section 4.04. Delivery of Collections.........................10 Section 4.05. Notice of Liens.................................10 Section 4.06. Compliance with Law.............................10 Section 4.07. Covenants Related to Transferred Bondable Transition Property.............................10 Section 4.08. Notice of Indemnification Events................11 Section 4.09. Protection of Title.............................12 Section 4.10. Taxes...........................................12 Section 4.11. Further Assurances..............................13 Article V Additional Undertakings of the Seller...............................13 Section 5.01. Liability of the Seller; Indemnities............13 Section 5.02. Merger or Consolidation of, or Assumption of the Obligations of, the Seller..................14 Section 5.03. Limitation on Liability of the Seller and Others..........................................16 Article VI Miscellaneous Provisions...........................................16 Section 6.01. Amendment.......................................16 Section 6.02. Notices.........................................16 Section 6.03. Assignment By Seller............................18 Section 6.04. Assignment to Trustee...........................18 i Section 6.05. Limitations on Rights of Others.................18 Section 6.06. Severability....................................18 Section 6.07. Separate Counterparts...........................18 Section 6.08. Headings........................................18 Section 6.09. Governing Law...................................18 Section 6.10. Nonpetition Covenant............................18 EXHIBIT A BILL OF SALE.....................................................A-1 EXHIBIT B OPINION OF COUNSEL...............................................B-1 EXHIBIT C OPINION OF COUNSEL...............................................C-1 APPENDIX A MASTER DEFINITIONS..............................................A-1 ii BONDABLE TRANSITION PROPERTY SALE AGREEMENT, dated as of December 19, 2002, by and between ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC, a Delaware limited liability company, as issuer (the "Issuer"), and ATLANTIC CITY ELECTRIC COMPANY, a New Jersey corporation, as seller (in such capacity, the "Seller"). W I T N E S S E T H: WHEREAS, on the date hereof and subsequently from time to time, the Issuer desires to purchase from the Seller and the Seller desires to sell to the Issuer Bondable Transition Property created pursuant to the Competition Act and the BPU Financing Orders upon the terms and subject to the conditions hereof; WHEREAS the Issuer, in order to finance the purchase of the Transferred Bondable Transition Property, will on the date hereof and on each such subsequent occasion issue Transition Bonds under the Indenture; and WHEREAS the Issuer, in order to secure its obligations under the Transition Bonds and the Indenture, will pledge its right, title and interest in, to and under the Transferred Bondable Transition Property to the Trustee for the benefit of the Transition Bondholders. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: Article I Definitions Section 1.01. Definitions. Capitalized terms used herein and not otherwise defined herein have the meanings assigned to them in Appendix A. Section 1.02. Other Definitional Provisions. (a) "Agreement" means this Bondable Transition Property Sale Agreement, as the same may be amended, supplemented or otherwise modified from time to time. (b) The words "hereof", "herein", "hereunder" and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular portion of this Agreement. (c) Uncapitalized terms used herein that are defined in the Competition Act, have as the context requires, the meanings assigned to such terms in the Competition Act, but without giving effect to amendments to the Competition Act after the date hereof affecting such meanings that, if applied hereto, would have a material adverse effect on the Issuer or the Transition Bondholders. (d) All terms defined in this Agreement have the meanings herein assigned to them when used in any certificate or other document made or delivered pursuant hereto except where otherwise expressly provided therein. (e) References in this Agreement to sections, appendices, annexes, schedules and exhibits are to the sections, appendices, annexes, schedules and exhibits of, in or to this Agreement unless otherwise specified. (f) The term "including" means "including without limitation" and "or" is used in the inclusive sense. (g) The definitions contained in this Agreement are applicable to the singular as well as the plural forms of the defined terms, and personal pronouns refer to all persons regardless of gender. Article II Conveyance of Transferred Bondable Transition Property Section 2.01. Conveyance of Initial Transferred Bondable Transition Property and Subsequent Transferred Bondable Transition Property. (a) In consideration of the Issuer's payment to or upon the order of the Seller of $437,268,726 (the "Initial Purchase Price"), by wire transfer of funds immediately available on the date hereof to Seller's account no. 19244187 at Allfirst Bank, Baltimore, MD (ABA No. 052000113), subject to the conditions specified in Section 2.02, the Seller does hereby irrevocably sell, transfer, assign and otherwise convey to the Issuer, without recourse (subject to the obligations of the Seller herein), all right, title and interest of the Seller in, to and under the Initial Transferred Bondable Transition Property identified in the Bill of Sale delivered pursuant to Section 2.02(a) on or prior to the Initial Transfer Date (such sale, transfer, assignment and conveyance of the Initial Transferred Bondable Transition Property to include, to the fullest extent permitted by the Competition Act and the New Jersey UCC, the assignment of all revenues, collections, claims, rights, payments, money or proceeds of or arising from the Transition Bond Charges related to the Initial Transferred Bondable Transition Property, as the same may be adjusted from time to time). Such sale, transfer, assignment and conveyance of the Initial Transferred Bondable Transition Property is hereby expressly stated to be a sale or other absolute transfer and, pursuant to Section 23.a. of the Competition Act, shall constitute a sale or other absolute transfer of all of the Seller's right, title and interest, in, to and under, and not a borrowing secured by, the Initial Transferred Bondable Transition Property. The preceding sentence is the statement referred to in Section 23.a. of the Competition Act. The Seller agrees and confirms that, upon payment of the Initial Purchase Price and the execution and delivery of this Agreement and the related Bill of Sale, the Seller shall have no right, title or interest in, to or under the Initial Transferred Bondable Transition Property. 2 (b) Subject to the conditions specified in Section 2.02, the Issuer does hereby purchase the Initial Transferred Bondable Transition Property from the Seller for the consideration set forth in clause (a) above. (c) The Seller and the Issuer each acknowledge and agree that the purchase price for the Initial Transferred Bondable Transition Property sold pursuant to this Agreement is equal to its fair market value at the time of sale. (d) The Seller and the Issuer further agree that from time to time the Seller may offer to sell, and the Issuer may purchase, Subsequent Transferred Bondable Transition Property as of Subsequent Transfer Dates, subject to the conditions specified in Section 2.02, in exchange for consideration to be agreed upon and set forth in the related Bill of Sale (the "Subsequent Purchase Price"). The Seller and the Issuer hereby agree that each such sale, transfer, assignment and conveyance of any Subsequent Transferred Bondable Transition Property shall include, to the fullest extent permitted by the Competition Act and the New Jersey UCC, the assignment of all revenues, collections, claims, rights, payments, money or proceeds of or arising from the Transition Bond Charges related to the Subsequent Transferred Bondable Transition Property, as the same may be adjusted from time to time. Such sale, transfer, assignment and conveyance of the Subsequent Transferred Bondable Transition Property is hereby expressly stated to be a sale or other absolute transfer and, pursuant to Section 23.a. of the Competition Act, shall constitute a sale or other absolute transfer of all of the Seller's right, title and interest, in, to and under and not a borrowing secured by, the Subsequent Transferred Bondable Transition Property. The preceding sentence is the statement referred to in Section 23.a. of the Competition Act. The Seller agrees and confirms that, after giving effect to any sale contemplated by this clause (d) and the execution and delivery of the related Bill of Sale, it shall have no right, title or interest in, to or under the Subsequent Transferred Bondable Transition Property. (e) Notwithstanding the foregoing, in the event that any sale, transfer, assignment and conveyance of any Transferred Bondable Transition Property is determined by a court of competent jurisdiction not to be a true and absolute sale as contemplated by the parties hereto and by the Competition Act, then such sale, transfer, assignment and conveyance shall be treated as a pledge of such Transferred Bondable Transition Property and the Seller shall be deemed to have granted, and does hereby grant, as of the date hereof a security interest to the Issuer in such Transferred Bondable Transition Property to secure a payment obligation incurred by the Seller in the amount paid by the Issuer for the Transferred Bondable Transition Property. Section 2.02. Conditions to Conveyance of Bondable Transition Property. The obligation of the Seller to sell, and the obligation of the Issuer to purchase, Bondable Transition Property upon any Transfer Date shall be subject to and conditioned upon the satisfaction or waiver of each of the following conditions: (a) on or prior to such Transfer Date, the Seller shall deliver to the Issuer a duly executed Bill of Sale identifying the Bondable Transition Property to be conveyed as of that date, substantially in the form of Exhibit A; 3 (b) as of such Transfer Date, no breach by the Seller of its representations, warranties or covenants in this Agreement shall exist and the Seller shall have delivered to the Issuer and the Trustee an Officers' Certificate to such effect, and no Servicer Default shall have occurred and be continuing; (c) as of such Transfer Date: (i) the Issuer shall have sufficient funds available to pay the purchase price for the Transferred Bondable Transition Property to be conveyed on such date, and (ii) all conditions set forth in the Indenture to the issuance of one or more Series of Transition Bonds intended to provide such funds shall have been satisfied or waived; (d) on or prior to such Transfer Date, the Seller shall have taken all actions required under the Competition Act, the BPU Financing Orders and the New Jersey UCC and the Delaware UCC, including without limitation filings under the New Jersey UCC, to transfer to the Issuer ownership of the Transferred Bondable Transition Property to be conveyed on such date free and clear of all Liens other than Liens created by the Issuer pursuant to the Indenture, and the Issuer shall have taken all actions required for the Issuer to grant to the Trustee a first priority perfected security interest in the Collateral and maintain such security interest as of such date, including without limitation any filings required under the New Jersey UCC and the Delaware UCC; (e) in the case of any sale of Subsequent Transferred Bondable Transition Property only, the Seller shall have provided the Issuer and each Rating Agency with a written notice specifying the Subsequent Transfer Date for such Subsequent Transferred Bondable Transition Property not later than 10 days prior to such Subsequent Transfer Date and shall have taken any other action necessary in order for the Rating Agency Condition to have been satisfied with respect to such sale; (f) the Seller shall have delivered to each Rating Agency and to the Issuer: (i) an Opinion of Counsel to the Seller with respect to the transfer of the Transferred Bondable Transition Property then being conveyed to the Issuer, substantially in the form of Exhibit B, and (ii) an Opinion of Counsel to the Seller, substantially in the form of Exhibit C; (g) the Seller shall have delivered to the Trustee and the Issuer an Officers' Certificate confirming the satisfaction of each condition precedent specified in this Section 2.02; and (h) the Seller shall have received the Initial Purchase Price or the Subsequent Purchase Price, as applicable, in funds immediately available on such Transfer Date. 4 Article III Representations and Warranties of Seller As of each Transfer Date, the Seller makes the following representations and warranties on which the Issuer is relying in acquiring the Bondable Transition Property purchased and sold on such Transfer Date. The representations and warranties made as of any Transfer Date shall survive the sale of Transferred Bondable Transition Property to the Issuer on such date and the pledge thereof to the Trustee pursuant to the Indenture. Section 3.01. Organization and Good Standing. The Seller is a corporation duly organized and in good standing under the laws of its state of incorporation, with the corporate power and authority to own its properties and conduct its business as currently owned and conducted. Section 3.02. Due Qualification. The Seller is duly qualified to do business as a foreign corporation in all jurisdictions in which it is required to be so qualified, and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of its property or the conduct of its business requires such qualification, licenses or approvals (except where the failure to so qualify and to obtain such licenses and approvals would not be reasonably likely to have a material adverse effect on the Seller's business, operations, assets, revenues or properties). Section 3.03. Power and Authority. The Seller has the corporate power and authority to execute, deliver and perform this Agreement and to own, sell, assign, transfer and convey to the Issuer the Bondable Transition Property purchased and sold on such Transfer Date, and the Seller has duly authorized such execution, delivery, performance, sale, assignment, transfer and conveyance by all necessary corporate action. Section 3.04. Binding Obligation. This Agreement constitutes a legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms subject to any applicable bankruptcy, receivership, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally from time to time in effect and to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). Section 3.05. No Violation. The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof do not: (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the articles of incorporation or by-laws of the Seller, or any indenture or other material agreement or instrument to which the Seller is a party or by which it is bound; (ii) result in the creation or imposition of any Lien upon any of the Seller's properties pursuant to the terms of any such indenture or other material agreement or instrument (except as contemplated by the Basic Documents and as set forth in Section 2.01(e)); or (iii) violate any law applicable to the Seller or any order, rule or regulation applicable to the Seller of any court or federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Seller or its properties. The Bondable Transition Property is not subject to any Lien thereon created by the indenture, dated January 15, 1937 (as amended and supplemented), 5 between Atlantic City Electric Company and the Bank of New York, as successor trustee to Irving Trust Company. Section 3.06. No Proceedings. Except as disclosed in the prospectus and the related prospectus supplement each dated December 11, 2002, of Atlantic City Electric Transition Funding LLC relating to the offer and sale of Transition Bonds, and in any subsequent prospectus supplements relating to a subsequent offer and sale of Transition Bonds, there are no proceedings or investigations pending or, to the Seller's best knowledge, threatened, before any court, federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Seller or its properties: (a) asserting the invalidity of any of the Basic Documents, the Transition Bonds, the Competition Act, the Restructuring Order (insofar as it relates to the transactions contemplated hereby) or the BPU Financing Orders; (b) seeking to prevent the issuance of the Transition Bonds or the consummation of any of the transactions contemplated by the Basic Documents; (c) challenging the Seller's treatment of the Transition Bonds as debt for federal and state income or franchise tax purposes; or (d) seeking any determination or ruling that could reasonably be expected to materially and adversely affect the performance by the Seller or the Issuer of its obligations under, or the validity or enforceability of, the Basic Documents or the Transition Bonds. Section 3.07. Approvals. Except for the filing of financing statements and continuation statements under the New Jersey UCC, no approval, authorization, consent, order or other action of, or filing with, any court, federal or state regulatory body, administrative agency or other governmental instrumentality is required in connection with the execution and delivery by the Seller of this Agreement, the performance by the Seller of the transactions contemplated hereby or the fulfillment by the Seller of the terms hereof, except those that have been obtained, made or taken. Section 3.08. The Transferred Bondable Transition Property. (a) Information. All information provided by the Seller to the Issuer in writing on or prior to such Transfer Date with respect to the Transferred Bondable Transition Property purchased and sold on such Transfer Date is, in light of the circumstances under which it was provided, correct in all material respects. (b) Effect of Transfer. Each sale, transfer, assignment and conveyance herein contemplated constitutes a sale or other absolute transfer, of all right, title and interest of the Seller in, to and under the Transferred Bondable Transition Property from the Seller to the Issuer; upon execution and delivery of this Agreement and the related Bill of Sale, the Seller will have no right, title or interest in, to or under the Transferred Bondable Transition Property purchased and sold on such Transfer Date; such Transferred Bondable Transition Property would not be part of the estate of the Seller as debtor in the 6 event of the filing of a bankruptcy petition by or against the Seller under any bankruptcy law; and, to the fullest extent permitted by law, including the Competition Act and applicable BPU Regulations, the Issuer shall have all of the rights originally held by the Seller with respect to the Transferred Bondable Transition Property set forth in the Competition Act, other than the rights of a public utility, including the right to collect any amounts payable by any Customer or Third Party in respect of such Transferred Bondable Transition Property. (c) Transfer Filings. The Seller is the sole owner of the Transferred Bondable Transition Property purchased and sold to the Issuer on such Transfer Date; and such Transferred Bondable Transition Property will be validly sold, assigned, transferred and conveyed to the Issuer free and clear of all Liens other than Liens created by the Issuer pursuant to the Indenture. All actions or filings, including filings with the New Jersey Division of Revenue/Office of Commercial Recording under the New Jersey UCC and filings with the BPU under the Competition Act, necessary in any jurisdiction to give the Issuer a valid first priority perfected ownership interest in such Transferred Bondable Transition Property and to grant to the Trustee a first priority perfected security interest in such Transferred Bondable Transition Property, free and clear of all Liens of the Seller or anyone else have been taken or made, other than filings that would not have an adverse effect on the Servicer to collect the Transition Bond Charges or on the rights of the Issuer or the Trustee with respect to such Transferred Bondable Transition Property. (d) BPU Financing Orders Irrevocable; Process Valid; No Litigation; Etc. (i) Each BPU Financing Order issued by the BPU on or prior to such Transfer Date has been in accordance with the Competition Act, and such order and the process by which it was issued comply with all applicable laws, rules and regulations and is in full force and effect and final and non-appealable under state law, and the designee certification delivered pursuant to such order is final and incontestable as of its date. (ii) Each Series of Transition Bonds, as of its Series Issuance Date, is entitled to the protections provided by the Competition Act and, in accordance with the Competition Act, the BPU Financing Orders authorizing the issuance of such Series and the Transition Bond Charge order have become irrevocable, and the Advice Letter with respect to such Series is final and incontestable. (iii) (A) Under the Competition Act, none of the State of New Jersey, the BPU or any other governmental agency of the State of New Jersey may limit, alter or in any way impair or reduce the value of Bondable Transition Property or Transition Bond Charges approved by the BPU Financing Orders issued by the BPU on or prior to such Transfer Dates or any rights thereunder until the Transition Bonds are fully paid and discharged, or in any way limit, alter, impair or reduce the value or amount of the Transferred Bondable Transition Property; and 7 (B) under the Contract Clauses of the United States Constitution and the New Jersey Constitution, the State of New Jersey, the BPU or any other governmental agency of the State of New Jersey, may take no action that substantially impairs the rights of Bondable Transition Bondholders unless such action is justified as necessary and reasonable and of a character appropriate to advance an important public purpose, such as to remedy an important general, social or economic problem or to cope with a great public calamity, and, under the Takings Clauses of the United States and New Jersey Constitutions, the State of New Jersey could not repeal or amend the Competition Act by way of legislative process or take any other action in contravention of its pledge and agreement under the Competition Act referred to in this clause (B) without paying just compensation to the Transition Bondholders, as determined by a court of competent jurisdiction, if doing so would constitute a permanent appropriation of the property interest of the Transition Bondholders and deprive the Transition Bondholders of their reasonable investment-backed expectations arising from their investments in the Transition Bonds. (iv) There is no order by any court (a) providing for the revocation, alteration, limitation or other impairment of the Competition Act, any BPU Financing Order, the Restructuring Order (insofar as it relates to the sale of the Transferred Bondable Transition Property), any Advice Letter, the Transferred Bondable Transition Property arising thereunder, or the Transition Bond Charge approved thereunder, or any rights arising under any of them or (b) that seeks to enjoin the performance of any obligations under the BPU Financing Orders. (v) No other approval, authorization, consent, order or other action of, or filing with, any court, federal or state regulatory body, administrative agency or other governmental instrumentality is required in connection with the creation or transfer of the Transferred Bondable Transition Property, except those that have been obtained or made. (e) Assumptions. The assumptions used in calculating the Transition Bond Charge in the Advice Letter delivered by the Issuer to the BPU in connection with the Transition Bonds issued and sold on such Transfer Date pursuant to the BPU Financing Orders are reasonable and made in good faith. (f) Creation of Transferred Bondable Transition Property. (i) For purposes of the Competition Act and the New Jersey UCC, the Transferred Bondable Transition Property, upon the transfer thereof to an assignee and receipt of consideration therefor in connection with its sale to the Issuer, constitutes a vested, presently existing property right; (ii) the Transferred Bondable Transition Property includes without limitation (A) the irrevocable right of the Seller and its permitted assigns to charge, collect and receive, and be paid from collections of, the Transition Bond 8 Charge, subject to the limitations on electricity rates specified in the Restructuring Order, in the amount necessary to provide for the full recovery of the Bondable Stranded Costs which have been determined to be recoverable in the BPU Financing Orders and (B) all rights of the Seller under the BPU Financing Orders, including all rights to obtain periodic adjustments of the Transition Bond Charge pursuant to the Competition Act, and all revenues, collections, payments, money and proceeds arising under, or with respect to, any of the foregoing; and (iii) the provisions of the BPU Financing Orders creating the Transferred Bondable Transition Property and authorizing the issuance of the Transition Bonds, have been declared to be irrevocable by the BPU and any supplemental order of the BPU of similar effect authorizing the issuance of the Transition Bonds will be given such status to the extent necessary to provide the protections provided in clause (ii) above; and (iv) no failure on any Transfer Date to satisfy any condition imposed by the Competition Act with respect to the recovery of Bondable Stranded Costs will adversely affect the creation of the Bondable Transition Property sold on such Transfer Date, the sale, transfer and assignment of such Bondable Transition Property or the right to collect the related Transition Bond Charges. Section 3.09. Solvency. After giving effect to the sale, transfer and conveyance of Transferred Bondable Transition Property purchased and sold on such Transfer Date, the Seller: (a) is solvent and expects to remain solvent; (b) is adequately capitalized to conduct its business and affairs considering its size and the nature of its business and intended purposes; (c) is not engaged in nor does it expect to engage in a business for which its remaining property represents an unreasonably small portion of its capital; (d) reasonably believes that it will be able to pay its debts as they come due; and (e) does not intend to incur, or believe that it will incur, indebtedness that it will not be able to repay at its maturity. Section 3.10. Limitation on Representations and Warranties. None of the representations and warranties of the Seller herein contained shall be construed as a representation or warranty that amounts actually collected from the Transition Bond Charge will be sufficient to meet payment obligations on the Transition Bonds or that assumptions made in calculating the Transition Bond Charge will be realized. None of the representations and warranties of the Seller herein contained shall be construed as a representation or warranty that there will be no change in law by legislative enactment, constitutional amendment or judicial reinterpretation of constitutional provisions or that no attempt will be made by the State of New 9 Jersey, the BPU or any other governmental agency of the State of New Jersey to limit, alter or in any way impair or reduce the value of Bondable Transition Property or Transition Bond Charges approved by the BPU Financing Orders in breach of the pledge and agreement of the State of New Jersey under the Competition Act. Article IV Covenants of the Seller Section 4.01. Seller's Existence. So long as any of the Transition Bonds are outstanding, the Seller shall keep in full force and effect its existence as a corporation and remain in good standing under the laws of the State of New Jersey, and shall obtain and preserve its qualification to do business in each jurisdiction in which such qualification is necessary to protect the validity and enforceability of this Agreement and each other instrument or agreement to which the Seller is a party necessary to the proper administration of this Agreement and the transactions contemplated hereby. Section 4.02. No Liens or Conveyances. Except for the conveyances hereunder, the Seller shall not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on, any of the Transferred Bondable Transition Property, whether now existing or hereafter created, or any interest therein. The Seller shall not at any time assert any Lien against or with respect to any Transferred Bondable Transition Property, and shall defend the right, title and interest of the Issuer and the Trustee, as assignee of the Issuer, in, to and under the Transferred Bondable Transition Property, whether now existing or hereafter created, against all claims of third parties claiming through or under the Seller. Section 4.03. Use of Proceeds. The Seller shall use proceeds from the sale of the Transferred Bondable Transition Property in accordance with the BPU Financing Orders and the Competition Act. Section 4.04. Delivery of Collections. If the Seller receives collections of the Transition Bond Charge with respect to the Transferred Bondable Transition Property or the proceeds thereof and if the Seller is not the Servicer, the Seller shall pay the Servicer on behalf of the Issuer all payments received by the Seller in respect thereof as soon as practicable after receipt thereof by the Seller, but in no event later than two Business Days after such receipt. Section 4.05. Notice of Liens. The Seller shall notify the Issuer and the Trustee promptly after becoming aware of any Lien on any Transferred Bondable Transition Property other than the conveyances hereunder and under the Indenture. Section 4.06. Compliance with Law. The Seller shall comply with its organizational or governing documents and all laws, treaties, rules, regulations and determinations of any governmental instrumentality applicable to the Seller, except to the extent that failure to so comply would not adversely affect the Issuer's or the Trustee's interests in the Transferred Bondable Transition Property or under any of the Basic Documents or the Seller's performance of its obligations hereunder. Section 4.07. Covenants Related to Transferred Bondable Transition Property. 10 (a) So long as any of the Transition Bonds are outstanding, the Seller shall: (i) treat the Transition Bonds as debt of the Seller for federal income tax purposes; (ii) disclose in its financial statements that it is not the owner of the Transferred Bondable Transition Property and that the assets of the Issuer are not available to pay creditors of the Seller or any of its Affiliates (other than the Issuer); and (iii) disclose the effects of all transactions between the Seller and the Issuer in accordance with generally accepted accounting principles; and (b) So long as any of the Transition Bonds are Outstanding, (i) in all proceedings relating directly or indirectly to the Transferred Bondable Transition Property, the Seller shall not make any statement or reference in respect of the Transferred Bondable Transition Property that is inconsistent with the ownership thereof by the Issuer (other than for financial accounting or tax reporting purposes); and (ii) the Seller shall not take any action in respect of the Transferred Bondable Transition Property except solely in its capacity as the Servicer pursuant to the Servicing Agreement or as otherwise contemplated by or consistent with the Basic Documents or as required by applicable law. Section 4.08. Notice of Indemnification Events. The Seller shall deliver to the Issuer and the Trustee, promptly after having obtained knowledge thereof, written notice in an Officers' Certificate of any Indemnification Event or any event that, with the giving of notice or the passage of time or both, would become an Indemnification Event. 