<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 9, 1999
REGISTRATION NO. 333-79619
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WEST PENN FUNDING LLC
(EXACT NAME AS SPECIFIED IN REGISTRANT'S CERTIFICATE OF FORMATION)
<TABLE>
<S> <C>
DELAWARE [ ]
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
------------------------
WEST PENN FUNDING LLC
800 CABIN HILL DRIVE
GREENSBURG, PA 15601-1689
(724) 837-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
[ ]
800 CABIN HILL DRIVE
GREENSBURG, PA 15601-1689
(724) 837-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C> <C>
GREGORY M. SHAW, ESQ. THOMAS K. HENDERSON, ESQ. GEOFFREY K. HURLEY, ESQ.
CRAVATH, SWAINE & MOORE ALLEGHENY ENERGY, INC. LATHAM & WATKINS
WORLDWIDE PLAZA 10435 DOWNSVILLE PIKE 885 THIRD AVENUE
825 EIGHTH AVENUE HAGERSTOWN, MD 21740-1766 NEW YORK, NY 10022
NEW YORK, NY 10019 (301) 790-3400 (212) 906-1200
(212) 474-1000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to time
after this Registration Statement becomes effective as determined by market
conditions.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE AGGREGATE OFFERING AGGREGATE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED PRICE PER UNIT* PRICE* REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transition Bonds................. $1,000,000 100% $1,000,000 $278**
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Estimated solely for the purposes of calculating the registration fee.
** Calculated pursuant to Rule 457(o) of the Securities Act. Fee of $278 paid in
connection with original Registration Statement filed on May 28, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS
NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 9, 1999
PROSPECTUS SUPPLEMENT
(To Prospectus dated [ ], 1999)
West Penn Funding LLC
Issuer
West Penn Power Company
Originator and Servicer
Series 1999-A
$[ ] Transition Bonds
THE ISSUER WILL ISSUE:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 [CLASS A-5]
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Amount.......... $ $ $ $ $
Price..................... $ $ $ $ $
(%) (%) (%) (%) (%)
Underwriter's
Commission.............. $ $ $ $ $
(%) (%) (%) (%) (%)
Proceeds to the Issuer.... $ $ $ $ $
Bond Rate................. % % % % %
Interest Paid.............
Optional Redemption*......
First Payment Date........
Expected Final Payment
Date....................
Termination Date..........
</TABLE>
* All Series 1999-A Bonds are subject to optional redemption in whole once the
outstanding principal balance of the Series 1999-A Bonds has been reduced to
less than 5% of the initial principal balance.
------------------------
THESE SECURITIES ARE HIGHLY STRUCTURED. BEFORE YOU PURCHASE THESE SECURITIES,
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE [ ]
IN THE ACCOMPANYING PROSPECTUS.
------------------------
-- These securities are obligations of the Issuer only. These securities do
not represent obligations of the seller, West Penn or any entity other
than the issuer. These securities are not obligations of the
Pennsylvania Public Utility Commission or any other governmental agency
or instrumentality.
-- The issuer is a special purpose entity that has no property other than
the collateral, and the collateral is the sole source of payment for
these securities.
-- There currently is no secondary market for the Series 1999-A Bonds, and
there is no assurance that one will develop.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined that
this prospectus supplement or the accompanying prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
------------------------
Morgan Stanley Dean Witter
[other underwriters]
The date of this Prospectus Supplement is [ ], 1999.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
WHERE TO FIND INFORMATION IN THESE DOCUMENTS................ S-1
SUMMARY OF TERMS............................................ S-2
Securities Offered....................................... S-2
Introduction............................................. S-4
The Collateral........................................... S-6
Interest................................................. S-6
Principal................................................ S-6
Credit Enhancement....................................... S-7
Optional Redemption...................................... S-7
Repurchase by West Penn of Intangible Transition
Property............................................... S-7
Intangible Transition Charge Adjustment Process.......... S-7
Tax Status............................................... S-8
ERISA Considerations..................................... S-8
Servicer's and Issuer's Mailing Address and Telephone
Number of Principal Executive Office................... S-8
THE SERIES 1999-A BONDS..................................... S-9
General.................................................. S-9
Distributions from the Collection Account................ S-9
Interest................................................. S-9
Principal................................................ S-10
Optional Redemption...................................... S-11
Repurchase by West Penn of Intangible Transition
Property............................................... S-11
Overcollateralization.................................... S-11
Other Credit Enhancement................................. S-12
Reports to Holders of Series 1999-A Bonds................ S-13
DESCRIPTION OF INTANGIBLE TRANSITION PROPERTY............... S-13
The Intangible Transition Charges........................ S-13
Rate Schedule Descriptions............................... S-15
Adjustments to the Intangible Transition Charges......... S-16
DESCRIPTION OF WEST PENN'S BUSINESS......................... S-17
SERVICING................................................... S-17
Servicing Fee............................................ S-17
Servicer Advances........................................ S-17
UNDERWRITING THE SERIES 1999-A BONDS........................ S-18
RATINGS..................................................... S-19
GLOSSARY OF DEFINED TERMS................................... S-20
</TABLE>
<PAGE> 4
WHERE TO FIND INFORMATION IN THESE DOCUMENTS
We provide information to you about the transition bonds in two separate
documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
your series of transition bonds and (b) this prospectus supplement, which
describes the specific terms of your series of transition bonds. This prospectus
supplement and the accompanying prospectus together contain complete information
about the offering of your series of transition bonds. You are urged to read
both documents. In particular, you should read the information under the heading
"Risk Factors," beginning on Page [ ] of the accompanying prospectus.
This supplement begins with several sections describing these securities:
-- Summary of Terms provides important amounts, dates and other terms of
your series;
-- The Series 1999-A Bonds describes the key structural features of your
series; and
-- Description of Intangible Transition Property describes the intangible
transition charges that provide the source for payment of your series
and refers you to the sections in the accompanying prospectus where
you can find further information about the intangible transition
charges and other collateral for the transition bonds.
As you read through these sections, cross-references will direct you to
more information in the accompanying prospectus. You can also directly reference
key topics by looking at the table of contents in this prospectus supplement and
the accompanying prospectus.
This prospectus supplement and the accompanying prospectus may be used by
the underwriters in connection with offers and sales related to market-making
transactions in your series of transition bonds. The underwriters may act as
principal or agent in those transactions. Those sales will be made at prices
related to prevailing market prices at the time of sale.
YOU SHOULD RELY ONLY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS. THE ISSUER HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT IS DIFFERENT.
TO UNDERSTAND THE STRUCTURE AND PAYMENT TERMS OF THESE SECURITIES, YOU MUST
CAREFULLY READ THE ACCOMPANYING PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN
THEIR ENTIRETY.
S-1
<PAGE> 5
SUMMARY OF TERMS
The following section is only a summary of selected information and does
not provide you with all the information you will need to make your investment
decision. There is more detailed information in this prospectus supplement and
in the accompanying prospectus. To understand all of the terms of the offering
of the transition bonds, carefully read this entire document and the
accompanying prospectus.
SECURITIES OFFERED
SERIES 1999-A TRANSITION BONDS
$[ ]
<TABLE>
<CAPTION>
<S> <C>
ISSUER: WEST PENN FUNDING LLC
ORIGINATOR AND SERVICER: WEST PENN POWER COMPANY ("WEST PENN")
SELLER: WEST PENN FUNDING CORPORATION
BOND TRUSTEE: [ ]
PRICING DATE: [ ], 1999
SERIES ISSUANCE DATE: [ ], 1999
CLEARANCE AND
SETTLEMENT: DTC/CEDEL/EUROCLEAR
</TABLE>
<TABLE>
<CAPTION>
INITIAL CLASS PRINCIPAL BALANCE BOND RATE % OF TOTAL SERIES PRINCIPAL
------------------------------- --------- ---------------------------
<S> <C> <C> <C>
Class A-1
Class A-2
Class A-3
Class A-4
[Class A-5]
</TABLE>
Servicing Fee: On each payment date, the servicer will be entitled
to receive either [ 1/4] of [0.25]% of the
outstanding principal balance of the Series 1999-A
Bonds as long as intangible transition charges are
included in electric bills sent to customers or
[ 1/4] of [1.50]% of the outstanding principal
balance of the Series 1999-A Bonds if intangible
transition charges are not included in electric
bills otherwise sent to customers but, instead, are
billed separately to customers.
Anticipated Ratings: S&P/Fitch IBCA AAA
Moody's Aaa
Credit Enhancement:
Intangible transition charge adjustments;
overcollateralization, funded over the life of the Series 1999-A Bonds and
expected to reach [ ]% of the initial
principal balance of each series of transition
bonds; capital of the issuer,
S-2
<PAGE> 6
funded upon the issuance of each series and
expected to be [ ]% of the initial principal
balance of each series of transition bonds.
Payment Dates: [ ], [ ], [ ] and
[ ] of each year or, if not a business
day, the next business day.
First Payment Date: [ ], 1999.
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 [CLASS A-5]
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Expected Final
Payment Date:*
Termination Date:
</TABLE>
Optional Redemption:**
*The expected final payment date is the date upon
which the issuer expects to make the final payment
on your Series 1999-A Bond. However, the final
payment on your Series 1999-A Bond may be made
after that date. Your Series 1999-A Bond will not
be in default unless it is not paid in full by its
termination date set forth above.
**All Series 1999-A Bonds are subject to optional
redemption in whole once the outstanding principal
balance of the Series 1999-A Bonds has been reduced
to less than 5% of the initial principal balance.
Record Date: Close of business on the day prior to any payment
date.
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 [CLASS A-5]
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
CUSIP Numbers:
</TABLE>
S-3
<PAGE> 7
INTRODUCTION
The Pennsylvania Electricity Generation Customer Choice and Competition Act
was enacted in 1996 and provides for the restructuring of the electric industry
in Pennsylvania, including retail competition for generation beginning in 1999.
Prior to enactment of the Pennsylvania Competition Act, electric utilities, such
as West Penn Power Company, invested in various generation-related assets, such
as electric generating facilities and power purchase contracts with third-party
generators of electricity, to help fulfill their duties to serve the public as
regulated utilities. The electric utilities recovered these investments by
charging their customers the regulated rates approved by the Pennsylvania Public
Utility Commission.
One of the expected effects of the deregulation of electricity generation
is that rates will be determined by market forces. These market rates may not be
high enough to allow the utilities to recover their investments in
generation-related assets. Accordingly, the utilities may incur a loss in value
of their generation-related assets as a result of the transition from a
regulated environment to competition for electric generation services.
The Competition Act provides for utilities to recover the anticipated loss
in value of their generation-related assets, known as "STRANDED COSTS," by
including a new type of charge in their customers' bills. These new charges are
known as "COMPETITIVE TRANSITION CHARGES." Utilities are authorized to
securitize the right to recover all or a portion of these charges (this right,
"INTANGIBLE TRANSITION PROPERTY") through the issuance of transition bonds, such
as the securities described in this prospectus supplement. Once intangible
transition property is securitized, the utility's right to recover its stranded
costs through the competitive transition charges is replaced by the intangible
transition property holder's right to recover the costs associated with
servicing the transition bonds through "INTANGIBLE TRANSITION CHARGES" included
in customers' electric bills. Intangible transition charges will reduce the
amount of competitive transition charges.
Intangible transition property was created by the Pennsylvania Competition
Act and a qualified rate order issued by the Pennsylvania Public Utility
Commission to West Penn on November 19, 1998, as supplemented by a supplemental
qualified rate order issued by the Pennsylvania Public Utility Commission to
West Penn on [ ], 1999. Intangible transition property
represents the irrevocable right to collect intangible transition charges from
customers to recover:
-- the aggregate principal amount of transition bonds; and
-- an amount sufficient to provide for any credit enhancement to fund
any reserves, and to pay interest, premiums, if any, costs of
defeasance, servicing fees and other fees, costs and charges
relating to transition bonds.
Intangible transition charges are nonbypassable. Customers cannot avoid
paying them even if they purchase electricity from a supplier other than West
Penn Power Company.
On the series issuance date, West Penn Power Company will contribute
intangible transition property to West Penn Funding Corporation, which will then
sell the intangible
S-4
<PAGE> 8
transition property to West Penn Funding LLC, which will then pledge all its
property, including the intangible transition property, to the bond trustee as
the collateral for the transition bonds. West Penn Funding LLC's other property
that makes up the collateral for these securities is described in this Summary
under the subcaption "The Collateral."
S-5
<PAGE> 9
For more information on the Pennsylvania Competition Act, intangible
transition property and intangible transition charges, you should review the
material under the captions entitled "Risk Factors," "The Competition Act,"
"West Penn's Restructuring Plan" and "The QRO and the Intangible Transition
Charges" in the accompanying prospectus.
