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EXHIBIT 10.3
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SERVICING AGREEMENT
between
WEST PENN FUNDING LLC
and
WEST PENN POWER COMPANY
Servicer
Dated as of [ ], 1999
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TABLE OF CONTENTS
Page
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ARTICLE I
Definitions
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SECTION 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.02. Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE II
Appointment and Authorization of Servicer
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SECTION 2.01. Appointment of Servicer; Acceptance
of Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.02. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.03. Dominion and Control over Serviced
Intangible Transition Property . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE III
Billing Services
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SECTION 3.01. Duties of Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.02. Collection of Intangible Transition
Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 3.03. Servicing and Maintenance Standards . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.04. Servicer's Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.05. Annual Statement as to Compliance;
Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.06. Annual Independent Certified Public
Accountants' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 3.07. Intangible Transition Property
Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.08. Computer Records; Audits of
Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.09. Defending Intangible Transition Property
Against Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.10. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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Contents, p. ii
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ARTICLE IV
Services Related to Intangible
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Transition Charges Adjustments
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SECTION 4.01. Intangible Transition Charges
Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE V
The Servicer
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SECTION 5.01. Representations and Warranties of
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 5.02. Indemnities of Servicer; Release of
Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5.03. Merger or Consolidation of, or
Assumption of the Obligations of,
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.04. Assignment of Servicer's Obligations . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.05. Limitation on Liability of Servicer
and Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.06. West Penn Not To Resign as Servicer . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 5.07. Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 5.08. Servicer Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 5.09. Appointments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 5.10. Remittances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 5.11. Servicer Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 5.12. Protection of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VI
Servicer Default
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SECTION 6.01. Servicer Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 6.02. Notice of Servicer Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.03. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 6.04. Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE VII
Miscellaneous Provisions
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SECTION 7.01. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 7.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 7.03. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
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Contents, p. iii
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SECTION 7.04. Limitations on Rights of Others . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 7.05. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 7.06. Separate Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 7.07. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 7.08. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 7.09. Assignment to Bond Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 7.10. Nonpetition Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 7.11. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
EXHIBIT A Servicing Procedures
ANNEX 1 ITC Adjustment Process and Reports - West
Penn Funding LLC
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SERVICING AGREEMENT dated as of [ ], 1999,
between WEST PENN FUNDING LLC, a Delaware limited
liability company (the "Issuer"), and WEST PENN POWER
COMPANY, a Pennsylvania corporation, as the servicer
of the Intangible Transition Property (together with
each successor to WEST PENN POWER COMPANY (in the
same capacity) pursuant to Section 5.03 or 6.02, the
"Servicer").
WHEREAS the Servicer is willing to service the Intangible
Transition Property purchased from the Seller by the Issuer; and
WHEREAS the Issuer, in connection with ownership of Serviced
Intangible 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 intending to be legally bound hereby, the
parties hereto agree as follows:
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ARTICLE I
Definitions
SECTION 1.01. Definitions. Whenever used in this Agreement,
each of the following words and phrases shall have the following meaning:
"Administration Agreements" means, collectively, the Seller
Administration Agreement and the Issuer Administration Agreement.
"Administrative Fees" means the fees owed to Allegheny Power
Service Corporation, as administrative agent, under the Administration
Agreements.
"Agreement" means this Servicing Agreement, as the same may be
amended and supplemented from time to time.
"Annual Accountant's Report" has the meaning specified in
Section 3.06(a).
"Bond Trustee" means, [ ], a [ ], as bond
trustee under the Indenture, or any successors to the foregoing.
"Business Day" means any day other than a Saturday, Sunday or
a day on which banking institutions in the City of New York, the City of
Greensburg, Pennsylvania or the State of Delaware are required by law or
executive order to remain closed.
"Class" means, with respect to any Series, any one of the
classes of Transition Bonds of that Series.
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"Collateral" means, with respect to the Issuer, all property
of the Issuer pledged by it to secure Transition Bonds issued by the Issuer as
provided in the Indenture.
"Collection Period" means the period from and including the
first day of a calendar month to and including the last day of the same
calendar month.
"Competitive Transition Charges" means the competitive
transition charges that West Penn may impose on Customers as set forth in
Appendix A to the Joint Petition for Approval of Full Settlement of West Penn
Power Company's Restructuring Plan and Related Court Proceedings and approved
in the Final Order issued on November 19, 1998 by the PUC with respect to West
Penn's restructuring plan.
"Customers" means each person that (i) was a customer of West
Penn located within West Penn's retail electric service territory on January 1,
1997 or that became a customer of electric services within such territory after
January 1, 1997, (ii) is still located within such territory, and (iii) is in a
Rate Schedule that has been assigned stranded cost responsibility.
"Fitch IBCA" means Fitch IBCA, Inc. or its successor.
"Formation Document" means the Amended and Restated Limited
Liability Company Agreement of the Issuer
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dated as of [ ], 1999, between the Seller and [ ], as the same
may be amended and supplemented from time to time.
"Holder" or "Transition Bondholder" means the Person in whose
name a Transition Bond of any Series or Class is registered as provided in the
Indenture therefor.
"Indenture" means the indenture dated as of [ ], 1999,
between the Issuer and [ ], as the same may be amended and supplemented
from time to time, including by any Series Supplement.
"Insolvency Event" means, with respect to a specified Person,
(a) the filing of a decree or order for relief by a court having jurisdiction
in the premises in respect of such Person or any substantial part of its
property in an involuntary case under any applicable Federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for such Person or for any substantial part of its
property, or ordering the winding-up or liquidation of such Person's affairs,
and such decree or order shall remain unstayed and in effect for a period of 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 now or hereafter in effect, or the
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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.
"Intangible Transition Charges" means the amounts authorized
by the PUC to be imposed on all Customer bills with respect to the Intangible
Transition Property and collected, through a non-bypassable mechanism, by West
Penn or its successor or by any other entity which provides electric service to
Customers, to recover Qualified Transition Expenses pursuant to the Qualified
Rate Order.
"Intangible Transition Charges Adjustment" means each
adjustment to Intangible Transition Charges related to the Serviced Intangible
Transition Property made in accordance with Section 4.01 and Annex 1 hereto or
in connection with the redemption by the Issuer of Transition Bonds.
"Intangible Transition Property" means the irrevocable right
of West Penn or its successor or assignee
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to collect Intangible Transition Charges from Customers to recover the
Qualified Transition Expenses described in the Qualified Rate Order, including
all right, title and interest of West Penn or its successor or assignee in such
order and in all revenues, collections, claims, payments, money or proceeds of
or arising from Intangible Transition Charges pursuant to such order, and all
proceeds of any of the foregoing.