11 Section 4.09. Protection of Title. The Seller shall execute and file such filings, and cause to be executed and filed such filings, including filings with the BPU pursuant to the Competition Act, and take all such actions, all in such manner and in such places as may be required under applicable law fully to preserve, maintain and protect the interests of the Issuer and the Trustee in the Transferred Bondable Transition Property, including all filings under the Competition Act relating to the transfer of the ownership of the Transferred Bondable Transition Property by the Seller to the Issuer and the pledge of the Transferred Bondable Transition Property by the Issuer to the Trustee. The Seller shall deliver (or cause to be delivered) to the Issuer and the Trustee file-stamped copies of, or filing receipts for, any document filed as provided above, as soon as available following such filing. The Seller shall institute any action or proceeding necessary to compel the performance by the BPU or the State of New Jersey of any of their obligations or duties under the Competition Act or the BPU Financing Orders, and the Seller agrees to take such legal or administrative actions, including defending against or instituting and pursuing legal actions and appearing or testifying at hearings or similar proceedings, in each case as may be reasonably necessary: (a) to protect the Issuer and its permitted assigns and the Transition Bondholders from claims, state actions or other actions or proceedings of third parties which, if successfully pursued, would result in a breach of any representation set forth in Article III; or (b) to block or overturn any attempts to cause a repeal of, modification of or supplement to the Competition Act, the BPU Financing Orders, any Advice Letter, the Restructuring Order (to the extent it affects the rights of Transition Bondholders or the validity or value of the Bondable Transition Property) or the rights of Transition Bondholders by legislative enactment or constitutional amendment that would be adverse to the Issuer, the Trustee or the Transition Bondholders. The costs of any such actions or proceedings reasonably allocated by the Seller to the Transferred Bondable Transition Property shall be reimbursed by the Issuer to the Seller from amounts on deposit in the Collection Account as an Operating Expense. The Seller's obligations pursuant to this Section 4.09 shall survive and continue notwithstanding that the payment of Operating Expenses pursuant to the Indenture may be delayed (it being understood that the Seller may be required to advance its own funds to satisfy its obligation hereunder). The Seller designates the Issuer as its agent and attorney-in-fact to execute any filings of financing statements, continuation statements or other instruments required of the Issuer pursuant to this Section, it being understood that the Issuer shall have no obligation to execute any such instruments. Section 4.10. Taxes. So long as any of the Transition Bonds are outstanding, the Seller shall, and shall cause each of its subsidiaries to, pay all material taxes, including gross receipts 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 Transferred Bondable Transition Property; provided that no such tax need be paid if the Seller or one of its subsidiaries is contesting the same in good faith by appropriate proceedings 12 promptly instituted and diligently conducted and if the Seller or such subsidiary has established appropriate reserves as shall be required in conformity with generally accepted accounting principles. Section 4.11. Further Assurances. In connection with the issuance of any Transition Bonds, upon request from the Issuer, the Seller shall execute and deliver such further instruments and do such further acts as may be necessary to carry out more effectively the provisions and purposes of this Agreement and the related Bill of Sale. Article V Additional Undertakings of the Seller The Seller hereby undertakes the obligations contained in this Article V and hereby consents to the assignment by the Issuer of its right with respect to such obligations to the Trustee for the benefit of the Transition Bondholders. Section 5.01. Liability of the Seller; Indemnities. (a) The Seller shall be liable in accordance herewith only to the extent of the obligations specifically undertaken by the Seller under this Agreement. (b) The Seller shall indemnify the Issuer and the Trustee, for itself and on behalf of the Transition Bondholders, and each of their respective officers, directors, managers, employees and agents for, and defend and hold harmless each such Person from and against, any and all taxes (other than any taxes imposed on Transition Bondholders solely as a result of their ownership of Transition Bonds) that may at any time be imposed on or asserted against the Issuer and the Trustee under existing law as of any Transfer Date as a result of the sale and assignment of the Transferred Bondable Transition Property by the Seller to the Issuer, the acquisition or holding of the Transferred Bondable Transition Property by the Issuer or the issuance and sale by the Issuer of the Transition Bonds, including any sales, general corporation, personal property, privilege or license taxes, but excluding any taxes imposed as a result of a failure of such person to properly withhold or remit taxes imposed with respect to payments on any Transition Bond, it being understood that the Transition Bondholders shall be entitled to enforce their rights against the Seller under this Section 5.01(b) subject to Section 5.06 of the Indenture. (c) The Seller shall indemnify the Issuer and the Trustee, for itself and on behalf of the Transition Bondholders, and each of their respective officers, directors, managers, employees and agents for, and defend and hold harmless each such Person from and against, (i) any and all amounts of principal of and interest on the Transition Bonds (including amounts owed to Holders of any floating rate Transition Bonds at the gross fixed rate, if any, specified in the related Series Supplement) not paid when due or when scheduled to be paid in accordance with their terms and the amount of any deposits to the Issuer required to have been made in accordance with the terms of the Basic Documents which are not made when so required, in each case as a result of the Seller's 13 breach of any of its representations, warranties or covenants contained in this Agreement, and (ii) any and all liabilities, obligations, claims, actions, suits or payments of any kind whatsoever that may be imposed on or asserted against the Issuer or the Trustee, other than any liabilities, obligations or claims for or payments of principal of or interest on the Transition Bonds, together with any reasonable costs and expenses incurred by such person, as a result of the Seller's breach of any of its representations, warranties or covenants contained in this Agreement, it being understood that the Transition Bondholders shall be entitled to enforce their rights against the Seller under this Section 5.01(c) subject to Section 5.06 of the Indenture. (d) The Seller shall indemnify the Issuer and the Trustee, for itself and on behalf of the Transition Bondholders, for any and all liabilities, obligations, losses, damages, payments or expenses that result from (i) the Seller's willful misconduct, bad faith or gross negligence in the performance of its duties under this Agreement, or (ii) the Seller's reckless disregard of its obligations and duties under this Agreement, it being understood that the Transition Bondholders shall be entitled to enforce their rights against the Seller under this Section 5.01(d) subject to Section 5.06 of the Indenture. (e) Indemnification under this Section 5.01 shall survive the termination of this Agreement and shall include reasonable fees and expenses of investigation and litigation (including reasonable attorneys' fees and expenses). The Seller shall not indemnify any party under this Section 5.01 with respect to any sale of Transferred Bondable Transition Property for any changes in law after the related Transfer Date. (f) The indemnification obligation of the Seller under this Section 5.01 shall be pari passu with all other general unsecured obligations of the Seller. Section 5.02. Merger or Consolidation of, or Assumption of the Obligations of, the Seller. Any Person or Persons: (a) into which the Seller may be merged or consolidated and which succeeds to all or a significant part of the electric distribution business of the Seller, (b) which results from the division of the Seller into two or more Persons and which succeeds to all or a significant part of the electric distribution business of the Seller, (c) which may result from any merger or consolidation to which the Seller shall be a party and which succeeds to all or a significant part of the electric distribution business of the Seller, (d) which may succeed to all or a significant part of the electric distribution business of the Seller, or (e) which may otherwise succeed to all or a significant part of the electric distribution business of the Seller, 14 which Person or Persons in any of the foregoing cases executes an agreement of assumption to perform every obligation of the Seller under this Agreement, shall be the successor or successors to the Seller hereunder without the execution or filing of any document or any further act by any of the parties to this Agreement; provided, however, that (i) immediately after giving effect to such consolidation, merger or succession, no breach of any representation or warranty made pursuant to Article III shall have occurred and be continuing unremedied and no Servicer Default, and no event that, after notice or lapse of time or both, would become a Servicer Default, shall have occurred and be continuing, (ii) the Seller shall have delivered to the Issuer and the Trustee an Officers' Certificate and an Opinion of Counsel each stating that such consolidation, merger or succession and such agreement of assumption comply with this Section 5.02 and that all conditions precedent, if any, provided for in this Agreement relating to such consolidation, merger or succession have been complied with, (iii) the Seller shall have delivered to the Issuer and the Trustee an Opinion of Counsel either (A) stating that, in the opinion of such counsel, all filings to be made by the Seller, including New Jersey UCC filings, that are necessary fully to preserve and protect fully the respective interests of the Issuer and the Trustee in the Transferred Bondable Transition Property have been executed and filed, and reciting the details of such filings, or (B) stating that, in the opinion of such counsel, no such action is necessary to preserve and protect such interests; (iv) the Rating Agencies shall have received prior written notice of such transaction and the Rating Agency Condition shall have been satisfied with respect to such consolidation, merger or succession; and (v) the Seller shall have delivered to the Issuer and the Trustee an opinion of independent tax counsel (as selected by, and in form and substance reasonably satisfactory to, the Seller, and which may be based on a ruling from the Internal Revenue Service) to the effect that, for federal income tax purposes, such consolidation, merger or succession will not result in a material adverse federal income tax consequence to the Seller, the Issuer, the Trustee or the holders of the Outstanding Transition Bonds. The Seller shall not consummate any transaction referred to in clauses (a), (b), (c), (d) or (e) above except upon execution of the above-described agreement of assumption and compliance with clauses (i), (ii), (iii), (iv) and (v) above. When one or more Persons acquire the properties and assets of the Seller substantially as a whole and become the successor or successors to the Seller in accordance with the terms of this Section 5.02, then upon the satisfaction of all of the 15 other conditions of this Section 5.02, the Seller shall automatically and without further notice be released from its obligations hereunder. Section 5.03. Limitation on Liability of the Seller and Others. The Seller and any director, officer, employee or agent of the Seller may rely in good faith on the advice of counsel or on any document of any kind, prima facie properly executed and submitted by any Person, respecting any matters arising hereunder. Subject to Section 4.09, the Seller shall not be under any obligation to appear in, prosecute or defend any legal action that is not incidental to its obligations under this Agreement and that in its opinion may involve it in any expense or liability. Article VI Miscellaneous Provisions Section 6.01. Amendment. (a) This Agreement may be amended or supplemented by the Seller and the Issuer with the consent of the Trustee and the satisfaction of the Rating Agency Condition. Promptly after the execution of any such amendment or consent, the Issuer shall furnish written notification of the substance of such amendment or consent to each of the Rating Agencies. (b) Prior to the execution of any amendment or supplement to this Agreement, the Issuer and the Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating that the execution of such amendment or supplement is authorized or permitted by this Agreement. The Issuer and the Trustee may, but shall not be obligated to, enter into any such amendment or supplement which affects their own rights, duties or immunities under this Agreement or otherwise. Section 6.02. Notices. Unless otherwise specifically provided herein, all notices, directions, consents and waivers required under the terms and provisions of this Agreement shall be in English and in writing, and any such notice, direction, consent or waiver may be given by United States first-class mail, reputable overnight courier service, facsimile transmission or electronic mail (confirmed by telephone, United States first-class mail or reputable overnight courier service in the case of notice by facsimile transmission or electronic mail) or any other customary means of communication, and any such notice, direction, consent or waiver shall be effective when delivered or transmitted, or if mailed, five days after deposit in the United States first-class mail with proper postage for first-class mail prepaid: (a) in the case of the Seller, at Atlantic City Electric Company, 800 King Street, P.O. Box 231, Wilmington, Delaware 19899, Attention: General Counsel, (b) in the case of the Issuer, at Atlantic City Electric Transition Funding LLC, 800 King Street, Wilmington, Delaware 19899, Attention: Managers, (c) in the case of Moody's, at Moody's Investors Service, Inc., ABS Monitoring Department, 99 Church Street, New York, New York 10007, 16 (d) in the case of Standard & Poor's, at Standard & Poor's Ratings Group, 55 Water Street, New York, New York 10041, Attention: Asset Backed Surveillance Department, (e) in the case of Fitch, Inc., One State Street Plaza, New York, NY 10004, Attention: ABS Surveillance, and (f) in the case the Trustee, at the address provided for notices or communications to the Trustee in the Indenture; or, as to each of the foregoing, at such other address as shall be designated by written notice to the other parties. 17 Section 6.03. Assignment By Seller. Subject to Section 5.02, this Agreement may not be assigned by the Seller. Section 6.04. Assignment to Trustee. The Seller hereby acknowledges and consents to any pledge, assignment and grant of a security interest by the Issuer to the Trustee pursuant to the Indenture for the benefit of the Transition Bondholders of all right, title and interest of the Issuer in, to and under the Transferred Bondable Transition Property and the proceeds thereof and the assignment of any or all of the Issuer's rights hereunder to the Trustee. Section 6.05. Limitations on Rights of Others. The provisions of this Agreement are solely for the benefit of the Seller, the Issuer and the Trustee, on behalf of itself and the Transition Bondholders, and nothing in this Agreement, whether express or implied, shall be construed to give to any other Person any legal or equitable right, remedy or claim in the Collateral or under or in respect of this Agreement or any covenants, conditions or provisions contained herein. Section 6.06. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and no such prohibition or unenforceability in any jurisdiction shall invalidate or render unenforceable such provision in any other jurisdiction. Section 6.07. Separate Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. Section 6.08. Headings. The headings of the various Articles and Sections herein are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. Section 6.09. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. Section 6.10. Nonpetition Covenant. Notwithstanding any prior termination of this Agreement or the Indenture, the Seller hereby covenants and agrees that it shall not, prior to the date which is one year and one day after the termination of the Indenture and the payment in full of the Transition Bonds, any other amounts owed under the Indenture, including without limitation any amounts owed to third-party credit enhancers, and any amounts owed under the Hedge Agreement or the Interest Rate Swap Agreement, acquiesce, petition or otherwise invoke or cause the Issuer to invoke the process of any court or governmental authority for the purpose of commencing or sustaining a case against the Issuer under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of the property of the Issuer, or ordering the winding up or liquidation of the affairs of the Issuer. 18 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective duly authorized officers as of the date and year first above written. ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC, as Issuer By: /s/ Roberta S. Brown ------------------------------------- Name: Roberta S. Brown Title: Vice President ATLANTIC CITY ELECTRIC COMPANY, as Seller By: /s/ Roberta S. Brown ------------------------------------- Name: Roberta S. Brown Title: Vice President 19 EXHIBIT A BILL OF SALE Capitalized terms used herein and not defined shall have the meanings set forth in the Bondable Transition Property Sale Agreement dated as of December 19, 2002 (the "Sale Agreement") between the Issuer and the Seller. In consideration of the Issuer's payment to or upon the order of the Seller of $_________________ (the "Initial Purchase Price"), by wire transfer of funds immediately available on the date hereof to Seller's account no. ___________ at __________, subject to the conditions specified in Section 2.02 of the Sale Agreement, ATLANTIC CITY ELECTRIC COMPANY, a New Jersey corporation (the "Seller"), does hereby sell, assign, transfer and convey to ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC, a Delaware limited liability company (the "Issuer"), without recourse except as provided in the Sale Agreement referred to below, all of the Seller's right, title and interest in, to and under all of its Bondable Transition Property, which sale, assignment, transfer and conveyance of such Bondable Transition Property shall include, as provided in the Competition Act, the sale, assignment, transfer and conveyance of all of the Seller's right, title and interest in, to and under all revenues, collections, payments, money or proceeds arising under or with respect to the Transition Bond Charge related to such Bondable Transition Property, as the same may be adjusted from time to time in accordance with the Competition Act and the BPU Financing Orders, to have and to hold the same unto the Issuer and to the successors and assigns of the Issuer, forever. This Bill of Sale is governed by the laws of the State of New Jersey. IN WITNESS WHEREOF, the Seller has duly executed and delivered this Bill of Sale this ____ day of _________, ____. ATLANTIC CITY ELECTRIC COMPANY, as Seller By: ----------------------------------- Name: ---------------------------- Title: --------------------------- Accepted this ____ day of ___________, 2___. ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC By: --------------------------------------- Name: ---------------------------------- Title: --------------------------------- A-1 EXHIBIT B OPINION OF COUNSEL B-1 EXHIBIT C OPINION OF COUNSEL C-1 APPENDIX A MASTER DEFINITIONS The definitions contained in this Appendix A are applicable to the singular as well as the plural forms of such terms. "ACE" means Atlantic City Electric Company, a New Jersey corporation, and its permitted successors and assigns. "Act" has the meaning specified in Section 11.03(a) of the Indenture. "Adjustment Date" means (i) October 1 of each year beginning October 1, 2003 until October 1, 2019, (ii) so long as any Series 2002-1 Transition Bonds are outstanding, January 1, April 1, July 1 and October 1 of each year, beginning October 1, 2020, (iii) any other dates designated as Adjustment Dates in any Series Supplement, and (iv) any other day that is 30 days after a Calculation Date. "Adjustment Request" means an application filed by the Servicer with the BPU for a Transition Bond Charge Adjustment pursuant to Section 5(b) or (e) of the Issuer Annex. "Administration Agreement" means the Administration Agreement dated as of December 19, 2002, between the Issuer and PHI Service Company, as administrator, as the same may be amended or supplemented from time to time. "Administrator" means PHI Service Company, as administrator under the Administration Agreement, and each successor to PHI Service Company, in the same capacity, pursuant to Section 5.08 of the Administration Agreement. "Advice Letter" means, with respect to any Series of Transition Bonds, the Issuance Advice Letter, in the form specified in the BPU Financing Order authorizing the issuance of Transition Bonds of such Series, filed with the BPU at the time of the issuance of such Series. "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. "Annual Accountant's Report" has the meaning assigned to that term in Section 3.07 of the Servicing Agreement. "Authorized Denominations" means, with respect to any Series or Class of Transition Bonds, $1,000 and integral multiples of $1.00 above that amount, provided, however, that one bond of each Class may have a denomination of less than $1,000, or such other denominations as may be specified in the Series Supplement therefor. "Authorized Newspaper" means the Luxemburger Wort or any other newspaper published in Luxembourg on a daily basis. "Authorized Officer" means, with respect to the Issuer, (a) any Manager and, (b) any person designated as an "Officer" under the Issuer LLC Agreement and authorized thereby to act on behalf of the Issuer. "Basic Documents" means the Formation Documents, the Sale Agreement, any Bills of Sale, the Servicing Agreement, the Administration Agreement, the Indenture, as each may be amended or supplemented from time to time. "Billing Month" means a calendar month during which the Transition Bond Charge is billed to Customers. "Bill of Sale" means any bill of sale issued by the Seller to the Issuer pursuant to the Sale Agreement evidencing the sale of Bondable Transition Property by the Seller to the Issuer. "Bondable Stranded Costs" has the meaning assigned to that term in the Competition Act and the BPU Financing Orders. "Bondable Transition Property" has the meaning assigned to that term in the Competition Act and the BPU Financing Orders. "Bondable Transition Property Documentation" means all documents relating to the Transferred Bondable Transition Property, including copies of the Petition and the BPU Financing Orders and all documents filed with the BPU in connection with any Transition Bond Charge Adjustment. "Book-Entry Transition Bonds" means beneficial interests in the Transition Bonds, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 2.11 of the Indenture. "BPU" means the State of New Jersey Board of Public Utilities or its successor. "BPU Financing Orders" means the bondable stranded costs rate order issued by the BPU in favor of ACE on September 20, 2002 pursuant to the Competition Act, any subsequent bondable stranded costs rate orders issued by the BPU in favor of ACE pursuant to the Competition Act, and any order supplemental to any of the foregoing. "BPU Regulations" means any regulations, orders, guidelines or directives promulgated, issued or adopted by the BPU. "Business Day" means any day other than a Saturday, Sunday or a day on which banking institutions in The City of New York, New York or with respect to any Transition Bonds listed on the Luxembourg Stock Exchange, in Luxembourg, are required or authorized by law or executive order to remain closed. A-2 "Calculation Date" means (i) September 1 of each year beginning September 1, 2003 until September 1, 2019, (ii) so long as any Series 2002-1 Transition Bonds are outstanding, March 1, June 1, September 1 and December 1 of each year, beginning September 1, 2020, (iii) any other dates designated as Calculation Dates in any Series Supplement, and (iv) any other date on which the Servicer files an Adjustment Request. "Capital Subaccount" with respect to any Series has the meaning specified in Section 8.02(a) of the Indenture. "Class" means, with respect to any Series, any one of the classes of Transition Bonds of that Series, as specified in the Series Supplement for that Series. "Class Final Maturity Date" means the Final Maturity Date of a Class, as specified in the Series Supplement for the related Series. "Class Subaccount," with respect to a Class within a Series, has the meaning specified in Section 8.02(a) of the Indenture and, if established for such Series and Class, in the Series Supplement for such Series. "Clearing Agency" means an organization registered as a "clearing agency" pursuant to Section 17A of the Exchange Act. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and Treasury Regulations promulgated thereunder. "Collateral" has the meaning specified in the Granting Clause of the Indenture. "Collection Account" has the meaning specified in Section 8.02(a) of the Indenture. "Collection Period" means the period from and including the first day of a calendar month to but excluding the first day of the next calendar month. "Collections Curve" means an annually prepared forecast, with respect to each Billing Month, of the percentages of amounts billed in such Billing Month that are expected to be received during such Billing Month and each of the following six months. "Collections Curve Payment" means, with respect to any Billing Month, the sum of the amounts paid to the Trustee during such Billing Month and each of the following six months based on the Collections Curve then in effect. "Commission" means the U.S. Securities and Exchange Commission, and any successor thereof. A-3 "Competition Act" means the Electric Discount and Energy Competition Act, New Jersey Statutes Annotated, title 48, chapter 3, article 7, as in effect from time to time. "Corporate Trust Office" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at date of the execution of the Indenture is located at 101 Barclay Street, Floor 8 West, New York, New York 10286, Attn: Asset Backed Securities (phone: (212) 815-2484; fax: (212) 815-3883), or at such other address as the Trustee may designate from time to time by notice to the Transition Bondholders and the Issuer, or the principal corporate trust office of any successor Trustee (the address of which the successor Trustee will notify the Transition Bondholders and the Issuer in writing). "Covenant Defeasance Option" has the meaning specified in Section 4.01(b) of the Indenture. "Curve Payment Shortfall" means, for a particular Billing Month, the amount, if any, by which the actual TBC Collections in respect of a Billing Month exceed the Collections Curve Payments made to the Trustee in respect of that Billing Month, as determined on the Reconciliation Date for that Billing Month. "Customer" means each person who is a retail consumer of electricity and who accesses ACE's transmission and distribution system, regardless of whether such consumer elects to purchase electricity from a Third Party. "Daily Remittance Date" means, if the Servicer has not satisfied the conditions of Section 5.10(b) of the Servicing Agreement, each Business Day commencing on the second Business Day following the date on which the Servicer begins remittance procedures under Section 3.03(a)(ii) 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. "Defeasance Subaccount" has the meaning specified in Section 8.02(a) of the Indenture. "Definitive Transition Bonds" has the meaning specified in Section 2.11 of the Indenture. "Delaware UCC" means the Uniform Commercial Code, as in effect in the State of Delaware, as amended from time to time. "DTC Agreement" means the agreement between the Issuer, the Trustee and The Depository Trust Company, as the initial Clearing Agency, dated on or about December 19, 2002, relating to the Transition Bonds, as the same may be amended or supplemented from time to time. A-4 "Eligible Guarantor Institution" means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution," including (as such terms are defined therein): (a) a bank; (b) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; (c) a credit union; (d) a national securities exchange, registered securities association or clearing agency; or (e) a savings association that is a participant in a securities transfer association. "Eligible Institution" means: (a) the corporate trust department of the Trustee, so long as any of the securities of the Trustee have a credit rating from each Rating Agency in one of its generic rating categories which signifies investment grade, or (b) a depositary 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) with respect to any Eligible Investment having a maturity of greater than one month, a long-term unsecured debt rating of "AA-" by Standard & Poor's and Fitch and "Aa3" by Moody's, or (B) with respect to any Eligible Investment having a maturity one month or less, a certificate of deposit rating of "A-1+" by Standard & Poor's, "F1+" by Fitch 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. "Eligible Investments" mean book-entry securities, negotiable instruments or securities represented by instruments in bearer or registered form which evidence: (a) direct obligations of, and obligations fully and unconditionally guaranteed as to timely payment by, the United States of America; A-5 (b) demand deposits, time deposits or certificates of deposit of any depository institution or trust company (any depositary institution or trust company being referred to in this definition as a "financial institution") incorporated under the laws of the United States of America or any state thereof (or any domestic branch of a foreign bank) and subject to supervision and examination by federal or state banking or depositary institution authorities; provided, however, that at the time of the investment or contractual commitment to invest therein, the commercial paper or other short-term unsecured debt obligations of such financial institution (other than such obligations the rating of which is based on the credit of a Person other than such financial institution) shall have a credit rating from each of the Rating Agencies in the highest investment category granted thereby; (c) commercial paper or other short-term unsecured debt obligations of any corporation organized under the laws of the United States of America (other than ACE) whose ratings, at the time of the investment or contractual commitment to invest therein, from each of the Rating Agencies are in the highest rating category granted thereby; (d) investments in money market funds having a rating from each of the Rating Agencies in the highest rating category granted thereby (including funds for which the Trustee or any of its Affiliates act as investment manager or advisor); (e) bankers' acceptances issued by any depositary institution or trust company referred to in clause (b) above; (f) 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 a financial institution (acting as principal) incorporated under the laws of the United States of America or any state thereof (or any domestic branch of a foreign bank) and subject to supervision and examination by federal or state banking or depositary institution authorities; provided, however, that at the time of the investment or contractual commitment to invest therein, the commercial paper or other short-term unsecured debt obligations of such financial institution (other than such obligations the rating of which is based on the credit of a Person other than such financial institution) shall have a credit rating from each of the Rating Agencies in the highest investment category granted thereby; (g) repurchase obligations with respect to any security or whole loan entered into with (i) a financial institution (acting as principal) described in clause (b) above, A-6 (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 P-1 by Moody's and A-1+ by Standard & Poor's at the time of entering into the 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 P-1 by Moody's and A-1+ by Standard & Poor's and F1+ by Fitch at the time of purchase; or (h) any other investment permitted by each Rating Agency; provided, however, that, unless otherwise permitted by each Rating Agency, upon the failure of any Eligible Institution to maintain any applicable rating set forth in this definition or the definition of Eligible Institution, the related investments at such institution shall be reinvested in Eligible Investments at a successor Eligible Institution within 10 days, and provided, further, that, any Eligible Investment must not: (i) be sold, liquidated or otherwise disposed of at a loss, prior to the maturity thereof, or (ii) mature later than (i) the date on which the proceeds of such Eligible Investment will be required to be on deposit in the Collection Account in order for the Trustee to make all required and scheduled payments and deposits into Subaccounts under the Indenture, if such Eligible Investment is held by an Affiliate of the Trustee, or (ii) the Business Day prior to the date on which the proceeds of such Eligible Investment will be required to be on deposit in the Collection Account in order for the Trustee to make all required and scheduled payments and deposits into Subaccounts under the Indenture, if such Eligible Investment is not held by an Affiliate of the Trustee. "Eligible Securities Account" means either: (a) a segregated trust account with an Eligible Institution or (i) a segregated trust account with the corporate trust department of a depositary 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 depositary institution shall have a credit rating from each Rating Agency in one of its generic rating categories which signifies investment grade. "Event of Default" has the meaning specified in Section 5.01 of the Indenture. A-7 "Excess Curve Payment" means, for a particular Billing Month, the amount, if any, by which the Collections Curve Payments made to the Trustee in respect of that Billing Month exceed the actual TBC Collections in respect of that Billing Month, as determined on the Reconciliation Date for that Billing Month. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Executive Officer" means, with respect to any corporation, the chief executive officer, chief operating officer, chief financial officer, chief information officer, president, executive vice president, any vice president, the secretary or the treasurer of such corporation; and with respect to any limited liability company, any manager thereof. "Expected Amortization Schedule" means, with respect to each Series or, if applicable, each Class of Transition Bonds, the expected amortization schedule for principal thereof, as specified in Schedule A to the Series Supplement for such Series. "Expected Final Payment Date" means, with respect to each Series or, if applicable, each Class of Transition Bonds, the Payment Date related to the date when all interest and principal is scheduled to be paid with respect to that Series or Class in accordance with the Expected Amortization Schedule, as specified in the Series Supplement therefor. "FDIC" means the Federal Deposit Insurance Corporation or its successor. "Final Maturity Date" means, for each Series or, if applicable, each Class of Transition Bonds, the Payment Date related to the date by which all principal of and interest on such Series or Class of Transition Bonds is required to be paid, as specified in the Series Supplement therefor. "Financing Issuance" means an issuance of a new Series of Transition Bonds under the Indenture to provide funds to finance the purchase by the Issuer of Bondable Transition Property. "Fitch" means Fitch, Inc. or its successor. "Formation Document" means the Issuer LLC Agreement, the Issuer Certificate of Formation and any other document pursuant to which the Issuer is formed or governed, as each may be amended or supplemented from time to time. "General Subaccount" has the meaning specified in Section 8.02(a) of the Indenture. "Grant" means mortgage, pledge, bargain, sell, warrant, alienate, remise, release, convey, assign, transfer, create, and grant a lien upon and a security interest in and right of set-off against, deposit, set over and confirm. A Grant of the Collateral or of any other agreement or instrument 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 principal, interest and other payments in respect of the Collateral and all other moneys payable thereunder, to give and receive notices and other communications, to A-8 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. "Hedge Agreement" means, with respect to any Series, the document or documents, if any, identified as a "Hedge Agreement" in the Series Supplement for such Series. "Holder" or "Transition Bondholder" means the Person in whose name a Transition Bond of any Series or Class is registered in the Transition Bond Register. "Indemnification Event" means an event which triggers ACE's obligation to indemnify the Issuer and the Trustee, for itself and on behalf of the Transition Bondholders, and each of their respective managers, officers, employees, directors and agents, pursuant to Section 5.01 of the Sale Agreement. "Indemnity Amount" means the amount of any indemnification obligation payable under the Basic Documents or any Hedge Agreement or Interest Rate Swap Agreement. "Indenture" means the Indenture dated as of December 19, 2002, between the Issuer and the Trustee, as the same may be amended or supplemented from time to time by one or more Supplemental Indentures, and shall include each Series Supplement and the forms and terms of the Transition Bonds established thereunder. "Independent" means, when used with respect to any specified Person, that the Person (a) is in fact independent of the Issuer, any other obligor upon the Transition Bonds, ACE 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 obligor, ACE or any Affiliate of any of the foregoing Persons, and (c) is not connected with the Issuer, any such other obligor, ACE or any Affiliate of any of the foregoing Persons as an officer, employee, promoter, underwriter, trustee, partner, director or other Person performing similar functions. "Independent Certificate" means a certificate or opinion to be delivered to the Trustee under the circumstances described in, and otherwise complying with, the applicable requirements of Section 11.01 of the Indenture, made by an Independent appraiser or other expert appointed by an Issuer Order and approved by the Trustee in the exercise of reasonable care, and such opinion or certificate shall state that the signer has read the definition of "Independent" in this Appendix A and that the signer is Independent within the meaning thereof. "Independent Manager" has the meaning set forth in the Issuer LLC Agreement. A-9 "Initial Purchase Price" has the meaning set forth in Section 2.01 of the Sale Agreement. "Initial Transfer Date" means the Series Issuance Date for the Series 2002-1 Transition Bonds, i.e., December 19, 2002. "Initial Transferred Bondable Transition Property" means the Bondable Transition Property sold by the Seller to the Issuer as of the Initial Transfer Date pursuant to the Sale Agreement and the Bill of Sale delivered on or prior to the Initial Transfer Date as identified in such Bill of Sale. "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 in effect on or after December 19, 2002, 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 90 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 in effect on or after December 19, 2002, 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. "Interest" means, for any Payment Date for any Series or Class of Transition Bonds, the sum, without duplication, of (a) an amount equal to the amount of interest accrued at the applicable Interest Rate from the prior Payment Date with respect to that Series or Class; (b) any unpaid interest, to the extent permitted by applicable law, plus any interest accrued on this unpaid interest at the applicable Interest Rate, to the extent permitted by applicable law; (c) if the Transition Bonds have been declared due and payable, all accrued and unpaid interest thereon; and (d) with respect to a Series or Class to be redeemed prior to the next Payment Date, the amount of interest that will be payable as interest on such Series or Class upon such redemption. A-10 "Interest Rate" means, with respect to each Series or Class of Transition Bonds, the rate at which interest accrues on the principal balance of Transition Bonds of such Series or Class, as specified in the Series Supplement therefor. "Interest Rate Swap Agreement" means any ISDA Master Agreement, together with the related schedules and confirmations, between the Issuer and the counterparty thereunder, as same may be amended or supplemented from time to time, with respect to any Series or Class of Transition Bonds as provided in the Series Supplement for such Series or Class, as the case may be. "Issuer" means Atlantic City Electric Transition Funding LLC, a Delaware limited liability company, or its successor under the Indenture or the party named as such in the Indenture until a successor replaces it and, thereafter, means the successor. "Issuer Annex" means Annex 1 of the Servicing Agreement. "Issuer Certificate of Formation" means the Certificate of Formation of the Issuer, which was filed with the Delaware Secretary of State's Office on March 28, 2001, as the same may be amended or supplemented from time to time. "Issuer LLC Agreement" means the Amended and Restated Limited Liability Company Agreement between the Issuer and ACE, as sole Member, dated as of December 19, 2002, as the same may be amended or supplemented from time to time. "Issuer Officer's Certificate" means a certificate signed by any Authorized Officer of the Issuer, under the circumstances described in, and otherwise complying with, the applicable requirements of Section 11.01 of the Indenture, and delivered to the Trustee. Unless otherwise specified, any reference in the Indenture to an Officer's Certificate shall be to an Officer's Certificate of any Authorized Officer of the Issuer. "Issuer Opinion of Counsel" means one or more written opinions of counsel who may, except as otherwise expressly provided in the Indenture, be employees of or counsel to the Issuer or the Seller and who shall be reasonably satisfactory to the Trustee, and which opinion or opinions shall be addressed to the Trustee, and shall be in a form reasonably satisfactory to the Trustee. "Issuer Order" or "Issuer Request" means a written order or request, respectively, signed in the name of the Issuer by any one of its Authorized Officers and delivered to the Trustee. "Legal Defeasance Option" has the meaning specified in Section 4.01(b) of the Indenture. "Lien" means a security interest, lien, charge, pledge, equity or encumbrance of any kind. "Losses" means collectively, any and all liabilities, obligations, losses, damages, payments, costs or expenses of any kind whatsoever. A-11 "Manager" has the meaning set forth in the Issuer LLC Agreement. "Market Transition Charge" means the market transition charge that ACE may impose on Customers pursuant to the Competition Act and the Restructuring Order. "Measure Period" means any period beginning on an Adjustment Date and ending on the date immediately preceding the next Adjustment Date. "Member" means ACE, as the sole member of the Issuer, in its capacity as such member under the Issuer LLC Agreement. "Monthly Remittance Date" means the 15th day of each calendar month (or if such day is not a Business Day, the next Business Day). "Monthly Servicing Fee" means the fee payable to the Servicer on a monthly basis for services rendered, in accordance with Section 5.07 of the Servicing Agreement. "Moody's" means Moody's Investors Service Inc., or its successor. "MTC-Tax" means the tax component, to recover federal income and state corporation business taxes associated with the Market Transition Charge and the Transition Bond Charge, that ACE is entitled to impose under the Restructuring Order and under the BPU Financing Orders. "New Jersey UCC" means the Uniform Commercial Code, as in effect in the State of New Jersey, as amended from time to time. "Officers' Certificate" means a certificate signed by (a) the chairman of the board, the president, the vice chairman of the board, any executive vice president or any vice president and (b) a treasurer, assistant treasurer, secretary or assistant secretary, in each case of the Servicer or the Seller, as applicable. "Operating Expenses" means, with respect to the Issuer, all fees, costs, expenses and indemnity payments owed by the Issuer, including, without limitation, all amounts owed by the Issuer to the Trustee, the Monthly Servicing Fee, the fees and expenses payable by the Issuer to the Administrator under the Administration Agreement, the fees and expenses payable by the Issuer to the Independent Managers and Special Members of the Issuer, fees of the Rating Agencies, legal fees and expenses of the Servicer pursuant to Section 3.10 of the Servicing Agreement, legal and accounting fees, costs and expenses of the Issuer, and legal, accounting or other fees, costs and expenses of the Seller (including, without limitation, any costs and expenses incurred by the Seller pursuant to Section 4.08 of the Sale Agreement) under or in connection with the Basic Documents, any Hedge Agreement or Interest Rate Swap Agreement or the BPU Financing Orders. "Opinion of Counsel" means one or more written opinions of counsel who may be an employee of or counsel to ACE or the Issuer, or any other Person (as the context may require), which counsel shall be reasonably acceptable to the Trustee, the Issuer or the Rating A-12 Agencies, as applicable, and which opinion or opinions shall be in form reasonably satisfactory to the Trustee, if applicable. "Outstanding" with respect to Transition Bonds means, as of the date of determination, all Transition Bonds theretofore authenticated and delivered under the 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 Trustee or any Paying Agent in trust for the Holders of such Transition Bonds; provided, however, that if such Transition Bonds are to be redeemed, notice of such redemption has been duly given pursuant to the Indenture or provision therefor, satisfactory to the Trustee, made; and (c) Transition Bonds in exchange for or in lieu of other Transition Bonds which have been authenticated and delivered pursuant to the Indenture unless proof satisfactory to the 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 Class thereof have given any request, demand, authorization, direction, notice, consent or waiver under the Indenture or under or with respect to any other Basic Document or any Hedge Agreement or Interest Rate Swap Agreement, Transition Bonds owned by the Issuer, any other obligor upon the Transition Bonds, ACE or any Affiliate of any of the foregoing Persons shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be fully protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Transition Bonds that a Responsible Officer of the 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 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, ACE or any Affiliate of any of the foregoing Persons. "Outstanding Amount" means, with respect to one or more Classes or Series, the aggregate principal amount of, as the context requires, all Outstanding Transition Bonds of such Class or Classes or of such Series or group of Series. "Overcollateralization" means, with respect to any Payment Date and any Series, the amount, if any, that, if deposited to the Overcollateralization Subaccount for such Series on such Payment Date, would cause the balance in such subaccount on such Payment Date to equal the Scheduled Overcollateralization Level for such Series on such Payment Date. "Overcollateralization Amount" means, with respect to any Series, the amount specified as such in Schedule B to the Series Supplement therefor. A-13 "Overcollateralization Subaccount" with respect to any Series has the meaning specified in Section 8.02(a) of the Indenture. "Paying Agent" means the Trustee or any other Person, including any Person appointed pursuant to Section 3.02(b) of the Indenture, that meets the eligibility standards for the Trustee specified in Section 6.11 of the Indenture and is authorized by the Issuer to make the payments of principal of or premium, if any, or interest on the Transition Bonds on behalf of the Issuer. "Payment Date" means January 20, April 20, July 20 and October 20, or, if any such date is not a Business Day, the next succeeding Business Day. "Person" means any individual, corporation, estate, partnership, joint venture, association, joint stock company, trust (including any beneficiary thereof), business trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof. "Petition" means the petition filed by ACE with the BPU, dated June 25, 2001. "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. "Principal" means, with respect to any Payment Date and each Series or Class of Transition Bonds: (a) the amount of principal scheduled to be paid on such Payment Date in accordance with the Expected Amortization Schedule; (b) the amount of principal due on the Final Maturity Date of any Series or Class on such Payment Date; (c) the amount of principal due as a result of the occurrence and continuance of an Event of Default and acceleration of the Transition Bonds; (d) the amount of principal and premium, if any, due as a result of a redemption of Transition Bonds on such Payment Date; and (e) any overdue payments of principal. "Proceeding" means any suit in equity, action at law or other judicial or administrative proceeding. "Rating Agency" means, as of any date, any rating agency rating the Transition Bonds of any Class or Series at the time of issuance thereof at the request of the Issuer. If no A-14 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 Trustee, the Member and the Servicer. "Rating Agency Condition" means, with respect to any action, the notification in writing by the Trustee to each Rating Agency of such action and the notification by each Rating Agency to the Trustee and the Issuer that such action will not result in a reduction or withdrawal of the then current rating by such Rating Agency of any Outstanding Series or Class of Transition Bonds; provided that, except where such action includes the issuance of Transition Bonds of a new Series (either as a Financing Issuance or as a Refunding Issuance), the Rating Agency Condition shall be satisfied with respect to Moody's by providing Moody's 10 Business Days' prior written notice of such action. "Reconciliation Date" for a particular Billing Month means the fifteenth day (or if that day is not a Business Day, the next succeeding Business Day) of the calendar month that is seven months after such Billing Month. "Record Date" has, with respect to any Series, the meaning set forth in the related Series Supplement. "Redemption Date" means, with respect to each Series or Class of Transition Bonds, the date for the redemption of the Transition Bonds of such Series or Class pursuant to Section 10.01 or 10.02 of the Indenture or the Series Supplement for such Series or Class, which in each case shall be a Payment Date. "Redemption Price" has the meaning set forth in Section 10.01 of the Indenture. "Refunding Issuance" means an issuance of a new Series of Transition Bonds under the Indenture to pay the cost of refunding, through redemption or payment on the Expected Final Payment Date for a Series or Class of Transition Bonds, all or part of the Transition Bonds of such Series or Class to the extent permitted by the terms thereof. "Registered Holder" means, as of any date, the Person in whose name a Transition Bond is registered in the Transition Bond Register on such date. A Payment Date "relates" to a Measure Period in each of the following circumstances: (i) if such Measure Period is one year in length, each of the second, third, fourth and fifth Payment Dates to occur after the first day in such Measure Period relates to such Measure Period; (ii) if such Measure Period is one calendar quarter in length, the first Payment Date to occur following the end of such Measure Period relates to such Measure Period; and (iii) if such Measure Period is one month in length, the first Payment Date to occur following the end of the calendar quarter in which such Measure Period falls relates to such Measure Period. "Released Parties" has the meaning specified in Section 5.02(e) of the Servicing Agreement. "Remittance Date" means a Daily Remittance Date or a Monthly Remittance Date, as applicable. A-15 "Required Capital Amount" means, with respect to any Series, the amount required to be deposited in the Capital Subaccount for such Series on the Series Issuance Date of such Series, as specified in the related Series Supplement. "Reserve Subaccount" with respect to any Series has the meaning specified in Section 8.02(a) of the Indenture. "Responsible Officer" means, with respect to the Trustee, any officer within the Corporate Trust Office of the Trustee, including any vice president, assistant vice president, secretary, assistant secretary, or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Restructuring Order" means the decision and order of the BPU issued on March 30, 2001 pursuant to Section 13 of the Competition Act. "Retiring Trustee" has the meaning specified in Section 6.08(b) of the Indenture. "Revenue Requirement" means, for any Series with respect to any Measure Period, the aggregate amount estimated in good faith by the Servicer, pursuant to the Issuer Annex, to be payable in respect of such Series pursuant to Sections 8.02(d) and 8.02(e) of the Indenture during such Measure Period. "Sale Agreement" means the Bondable Transition Property Sale Agreement dated as of December 19, 2002, between the Seller and the Issuer, as the same may be amended or supplemented from time to time. "Scheduled Overcollateralization Level" means, with respect to each Series and any Payment Date, the amount with respect to such Series set forth as such in Schedule B to the Series Supplement for such Series. "Scheduled Transition Bond Balance" means, as of any date, the sum of the amounts provided for in the Expected Amortization Schedules for each outstanding Series of Transition Bonds as of such date. "Seller" means ACE, in its capacity as seller of the Bondable Transition Property to the Issuer pursuant to the Sale Agreement. "Series" means the Series 2002-1 Transition Bonds and any subsequent series of Transition Bonds issued by the Issuer and authenticated by the Trustee pursuant to the Indenture, as specified in the Series Supplement therefor. "Series Capital Subaccount" with respect to each Series has the meaning specified in Section 8.02(a) of the Indenture and in the related Series Supplement. "Series Final Maturity Date" means the Final Maturity Date for a Series. A-16 "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 Series Supplement for such Series. "Series Overcollateralization Subaccount" with respect to each Series has the meaning specified in Section 8.02(a) of the Indenture and in the related Series Supplement. "Series Reserve Subaccount" with respect to each Series has the meaning specified in Section 8.02(a) of the Indenture and in the related Series Supplement. "Series Subaccount" with respect to each Series has the meaning specified in Section 8.02(a) of the Indenture and in the related Series Supplement. "Series Supplement" means any Supplemental Indenture that authorizes a particular Series of Transition Bonds, as the same may be amended or supplemented from time to time. "Servicer" means ACE, as the servicer of the Bondable Transition Property, and each successor to ACE (in the same capacity) pursuant to Section 5.03 or 6.04 of the Servicing Agreement. "Servicer Default" means an event specified in Section 6.01 of the Servicing Agreement. "Servicing Agreement" means the Servicing Agreement dated as of December 19, 2002, between the Issuer and the Servicer, as the same may be amended or supplemented from time to time. "Special Member" has the meaning set forth in the Issuer LLC Agreement. "Standard & Poor's" or "S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc., or its successor. "state" in the jurisdictional sense means any one of the 50 states of the United States of America or the District of Columbia. "Subaccount" means any of the subaccounts of the Collection Account specified in Section 8.02 of the Indenture. "Subsequent Purchase Price" means, in relation to a Subsequent Sale, the price specified in the related Bill of Sale, to be paid by the Issuer for the Subsequent Transferred Bondable Transition Property purchased and sold in such Subsequent Sale. "Subsequent Sale" means any sale of Bondable Transition Property by the Seller to the Issuer after the Initial Transfer Date. A-17 "Subsequent Transfer Date" means a date on which a sale of Subsequent Transferred Bondable Transition Property is effective, as specified in the written notice relating to such sale contemplated in Section 2.02(e) of the Sale Agreement. "Subsequent Transferred Bondable Transition Property" means Bondable Transition Property sold by the Seller to the Issuer as of a Subsequent Transfer Date pursuant to the Sale Agreement and a Bill of Sale delivered on or prior to the related Subsequent Transfer Date as identified in such Bill of Sale. "Successor Servicer" means a successor Servicer appointed by the Trustee pursuant to Section 6.04 of the Servicing Agreement which succeeds to all the rights and duties of the Servicer under the Servicing Agreement. "Supplemental Indenture" means a supplemental indenture entered into by the Issuer and the Trustee pursuant to Article IX of the Indenture. "Target Payment Date" has the meaning specified in Section 5(a) of the Issuer Annex. "TBC Collections" means amounts received by the Servicer in respect of the Transition Bond Charge. "Termination Notice" has the meaning specified in Section 6.01 of the Servicing Agreement. "Third Party" means any third party, including any electric generation supplier, providing billing or metering services, licensed by the BPU pursuant to relevant provisions of the Competition Act, the BPU Regulations and the BPU Financing Orders. "Total Revenue Requirement" means, as of any date of determination, the sum of the Revenue Requirements for all Series outstanding as of such date. "Transfer Date" means the Initial Transfer Date or any Subsequent Transfer Date, as applicable. "Transferred Bondable Transition Property" means, collectively, all Bondable Transition Property that has been sold, assigned and transferred to the Issuer pursuant to the Sale Agreement. "Transition Bond" means any of the transition bonds (as defined in the Competition Act) issued by the Issuer pursuant to the Indenture. "Transition Bond Balance" means, as of any date, the aggregate Outstanding Amount of all Series of Transition Bonds on such date. "Transition Bond Charge" means the Transition Bond Charge authorized by the BPU to be imposed on all Customers by ACE or its successor to recover Bondable Stranded Costs pursuant to the Competition Act and the BPU Financing Orders. A-18 "Transition Bond Charge Adjustment" means each adjustment to Transition Bond Charge related to the Transferred Bondable Transition Property made in accordance with Section 4.01 of the Servicing Agreement and the Issuer Annex. "Transition Bond Charge Adjustment Process" means the process by which adjustments are made to the Transition Bond Charge or to the formula governing such adjustments, in either case pursuant to Section 4.01 of the Servicing Agreement and the Issuer Annex, the Competition Act, the Petition and the BPU Financing Orders. "Transition Bond Owner" means, with respect to a Book-Entry Transition Bond, the Person who is the beneficial owner of such Book-Entry Transition Bond, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). "Transition Bond Register" has the meaning specified in Section 2.05(a) of the Indenture. "Transition Bond Registrar" has the meaning specified in Section 2.05(a) of the Indenture. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as in force on the date of the Indenture, unless otherwise specifically provided therein. "Trustee" means The Bank of New York, a New York banking corporation, in the capacity specified in the first paragraph of the Indenture, or any successor Trustee under the Indenture. "Underwriting Agreement" means the Underwriting Agreement dated as of December 11, 2002, among the Seller, the Issuer and Morgan Stanley & Co. Incorporated, on behalf of itself and as the representative of the several underwriters named therein. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or 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 issuer's option. A-19 EX-10.2 8 exh102.txt EXHIBIT 10.2 EXECUTION COPY ================================================================================ BONDABLE TRANSITION PROPERTY SERVICING AGREEMENT between ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC Issuer and ATLANTIC CITY ELECTRIC COMPANY Servicer Dated as of December 19, 2002 ================================================================================ TABLE OF CONTENTS ARTICLE I Definitions..........................................................1 SECTION 1.01 Definitions....................................................1 SECTION 1.02 Other Definitional Provisions..................................1 ARTICLE II Appointment and Authorization of Servicer...........................2 SECTION 2.01 Appointment of Servicer; Acceptance of Appointment.............2 SECTION 2.02 Authorization..................................................2 SECTION 2.03 Dominion and Control Over Transferred Bondable Transition Property.......................................................2 ARTICLE III Billing Services...................................................2 SECTION 3.01 Duties of Servicer.............................................2 SECTION 3.02 Collection of Transition Bond Charges..........................3 SECTION 3.03 Payment of TBC Collections.....................................4 SECTION 3.04 Servicing and Maintenance Standards............................5 SECTION 3.05 Servicer's Certificates........................................5 SECTION 3.06 Annual Statement as to Compliance; Notice of Default...........6 SECTION 3.07 Annual Independent Certified Public Accountants' Report........6 SECTION 3.08 Bondable Transition Property Documentation.....................6 SECTION 3.09 Computer Records; Audits of Documentation......................7 SECTION 3.10 Defending Transferred Bondable Transition Property Against Claims.........................................................7 SECTION 3.11 Opinions of Counsel............................................8 ARTICLE IV Services Related to Transition Bond Charge Adjustments.............8 SECTION 4.01 Transition Bond Charge Adjustments.............................8 ARTICLE V The Servicer.........................................................8 SECTION 5.01 Representations and Warranties of Servicer.....................8 SECTION 5.02 Indemnities of Servicer; Release of Claims....................10 SECTION 5.03 Merger or Consolidation of, or Assumption of the Obligations of, Servicer..................................................11 SECTION 5.04 Assignment of Servicer's Obligations and Duties...............12 SECTION 5.05 Limitation on Liability of Servicer and Others................12 SECTION 5.06 ACE Not To Resign as Servicer.................................13 SECTION 5.07 Monthly Servicing Fee.........................................13 SECTION 5.08 Servicer Expenses.............................................14 SECTION 5.09 Subservicing..................................................14 SECTION 5.10 Remittances...................................................14 SECTION 5.11 Servicer Advances.............................................15 SECTION 5.12 Protection of Title...........................................15 ARTICLE VI Servicer Default...................................................15 SECTION 6.01 Servicer Default..............................................15 i SECTION 6.02 Notice of Servicer Default....................................16 SECTION 6.03 Waiver of Past Defaults.......................................16 SECTION 6.04 Appointment of Successor......................................17 SECTION 6.05 Cooperation with Successor....................................17 ARTICLE VII Miscellaneous Provisions..........................................17 SECTION 7.01 Amendment.....................................................17 SECTION 7.02 Notices.......................................................18 SECTION 7.03 Limitations on Rights of Others...............................18 SECTION 7.04 Severability..................................................18 SECTION 7.05 Separate Counterparts.........................................19 SECTION 7.06 Headings......................................................19 SECTION 7.07 Governing Law.................................................19 SECTION 7.08 Assignment to the Trustee.....................................19 SECTION 7.09 Nonpetition Covenants.........................................19 SECTION 7.10 Termination...................................................19 SECTION 7.11 Limitation of Liability.......................................19 EXHIBIT A Servicing Procedures ANNEX 1 TBC Adjustment Process and Reports - Atlantic City Electric Transition Funding LLC APPENDIX A Master Definitions ii BONDABLE TRANSITION PROPERTY SERVICING AGREEMENT dated as of December 19, 2002, between ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC, a Delaware limited liability company, as issuer (the "Issuer"), and ATLANTIC CITY ELECTRIC COMPANY, a New Jersey corporation, as servicer of the Bondable Transition Property hereunder (together with each successor to ATLANTIC CITY ELECTRIC COMPANY (in the same capacity) pursuant to Section 5.03 or 6.02, the "Servicer"). WHEREAS the Servicer is willing to service the Bondable Transition Property purchased from the Seller by the Issuer; and WHEREAS the Issuer, in connection with ownership of Transferred Bondable Transition Property, desires to engage the Servicer to carry out the functions described herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, and intending legally to be bound, the parties hereto agree as follows: ARTICLE I Definitions SECTION 1.01 Definitions. Capitalized terms used but not otherwise defined herein have the meanings assigned to them in Appendix A. SECTION 1.02 Other Definitional Provisions. (a) "Agreement" means this Bondable Transition Property Servicing Agreement, as the same may be amended, supplemented or otherwise modified from time to time. (b) The words "hereof", "herein", "hereunder" and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular portion of this Agreement. (c) Uncapitalized terms used herein that are defined in the Competition Act, have, as the context requires, the meanings assigned to them in the Competition Act, but without giving effect to amendments to the Competition Act after the date hereof affecting such assigned meanings that, if applied hereto, would have a material adverse effect on the Issuer or the Transition Bondholders. (d) All terms defined in this Agreement have the meanings herein assigned to them when used in any certificate or other document made or delivered pursuant hereto except where otherwise expressly provided therein. (e) References in this Agreement to articles, sections, appendices, annexes, schedules and exhibits are to the sections, appendices, annexes, schedules and exhibits of, in or to this Agreement unless otherwise specified. 