The following is a summary of other specific matters related to these
securities:
THE COLLATERAL
The Series 1999-A Bonds will be secured by the collateral, primarily consisting
of:
-- all the issuer's right, title and interest in and to the intangible
transition property transferred by West Penn Funding Corporation to
the issuer pursuant to the intangible transition property sale
agreement;
-- collections of intangible transition charges that are remitted to the
issuer pursuant to the servicing agreement between the issuer and the
servicer;
-- the issuer's rights, except for certain provisions for indemnification
of West Penn Funding Corporation and the issuer, under the intangible
transition property transfer agreement between West Penn and West Penn
Funding Corporation;
-- the issuer's rights, except for certain provisions for indemnification
of the issuer, under the sale agreement;
-- the issuer's rights, except for certain provisions for indemnification
of the issuer, under the servicing agreement; and
-- specified bank accounts of the issuer and all amounts or investment
property in these accounts, other than cash amounts payable to West
Penn Funding Corporation or the servicer described in the accompanying
prospectus.
For a more detailed description of the collateral for the transition bonds, you
should review the material under the captions "The QRO and the Intangible
Transition Charges" and "The Indenture--Security" in the accompanying
prospectus. For a summary of the terms of the transfer agreement, see "The
Transfer Agreement" in the accompanying prospectus. For a summary of the terms
of the sale agreement, see "The Sale Agreement" in the accompanying prospectus.
For a summary of the terms of the servicing agreement, see "The Servicing
Agreement" in the accompanying prospectus.
INTEREST
Holders of each class of this series are expected to receive interest at the
bond rate for that class as set forth on the cover of this prospectus
supplement.
Interest on the Series 1999-A Bonds will be calculated on the basis of a 360-day
year of twelve 30-day months.
You should also review the material under the caption "The Series 1999-A
Bonds--Interest" in this prospectus supplement.
PRINCIPAL
On each payment date, to the extent of available funds, the bond trustee will
make principal payments in accordance with the expected amortization schedule
set forth under the caption "The Series 1999-A Bonds--Principal" in this
S-6
<PAGE> 10
prospectus supplement. The actual amount of principal paid on any payment date
on your Series 1999-A Bond may be less than the amount set forth in the expected
amortization schedule for that payment date.
Other than in the event of a redemption, in no event will the principal paid to
any class on any payment date be greater than the amount necessary to reduce the
principal balance of that class to the amount specified in the expected
amortization schedule for that class and that payment date.
CREDIT ENHANCEMENT
Overcollateralization. Overcollateralization is the pledge by the issuer of
collateral, in this case intangible transition property, in excess of what is
expected to be needed to cover the repayment of your Series 1999-A Bond. The
overcollateralization for these securities will be funded over the life of the
Series 1999-A Bonds and is expected to reach [ ]% of the initial principal
balance of each series of transition bonds.
Additional Credit Enhancement. In addition, capital of the issuer (expected to
be [ ]% of the initial principal balance of each series of transition bonds)
is available to make payments on any series of transition bonds as described in
the accompanying prospectus. In addition, intangible transition charges will be
subject to periodic review and adjustment, as described below under "ITC
Adjustment Process."
You should also review the material under the captions "The Transition
Bonds--Credit Enhancement" and "The Indenture--Allocations and Payment" in the
accompanying prospectus.
OPTIONAL REDEMPTION
The Series 1999-A Bonds may be redeemed in whole once the outstanding principal
balance of the Series 1999-A Bonds has been reduced to less than 5% of the
initial principal balance.
You should also review the material under the caption "The Series 1999-A
Bonds--Optional Redemption" in this prospectus supplement.
REPURCHASE BY WEST PENN OF INTANGIBLE TRANSITION PROPERTY
West Penn is obligated to repurchase the intangible transition property for
breaches of specified representations and warranties in the transfer agreement.
If West Penn has this repurchase obligation, it shall be required to pay a
deferred repurchase price on each payment date to the bond trustee, as
collateral assignee of the issuer.
For more information about the repurchase of the intangible transition property
by West Penn and indemnification payments by West Penn, you should refer to the
material under the caption "The Transfer Agreement--Representations and
Warranties of West Penn" in the accompanying prospectus.
ITC ADJUSTMENT PROCESS
The Servicer is required to seek adjustments to the intangible transition
charges on each October 1, commencing October 1, 1999 and continuing through
October 1, 2007 and, commencing [date which is 12 months prior to expected final
payment date of last class], on the 1st day of each month (or if that day is not
a business day, the immediately preceding business day) until the series
termination date. The annual adjustments through October 1, 2007 are expected to
be
S-7
<PAGE> 11
implemented on or prior to January 1 of the following year. The monthly
adjustments are expected to be implemented on the first day of the next calendar
month after the requests for these adjustments are filed with the Pennsylvania
Public Utility Commission. Each adjustment request will be designed to result in
the outstanding principal balance of the Series 1999-A Bonds equaling the amount
provided for in the expected amortization schedule and the amount on deposit in
the overcollateralization subaccount equaling the calculated
overcollateralization level specified in Table 2 of this prospectus supplement
by the payment date immediately following the next adjustment date.
For a more detailed description of the intangible transition charge adjustment
process, you should review the material under the caption "Description of
Intangible Transition Property--Adjustments to the Intangible Transition
Charges" and the material under the caption "The QRO and the Intangible
Transition Charges--The Intangible Transition Charges--The ITC Adjustment
Process" in the accompanying prospectus.
TAX STATUS
West Penn has received a ruling from the Internal Revenue Service that the
transition bonds will be classified as obligations of West Penn Funding
Corporation. Based on the ruling, for U.S. federal income tax purposes, the
transition bonds will be treated as debt of West Penn Funding Corporation
secured by a pledge of the collateral.
The issuer will be treated as a division of West Penn Funding Corporation and
will not be treated as a separate taxable entity.
Transition bondholders who are not United States taxpayers generally will not be
subject to United States federal income or withholding taxes on interest
received on the transition bonds.
For information regarding the application of U.S. federal income tax laws, you
should see the section captioned "United States Taxation" in the accompanying
prospectus.
ERISA CONSIDERATIONS
Employee benefit plans are permitted to purchase transition bonds.
You should also review the material under the caption "ERISA Considerations" in
the accompanying prospectus.
SERVICER'S AND ISSUER'S MAILING ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL
EXECUTIVE OFFICE:
The mailing address of West Penn is West Penn Power Company, 800 Cabin Hill
Drive, Greensburg, PA 15601, and its telephone number is (724) 837-3000. The
mailing address of the issuer is West Penn Funding LLC, [ ],
and its telephone number is [ ].
S-8
<PAGE> 12
RISK FACTORS
For a discussion of the material risks associated with an investment in the
Series 1999-A Bonds, you should review the discussion under "Risk Factors,"
which begins on page [ ] of the accompanying prospectus.
THE SERIES 1999-A BONDS
GENERAL
The Series 1999-A Bonds will be issued under and secured pursuant to a base
indenture dated as of [ ], 1999 between the issuer and
[ ], as bond trustee, as supplemented by the Series 1999-A
supplemental indenture to that base indenture (as so supplemented, the
"INDENTURE").
Capitalized terms used but not defined in this prospectus supplement are
defined in the glossary of defined terms, located on page of this prospectus
supplement or in the glossary of defined terms, located on page of the
accompanying prospectus.
The Series 1999-A Bonds will be issued on the series issuance date in
denominations of $1,000 and integral multiples thereof and will be comprised of
the classes listed above under "Summary of Terms--Securities Offered."
Interest and principal relating to the Series 1999-A Bonds will be paid
through The Depository Trust Company ("DTC") or, if the Series 1999-A Bonds are
no longer in book-entry form, will be payable at the offices of [Trustee] at
[ ]. Generally, payment will be made by check mailed
first-class, postage prepaid to a holder's address as it appears on the
transition bond register on each record date. For Series 1999-A Bonds registered
on a record date in the name of the nominee of Cede & Co., payments will be made
by wire transfer in immediately available funds to the account designated by
that nominee, except as described below. The final installment of principal and
premium, if any, payable with respect to any Series 1999-A Bond will be payable,
after prior notice to the holder, only upon presentation and surrender of the
Series 1999-A Bond at a place specified in that notice.
DISTRIBUTIONS FROM THE COLLECTION ACCOUNT
Amounts distributed from the Collection Account as described in "The
Indenture--Allocations and Payments" in the accompanying prospectus will be
applied among the classes of the Series 1999-A Bonds on each payment date as
follows: (i) with respect to interest, to each class on a pro rata basis based
on the amount of interest payable to that class and (ii) with respect to
principal, to each class as described under "--Principal" in this section.
INTEREST
Interest on each class of the Series 1999-A Bonds will accrue from the
Series Issuance Date at the respective bond rates indicated in the section at
the beginning of this prospectus supplement entitled "Summary--Securities
Offered." The
S-9
<PAGE> 13
interest will be payable on each payment date, commencing [ ],
1999, to the persons in whose names the Series 1999-A Bonds of each class are
registered at the close of business on the record date therefor.
Interest on the Series 1999-A Bonds will be calculated on the basis of a
360-day year of twelve 30-day months.
The "INTEREST ACCRUAL PERIOD" for any payment date shall be the period from
and including the preceding payment date -- or, in the case of the first payment
date, from and including the series issuance date -- to and excluding that
payment date.
The record date for any payment date shall be the close of business on the
day prior to that payment date.
PRINCIPAL
On each payment date, the bond trustee shall, as of the related record date
and subject to the availability of funds, make principal payments on each class
of transition bonds in accordance with the Expected Amortization Schedule.
To the extent that more than one class of Series 1999-A Bonds is to receive
payments of principal in accordance with the Expected Amortization Schedule on
any payment date, the applicable funds will be allocated pro rata between those
classes based on the principal scheduled to be paid to those classes on that
payment date; except, that if one or more classes did not receive principal that
it was scheduled to receive on prior payment dates, then those classes will be
(i) allocated funds to make up these shortfalls prior to any classes receiving
funds for principal scheduled to be paid on the current payment date and (ii)
allocated funds in respect of prior shortfalls on a pro rata basis based on the
amount of the shortfalls.
The principal payment on any class on a payment date will not be greater
than the amount necessary to reduce the Class Principal Balance of that class to
the amount specified in the Expected Amortization Schedule for that class and
payment date unless an event of default or a redemption occurs.
"CLASS PRINCIPAL BALANCE" means the initial principal balance of a class,
reduced by principal distributed to that class in accordance with the terms of
the Indenture.
The entire unpaid principal amount for any class of the Series 1999-A Bonds
will be due and payable on the applicable class termination date.
The following Expected Amortization Schedule sets forth the scheduled
outstanding Class Principal Balance for each class of the Series 1999-A Bonds at
each payment date, after giving effect to the payments made on that date, from
the series issuance date to the expected final payment date for that class.
S-10
<PAGE> 14
TABLE 1
EXPECTED AMORTIZATION SCHEDULE
OUTSTANDING CLASS PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PAYMENT DATE CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 [CLASS A-5] SERIES 1999-A
- ------------ --------- --------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Series Issuance Date...
</TABLE>
For various reasons, the actual Class Principal Balance of any class of the
Series 1999-A Bonds may not be reduced by the amounts indicated in the foregoing
table on any payment date. Accordingly, the actual reductions in Class Principal
Balances may be delayed from those indicated in the table. See "Risk Factors" in
the accompanying prospectus for various factors which may, individually or in
the aggregate, affect the rates of reduction of the Class Principal Balances of
any class of the Series 1999-A Bonds.
OPTIONAL REDEMPTION
The Series 1999-A Bonds may be redeemed in whole on any payment date
commencing with the payment date on which the outstanding principal balance of
the Series 1999-A Bonds (after giving effect to payments that would otherwise be
made on that date) has been reduced to less than 5% of the initial principal
balance of the Series 1999-A Bonds. Notice of redemption will be given by the
issuer to the bond trustee and Standard & Poor's Rating Group, Moody's Investors
Service Inc. and Fitch IBCA, Inc. (each, a "RATING AGENCY").
REPURCHASE BY WEST PENN OF INTANGIBLE TRANSITION PROPERTY
West Penn is obligated to repurchase the intangible transition property for
breaches of specified representations and warranties in the Intangible
Transition Property Transfer Agreement between West Penn and West Penn Funding
Corporation. If West Penn has this repurchase obligation, it shall be required
to pay a deferred repurchase price on each payment date to the bond trustee, as
collateral assignee of the issuer.
West Penn will be obligated to repurchase the intangible transition
property and pay the deferred repurchase price as described in "The Transfer
Agreement--Representations and Warranties of West Penn" in the accompanying
prospectus.