"Intangible Transition Property Documentation" has the meaning
assigned to that term in Section 3.07.
"Issuer" means West Penn Funding LLC until a successor
replaces it and, thereafter, such successor.
"Issuer Administration Agreement" means the Administration
Agreement dated as of [ ], 1999, between the Issuer and Allegheny Power
Service Corporation, as administrative agent.
"ITC Collections" means amounts collected in respect of
Intangible Transition Charges or the Intangible Transition Property.
"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.
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"Moody's" means Xxxxx'x Investors Service Inc., or its
successor.
"Officers' Certificate" means a certificate signed by (a) the
chairman of the board, the president, the vice chairman of the board, the
executive vice president or any vice president and (b) a treasurer, assistant
treasurer, secretary or assistant secretary, in each case of the Servicer.
"Operating Expenses" means, with respect to the Issuer, all
fees, costs, expenses and indemnity payments owed by the Issuer, including all
amounts owed by the Issuer to the Bond Trustee, the Servicing Fee payable in
respect of Transition Bonds issued by such Issuer, the Administration Fees,
legal fees and expenses of the Servicer and legal and accounting fees, costs
and expenses of the Issuer and the Bond Trustee.
"Opinion of Counsel" means one or more written opinions of
counsel who may be an employee of or counsel to West Penn or the Servicer,
which counsel shall be reasonably acceptable to the Bond Trustee, the Issuer or
the Rating Agencies, as applicable, and shall be in form reasonably
satisfactory to the Bond Trustee, if applicable.
"Payment Date" means each [ ], [ ], [ ] and
[ ], commencing on [ ], 1999, or if any
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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, unincorporated organization or
government or any agency or political subdivision thereof.
"PUC" means the Pennsylvania Public Utility Commission or any
successor.
"PUC Regulations" means any regulations promulgated or adopted
by the PUC.
"Qualified Rate Order" means the order of the PUC issued on
November 19, 1998, as supplemented by a supplemental qualified rate order of
the PUC issued on [ ], 1999, adopted in accordance with the Statute,
which, among other things, creates the Intangible Transition Property and
authorizes the imposition and collection of the Intangible Transition Charges
by West Penn or its assignee.
"Qualified Transition Expenses" has the meaning assigned to
that term in the Qualified Rate Order.
"Rate Schedule" means each of the rate schedules into which
Customers are divided as of the date hereof, as such rate schedules may be
reconfigured from time to time.
"Rating Agency" means any rating agency rating the Transition
Bonds of any Class or Series at the time of
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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
Bond Trustee under the Indenture and the Servicer.
"Rating Agency Condition" means, with respect to any action,
the notification in writing by each Rating Agency to the Transferor, the
Seller, the Servicer, the Bond 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 issued by the
Issuer.
"Released Parties" has the meaning specified in Section
5.02(e).
"Remittance Date" means each date on which ITC Collections are
to be remitted by the Servicer to the Bond Trustee pursuant to Section 5.10.
"Sale Agreement" means the Intangible Transition Property Sale
Agreement dated as of [ ], 1999, between the Seller and the Issuer,
relating to the sale of Intangible Transition Property to the Issuer.
"Seller" means West Penn Funding Corporation and its
successors in interest to the extent permitted under the Sale Agreement.
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"Seller Administration Agreement" means the Administration
Agreement dated as of [ ], 1999, between the Seller and Allegheny Power
Service Corporation, as administrative agent.
"Series" means any series of Transition Bonds issued by any of
the Issuers.
"Series Supplement" means an indenture supplemental to the
Indenture that authorizes a particular Series of Transition Bonds.
"Serviced Intangible Transition Property" means, collectively,
all Intangible Transition Property sold, conveyed, assigned or otherwise
transferred to the Issuer by the Seller.
"Servicer Default" means an event specified in Section 6.01.
"Servicing Fee" means, with respect to any Series of
Transition Bonds, the fee payable to the Servicer on each Payment Date for
services rendered, determined pursuant to Section 5.07.
"Servicing Fee Rate" means, with respect to any Series of
Transition Bonds, the per annum rate specified in the Series Supplement
pursuant to which such Transition Bonds are issued.
"Standard & Poor's means Standard & Poor's Rating Group, or
its successor.
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"Statute" means the Pennsylvania Electricity Generation
Customer Choice and Competition Act, Chapter 28 of Title 66 of the Pennsylvania
Consolidated Statutes, 66 Pa. C.S., Section 2801, et seq.
"Termination Notice" has the meaning specified in Section
6.01(d).
"Third Party" means any third party, including any electric
generation supplier, providing billing or metering services, licensed by the
PUC pursuant to relevant provisions of the Statute and any PUC order.
"Transfer Agreement" means the Intangible Transition Property
Transfer Agreement dated as of [ ], 1999, between the Transferor and the
Seller relating to the transfer of Intangible Transition Property to the
Seller.
"Transfer Date" means each date on which the Seller sells,
conveys, or otherwise transfers any Intangible Transition Property to the
Issuer.
"Transferor" means West Penn Power Company, as transferor
under the Transfer Agreement, and its successors in interest to the extent
permitted hereunder.
"Transition Bonds" means "transition bonds" (as defined in the
Statute) issued by the Issuer.
"UCC" means, unless the context otherwise requires, the
Uniform Commercial Code, as in effect in the relevant jurisdiction, as amended
from time to time.
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"West Penn" means West Penn Power Company, a Pennsylvania
corporation.
SECTION 1.02. Other Definitional Provisions. (a) The words
"hereof", "herein", "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement; Section, Annex, Schedule and Exhibit references
contained in this Agreement are references to Sections, Annexes, Schedules and
Exhibits in or to this Agreement unless otherwise specified; and the term
"including" shall mean "including without limitation".
(b) The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms.
ARTICLE II
Appointment and Authorization of Servicer
SECTION 2.01. Appointment of Servicer; Acceptance of
Appointment. Subject to Section 5.04 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
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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 serviced intangible transition property, the servicer shall be,
and hereby is, authorized and empowered by the Issuer to (a) execute and
deliver, on behalf of itself or the Issuer, as the case may be, any and all
instruments, documents or notices, and (b) on behalf of itself or the Issuer,
as the case may be, make any filing and participate in proceedings of any kind
with any governmental authorities, including with the PUC. The Issuer shall
furnish the Servicer with such documents as have been prepared by the Servicer
for execution by the Issuer, and with the other documents as may be in the
Issuer's possession, as 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 its duties hereunder.