1 (f) The term "including" means "including without limitation" and "or" is used in the inclusive sense. (g) The definitions contained in this Agreement are applicable to the singular as well as the plural forms of the defined terms, and personal pronouns refer to all persons regardless of gender. ARTICLE II. Appointment and Authorization of Servicer SECTION 2.01 Appointment of Servicer; Acceptance of Appointment. Subject to Section 5.06 and Article VI, 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 in accordance with the terms of this Agreement. 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 Transferred Bondable Transition Property, the Servicer shall be, and hereby is, authorized and empowered by the Issuer to, on behalf of itself, the Issuer, or both, as may be required: (a) execute and deliver any and all instruments, documents or notices; and (b) make any filings and participate in proceedings of any kind with any governmental authorities, including the BPU. The Issuer shall execute and furnish the Servicer with such documents as have been prepared by the Servicer for execution by the Issuer and with such other documents as may be in the Issuer's possession that are necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder. Upon the written request of the Servicer, the Issuer shall furnish the Servicer with any powers of attorney or other documents necessary or appropriate to enable the Servicer to carry out such duties. SECTION 2.03 Dominion and Control Over Transferred Bondable Transition Property. Notwithstanding any other provision hereof, the Issuer shall have dominion and control over the Transferred Bondable Transition Property. The Servicer shall not take any action that is not authorized by this Agreement, that is not consistent with its customary procedures and practices or that impairs the rights of the Issuer in the Transferred Bondable Transition Property, in each case unless such action is required by law or court or regulatory order. ARTICLE III Billing Services SECTION 3.01 Duties of Servicer. The Servicer shall have the following duties: 2 (a) Duties of Servicer Generally. The Servicer shall manage, service, administer and make collections in respect of the Transferred Bondable Transition Property. The Servicer's duties shall include: (i) obtaining meter readings, calculating and billing the Bondable Transition Bond Charge and collecting (from Customers or Third Parties, as applicable) all TBC Collections; (ii) responding to inquiries by Customers, Third Parties, the BPU, or any federal, state or local governmental authorities with respect to the Transferred Bondable Transition Property and the Transition Bond Charge; (iii) accounting for TBC Collections, investigating delinquencies, processing all TBC Collections and making periodic remittances thereof, and furnishing periodic reports to the Issuer, the Trustee and the Rating Agencies; (iv) selling, as agent for the Issuer, defaulted or written-off accounts in accordance with the Servicer's usual and customary practices for accounts of its own electric service customers; and (v) taking such action in connection with Transition Bond Charge Adjustments as is set forth herein. Without limiting the generality of this Section 3.01(a), in furtherance of the foregoing the Servicer shall have, and shall comply with, the duties and responsibilities set forth in Exhibit A, which among other things relate to data acquisition, usage and bill calculation, billing, customer service functions, collections, payment processing and remittance. Anything to the contrary contained herein notwithstanding, the duties of the Servicer set forth in this Agreement shall be qualified in their entirety by any BPU Regulations in effect at the time such duties are to be performed. (b) Notification of Laws and Regulations. The Servicer shall immediately notify the Issuer, the Trustee and the Rating Agencies in writing of any laws or BPU Regulations hereafter promulgated that have a material adverse effect on the Servicer's ability to perform its duties under this Agreement. (c) Other Information. Upon the reasonable request of the Issuer, the Trustee or any Rating Agency, the Servicer shall, to the extent permitted by law, provide to the Issuer, the Trustee or the Rating Agencies, as the case may be, any public financial information in respect of the Servicer, or any material information regarding the Transferred Bondable Transition Property to the extent it is reasonably available to the Servicer, and reasonably necessary for the Issuer, the Trustee or the Rating Agencies to monitor the performance of the Servicer hereunder. SECTION 3.02 Collection of Transition Bond Charges. (a) The Servicer shall use all reasonable efforts consistent with its customary collection procedures to collect all amounts owed in respect of the Transition Bond Charge as and when the same shall become due and shall follow such collection procedures as it follows with respect to amounts that the Servicer collects for itself or others. The Servicer shall not change the amount of or reschedule the due date of any scheduled payment of the Transition Bond Charge except as contemplated in this Agreement or as required by law or court or BPU Regulations; provided, however, that the Servicer may in its own discretion waive any late payment charges or any other fee or charge relating to delinquent payments, and may waive or modify any terms of payment of any amount payable by any customer, if such waiver complies with the Servicer's customary practices and applicable law and does not materially adversely affect the Transition Bondholders; provided, further, that the Servicer may take any other actions to the extent that such actions would be in accordance with customary billing and collection 3 practices of the Servicer conducted on its own behalf. The Servicer shall enforce the obligations of any Third Parties providing billing and collection services with respect to the Transition Bond Charge. (b) As specified in the Petition and the BPU Financing Orders, any amounts received by the Servicer from a Customer that represent a partial payment toward an outstanding balance will be applied in the following manner: (i) to sales taxes (which the Servicer collects as trustee for the State of New Jersey and not for its own account or for that of the Issuer); (ii) to the Transition Bond Charge and the Servicer's other charges and taxes, where any of such charges are in arrears, pro rata based on their proportion to the Servicer's total charges in arrears for that period; and (iii) to the Transition Bond Charge and the Servicer's other charges and taxes, where any of such charges are current charges, pro rata based on their proportion to the Servicer's total current charges assessed for that period. ACE's other charges may include the market transition charge, the MTC-Tax and all other charges that ACE or any Third Party may be authorized to bill and collect from Customers on account of electric service. SECTION 3.03 Payment of TBC Collections. (a) The Servicer shall prepare annually a Collections Curve, based on actual TBC Collections. The Servicer shall remit to the Trustee for deposit in the Collection Account TBC Collections for each Billing Month not later than the corresponding Remittance Date or Dates following such Billing Month. The Servicer shall make periodic payments on account of TBC Collections to the Trustee for deposit in the Collection Account as follows: (i) for so long as the Servicer has satisfied the conditions of Section 5.10(b), the Servicer shall, on each Monthly Remittance Date, remit to the Trustee for each of the seven preceding Billing Months an amount equal to the amount of TBC Collections estimated to have been received, during the preceding calendar month, with respect to such seven Billing Months, such estimates to be based on the Collections Curve then in effect, and (ii) for so long as the Servicer has not satisfied the conditions of Section 5.10(b), the Servicer shall, on each Daily Remittance Date, remit to the Trustee for the Billing Month in which such Daily Remittance Date occurs and for each of the six preceding Billing Months an amount equal to the amount of TBC Collections estimated to have been received, on the Business Day that is two Business Days prior to such Daily Remittance Date, with respect to the Billing Month in which such Daily Remittance Date occurs and each of such six preceding Billing Months, such estimates to be based on the Collections Curve then in effect. 4 (b) On or before the Reconciliation Date for each Billing Month, the Servicer shall determine whether there exists a Curve Payment Shortfall or an Excess Curve Payment for such Billing Month by comparing (i) the actual TBC Collections with respect to such Billing Month with (ii) the Collection Curve Payments previously made to the Trustee with respect to such Billing Month. In the event that there is an Excess Curve Payment for such Billing Month, the Servicer may either (A) reduce the amount that the Servicer is required to remit to the Trustee for deposit in the Collection Account on the Reconciliation Date for such Billing Month (and, if necessary, on one or more Remittance Dates following such Reconciliation Date) by the amount of such Excess Curve Payment or (B) direct the Trustee in writing to pay to the Servicer from the Collection Account the amount of such Excess Curve Payment, which upon payment shall become the property of the Servicer. In the event that there is a Curve Payment Shortfall for such Billing Month, the Servicer shall remit such shortfall to the Trustee on the Reconciliation Date for such Billing Month. (c) The Servicer shall hold all TBC Collections collected by it (which collections may be commingled with other funds the Servicer collects from Customers or Third Parties, as applicable) for the benefit of the Issuer, and all amounts shall be remitted by the Servicer in accordance with this Agreement without any surcharge, fee, offset, charge or other deduction and without making any claim to reduce its obligation to remit all TBC Collections collected by it, except (i) as set forth in clause (b) of this Section 3.03 and (ii) for late fees and interest accrued prior to the date of such remittance as permitted by Section 5.07. SECTION 3.04 Servicing and Maintenance Standards. The Servicer shall, on behalf of the Issuer, (a) manage, service, administer and make collections in respect of the Transferred Bondable Transition Property with reasonable care and in material compliance with applicable law and regulations, including all applicable BPU Regulations, using the same degree of care and diligence that the Servicer exercises with respect to billing and collection activities that the Servicer conducts for itself and others, (b) follow standards, policies and procedures in performing its duties as Servicer that are customary in the Servicer's industry, (c) use all reasonable efforts, consistent with its customary servicing procedures, to enforce and maintain the Issuer's and the Trustee's rights in respect of the Transferred Bondable Transition Property and (d) calculate Transition Bond Charge in compliance with the Competition Act, the BPU Financing Orders and any applicable tariffs, except where the failure to comply with any of the foregoing standards would not adversely affect the Issuer's or the Trustee's interest in the Transferred Bondable Transition Property. The Servicer shall follow such customary and usual practices and procedures as it deems necessary or advisable in its servicing of all or any portion of the Transferred Bondable Transition Property, which, in the Servicer's judgment, may include the taking of legal action pursuant to Section 3.10 or otherwise. Notwithstanding the foregoing, the Servicer shall not change its customary and usual practices and procedures in any manner that would materially and adversely affect the Issuer's or the Trustee's interest in the Transferred Bondable Transition Property unless it shall have provided the Rating Agencies with prior written notice. SECTION 3.05 Servicer's Certificates. (a) The Servicer shall provide to the Issuer and to the Trustee the statements and certificates specified in Annex 1. 5 SECTION 3.06 Annual Statement as to Compliance; Notice of Default. (a) The Servicer shall deliver to the Issuer and the Trustee and each Rating Agency, on or before March 31 of each year beginning in 2003, an Officers' Certificate to the effect that (i) a review of the activities of the Servicer during the preceding calendar year (or relevant portion thereof) and of its performance under this Agreement has been made under such officers' supervision and (ii) to the best of such officers' knowledge, based on such review, the Servicer has fulfilled all of its obligations under this Agreement throughout such period or, if there has been a default in the fulfillment of any such obligation, describing each such default in reasonable detail. (b) The Servicer shall deliver to the Issuer, the Trustee and each Rating Agency, promptly but in no event later than five Business Days after having obtained knowledge thereof, written notice in an Officers' Certificate of any event that, with the giving of notice or lapse of time, or both, would become a Servicer Default under Section 6.01. SECTION 3.07 Annual Independent Certified Public Accountants' Report. (a) The Servicer shall cause a firm of independent certified public accountants (which may also provide other services to the Servicer or the Seller) to prepare, and the Servicer shall deliver to the Issuer, the Trustee and each Rating Agency, on or before March 31 of each year beginning in 2003 to and including the first March 31 to occur after the retirement of all Transition Bonds, a report addressed to the Servicer (the "Annual Accountant's Report"), which may be included as part of the Servicer's customary auditing activities, to the effect that such firm has performed certain procedures in connection with the Servicer's compliance with its obligations under this Agreement during the preceding calendar year ended December 31 (or, in the case of the first Annual Accountant's Report, the period of time from the Initial Transfer Date until December 31, 2002), identifying the results of such procedures and including any exceptions noted. In the event such accounting firm requires the Trustee or the Issuer to agree or consent to the procedures performed by such firm, the Issuer shall direct the Trustee in writing to so agree, it being understood and agreed that the Trustee may deliver such letter of agreement or consent in conclusive reliance upon the direction of the Issuer and that neither the Trustee nor the Issuer will be required to make any independent inquiry or investigation as to, or have any obligation or liability in respect of, the sufficiency, validity or correctness of such procedures. (b) The Annual Accountant's Report shall further indicate that the accounting firm providing such report is independent of the Servicer within the meaning of the Code of Professional Ethics of the American Institute of Certified Public Accountants. SECTION 3.08 Bondable Transition Property Documentation. To assure uniform quality in servicing the Transferred Bondable Transition Property and to reduce administrative costs, the Servicer shall keep on file, in accordance with its customary procedures, all Bondable Transition Property Documentation, it being understood that the Servicer is acting solely as the servicing agent and custodian for the Issuer with respect to the Bondable Transition Property. 6 SECTION 3.09 Computer Records; Audits of Documentation. (a) Safekeeping. The Servicer shall maintain accurate and complete accounts, records and computer systems pertaining to the Bondable Transition Property and the Bondable Transition Property Documentation in accordance with its standard accounting procedures and in sufficient detail to permit reconciliation between payments or recoveries on (or with respect to) the Transition Bond Charge and the estimated TBC Collections from time to time remitted to the Trustee pursuant to Section 3.03 and to enable the Issuer to comply with this Agreement and the Indenture. The Servicer shall conduct, or cause to be conducted, periodic reviews of the Bondable Transition Property Documentation held by it under this Agreement and of the related accounts, records and computer systems, in such a manner as shall enable the Issuer and the Trustee, as pledgee of the Issuer, to verify the accuracy of the Servicer's record keeping. The Servicer shall promptly report to the Issuer and the Trustee any failure on the Servicer's part to hold the Bondable Transition Property Documentation and maintain its accounts, records and computer systems as herein provided and shall promptly take appropriate action to remedy any such failure. Nothing herein shall be deemed to require an initial review or any periodic review by the Issuer or the Trustee of the Bondable Transition Property Documentation. The Servicer's duties to hold the Bondable Transition Property Documentation on behalf of the Issuer set forth in this Section 3.09, to the extent such Bondable Transition Property Documentation has not been previously transferred to a Successor Servicer, shall terminate three years after the earlier of (i) the date on which the Servicer is succeeded by a Successor Servicer pursuant to the provisions of this Agreement and (ii) the date on which no Transition Bonds of any Series are Outstanding. (b) Maintenance of and Access to Records. The Servicer shall maintain the Bondable Transition Property Documentation at 800 King Street, Wilmington, Delaware or at such other office as shall be specified to the Issuer and the Trustee by written notice not later than 30 days prior to any change in location. The Servicer shall permit the Issuer and the Trustee or their respective duly authorized representatives, attorneys, agents or auditors at any time during normal business hours as the Issuer or Trustee shall reasonably request to inspect, audit and make copies of and abstracts from the Servicer's records regarding the Transferred Bondable Transition Property, the Transition Bond Charge and the Bondable Transition Property Documentation. The failure of the Servicer to provide access to such information as a result of an obligation or applicable law (including BPU Regulations) prohibiting disclosure of information regarding customers shall not constitute a breach of this Section 3.09(b). SECTION 3.10 Defending Transferred Bondable Transition Property Against Claims. The Servicer shall institute any action or proceeding necessary to compel performance by the BPU or the State of New Jersey of any of their obligations or duties under the Competition Act or the BPU Financing Orders with respect to the Transferred Bondable Transition Property, and the Servicer agrees to take such legal or administrative actions, including defending against or instituting and pursuing legal actions and appearing or testifying at hearings or similar proceedings, as may be reasonably necessary to block or overturn any attempts to cause a repeal of, modification of or supplement to the Competition Act or the BPU Financing Orders, as the case may be, or the rights of holders of Transferred Bondable Transition Property if such repeal, modification or supplement would be adverse to Transition Bondholders. The costs of any such action shall be payable from TBC Collections as an Operating Expense in accordance with the Indenture. The Servicer's obligations pursuant to this Section 3.10 shall 7 survive and continue notwithstanding the fact that the payment of Operating Expenses pursuant to the Indenture may be delayed (it being understood that the Servicer may be required to advance its own funds to satisfy its obligations under this Section 3.10). SECTION 3.11 Opinions of Counsel. The Servicer shall deliver to the Issuer and the Trustee: (a) promptly after the execution and delivery of this Agreement and of each amendment hereto, promptly after the execution of the Sale Agreement and of each amendment thereto, and on each Transfer Date, an Opinion of Counsel either (i) to the effect that, in the opinion of such counsel, all filings, including UCC filings, as are necessary to fully preserve and protect the interests of the Trustee in the Transferred Bondable Transition Property have been executed and will be filed as required, and reciting the details of such filings or referring to prior Opinions of Counsel in which such details are given, or (ii) to the effect that, in the opinion of such counsel, no such action shall be necessary to preserve and protect such interest; and (b) within 90 days after the beginning of each calendar year commencing with the first calendar year beginning more than three months after the Initial Transfer Date, an Opinion of Counsel, dated as of a date during such 90-day period, either (i) to the effect that, in the opinion of such counsel, all UCC filings necessary to preserve and protect the interest of the Trustee in the Transferred Bondable Transition Property have been filed, and reciting the details of all such filings or referring to prior Opinions of Counsel in which such details are given, or (ii) to the effect that, in the opinion of such counsel, no such action shall be necessary to preserve and protect such interest. Each Opinion of Counsel referred to in Section 3.11(a) and (b) 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. ARTICLE IV Services Related to Transition Bond Charge Adjustments SECTION 4.01 Transition Bond Charge Adjustments. The Servicer shall perform the calculations and take the actions relating to adjusting the Transition Bond Charge, as set forth in Section 5 of Annex 1, at the times indicated therein. ARTICLE V The Servicer SECTION 5.01 Representations and Warranties of Servicer. The Servicer makes the following representations and warranties as of each Transfer Date, on which representations and warranties the Issuer has relied and will rely in acquiring Transferred Bondable Transition Property. The Servicer's representations and warranties hereunder shall survive the sale of any of the Transferred Bondable Transition Property to the Issuer pursuant to the Sale Agreement and the pledge thereof to the Trustee pursuant to the Indenture. 8 (a) Organization and Good Standing. The Servicer is a corporation duly organized and in good standing under the laws of the state of its incorporation, with the corporate power and authority to own its properties and to conduct its business as such properties are currently owned and presently conducted, and has the power, authority and legal right to service the Transferred Bondable Transition Property. (b) Due Qualification. The Servicer is duly qualified to do business as a foreign corporation in all jurisdictions in which it is required to be so qualified, and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of property or the conduct of its business (including the servicing of the Transferred Bondable Transition Property as required by this Agreement) requires such licenses or approvals, except where the failure to so qualify or the failure to obtain such necessary licenses and approvals would not be reasonably likely to have a material adverse effect on the Servicer's business, operations, assets, revenues or properties or to adversely affect the servicing of the Transferred Bondable Transition Property. (c) Power and Authority. The Servicer has the corporate power and authority to execute and deliver this Agreement and to carry out its terms; and the execution, delivery and performance of this Agreement have been duly authorized by the Servicer by all necessary corporate action. (d) Binding Obligation. This Agreement constitutes a legal, valid and binding obligation of the Servicer enforceable against the Servicer in accordance with its terms subject to bankruptcy, receivership, insolvency, fraudulent transfer, reorganization, moratorium or other laws affecting creditors' rights generally from time to time in effect and to general principles of equity (regardless of whether considered in a proceeding in equity or at law). (e) No Violation. The consummation of the transactions contemplated by this Agreement will not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the articles of incorporation or by-laws of the Servicer, or any indenture, or other material agreement or instrument to which the Servicer is a party or by which it is bound; or result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, or other material agreement or instrument; or violate any law or any order, rule or regulation applicable to the Servicer of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Servicer or its properties. (f) Approvals. Except for filings with the BPU for adjusting the Transition Bond Charge pursuant to Section 4.01 and Annex 1, the filing of financing statements and continuation statements under the New Jersey UCC and the Delaware UCC, no approval, authorization, consent, order or other action of, or filing with, any court, federal or state regulatory body, administrative agency or other governmental instrumentality is required in connection with the execution and delivery by the Servicer of this Agreement, the performance by the Servicer of the transactions contemplated hereby or the fulfillment by the Servicer of the terms hereof, except for such as have been obtained, made or taken. 9 (g) No Proceedings. Except as disclosed in the prospectus and the related prospectus supplement each dated December 11, 2002, of Atlantic City Electric Transition Funding LLC relating to the offer and sale of Transition Bonds, and in any subsequent prospectus supplements relating to a subsequent offer and sale of Transition Bonds, there are no proceedings or investigations pending or, to the Servicer's best knowledge, threatened before any court, federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Servicer or its properties: (i) seeking any ruling that might materially and adversely affect the performance by the Servicer of its obligations under, or the validity or enforceability against the Servicer of this Agreement or (ii) relating to the Servicer that might adversely affect the federal or state income or franchise tax attributes of the Transition Bonds. (h) Licenses. The Servicer has all material licenses necessary for it to perform its obligations under this Agreement. SECTION 5.02 Indemnities of Servicer; Release of Claims. (a) The Servicer shall be liable in accordance herewith only to the extent of the obligations specifically undertaken by the Servicer under this Agreement. (b) The Servicer shall indemnify the Issuer and the Trustee, for itself and on behalf of the Transition Bondholders, and each of their respective trustees, managers, members, officers, directors, employees and agents for, and defend and hold harmless each such Person from and against, any and all Losses that may be incurred by or asserted against any such Person as a result of (i) the Servicer's willful misconduct, bad faith or gross negligence in the performance of its duties or observance of its covenants under this Agreement or the Servicer's reckless disregard of its obligations and duties under this Agreement, (ii) the Servicer's breach of any of its representations or warranties in this Agreement and (iii) litigation and related expenses relating to its status and obligations as servicer (other than in any proceeding the Servicer is required to institute under this Agreement), provided, however, that the Servicer shall not be liable for any Losses resulting from the willful misconduct or gross negligence of any Person indemnified pursuant to this Section 5.02 (each, an "Indemnified Person") or resulting from a breach of a representation or warranty made by any Indemnified Person in any of the Basic Documents that gives rise to the Servicer's breach. Promptly after receipt by an Indemnified Person of notice of its involvement in any action, proceeding or investigation, such Indemnified Person shall, if a claim for indemnification in respect thereof is to be made against the Servicer under this Section 5.02, notify the Servicer in writing of such involvement. Failure by an Indemnified Person to so notify the Servicer shall relieve the Servicer from the obligation to indemnify and hold harmless such Indemnified Person under this Section 5.02 only to the extent that the Servicer suffers actual prejudice as a result of such failure. With respect to any action, proceeding or investigation brought by a third party for which indemnification may be sought under this Section 5.02, the Servicer shall be entitled to assume the defense of any such action, proceeding or investigation. Upon assumption by the Servicer of the defense of any such action, proceeding or investigation, the Indemnified Person shall have the right to participate in such action or proceeding and to retain its own counsel (including local counsel), and the Servicer shall bear the reasonable fees, 10 costs and expenses of such separate counsel. The Indemnified Person shall not settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought under this Section 5.02 (whether or not the Servicer is an actual or potential party to such claim or action) unless the Servicer agrees in writing to such settlement, compromise or consent and such settlement, compromise or consent includes an unconditional release of the Servicer from all liability arising out of such claim, action, suit or proceeding. (c) The Servicer shall indemnify the Trustee and its officers, directors, employees and agents for, and defend and hold harmless each such Person from and against, any and all Losses that may be imposed upon, incurred by or asserted against any such Person as a result of the acceptance or performance of the trusts and duties contained herein and in the Indenture, except to the extent that any such Loss is due to the willful misconduct, bad faith or gross negligence of the Trustee; provided, however, that the foregoing indemnity is extended to the Trustee solely in its individual capacity and not for the benefit of the Transition Bondholders or any other Person. Such amounts shall be deposited and distributed in accordance with the Indenture. (d) The Servicer's indemnification obligations under Section 5.02(b) and (c) for events occurring prior to the removal or resignation of the Trustee or the termination of this Agreement shall survive the resignation or removal of the Trustee or the termination of this Agreement and shall include reasonable costs, fees and expenses of investigation and litigation (including the Issuer's and the Trustee's reasonable attorneys' fees and expenses). (e) Except to the extent expressly provided for in this Agreement or the other Basic Documents (including the Servicer's claims with respect to the Monthly Servicing Fee), the Servicer hereby releases and discharges the Issuer (including its managers, members, officers, directors, employees and agents, if any) and the Trustee (including its officers, directors and agents) (collectively, the "Released Parties") from any and all actions, claims and demands whatsoever that the Servicer, in its capacity as Servicer, shall or may have against any such Person relating to the Transferred Bondable Transition Property or the Servicer's servicing activities with respect thereto other than any actions, claims and demands arising out of the willful misconduct, bad faith or gross negligence of the Released Parties. SECTION 5.03 Merger or Consolidation of, or Assumption of the Obligations of, Servicer. Any Person or Persons: (a) into which the Servicer may be merged or consolidated and which succeeds to all or a significant part of the electric distribution business of the Servicer, (b) which results from the division of the Servicer into two or more Persons and which succeeds to all or a significant part of the electric distribution business of the Servicer, (c) which may result from any merger or consolidation to which the Servicer is a party and which succeeds to all or a significant part of the electric distribution business of the Servicer, 11 (d) which may succeed to the properties and assets of the Servicer substantially as a whole and which succeeds to all or a significant part of the electric distribution business of the Servicer or (e) which may otherwise succeed to all or a significant part of the electric distribution business of the Servicer, which Person or Persons in any of the foregoing cases executes an agreement of assumption to perform every obligation of the Servicer hereunder, shall be the successor or successors to the Servicer under this Agreement without further act on the part of any of the parties to this Agreement; provided, however, that (i) immediately after giving effect to such transaction, no breach of any representation and warranty made pursuant to Section 5.01 shall have occurred and be continuing unremedied and no Servicer Default, and no event which, after