OVERCOLLATERALIZATION
The amount of overcollateralization (the "OVERCOLLATERALIZATION AMOUNT")
for each series of transition bonds is intended to be funded over the expected
life of that series and is expected to be [ ]% of the initial principal amount
for each series of transition bonds. The only source of cash for the
Overcollateralization Amount will be intangible transition charges, which will
be calculated at, and periodically adjusted to, a level that is designed to
collect the Overcollateralization Amount ratably over the expected life of all
S-11
<PAGE> 15
series of transition bonds. Amounts of intangible transition charges collected
in any period as a result of Overcollateralization Amounts will be available for
all series of transition bonds on a pro rata basis without any preference. The
"CALCULATED OVERCOLLATERALIZATION LEVEL" for each payment date related to the
Series 1999-A Bonds, as of the date of this prospectus supplement, is set forth
below. These balances may change from time to time with the issuance of each new
series and the redemption or refunding of a class or series.
For a more detailed description of overcollateralization, see the material
under the captions "The Transition Bonds--Credit Enhancement" and "The
Indenture--Allocations and Payments" in the accompanying prospectus.
TABLE 2
CALCULATED OVERCOLLATERALIZATION LEVEL
<TABLE>
<CAPTION>
REQUIRED
OVERCOLLATERALIZATION
PAYMENT DATE LEVEL
- ------------ ---------------------
<S> <C>
</TABLE>
OTHER CREDIT ENHANCEMENT
Reserve Subaccount. Collections of intangible transition charges ("ITC
COLLECTIONS") available on any payment date above that amount necessary to pay
the (i) amounts payable for expenses of the bond trustee, the administrative
agent and the servicer and other fees and expenses, (ii) amounts distributable
to the transition bondholders for principal and interest on that payment date,
(iii) amounts required to replenish the Capital Subaccount and (iv) amounts
required to replenish the Overcollateralization Subaccount, including
prepayments, if any, will be allocated to the Reserve Subaccount. On each
payment date, the bond trustee will draw on amounts in the Reserve Subaccount,
if any, to the extent amounts available in the General Subaccount and the Loss
Subaccount are insufficient to make scheduled payments to the transition
bondholders and pay expenses of the issuer, the bond trustee, the administrative
agent, the servicer and other specified fees and expenses. See "The
Indenture--Allocations and Payments" in the accompanying prospectus.
Capital Subaccount. Upon the issuance of the Series 1999-A Bonds, West
Penn Funding Corporation will deposit the Required Capital Amount of $[ ]
million in the Capital Subaccount. On each payment date, the bond trustee will
draw on amounts in the Capital Subaccount, if any, to the extent amounts
available in the General Subaccount, the Loss Subaccount, the Reserve Subaccount
and the Overcollateralization Subaccount are insufficient to make scheduled
payments to the transition bondholders and to pay expenses of the issuer, the
bond trustee, the administrative agent and the servicer and other specified fees
and expenses.
S-12
<PAGE> 16
REPORTS TO HOLDERS OF SERIES 1999-A BONDS
On or prior to each payment date, the bond trustee will prepare and provide
statements to the holders of record of the Series 1999-A Bonds. These statements
will be available to the beneficial owners of the Series 1999-A Bonds upon
request to the bond trustee or the servicer. The financial information provided
will not be examined or reported upon by any independent public accountant and
no independent public accountant will give an opinion on this financial
information.
For a more detailed description of the statements provided to the holders
of record of the Series 1999-A Bonds, you should review the material under the
caption "The Indenture--Reports to Transition Bondholders" in the accompanying
prospectus.
DESCRIPTION OF INTANGIBLE TRANSITION PROPERTY
THE INTANGIBLE TRANSITION CHARGES
West Penn's customers belong to one of three customer categories (each, a
"CUSTOMER CATEGORY"). These categories are: residential, commercial and
industrial, including street lighting. Each Customer Category is further divided
into rate schedules (each, a "RATE SCHEDULE"). The Qualified Transition Expenses
authorized in the QRO issued by the PUC to West Penn are to be recovered from
customers in each of West Penn's separate Rate Schedules. All series and classes
of transition bonds will be secured by the collateral. The intangible transition
charges initially will be calculated by determining the total amount of
intangible transition charges required to be billed to each Customer Category,
based on current estimates of sales growth, in order to generate ITC Collections
sufficient to ensure timely recovery of Qualified Transition Expenses in
accordance with the Expected Amortization Schedule. The amount determined for
each Customer Category will then be allocated to each Rate Schedule within that
Customer Category based on the allocation of stranded cost recovery borne by
each Rate Schedule through current electric rates approved by the PUC. The
intangible transition charges will reduce competitive transition charges, as
periodically adjusted, and will appear as a separate line item on each
customer's bill. See "The QRO and the Intangible Transition Charges--The
Intangible Transition Charges--The ITC Adjustment Process" in the accompanying
prospectus.
[The unbundled customer bills that were sent out for billing cycles
beginning January 1, 1999 separately identified charges for generation,
transmission and distribution and other services. When intangible transition
charges are billed to customers, these charges will be applied to total
projected revenue per Rate Schedule, exclusive of transmission, energy, capacity
and fixed distribution charges. This will be reflected in the calculation of the
intangible transition charges.]
Initially, the intangible transition charges billed will average
approximately $[ ] per month for residential customers, approximately
$[ ] per month for commercial customers and approximately $[ ] per
month for industrial customers. The average monthly bill for each Customer
Category of West Penn customers during 1998 was
S-13
<PAGE> 17
$[ ], $[ ] and $[ ], respectively. The following projected
average intangible transition charges, expressed as a percentage of the
generation rate cap applicable to each Rate Schedule, will be imposed on
customers in the following Customer Categories beginning with the bill rendered
approximately [ten] days after the series issuance date for the Series 1999-A
Bonds:
TABLE 3
PROJECTED AVERAGE INTANGIBLE TRANSITION CHARGES(1)
FOR THE PERIOD THROUGH [ ], 1999
RESIDENTIAL CUSTOMERS
<TABLE>
<CAPTION>
ITC AS
PERCENTAGE
OF GENERATION
RATE SCHEDULE RATE CAP
- ------------- -------------
<S> <C>
Schedule 10................................................. %
</TABLE>
COMMERCIAL CUSTOMERS
<TABLE>
<CAPTION>
ITC AS
PERCENTAGE
OF GENERATION
RATE SCHEDULE RATE CAP
- ------------- -------------
<S> <C>
Schedule 20................................................. %
Schedule 22................................................. %
Schedule 23................................................. %
Schedule 24................................................. %
Tariff 37................................................... %
</TABLE>
S-14
<PAGE> 18
INDUSTRIAL CUSTOMERS
<TABLE>
<CAPTION>
ITC AS
PERCENTAGE
OF GENERATION
RATE SCHEDULE RATE CAP
- ------------- -------------
<S> <C>
Schedule 30................................................. %
Schedule 40................................................. %
Schedule 41................................................. %
Schedule 44................................................. %
Schedule 46................................................. %
Schedule 51................................................. %
Schedule 52................................................. %
Schedule 53................................................. %
Schedule 54................................................. %
Schedule 55................................................. %
Schedule 56................................................. %
Schedule 57................................................. %
Schedule 58................................................. %
Schedule 59................................................. %
Schedule 71................................................. %
</TABLE>
- ------------
(1) Excludes the Pennsylvania utilities gross receipts tax.
RATE SCHEDULE DESCRIPTIONS:
Rate Schedules are created by the PUC and are subject to change. These
changes will be reflected in any Adjustment Request filed with the PUC by the
servicer. The current Rate Schedules, as indicated above, have remained
unchanged for [ ] years. These Rate Schedules are:
Residential Rate Schedules:
Schedule 10 -- The only residential service schedule, available to all
residential customers in West Penn's service area.
Commercial Rate Schedules:
Schedule 20 -- For small-to-medium commercial and small industrial
customers.
Schedule 22 -- For churches, schools, non-profit colleges and universities.
Closed to new customers as of August 30, 1979.
Schedule 23 -- For athletic field lighting for schools, communities, civic
organizations, and other public institutions. Closed to new
customers as of August 28, 1985.
Schedule 24 -- For fairs, carnivals, and other similar temporary
enterprises.
Tariff 37 -- For Pennsylvania State University Main Campus.
Industrial Rate Schedules:
Schedule 30 -- For customers with demands in excess of 100 kilowatts,
generally large commercial and medium-sized industrial
customers.
S-15
<PAGE> 19
Schedule 40 -- For customers with demands in excess of 2000 kilowatts and
service voltages in excess of 25 kilovolts, generally large
industrial customers.
Schedule 41 -- For customers with demands in excess of 2000 kilowatts and
service voltages in excess of 25 kilovolts, generally large
industrial customers. Closed to new customers as of December
31, 1998.
Schedule 44 -- For customers with interruptible demands in excess of 5000
kilovolt-amperes and service voltages in excess of 25
kilovolts, generally large industrial customers able to
withstand interruptions in service. Closed to new customers
as of December 31, 1998.
Schedule 46 -- For customers with demands in excess of 30,000
kilovolt-amperes and service voltages in excess of 25
kilovolts, generally very large industrial customers. Closed
to new customers as of December 31, 1998.
Schedules 51-56 -- For various types of street and outdoor lighting. Closed
to new customers as of June 6, 1997.
Schedules 57-59 -- For outdoor lighting of various types.
Schedule 71 -- For municipal street and highway lighting. Closed to new
customers as of August 26, 1978.
Schedules 85 & 86 -- For cogeneration and alternative generation.
Schedule 90 -- For sale of surge suppression devices.
ADJUSTMENTS TO THE INTANGIBLE TRANSITION CHARGES
The servicer is required to seek adjustments to the intangible transition
charges on each October 1, commencing October 1, 1999 and continuing through
October 1, 2007 and, commencing [date which is 12 months prior to expected final
payment date of last class], on the 1st day of each month--or if this day is not
a business day, the immediately preceding business day--until the series
termination date. The annual adjustments through October 1, 2007 are expected to
be implemented on or prior to January 1 of the following year. The monthly
adjustments are expected to be implemented on the first day of the next calendar
month after the requests for these adjustments are filed with the PUC. Each
Adjustment Request will be designed to result in the outstanding principal
balance of the Series 1999-A Bonds equaling the amount provided for in the
Expected Amortization Schedule and the amount on deposit in the
Overcollateralization Subaccount equaling the Calculated Overcollateralization
Level by the payment date immediately following the next Adjustment Date.
The Pennsylvania Competition Act only requires that the PUC approve annual
adjustments within 90 days. The QRO provides that, during the period commencing
12 months prior to the expected final payment date for the Class A-[5] Bonds,
the monthly adjustments will become effective on the first day of the next
calendar month with not less than 15 days' notice.
S-16
<PAGE> 20
DESCRIPTION OF WEST PENN'S BUSINESS
For a discussion of West Penn Funding Corporation and the servicer, you
should review the material under the captions "West Penn Power Company", "West
Penn Funding Corporation" and "The Servicer" in the accompanying prospectus.
SERVICING
SERVICING FEE
On each payment date, the servicer will be entitled to receive a fee (the
"Servicing Fee") in an amount equal to (i) [ 1/4] of [0.25] percent of the
outstanding principal balance of the Series 1999-A Bonds for so long as
intangible transition charges are included in electric bills otherwise sent to
customers and (ii) [ 1/4] of [1.50] percent of the outstanding principal balance
of the Series 1999-A Bonds if intangible transition charges are not included in
electric bills otherwise sent to customers but, instead, are billed separately
to customers. The Servicing Fee, together with any portion of the Servicing Fee
that remains unpaid from prior payment dates, will be paid solely to the extent
funds are available therefor as described under "The Indenture--Allocations and
Payments" in the accompanying prospectus. The Servicing Fee will be paid prior
to the distribution of any amounts in respect of interest on and principal of
the Series 1999-A Bonds. The servicer will be entitled to retain as additional
compensation net investment income on intangible transition charges received by
the servicer prior to remittance to the Collection Account and the portion of
late fees, if any, paid by customers relating to the intangible transition
charges.
SERVICER ADVANCES
The servicer will not make any advances of interest or principal on the
Series 1999-A Bonds.
S-17
<PAGE> 21
UNDERWRITING THE SERIES 1999-A BONDS
Subject to the terms and conditions set forth in the underwriting agreement
(the "UNDERWRITING AGREEMENT") among West Penn, West Penn Funding Corporation,
the issuer and the underwriters named below (the "UNDERWRITERS"), for whom
Morgan Stanley Dean Witter is acting as the representative, the issuer has
agreed to sell to the Underwriters, and the Underwriters have severally agreed
to purchase, the principal amounts of the Series 1999-A Bonds set forth opposite
each Underwriter's name below:
<TABLE>
<CAPTION>
NAME CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 [CLASS A-5]
- ---- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Morgan Stanley & Co.