SECTION 2.03. Dominion and Control over Serviced Intangible
Transition Property. Notwithstanding any other provision herein, the Servicer
and the Issuer agree that the Issuer shall have dominion and control over its
respective Serviced Intangible Transition Property, and the Servicer,
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in accordance with the terms hereof, is acting solely as the servicing agent of
the Issuer with respect to the Serviced Intangible Transition Property owned by
the Issuer. The Servicer hereby agrees that it shall not take any action that
is not authorized by this Agreement, that is not consistent with its customary
procedures and practices, or that shall impair the rights of the Issuer in its
respective Serviced Intangible 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, as agent for
the Issuer (to the extent provided herein), shall have the following duties:
(a) Duties of Servicer Generally. The Servicer will manage,
service, administer and make collections in respect of the Serviced
Intangible Transition Property. The Servicer's duties will include
(i) calculating and billing the Intangible Transition Charges and
collecting (from Customers and Third Parties, as applicable) and
posting all ITC Collections; (ii) responding to inquiries by
Customers, Third Parties, the PUC, or any Federal, local or other
state governmental authorities with respect to the Serviced Intangible
Transition Property and Intangible
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Transition Charges; (iii) accounting for ITC Collections,
investigating delinquencies, processing and depositing collections and
making periodic remittances, furnishing periodic reports to the
Issuer, the Bond Trustee and the Rating Agencies; (iv) selling, as the
agent for the Issuer, as its interest may appear, defaulted or written
off accounts in accordance with the Servicer's usual and customary
practices; and (v) taking action in connection with Intangible
Transition Charge Adjustments as set forth herein. Anything to the
contrary notwithstanding, the duties of the Servicer set forth in this
Agreement shall be qualified in their entirety by any PUC Regulations
as in effect at the time such duties are to be performed. Without
limiting the generality of this Section 3.01(a), in furtherance of the
foregoing, the Servicer hereby agrees that it shall also have, and
shall comply with, the duties and responsibilities relating to data
acquisition, usage and xxxx calculation, billing, customer service
functions, collections, payment processing and remittance set forth in
Exhibit A hereto.
(b) Notification of Laws and Regulations. The Servicer shall
immediately notify the Issuer, the Bond Trustee and the Rating
Agencies in writing of any laws
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or PUC 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 Bond Trustee or any Rating Agency, the Servicer shall
provide to the Issuer, the Bond Trustee or such Rating Agency, as the
case may be, any public financial information in respect of the
Servicer, or any material information regarding the Intangible
Transition Property to the extent it is reasonably available to the
Servicer, as may be reasonably necessary and permitted by law for the
Issuer, the Bond Trustee or such Rating Agency to monitor the
performance by the Servicer hereunder. In addition, so long as any of
the Transition Bonds of any Series are outstanding, the Servicer shall
provide the Issuer and the Bond Trustee, within a reasonable time
after written request therefor, any information available to the
Servicer or reasonably obtainable by it that is necessary to calculate
the Intangible Transition Charges applicable to each Rate Schedule.
SECTION 3.02. Collection of Intangible Transition Charges.
(a) The Servicer shall use all reasonable efforts consistent with its
customary servicing procedures to collect all amounts owed in respect of
Intangible Transition
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Charges as and when the same shall become due and shall follow such collection
procedures as it follows with respect to collection activities that the
Servicer conducts for itself or others. The Servicer shall not change the
amount of or reschedule the due date of any scheduled payment of Intangible
Transition Charges, except as contemplated in this Agreement or as required by
law or court or PUC order; provided, however, that the Servicer may take any of
the foregoing actions to the extent that such action would be in accordance
with customary billing and collection practices of the Servicer with respect to
billing and collection activities that it conducts for itself.
(b) Any amounts received by the Servicer from a Customer that
represent a partial payment toward an outstanding balance will be applied first
to state tax charges, then Intangible Transition Charges, then to Competitive
Transition Charges, then to transmission and distribution charges and finally
to electric generation charges. Notwithstanding the foregoing, when West Penn
is providing billing for its transmission and distribution charges which is
separate from billing for generation, any amounts received from Customers
remitting partial payments will be applied in the following priority: (i) to
the outstanding balance before direct access to electric generation from
electric generation suppliers or the
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installment amount for a payment agreement on such balance; (ii) to the balance
due for state tax charges; (iii) to the balance due or the instalment amount
for a payment agreement for Intangible Transition Charges; (iv) to the balance
due or the instalment amount for a payment agreement for Competitive Transition
Charges; [(v) to the balance due or the instalment amount for a payment
agreement for fixed and variable utility distribution service charges;] (vi) to
the current state tax charges; (vii) to the current Intangible Transition
Charges; and (viii) to the current Competitive Transition Charges; [(ix) to the
current fixed and variable utility distribution service charges;] (x) to the
balance due for prior charges for energy and capacity (if West Penn is the
provider of last resort); (xi) to the current charges for energy and capacity
charges (if West Penn is the provider of last resort); and (xii) to the
non-basic service charges.
SECTION 3.03. Servicing and Maintenance Standards. The
Servicer shall, on behalf of the Issuer, (a) manage, service, administer and
make collections in respect of the Serviced Intangible Transition Property with
reasonable care and in material compliance with applicable law, including all
applicable PUC Regulations and guidelines, using the same degree of care and
diligence that the Servicer exercises with respect to billing and
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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
rights in respect of the Intangible Transition Property; and (d) calculate
Intangible Transition Charges in compliance with the Statute, the Qualified
Rate Order and any applicable tariffs, except where the failure to comply with
any of the foregoing would not adversely affect the Issuer's or the Bond
Trustee's interest in the Serviced Intangible Transition Property. The
Servicer shall follow such customary and usual practices and procedures as it
shall deem necessary or advisable in its servicing of all or any portion of the
Serviced Intangible Transition Property, which, in the Servicer's judgment, may
include the taking of legal action pursuant to Section 3.09 hereof or
otherwise.
SECTION 3.04. Servicer's Certificates. (a) The Servicer
will provide to the Issuer, the Bond Trustee and each of the Rating Agencies
the statements and certificates specified in Annex 1 hereto.
SECTION 3.05. Annual Statement as to Compliance; Notice of
Default. (a) The Servicer shall deliver to the Issuer, the Bond Trustee and
each Rating Agency, on or
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before [March 31] of each year beginning [March 31], 2000, an Officers'
Certificate, stating 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 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.
(b) The Servicer shall deliver to the Issuer, the Bond
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 which with the giving of notice
or lapse of time, or both, would become a Servicer Default under Section 6.01.
SECTION 3.06. 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, West Penn or the Seller) to prepare, and the Servicer shall deliver
to the Issuer, the Bond Trustee and each Rating Agency, on or before [March 31]
of each year, beginning [March 31], 2000 to and including the [March 31]
succeeding the retirement of
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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 first Transfer Date until December 31, 1999),
identifying the results of such procedures and including any exceptions noted.