notice or lapse of time, or both, would become a Servicer Default, shall have occurred and be continuing, (ii) the Servicer shall have delivered to the Issuer and the Trustee an Officers' Certificate and an Opinion of Counsel each stating that such consolidation, merger or succession and such agreement of assumption comply with this Section 5.03 and that all conditions precedent provided for in this Agreement relating to such transaction have been complied with, (iii) the Servicer shall have delivered to the Issuer and the Trustee an Opinion of Counsel either (A) stating that, in the opinion of such counsel, all filings to be made by the Servicer, including New Jersey UCC and Delaware UCC filings, as are necessary to preserve fully and protect fully the interests of the Issuer in the Transferred Bondable Transition Property have been executed and filed and reciting the details of such filings or (B) stating that, in the opinion of such counsel, no such action is necessary to preserve and protect such interests, (iv) the Rating Agencies shall have received prior written notice of such transaction and the Rating Agency Condition shall have been satisfied with respect to such transactions; and (v) the Servicer shall have delivered to the Issuer and the Trustee an opinion of independent tax counsel (as selected by, and in form and substance reasonably satisfactory to, the Servicer, and which may be based on a ruling from the Internal Revenue Service) to the effect that, for federal income tax purposes, such consolidation or merger will not result in a material adverse federal income tax consequence to the Servicer, the Issuer, the Trustee or the then existing Transition Bondholders. Notwithstanding anything herein to the contrary, the execution of the above referenced agreement of assumption and compliance with clauses (i), (ii), (iii), (iv) and (v) above shall be conditions precedent to the consummation of any of the transactions referred to in clause (a), (b), (c), (d) or (e) above. When one or more Persons acquire the properties and assets of the Servicer substantially as a whole and become the successor or successors to the Servicer in accordance with the terms of this Section 5.03, then upon the satisfaction of all of the other conditions of this Section 5.03, the Servicer shall automatically and without further notice be released from its obligations and duties hereunder. SECTION 5.04 Assignment of Servicer's Obligations and Duties. The Servicer may assign any or all of its obligations and duties hereunder to one or more successors if either (i) the Rating Agency Condition and any other condition specified in the BPU Financing Orders have been satisfied with respect to such assignment or (ii) the Servicer is replaced by such successor or successors pursuant to Section 5.03. SECTION 5.05 Limitation on Liability of Servicer and Others. The Servicer shall not be liable to the Issuer, the Trustee, the holders of the Transition Bonds or any other 12 Person, except as provided under this Agreement, for any action taken or for refraining from the taking of any action pursuant to this Agreement or for errors in judgment; provided, however, that this provision shall not protect the Servicer against any liability that would otherwise be imposed by reason of willful misconduct, bad faith or gross negligence in the performance of its duties or by reason of reckless disregard of obligations and duties under this Agreement. The Servicer and any director or officer or employee or agent of the Servicer may rely in good faith on the advice of counsel reasonably acceptable to the Trustee or on any document of any kind, prima facie properly executed and submitted by any Person, respecting any matters arising under this Agreement. Except as provided in this Agreement, the Servicer shall not be under any obligation to appear in, prosecute or defend any legal action that is not incidental to its duties to service the Transferred Bondable Transition Property in accordance with this Agreement or related to its obligation to pay indemnification, and that in its reasonable opinion may cause it to incur any expense or liability. SECTION 5.06 ACE Not To Resign as Servicer. Subject to the provisions of Sections 5.03 and 5.04, ACE shall not resign from the obligations and duties hereby imposed on it as Servicer under this Agreement except upon a determination that the performance of such obligations and duties shall no longer be permissible under applicable law. Notice of any such determination permitting the resignation of ACE shall be communicated to the Issuer, the Trustee and each Rating Agency at the earliest practicable time (and, if such communication is not in writing, shall be confirmed in writing at the earliest practicable time), and any such determination shall be evidenced by an Opinion of Counsel to such effect delivered to the Issuer and the Trustee concurrently with or promptly after such notice. No such resignation shall become effective until a Successor Servicer shall have assumed the servicing obligations and duties hereunder of ACE in accordance with Section 6.04. SECTION 5.07 Monthly Servicing Fee. The Issuer agrees to pay the Servicer the Monthly Servicing Fee with respect to all Series of Transition Bonds issued by the Issuer. For so long as the Servicer is making payment on account of TBC Collections on a monthly basis, the Servicer shall be entitled, on any Monthly Remittance Date, to withhold the amount of the Monthly Servicing Fee from such payment, as compensation under this Agreement, unless the Trustee shall have notified the Servicer in writing, not later than 12:00 noon (prevailing New York City time) on the Business Day prior to such Monthly Remittance Date, that such a withholding would result in the Issuer's holding insufficient funds to pay in full the amounts owed in such month to the Trustee and to the Independent Managers pursuant to clauses (i) and (ii) of Section 8.02(d) or (e), as the case may be, of the Indenture. For so long as ACE is the Servicer, the Monthly Servicing Fee shall be one-twelfth of 0.10% of the initial principal balance of all Transition Bonds issued to the date of determination, such amount to be determined at each time Transition Bonds are issued. If a Successor Servicer is appointed, the Monthly Servicing Fee shall be in a per annum amount not in excess of 1.25% of the initial principal balance of all Transition Bonds issued to the date of determination, such amount to be determined at each time Transition Bonds are issued. The Servicer shall be entitled to retain as additional compensation (a) net investment income on TBC Collections related to Transferred Bondable Transition Property received by the Servicer prior to their remittance to the Trustee and (b) the late fees, if any, paid by Customers to the Servicer associated with the Transition Bond Charge. The Issuer 13 and the Servicer agree and acknowledge that the foregoing fees constitute a fair and reasonable price for the obligations and duties to be performed by the Servicer. SECTION 5.08 Servicer Expenses. Except as otherwise expressly provided herein, the Servicer shall be required to pay all expenses incurred by it in connection with its activities hereunder, including fees and disbursements of independent accountants and counsel, taxes imposed on the Servicer and expenses incurred in connection with reports to Transition Bondholders, and shall not be entitled to any additional payment or reimbursement therefor. SECTION 5.09 Subservicing. The Servicer may at any time appoint a subservicer to perform all or any portion of its obligations and duties as Servicer hereunder; provided, however, that the Rating Agency Condition shall have been satisfied with respect to such appointment; and provided, further, that the Servicer shall remain obligated and be liable to the Issuer for the servicing and administering of the Transferred Bondable Transition Property in accordance with the provisions hereof without diminution of such obligation and liability by virtue of the appointment of such subservicer and to the same extent and under the same terms and conditions as if the Servicer alone were servicing and administering the Transferred Bondable Transition Property. The fees and expenses of the subservicer shall be as agreed between the Servicer and its subservicer from time to time, and none of the Issuer, the Trustee or the Transition Bondholder shall have any responsibility therefor. No such appointment shall constitute a Servicer resignation for purposes of Section 5.06. SECTION 5.10 Remittances. (a) Subject to Section 5.07, the Servicer shall remit all TBC Collections (from whatever source) in accordance with Section 3.03(a)(ii), and all proceeds of other Collateral of the Issuer, if any, received by the Servicer, to the Trustee for deposit pursuant to the Indenture, not later than each Daily Remittance Date. The Servicer shall promptly remit any Indemnity Amounts paid or received by it immediately to the Trustee for deposit pursuant to the Indenture. (b) Notwithstanding Section 5.10(a), as long as (i) ACE or any successor to ACE's electric distribution business remains the Servicer, (ii) no Servicer Default has occurred and is continuing and (iii) ACE, or such successor to ACE's electric distribution business acting as servicer, maintains (x) a short-term rating of "A-1" by Standard & Poor's, (y) either a short-term rating of "P-1" or a long-term rating on its senior, unsecured debt of "Baa2" or better by Moody's and (z) a long-term rating on its senior, unsecured debt of "BBB" or better by Fitch, the Servicer need not make the daily remittances specified in Section 5.10(a) but, in lieu thereof, shall remit all TBC Collections (from whatever source) in accordance with Section 3.03(a)(i) and all proceeds of other Collateral of the Issuer, if any, received by the Servicer during any Collection Period to the Trustee, for deposit pursuant to the Indenture, not later than the corresponding Monthly Remittance Date. Notwithstanding clause (iii) of the preceding sentence, if the Servicer is remitting monthly pursuant to this Section 5.10(b) and one of the Rating Agencies referred to in such clause (iii) downgrades the Servicer's rating below the level indicated with respect thereto in such clause (iii), the Servicer shall nevertheless continue to be entitled to remit monthly pursuant to this Section 5.10(b) so long as both (A) the conditions set forth in clauses (i) and (ii) continue to be satisfied and (B) the Rating Agency Condition is satisfied with respect to the continuation of monthly remittance (after ACE shall have made any 14 undertakings required by the Rating Agencies) (1) within 30 days, in the event that none of the downgrades is to a rating lower than "BBB-" by Standard & Poor's, "Baa3" by Moody's or "BBB-" by Fitch, and (2) within 48 hours, in the event that any of the downgrades is to a rating lower than "BBB-" by Standard & Poor's, "Baa3" by Moody's or "BBB-" by Fitch. SECTION 5.11 Servicer Advances. The Servicer shall not make any advances of interest or principal on the Series 2002-1 Transition Bonds and shall make such advances on any subsequent Series in the manner and to the extent, if any, specified in any supplement to this Agreement entered into in connection with the issuance of such Series. SECTION 5.12 Protection of Title. The Servicer shall execute and make such filings and cause to be executed and made such filings, all in such manner and in such places as may be required by law fully to preserve, maintain and protect the interests of the Trustee in the Transferred Bondable Transition Property, including all filings required under the New Jersey UCC and the Delaware UCC relating to the transfer of ownership or a security interest in the Transferred Bondable Transition Property by the Seller to the Issuer or the security interest granted by the Issuer to the Trustee in the Transferred Bondable Transition Property. The Servicer shall deliver (or cause to be delivered) to the Issuer and the Trustee file-stamped copies of, or filing receipts for, any document filed as provided above, as soon as available following such filing. ARTICLE VI Servicer Default SECTION 6.01 Servicer Default. If any one of the following events (a "Servicer Default") occurs and is continuing: (a) any failure by the Servicer to remit to the Trustee, on behalf of the Issuer, any required remittance that continues unremedied for a period of five Business Days after written notice of such failure is received by the Servicer from the Issuer or the Trustee; or (b) any failure by the Servicer to perform in any material respect any other covenant or agreement of the Servicer set forth in this Agreement or any other Basic Document to which it is a party, which failure shall (i) materially and adversely affect the Bondable Transition Property and (ii) continues unremedied for a period of 60 days after written notice of such failure shall have been given to the Servicer by the Issuer or the Trustee or after discovery of such failure by an officer of the Servicer; or (c) any representation or warranty made by the Servicer in this Agreement shall prove to have been incorrect when made, which has a material adverse effect on the Issuer or the Transition Bondholders and which material adverse effect continues unremedied for a period of 60 days after the date on which written notice of the failure thereof shall have been given to the Servicer by the Issuer or the Trustee or after discovery of such failure by an officer of the Servicer; or (d) an Insolvency Event occurs with respect to the Servicer; 15 then, and in each case so long as the Servicer Default shall not have been remedied, the Trustee, as assignee of the Issuer, with the written consent of the Holders of a majority of the Outstanding Amount of the Transition Bonds of all Series, by notice then given in writing to the Servicer (a "Termination Notice") may terminate all the rights and obligations (other than the indemnification obligations set forth in Section 5.02 and the obligation under Section 6.04 to continue performing its functions as Servicer until a Successor Servicer is appointed) of the Servicer under this Agreement. In addition, upon a Servicer Default described in Section 6.01(a), the Issuer and the Trustee shall each be entitled to apply to the BPU for sequestration and payment of revenues arising with respect to the Transferred Bondable Transition Property. On or after the receipt by the Servicer of a Termination Notice, all authority and power of the Servicer under this Agreement with respect to the Issuer, whether with respect to the Transferred Bondable Transition Property, the related Transition Bond Charge or otherwise, shall, upon appointment of a Successor Servicer pursuant to Section 6.04, without further action, pass to and be vested in such Successor Servicer and, without limitation, the Trustee is hereby authorized and empowered to execute and deliver, on behalf of the predecessor Servicer, as attorney-in-fact or otherwise, any and all documents and other instruments, and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of such Termination Notice, whether to complete the transfer of the Bondable Transition Property Documentation and related documents, or otherwise. The predecessor Servicer shall cooperate with the Successor Servicer, the Trustee and the Issuer in effecting the termination of the responsibilities and rights of the predecessor Servicer under this Agreement, including the transfer to the Successor Servicer for administration by it of all cash amounts that shall at the time be held by the predecessor Servicer for remittance, or shall thereafter be received by it with respect to the Transferred Bondable Transition Property or the related Transition Bond Charge. As soon as practicable after receipt by the Servicer of such Termination Notice, the Servicer shall deliver the Bondable Transition Property Documentation to the Successor Servicer. All reasonable costs and expenses (including attorneys' fees and expenses) incurred in connection with transferring the Bondable Transition Property Documentation to the Successor Servicer and amending this Agreement to reflect such succession as Servicer pursuant to this Section 6.01 shall be paid by the predecessor Servicer upon presentation of reasonable documentation of such costs and expenses. Termination of ACE as Servicer shall not terminate ACE's rights or obligations under the Sale Agreement. SECTION 6.02 Notice of Servicer Default. The Servicer shall deliver to the Issuer, the Trustee and each Rating Agency promptly after having obtained knowledge thereof, but in no event later than five Business Days thereafter, written notice in an Officers' Certificate of any event or circumstance (such as a breach of any representation or warranty made by the Servicer in this Agreement) which would with the giving of notice or the passage of time or both become a Servicer Default under Section 6.01. If any Outstanding Transition Bonds are listed on the Luxembourg Stock Exchange, such notice shall also be given by publication in a daily newspaper in Luxembourg if the rules of the Luxembourg Stock Exchange so require. SECTION 6.03 Waiver of Past Defaults. The Trustee, with the written consent of the Holders of a majority of the Outstanding Amount of the Transition Bonds of all Series, may waive in writing any default by the Servicer in the performance of its obligations and duties hereunder and its consequences, except a default in making any required remittances to the Trustee of TBC Collections in accordance with Section 3.03. Upon any such waiver of a past default, such default shall cease to exist, and any Servicer Default arising therefrom shall be 16 deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereto. SECTION 6.04 Appointment of Successor. (a) Upon the Servicer's receipt of a Termination Notice, pursuant to Section 6.01 or the Servicer's resignation in accordance with the terms of this Agreement, the predecessor Servicer shall continue to perform its functions as Servicer under this Agreement, and shall be entitled to receive the requisite portion of the Monthly Servicing Fee, until a successor Servicer has assumed in writing the obligations and duties of the Servicer hereunder as described below. In the event of the Servicer's removal or resignation hereunder, the Trustee, as assignee of the Issuer, with the written consent of the Holders of a majority of the Outstanding Amount of the Transition Bonds of all Series, shall appoint a successor Servicer, and the successor Servicer shall accept its appointment by a written assumption in form acceptable to the Issuer and the Trustee. If, within 30 days after the delivery of the Termination Notice, a new Servicer has not been appointed and accepted such appointment, the Trustee, at the expense of the Issuer, may petition the BPU or a court of competent jurisdiction to appoint a successor Servicer under this Agreement. A Person shall qualify as a successor Servicer only if (i) such Person is permitted to perform the duties of the Servicer pursuant to the Competition Act, the BPU Regulations, the BPU Financing Orders and this Agreement, (ii) the Rating Agency Condition has been satisfied with respect to such succession, and (iii) such Person enters into a servicing agreement with the Issuer having substantially the same provisions as this Agreement. (b) Upon appointment, the Successor Servicer shall be the successor in all respects to the predecessor Servicer under this Agreement and shall be subject to all the responsibilities, duties and liabilities arising thereafter relating thereto placed on the predecessor Servicer and shall be entitled to the Monthly Servicing Fee applicable to a Successor Servicer and all the rights granted to the predecessor Servicer by the terms and provisions of this Agreement. (c) The Successor Servicer may not resign unless it is prohibited from serving as such by law. SECTION 6.05 Cooperation with Successor. The Servicer shall, on an ongoing basis, cooperate with the Successor Servicer and provide whatever information is, and take whatever actions are, reasonably necessary to assist the Successor Servicer in performing its obligations and duties hereunder. ARTICLE VII Miscellaneous Provisions SECTION 7.01 Amendment. This Agreement may be amended or supplemented by the Servicer and the Issuer, with the prior written consent of the Trustee and the satisfaction of the Rating Agency Condition with respect to such amendment or supplement. Promptly after the execution of any such amendment or consent, the Issuer shall furnish written notification of the substance of such amendment or consent to each of the Rating Agencies. 17 Prior to the execution of any amendment or supplement to this Agreement, the Issuer and the Trustee shall be entitled to receive, and conclusively to rely upon, an Opinion of Counsel stating that the execution of such amendment or supplement is authorized or permitted by this Agreement and the Opinion of Counsel referred to in Section 3.06(b) of the Indenture. The Issuer and the Trustee may, but shall not be obligated to, enter into any such amendment which affects their own rights, duties or immunities under this Agreement or otherwise. SECTION 7.02 Notices. Unless otherwise specifically provided herein, all notices, directions, consents, waivers and communications under the terms and provisions of this Agreement shall be in English and in writing, and any such notice, direction, consent or waiver may be given by United States first-class mail, reputable overnight courier service, facsimile transmission or electronic mail (confirmed by telephone, United States first-class mail or reputable overnight courier service in the case of notice by facsimile transmission or electronic mail) or any other customary means of communication, and any such notice, direction, consent or waiver shall be effective when delivered or transmitted, or if mailed, five days after deposit in the United States first-class mail with proper postage for first-class mail prepaid: (a) in the case of the Servicer, to Atlantic City Electric Company, 800 King Street, P.O. Box 231, Wilmington, Delaware 19899, Attention: General Counsel, (b) in the case of the Issuer or the Trustee, to the address provided for notices or communications to such Person in the Indenture, (c) in the case of Moody's, to Moody's Investors Service, Inc., ABS Monitoring Department, 99 Church Street, New York, New York 10007, (d) in the case of Standard & Poor's, to Standard & Poor's, Structured Finance, ABS Surveillance Corp., 55 Water Street, 41st Floor, New York, New York 10041-0003, Fax: (212) 438-2664; and (e) in the case of Fitch, to Fitch, Inc., One State Street Plaza, New York, New York 10004, Attention: ABS Surveillance; or, as to each of the foregoing, to such other address as shall be designated by written notice to the other parties. SECTION 7.03 Limitations on Rights of Others. The provisions of this Agreement are solely for the benefit of the Servicer, the Issuer and the Trustee, on behalf of itself and the Transition Bondholders, and nothing in this Agreement, whether express or implied, shall be construed to give to any other Person any legal or equitable right, remedy or claim in any Collateral or under or in respect of this Agreement or any covenants, conditions or provisions contained herein. SECTION 7.04 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 18 SECTION 7.05 Separate Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 7.06 Headings. The headings of the various Articles and Sections herein are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. SECTION 7.07 Governing Law. This Agreement shall be construed in accordance with the laws of the State of New JERSEY, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. SECTION 7.08 Assignment to the Trustee. The Servicer hereby acknowledges and consents to the mortgage, pledge, assignment and grant of a security interest by the Issuer to the Trustee pursuant to the Indenture for the benefit of the Transition Bondholders of all right, title and interest of the Issuer in, to and under the Transferred Bondable Transition Property owned by the Issuer and the proceeds thereof and the assignment of any or all of the Issuer's rights hereunder to the Trustee. In no event shall the Trustee have any liability for the representations, warranties, covenants, agreements or other obligations of the Issuer, hereunder or in any of the certificates, notices or agreements delivered pursuant hereto, as to all of which recourse shall be had solely to the assets of the Issuer. SECTION 7.09 Nonpetition Covenants. Notwithstanding any prior termination of this Agreement or the Indenture, the Servicer hereby covenants and agrees that it shall not, prior to the date which is one year and one day after the termination of the Indenture and the payment in full of all of the outstanding Transition Bonds, all other amounts owed under the Indenture (including without limitation any amounts owed to third-party credit enhancers) and all amounts owed by the Issuer under all Hedge Agreements and the Interest Rate Swap Agreements, acquiesce in, petition or otherwise invoke or, to the fullest extent permitted by law, cause the Issuer to invoke the process of any court or governmental authority for the purpose of commencing or sustaining a case against the Issuer under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of the property of the Issuer, or ordering the winding up or liquidation of the affairs of the Issuer; provided, however, that nothing in this Section 7.09 shall constitute a waiver of any right to indemnification, reimbursement or other payment from the Issuer pursuant to this Agreement.. SECTION 7.10 Termination. This Agreement shall terminate when all Transition Bonds issued by the Issuer have been retired, redeemed or defeased in full. SECTION 7.11 Limitation of Liability. It is expressly understood and agreed by the parties hereto that this Agreement is executed and delivered by The Bank of New York, not individually or personally but solely as Trustee for the benefit of the Transition Bondholders, in the exercise of the powers and authority conferred and vested in it, and nothing herein contained shall be construed as creating any liability on The Bank of New York, individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, 19 being expressly waived by the parties who are signatories to this Agreement and by any Person claiming by, through or under such parties; provided, however, that this provision shall not protect The Bank of New York against any liability that would otherwise be imposed by reason of willful misconduct, bad faith or gross negligence in the performance of duties. 20 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective duly authorized officers as of the day and year first above written. ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC, as Issuer by /s/ Roberta S. Brown ------------------------------- Title: Vice President ATLANTIC CITY ELECTRIC COMPANY, as Servicer, by /s/ Roberta S. Brown ------------------------------- Title: Vice President Acknowledged and Accepted: The Bank of New York, not in its individual capacity but solely as Trustee on behalf of the Holders of Transition Bonds issued by the Issuer, by /s/ Cassandra Shedd -------------------------------- Title: Assistant VP 21 EXHIBIT A SERVICING PROCEDURES The Servicer agrees to comply with the following servicing procedures: SECTION 1. Definitions (a) Capitalized terms used herein and not otherwise defined shall have the meanings set forth in Appendix A to the Servicing Agreement, dated as of December 19, 2002, between the Issuer and ACE, as Servicer. (b) Whenever used in this Exhibit A, the following words and phrases shall have the following meanings: "Applicable MDMA" means, with respect to each Customer, the meter data management agent or Third Party providing meter reading services for that Customer's account. "Applicable Third Party" means, with respect to each Customer, the Third Party, if any, providing billing or metering services to that Customer. "Billed Transition Bond Charges" means the amounts billed to Customers pursuant to the Transition Bond Charge, whether billed directly to such Customers by the Servicer or indirectly through a Third Party pursuant to Consolidated Third Party Billing. "Bills" means each of the regular monthly bills, the summary bills, the opening bills and the Closing Bills issued to Customers or Third Parties by ACE. "Budget Payment Plan" means a levelized payment plan offered by ACE, which, if elected by a Customer, provides for level monthly Bill charges to such Customer. "Closing Bill" means the final bill issued to a Customer at the time service is terminated. "Consolidated Third Party Billing" means the billing option available to Customers served by a Third Party pursuant to which such Third Party will be responsible for billing and collecting all charges to Customers electing such billing option, including the Transition Bond Charge, and will become obligated to the Servicer for the Billed Transition Bond Charges, all in accordance with applicable BPU Regulations and the BPU Financing Orders. "Net Write-Off Percent" means the number (expressed as a percent) equal to (i) the amount by which Write-Offs attributable to a particular Billing Period exceed Write-Off recoveries attributable to such Billing Period, divided by (ii) the total billed revenue attributable to such Billing Period. "Servicer Policies and Practices" means, with respect to the Servicer's duties under this Exhibit A, the policies and practices of the Servicer applicable to such duties that the Servicer follows with respect to comparable assets that it services for itself. "Transition Bond Charge Effective Date" means the date on which the initial Transition Bond Charge goes into effect pursuant to the BPU Financing Orders. "Variables" includes the following variables used in calculating Adjustment Requests: (i) the estimated Net Write-Off Percent; and (ii) the projected billed consumption to which the Transition Bond Charge applies. "Write-Offs" means arrears that remain unpaid by Customers generally as of 90 days after the issuance of the Closing Bills containing such charges, unless payment arrangements are made and are being kept. SECTION 2. Data Acquisition (a) Installation and Maintenance of Meters. Except to the extent that a Third Party is responsible for such services, the Servicer shall use its best efforts to cause to be installed, replaced and maintained meters in such places and in such condition as will enable the Servicer to obtain usage measurements for each Customer approximately every 30 days or as provided in the applicable tariff. (b) Meter Reading. At least once each calendar month, the Servicer shall obtain usage measurements from the Applicable MDMA for each Customer; provided, however, that the Servicer may determine any Customer's usage on the basis of estimates in accordance with applicable BPU Regulations. (c) Cost of Metering. The Issuer shall not be obligated to pay any costs associated with the metering duties set forth in this Section 2, including, but not limited to, the costs of installing, replacing and maintaining meters, nor shall the Issuer be entitled to any credit against the Servicing Fee for any cost savings realized by the Servicer or any Third Party as a result of new metering and/or billing technologies. SECTION 3. Usage and Bill Calculation The Servicer shall obtain a calculation of each Customer's usage (which may be based on data obtained from such Customer's meter read or on usage estimates determined in accordance with applicable BPU Regulations) at least once each calendar month and shall determine therefrom each Customer's individual charge relating to the Transition Bond Charge to be included on such Customer's Bill pursuant to the BPU Financing Orders and BPU Regulations. Exhibit A-2 SECTION 4. Billing The Servicer shall implement the Transition Bond Charge as of the Transition Bond Charge Effective Date and shall thereafter bill each Customer or the Applicable Third Party for the respective Customer's outstanding current and past due charges relating to the Transition Bond Charge, accruing until all payments of principal and interest on each Series of Transition Bonds and all other costs and expenses related to such Series have been paid in accordance with the Indenture, all in accordance with the following: (a) Frequency of Bills; Billing Practices. In accordance with the Servicer's then-existing Servicer Policies and Practices, as such Servicer Policies and Practices may be modified from time to time, the Servicer shall generate and issue a Bill to each Customer, or, in the case of a Customer who has elected Consolidated Third Party Billing, to an Applicable Third Party, for such Customer's respective Transition Bond Charge as a general practice once approximately every 30 days or such other time period as allowed by the BPU, at the same time, with the same frequency and on the same Bill as that containing the Servicer's own charges to such Customer or Third Party, as the case may be. In the event that the Servicer makes any material modification to these practices, it shall notify the Issuer, the Trustee and the Rating Agencies as soon as practicable, and in no event later than 60 Business Days after such modification goes into effect; provided, however, that: (i) the Servicer may not make any modification that will materially adversely