Incorporated............... $ $ $ $ $
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and to pay for all of the Series 1999-A Bonds
offered hereby, if any are taken.
The Underwriters' Sales Price for the Series 1999-A Bonds. The
Underwriters propose to offer the Series 1999-A Bonds in part directly to retail
purchasers at the initial public offering prices set forth on the cover page of
this prospectus supplement, and in part to some securities dealers at a price
less a concession not in excess of [ ] percent of the principal amount of the
Series 1999-A Class [ ] Bonds, [ ] percent of the principal amount of the
Series 1999-A Class [ ] Bonds and [ ] percent of the principal amount of the
Series 1999-A Class [ ] Bonds. The Underwriters may allow and the dealers may
reallow a concession to some brokers and dealers not in excess of [ ] percent
of the principal amount of the Series 1999-A Class [ ] Bonds, [ ] percent of
the principal amount of the Series 1999-A Class [ ] Bonds and [ ] percent of
the principal amount of the Series 1999-A Class [ ] Bonds. After the Series
1999-A Bonds are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Underwriters.
No Assurance as to Resale Price or Resale Liquidity for the Series 1999-A
Bonds. The Series 1999-A Bonds are a new issue of securities with no established
trading market. The Series 1999-A Bonds will not be listed on any securities
exchange. The issuer has been advised by the Underwriters that they intend to
make a market in the Series 1999-A Bonds but are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of the trading market for the Series 1999-A Bonds.
Various Types of Underwriter Transactions Which May Affect the Price of the
Series 1999-A Bonds. The Underwriters may engage in overallotment
transactions, stabilizing transactions, syndicate covering transactions and
penalty bids with respect to the Series 1999-A Bonds in accordance with
Regulation M under the Securities Exchange Act of 1934. Overallotment
transactions involve syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the Series 1999-A Bonds so long as the stabilizing bids do not exceed a
S-18
<PAGE> 22
specified maximum. Syndicate covering transactions involve purchases of the
Series 1999-A Bonds in the open market after the distribution has been completed
in order to cover syndicate short positions. Penalty bids permit the
Underwriters to reclaim a selling concession from a syndicate member when the
Series 1999-A Bonds originally sold by the syndicate member are purchased in a
syndicate covering transaction. These overallotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids may cause the
prices of the Series 1999-A Bonds to be higher than they would otherwise be in
the absence of these transactions. None of West Penn, West Penn Funding
Corporation, the issuer or the bond trustee or any of the Underwriters represent
that the Underwriters will engage in any of these transactions or that these
transactions, once commenced, will not be discontinued without notice at any
time.
In the ordinary course of business, each Underwriter and its affiliates
have engaged and may engage in investment banking and/or commercial banking
transactions with the issuer and its affiliates, including West Penn. In
addition, each Underwriter may from time to time take positions in the
transition bonds.
The issuer, West Penn and West Penn Funding Corporation have agreed to
indemnify the several Underwriters against certain liabilities, including
liabilities under the Securities Act.
RATINGS
It is a condition of any Underwriter's obligation to purchase that the
Series 1999-A Bonds be rated "AAA" by Standard & Poor's Rating Group, "AAA" by
Fitch IBCA, Inc. and "Aaa" by Moody's Investors Service Inc., which, in each
case, is in one of the four highest rating categories of that Rating Agency.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rating
Agency. No person is obligated to maintain the rating on any of the Series
1999-A Bonds, and, accordingly, there can be no assurance that the ratings
assigned to any class of the Series 1999-A Bonds upon initial issuance will not
be revised or withdrawn by a Rating Agency at any time thereafter. If a rating
of any class of the Series 1999-A Bonds is revised or withdrawn, the liquidity
of that class of the Series 1999-A Bonds may be adversely affected. In general,
ratings address credit risk and do not represent any assessment of any
particular rate of principal payments on the Series 1999-A Bonds other than
payment in full of each class of the Series 1999-A Bonds by the applicable class
termination date.
S-19
<PAGE> 23
GLOSSARY OF DEFINED TERMS
Set forth below is a glossary of defined terms used in this prospectus
supplement.
"ADJUSTMENT REQUEST" means each request filed by the servicer with the PUC
for adjustments to the intangible transition charges charged to each Rate
Schedule within any Customer Category based on actual ITC Collections and
updated assumptions by the servicer as to the projected future sales from which
intangible transition charges are allocated, expected delinquencies and
write-offs and future payments and expenses relating to the intangible
transition property and the transition bonds.
"CAPITAL SUBACCOUNT" means a subaccount of the Collection Account in which
the amount of capital required to be held by the issuer for a series of
transition bonds will be deposited by West Penn Funding Corporation on the date
of issuance of that series.
"COLLECTION ACCOUNT" means the single collection account for all series of
transition bonds established by the issuer and held by the bond trustee under
the indenture.
"EXPECTED AMORTIZATION SCHEDULE" means the amortization schedule for the
principal balance of the Series 1999-A Bonds set forth in Table 1 of this
prospectus supplement.
"GENERAL SUBACCOUNT" means a subaccount of the Collection Account into
which funds received from ITC Collections will initially be allocated.
"LOSS SUBACCOUNT" means a subaccount of the Collection Account which will
be established if West Penn is required to remit to the bond trustee loss
amounts resulting from breaches of representations and warranties under the
Intangible Transition Property Transfer Agreement between West Penn and West
Penn Funding Corporation.
"OVERCOLLATERALIZATION SUBACCOUNT" means a subaccount of the Collection
Account into which the Overcollateralization Amount will be deposited over the
expected life of a series of transition bonds.
"PUC" means the Pennsylvania Public Utility Commission or any successor
thereto.
"QRO" means the qualified rate order issued by the PUC to West Penn on
November 19, 1998, as supplemented by a supplemental qualified rate order issued
by the PUC to West Penn on [ ], 1999.
"QUALIFIED TRANSITION EXPENSES", as set forth in the QRO, means,
collectively, the aggregate principal amount of the transition bonds and an
amount sufficient to provide for any credit enhancement to fund any reserves,
and to pay interest, premiums, if any, costs of defeasance, servicing fees and
other fees, costs and charges relating to transition bonds.
"REQUIRED CAPITAL AMOUNT" means the amount of capital required to be
deposited by the issuer into the Capital Subaccount upon the issuance of a
series of transition bonds, which represents a capital contribution from West
Penn Funding Corporation.
S-20
<PAGE> 24
"RESERVE SUBACCOUNT" means a subaccount of the Collection Account into
which will be deposited the excess, if any, of ITC Collections over amounts then
scheduled to be paid or due on a series of transition bonds, plus related
expenses and amounts needed to make required deposits to the
Overcollateralization Subaccount and the Capital Subaccount.
S-21
<PAGE> 25
PROSPECTUS
West Penn Funding LLC
Issuer
West Penn Power Company
Originator and Servicer
Up to $[ ] of Transition Bonds Issuable in Series
------------------------
THE ISSUER
-- MAY PERIODICALLY ISSUE TRANSITION BONDS IN ONE OR MORE SERIES WITH ONE
OR MORE CLASSES;
-- WILL OWN:
-- INTANGIBLE TRANSITION PROPERTY, WHICH IS THE RIGHT, CREATED BY
PENNSYLVANIA'S COMPETITION ACT, TO COLLECT INTANGIBLE TRANSITION
CHARGES IN AMOUNTS DESIGNED TO BE SUFFICIENT TO REPAY THE TRANSITION
BONDS, TO PAY OTHER EXPENSES SPECIFIED IN THE INDENTURE AND TO FUND
THE TRUST ACCOUNTS;
-- COLLECTIONS OF INTANGIBLE TRANSITION CHARGES;
-- TRUST ACCOUNTS HELD BY THE BOND TRUSTEE; AND
-- IF SO STATED IN THE APPLICABLE PROSPECTUS SUPPLEMENT, OTHER CREDIT
ENHANCEMENT.
THE TRANSITION BONDS
-- WILL BE PAYABLE ONLY FROM ASSETS OF THE ISSUER;
-- WILL BE SUPPORTED BY TRUST ACCOUNTS HELD BY THE TRUSTEE FOR THE
TRANSITION BONDS, AND, IF SO STATED IN THE APPLICABLE PROSPECTUS
SUPPLEMENT, OTHER CREDIT ENHANCEMENT; AND
-- WILL BE ISSUED IN SERIES, EACH OF WHICH THE ISSUER MAY ISSUE WITHOUT THE
CONSENT OF EXISTING TRANSITION BONDHOLDERS.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE [ ] OF THIS PROSPECTUS.
This prospectus may be used to offer and sell a series of transition bonds only
if accompanied by the prospectus supplement for that series.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is , 1999.
<PAGE> 26
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 17
Legal, Legislative or Regulatory Actions Could Adversely
Affect Transition Bondholders.......................... 17
Nature of Intangible Transition Property................. 21
Servicing................................................ 23
Bankruptcy; Creditors' Rights............................ 29
The Transition Bonds..................................... 34
AVAILABLE INFORMATION....................................... 37
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 37
WEST PENN POWER COMPANY..................................... 39
THE PENNSYLVANIA COMPETITION ACT............................ 41
General.................................................. 41
Recovery of Stranded Costs............................... 41
Securitization of Stranded Costs......................... 42
Jurisdiction Over Disputes; Standing..................... 44
Possible Federal Preemption of the Competition Act....... 44
Possible Commonwealth Amendment or Repeal of the
Competition Act........................................ 45
WEST PENN'S RESTRUCTURING PLAN.............................. 47
General.................................................. 47
Provisions of the Settlement............................. 47
Provider of Last Resort.................................. 51
Prior Litigation......................................... 52
THE QRO AND THE INTANGIBLE TRANSITION CHARGES............... 54
The QRO.................................................. 54
The Intangible Transition Charges........................ 56
Competitive Billing...................................... 59
THE SERVICER................................................ 61
Retail Electric Service Territory........................ 61
Customers and Operating Revenues......................... 61
Forecasting Customers and Usage.......................... 66
Billing Process.......................................... 69
Limited Information on Customers' Creditworthiness....... 69
Electric Generation Suppliers and Other Third-Party
Billers................................................ 74
Year 2000 Compliance..................................... 74
WEST PENN FUNDING CORPORATION............................... 77
THE ISSUER.................................................. 79
USE OF PROCEEDS............................................. 81
</TABLE>
i
<PAGE> 27
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE TRANSITION BONDS........................................ 81
General.................................................. 81
Interest and Principal................................... 83
Floating Rate Transition Bonds........................... 83
Redemption............................................... 84
Credit Enhancement....................................... 84
Book-Entry Registration.................................. 85
Definitive Transition Bonds.............................. 89
CERTAIN WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS...... 91
THE TRANSFER AGREEMENT...................................... 92
Contribution of Intangible Transition Property........... 92
Representations and Warranties of West Penn.............. 94
Certain Matters Regarding West Penn...................... 100
Governing Law............................................ 100
THE SALE AGREEMENT.......................................... 101
Sale and Assignment of Intangible Transition Property.... 101
Representations and Warranties of West Penn Funding
Corporation............................................ 103
Certain Matters Regarding West Penn Funding
Corporation............................................ 106
Governing Law............................................ 106
THE SERVICING AGREEMENT..................................... 107
Servicing Procedures..................................... 107
Servicer Advances........................................ 109
Servicing Compensation; Releases......................... 109
Servicer Duties.......................................... 109
Servicer Representations and Warranties.................. 110
Servicer Indemnification................................. 111
Statements to Issuer and Bond Trustee.................... 111
Evidence as to Compliance................................ 112
Certain Matters Regarding the Servicer................... 113
Servicer Defaults........................................ 114
Rights Upon Servicer Default............................. 114
Successor Servicer....................................... 115
Governing Law............................................ 115
THE INDENTURE............................................... 116
Security................................................. 116
Issuance in Series or Classes............................ 117
Collection Account....................................... 118
Allocations and Payments................................. 121
Reports to Transition Bondholders........................ 122
Modification of Indenture................................ 123
</TABLE>
ii
<PAGE> 28
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Enforcement of the Transfer Agreement, the Sale Agreement
and the Servicing Agreement............................ 126
Modifications to the Transfer Agreement, the Sale
Agreement and the Servicing Agreement.................. 126
Events of Default; Rights Upon Event of Default.......... 127
Certain Covenants........................................ 129
List of Transition Bondholders........................... 131
Annual Compliance Statement.............................. 131
Bond Trustee's Annual Report............................. 131
Satisfaction and Discharge of Indenture.................. 132
Legal Defeasance and Covenant Defeasance................. 132
The Bond Trustee......................................... 134
Governing Law............................................ 134
UNITED STATES TAXATION...................................... 135
General.................................................. 135
Taxation of the Issuer and of the Transition Bonds....... 135
Tax Consequences to U.S. Holders......................... 136
Tax Consequences to Non-U.S. Holders..................... 137
ERISA CONSIDERATIONS........................................ 140
PLAN OF DISTRIBUTION........................................ 141
RATINGS..................................................... 142
LEGAL MATTERS............................................... 143
GLOSSARY OF PRINCIPAL DEFINITIONS........................... 144
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
iii
<PAGE> 29
PROSPECTUS SUMMARY
This summary contains a brief description of the transition bonds that applies
to all series of transition bonds issued under this prospectus. Information that
relates to a specific series of transition bonds can be found in the prospectus
supplement related to that series. You will find a detailed description of the
terms of the offering of transition bonds following this summary. CONSIDER
CAREFULLY THE RISK FACTORS BEGINNING ON PAGE [ ] OF THIS PROSPECTUS.