In the event such accounting firm requires the Bond Trustee or the Issuer to
agree or consent to the procedures performed by such firm, the Issuer shall
direct the Bond Trustee in writing to so agree; it being understood and agreed
that the Bond Trustee will deliver such letter of agreement or consent in
conclusive reliance upon the direction of the Issuer, and neither the Bond
Trustee nor the Issuer will make any independent inquiry or investigation as
to, and shall have no obligation or liability in respect of, the sufficiency,
validity or correctness of such procedures.
(b) The Annual Accountant's Report shall also indicate that
the accounting firm providing such report is independent of the Servicer within
the meaning of the Code
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of Professional Ethics of the American Institute of Certified Public
Accountants.
SECTION 3.07. Intangible Transition Property Documentation.
To assure uniform quality in servicing the Serviced Intangible Transition
Property and to reduce administrative costs, the Servicer shall keep on file,
in accordance with its customary procedures, all documents relating to the
Intangible Transition Property, including copies of the Qualified Rate Order
and all documents filed with the PUC in connection with any Intangible
Transition Charges Adjustment (collectively, the "Intangible Transition
Property Documentation").
SECTION 3.08. Computer Records; Audits of Documentation. (a)
Safekeeping. The Servicer shall maintain accurate and complete accounts,
records and computer systems pertaining to the Intangible Transition Property
and the Intangible 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)
Intangible Transition Charges and the ITC Collections from time to time
remitted to the Bond Trustee pursuant to Section 5.10 and to enable the Issuer
to comply with this Agreement and the Indenture. The Servicer shall conduct,
or cause to be conducted, periodic audits of the Intangible
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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 Bond 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 Bond Trustee any failure on the Servicer's part to hold
the Intangible Transition Property Documentation and maintain its accounts,
records and computer systems as herein provided and promptly take appropriate
action to remedy any such failure. Nothing herein shall be deemed to require
an initial review or any periodic review by the Issuer or the Bond Trustee of
the Intangible Transition Property Documentation.
(b) Maintenance of and Access to Records. The Servicer shall
maintain the Intangible Transition Property Documentation at 000 Xxxxx Xxxx
Xxxxx, Xxxxxxxxxx, Xxxxxxxxxxxx or at such other office as shall be specified
to the Issuer and the Bond Trustee by written notice not later than 30 days
prior to any change in location. The Servicer shall permit the Issuer and the
Bond Trustee or their respective duly authorized representatives, attorneys,
agents or auditors at any time during normal business hours to inspect, audit
and make copies of and abstracts from the Servicer's records regarding the
Intangible Transition Property and Intangible Transition Charges and the
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Intangible Transition Property Documentation. The failure of the Servicer to
provide access to such information as a result of an obligation or applicable
law (including PUC Regulations) prohibiting disclosure of information regarding
customers shall not constitute a breach of this Section 3.08(b).
SECTION 3.09. Defending Intangible Transition Property
Against Claims. The Servicer shall institute any action or proceeding
necessary to compel performance by the PUC or the Commonwealth of Pennsylvania
of any of their obligations or duties under the Statute or the Qualified Rate
Order with respect to the Intangible Transition Property. The costs of any
such action shall be payable from ITC Collections as an Operating Expense in
accordance with the Indenture at the time such costs are incurred. The
Servicer's obligations pursuant to this Section 3.09 shall 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 hereunder).
SECTION 3.10. Opinions of Counsel. The Servicer shall
deliver to the Issuer and the Bond Trustee:
(a) promptly after the execution and delivery of this
Agreement and of each amendment hereto, promptly
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after the execution of each 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 filings with the PUC pursuant
to the Statute, that are necessary to fully preserve and protect the interests
of the Bond Trustee in the Serviced Intangible Transition Property have been
executed and filed, 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
beginning with the first calendar year beginning more than three months after
the first 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 filings with the PUC pursuant to the Statute, have been executed and filed
that are necessary to preserve fully and protect fully the interest of the Bond
Trustee in the Serviced Intangible Transition Property, and reciting the
details of such filings or referring to prior Opinions of Counsel in which such
details are
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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 clause (a) or (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 Intangible
Transition Charges Adjustments
SECTION 4.01. Intangible Transition Charges Adjustments. The
Servicer shall perform the calculations and take the actions relating to
revising the Intangible Transition Charges, in each case set forth in Annex 1
to this Agreement.
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 the Issuer has relied and will rely in acquiring
Serviced Intangible Transition Property. The representations and warranties
shall survive the sale of any of the Serviced Intangible Transition Property to
the Issuer and the pledge thereof to the Bond Trustee pursuant to the
Indenture.
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(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 such
business is presently conducted, and has the power, authority and legal right
to service the Serviced Intangible Transition Property.
(b) Due Qualification. The Servicer is duly qualified to do business
as a foreign corporation in good standing, and has obtained all necessary
licenses and approvals in, all jurisdictions in which the ownership or lease of
property or the conduct of its business (including the servicing of the
Serviced Intangible Transition Property as required by this Agreement) requires
such qualifications, licenses or approvals (except where the failure to so
qualify would not be reasonably likely to have a material adverse effect on the
Servicer's business, operations, assets, revenues, properties or prospects or
adversely affect the servicing of the Serviced Intangible 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
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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 and the fulfillment of the terms hereof shall not conflict
with, result in any breach of any of the terms and provisions of, nor
constitute (with or without notice or lapse of time) a default under, the
articles of incorporation or by-laws of the Servicer, or any indenture,
agreement or other instrument to which the Servicer is a party or by which it
shall be bound; nor result in the creation or imposition of any Lien upon any
of its properties pursuant to the terms of any such indenture, agreement or
other instrument; nor violate any law or any order, rule or regulation
applicable to
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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 PUC for revised
Intangible Transition Charges pursuant to Section 4.01 and Annex 1 hereto and
UCC continuation filings, no approval, authorization, consent, order or other
action of, or filing with, any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality is required in
connection with the execution and delivery by the Servicer of this Agreement,
the performance by the Servicer of the transactions contemplated hereby or the
fulfillment by the Servicer of the terms hereof, except those that have been
obtained or made.
(g) No Proceedings. 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)
except as disclosed by the Servicer to the Issuer, seeking any determination or
ruling that might materially and adversely affect the performance by the
Servicer of its
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obligations under, or the validity or enforceability against the
Servicer of this Agreement or (ii) relating to the Servicer and which
might adversely affect the Federal or state income tax attributes of
the Transition Bonds.
