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SERVICING AGREEMENT
between
WEST PENN FUNDING [II] LLC
and
WEST PENN POWER COMPANY
Servicer
Dated as of [ ]
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TABLE OF CONTENTS
Page
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ARTICLE I
Definitions
SECTION 1.01. Definitions.....................................................1
SECTION 1.02. Other Definitional Provisions...................................5
ARTICLE II
Appointment and Authorization of Servicer
SECTION 2.01. Appointment of Servicer; Acceptance of Appointment..............6
SECTION 2.02. Authorization...................................................6
SECTION 2.03. Dominion and Control over Serviced Intangible Transition
Property........................................................6
ARTICLE III
Billing Services
SECTION 3.01. Duties of Servicer..............................................6
SECTION 3.02. Collection of Intangible Transition Charges.....................7
SECTION 3.03. Servicing and Maintenance Standards.............................8
SECTION 3.04. Servicer's Certificates.........................................8
SECTION 3.05. Annual Statement as to Compliance; Notice of Default............8
SECTION 3.06. Annual Independent Certified Public Accountants' Report.........9
SECTION 3.07. Intangible Transition Property Documentation....................9
SECTION 3.08. Computer Records; Audits of Documentation.......................9
SECTION 3.09. Defending Intangible Transition Property Against Claims........10
SECTION 3.10. Opinions of Counsel............................................10
ARTICLE IV
Services Related to Intangible Transition Charges Adjustments
SECTION 4.01. Intangible Transition Charges Adjustments......................11
ARTICLE V
The Servicer
SECTION 5.01. Representations and Warranties of Servicer.....................11
SECTION 5.02. Indemnities of Servicer; Release of Claims.....................13
SECTION 5.03. Merger or Consolidation of, or Assumption of the Obligations
of, Servicer...................................................14
SECTION 5.04. Assignment of Servicer's Obligations...........................14
SECTION 5.05. Limitation on Liability of Servicer and Others.................14
SECTION 5.06. West Penn Not To Resign as Servicer............................15
SECTION 5.07. Servicing Fee..................................................15
SECTION 5.08. Servicer Expenses..............................................15
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SECTION 5.09. Appointments...................................................15
SECTION 5.10. Remittances....................................................16
SECTION 5.11. Servicer Advances..............................................16
SECTION 5.12. Protection of Title............................................16
ARTICLE VI
Servicer Default
SECTION 6.01. Servicer Default...............................................17
SECTION 6.02. Notice of Servicer Default.....................................18
SECTION 6.03. Waiver of Past Defaults........................................18
SECTION 6.04. Appointment of Successor.......................................18
SECTION 6.05. Cooperation with Successor.....................................19
ARTICLE VII
Miscellaneous Provisions
SECTION 7.01. Amendment......................................................19
SECTION 7.02. Notices........................................................19
SECTION 7.03. Assignment.....................................................20
SECTION 7.04. Limitations on Rights of Others................................20
SECTION 7.05. Severability...................................................20
SECTION 7.06. Separate Counterparts..........................................20
SECTION 7.07. Headings.......................................................20
SECTION 7.08. Governing Law..................................................20
SECTION 7.09. Assignment to Bond Trustee.....................................20
SECTION 7.10. Nonpetition Covenants..........................................21
SECTION 7.11. Termination....................................................21
SECTION 7.12. Limitation of Liability........................................21
EXHIBIT A Servicing Procedures
ANNEX 1 ITC Adjustment Process and Reports - West Penn Funding [II] LLC
ii
SERVICING AGREEMENT dated as of [ ], between WEST PENN FUNDING
[II] LLC, a Delaware limited liability company (the "Issuer"), and WEST PENN
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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").
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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:
ARTICLE I
Definitions
SECTION 1.01. Definitions. Whenever used in this Agreement, each of
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the following words and phrases shall have the following meaning:
"Administration Agreement" means the Service Agreement dated as of
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[ ], between the Issuer and Allegheny Energy Service Corporation, as
administrative agent, as the same may be amended and supplemented from time to
time.
"Administrative Fees" means the fees owed to Allegheny Energy Service
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Corporation, as administrative agent, under the Administration Agreement.
"Agreement" means this Servicing Agreement, as the same may be amended
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and supplemented from time to time.
"Annual Accountant's Report" has the meaning specified in Section
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3.06(a).
"Basic Documents" has the meaning set forth in the Indenture.
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"Bond Trustee" means [ ], a [ ], as bond trustee under the Indenture,
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or any successors to the foregoing.
"Business Day" means any day other than a Saturday, Sunday or a day on
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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
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Transition Bonds of that Series.