Transaction Overview: The Pennsylvania Electricity Generation
Customer Choice and Competition Act was enacted
in 1996 and provides for the restructuring of
the electric industry in Pennsylvania,
including retail competition for generation
beginning in 1999. Prior to enactment of the
Pennsylvania Competition Act, electric
utilities, such as West Penn Power Company,
invested in various generation-related assets,
such as electric generating facilities and
power purchase contracts with third-party
generators of electricity, to help fulfill
their duties to serve the public as regulated
utilities. The electric utilities recovered
these investments by charging their customers
the regulated rates approved by the
Pennsylvania Public Utility Commission.
One of the expected effects of the deregulation
of electricity generation is that rates will be
determined by market forces. These market rates
may not be high enough to allow the utilities
to recover their investments in
generation-related assets. Accordingly, the
utilities may incur a loss in value of these
generation-related assets as a result of the
transition from a regulated environment to
competition for electric generation services.
The Pennsylvania Competition Act provides for
utilities to recover the anticipated loss in
value of their generation-related assets, known
as "stranded costs," by including a new type of
charge in their customers' bills. These new
charges are known as "competitive transition
charges." Utilities are authorized to
securitize the right to recover all or a
portion of these charges (this right,
"intangible transition property") through the
issuance of transition bonds, such as the
securities described in this prospectus and the
related prospectus supplement. Once intangible
transition property is securitized, the
utility's right to recover its stranded costs
through the competitive transition
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charges is replaced by the intangible
transition property holder's right to recover
the costs associated with servicing the
transition bonds through "intangible transition
charges" included in customers' electric bills.
Intangible transition charges will reduce the
amount of competitive transition charges.
Intangible transition property was created by
the Pennsylvania Competition Act and a
qualified rate order issued by the Pennsylvania
Public Utility Commission to West Penn Power
Company on November 19, 1998, as supplemented
by a supplemental qualified rate order issued
by the Pennsylvania Public Utility Commission
to West Penn on [ ], 1999.
Intangible transition property represents the
irrevocable right to collect intangible
transition charges from customers to recover:
-- the aggregate principal amount of
transition bonds; and
-- an amount sufficient to provide for any
credit enhancement to fund any reserves,
and to pay interest, premiums, if any,
costs of defeasance, servicing fees and
other fees, costs and charges relating
to transition bonds.
Intangible transition charges are
nonbypassable. Customers cannot avoid paying
them even if they purchase electricity from a
supplier other than West Penn Power Company.
On the issue date for each series, West Penn
Power Company will contribute intangible
transition property to West Penn Funding
Corporation pursuant to a transfer agreement in
exchange for all of the outstanding capital
stock of West Penn Funding Corporation. West
Penn Funding Corporation will then sell that
transferred intangible transition property to
West Penn Funding LLC pursuant to a sale
agreement. West Penn Funding LLC will then
pledge this property, along with its rights
under the transfer agreement, the sale
agreement, the servicing agreement, the
collection account and related rights, to the
bond trustee as the collateral for the
transition bonds pursuant to an indenture.
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For a diagram depicting the parties to this
transaction, refer to page [ ] of this
prospectus.
For more information on the Pennsylvania
Competition Act, intangible transition property
and intangible transition charges, you should
review the material under the captions entitled
"Risk Factors," "The Competition Act," "West
Penn's Restructuring Plan" and "The QRO and the
Intangible Transition Charges" in this
prospectus.
Issuer: West Penn Funding LLC, a Delaware limited
liability company and, at the time the
transition bonds are issued, a wholly owned
subsidiary of West Penn Funding Corporation.
The issuer was formed on [ ] 1999,
for the purpose of purchasing and owning the
transferred intangible transition property,
issuing transition bonds from time to time and
pledging its interest in the collateral to the
bond trustee under the indenture to secure the
transition bonds. The issuer is a special
purpose entity whose only assets are expected
to be the collateral and whose only revenues
are expected to be collections of the
intangible transition charges. The collateral
is the sole source of payment for the
transition bonds. See "The Issuer" in this
prospectus.
Issuer's Address: [ ]
Issuer's Telephone Number: [ ]
Manager: [ ]
Seller of the Transferred
Intangible Transition
Property: West Penn Funding Corporation, a [Delaware]
corporation.
West Penn Funding Corporation was incorporated
on [ ], 1999. West Penn Funding
Corporation is wholly owned by West Penn Power
Company, which will contribute the transferred
intangible transition property to West Penn
Funding Corporation in exchange for the
outstanding capital stock of West Penn Funding
Corporation pursuant to the transfer agreement.
West Penn Funding Corporation will sell
intangible transition property from time to
time to the issuer under the terms of the sale
agreement. See also "Risk Factors--Bankruptcy;
Creditors' Rights--Bank-
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ruptcy of West Penn or West Penn Funding
Corporation--True Sale or Financing" in this
prospectus.
Seller's Address: [ ]
Seller's Telephone Number: [ ]
Bond Trustee: [ ]
The corporate trust office of the bond trustee
is located at [ ] and its
telephone number is [ ].
Originator and Servicer of the
Transferred Intangible
Transition Property: West Penn Power Company.
West Penn Power Company is referred to as West
Penn throughout this prospectus
The intangible transition property was created
under the West Penn qualified rate order, as
supplemented, with respect to its stranded
costs and initially will belong to West Penn
before being transferred to the seller pursuant
to the transfer agreement.
Pursuant to the servicing agreement between
West Penn, as "servicer", and the issuer, the
servicer will service the transferred
intangible transition property.
Incorporated in Pennsylvania in [ ], West
Penn is engaged as a public utility in the
transmission, distribution and sale of
electricity to residential, commercial,
industrial and governmental customers within
all or part of 24 counties in Pennsylvania.
West Penn's generation facilities have in the
past served those same customers. In the
future, those generation facilities, which will
continue to serve those customers and others in
the competitive generation market, may be
transferred to an affiliated or non-affiliated
entity. See "West Penn Power Company" in this
prospectus.
West Penn, as servicer of the transferred
intangible transition property, will collect
the intangible transition charges from
customers within its service territory on
behalf of the issuer for a fee specified in the
prospectus supplement. Due to provisions of the
Pennsylvania Competition Act and the settlement
of restructuring issues, electric generation
suppliers and third parties other than the
servicer may be required
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to collect intangible transition charges from
customers within West Penn's service territory
and pay the amounts collected to the servicer.
See "The Servicer of the Transferred Intangible
Transition Property" in this prospectus.
The Assets of the Issuer: The issuer will own:
-- the intangible transition property
transferred to the issuer (see "The Sale
Agreement--Sale and Assignment of
Intangible Transition Property" in this
Prospectus);
-- collections of intangible transition
charges;
-- trust accounts held by the bond trustee;
and
-- other credit enhancement acquired or
held to ensure payment of the transition
bonds as specified in the related
prospectus supplement.
The "intangible transition property" is
described in more detail under "The Transfer
Agreement--Contribution of Intangible
Transition Property" and "The Sale
Agreement--Sale and Assignment of Intangible
Transition Property" in this prospectus. The
trust accounts are described in more detail
under "The Indenture--Collection Account" in
this prospectus.
Customers: West Penn's customers belong to one of three
customer categories. These categories are:
residential, commercial and industrial,
including street lighting. Each customer
category is further divided into rate
schedules. These rate schedules total 21. The
customer categories and rate schedules are
described in greater detail in "The Servicer of
the Intangible Transition Property--West Penn's
Customers" in this prospectus.
Payment Sources: On each payment date specified in the related
prospectus supplement, the bond trustee will
pay amounts owed on all outstanding series of
transition bonds from:
-- amounts collected by the servicer--or
any third party electric generation
suppliers or other third party--for the
issuer with respect to intangible
transition charges during the prior
quarter; and
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-- amounts available for withdrawal from
trust accounts held by the bond trustee,
including specified investment earnings
on amounts in the trust accounts, or
paid pursuant to contracts, such as the
transfer agreement, the sale agreement,
the bills of sale or the servicing
agreement, pledged to secure one or more
series of transition bonds. All accounts
referred to in this prospectus will be
held by the bond trustee in trust, and
are described in greater detail under
"The Indenture--The Collection Account
for the Transition Bonds" in this
prospectus.
State Pledge: The Commonwealth of Pennsylvania has pledged in
the Pennsylvania Competition Act that it will
not limit, alter, impair or reduce the value of
intangible transition property or the
intangible transition charges which were
approved by an order of the Pennsylvania Public
Utility Commission until the transition bonds
are fully repaid or discharged. However, the
Commonwealth of Pennsylvania may limit or alter
the value of intangible transition charges or
intangible transition property if adequate
compensation is made for the full protection of
the beneficial owners of the transition bonds.
The Pennsylvania Competition Act does not
define adequate compensation. Thus, the amount
of this compensation may not be sufficient to
pay the full amount of outstanding principal of
and interest on the transition bonds or
compensate transition bondholders for any
reinvestment risk.
Priority of Distributions: On each payment date specified in the related
prospectus supplement, the bond trustee will
pay or allocate remittances by the servicer of
collections of intangible transition charges
and investment earnings on amounts in the
collection account, to the extent funds are
available in the collection account, in the
following order of priority:
(1) payment of the bond trustee's fee,
expenses and indemnities, if any;
(2) payment of the servicing fee to the
servicer in the amount specified in the
related prospectus supplement;
(3) payment of the administration fees
payable under the administration
agreements between
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the issuer, West Penn Funding Corporation
and Alleghany Power Service Corporation,
an affiliate of West Penn;
(4) so long as no event of default has
occurred and is continuing or would be
caused by that payment, payment of
current operating expenses of the issuer
(up to an aggregate of [$12,500] for
each payment date for all series);
(5) payment of the interest then due on the
transition bonds;
(6) payment of any principal then payable on
the transition bonds (a) as a result of
acceleration triggered by an event of
default, (b) on a series termination
date or class termination date, as
applicable, or (c) on a redemption date;
(7) payment of the principal then scheduled
to be paid on the transition bonds in
accordance with the expected
amortization schedule;
(8) payment of any remaining unpaid
operating expenses then owed by the
issuer;
(9) allocation of any required amount to the
capital subaccount, which account is
described in detail under "--Accounts"
in this prospectus summary and "The
Indenture--"Collection Account" in this
prospectus;
(10) allocation of any required amount to the
overcollateralization subaccount, which
account is described in detail under
"--Accounts" in this prospectus summary
and "The Indenture"-- "Collection
Account" in this prospectus;
(11) allocation of the remainder, if any, to
the reserve subaccount, which account is
described in detail under "--Accounts"
in this prospectus summary and "The
Indenture--"Collection Account" in this
prospectus; and
(12) following repayment of all outstanding
series of transition bonds, the balance,
if any, will be
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released to the issuer free from the lien
of the indenture.
If, on any payment date, available collections
of intangible transition charges, together with
available amounts of the subaccounts, are not
sufficient to make the payments contemplated by
clauses (5) or (6) above with respect to a
series of transition bonds, then the payments
shall be made pro rata based on the respective
outstanding principal amounts of transition
bonds, unless, in the case of a series
comprised of two or more classes, the related
prospectus supplement specifies otherwise. All
payments to transition bondholders of a class
pursuant to clause (5) or (6) above shall be
made pro rata based on the respective
outstanding principal amounts of transition
bonds of that class held by those transition
bondholders.
For a diagram depicting how the intangible
transition charges will be allocated, refer to
page [ ] in this prospectus.
Credit Enhancement: Credit enhancement for the transition bonds
will be as follows:
-- The servicer of the intangible
transition property on behalf of the
issuer will make periodic adjustments to
the intangible transition charges it
bills to customers, once the
Pennsylvania Public Utility Commission
approves these adjustments. West Penn
will make these adjustments if it
determines that intangible transition
charges are either greater or lesser
than the amount necessary to make timely
payments on the transition bonds, to
fund subaccounts to required levels and
to pay applicable fees and expenses. The
servicer can make these changes, with
the approval of the Public Utility
Commission, once a year. In addition,
after the period beginning on the date
which is 12 months before the expected
final payment date for the last class or
series of transition bonds, the servicer
can make these adjustments as frequently
as monthly. See "The PUC Order and the
Intangible Transition Charges--The PUC
Order" in this prospectus.