(h) Reports and Certificates. Each report and certificate
delivered in connection with any filing made to the PUC by the
Servicer on behalf of the Issuer with respect to Intangible Transition
Charges or Intangible Transition Charges Adjustments will constitute a
representation and warranty by the Servicer that each such report or
certificate, as the case may be, is true and correct in all material
respects; provided, however, that to the extent any such report or
certificate is based in part upon or contains assumptions, forecasts
or other predictions of future events, the representation and warranty
of the Servicer with respect thereto will be limited to the
representation and warranty that such assumptions, forecasts or other
predictions of future events are reasonable based upon historical
performance.
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.
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(b) The Servicer shall indemnify the Issuer and the Bond
Trustee, for itself and on behalf of the Transition Bondholders for which it
acts as Bond Trustee, and each of their respective managers, members, officers,
directors 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 (i) the Servicer's wilful
misfeasance, 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 or (ii) the
Servicer's breach of any of its representations or warranties in this
Agreement.
(c) If any action, claim, demand or proceeding (including any
governmental investigation) shall be brought or asserted against a party (the
"indemnified party") entitled to any indemnification provided for under this
Section 5.02, such indemnified party shall promptly notify the Servicer in
writing; provided, however, that failure to give such notification shall not
affect the indemnification provided hereunder except to the extent the Servicer
shall have been actually prejudiced as a result of such failure.
(d) The Servicer shall indemnify the Bond Trustee and its
officers, directors and agents for, and defend and hold harmless each such
Person from and against, any and all
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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
shall be due to the wilful misfeasance, bad faith or gross negligence of the
Bond Trustee. Such amounts shall be deposited and distributed in accordance
with the Indenture.
(e) The Servicer's indemnification obligations under Section
5.02(b) and (d) for events occurring prior to the removal or resignation of the
Bond Trustee or the termination of this Agreement with respect to the Issuer
shall survive the resignation or removal of the Bond Trustee or the termination
of this Agreement with respect to the Issuer and shall include reasonable
costs, fees and expenses of investigation and litigation (including the
Issuer's and the Bond Trustee's reasonable attorneys' fees and expenses).
(f) Except to the extent expressly provided for in this
Agreement or the Formation Document (including the Servicer's claims with
respect to the Servicing Fees), the Servicer hereby releases and discharges the
Issuer (including its managers, members, officers, directors and agents, if
any) and the Bond Trustee (including its officers, directors and agents)
(collectively, the "Released Parties") from any and all actions, claims and
demands whatsoever, which the Servicer, in its capacity as Servicer,
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shall or may have against any such Person relating to the Serviced Intangible
Transition Property or the Servicer's activities with respect thereto other
than any actions, claims and demands arising out of the wilful 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 (a) into which the Servicer may be
merged or consolidated and which succeeds to the major 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 the major part of
the electric distribution business of the Servicer, (c) which may result from
any merger or consolidation to which the Servicer shall be a party and which
succeeds to the major part of the electric distribution business of the
Servicer, (d) which may succeed to the properties and assets of the Servicer
substantially as a whole and which succeeds to the major part of the electric
distribution business of the Servicer or (e) which may otherwise succeed to the
major part of the electric distribution business of the Servicer, which Person
in any of the foregoing cases executes an agreement of assumption to perform
every obligation of the Servicer hereunder, shall be the successor to the
Servicer under this Agreement without further act on the part of any of the
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parties to this Agreement; provided, however, that (i) immediately after giving
effect to such transaction, no representation and warranty made pursuant to
Section 5.01 shall have been breached 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 Bond Trustee an Officers' Certificate and an Opinion of
Counsel the 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 Rating Agencies shall have received prior written
notice of such transaction, (iv) the Servicer shall have delivered to the
Issuer, the Bond Trustee and the Rating Agency an Opinion of Counsel either (A)
stating that, in the opinion of such counsel, all filings, including filings
with the PUC pursuant to the Statute, have been executed and filed that are
necessary to preserve fully and protect fully the interests of the Issuer in
the Serviced Intangible Transition Property and reciting the details of such
filings or (B) stating that, in the opinion of such counsel, no such action
shall be necessary to preserve and protect such interests. Notwithstanding
anything herein to the contrary, the execution of the above
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referenced agreement of assumption and compliance with clauses (i), (ii), (iii)
and (iv) above shall be conditions precedent to the consummation of the
transactions referred to in clause (a), (b), (c), (d) or (e) above.
SECTION 5.04. Assignment of Servicer's Obligations. Subject
to the conditions set forth in Section 5.03, pursuant to paragraph 13 of the
Qualified Rate Order in which the PUC authorizes West Penn to contract with an
alternative party to perform West Penn's obligations contemplated in the
Qualified Rate Order, the Servicer may assign its obligations hereunder to any
electric distribution company (as such term is defined in the Statute) which
succeeds to the major part of West Penn's electric distribution business.
SECTION 5.05. Limitation on Liability of Servicer and Others.
The Servicer shall not be liable to the Issuer, 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 wilful misfeasance, 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
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employee or agent of the Servicer may rely in good faith on the advice of
counsel reasonably acceptable to the Bond 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 Serviced Intangible 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. West Penn Not To Resign as Servicer. Subject
to the provisions of Sections 5.03 and 5.04, West Penn 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 its duties under
this Agreement shall no longer be permissible under applicable law. Notice of
any such determination permitting the resignation of West Penn shall be
communicated to the Issuer, the Bond 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
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such effect delivered to the Issuer and the Bond 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 West Penn in accordance with Section 6.04.
SECTION 5.07. Servicing Fee. The Issuer agrees to pay the
Servicer, solely to the extent amounts are available therefor in accordance
with the Indenture, the Servicing Fee with respect to all Series of Transition
Bonds issued by the Issuer. The Servicing Fee with respect to a Series for a
Payment Date shall equal the product of (a) [1/4], (b) the Servicing Fee Rate
for such Series and (c) the outstanding principal amount of the Transition
Bonds of such Series as of such Payment Date. The Servicer will be entitled to
retain as additional compensation net investment income on ITC Collections
related to Serviced Intangible Transition Property received by the Servicer
prior to each Remittance Date and the late fees, if any, paid by Customers to
the Servicer. The foregoing fees constitute a fair and reasonable price for
the obligations 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
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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.
SECTION 5.09. Appointments. The Servicer may at any time
appoint a subservicer to perform all or any portion of its obligations as
Servicer hereunder; provided, however, that the Rating Agency Condition shall
have been satisfied in connection therewith with respect to all Rating Agencies
other than Moody's (and the Servicer shall have furnished Moody's with written
notice of such appointment prior to its effectiveness); provided further that
the Servicer shall remain obligated and be liable to the Issuer for the
servicing and administering of the Serviced Intangible 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 Serviced Intangible 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 (or member or
manager thereof, if any), the Bond Trustee or any Transition Bondholder shall
have any responsibility therefor.