"Collateral" means, with respect to the Issuer, all property of the
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Issuer pledged by it to secure Transition Bonds issued by the Issuer as provided
in the Indenture.
"Collection Period" means the monthly period represented by each of
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West Penn's 12 revenue months each year.
"Competitive Transition Charges" means the competitive transition
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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 [ ] issued
on [ ] by the PUC with respect to West Penn's restructuring plan.
"Customers" means each person that (i) was a customer of West Penn
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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" means Fitch Inc. or its successor.
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"Formation Document" means the Limited Liability Company Agreement of
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the Issuer dated as of [ ], between the Seller and the Special Members named
therein, as the same may be amended and supplemented from time to time.
"Holder" or "Transition Bondholder" means the Person in whose name a
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Transition Bond of any Series or Class is registered as provided in the
Indenture therefor.
"Indenture" means the indenture dated as of [ ], between the Issuer
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and the Bond Trustee, as the same may be amended and supplemented from time to
time, including by any Series Supplement.
"Independent Directors" means the persons acting as Independent
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Directors of the Issuer pursuant to the Formation Document.
"Insolvency Event" means, with respect to a specified Person, (a) the
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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 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.
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"Intangible Transition Charges" means the amounts authorized by the
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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
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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
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Penn or its successor or assignee 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
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assigned to that term in Section 3.07.
"Issuer" means West Penn Funding [II] LLC until a successor replaces
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it and, thereafter, such successor.
"ITC Collections" means amounts collected in respect of Intangible
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Transition Charges or the Intangible Transition Property.
"Lien" means a security interest, lien, charge, pledge, equity or
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encumbrance of any kind.
"Losses" means collectively, any and all liabilities, obligations,
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losses, damages, payments, costs or expenses of any kind whatsoever.
"Moody's" means Xxxxx'x Investors Service Inc., or its successor.
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"Officers' Certificate" means a certificate signed by (a) the chairman
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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,
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costs, expenses and indemnity payments owed by the Issuer, including all amounts
owed by the Issuer to the Bond Trustee and the Independent Directors, the
Servicing Fee payable in respect of Transition Bonds issued by the Issuer, the
Administrative 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
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may be an employee of or counsel to West Penn or the Servicer, which counsel
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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 [ ], or
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if any such date is not a Business Day, the next succeeding Business Day.
"Person" means any individual, corporation, estate, partnership, joint
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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
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successor.
"PUC Regulations" means any regulations promulgated or adopted by the
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PUC.
"Qualified Rate Order" means the order of the PUC issued on November
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19, 1998, as supplemented by (i) a supplemental qualified rate order of the PUC
issued on August 12, 1999 and (ii) a second supplement to the previous qualified
rate orders of the PUC issued on May 11, 2005, 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
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in the Qualified Rate Order.
"Rate Schedule" means each of the rate schedules into which Customers
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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
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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 Bond Trustee under the Indenture and the Servicer.
"Rating Agency Condition" means, with respect to any action, the
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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(f).
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"Remittance Date" means each date on which ITC Collections are to be
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remitted by the Servicer to the Bond Trustee pursuant to Section 5.10.
"Sale Agreement" means the Intangible Transition Property Sale
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Agreement dated as of [ ], between the Seller and the Issuer, relating to the
sale of Intangible Transition Property to the Issuer, as the same may be amended
and supplemented from time to time.
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"Seller" means West Penn Funding [II] Corporation and its successors
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in interest to the extent permitted under the Sale Agreement.
"Series" means any series of Transition Bonds issued by the Issuer.
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"Series Supplement" means an indenture supplemental to the Indenture
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that authorizes a particular Series of Transition Bonds.
"Serviced Intangible Transition Property" means, collectively, all
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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.
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"Servicing Fee" means, with respect to any Series of Transition Bonds,
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the fee payable to the Servicer on each Payment Date for services rendered,
determined pursuant to Section 5.07.
"Standard & Poor's" means Standard & Poor's Rating Group, or its
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successor.
"Statute" means the Pennsylvania Electricity Generation Customer
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Choice and Competition Act, Chapter 28 of Title 66 of the Pennsylvania
Consolidated Statutes, 66 Pa. C.S.,ss.2801, et seq.
"Termination Notice" has the meaning specified in Section 6.01.
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"Third Party" means any third party, including any electric generation
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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
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Agreement dated as of [ ], between the Transferor and the Seller relating to the
transfer of Intangible Transition Property to the Seller, as the same may be
amended and supplemented from time to time.
"Transfer Date" means each date on which the Seller sells, conveys, or
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otherwise transfers any Intangible Transition Property to the Issuer.