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-- The amounts in the overcollateralization
subaccount, the capital subaccount and
the reserve subaccount will also provide
credit enhancement for the transition
bonds.
-- Additional credit enhancement for any
series may include surety bonds, letters
of credit, maturity guarantees, a
financial guaranty insurance policy,
credit or liquidity facility, repurchase
obligation, third party payment or other
support, cash deposit or other specified
credit enhancement, all as specified in
the related prospectus supplement. The
credit enhancement for the transition
bonds is intended to protect you against
losses or delays in scheduled payments
on your transition bonds.
Accounts: The bond trustee will hold the following trust
accounts:
-- Collection Account--Under the indenture,
the issuer will establish a single
collection account for all series of
transition bonds which will be held by
the bond trustee. The collection account
will be divided into "subaccounts" which
will allocate the funds deposited in the
collection account to specific uses.
-- General Subaccount--Funds received from
collections of the intangible transition
charges will initially be allocated to
the general subaccount of the collection
account.
-- Overcollateralization Subaccount--Each
prospectus supplement will set a funding
level for the overcollateralization
subaccount that takes into account the
issuance of the additional series of
transition bonds. The
overcollateralization amount to be
funded by each series of transition
bonds will be equal to the percentage of
the principal amount of that series
stated in the related prospectus
supplement. That amount is intended to
be funded over the expected term of the
transition bonds through the imposition
of intangible transition charges.
-- Capital Subaccount--The amount of
capital required to be held by the
issuer for a series of transition bonds,
which will be the amount specified in
the related prospectus supplement, will
be
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deposited into the capital subaccount by
West Penn Funding Corporation on the date
of issuance of that series.
-- Reserve Subaccount--If the issuer
collects intangible transition charges
in excess of amounts then scheduled to
be paid or due on a series of transition
bonds plus related expenses and amounts
needed to make required deposits to the
overcollateralization subaccount and the
capital subaccount, the excess will be
held in the reserve subaccount.
-- Other Accounts--If West Penn is required
to remit to the bond trustee loss
amounts resulting from breaches of
representations and warranties under the
transfer agreement, a loss subaccount
will be established. If funds are
remitted to the bond trustee in
connection with a legal defeasance or
covenant defeasance under the indenture,
a defeasance subaccount will be
established.
Each of the overcollateralization subaccount,
the capital subaccount and the reserve
subaccount will be available to make payments
on a series of transition bonds on each payment
date as described in "The
Indenture--Allocations and Payments" in this
prospectus.
Interest and Principal: Interest will accrue on the principal balance
of transition bonds of a series or class at the
applicable rate of interest specified in or
determined in the manner specified in the
applicable prospectus supplement.
On any payment date with respect to any series,
unless principal is payable (a) as a result of
acceleration triggered by an event of default,
(b) on a series termination date or class
termination date, as applicable, or (c) on a
redemption date, the issuer will make principal
payments on that series only until the
outstanding principal balance thereof has been
reduced to the amount specified for that
payment date in the expected amortization
schedule set forth in the prospectus supplement
for that series, and only to the extent funds
are available therefor as described in this
prospectus. Principal of such series or class
of
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transition bonds may be paid later than
reflected in the expected amortization schedule
therefor.
See "Risk Factors--The Transition
Bonds--Weighted Average Life on Payments of
Transition Bonds May be Affected by Rate of
Intangible Transition Charge Collections or
Optional Redemption" and "Certain Weighted
Average Life and Yield Considerations" in this
prospectus.
The entire unpaid principal amount of the
transition bonds will be due and payable if an
event of default under the indenture occurs and
is continuing and the bond trustee or the
holders of a majority in principal amount of
the transition bonds of all series then
outstanding have declared the transition bonds
to be immediately due and payable. See "The
Indenture--Events of Default; Rights Upon Event
of Default" in this prospectus.
Repurchase by West Penn of
Intangible Transition
Property: West Penn is obligated to repurchase the
intangible transition property for breaches of
specified representations and warranties in the
transfer agreement. If West Penn has this
repurchase obligation, it shall be required to
pay a deferred repurchase price on each payment
date to the bond trustee, as collateral
assignee of the issuer. See "The Transfer
Agreement--Representations and Warranties of
West Penn" in this prospectus.
Optional Redemption: A prospectus supplement may provide for
redemption of a series of transition bonds at
the option of the issuer.
Payment and Record Dates: The payment dates and record dates for each
series of transition bonds will be listed in
the corresponding prospectus supplement.
Expected Final Payment Dates,
Series Termination Dates and
Class Termination Dates: The expected final payment date for each series
or class of transition bonds will be the date
when all interest and principal of that series
or class is expected to be paid in full. The
series termination date for a series or, if
applicable, the class termination date for a
class of transition bonds will be on or after
the expected final payment date. Failure to pay
the
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entire outstanding amount of any class or
series by the expected final payment date will
not result in a default with respect to that
class or series until the series termination
date or class termination date for the class or
series. The expected final payment date and the
series termination date or class termination
date of each series and class of transition
bonds will be specified in the corresponding
prospectus supplement.
Risk Factors: Prospective investors should consider, among
other things, the risks associated with an
investment in the transition bonds. These risks
may cause transition bondholders to suffer a
loss of their investment in transition bonds or
may adversely affect the timing of payments to
transition bondholders.
For a detailed discussion of the material risks
associated with an investment in transition
bonds, prospective investors should review the
discussion under "Risk Factors" which begins on
page [ ] of this prospectus.
The Transition Bonds; Issuance
of New Series: The issuer may issue transition bonds in one or
more series, each comprised of one or more
classes. Each series of transition bonds will
be issued under the indenture. See "The
Indenture" in this prospectus.
Any series of transition bonds may include one
or more classes which differ, among other
things, as to the bond rate and amortization of
principal. The terms of all transition bonds of
the same series will be identical, unless that
series is comprised of more than one class, in
which case the terms of all transition bonds of
the same class will be identical. The
particular terms of the transition bonds of any
series and, if applicable, classes thereof,
will be described in the related prospectus
supplement.
The terms of that series and any classes
thereof will not be subject to prior review by,
or consent of, the transition bondholders of
any previously issued series. A new series may
be issued pursuant to the indenture only upon
satisfaction of the conditions described in
this prospectus under "The Indenture--Issuance
in Series or Classes." See "Risk Factors--The
Transition Bonds--Issuance of Additional Series
May Ad-
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versely Affect Outstanding Transition Bonds"
and "The Transition Bonds" in this prospectus.
Denominations: Each class of transition bonds will initially
be issued in the minimum denominations set
forth in the related prospectus supplement.
Form of the Transition Bonds: Each series and class of transition bonds will
initially be issued either only in book-entry
form through The Depository Trust Company or in
another form as specified in the applicable
prospectus supplement. See "The Transition
Bonds--Book-Entry Registration" in this
prospectus.
Tax Status: West Penn has received a ruling from the
Internal Revenue Service that the transition
bonds will be classified as obligations of West
Penn Funding Corporation. Based on the ruling,
for U.S. federal income tax purposes, the
transition bonds will be treated as debt of
West Penn Funding Corporation secured by a
pledge of the collateral.
The issuer will be treated as a division of
West Penn Funding Corporation and will not be
treated as a separate taxable entity.
Transition bondholders who are not United
States taxpayers generally will not be subject
to United States federal income or withholding
taxes on interest received on the transition
bonds.
See "United States Taxation" in this
prospectus.
ERISA Considerations: Employee benefit plans are permitted to
purchase transition bonds. A fiduciary of any
employee benefit plan or other plan or
arrangement that is subject to the Employee
Retirement Income Security Act of 1974, as
amended, or Section 4975 of the Internal
Revenue Code of 1986, as amended, should
carefully review with its legal advisers
whether the purchase or holding of the
transition bonds of any class or series could
give rise to a transaction prohibited or not
otherwise permissible under ERISA or the Code.
See "ERISA Considerations" in this prospectus.
Ratings: It is a condition of any underwriter's
obligation to purchase each series or class of
transition bonds that, at the time of issuance,
that series or class receive the rating
indicated in the related prospectus supplement,
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which will be in one of the four highest
categories, from one or more rating agencies
which have rated the transition bonds specified
in that prospectus supplement.
A security rating is not a recommendation to
buy, sell or hold securities and may be subject
to revision or withdrawal at any time. No
person is obligated to maintain any rating on
any transition bond and, accordingly, there can
be no assurance that the ratings assigned to
any series or class of transition bonds upon
initial issuance thereof will not be revised or
withdrawn by a rating agency at any time
thereafter.
If a rating of any series or class of
transition bonds is revised downward or
withdrawn, the liquidity and the price of that
series or class of transition bonds may be
adversely affected. In general, the ratings
address credit risk and do not represent any
assessment of any particular rate of principal
payments on the transition bonds other than the
payment in full of each series or class of
transition bonds by the applicable series
termination date or class termination date.
See "Risk Factors--The Transition Bonds--
Weighted Average Life of Payments on Transition
Bonds May be Affected by Rate of Intangible
Transition Charge Collections or Optional
Redemption" and "Ratings" in this prospectus.
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LOGO
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LOGO
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RISK FACTORS
You should consider the following risk factors in deciding to purchase
transition bonds:
LEGAL, LEGISLATIVE OR REGULATORY ACTIONS COULD ADVERSELY AFFECT TRANSITION
BONDHOLDERS
LEGAL CHALLENGES COULD
ADVERSELY AFFECT TRANSITION
BONDHOLDERS Intangible transition property and its
adequacy to pay principal of and interest on
the transition bonds depends on the
Pennsylvania Competition Act and the West Penn
qualified rate order, as supplemented. If the
Pennsylvania Competition Act or the West Penn
qualified rate order, as supplemented, were
challenged in a lawsuit and a court decided it
was invalid or unenforceable, West Penn would
have breached a representation in the transfer
agreement. In that case, West Penn would have
to repurchase the intangible transition
property and pay the ongoing costs of servicing
the transition bonds, including the payment of
principal and interest on the transition bonds,
on each payment date, but only if conditions
relating to the nature of the breach and its
effect on transition bondholders were
satisfied. See "The Transfer
Agreement--Representations and Warranties of
West Penn" in this prospectus.
Also, West Penn may not be able to meet
its repurchase obligations. As a result, if the
Pennsylvania Competition Act or the West Penn
qualified rate order, as supplemented, was
overturned, transition bondholders could suffer
a loss of their investment. Also, the time and
expense of enforcing rights against West Penn
could result in a loss to transition
bondholders or delay expected payments on the
transition bonds.
CHANGES IN LAW MAY RESULT IN
LOSSES TO TRANSITION
BONDHOLDERS West Penn will not breach a
representation or be required to repurchase the
intangible transition property for a change in
law by legislative enactment or constitutional
amendment, including an enactment or amendment
that breaches the Commonwealth of
Pennsylvania's pledge not to limit, alter or
impair intangible transition property or
intangible transition charges. Examples of a
change in law are a repeal of the Pennsylvania
Competition Act, an amendment to it voiding the
existence of intangible transition
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property or the adoption of a federal statute
prohibiting the recovery of stranded costs.
Under the Pennsylvania Competition Act,
the Commonwealth of Pennsylvania may limit or
alter the value of intangible transition
property or intangible transition charges if
"adequate compensation is made by law" for the
protection of the intangible transition charges
and of transition bondholders. It is unclear if
"adequate compensation . . . by law" would be
sufficient to pay the full amount of the
outstanding principal of and interest on the
transition bonds or would compensate transition
bondholders for any reinvestment risk.
Under the United States and Pennsylvania
Constitutions, the Commonwealth of Pennsylvania
could not repeal or amend the Pennsylvania
Competition Act--by way of legislative
process--or take any action that violates its
pledge and agreement described in the first
paragraph of this subheading without paying
just compensation to the transition bondholders
if doing so would:
-- constitute a permanent "taking" of the
property interest of transition
bondholders in the intangible transition
property; and
-- deprive the transition bondholders of
their reasonable expectations arising
from their investments in the transition
bonds.
However, even if a court awarded just
compensation, it may not be enough to pay the
full amount of principal of and interest on the
transition bonds or compensate transition
bondholders for any reinvestment risk.
Also, if there were a change in law
described in the first paragraph of this
subheading, there might be costly and
time-consuming litigation. There is no judicial
precedent directly on point, and the security
for the transition bondholders is a new type of
asset. As a result, the outcome of any of this
litigation cannot be predicted with certainty.