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SECTION 5.10. Remittances. (a) Subject to Section 5.07, the
Servicer shall remit all ITC Collections (from whatever source) and all
proceeds of other Collateral of such Issuer, if any, received by the Servicer
to the Bond Trustee under the Indenture, for deposit pursuant to the Indenture,
not later than the second Business Day after receipt thereof.
(b) Notwithstanding the foregoing clause (a), (i) as long as
West Penn or any successor to West Penn's electric distribution business
remains the Servicer, (ii) no Servicer Default has occurred and is continuing
and (iii) (A) West Penn or such successor maintains a short-term rating of
"A-1" or better by Standard & Poor's, "P-1" or better by Moody's and, if rated
by Fitch IBCA, "F-2" by Fitch IBCA (and for five Business Days following a
reduction in any such rating) or (B) the Rating Agency Condition shall have
been satisfied (and any conditions or limitations imposed by the Rating
Agencies in connection therewith are complied with), the Servicer need not make
the daily remittances required by such clause (a), but in lieu thereof, shall
remit all ITC Collections (from whatever source) and all proceeds of other
Collateral of such Issuer, if any, received by the Servicer during any
Collection Period to the Bond Trustee, for deposit pursuant to the Indenture,
not later than the [ ] of each month (or, if any
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such day is not a Business Day, the next succeeding Business Day).
SECTION 5.11. Servicer Advances. The Servicer shall make
advances of interest or principal on the Transition Bonds of any Series in the
manner and to the extent, if any, specified in any Annex to this Agreement
entered into in connection with the issuance of such Transition Bonds.
SECTION 5.12. Protection of Title. The Servicer shall
execute and file such filings, including filings with the PUC pursuant to the
Statute, and cause to be executed and filed such filings, all in such manner
and in such places as may be required by law fully to preserve, maintain, and
protect the interests of the Issuer in the Serviced Intangible Transition
Property, including all filings required under the Statute relating to the
transfer of the ownership or security interest in the Serviced Intangible
Transition Property by the Seller to the Issuer or any security interest
granted by the Issuer in the Serviced Intangible Transition Property. The
Servicer shall deliver (or cause to be delivered) to the Issuer file-stamped
copies of, or filing receipts for, any document filed as provided above, as
soon as available following such filing.
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ARTICLE VI
Servicer Default
SECTION 6.01. Servicer Default. If any one of the following
events (a "Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to remit to the Bond Trustee
on behalf of the Issuer any required remittance that shall continue
unremedied for a period of three Business Days after written notice of
such failure is received by the Servicer from the Issuer or Bond
Trustee; or
(b) any failure by the Servicer or, so long as the Transferor
and the Servicer are the same Person, the Transferor, as applicable,
duly to observe or perform in any material respect any other covenant
or agreement of the Servicer or the Transferor, as the case may be,
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
Intangible Transition Property and (ii) continue unremedied for a
period of 30 days after written notice of such failure shall have been
given to the Servicer or the Transferor, as the case may be, by the
Issuer or the Bond Trustee or after discovery of such failure by an
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officer of the Servicer or the Transferor, as the case may be; 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 thereof shall have been
given to the Servicer by the Issuer or the Bond Trustee; or
(d) an Insolvency Event occurs with respect to the Servicer;
then, and in each and every case, so long as the Servicer Default shall not
have been remedied, the Bond Trustee, as assignee of the Issuer, with respect
to Holders of a majority of the outstanding principal amount of the Transition
Bonds, 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 hereof and the obligation under Section
6.02 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), each of the following shall be
entitled to
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apply to the PUC for sequestration and payment of revenues arising with respect
to the Serviced Intangible Transition Property: (i) the Issuer or its
assignees or (ii) pledgees or transferees, including transferees under the
Statute, of the Serviced Intangible 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 Serviced Intangible Transition Property, the related Intangible
Transition Charges or otherwise, shall, upon appointment of a successor
Servicer pursuant to Section 6.02, without further action, pass to and be
vested in such successor Servicer and, without limitation, the Bond 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 Intangible Transition Property
Documentation and related documents, or otherwise. The predecessor Servicer
shall cooperate with the successor Servicer, the Bond 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
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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 Serviced Intangible Transition
Property or the related Intangible Transition Charges. As soon as practicable
after receipt by the Servicer of such Termination Notice, the Servicer shall
deliver the Intangible Transition Property Documentation to the successor
Servicer. All reasonable costs and expenses (including attorneys fees and
expenses) incurred in connection with transferring the Intangible Transition
Property Documentation to the successor Servicer and amending this Agreement to
reflect such succession as Servicer pursuant to this Section shall be paid by
the predecessor Servicer upon presentation of reasonable documentation of such
costs and expenses. Termination of West Penn as Servicer shall not terminate
West Penn's rights or obligations as Transferor under the Transfer Agreement.
SECTION 6.02. Notice of Servicer Default. The Servicer shall
deliver to the Issuer, the Bond 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
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Agreement) which, with the giving of notice or the passage of time, would
become a Servicer Default under Section 6.01.
SECTION 6.03. Waiver of Past Defaults. The Bond Trustee may
waive in writing any default by the Servicer in the performance of its
obligations hereunder and its consequences, except a default in making any
required remittances to the Bond Trustee of ITC Collections from Serviced
Intangible Transition Property in accordance with Section 5.10 of this
Agreement. Upon any such waiver of a past default, such default shall cease to
exist, and any Servicer Default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to
any subsequent or other default or impair any right consequent thereto.
SECTION 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
Servicing Fees, until a successor Servicer shall have assumed in writing the
obligations of the Servicer hereunder as described below. In the event of the
Servicer's termination hereunder, the Bond Trustee, as assignee of the Issuer,
with respect to Holders of a
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majority of the outstanding principal amount of the Transition Bonds, 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
Bond Trustee. If, within 30 days after the delivery of the Termination Notice,
a new Servicer shall not have been appointed and accepted such appointment, the
Bond Trustee may petition the PUC or a court of competent jurisdiction to
appoint a successor Servicer under this Agreement. A Person shall qualify as a
successor Servicer only if (i) such Person is permitted under PUC Regulations
to perform the duties of the Servicer pursuant to the Statute, the Qualified
Rate Order and this Agreement, (ii) the Rating Agency Condition shall have been
satisfied with respect to all Rating Agencies other than Moody's (and Moody's
shall have been furnished with written notice of such appointment prior to its
effectiveness) 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 and shall be subject to
all the responsibilities, duties and liabilities arising thereafter relating
thereto placed on the predecessor Servicer and shall be entitled to the
Servicing Fees and all the rights granted to the prede-
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cessor 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
covenants and agrees with the Issuer that it will, 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 hereunder.