"Transferor" means West Penn Power Company, as transferor under the
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Transfer Agreement, and its successors in interest to the extent permitted
hereunder.
"Transition Bonds" means "transition bonds" (as defined in the
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Statute) issued by the Issuer.
"UCC" means, unless the context otherwise requires, the Uniform
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Commercial Code, as in effect in the relevant jurisdiction, as amended from time
to time.
"West Penn" means West Penn Power Company, a Pennsylvania corporation.
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SECTION 1.02. Other Definitional Provisions. (a) The words "hereof",
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"herein", "hereunder" and words of similar import when used in this Agreement
5
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.
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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 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
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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
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Property. Notwithstanding any other provision herein, the Servicer and the
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Issuer agree that the Issuer shall have dominion and control over its respective
Serviced Intangible Transition Property. 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 shall have the
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following duties:
(a) Duties of Servicer Generally. The Servicer will manage, service,
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administer and make collections in respect of the Serviced Intangible Transition
6
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 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 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
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immediately notify the Issuer, the Bond Trustee and the Rating Agencies in
writing of any laws 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
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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
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Servicer shall use all reasonable efforts consistent with its customary
servicing procedures to collect all amounts owed in respect of Intangible
Transition 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 sales tax charges, then Intangible Transition Charges, then to
Competitive Transition Charges, then to transmission and distribution charges
7
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 installment amount for a payment agreement
on such balance; (ii) to the balance due for state sales tax charges; (iii) to
the balance due or the installment amount for a payment agreement for Intangible
Transition Charges; (iv) to the balance due or the installment amount for a
payment agreement for Competitive Transition Charges; (v) to the balance due or
the installment amount for a payment agreement for fixed and variable utility
distribution service charges; (vi) to the current state sales 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.
(c) Notwithstanding anything contained herein to the contrary, the
Servicer will collect sales tax related to Intangible Transition Charges and
report and remit the amount so collected to the appropriate state tax agency.
Collection and remission of sales tax is not a final determination by the
Servicer or the Issuer of sales tax liability associated with Intangible
Transition Charges. The Servicer will cooperate with any Person who seeks a
refund of sales tax collected by the Servicer and remitted to the appropriate
government agency.
SECTION 3.03. Servicing and Maintenance Standards. The Servicer shall,
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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 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
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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.
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(a) The Servicer shall deliver to the Issuer, the Bond Trustee and each Rating
Agency, on or before [ ] of each year beginning [ ], an Officers' Certificate,
stating that (i) a review of the activities of the Servicer during the preceding
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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'
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Report. (a) The Servicer shall cause a firm of independent certified public
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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 [ ] of each year, beginning [ ] to
and including the [ ] succeeding 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 [ ] (or, in the case of the first Annual
Accountant's Report, the period of time from the first Transfer Date until [ ]),
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 of Professional Ethics of the American Institute of
Certified Public Accountants.
SECTION 3.07. Intangible Transition Property Documentation. To assure
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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.
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(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
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and the Indenture. The Servicer shall conduct, or cause to be conducted,
periodic audits of the Intangible 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
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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 as the Issuer or Bond
Trustee shall reasonably request 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 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
priorities set forth in Section 8.02(d) of 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 priorities set forth in Section 8.02(d) of 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 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
10
(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 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.
(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).
11
(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 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 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 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
12
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.
(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,
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 (i) the Servicer's willful 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 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 other Basic Documents to which the
Bond Trustee is a party, except to the extent that any such Loss shall be due to
the willful 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 other Basic Documents (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, shall or may have against any
13
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 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 (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
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 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 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
------------------------------------
satisfaction of 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, the Bond Trustee, the holders of the
Transition Bonds or any other 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
14
imposed by reason of willful 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
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 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 be as follows: so long as West Penn acts as the Servicer, the
Servicing Fee will be $[ ] per quarter or, if less, the maximum amount approved
by the PUC; if a successor Servicer is appointed, the Servicing Fee will be
based on an amount approved by the PUC, but not in excess of a per annum rate
equal to [ ]% of the outstanding principal balance of the Transition Bonds. 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 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
15
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 its members or managers), the Bond
Trustee or any Transition Bondholder shall have any responsibility therefor.
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, "F-1" by
Fitch (and for five Business Days following a reduction in any such rating) or
(B) the Rating Agency Condition shall have been satisfied with respect to all
Rating Agencies other than Moody's (to which prior written notice will be sent)
(and any conditions or limitations imposed by such 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 Business
Day immediately preceding the [ ]th day of each month.
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.