FEDERAL LEGISLATION MAY RESULT
IN LOSSES TO TRANSITION
BONDHOLDERS Congress or a federal agency may pass a
law or adopt a rule or regulation prohibiting
or limiting the collection of intangible
transition charges. Congress
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considered in 1997 at least one bill
prohibiting the recovery of stranded costs, but
the bill was not enacted. The issuer cannot
predict if any future bills that prohibit the
recovery of stranded costs will become law or,
if they become law, what their final form or
effect will be. If the Pennsylvania Competition
Act or the West Penn qualified rate order, as
supplemented, was preempted by federal law, a
court may decide that it is not a "taking" for
which the government would have to pay the
estimated market value of the transferred
intangible transition property. Even if any
federal preemption were considered a "taking,"
for which the government had to pay this value,
that compensation may not be enough to pay the
full amount of principal of and interest on the
transition bonds. In that case, transition
bondholders could suffer a loss of their
investment. Also, in this case, West Penn would
not be required to repurchase the intangible
transition property. See "--Changes in Law May
Result in Losses to Transition Bondholders"
above.
THE PENNSYLVANIA PUBLIC
UTILITY
COMMISSION MAY TAKE ACTIONS
THAT ADVERSELY AFFECT
TRANSITION
BONDHOLDERS The Pennsylvania Public Utility
Commission will continue to regulate some
aspects of the electric industry in
Pennsylvania and it may take actions that
adversely affect transition bondholders. For
example, it will
-- regulate all aspects of the business of
electric distribution companies;
-- set financial and other requirements for
electric generation suppliers and other
third parties; and
-- set customer billing guidelines and
collection, metering and disclosure
requirements for electric generation
suppliers and other third parties.
Also, subject to the Commonwealth of
Pennsylvania's pledge not to limit or alter the
value of intangible transition charges or
intangible transition property unless adequate
compensation is made for the full protection of
the transition bondholders, the Pennsylvania
Public Utility Commission could revise or
rescind any of its regulations. West Penn
cannot predict whether the Pennsylvania Public
Utility Commission will make new regulations or
the timing or
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content of any new Pennsylvania Public Utility
Commission regulations.
West Penn agrees to take legal or
administrative actions, including bringing
lawsuits, as may be reasonably necessary to
block or overturn:
-- any government attempt to repeal or
change the Pennsylvania Competition Act,
the West Penn qualified rate order, as
supplemented, or the intangible
transition property in a way that is
materially adverse to the holders of
transition bonds, or
-- lawsuits by third parties which, if
successful, would result in a breach of
West Penn's representations concerning
the intangible transition property, the
West Penn qualified rate order, as
supplemented, or the Pennsylvania
Competition Act.
West Penn, however, may not be able to
take those actions and any action West Penn is
able to take may not be successful.
Future Pennsylvania Public Utility
Commission regulations may affect the rating of
the transition bonds or their price. Those
actions may also affect the rate of collections
of intangible transition charges and, as a
result, the amortization of transition bonds
and their weighted average lives. As a result,
transition bondholders could suffer a loss of
their investment.
LITIGATION AND OTHER EVENTS IN
OTHER JURISDICTIONS COULD
ADVERSELY AFFECT TRANSITION
BONDHOLDERS A court decision based on the U.S.
Constitution or other federal law overturning a
state statute like the Pennsylvania Competition
Act adopted by another state could give rise to
a challenge to the Pennsylvania Competition
Act. That decision would not automatically
invalidate the Pennsylvania Competition Act. It
could, however, set a legal precedent for a
successful challenge to the Pennsylvania
Competition Act that could adversely affect
transition bondholders. As a result, the market
value of the transition bonds could be reduced.
Also, legal actions in other states
challenging stranded cost recovery or
securitization of stranded cost recovery could
adversely affect the market for transition
bonds. Legal challenges brought in jurisdic-
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<PAGE> 49
tions other than Pennsylvania based on state
laws other than Pennsylvania would not,
however, directly affect the Pennsylvania
Competition Act or the interests of the
transition bondholders. These actions, however,
could increase awareness of the political and
other risks associated with these types of
securities and limit the liquidity of the
transition bonds and impair their value.
NATURE OF INTANGIBLE TRANSITION PROPERTY
LACK OF CONTINUED OPERATION OF
EXISTING GENERATION FACILITIES
MAY RESULT IN LOSSES TO
TRANSITION BONDHOLDERS
Under the Pennsylvania Competition Act,
recovery of stranded costs associated with
existing generating facilities depends on
continued operation of these facilities. There
is an exception if that operation is uneconomic
because of the transition to a competitive
market. Although the parts of the West Penn
qualified rate order, as supplemented,
providing for collection of intangible
transition charges are stated to be
irrevocable, the collection of intangible
transition charges could be challenged if some
generating facilities of West Penn ceased to
operate at reasonable levels. If the challenge
were successful, the issuer may not have funds
to make payments on the transition bonds. As a
result, transition bondholders could suffer a
loss of their investment. Also, in this case,
West Penn would not be required to repurchase
the intangible transition property.
FAILURE TO MAKE ADEQUATE
ADJUSTMENTS TO THE INTANGIBLE
TRANSITION CHARGES MAY RESULT
IN LOSSES TO TRANSITION
BONDHOLDERS The actual rate of collections of
intangible transition charges may vary from
projections used to set the intangible
transition charges due to a number of factors.
These include variations in electricity usage
by customers from projected electricity usage
and delinquencies and write-offs. The servicer
must seek an adjustment to the intangible
transition charges from the Pennsylvania Public
Utility Commission on each calculation date to
reflect shortfalls in or excesses of
collections of intangible transition charges
for prior periods, including shortfalls or
excesses resulting from inaccurate servicer
forecasts. The adjustments are intended to take
into account any projected trends in customers
or usage impacting billed revenue from which
intangible transition charges are allocated to
prevent shortfalls or excesses
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<PAGE> 50
of collections of intangible transition charges
in future periods.
If those forecasts or projected trends
are not accurate, adjustments to the intangible
transition charges may not result in the issuer
receiving funds sufficient to pay interest on
the transition bonds when due and principal of
the transition bonds in accordance with the
expected amortization schedule.
The Pennsylvania Competition Act and the
West Penn qualified rate order, as
supplemented, require the Pennsylvania Public
Utility Commission to approve annual adjustment
requests within 90 days of the applicable date
on which the servicer calculates the required
adjustment and files that adjustment request
with the Public Utility Commission. Also, the
West Penn qualified rate order, as
supplemented, provides that, during the period
commencing 12 months prior to the last
scheduled payment date for the payment of
principal on each series of transition bonds,
the monthly adjustments will become effective
on the first day of the next calendar month. If
the Pennsylvania Public Utility Commission
fails to approve these adjustments on a timely
basis or there is any litigation challenging
the approval of these adjustments or
methodology in calculating these adjustments,
the price and liquidity of the transition bonds
could be adversely affected.
Any of these factors could affect the
sufficiency of amounts available to pay the
principal of the transition bonds or the dates
of the payment of the principal of the
transition bonds. As a result, transition
bondholders could suffer a loss of their
investment or the weighted average lives of the
transition bonds could be adversely affected.
LIMITED TIME PERIOD FOR
IMPOSITION OR ADJUSTMENT OF
INTANGIBLE TRANSITION CHARGES
MAY RESULT IN LOSSES TO
TRANSITION BONDHOLDERS The intangible transition charges
associated with the issuance of transition
bonds may not be imposed for service periods
after December 31, 2008. Also, after the final
adjustment date specified for each series, the
intangible transition charges may no longer be
adjusted for that series. After that date, any
shortfalls in collections of intangible
transition charges available to make payments
on the series are expected to be covered
through amounts, if any, on deposit in
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<PAGE> 51
the reserve subaccount, the
overcollateralization subaccount and the
capital subaccount. If those amounts are not
enough to cover the shortfalls, the transition
bonds may not be paid in full by the applicable
expected final payment date or class or series
termination date, and transition bondholders
would suffer a loss of their investments.
LACK OF HISTORICAL INFORMATION
ABOUT, AND INEXPERIENCE
ADMINISTERING, INTANGIBLE
TRANSITION PROPERTY MAY RESULT
IN LOSSES TO TRANSITION
BONDHOLDERS The servicer does not have historical
information for intangible transition property,
although it does have customer and energy usage
records. Those usage records, however, do not
reflect customers' payment patterns or energy
usage in a competitive market. They also do not
reflect consolidated billing by electric
generation suppliers or other third parties. As
a result, these records may not be useful in
predicting payments of intangible transition
charges.
The servicer does not have any experience
administering this type of asset.
In the event of a foreclosure, there is
likely to be a limited market, if any, for the
transferred intangible transition property.
Therefore, foreclosure may not be a realistic
or practical remedy. See "--Bankruptcy;
Creditors' Rights" below.
These factors may result in delays or
shortfalls in scheduled payments on the
transition bonds.
SERVICING
WEST PENN CEASING TO ACT AS
SERVICER MAY RESULT IN LOSSES
TO TRANSITION BONDHOLDERS The servicer will be responsible for
calculating adjustments to the intangible
transition charges, submitting adjustment
requests to the Pennsylvania Public Utility
Commission and billing and collecting the
intangible transition charges. If West Penn
ceased servicing intangible transition
property, it may be hard to obtain a successor
servicer. Also, a transfer of servicing
functions will require cooperation by the
Pennsylvania Public Utility Commission. A
successor servicer may have difficulties in
collecting intangible transition charges and
determining appropriate adjustments to
intangible transition charges. Also, under
current law, a successor servicer may not be
able to shut off service to a customer that
fails to pay intangible transition charges.
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<PAGE> 52
If West Penn were replaced as servicer,
any of those factors and others could delay the
timing of payments on the intangible transition
property. As a result, transition bondholders
could incur a loss of their investment. See
"The Servicing Agreement" in this prospectus.
INACCURATE PROJECTIONS BY
SERVICER MAY RESULT IN LOSSES
TO TRANSITION BONDHOLDERS If the servicer incorrectly forecasts the
billed revenue from which intangible transition
charges are allocated and the delinquency and
write-off experience relating to intangible
transition charges, the timely receipt of
collections of intangible transition charges
could be adversely affected. A variety of risks
and uncertainties could cause actual results to
differ materially from those projected. They
include, among others, changes in political,
social and economic conditions, weather,
unexpected demographic trends, catastrophes,
regulatory initiatives, compliance with
governmental regulations and litigation. All of
those events and circumstances are beyond the
control of the servicer. Adjustments to the
intangible transition charges are required to
be made under the Pennsylvania Competition Act
if actual results differ from projections.
However, until the adjustments are made,
payments on the transition bonds could be
delayed, and the market value of the transition
bonds could be reduced. There can be no
assurance that, when made, adjustments will be
sufficient.
DELAYS IN PAYMENTS ON
TRANSITION BONDS MAY BE
CAUSED BY CHANGES IN PAYMENT
TERMS The servicer is permitted to alter the
terms of billing and collection arrangements
and modify amounts due from customers. The
servicer cannot change the amount of a
customer's individual intangible transition
charges, but it can take actions that it
believes will increase collections from a
customer. These actions might include, for
example, agreeing to an extended payment
schedule or agreeing to write-off the remaining
portion of an outstanding bill. The servicer
can also write-off outstanding bills that it
deems uncollectible in accordance with its
usual billing and collection practices.
Additionally, West Penn or a successor to West
Penn as servicer may change its billing and
collection practices, or the Pennsylvania
Public Utility Commission may require changes
to these practices. These changes could delay
or reduce collections of intangible transition
charges
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<PAGE> 53
and, as a result, adversely affect the payment
of interest on the transition bonds on a timely
basis or the payment of principal of the
transition bonds in accordance with the
expected schedule. See "The Servicer--Customers
and Operating Revenues," "--Billing Process"
and "--Limited Information on Customers'
Creditworthiness" in this prospectus.
WEST PENN'S LIMITED
INFORMATION ON CUSTOMERS'
CREDITWORTHINESS MAY RESULT IN
INCREASED DELINQUENCIES AND
WRITE-OFFS The servicer's ability to collect
intangible transition charges will depend in
part on the creditworthiness of its customers.
Under Pennsylvania law, West Penn generally
must provide service to new customers in its
service area. Credit investigations of new
customers by West Penn have been limited. If
the servicer incorrectly determines the
creditworthiness of a large number of its
customers, there may be significant increases
in delinquencies and write-offs. This could
result in delays in payments to transition
bondholders. See "--It May Be More Difficult to
Collect Intangible Transition Charges Due To
Billing by Third Parties" below.
IT MAY BE MORE DIFFICULT TO
COLLECT INTANGIBLE TRANSITION
CHARGES DUE TO BILLING BY
THIRD PARTIES Under the Pennsylvania Competition Act,
after [ ], intangible
transition charges may be collected by third
parties providing billing and metering
services, including electric generation
suppliers. Any third party that provides
consolidated billing must pay the servicer
amounts billed by the servicer to the third
party, including the intangible transition
charges. Third party billing parties are
required to make these payments even if the
third party fails to collect those amounts from
customers.