ARTICLE VII
Miscellaneous Provisions
SECTION 7.01. Amendment. This Agreement may be amended by
the Servicer and the Issuer, with the consent of the Bond Trustee. The Issuer
shall furnish to each of the Rating Agencies (i) prior to the execution of any
such amendment or consent, written notification of the substance thereof and
(ii) promptly after the execution of any such amendment or consent, a copy
thereof.
Prior to the execution of any amendment to this Agreement, the
Issuer and the Bond Trustee shall be entitled to receive and rely upon an
Opinion of Counsel stating that the execution of such amendment is authorized
or permitted by this Agreement and the Opinion of Counsel referred to in
Section 3.10. The Issuer and the Bond Trustee may, but
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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. All demands, notices and
communications upon or to the Servicer, the Issuer, the Bond Trustee or the
Rating Agencies under this Agreement shall be in writing, delivered personally,
via facsimile, reputable overnight courier or by first class mail, postage
prepaid, and shall be deemed to have been duly given upon receipt (a) in the
case of the Servicer, to West Penn Power Company, 000 Xxxxx Xxxx Xxxxx,
Xxxxxxxxxx, Xxxxxxxxxxxx 00000, Attention of [ ], (b) in the case of
the Issuer or the Bond Trustee, at the address provided for notices or
communications to such Person in the Indenture, (c) in the case of Moody's, to
Xxxxx'x Investors Service, Inc., ABS Monitoring Department, 00 Xxxxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000, (d) in the case of Standard & Poor's, to Standard &
Poor's Corporation, 00 Xxxxxxxx (00xx Xxxxx), Xxx Xxxx, Xxx Xxxx 00000,
Attention of Asset Backed Surveillance Department, and (e) in the case of Fitch
IBCA, to Fitch IBCA, Inc., Xxx Xxxxx Xxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000,
Attention of ABS Surveillance; or, as to each of the foregoing, at such other
address as shall be designated by written notice to the other parties.
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SECTION 7.03. Assignment. Notwithstanding anything to the
contrary contained herein, except as provided in Sections 5.03 and 5.04 and as
provided in the provisions of this Agreement concerning the resignation of the
Servicer, this Agreement may not be assigned by the Servicer.
SECTION 7.04. Limitations on Rights of Others. The
provisions of this Agreement are solely for the benefit of the Servicer, the
Issuer (including its manager and members) and the Bond 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 7.05. Severability. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
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SECTION 7.06. Separate Counterparts. This Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 7.07. Headings. The headings of the various Articles
and Sections herein are for convenience of reference only and shall not define
or limit any of the terms or provisions hereof.
SECTION 7.08. Governing Law. This Agreement shall be
construed in accordance with the laws of the State of New York, 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 7.09. Assignment to Bond Trustee. The Servicer
hereby acknowledges and consents to the mortgage, pledge, assignment and grant
of a security interest by the Issuer to the Bond 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 Serviced Intangible 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 Bond Trustee. In no event shall
the Bond Trustee have any liability for the
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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 7.10. Nonpetition Covenants. Notwithstanding any
prior termination of this Agreement or the Indenture, but subject to the PUC's
rights to order the sequestration and payment of revenues arising with respect
to the Serviced Intangible Transition Property notwithstanding any bankruptcy,
reorganization or other insolvency proceedings with respect to the debtor,
pledgor or transferor of the Serviced Intangible Transition Property pursuant
to Section 2812(d)(3)(v) of the Statute, the Servicer shall not, prior to the
date which is one year and one day after the termination of the Indenture,
petition or otherwise invoke or cause the Issuer to invoke the process of any
court or government authority for the purpose of commencing or sustaining a
case against the Issuer under the 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.
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SECTION 7.11. Termination. This Agreement shall terminate
when all Transition Bonds issued by the Issuer have been retired, redeemed or
defeased in full.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers as of the day and
year first above written.
WEST PENN FUNDING LLC,
by [ ], as Manager,
by
------------------------------
Title:
WEST PENN POWER COMPANY, Servicer,
by
------------------------------
Title:
Acknowledged and Accepted:
[ ], not in its
individual capacity but
solely as Bond Trustee on
behalf of the Holders of
Transition Bonds issued by
the Issuer,
by
------------------------------
Title:
57
ANNEX 1
TO
SERVICING AGREEMENT
The Servicer agrees to comply with the following with respect to West Penn
Funding LLC (the "Issuer"):
SECTION 1. Definitions. (a) Capitalized terms used herein
and not otherwise defined shall have the meanings set forth in the Servicing
Agreement dated as of [ ], 1999 (the "Servicing Agreement"), between the
Issuer and West Penn Power Company, as Servicer.
(b) Whenever used in this Annex 1, the following words and
phrases shall have the following meanings:
"Adjustment Date" means, with respect to any Series of
Transition Bonds, such date or dates specified as such in the Series Supplement
therefor.
"Adjustment Request" means an application filed by the
Servicer with the PUC for revised Intangible Transition Charges pursuant to
Section 4(b) of this Annex.
"Available Reserve Amount" means, as of any date, the amount
on deposit in the Reserve Subaccount less the product of (a) the Prepayment
Amount and (b) the difference, expressed as a percentage, between 100% and the
Expected Amortization Percentage for the immediately following Regulatory Year.
"Bond Trustee" has the meaning specified in the Indenture.
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2
"Calculation Date" means, with respect to any Series of
Transition Bonds, such date or dates specified as such in the Series Supplement
therefor.
"Calculated Overcollateralization Level" means, with respect
to any Series of Transition Bonds, the amount specified as such in the Series
Supplement therefor.
"Capital Subaccount" has the meaning set forth in the
Indenture.
"Class" has the meaning specified in the Indenture.
"Expected Amortization Percentage" means, with respect to any
Regulatory Year, the percentage equivalent of a fraction, the numerator of
which is the aggregate amount of Transition Bonds of all Series to be amortized
during such Regulatory Year as set forth in Expected Amortization Schedules
therefor and the denominator of which is the Projected Transition Bond Balance
on the first day of such Regulatory Year.
"Expected Amortization Schedule" means, with respect to any
Series of Transition Bonds, the expected amortization schedule for principal
thereof, as specified in the Series Supplement therefor.
"Expected Final Payment Date" means, with respect to any
Series or Class of Transition Bonds, the expected
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final payment date therefor, as specified in the Series Supplement therefor.