affect the Transition Bondholders, and (ii) the Rating Agencies shall receive prior notice of any modification that would change the frequency with which Bills are issued or would change any tariff charged. (b) Format. (i) Each Bill to a Customer shall contain the charge corresponding to the Transition Bond Charge owed by such Customer for the Billing Period. The Customer's Bill shall contain, in text or in a footnote, text substantially to the effect that a portion of the monthly charge representing that Bondable Transition Property is being collected on behalf of the Issuer as owner of the Bondable Transition Property. (ii) In the case of each Customer that has elected Consolidated Third Party Billing, the Servicer shall deliver to the Applicable Third Party itemized charges for such Customer including the amount of such Customer's Transition Bond Charge to be remitted by the Servicer to the Issuer. (iii) The Servicer shall conform to such requirements in respect of the format, structure and text of Bills delivered to Customers and Third Parties as applicable BPU Regulations shall from time to time prescribe. To the extent that Bill format, structure and text are not prescribed by the Competition Act, other applicable law or BPU Regulations, the Servicer shall, subject to clauses (i) and (ii) above, determine the format, structure and text of all Bills in accordance with its Exhibit A-3 reasonable business judgment, its Servicer Policies and Practices with respect to its own charges and prevailing industry standards. (c) Delivery. The Servicer shall deliver all Bills to Customers: (i) by United States mail in such class or classes as are consistent with the Servicer Policies and Practices followed by the Servicer with respect to its own charges or (ii) by any other means, whether electronic or otherwise, that the Servicer may from time to time use to present its own charges to its Customers. In the case of Customers that have elected Consolidated Third Party Billing, the Servicer shall deliver all Bills to the Applicable Third Parties by such means as are prescribed by applicable BPU Regulations, or, if not prescribed by applicable BPU Regulations, by such means as are mutually agreed upon by the Servicer and the Applicable Third Party and are consistent with BPU Regulations. The Servicer or a Third Party, as applicable, shall pay from its own funds all costs of issuance and delivery of all Bills, including but not limited to printing and postage costs as the same may increase or decrease from time to time. SECTION 5. Customer Service Functions The Servicer shall handle all Customer inquiries and other Customer service matters according to the same procedures it uses to service Customers with respect to its own charges. SECTION 6. Collections; Payment Processing; Remittance (a) Collection Efforts; Policies; Procedures. (i) The Servicer shall use reasonable efforts to collect all Billed Transition Bond Charges from Customers and Third Parties as and when the same become due and shall follow such collection procedures as it follows with respect to comparable assets that it services for itself or others, including, as follows: (A) The Servicer shall prepare and deliver overdue notices to Customers and Third Parties in accordance with applicable BPU Regulations and the Servicer Policies and Practices. (B) The Servicer shall apply late payment charges to outstanding Customer and Third Party balances in accordance with applicable BPU Regulations. All late payment charges and interest collected shall be payable to and retained by the Servicer as a component of its compensation under the Servicing Agreement, and the Issuer shall not have any right to share in the same. (C) The Servicer shall deliver verbal and written final call notices in accordance with applicable BPU Regulations and Servicer Policies and Practices. (D) The Servicer shall adhere and carry out disconnection policies in accordance with the Competition Act, other applicable law and BPU Regulations and Servicer Policies and Practices. Exhibit A-4 (E) The Servicer may employ the assistance of collections agents in accordance with applicable BPU Regulations and Servicer Policies and Practices. (F) The Servicer shall apply Customer and Third Party deposits, Customers' letters of credit and Customer posted surety bonds to the payment of delinquent accounts in accordance with applicable BPU Regulations and Servicer Policies and Practices and according to the priorities set forth in Sections 6(b)(ii), (iii) and (iv) of this Exhibit A. (G) The Servicer shall promptly take all necessary action in accordance with applicable BPU Regulations to terminate billing of Transition Bond Charges by Third Parties whose payments are 22 or more days delinquent, or as the then current BPU Regulations and any billing services agreements allow, and to resume, prospectively, to collect the Billed Transition Bond Charges directly from the applicable Customers. At such time, the Servicer will apply the Third Party's security deposit to satisfy charges billed previously by the Third Party which remain outstanding, including outstanding Transition Bond Charges. (ii) The Servicer shall not waive any late payment charge or any other fee or charge relating to delinquent payments, if any, or waive, vary or modify any terms of payment of any amounts payable by a Customer, in each case unless such waiver or action: (A) would be in accordance with the Servicer's customary practices or those of any Successor Servicer with respect to comparable assets that it services for itself and for others; (B) would not materially adversely affect the rights of the Transition Bondholders; and (C) would comply with applicable law; provided, however, that notwithstanding anything in the Servicing Agreement or this Exhibit A to the contrary, the Servicer shall be authorized to write off any Billed Transition Bond Charges in accordance with its Servicer Policies and Practices. (iii) The Servicer shall accept payment from Customers in respect of Billed Transition Bond Charges in such forms and methods and at such times and places as it accepts for payment of its own charges. The Servicer shall accept payment from Third Parties in respect of Billed Transition Bond Charges in such forms and methods and at such times and places as the Servicer and each Third Party shall mutually agree in accordance with applicable BPU Regulations. (b) Payment Processing; Allocation; Priority of Payments. (i) The Servicer shall post all payments received to Customer accounts as promptly as practicable, and, in any event, substantially all payments shall be posted no later than two Business Days after receipt. Exhibit A-5 (ii) Subject to clause (iii) below, the Servicer shall apply payments received to each Customer's or Third Party's account in proportion to the charges contained on the outstanding Bill to such Customer or Third Party. (iii) Any amounts collected by the Servicer that represent partial payments of the total Bill to a Customer or Third Party shall be allocated in accordance with the priorities set forth in Section 3.02(b) of the Servicing Agreement. (iv) The Servicer shall hold all over-payments for the benefit of the Issuer and shall apply such funds to future Bill charges in accordance with clauses (ii) and (iii) above as such charges become due. (v) For Customers on a Budget Payment Plan, the Servicer shall treat TBC Collections received from such Customers as if such Customers had been billed for the Transition Bond Charge in the absence of the Budget Payment Plan. Partial payment of a Budget Payment Plan payment shall be allocated according to clause (iii) above, and overpayment of a Budget Payment Plan payment shall be allocated according to clause (iv) above. (c) Accounts; Records. (i) The Servicer shall maintain accounts and records as to the Transferred Bondable Transition Property accurately and in accordance with its standard accounting procedures and in sufficient detail to permit reconciliation between payments or recoveries with respect to the Transferred Bondable Transition Property and the amounts from time to time remitted to the Collection Account in respect of the Transferred Bondable Transition Property. (ii) The Servicer shall maintain accounts and records as to Third Parties performing Consolidated Third Party Billing for Customers accurately and in accordance with its standard accounting procedures and in sufficient detail to permit reconciliation between payments or recoveries with respect to the Transferred Bondable Transition Property and amounts owed by such Customers in respect of the Transition Bond Charge. (d) Investment of TBC Collections. Prior to remittance on the applicable Remittance Date, the Servicer may invest TBC Collections received at its own risk and for its own benefit, and such investments and funds shall not be required to be segregated from the other investments and funds of the Servicer. (e) Calculation of Collections; Determination of Aggregate Remittance Amount. (i) On or before each Remittance Date, the Servicer shall calculate the total TBC Collections received by the Servicer from or on behalf of Customers during prior Collection Periods in respect of all previously Billed Transition Bond Charges. Exhibit A-6 (ii) In accordance with Section 4.01 of the Servicing Agreement and Annex 1, the Servicer shall update the Variables and shall prepare Adjustment Requests to reflect the updated Variables when required to do so pursuant to Annex 1. (f) Remittances. (i) The Servicer shall make remittances to the Issuer in accordance with Section 5.11 of the Servicing Agreement. (ii) In the event of any change of account or change of institution affecting the remittances, the Issuer shall provide written notice thereof to the Servicer by the earlier of: (A) five Business Days from the effective date of such change, or (B) five Business Days prior to the next applicable Remittance Date. Exhibit A-7 ANNEX 1 to SERVICING AGREEMENT The Servicer agrees to comply with the following with respect to the Issuer: SECTION 1. Definitions. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in Appendix A ("Appendix A") to the Servicing Agreement dated as of December 19, 2002, between the Issuer and Atlantic City Electric Company, as Servicer. SECTION 2. Monthly Fee Disbursement Date Statements. At least one Business Day before each date on which distributions are to be made pursuant to Section 8.02(d) of the Indenture (each, a "Monthly Fee Disbursement Date"), the Servicer shall provide the Trustee with a statement indicating. 1. the amount to be paid to the Trustee on such Monthly Fee Disbursement Date in accordance with Section 8.02(d) of the Indenture and each Series Supplement; 2. the amount to be paid to the Independent Managers on such Monthly Fee Disbursement Date in accordance with Section 8.02(d) of the Indenture and each Series Supplement; 3. the amount to be paid to the Servicer on such Monthly Fee Disbursement Date in accordance with Section 8.02(d) of the Indenture and each Series Supplement; 4. the amount to be paid to the Administrator on such Monthly Fee Disbursement Date in accordance with Section 8.02(d) of the Indenture and each Series Supplement; and 5. the amount to be paid to the Issuer (as Operating Expenses) on such Monthly Fee Disbursement Date in accordance with Section 8.02(d) of the Indenture and each Series Supplement. SECTION 3. Payment Date Statements. At least one Business Day before each date on which distributions are to be made pursuant to Section 8.02(e) of the Indenture (each, a "Payment Date"), the Servicer shall provide to the Issuer, the Trustee, each Rating Agency and, for so long as any Transition Bonds are listed on the Luxembourg Stock Exchange, any listing agent in Luxembourg, a statement indicating: 1. the amount to be paid to Transition Bondholders of each Series and Class in respect of interest on such Payment Date in accordance with Section 8.02(e) of the Indenture and each Series Supplement; 2. the amount to be paid to Transition Bondholders of each Series and Class in respect of principal on such Payment Date in accordance with Section 8.02(e) of the Indenture and each Series Supplement; 3. the Scheduled Transition Bond Balance and the Transition Bond Balance for each Series and Class as of such Payment Date (after giving effect to the payments to be made on such Payment Date); 4. the amount on deposit in the Overcollateralization Subaccount for each Series and the Scheduled Overcollateralization Level for each Series, as of such Payment Date (after giving effect to the transfers to be made from or into the respective Overcollateralization Subaccounts on such Payment Date); 5. the amount on deposit in the Capital Subaccount for each Series as of such Payment Date (after giving effect to the transfers to be made from or into the respective Capital Subaccounts on such Payment Date) and the required capital amount for such Series; 6. the amount, if any, on deposit in the Reserve Subaccount for each Series as of such Payment Date (after giving effect to the transfers to be made from or into the respective Reserve Subaccounts on such Payment Date); 7. the amount to be paid to any counterparty under any Hedge Agreement since the preceding Payment Date and on or before such Payment Date; 8. the amount to be paid to any counterparty under any Interest Rate Swap Agreement (on a gross and a net basis, separately stated) under such Interest Rate Swap Agreement since the preceding Payment Date and on or before such Payment Date; 9. the amounts paid to the Trustee since the preceding Payment Date and the amounts to be paid to the Trustee on such Payment Date pursuant to Section 8.02(e) of the Indenture; 10. the amounts paid to the Issuer since the preceding Payment Date and the amounts to be paid to the Issuer on such Payment Date pursuant to Section 8.02(e) of the Indenture; 11. the amounts paid to the Independent Managers since the preceding Payment Date pursuant to Section 8.02(e) of the Indenture and the amount to be paid to the Independent Managers on such Payment Date pursuant to Section 8.02(e) of the Indenture; 12. the amounts paid to the Servicer since the preceding Payment Date pursuant to Section 8.02(e) of the Indenture and the amount to be paid to the Servicer on such Payment Date pursuant to Section 8.02(e) of the Indenture; Annex 1-2 13. the amounts paid to the Administrator since the preceding Payment Date pursuant to Section 8.02(e) of the Indenture and the amount to be paid to the Administrator on such Payment Date pursuant to Section 8.02(e) of the Indenture; and 14. the amount of any other transfers and payments to be made on such Payment Date pursuant to Section 8.02 of the Indenture and any Series Supplement. SECTION 4. Remittance Date Statements. At least one Business Day before each Monthly Remittance Date, and in the case of Daily Remittances, on the last Daily Remittance Date of such month, the Servicer shall prepare and furnish to the Issuer and the Trustee a statement setting forth the amount to be remitted by the Servicer to the Trustee (net of any unreimbursed Excess Curve Payments) for deposit on such Monthly Remittance Date pursuant to the Indenture or, in the case of Daily Remittances, the aggregate amount remitted by the Servicer to the Trustee for deposit on the Daily Remittance Dates during such month pursuant to the Indenture. SECTION 5. Transition Bond Charge Adjustments. (a) Prior to each Calculation Date, the Servicer shall calculate (i) the Transition Bond Balance as of such Calculation Date (a written copy of which shall be delivered by the Servicer to the Trustee within five Business Days following such Calculation Date), and (ii) the Transition Bond Charge projected by the Servicer to be such that, if it goes into effect on the next succeeding Adjustment Date, TBC Collections therefrom allocable to the Issuer will be, in the Servicer's good faith estimate, sufficient so that: (A) the Transition Bond Balance on the Target Payment Date (as defined in clause (g) below) will equal the Scheduled Transition Bond Balance as of the Target Payment Date, (B) the amount on deposit in the Overcollateralization Subaccount for each Series on the Target Payment Date will equal the Scheduled Overcollateralization Level for such Series as of the Target Payment Date, (C) the amount on deposit in the Capital Subaccount for each Series on the Target Payment Date will equal the required level for such Series as of the Target Payment Date, (D) the amount on deposit in the Reserve Subaccount for each Series on the Target Payment Date will equal zero, Annex 1-3 (E) the TBC Collections will provide for (i) amortization of the remaining outstanding principal amount of each Series in accordance with the Expected Amortization Schedule therefor, (ii) payment of interest on each Series when due, payment of any hedge payments due under the Hedge Agreement, and payment of any amounts due (other than termination or breakage amounts) under any Interest Rate Swap Agreement, and (iii) payment of all Operating Expenses of the Issuer when due in accordance with the Indenture, and (F) all other amounts included in the Total Revenue Requirement (estimated in good faith in accordance with Section 6(a) of this Annex 1) from the first Adjustment Date to follow such Calculation Date up to the next succeeding Adjustment Date. (b) On each Calculation Date, the Servicer shall file an Adjustment Request with the BPU. This filing shall include the data specified in the Petition and the BPU Financing Orders. (c) On each Adjustment Date, the Servicer shall (i) take all reasonable actions and make all reasonable efforts to effectuate all adjustments to the Transition Bond Charge either approved by the BPU or effective on an interim basis pending final approval, and (ii) promptly send to the Trustee copies of all material notices and documents relating to such adjustments. (d) On each Adjustment Date, the Servicer shall provide Rating Agencies with a schedule indicating any changes to the Transition Bond Charge. (e) To the extent it is so authorized under the Competition Act and the BPU Financing Orders, the Servicer may in its discretion, at any time and from time to time, file Adjustment Requests on dates in addition to those referred to in clauses (i), (ii) and (iii) of the definition of "Calculation Date" set forth in Appendix A. (f) If deemed appropriate by the Servicer to protect Transition Bondholders to remedy a significant and recurring variance between actual and expected TBC Collections, as authorized by the BPU Financing Orders, the Servicer shall make "non-routine" filings with the BPU for adjustments to the formula described in Appendix C to the bondable stranded costs rate order issued by the BPU in favor of ACE on September 20, 2002 (as such formula may be adjusted from time to time) to assure timely payment of the Total Payment Requirements (as defined in the BPU Financing Orders). Such filings shall be made at least 90 days prior to the proposed effective date of the proposed adjustments. (g) For purposes of this Section 5, the "Target Payment Date" for a particular Calculation Date means: (i) if the Adjustment Date next following such Calculation Date begins a Measure Period that is one year in length, the first Payment Date to occur following the end of such Measure Period; (ii) if the Adjustment Date next following such Calculation Date begins a Annex 1-4 Measure Period that is one calendar quarter in length, the first Payment Date to occur following the end of such Measure Period; and (iii) if the Adjustment Date next following such Calculation Date begins a Measure Period that is one month in length, the first Payment Date to occur following the end of the calendar quarter in which such Measure Period falls; provided that, notwithstanding clauses (i), (ii) and (iii) above, if the Transition Bonds are to be fully retired before the date determined to be the Target Payment Date pursuant to such clause (i), (ii) or (iii), as the case may be, the Target Payment Date shall be the date of such retirement. SECTION 6. Determination of Revenue Requirements. (a) No later than the first Adjustment Date to follow any Calculation Date, the Servicer shall furnish to the Trustee in writing a specification, in reasonable detail, of the Servicer's good faith estimate of the components of each Series' Revenue Requirement (including a specification of each Series' share of each such component of the Total Revenue Requirement) for the Measure Period that begins on such Adjustment Date. (b) If a Series other than the Series 2002-1 Transition Bonds is issued then, no later than the Series Issuance Date for such Series, the Servicer shall redetermine and furnish to the Trustee in writing an adjusted specification, in reasonable detail, of the Servicer's good faith estimate of the components of each Series' Revenue Requirement (including a specification of each Series' share of each component of the Total Revenue Requirement) for the remainder of the Measure Period that includes such Series Issuance Date, taking into account such new issuance. (c) If the maturity of the Transition Bonds is accelerated pursuant to Section 5.02 of the Indenture or if the Transition Bonds are redeemed pursuant to Section 10.01 or 10.02 of the Indenture then, no later than one Business Day prior to the anticipated date of payment on the Transition Bonds pursuant to such acceleration or redemption, as the case may be, the Servicer shall redetermine and furnish to the Trustee in writing an adjusted specification, in reasonable detail, of the Servicer's good faith estimate of the components of each Series' Revenue Requirement (including a specification of each Series' share of each component of the Total Revenue Requirement) for the remainder of the Measure Period that includes such anticipated date of payment, taking into account such acceleration or redemption, as the case may be. Annex 1-5 APPENDIX A MASTER DEFINITIONS The definitions contained in this Appendix A are applicable to the singular as well as the plural forms of such terms. "ACE" means Atlantic City Electric Company, a New Jersey corporation, and its permitted successors and assigns. "Act" has the meaning specified in Section 11.03(a) of the Indenture. "Adjustment Date" means (i) October 1 of each year beginning October 1, 2003 until October 1, 2019, (ii) so long as any Series 2002-1 Transition Bonds are outstanding, January 1, April 1, July 1 and October 1 of each year, beginning October 1, 2020, (iii) any other dates designated as Adjustment Dates in any Series Supplement, and (iv) any other day that is 30 days after a Calculation Date. "Adjustment Request" means an application filed by the Servicer with the BPU for a Transition Bond Charge Adjustment pursuant to Section 5(b) or (e) of the Issuer Annex. "Administration Agreement" means the Administration Agreement dated as of December 19, 2002, between the Issuer and PHI Service Company, as administrator, as the same may be amended or supplemented from time to time. "Administrator" means PHI Service Company, as administrator under the Administration Agreement, and each successor to PHI Service Company, in the same capacity, pursuant to Section 5.08 of the Administration Agreement. "Advice Letter" means, with respect to any Series of Transition Bonds, the Issuance Advice Letter, in the form specified in the BPU Financing Order authorizing the issuance of Transition Bonds of such Series, filed with the BPU at the time of the issuance of such Series. "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. "Annual Accountant's Report" has the meaning assigned to that term in Section 3.07 of the Servicing Agreement. "Authorized Denominations" means, with respect to any Series or Class of Transition Bonds, $1,000 and integral multiples of $1.00 above that amount, provided, however, that one bond of each Class may have a denomination of less than $1,000, or such other denominations as may be specified in the Series Supplement therefor. "Authorized Newspaper" means the Luxemburger Wort or any other newspaper published in Luxembourg on a daily basis. "Authorized Officer" means, with respect to the Issuer, (a) any Manager and, (b) any person designated as an "Officer" under the Issuer LLC Agreement and authorized thereby to act on behalf of the Issuer. "Basic Documents" means the Formation Documents, the Sale Agreement, any Bills of Sale, the Servicing Agreement, the Administration Agreement, the Indenture, as each may be amended or supplemented from time to time. "Billing Month" means a calendar month during which the Transition Bond Charge is billed to Customers. "Bill of Sale" means any bill of sale issued by the Seller to the Issuer pursuant to the Sale Agreement evidencing the sale of Bondable Transition Property by the Seller to the Issuer. "Bondable Stranded Costs" has the meaning assigned to that term in the Competition Act and the BPU Financing Orders. "Bondable Transition Property" has the meaning assigned to that term in the Competition Act and the BPU Financing Orders. "Bondable Transition Property Documentation" means all documents relating to the Transferred Bondable Transition Property, including copies of the Petition and the BPU Financing Orders and all documents filed with the BPU in connection with any Transition Bond Charge Adjustment. "Book-Entry Transition Bonds" means beneficial interests in the Transition Bonds, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 2.11 of the Indenture. "BPU" means the State of New Jersey Board of Public Utilities or its successor. "BPU Financing Orders" means the bondable stranded costs rate order issued by the BPU in favor of ACE on September 20, 2002 pursuant to the Competition Act, any subsequent bondable stranded costs rate orders issued by the BPU in favor of ACE pursuant to the Competition Act, and any order supplemental to any of the foregoing. "BPU Regulations" means any regulations, orders, guidelines or directives promulgated, issued or adopted by the BPU. "Business Day" means any day other than a Saturday, Sunday or a day on which banking institutions in The City of New York, New York or with respect to any Transition Bonds listed on the Luxembourg Stock Exchange, in Luxembourg, are required or authorized by law or executive order to remain closed. Appendix A-2 "Calculation Date" means (i) September 1 of each year beginning September 1, 2003 until September 1, 2019, (ii) so long as any Series 2002-1 Transition Bonds are outstanding, March 1, June 1, September 1 and December 1 of each year, beginning September 1, 2020, (iii) any other dates designated as Calculation Dates in any Series Supplement, and (iv) any other date on which the Servicer files an Adjustment Request. "Capital Subaccount" with respect to any Series has the meaning specified in Section 8.02(a) of the Indenture. "Class" means, with respect to any Series, any one of the classes of Transition Bonds of that Series, as specified in the Series Supplement for that Series. "Class Final Maturity Date" means the Final Maturity Date of a Class, as specified in the Series Supplement for the related Series. "Class Subaccount," with respect to a Class within a Series, has the meaning specified in Section 8.02(a) of the Indenture and, if established for such Series and Class, in the Series Supplement for such Series. "Clearing Agency" means an organization registered as a "clearing agency" pursuant to Section 17A of the Exchange Act. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and Treasury Regulations promulgated thereunder. "Collateral" has the meaning specified in the Granting Clause of the Indenture. "Collection Account" has the meaning specified in Section 8.02(a) of the Indenture. "Collection Period" means the period from and including the first day of a calendar month to but excluding the first day of the next calendar month. "Collections Curve" means an annually prepared forecast, with respect to each Billing Month, of the percentages of amounts billed in such Billing Month that are expected to be received during such Billing Month and each of the following six months. "Collections Curve Payment" means, with respect to any Billing Month, the sum of the amounts paid to the Trustee during such Billing Month and each of the following six months based on the Collections Curve then in effect. "Commission" means the U.S. Securities and Exchange Commission, and any successor thereof. Appendix A-3 "Competition Act" means the Electric Discount and Energy Competition Act, New Jersey Statutes Annotated, title 48, chapter 3, article 7, as in effect from time to time. "Corporate Trust Office" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at date of the execution of the Indenture is located at 101 Barclay Street, Floor 8 West, New York, New York 10286, Attn: Asset Backed Securities (phone: (212) 815-2484; fax: (212) 815-3883), or at such other address as the Trustee may designate from time to time by notice to the Transition Bondholders and the Issuer, or the principal corporate trust office of any successor Trustee (the address of which the successor Trustee will notify the Transition Bondholders and the Issuer in writing). "Covenant Defeasance Option" has the meaning specified in Section 4.01(b) of the Indenture. "Curve Payment Shortfall" means, for a particular Billing Month, the amount, if any, by which the actual TBC Collections in respect of a Billing Month exceed the Collections Curve Payments made to the Trustee in respect of that Billing Month, as determined on the Reconciliation Date for that Billing Month. "Customer" means each person who is a retail consumer of electricity and who accesses ACE's transmission and distribution system, regardless of whether such consumer elects to purchase electricity from a Third Party. "Daily Remittance Date" means, if the Servicer has not satisfied the conditions of Section 5.10(b) of the Servicing Agreement, each Business Day commencing on the second Business Day following the date on which the Servicer begins remittance procedures under Section 3.03(a)(ii) 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. "Defeasance Subaccount" has the meaning specified in Section 8.02(a) of the Indenture. "Definitive Transition Bonds" has the meaning specified in Section 2.11 of the Indenture. "Delaware UCC" means the Uniform Commercial Code, as in effect in the State of Delaware, as amended from time to time. "DTC Agreement" means the agreement between the Issuer, the Trustee and The Depository Trust Company, as the initial Clearing Agency, dated on or about December 19, 2002, relating to the Transition Bonds, as the same may be amended or supplemented from time to time. Appendix A-4 "Eligible Guarantor Institution" means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution," including (as such terms are defined therein): (a) a bank; (b) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; (c) a credit union; (d) a national securities exchange, registered securities association or clearing agency; or (e) a savings association that is a participant in a securities transfer association. "Eligible Institution" means: (a) the corporate trust department of the Trustee, so long as any of the securities of the Trustee have a credit rating from each Rating Agency in one of its generic rating categories which signifies investment grade, or (b) a depositary 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) with respect to any Eligible Investment having a maturity of greater than one month, a long-term unsecured debt rating of "AA-" by Standard & Poor's and Fitch and "Aa3" by Moody's, or (B) with respect to any Eligible Investment having a maturity one month or less, a certificate of deposit rating of "A-1+" by Standard & Poor's, "F1+" by Fitch 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. "Eligible Investments" mean book-entry securities, negotiable instruments or securities represented by instruments in bearer or registered form which evidence: (a) direct obligations of, and obligations fully and unconditionally guaranteed as to timely payment by, the United States of America; Appendix A-5 (b) demand deposits, time deposits or certificates of deposit of any depository institution or trust company (any depositary institution or trust company being referred to in this definition as a "financial institution") incorporated under the laws of the United States of America or any state thereof (or any domestic branch of a foreign bank) and subject to supervision and examination by federal or state banking or depositary institution authorities; provided, however, that at the time of the investment or contractual commitment to invest therein, the commercial paper or other short-term unsecured debt obligations of such financial institution (other than such obligations the rating of which is based on the credit of a Person other than such financial institution) shall have a credit rating from each of the Rating Agencies in the highest investment category granted thereby; (c) commercial paper or other short-term unsecured debt obligations of any corporation organized under the laws of the United States of America (other than ACE) whose ratings, at the time of the investment or contractual commitment to invest therein, from each of the Rating Agencies are in the highest rating category granted thereby; (d) investments in money market funds having a rating from each of the Rating Agencies in the highest rating category granted thereby (including funds for which the Trustee or any of its Affiliates act as investment manager or advisor); (e) bankers' acceptances issued by any depositary institution or trust company referred to in clause (b) above; (f) 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 a financial institution (acting as principal) incorporated under the laws of the United States of America or any state thereof (or any domestic branch of a foreign bank) and subject to supervision and examination by federal or state banking or depositary institution authorities; provided, however, that at the time of the investment or contractual commitment to invest therein, the commercial paper or other short-term unsecured debt obligations of such financial institution (other than such obligations the rating of which is based on the credit of a Person other than such financial institution) shall have a credit rating from each of the Rating Agencies in the highest investment category granted thereby; (g) repurchase obligations with respect to any security or whole loan entered into with (i) a financial institution (acting as principal) described in clause (b) above, Appendix A-6 (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 P-1 by Moody's and A-1+ by Standard & Poor's at the time of entering into the 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 P-1 by Moody's and A-1+ by Standard & Poor's and F1+ by Fitch at the time of purchase; or (h) any other investment permitted by each Rating Agency; provided, however, that, unless otherwise permitted by each Rating Agency, upon the failure of any Eligible Institution to maintain any applicable rating set forth in this definition or the definition of Eligible Institution, the related investments at such institution shall be reinvested in Eligible Investments at a successor Eligible Institution within 10 days, and provided, further, that, any Eligible Investment must not: (i) be sold, liquidated or otherwise disposed of at a loss, prior to the maturity thereof, or (ii) mature later than (i) the date on which the proceeds of such Eligible Investment will be required to be on deposit in the Collection Account in order for the Trustee to make all required and scheduled payments and deposits into Subaccounts under the Indenture, if such Eligible Investment is held by an Affiliate of the Trustee, or (ii) the Business Day prior to the date on which the proceeds of such Eligible Investment will be required to be on deposit in the Collection Account in order for the Trustee to make all required and scheduled payments and deposits into Subaccounts under the Indenture, if such Eligible Investment is not held by an Affiliate of the Trustee. "Eligible Securities Account" means either: (a) a segregated trust account with an Eligible Institution or (i) a segregated trust account with the corporate trust department of a depositary 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 depositary institution shall have a credit rating from each Rating Agency in one of its generic rating categories which signifies investment grade. "Event of Default" has the meaning specified in Section 5.01 of the Indenture. Appendix A-7 "Excess Curve Payment" means, for a particular Billing Month, the amount, if any, by which the Collections Curve Payments made to the Trustee in respect of that Billing Month exceed the actual TBC Collections in respect of that Billing Month, as determined on the Reconciliation Date for that Billing Month. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Executive Officer" means, with respect to any corporation, the chief executive officer, chief operating officer, chief financial officer, chief information officer, president, executive vice president, any vice president, the secretary or the treasurer of such corporation; and with respect to any limited liability company, any manager thereof. "Expected Amortization Schedule" means, with respect to each Series or, if applicable, each Class of Transition Bonds, the expected amortization schedule for principal thereof, as specified in Schedule A to the Series Supplement for such Series. "Expected Final Payment Date" means, with respect to each Series or, if applicable, each Class of Transition Bonds, the Payment Date related to the date when all interest and principal is scheduled to be paid with respect to that Series or Class in accordance with the Expected Amortization Schedule, as specified in the Series Supplement therefor. "FDIC" means the Federal Deposit Insurance Corporation or its successor. "Final Maturity Date" means, for each Series or, if applicable, each Class of Transition Bonds, the Payment Date related to the date by which all principal of and interest on such Series or Class of Transition Bonds is required to be paid, as specified in the Series Supplement therefor. "Financing Issuance" means an issuance of a new Series of Transition Bonds under the Indenture to provide funds to finance the purchase by the Issuer of Bondable Transition Property. "Fitch" means Fitch, Inc. or its successor. "Formation Document" means the Issuer LLC Agreement, the Issuer Certificate of Formation and any other document pursuant to which the Issuer is formed or governed, as each may be amended or supplemented from time to time. "General Subaccount" has the meaning specified in Section 8.02(a) of the Indenture. "Grant" means mortgage, pledge, bargain, sell, warrant, alienate, remise, release, convey, assign, transfer, create, and grant a lien upon and a security interest in and right of set-off against, deposit, set over and confirm. A Grant of the Collateral or of any other agreement or instrument 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 principal, interest and other payments in respect of the Collateral and all other moneys payable thereunder, to give and receive notices and other communications, to Appendix A-8 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. "Hedge Agreement" means, with respect to any Series, the document or documents, if any, identified as a "Hedge Agreement" in the Series Supplement for such Series. "Holder" or "Transition Bondholder" means the Person in whose name a Transition Bond of any Series or Class is registered in the Transition Bond Register. "Indemnification Event" means an event which triggers ACE's obligation to indemnify the Issuer and the Trustee, for itself and on behalf of the Transition Bondholders, and each of their respective managers, officers, employees, directors and agents, pursuant to Section 5.01 of the Sale Agreement. "Indemnity Amount" means the amount of any indemnification obligation payable under the Basic Documents or any Hedge Agreement or Interest Rate Swap Agreement. "Indenture" means the Indenture dated as of December 19, 2002, between the Issuer and the Trustee, as the same may be amended or supplemented from time to time by one or more Supplemental Indentures, and shall include each Series Supplement and the forms and terms of the Transition Bonds established thereunder. "Independent" means, when used with respect to any specified Person, that the Person (a) is in fact independent of the Issuer, any other obligor upon the Transition Bonds, ACE 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 obligor, ACE or any Affiliate of any of the foregoing Persons, and (c) is not connected with the Issuer, any such other obligor, ACE or any Affiliate of any of the foregoing Persons as an officer, employee, promoter, underwriter, trustee, partner, director or other Person performing similar functions. "Independent Certificate" means a certificate or opinion to be delivered to the Trustee under the circumstances described in, and otherwise complying with, the applicable requirements of Section 11.01 of the Indenture, made by an Independent appraiser or other expert appointed by an Issuer Order and approved by the Trustee in the exercise of reasonable care, and such opinion or certificate shall state that the signer has read the definition of "Independent" in this Appendix A and that the signer is Independent within the meaning thereof. "Independent Manager" has the meaning set forth in the Issuer LLC Agreement. Appendix A-9 "Initial Purchase Price" has the meaning set forth in Section 2.01 of the Sale Agreement. "Initial Transfer Date" means the Series Issuance Date for the Series 2002-1 Transition Bonds, i.e., December 19, 2002. "Initial Transferred Bondable Transition Property" means the Bondable Transition Property sold by the Seller to the Issuer as of the Initial Transfer Date pursuant to the Sale Agreement and the Bill of Sale delivered on or prior to the Initial Transfer Date as identified in such Bill of Sale. "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 in effect on or after December 19, 2002, 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 90 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 in effect on or after December 19, 2002, 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. "Interest" means, for any Payment Date for any Series or Class of Transition Bonds, the sum, without duplication, of (a) an amount equal to the amount of interest accrued at the applicable Interest Rate from the prior Payment Date with respect to that Series or Class; (b) any unpaid interest, to the extent permitted by applicable law, plus any interest accrued on this unpaid interest at the applicable Interest Rate, to the extent permitted by applicable law; (c) if the Transition Bonds have been declared due and payable, all accrued and unpaid interest thereon; and (d) with respect to a Series or Class to be redeemed prior to the next Payment Date, the amount of interest that will be payable as interest on such Series or Class upon such redemption. Appendix A-10 "Interest Rate" means, with respect to each Series or Class of Transition Bonds, the rate at which interest accrues on the principal balance of Transition Bonds of such Series or Class, as specified in the Series Supplement therefor. "Interest Rate Swap Agreement" means any ISDA Master Agreement, together with the related schedules and confirmations, between the Issuer and the counterparty thereunder, as same may be amended or supplemented from time to time, with respect to any Series or Class of Transition Bonds as provided in the Series Supplement for such Series or Class, as the case may be. "Issuer" means Atlantic City Electric Transition Funding LLC, a Delaware limited liability company, or its successor under the Indenture or the party named as such in the Indenture until a successor replaces it and, thereafter, means the successor. "Issuer Annex" means Annex 1 of the Servicing Agreement. "Issuer Certificate of Formation" means the Certificate of Formation of the Issuer, which was filed with the Delaware Secretary of State's Office on March 28, 2001, as the same may be amended or supplemented from time to time. "Issuer LLC Agreement" means the Amended and Restated Limited Liability Company Agreement between the Issuer and ACE, as sole Member, dated as of December 19, 2002, as the same may be amended or supplemented from time to time. "Issuer Officer's Certificate" means a certificate signed by any Authorized Officer of the Issuer, under the circumstances described in, and otherwise complying with, the applicable requirements of Section 11.01 of the Indenture, and delivered to the Trustee. Unless otherwise specified, any reference in the Indenture to an Officer's Certificate shall be to an Officer's Certificate of any Authorized Officer of the Issuer. "Issuer Opinion of Counsel" means one or more written opinions of counsel who may, except as otherwise expressly provided in the Indenture, be employees of or counsel to the Issuer or the Seller and who shall be reasonably satisfactory to the Trustee, and which opinion or opinions shall be addressed to the Trustee, and shall be in a form reasonably satisfactory to the Trustee. "Issuer Order" or "Issuer Request" means a written order or request, respectively, signed in the name of the Issuer by any one of its Authorized Officers and delivered to the Trustee. "Legal Defeasance Option" has the meaning specified in Section 4.01(b) of the Indenture. "Lien" means a security interest, lien, charge, pledge, equity or encumbrance of any kind. "Losses" means collectively, any and all liabilities, obligations, losses, damages, payments, costs or expenses of any kind whatsoever. Appendix A-11 "Manager" has the meaning set forth in the Issuer LLC Agreement. "Market Transition Charge" means the market transition charge that ACE may impose on Customers pursuant to the Competition Act and the Restructuring Order. "Measure Period" means any period beginning on an Adjustment Date and ending on the date immediately preceding the next Adjustment Date. "Member" means ACE, as the sole member of the Issuer, in its capacity as such member under the Issuer LLC Agreement. "Monthly Remittance Date" means the 15th day of each calendar month (or if such day is not a Business Day, the next Business Day). "Monthly Servicing Fee" means the fee payable to the Servicer on a monthly basis for services rendered, in accordance with Section 5.07 of the Servicing Agreement. "Moody's" means Moody's Investors Service Inc., or its successor. "MTC-Tax" means the tax component, to recover federal income and state corporation business taxes associated with the Market Transition Charge and the Transition Bond Charge, that ACE is entitled to impose under the Restructuring Order and under the BPU Financing Orders. "New Jersey UCC" means the Uniform Commercial Code, as in effect in the State of New Jersey, as amended from time to time. "Officers' Certificate" means a certificate signed by (a) the chairman of the board, the president, the vice chairman of the board, any executive vice president or any vice president and (b) a treasurer, assistant treasurer, secretary or assistant secretary, in each case of the Servicer or the Seller, as applicable. "Operating Expenses" means, with respect to the Issuer, all fees, costs, expenses and indemnity payments owed by the Issuer, including, without limitation, all amounts owed by the Issuer to the Trustee, the Monthly Servicing Fee, the fees and expenses payable by the Issuer to the Administrator under the Administration Agreement, the fees and expenses payable by the Issuer to the Independent Managers and Special Members of the Issuer, fees of the Rating Agencies, legal fees and expenses of the Servicer pursuant to Section 3.10 of the Servicing Agreement, legal and accounting fees, costs and expenses of the Issuer, and legal, accounting or other fees, costs and expenses of the Seller (including, without limitation, any costs and expenses incurred by the Seller pursuant to Section 4.08 of the Sale Agreement) under or in connection with the Basic Documents, any Hedge Agreement or Interest Rate Swap Agreement or the BPU Financing Orders. "Opinion of Counsel" means one or more written opinions of counsel who may be an employee of or counsel to ACE or the Issuer, or any other Person (as the context may require), which counsel shall be reasonably acceptable to the Trustee, the Issuer or the Rating Appendix A-12 Agencies, as applicable, and which opinion or opinions shall be in form reasonably satisfactory to the Trustee, if applicable. "Outstanding" with respect to Transition Bonds means, as of the date of determination, all Transition Bonds theretofore authenticated and delivered under the 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 Trustee or any Paying Agent in trust for the Holders of such Transition Bonds; provided, however, that if such Transition Bonds are to be redeemed, notice of such redemption has been duly given pursuant to the Indenture or provision therefor, satisfactory to the Trustee, made; and (c) Transition Bonds in exchange for or in lieu of other Transition Bonds which have been authenticated and delivered pursuant to the Indenture unless proof satisfactory to the 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 Class thereof have given any request, demand, authorization, direction, notice, consent or waiver under the Indenture or under or with respect to any other Basic Document or any Hedge Agreement or Interest Rate Swap Agreement, Transition Bonds owned by the Issuer, any other obligor upon the Transition Bonds, ACE or any Affiliate of any of the foregoing Persons shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be fully protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Transition Bonds that a Responsible Officer of the 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 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, ACE or any Affiliate of any of the foregoing Persons. "Outstanding Amount" means, with respect to one or more Classes or Series, the aggregate principal amount of, as the context requires, all Outstanding Transition Bonds of such Class or Classes or of such Series or group of Series. "Overcollateralization" means, with respect to any Payment Date and any Series, the amount, if any, that, if deposited to the Overcollateralization Subaccount for such Series on such Payment Date, would cause the balance in such subaccount on such Payment Date to equal the Scheduled Overcollateralization Level for such Series on such Payment Date. "Overcollateralization Amount" means, with respect to any Series, the amount specified as such in Schedule B to the Series Supplement therefor. Appendix A-13 "Overcollateralization Subaccount" with respect to any Series has the meaning specified in Section 8.02(a) of the Indenture. "Paying Agent" means the Trustee or any other Person, including any Person appointed pursuant to Section 3.02(b) of the Indenture, that meets the eligibility standards for the Trustee specified in Section 6.11 of the Indenture and is authorized by the Issuer to make the payments of principal of or premium, if any, or interest on the Transition Bonds on behalf of the Issuer. "Payment Date" means January 20, April 20, July 20 and October 20, or, if any such date is not a Business Day, the next succeeding Business Day. "Person" means any individual, corporation, estate, partnership, joint venture, association, joint stock company, trust (including any beneficiary thereof), business trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof. "Petition" means the petition filed by ACE with the BPU, dated June 25, 2001. "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. "Principal" means, with respect to any Payment Date and each Series or Class of Transition Bonds: (a) the amount of principal scheduled to be paid on such Payment Date in accordance with the Expected Amortization Schedule; (b) the amount of principal due on the Final Maturity Date of any Series or Class on such Payment Date; (c) the amount of principal due as a result of the occurrence and continuance of an Event of Default and acceleration of the Transition Bonds; (d) the amount of principal and premium, if any, due as a result of a redemption of Transition Bonds on such Payment Date; and (e) any overdue payments of principal. "Proceeding" means any suit in equity, action at law or other judicial or administrative proceeding. "Rating Agency" means, as of any date, any rating agency rating the Transition Bonds of any Class or Series at the time of issuance thereof at the request of the Issuer. If no Appendix A-14 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 Trustee, the Member and the Servicer. "Rating Agency Condition" means, with respect to any action, the notification in writing by the Trustee to each Rating Agency of such action and the notification by each Rating Agency to the Trustee and the Issuer that such action will not result in a reduction or withdrawal of the then current rating by such Rating Agency of any Outstanding Series or Class of Transition Bonds; provided that, except where such action includes the issuance of Transition Bonds of a new Series (either as a Financing Issuance or as a Refunding Issuance), the Rating Agency Condition shall be satisfied with respect to Moody's by providing Moody's 10 Business Days' prior written notice of such action. "Reconciliation Date" for a particular Billing Month means the fifteenth day (or if that day is not a Business Day, the next succeeding Business Day) of the calendar month that is seven months after such Billing Month. "Record Date" has, with respect to any Series, the meaning set forth in the related Series Supplement. "Redemption Date" means, with respect to each Series or Class of Transition Bonds, the date for the redemption of the Transition Bonds of such Series or Class pursuant to Section 10.01 or 10.02 of the Indenture or the Series Supplement for such Series or Class, which in each case shall be a Payment Date. "Redemption Price" has the meaning set forth in Section 10.01 of the Indenture. "Refunding Issuance" means an issuance of a new Series of Transition Bonds under the Indenture to pay the cost of refunding, through redemption or payment on the Expected Final Payment Date for a Series or Class of Transition Bonds, all or part of the Transition Bonds of such Series or Class to the extent permitted by the terms thereof. "Registered Holder" means, as of any date, the Person in whose name a Transition Bond is registered in the Transition Bond Register on such date. A Payment Date "relates" to a Measure Period in each of the following circumstances: (i) if such Measure Period is one year in length, each of the second, third, fourth and fifth Payment Dates to occur after the first day in such Measure Period relates to such Measure Period; (ii) if such Measure Period is one calendar quarter in length, the first Payment Date to occur following the end of such Measure Period relates to such Measure Period; and (iii) if such Measure Period is one month in length, the first Payment Date to occur following the end of the calendar quarter in which such Measure Period falls relates to such Measure Period. "Released Parties" has the meaning specified in Section 5.02(e) of the Servicing Agreement. "Remittance Date" means a Daily Remittance Date or a Monthly Remittance Date, as applicable. Appendix A-15 "Required Capital Amount" means, with respect to any Series, the amount required to be deposited in the Capital Subaccount for such Series on the Series Issuance Date of such Series, as specified in the related Series Supplement. "Reserve Subaccount" with respect to any Series has the meaning specified in Section 8.02(a) of the Indenture. "Responsible Officer" means, with respect to the Trustee, any officer within the Corporate Trust Office of the Trustee, including any vice president, assistant vice president, secretary, assistant secretary, or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Restructuring Order" means the decision and order of the BPU issued on March 30, 2001 pursuant to Section 13 of the Competition Act. "Retiring Trustee" has the meaning specified in Section 6.08(b) of the Indenture. "Revenue Requirement" means, for any Series with respect to any Measure Period, the aggregate amount estimated in good faith by the Servicer, pursuant to the Issuer Annex, to be payable in respect of such Series pursuant to Sections 8.02(d) and 8.02(e) of the Indenture during such Measure Period. "Sale Agreement" means the Bondable Transition Property Sale Agreement dated as of December 19, 2002, between the Seller and the Issuer, as the same may be amended or supplemented from time to time. "Scheduled Overcollateralization Level" means, with respect to each Series and any Payment Date, the amount with respect to such Series set forth as such in Schedule B to the Series Supplement for such Series. "Scheduled Transition Bond Balance" means, as of any date, the sum of the amounts provided for in the Expected Amortization Schedules for each outstanding Series of Transition Bonds as of such date. "Seller" means ACE, in its capacity as seller of the Bondable Transition Property to the Issuer pursuant to the Sale Agreement. "Series" means the Series 2002-1 Transition Bonds and any subsequent series of Transition Bonds issued by the Issuer and authenticated by the Trustee pursuant to the Indenture, as specified in the Series Supplement therefor. "Series Capital Subaccount" with respect to each Series has the meaning specified in Section 8.02(a) of the Indenture and in the related Series Supplement. "Series Final Maturity Date" means the Final Maturity Date for a Series. Appendix A-16 "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 Series Supplement for such Series. "Series Overcollateralization Subaccount" with respect to each Series has the meaning specified in Section 8.02(a) of the Indenture and in the related Series Supplement. "Series Reserve Subaccount" with respect to each Series has the meaning specified in Section 8.02(a) of the Indenture and in the related Series Supplement. "Series Subaccount" with respect to each Series has the meaning specified in Section 8.02(a) of the Indenture and in the related Series Supplement. "Series Supplement" means any Supplemental Indenture that authorizes a particular Series of Transition Bonds, as the same may be amended or supplemented from time to time. "Servicer" means ACE, as the servicer of the Bondable Transition Property, and each successor to ACE (in the same capacity) pursuant to Section 5.03 or 6.04 of the Servicing Agreement. "Servicer Default" means an event specified in Section 6.01 of the Servicing Agreement. "Servicing Agreement" means the Servicing Agreement dated as of December 19, 2002, between the Issuer and the Servicer, as the same may be amended or supplemented from time to time. "Special Member" has the meaning set forth in the Issuer LLC Agreement. "Standard & Poor's" or "S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc., or its successor. "state" in the jurisdictional sense means any one of the 50 states of the United States of America or the District of Columbia. "Subaccount" means any of the subaccounts of the Collection Account specified in Section 8.02 of the Indenture. "Subsequent Purchase Price" means, in relation to a Subsequent Sale, the price specified in the related Bill of Sale, to be paid by the Issuer for the Subsequent Transferred Bondable Transition Property purchased and sold in such Subsequent Sale. "Subsequent Sale" means any sale of Bondable Transition Property by the Seller to the Issuer after the Initial Transfer Date. Appendix A-17 "Subsequent Transfer Date" means a date on which a sale of Subsequent Transferred Bondable Transition Property is effective, as specified in the written notice relating to such sale contemplated in Section 2.02(e) of the Sale Agreement. "Subsequent Transferred Bondable Transition Property" means Bondable Transition Property sold by the Seller to the Issuer as of a Subsequent Transfer Date pursuant to the Sale Agreement and a Bill of Sale delivered on or prior to the related Subsequent Transfer Date as identified in such Bill of Sale. "Successor Servicer" means a successor Servicer appointed by the Trustee pursuant to Section 6.04 of the Servicing Agreement which succeeds to all the rights and duties of the Servicer under the Servicing Agreement. "Supplemental Indenture" means a supplemental indenture entered into by the Issuer and the Trustee pursuant to Article IX of the Indenture. "Target Payment Date" has the meaning specified in Section 5(a) of the Issuer Annex. "TBC Collections" means amounts received by the Servicer in respect of the Transition Bond Charge. "Termination Notice" has the meaning specified in Section 6.01 of the Servicing Agreement. "Third Party" means any third party, including any electric generation supplier, providing billing or metering services, licensed by the BPU pursuant to relevant provisions of the Competition Act, the BPU Regulations and the BPU Financing Orders. "Total Revenue Requirement" means, as of any date of determination, the sum of the Revenue Requirements for all Series outstanding as of such date. "Transfer Date" means the Initial Transfer Date or any Subsequent Transfer Date, as applicable. "Transferred Bondable Transition Property" means, collectively, all Bondable Transition Property that has been sold, assigned and transferred to the Issuer pursuant to the Sale Agreement. "Transition Bond" means any of the transition bonds (as defined in the Competition Act) issued by the Issuer pursuant to the Indenture. "Transition Bond Balance" means, as of any date, the aggregate Outstanding Amount of all Series of Transition Bonds on such date. "Transition Bond Charge" means the Transition Bond Charge authorized by the BPU to be imposed on all Customers by ACE or its successor to recover Bondable Stranded Costs pursuant to the Competition Act and the BPU Financing Orders. Appendix A-18 "Transition Bond Charge Adjustment" means each adjustment to Transition Bond Charge related to the Transferred Bondable Transition Property made in accordance with Section 4.01 of the Servicing Agreement and the Issuer Annex. "Transition Bond Charge Adjustment Process" means the process by which adjustments are made to the Transition Bond Charge or to the formula governing such adjustments, in either case pursuant to Section 4.01 of the Servicing Agreement and the Issuer Annex, the Competition Act, the Petition and the BPU Financing Orders. "Transition Bond Owner" means, with respect to a Book-Entry Transition Bond, the Person who is the beneficial owner of such Book-Entry Transition Bond, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). "Transition Bond Register" has the meaning specified in Section 2.05(a) of the Indenture. "Transition Bond Registrar" has the meaning specified in Section 2.05(a) of the Indenture. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as in force on the date of the Indenture, unless otherwise specifically provided therein. "Trustee" means The Bank of New York, a New York banking corporation, in the capacity specified in the first paragraph of the Indenture, or any successor Trustee under the Indenture. "Underwriting Agreement" means the Underwriting Agreement dated as of December 11, 2002, among the Seller, the Issuer and Morgan Stanley & Co. Incorporated, on behalf of itself and as the representative of the several underwriters named therein. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or 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 issuer's option. Appendix A-19 EX-10.3 9 exh103.txt EXHIBIT 10.3 EXECUTION COPY ADMINISTRATION AGREEMENT This Administration Agreement, dated as of December 19, 2002, is made by and between Atlantic City Electric Transition Funding LLC, a Delaware limited liability company (together with any successor thereto permitted under the Indenture, as hereinafter defined, the "Issuer"), and PHI Service Company, a Delaware corporation, as Administrator (together with its permitted successors or assigns as administrator hereunder, the "Administrator"). RECITALS A. WHEREAS, the Issuer is issuing the Transition Bonds pursuant to an indenture dated as of the date hereof between the Issuer and The Bank of New York, a New York banking corporation, as Trustee (the "Trustee") (as such indenture is amended, modified or supplemented from time to time in accordance with the provisions thereof, the "Indenture"; capitalized terms used herein and not defined herein shall have the meanings assigned such terms in the Indenture); B. WHEREAS, the Issuer has entered into certain agreements in connection with the issuance of the Transition Bonds, including (i) a Bondable Transition Property Sale Agreement, dated as of the date hereof (as amended, modified or supplemented from time to time in accordance with the provisions thereof, the "Sale Agreement"), between the Issuer and Atlantic City Electric Company, a New Jersey corporation ("ACE"), as Seller (in such capacity, the "Seller"), (ii) a Bondable Transition Property Servicing Agreement, dated as of the date hereof (as amended, modified or supplemented from time to time in accordance with the provisions thereof, the "Servicing Agreement"), between the Issuer and ACE, as Servicer (in such capacity, together with its successors and assigns permitted under the Servicing Agreement, the "Servicer"), (iii) an Underwriting Agreement, dated as of December 11, 2002 (as amended, modified or supplemented from time to time in accordance with the provisions thereof, the "Underwriting Agreement"), among the Issuer, ACE and the Underwriters named therein, and (iv) the Indenture (together with the Sale Agreement and the Servicing Agreement, the "Related Agreements"); C. WHEREAS, pursuant to the Related Agreements, the Issuer is required to perform certain duties in connection with the Transition Bonds and the collateral therefor pledged pursuant to the Indenture (the "Collateral") and to maintain its existence and comply with applicable laws; D. WHEREAS, the Issuer has no employees and does not intend to hire any employees, and consequently desires to have the Administrator perform certain duties of the Issuer referred to in the preceding clause, and to provide such additional services consistent with the terms of this Agreement and the Related Agreements as the Issuer may from time to time request; and E. WHEREAS, the Administrator has the capacity to provide the services and the facilities required hereby and is willing to perform such services and provide such facilities for the Issuer on the terms set forth herein; F. NOW, THEREFORE, in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I. Duties of Administrator Section 1.01 Appointment of Administrator; Acceptance of Appointment. The Issuer hereby appoints the Administrator, and the Administrator hereby accepts such appointment, to perform the Administrator's obligations pursuant to this Agreement on behalf of and for the benefit of the Issuer in accordance with the terms of this Agreement and applicable law. Section 1.02 Duties with Respect to the Related Agreements. (a) The Administrator agrees to perform all its duties as Administrator hereunder in accordance with the terms of this Agreement and applicable law. In addition, the Administrator shall consult with the Issuer regarding the Issuer's duties under the Related Agreements. Unless otherwise notified in writing by the Issuer, the Administrator shall prepare for execution by the Issuer, or shall cause the preparation by other appropriate Persons of all such documents, reports, filings, instruments, certificates and opinions as it shall be the duty of the Issuer to prepare, file, obtain or deliver pursuant to any Related Agreement. In furtherance of the foregoing, the Administrator shall take all appropriate action that it is the duty of the Issuer to take pursuant to the Indenture including without limitation such of the foregoing as are required with respect to the following matters under the Indenture (references hereinafter in this Section 1.02(a) being to sections of the Indenture): (1) the preparation of or obtaining of the Transition Bonds and or any other Issuer documents and instruments required for authentication of the Transition Bonds, if any, and delivery of the same to the Trustee or other authenticating agent for authentication (Sections 2.02 and 2.10); (2) the duty to cause the Transition Bond Register to be kept and, during any period of time when the Trustee is not the Transition Bond Registrar, to give the Trustee (and any transfer, paying or listing agent of the Issuer appointed pursuant to Section 3.02(b)) prompt written notice of any appointment of a new Transition Bond Registrar and the location, or change in location, of the Register (Section 2.05); (3) the fixing or causing to be fixed of any special record date and the notification of each affected Holder of Transition Bonds with respect to special record dates, payment dates, and the amount of defaulted interest (plus interest on such defaulted interest) to be paid, if any (Section 2.08(c)); (4) the duty to cause any newly appointed Paying Agent (other than the Trustee, including without limitation any paying agent appointed pursuant to Section 3.02(b)) to deliver to the Trustee the instrument specified in the Indenture regarding its agreement with the Trustee (Section 3.03(b)); 2 (5) the direction to any Paying Agent to pay to the Trustee all sums held in trust by such Paying Agent (Section 3.03(c)); (6) the preparation and filing of all documents and instruments necessary to maintain the Issuer's existence, rights and franchises as a limited liability company under the laws of the State of Delaware (unless the Issuer becomes, or any successor Issuer under the Indenture is or becomes, organized under the laws of any other state or of the United States of America, in which case the Administrator shall prepare and file all documents and instruments necessary to maintain such Issuer's existence, rights and franchises under the laws of such other jurisdiction) (Section 3.04); (7) the obtaining and preservation of the Issuer's qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of the Indenture, the Transition Bonds, the Collateral and each other instrument or agreement included in the Collateral (Section 3.04); (8) the preparation of all supplements and amendments to the Indenture, filings with the BPU pursuant to the Competition Act, financing statements and continuation statements under the New Jersey UCC and Delaware UCC, instruments of further assurance and other instruments, in accordance with Section 3.05 of the Indenture, necessary to maintain and preserve the Grant, Lien and security interest (and priority thereof) of the Indenture and to protect the rights of the Transition Bondholders in the Collateral (Section 3.05); (9) the obtaining of Issuer Opinions of Counsel as to the Collateral and the delivery thereof on or before March 31 of each year in which any Transition Bonds are outstanding (Section 3.06); (10) the identification to the Trustee in an Issuer Officer's Certificate of any Person (other than the Administrator and the Servicer) with whom the Issuer has contracted to perform its duties under the Indenture (Section 3.07(b)); (11) the annual preparation and delivery of an Issuer Officer's Certificate to the Trustee, within 120 days after the end of each fiscal year of the Issuer (which will end December 31 of each year unless the Issuer otherwise determines), as to compliance with conditions and covenants under the Indenture (Section 3.09); (12) the preparation or obtaining of any documents or instruments required for the release of the Issuer from its obligations under the Indenture (Sections 3.10 and 3.11);. (13) written notice in the form of an Issuer Officer's Certificate of any Default or Event of Default under the Indenture or any other Basic Documents, its status and what action is being taken or proposed to be taken with respect thereto within five Business Days after the occurrence thereof, to the Trustee, the Rating Agencies and any agent appointed pursuant to Section 3.02(b) (Section 3.17); 3 (14) if the Administrator has actual knowledge of the occurrence of a Servicer Default under the Servicing Agreement or an event of default, termination event or downgrade event under any Hedge Agreement or Interest Rate Swap Agreement, prompt written notice thereof to the Trustee and the Rating Agencies, specifying what action, if any, is being taken with respect to such default or other event (3.20(g)), (15) in the case of a Servicer Default arising from the failure of the Servicer to perform obligations under the Servicing Agreement, cause the Issuer to take all reasonable steps available to it to remedy the failure (3.20(h)), (16) the preparation of or obtaining of an Issuer Officer's Certificate, an Issuer Opinion of Counsel and an accountant's certificate relating to the satisfaction and discharge of the Indenture (Section 4.01(a)); (17) the preparation of or obtaining of an Issuer Officer's Certificate, an Issuer Opinion of Counsel and an accountant's certificate relating to the exercise of the Legal Defeasance Option or the Covenant Defeasance Option (Section 4.02); (18) during any period when the Trustee is not the Transition Bond Registrar, the furnishing to the Trustee of lists of the names and addresses of Transition Bondholders (Section 7.01); (19) to the extent not required to be performed by the Servicer, the preparation and, after execution by the Issuer, the filing with the Commission and the Trustee (and, if required, any listing agent appointed pursuant to Section 3.02(b)) of annual reports and of the information, documents and other reports, required to be filed on a periodic basis with, and summaries thereof as may be required by rules and regulations prescribed by, the Commission and the transmission of such summaries, as necessary, to the Trustee (Section 7.03); (20) the furnishing to the Trustee and to each stock exchange on which the Transition Bonds are listed (if required by the rules of such exchange) of a copy of each report mailed to Transition Bondholders, and notice to the Trustee of any stock exchange on which the Transition Bonds are listed (Section 7.04); (21) the opening of one or more segregated trust accounts in the Trustee's name, the preparation and furnishing of Issuer Orders, and the obtaining of Issuer Opinions of Counsel and the taking of all other actions necessary with respect to investment and reinvestment of funds in the Collection Account (Section 8.02); (22) the preparation or obtaining of any Issuer Orders and Issuer Officer's Certificates and the obtaining of Issuer Opinions of Counsel and Independent Certificates necessary for the release of the Collateral (Sections 8.03 and 8.04); (23) the preparation or obtaining of any Issuer Orders and Issuer Officer's Certificates and the obtaining of any Issuer Opinions of Counsel required with respect to the execution of supplemental indentures (Sections 9.01 and 9.02); 4 (24) if requested by the Trustee or the Issuer, the preparation of new Transition Bonds conforming to any supplemental indenture (Section 9.06); (25) the preparation and delivery of notices required in connection with any redemption of Transition Bonds (Sections 10.01 and 10.02);. (26) the preparation or obtaining of all Issuer Officer's Certificates and the obtaining of all Issuer Opinions of Counsel and Independent Certificates, if necessary, with respect to any requests by the Issuer to the Trustee to take any action under the Indenture (Section 11.01(a)); (27) the obtaining of evidence that the Rating Agency Condition shall have been satisfied whenever and to the extent required under the Indenture or any other Related Agreement; and (28) for so long as any Transition Bonds are listed on the Luxembourg Stock Exchange and the rules and regulations of such exchange so require, the retention of a listing agent, a transfer agent and a paying agent in Luxembourg (Section 3.02(b)). (b) The Administrator shall also take all appropriate action that it is the duty of the Issuer to take pursuant to the Underwriting Agreement including without limitation the following matters (references hereinafter in this Section 1.02(b) being to sections of the Underwriting Agreement): (1) to the extent not already delivered, the delivery to the Representatives (as defined in the Underwriting Agreement) and counsel for the Underwriters under the Underwriting Agreement (the "Underwriters"), of copies of the Registration Statement (as defined in the Underwriting Agreement) (Section 5(a)(iv)); (2) so long as delivery of a prospectus by an Underwriter or dealer may be required by the Act, the delivery to the Representatives and counsel for the Underwriters of as many copies of any Preliminary Final Prospectus and the Final Prospectus and any supplement thereto as the Representatives may reasonably request (Section 5(a)(iv)); (3) to the extent not required to be performed by the Servicer, the preparation and, after execution by the Issuer, the filing with the SEC of reports on Form SR as required by Rule 463 under the Act, and the delivery of such reports on Form SR, as filed with the SEC, to the Representatives (Section 5(a)(iv)); (4) the preparation and, after execution by the Issuer, the filing of all documents and instruments necessary to qualify the Transition Bonds for sale under the laws of such jurisdictions as the Representatives may designate, and the maintenance of such qualifications in effect so long as required for the distribution of the Transition Bonds, subject to the qualifications, limitations and exceptions set forth in the Underwriting Agreement (Section 5(a)(v)); (5) the arrangement for the determination of the legality of the Transition Bonds for purchase by institutional investors (Section 5(a)(v)); 5 (6) to the extent not already performed by the Servicer, the delivery to the Representatives of the annual statements of compliance and the annual independent auditor's servicing reports furnished to the Issuer or the Trustee pursuant to the Servicing Agreement or the Indenture, subject to the qualifications, limitations and exceptions set forth in the Underwriting Agreement (Section 5(a)(vii)); (7) so long as any of the Transition Bonds are outstanding, and to the extent not already performed by the Servicer, the delivery to the Representatives of (i) a copy of any filings with the BPU or any other governmental agency or instrumentality relating to the Transition Bonds and (ii) from time to time, any information concerning the Issuer to the extent readily available, that the Representatives may reasonably request (Section 5(a)(viii)); and (8) to the extent, if any, that any rating necessary to satisfy the condition set forth in Section 6(o) of the Underwriting Agreement is conditioned upon the furnishing of documents or the taking of other actions by the Issuer on or after the Closing Date (as defined in the Underwriting Agreement), the delivery of such documents and the taking of such actions (Section 5(a)(ix)). Section 1.03 Additional Duties. (a) In addition to the duties of the Administrator set forth above, the Administrator shall perform such calculations and shall prepare for execution by the Issuer or shall cause the preparation by other appropriate Persons of all such documents, reports, filings, instruments, certificates and opinions as it shall be the duty of the Issuer to prepare, file, obtain or deliver pursuant to the Related Agreements, and at the request of the Issuer shall take all appropriate action that it is the duty of the Issuer to take pursuant to the Related Agreements. Subject to Section 5.01, and in accordance with the directions of the Issuer, the Administrator shall administer, perform or supervise the performance of such other activities in connection with the Collateral and the Related Agreements as are not covered by any of the foregoing provisions and as are expressly requested by the Issuer and are reasonably within the capability of the Administrator. (b) In carrying out the foregoing duties or any of its other obligations under this Agreement, the Administrator may enter into transactions with or otherwise deal with any of its Affiliates; provided, however, that the terms of any such transactions or dealings shall be, in the Administrator's reasonable opinion, no less favorable to the Issuer than would be available from unaffiliated parties. Section 1.04 Non-Ministerial Matters. (a) With respect to matters that in the reasonable judgment of the Administrator are non-ministerial, the Administrator shall not take any action unless the Administrator shall have notified the Issuer of the proposed action and the Issuer shall have consented. For the purpose of the preceding sentence, "non-ministerial matters" shall include, without limitation: (1) the amendment of, or any supplement to, the Indenture; 6 (2) the initiation of any claim or lawsuit by the Issuer and the compromise of any action, claim or lawsuit brought by or against the Issuer (other than in connection with the collection of the Transition Bond Charge); (3) the amendment, change or modification of any of the Related Agreements; (4) the appointment of successor Registrars, successor Paying Agents and successor Trustees pursuant to the Indenture or the appointment of successor Administrators or successor Servicers, or the consent to the assignment by the Registrar, Paying Agent or Trustee of its obligations under the Indenture; and (5) the removal of the Trustee. (b) Notwithstanding anything to the contrary in this Agreement, the Administrator shall not be obligated to, and hereby agrees that it shall not, take any action that the Issuer directs the Administrator not to take on its behalf. Section 1.05 Records. The Administrator shall maintain appropriate books of account and records relating to services performed hereunder, which books of account and records shall be accessible for inspection by the Issuer and the Trustee at any time during normal business hours. ARTICLE II. Facilities Section 2.01 Facilities. During the term of this Agreement, the Administrator shall make available to or provide the Issuer with such facilities as are necessary to conduct the business of the Issuer and to comply with the terms of the Related Agreements. Such facilities shall include office space to serve as the principal place of business of the Issuer. Initially such office space will be located at 800 King Street, Wilmington, Delaware 19899. All facilities provided to the Issuer hereunder shall be provided without warranty of any kind. ARTICLE III. Compensation Section 3.01 Compensation. As compensation for the performance of the Administrator's obligations under this Agreement, including the provision of facilities pursuant to Section 2.01, the Administrator shall be entitled to an annual fee of $80,000, payable monthly. In addition, the Issuer shall reimburse the Administrator for all filing fees and expenses, legal fees, fees of outside auditors and other out-of-pocket expenses incurred by the Administrator in the course of performing its duties hereunder. The Administrator's compensation and other expenses payable hereunder shall be paid from the Collection Account pursuant to Section 8.02 of the Indenture, and the Administrator shall have no recourse against the Issuer for payment of such amounts other than in accordance with Section 8.02 of the Indenture. 7 ARTICLE IV. Additional Information Section 4.01 Additional Information To Be Furnished to Issuer. The Administrator shall furnish to the Issuer from time to time such additional information regarding the Collateral as the Issuer shall reasonably request. ARTICLE V. Miscellaneous Provisions Section 5.01 Independence of Administrator. For all purposes of this Agreement, the Administrator shall be an independent contractor and shall not be subject to the supervision of the Issuer with respect to the manner in which it accomplishes the performance of its obligations hereunder. Unless expressly authorized by the Issuer, the Administrator shall have no authority to act for or represent the Issuer in any way and shall not otherwise be deemed an agent of the Issuer. Section 5.02 No Joint Venture. Nothing contained in this Agreement shall (a) constitute the Administrator and the Issuer as members of any partnership, joint venture, association, syndicate, unincorporated business or other separate entity, (b) be construed to impose any liability as such on any of them or (c) be deemed to confer on any of them any express, implied or apparent authority to incur any obligation or liability on behalf of the others. Section 5.03 Other Activities of Administrator. Nothing herein shall prevent the Administrator or its Affiliates from engaging in other businesses or, in its sole discretion, from acting in a similar capacity as an administrator for any other Person even though such Person may engage in business activities similar to those of the Issuer. Section 5.04 Term of Agreement; Resignation and Removal of Administrator. (a) This Agreement shall continue in force for one year and one day after the retirement of all Transition Bonds issued pursuant to the Indenture. (b) Subject to Sections 5.04(e) and 5.04(f), the Administrator may resign its duties hereunder by providing the Issuer with at least 60 days prior written notice. (c) Subject to Sections 5.04(e) and 5.04(f), the Issuer may remove the Administrator without cause by providing the Administrator with at least 60 days prior written notice. (d) Subject to Sections 5.04(e) and 5.04(f), at the sole option of the Issuer, the Administrator may be removed immediately upon written notice of termination from the Issuer to the Administrator if any of the following events shall occur: (1) the Administrator shall default in the performance of any of its duties under this Agreement and, after notice of such default, shall not cure such default within 8 ten days (or, if such default is curable but cannot be cured in such time, shall not give within ten days such assurance of cure as shall be reasonably satisfactory to the Issuer); (2) a court having jurisdiction in the premises shall enter a decree or order for relief, and such decree or order shall not have been vacated within 60 days, in respect of the Administrator in any involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect or appoint a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for the Administrator or any substantial part of its property or order the winding-up or liquidation of its affairs; or (3) the Administrator shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of a receiver, liquidator, assignee, trustee, custodian, sequestrator or similar official for the Administrator or any substantial part of its property, shall consent to the taking of possession by any such official of any substantial part of its property, shall make any general assignment for the benefit of creditors or shall fail generally to pay its debts as they become due. The Administrator agrees that if any of the events specified in clause (2) or (3) of this Section 5.04(d) shall occur, it shall give written notice thereof to the Issuer and the Trustee within seven days after the happening of such event. (e) No resignation or removal of the Administrator pursuant to this Section 5.04 shall be effective until (1) a successor Administrator shall have been appointed by the Issuer and (2) such successor Administrator shall have agreed in writing to be bound by the terms of this Agreement in the same manner as the Administrator is bound hereunder. (f) The appointment of any successor Administrator shall be effective only after satisfaction of the Rating Agency Condition with respect to the proposed appointment. Section 5.05 Action upon Termination, Resignation or Removal. Promptly upon the effective date of the termination of this Agreement pursuant to Section 5.04(a) or the resignation or removal of the Administrator pursuant to Section 5.04(b) or 5.04(c), the Administrator shall be entitled to be paid all fees accruing to it and expenses accrued by it in the performance of its duties hereunder through the date of such termination, resignation or removal, to the extent permitted under Article III. The Administrator shall forthwith upon such termination pursuant to Section 5.04(a) deliver to the Issuer all property and documents of or relating to the Collateral then in the custody of the Administrator. In the event of the resignation or removal of the Administrator pursuant to Section 5.04(b), 5.04(c), or 5.04(d), the Administrator shall cooperate with the Issuer and take all reasonable steps requested to assist the Issuer in making an orderly transfer of the duties of the Administrator. Section 5.06 Notices. Unless otherwise specifically provided herein, all notices, directions, consents and waivers required under the terms and provisions of this Administration Agreement shall be in English and in writing, and any such notice, direction, consent or waiver may be given by United States mail, courier service, facsimile transmission or electronic mail 9 (confirmed by telephone, United States mail or courier service in the case of notice by facsimile transmission or electronic mail) or any other customary means of communication, and any such notice, direction, consent or waiver shall be effective when delivered, or if mailed, three days after deposit in the United States mail with proper postage for ordinary mail prepaid, except that notices to the Trustee are effective only upon receipt: (a) if to the Issuer, to Atlantic City Electric Transition Funding LLC P.O. Box 15597 Wilmington, Delaware 19850-5597 Facsimile: Telephone: (302) 429-3902 (b) if to the Administrator, to PHI Service Company 800 King Street P.O. Box 231 Wilmington, Delaware 19899-0231 Attention: General Counsel Facsimile: (302) 429-3801 (c) if to the Trustee, to The Bank of New York 101 Barclay Street Floor 8 West New York, New York 10286 Attn: Asset Backed Securities Facsimile: (212) 815-3883 Telephone: (212) 815-2484 or to such other address as any party shall have provided to the other parties in writing. Section 5.07 Amendments. This Agreement may be amended in writing by the Administrator and the Issuer upon compliance with the applicable terms of Section 3.20 of the Indenture. In addition, and without limitation of any such terms: (a) promptly after the execution of any such amendment and obtaining of the requisite consents, if any, the Administrator shall furnish written notification of the substance of such amendment to the Trustee and each of the Rating Agencies; and (b) prior to its consent to any amendment to this Agreement, the Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating that such amendment is authorized or permitted by this Agreement. 10 The Trustee may, but shall not be obligated to, enter into any such amendment which affects the Trustee's own rights, duties or immunities under this Agreement or otherwise. Section 5.08 Successors and Assigns. This Agreement may not be assigned by the Administrator unless such assignment is previously consented to in writing by the Issuer and the Trustee and is subject to the satisfaction of the Rating Agency Condition in respect thereof. An assignment with such consent and satisfaction, if accepted by the assignee, shall bind the assignee hereunder in the same manner as the Administrator is bound hereunder. Notwithstanding the foregoing, this Agreement may be assigned by the Administrator without the consent of the Issuer and the Trustee to a corporation or other organization that is a successor (by merger, consolidation or purchase of assets) to the Administrator, provided that such successor organization executes and delivers to the Issuer and the Trustee an agreement in which such corporation or other organization agrees to be bound hereunder by the terms of said assignment in the same manner as the Administrator is bound hereunder and the Rating Agency Condition is satisfied. Subject to the foregoing, this Agreement shall bind any successors or assigns of the parties hereto. Section 5.09 Limitations on Rights of Others. The provisions of this Agreement are solely for the benefit of the Administrator, the Issuer, the Trustee and the Transition Bondholders. The Transition Bondholders shall be entitled to enforce their rights and remedies against the Administrator under this agreement solely in accordance with and subject to the provisions of Section 5.06 of the Indenture. Nothing in this Agreement, whether express or implied, shall be construed to give to any other Person any legal or equitable right, remedy or claim in the Bondable Transition Property or under or in respect of this Agreement or any covenants, conditions or provisions contained herein, except for the indemnities specifically provided in Section 5.15. The Persons listed in this Section 5.09 as having the benefit of this Agreement and the Indemnified Persons listed in Section 5.15 shall have rights of enforcement with respect to their respective rights in, to and under this Agreement. Section 5.10 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. Section 5.11 Headings; References. The section headings hereof have been inserted for convenience of reference only and shall not be construed to affect the meaning, construction or effect of this Agreement. Other than in Section 1.02, references herein to sections or articles are to the sections or articles of this Agreement. Section 5.12 Counterparts. This Agreement may be executed in counterparts, each of which when so executed shall together constitute but one and the same agreement. Section 5.13 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition 11 or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 5.14 Nonpetition Covenants. Notwithstanding any prior termination of this Agreement or the Indenture, the Administrator hereby covenants and agrees that it shall not, prior to the date which is one year and one day after the termination of the Indenture and the payment in full of all of the outstanding Transition Bonds, all other amounts owed under the Indenture (including without limitation any amounts owed to third-party credit enhancers) and all amounts owed by the Issuer under all Hedge Agreements and Interest Rate Swap Agreements, acquiesce in, petition or otherwise invoke or, to the fullest extent permitted by law, cause the Issuer to invoke the process of any court or governmental authority for the purpose of commencing or sustaining a case against the Issuer under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of the property of the Issuer, or ordering the winding up or liquidation of the affairs of the Issuer; provided, however, that nothing in this Section 5.14 shall constitute a waiver of any right to indemnification, reimbursement or other payment from the Issuer pursuant to this Agreement. Section 5.15 Indemnification. The Administrator shall indemnify the Issuer and the Trustee and their respective officials, officers, directors, managers, employees, consultants, counsel and agents (each an "Indemnified Person") for, and defend and hold harmless each such Person from and against, any and all liabilities, obligations, actions, suits, claims, losses, damages, payments, costs or expenses of any kind whatsoever ("Losses") that may be imposed on, incurred by or asserted against any such Person as a result of the Administrator's willful misconduct or negligence in the performance of its duties or observance of its covenants under this Agreement; provided, however, that the Administrator shall not be liable for any Losses resulting from the willful misconduct or gross negligence of such Indemnified Person. The Transition Bondholders shall be entitled to enforce their rights and remedies against the Administrator under this indemnification solely in accordance with and subject to the provisions of Section 5.06 of the Indenture. The Administrator shall not be required to indemnify an Indemnified Person for any amount paid or payable by such Indemnified Person in the settlement of any action, proceeding or investigation without the written consent of the Administrator, which consent shall not be unreasonably withheld. Promptly after receipt by an Indemnified Person of notice of its involvement in any action, proceeding or investigation, such Indemnified Person shall, if a claim for indemnification in respect thereof is to be made against the Administrator under this Section 5.15, notify the Administrator in writing of such involvement. Failure by an Indemnified Person to so notify the Administrator shall relieve the Administrator from the obligation to indemnify and hold harmless such Indemnified Person under this Section 5.15 only to the extent that the Administrator suffers actual prejudice as a result of such failure. With respect to any action, proceeding or investigation brought by a third party for which indemnification may be sought under this Section 5.15, the Administrator shall be entitled to assume the defense of any such action, proceeding or investigation. Upon assumption by the Administrator of the defense of any such action, proceeding or investigation, the Indemnified Person shall have the right to participate in such action or proceeding and to retain its own counsel. The Administrator shall be entitled to appoint counsel of the Administrator's choice at the Administrator's expense to represent the Indemnified Person in any action, proceeding or investigation for which a claim of indemnification is made against the Administrator under this 12 Section 5.15 (in which case the Administrator shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the Indemnified Person except as set forth below); provided, however, that such counsel shall be reasonably satisfactory to the Indemnified Person. Notwithstanding the Administrator's election to appoint counsel to represent the Indemnified Person in an action, proceeding or investigation, the Indemnified Person shall have the right to employ separate counsel (including local counsel), and the Administrator shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the Administrator to represent the Indemnified Person would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the Indemnified Person and the Administrator and the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or additional to those available to the Administrator, (iii) the Administrator shall not have employed counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person within a reasonable time after notice of the institution of such action or (iv) the Administrator shall authorize the Indemnified Person to employ separate counsel at the expense of the Administrator. Notwithstanding the foregoing, the Administrator shall not be obligated to pay for the fees, costs and expenses of more than one separate counsel for the Indemnified Persons (in addition to local counsel). The Administrator shall not, without the prior written consent of the Indemnified Person, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought under this Section 5.15 (whether or not the Indemnified Person is an actual or potential party to such claim or action) unless such settlement, compromise or consent includes an unconditional release of the Indemnified Person from all liability arising out of such claim, action, suit or proceeding. The indemnities contained in this Section 5.15 shall survive the resignation of the Trustee and the termination of this Agreement. Each of the parties hereto acknowledges and agrees that the Trustee shall be a third party beneficiary of the obligations of the Administrator under this Section 5.15 and shall be entitled to enforce such obligations directly against the Administrator as if the Trustee was a party hereto. 13 IN WITNESS WHEREOF, the parties have caused this Administration Agreement to be duly executed and delivered under seal as of the day and year first above written. ATLANTIC CITY ELECTRIC TRANSITION FUNDING LLC, as Issuer By: /s/ Joseph M. Rigby --------------------------------- Name: Joseph M. Rigby ------------------------------- Title: President & COO ------------------------------ PHI SERVICE COMPANY, as Administrator By: /s/ Joseph M. Rigby --------------------------------- Name: Joseph M. Rigby ------------------------------- Title: Senior VP ------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----