EXHIBIT B-4
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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
ARTICLE I
Definitions
SECTION 1.01. Definitions.......................................... 2
SECTION 1.02. Other Definitional Provisions........................ 12
ARTICLE II
Appointment and Authorization of Servicer
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
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
Contents, p. ii
ARTICLE IV
Services Related to Intangible
Transition Charges Adjustments
SECTION 4.01. Intangible Transition Charges
Adjustments........................................ 26
ARTICLE V
The Servicer
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
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
SECTION 7.01. Amendment............................................ 47
SECTION 7.02. Notices.............................................. 48
SECTION 7.03. Assignment........................................... 49
Contents, p. iii
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
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 Satur day, 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, seques trator or similar official for such Person or
for any sub stantial 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., ss.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.
00
"Xxxx Xxxx" 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
15
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
16
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
17
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
19
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
25
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
26
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 owner ship or lease of property or the conduct of its busi ness
(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
28
execution, delivery and performance of this Agreement have been duly
authorized by the Servicer by all necessary corporate action.
(d) Binding Obligation. This Agreement consti tutes 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
29
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
30
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
32
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,
33
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
34
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
35
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
36
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
37
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
38
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.
39
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
40
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.
41
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
42
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
43
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
44
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
45
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
46
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-
47
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
48
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.
49
SECTION 7.03. Assignment. Notwithstanding anything to the
contrary contained herein, except as pro vided 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.
50
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
51
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.
52
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:
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.
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
3
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.
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
5
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
6
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
0
Xxxxx 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.
8
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.