16
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 60 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 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 the consent of
Holders of a majority of the outstanding principal 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 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 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,
17
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 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 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, with the
-----------------------
consent of Holders of the majority of the outstanding principal amount of the
Transition Bonds of all Series, 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 the consent of Holders of a 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
18
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 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 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 prior written consent of the Bond Trustee and the
satisfaction of the Rating Agency Condition (other than with respect to
Moody's); provided that the Issuer shall furnish to Moody's prior to the
execution of any such amendment or consent, written notification of the
substance thereof. Promptly after the execution of any such amendment or
consent, the Issuer shall deliver a copy thereof to each of the Rating Agencies.
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 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 President, (b) in the case of the Issuer or the Bond
Trustee, at the address provided for notices or communications to such Person in
19
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, to Fitch 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.
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
managers 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.
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 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.
20
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, to the fullest extent permitted by law, 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.
SECTION 7.11. Termination. This Agreement shall terminate when all
-----------
Transition Bonds issued by the Issuer have been retired, redeemed or defeased in
full.
SECTION 7.12. Limitation of Liability. It is expressly understood and
-----------------------
agreed by the parties hereto that this Agreement is executed and delivered by
[ ], not individually or personally but solely as Bond 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 [ ], individually or personally, to perform any
covenant either expressed or implied contained herein, all such liability, if
any, being expressly waived by the parties who are signatories to this Agreement
and by any Person claiming by, through or under such parties; provided, however,
that this provision shall not protect [ ] against any liability that would
otherwise be imposed by reason of willful misconduct, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations or duties under this Agreement.
21
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 [II] LLC,
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:
22
ANNEX 1
to
SERVICING AGREEMENT
The Servicer agrees to comply with the following with respect to West Penn
Funding [II] 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 [ ] (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 5(b) of
this Annex.
"Available Reserve Amount" means, as of any date, the amount on
------------------------
deposit in the Reserve Subaccount.
"Bond Trustee" has the meaning specified in the Indenture.
------------
"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] [Required
--------------------------------------
Overcollateralization Amount]" 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.
23
"Expected Final Payment Date" means, with respect to any Series or
---------------------------
Class of Transition Bonds, the expected 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 [ ], between the Issuer
---------
and the Bond Trustee, 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.
"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 [ ], each period from and including each Adjustment Date
through but excluding the following Adjustment Date.
"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
each Series as of the immediately preceding Payment Date, (ii) the amount on
deposit in the Overcollateralization Subaccount and the Calculated
24
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] [Required Overcollateralization Amount] 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 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, as well as all other amounts to be paid
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 (w) the outstanding principal
balance of each outstanding Series will equal the amount provided for in the
Expected Amortization Schedule therefor, (x) the amount on deposit in the
Overcollateralization Subaccount will equal the [Calculated
Overcollateralization Level] [Required Overcollateralization Amount], (y) the
amount on deposit in the Capital Subaccount will equal the Required Capital
Amount and (z) the amount on deposit in the Reserve Subaccount will equal zero,
in each case by the Payment Date immediately preceding the next Adjustment Date
or, during the period when Adjustment Dates occur monthly, the [ ]th day of the
calendar month in which the next Adjustment Date occurs, in each case taking
into account the Available Reserve Amount.
(b) In order to obtain approval of each annual adjustment as
expeditiously as possible, on October 1 of each year the Servicer will file an
Adjustment Request with the PUC which will include a schedule of actual ITC
Collections for the nine months ended August 31, together with an estimate of
ITC Collections for the three months ending on the immediately following [ ],
and the estimated Intangible Transition Charges for the following year. On [ ],
the Servicer will file with the PUC a schedule of actual ITC Collections as of
25
[ ], replacing the estimates submitted on October 1, and the actual Intangible
Transition Charges for the following year. Interim adjustments beginning twelve
months before the Expected Final Payment Date of the last Series or Class of the
Transition Bonds will not reflect updated assumptions of projected future usage
of electricity by customers, expected delinquencies and write-offs and future
expenses relating to Intangible Transition Property and the Transition Bonds.
Beginning twelve months before the Expected Final Payment Date of the last
Series or Class of the Transition Bonds, the PUC will permit each Adjustment
Request to become effective within 15 days after filing. The adjustment process
will continue until the earlier of the final payment of all Series of Transition
Bonds and [ ].
(c) The Servicer shall (i) take all reasonable actions and make all
reasonable efforts in order to effectuate such revision to such Intangible
Transition Charges and (ii) promptly send to the Bond Trustee copies of all
material notices and documents relating to such.
SECTION 6. Servicer Advances. The Servicer shall not make any advances
-----------------
of interest or principal on the Transition Bonds of any Series.
SECTION 7. 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.
26