"Holder" or "Transition Bondholder" has the meaning set forth
in the Indenture.
"Indenture" means the Indenture dated as of [ ], 1999,
between the Issuer and [ ], as amended and supplemented from time to
time, including any Series Supplement.
"Overcollateralization Subaccount" has the meaning set forth
in the Indenture.
"Payment Date" has the meaning specified in the Indenture and
the applicable Series Supplement.
"Prepayment Amount" means, as of any date, the sum of all
amounts currently on deposit in the Reserve Subaccount arising from prepayment
by customers allocable to Intangible Transition Charges.
"Projected Transition Bond Balance" has the meaning specified
in the Indenture.
"Regulatory Period" means with respect to any Series (i) the
period from the Series Issuance Date therefor through and including the first
Adjustment Date (the "Initial Regulatory Period") and (ii) following the
Initial Regulatory Period until [September 25, 2009], each period from and
including each Adjustment Date through but excluding the following Adjustment
Date.
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4
"Required Capital Amount" means, with respect to any Series of
Transition Bonds, the amount specified as such in the Series Supplement
therefor.
"Reserve Subaccount" has the meaning set forth in the
Indenture.
"Sale Agreement" has the meaning set forth in the Indenture.
"Schedule Revision Date" has the meaning set forth in the
Indenture.
"Series" has the meaning specified in the Indenture.
"Series Issuance Date" has the meaning specified in the
Indenture and the applicable Series Supplement.
"Series Supplement" has the meaning specified in the
Indenture.
"Transferred Intangible Transition Property" has the meaning
specified in the Sale Agreement.
"Transition Bonds" has the meaning specified in the Indenture.
"Transition Bond Balance" has the meaning specified in the
Indenture.
SECTION 2. Adjustment Date Statements. For each Adjustment
Date, the Servicer will provide to the Issuer and the Bond Trustee a statement
indicating (i) the Transition Bond Balance and the Projected Transition Bond
Balance for
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each Series as of the immediately preceding Payment Date, (ii) the amount on
deposit in the Overcollateralization Subaccount and the Calculated
Overcollateralization Level as of the immediately preceding Payment Date, (iii)
the amount on deposit in the Capital Subaccount and the Required Capital Amount
as of the immediately preceding Payment Date, (iv) the Projected Transition
Bond Balance for each Payment Date prior to the next Adjustment Date and the
Servicer's projection of the Transition Bond Balance as of each Payment Date
prior to the next Adjustment Date, (v) the Calculated Overcollateralization
Level for each Payment Date prior to the next Adjustment Date and the
Servicer's projection of the amount on deposit in the Overcollateralization
Subaccount as of each Payment Date prior to the next Adjustment Date, (vi) the
Required Capital Amount for each Payment Date prior to the next Adjustment Date
and the Servicer's projections of the amount on deposit in the Capital
Subaccount as of each Payment Date prior to the next Adjustment Date and (vii)
the projected ITC Collections from the Payment Date immediately preceding the
Adjustment Date through the next Adjustment Date.
SECTION 3. Remittance Date Statements. On or before each
Remittance Date, the Servicer will prepare and furnish to the Issuer and the
Bond Trustee a statement setting forth the aggregate amount remitted or to be
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remitted by the Servicer to the Bond Trustee for deposit on such Remittance
Date pursuant to Section 5.10 of the Servicing Agreement and the Indenture.
SECTION 4. Payment Date Statements. At least three Business
Days before each Payment Date for each Series of Transition Bonds, the Servicer
will prepare and furnish to the Issuer and the Bond Trustee a statement setting
forth the amounts to be paid to Holders of Transition Bonds of such Series
pursuant to Section 8.02(d) of the Indenture.
SECTION 5. Intangible Transition Charges Adjustments. (a)
Prior to each Calculation Date, the Servicer shall calculate (i) the Transition
Bond Balance as of the Payment Date immediately preceding such Calculation Date
(a written copy of which shall be delivered by the Servicer to the Bond Trustee
within five days following such Calculation Date) and (ii) the revised
Intangible Transition Charges with respect to the Transferred Intangible
Transition Property for the then-current Regulatory Period and any subsequent
Regulatory Periods until a Payment Date occurs, such that the Servicer projects
that ITC Collections will be sufficient so that (x) the outstanding principal
balance of each outstanding Series will equal the amount provided for in the
Expected Amortization Schedule therefor, the amount on deposit in the
Overcollateralization Subaccount will equal the Calculated
Xxxxxxxxxxxxxxxxxxxxx
00
0
Level and the amount on deposit in the Capital Subaccount will equal the
Required Capital Amount, by the next Adjustment Date (or the immediately
succeeding Payment Date after such Adjustment Date if specified in the Series
Supplement therefor) or, if earlier with respect to any Series or Class of
Transition Bonds, by the Expected Final Payment Date therefor, taking into
account the Available Reserve Amount.
(b) On each Calculation Date, the Servicer shall (i) file an
Adjustment Request with the PUC for such revised Intangible Transition Charges
with respect to the Transferred Intangible Transition Property to remain in
effect until the earlier of (A) the effective date of the next Intangible
Transition Charges Adjustment with respect to the Transition Bonds, (B) the
Expected Final Payment Date for any Series or Class of Transition Bonds and (C)
[September 25, 2009], (ii) take all reasonable actions and make all reasonable
efforts in order to effectuate such revision to such Intangible Transition
Charges and (iii) promptly send to the Bond Trustee copies of all material
notices and documents relating to such revision.
SECTION 6. Servicer Advances. The Servicer shall not make
any advances of interest or principal on the Transition Bonds of any Series.
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SECTION 7. Loss Calculations. Upon notice from the Seller or
the Transferor, the Servicer shall perform the calculations specified in
Sections 5.01(c)(ii)(x) and 5.01(c)(ii)(y) of the Sale Agreement or the
Transfer Agreement, respectively, in the manner specified in such Sections and
notify the Issuer and the Bond Trustee thereof.
SECTION 8. Schedule Revision Date Schedules. Prior to each
Schedule Revision Date, the Servicer shall deliver to the Issuer replacement
Schedules A and replacement Schedules B to each Series Supplement to which such
Schedule Revision Date applies, adjusted to reflect the event giving rise to
such Schedule Revision Date and setting forth the Calculated
Overcollateralization Level and the Expected Amortization Schedule for each
Payment Date applicable thereto; provided, however, that no such replacement
Schedule A or Schedule B shall be required with respect to a Series if the
event giving rise to such Schedule Revision Date is a redemption of the
Transition Bonds of such Series in whole.