Billing by third parties as described in
the paragraph above could adversely affect the
timely payment of interest on the transition
bonds or the payment of principal of the
transition bonds in accordance with the
expected amortization schedule because:
-- any third party that collects intangible
transition charges may not use the same
customer credit standards as the
servicer;
-- problems may arise from new and untested
systems or any lack of experience on the
part of third parties with customer
billing and collections;
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<PAGE> 54
-- the servicer may not be able to reduce
credit risks relating to third parties
in the same manner in, or to the same
extent to which, it reduces those risks
relating to its customers;
-- the servicer generally will not have the
right to pursue customers of a third
party which provides consolidated
billing who defaults in the payment of
intangible transition charges; and
-- to the extent that customers choose
consolidated billing by electric
generation suppliers or other third
parties, the issuer may be relying on a
small number of electric generation
suppliers and other third parties rather
than a large number of individual
customers, to pay collections of
intangible transition charges. As a
result, a default in the payment of
intangible transition charges by a
single third party that provides billing
service to a large number of customers
may adversely affect the timing of
payments on the transition bonds or
could result in a loss of their
investment.
Neither West Penn nor the servicer will
pay any shortfalls resulting from the failure
of any third party to forward collections of
intangible transition charges to the servicer.
The adjustment mechanism for the intangible
transition charges, as well as the amounts on
deposit in the capital subaccount, the
overcollateralization subaccount and the
reserve subaccount are intended to address
delays in the timing of collections and
payments. However, delays in payments to
transition bondholders might occur as a result
of delays in obtaining adjustments or any lack
of funds in the reserve subaccount, the
overcollateralization subaccount and the
capital subaccount after the final adjustment
date.
CUSTOMERS WITHIN WEST PENN'S
SERVICE AREA MAY STOP OR
DELAY MAKING INTANGIBLE
TRANSITION CHARGE PAYMENTS Customers within West Penn's service area
may stop or delay paying intangible transition
charges because:
-- they may be confused by the assessment
of a charge they have not seen before or
because of changes in billing and
payment arrangements, including billing
by third parties;
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<PAGE> 55
-- they may misdirect their payments as
they may owe amounts to several
different parties which may include both
West Penn and an electric generation
supplier or other third party;
-- if a large number of customers
self-generate, move out of West Penn's
service territory, significantly reduce
their electricity consumption or cease
consuming electricity altogether, the
intangible transition charges, as
periodically adjusted, required to be
paid by remaining customers may become
burdensome. Greater delinquencies and
write-offs or petitions to the
Pennsylvania Public Utility Commission
to reduce intangible transition charges
might result; and
-- the servicer may not be able to collect
intangible transition charges from
customers who partially self-generate
because the servicer may not know which
consumers are self-generating and will
not be able to exercise full shut-off
rights against a self-generator.
Any of these factors could result in
delays or shortfalls in scheduled payments on
the transition bonds.
THE COMMINGLING OF
COLLECTIONS OF INTANGIBLE
TRANSITION CHARGES WITH
SERVICER'S OTHER FUNDS MAY
RESULT IN PAYMENT DELAYS Until collections of intangible
transition charges are deposited with the bond
trustee, the servicer will not segregate them
from its general funds. If the servicer does
not or cannot remit the full amount of the
collections of intangible transition charges
there may be delays or reductions in payments
to transition bondholders. The adjustments to
the intangible transition charges and amounts,
if any, on deposit in the reserve subaccount,
the overcollateralization subaccount and the
capital subaccount are designed to reduce this
risk. However, there may be delays in payments
to transition bondholders if there are delays
in implementation of the adjustment mechanism
or a lack of funds in the reserve subaccount,
the overcollateralization subaccount and the
capital subaccount after the final adjustment
date.
POTENTIAL COMPUTER PROGRAM
PROBLEMS BEGINNING IN THE
YEAR 2000 MAY RESULT IN
PAYMENT DELAYS ON TRANSITION
BONDS There could be delays in principal and
interest payments on the transition bonds if
West Penn, as servicer, or the bond trustee
experiences problems in its computer programs,
or those of vendors on whom
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<PAGE> 56
they rely, relating to the Year 2000. Many
existing computer programs use only two digits
to identify a year. These programs could fail
or produce erroneous results during the
transition from the Year 1999 to the Year 2000
and afterwards.
West Penn has evaluated the impact of
preparing its systems for the Year 2000. It has
identified areas of potential impact and is
implementing conversion efforts. On March 30,
1999, West Penn reported to the Pennsylvania
Public Utility Commission that, except for a
few items, its critical electricity production
and delivery systems were Year 2000 ready
pending final confirmation system testing of
its power stations in April and May. West Penn
has determined that as of June 30, 1999, all of
its critical components and systems related to
safety and the production and distribution of
electricity and nearly all of its important
business systems, including accounting and
billing, are Year 2000 ready. West Penn
anticipates that the remediation and testing
work on the remaining business and non-critical
systems will be completed by September 30,
1999. West Penn has defined Year 2000 ready to
mean that a determination has been made by
testing or other means that a component or
system will be able to perform its critical
functions, or that contingency plans are in
place to overcome any inability to do so. See
"The Servicer--Year 2000 Compliance" in this
prospectus.
If West Penn, or a third party on whom
West Penn relies for collection of intangible
transition charges, does not have a computer
system that is Year 2000 compliant by January
1, 2000, West Penn's ability to service the
intangible transition property may be
materially and adversely affected.
If the bond trustee does not have a
computer system that is Year 2000 compliant by
January 1, 2000, the bond trustee's ability to
make distributions on the transition bonds may
be materially and adversely affected.
The Year 2000 issue could also affect
usage if there are problems with the generation
or distribution of electricity.
28
<PAGE> 57
There is no way to predict the impact of
the Year 2000 issue. However, if there are
significant interruptions of service to
customers or significant business interruptions
in general caused by Year 2000 issues, there
could be significant delays in collections of
intangible transition charges. In that case,
payments to transition bondholders could be
delayed.
BANKRUPTCY; CREDITORS' RIGHTS
BANKRUPTCY OF WEST PENN OR
WEST PENN FUNDING
CORPORATION MAY RESULT IN
LOSSES TO TRANSITION
BONDHOLDERS GENERAL. The bankruptcy of West Penn or
West Penn Funding Corporation could have
several adverse consequences for transition
bondholders, the most important of which are
briefly described below.
TRANSFER OF INTANGIBLE TRANSITION
PROPERTY MAY BE RECHARACTERIZED AS A FINANCING
RATHER THAN A TRUE SALE. The Pennsylvania
Competition Act provides that a transfer of
intangible transition property by an electric
utility to an assignee that is expressly stated
to be a sale or other absolute transfer in a
transaction approved in a qualified rate order,
will be treated as a sale, rather than a pledge
or other financing, of the intangible
transition property. West Penn will represent
in the transfer agreement that:
- the transfer of the transferred
intangible transition property to West
Penn Funding Corporation is a capital
contribution; and
- the transfer of the transferred
intangible transition property by West
Penn Funding Corporation to the issuer
is a sale.
West Penn and West Penn Funding
Corporation will also represent that they will
take the appropriate actions under the
Pennsylvania Competition Act, including filing
an intangible transition property notice, to
perfect these transfers.
However, if West Penn became a debtor in
a bankruptcy case, the bankruptcy trustee, West
Penn or another party could take the position
that the transfer of the transferred intangible
transition property to West Penn Funding
Corporation was a financing transaction and not
a capital contribution. Similarly, if West Penn
Funding Corporation became a debtor in a
bankruptcy case, the bankruptcy trustee,
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<PAGE> 58
West Penn Funding Corporation or another party
could take the position that the sale of the
transferred intangible transition property to
the issuer was a financing transaction and not
a "true sale". If a court agreed with either of
these positions, delays or reductions in
payments on the transition bonds could result.
Regardless of a court's final decision on the
character of the transactions, the mere fact of
a West Penn or West Penn Funding Corporation
bankruptcy could result in delays in payments
on the transition bonds. A bankruptcy also
could have an adverse effect on the secondary
market for the transition bonds, including the
liquidity and market value of the transition
bonds.
To reduce the impact of the possible
recharacterization of a sale or other absolute
transfer of intangible transition property as a
financing transaction, the Pennsylvania
Competition Act and related regulations provide
that if an intangible transition property
notice is filed and the transfer is later held
to be a financing transaction, that notice will
be deemed to constitute a filing with respect
to a security interest. The Pennsylvania
Competition Act also provides that any such
filing in respect of transition bonds takes
precedence over any other filings.
As a result of these filings, West Penn
Funding Corporation would be a secured creditor
of West Penn and the issuer would be a secured
creditor of West Penn Funding Corporation,
entitled to recover against the collateral. If,
however, intangible transition property notices
are not filed for any reason, West Penn Funding
Corporation or the issuer fails to otherwise
perfect its interest in the transferred
intangible transition property and the transfer
is thereafter deemed not to constitute a true
sale or other absolute transfer, West Penn
Funding Corporation would be an unsecured
creditor of West Penn or the issuer would be an
unsecured creditor of West Penn Funding
Corporation.
COURT MAY ORDER CONSOLIDATION OF THE
ISSUER, WEST PENN FUNDING CORPORATION AND WEST
PENN. If West Penn or West Penn Funding
Corporation became a debtor in a bankruptcy
case, the bankruptcy
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<PAGE> 59
trustee, West Penn or West Penn Funding
Corporation or another party may attempt to
substantively consolidate the assets of the
issuer and West Penn or West Penn Funding
Corporation. West Penn, West Penn Funding
Corporation and the issuer have taken steps to
attempt to reduce this risk. However, if a
court ordered that the assets and liabilities
of the issuer be consolidated with those of
West Penn or West Penn Funding Corporation,
delays or reductions in payments on the
transition bonds would result.
COURT MAY MAKE LOW ESTIMATION OF
CONTINGENT CLAIMS; ENFORCEABILITY OF REPURCHASE
PROVISIONS MAY BE CHALLENGED. If West Penn
became a debtor in a bankruptcy case, claims,
including indemnity claims, by the issuer
against West Penn under the transfer agreement
and the related documents would be unsecured
claims and could be discharged. Also, the
bankruptcy trustee, West Penn or another party
may request that the bankruptcy court estimate
any contingent claims, including for West
Penn's repurchase obligation, of the issuer
against West Penn and take the position that
the claims should be estimated at zero or at a
low amount because the contingency giving rise
to the claims is unlikely to occur.
If West Penn became a debtor in a
bankruptcy case and West Penn were obligated
under the transfer agreement to repurchase the
intangible transition property, the bankruptcy
trustee, West Penn or another party might
challenge the enforceability of the repurchase
provisions. If a court decided that the
repurchase provisions were unenforceable, the
issuer should have a claim against West Penn
for actual damages based on breach of contract
principles. The amount of those actual damages
would be subject to estimation and/or
calculation by the court.
As a result of any of the above-described
actions or claims, transition bondholders could
suffer delays in payment, reduction in the
investment value of their transition bonds or a
loss of their investment.
INTANGIBLE TRANSITION PROPERTY MAY NOT BE
HELD TO BE CURRENT PROPERTY, RESULTING IN
UNSECURED DEBT. The Pennsylvania Competition
Act provides that the transferred intangible
transition property constitutes a
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<PAGE> 60
current property right on and after the date
that the West Penn qualified rate order, as
supplemented, became effective. West Penn has
also made a representation to that effect.
However, if West Penn became a debtor in a
bankruptcy case, the bankruptcy trustee, West
Penn or another party could argue that, because
the payments based on the transferred
intangible transition property are indirectly
usage-based charges, the transferred intangible
transition property comes into existence only
as customers use electricity.
If a court adopted this position, a
security interest in favor of the transition
bondholders may not attach to intangible
transition charges in respect of electricity
used after the beginning of a bankruptcy case
for West Penn. If a court took this position
and also determined that the transferred
intangible transition property has not been
sold or transferred absolutely to West Penn
Funding Corporation or the issuer, the issuer
would be an unsecured creditor of West Penn
Funding Corporation and West Penn Funding
Corporation would be an unsecured creditor of
West Penn and delays or reductions in payments
on the transition bonds could result.
Also, a court could rule that any
intangible transition charges relating to
electricity consumed after the commencement of
West Penn's bankruptcy cannot be transferred to
the issuer or the bond trustee. This could
result in delays or reductions of payments of
the transition bonds.
Payments based on the intangible
transition charges are indirectly usage-based
charges. Therefore, if West Penn became a
debtor in a bankruptcy case, the bankruptcy
trustee, West Penn or another party could argue
that the issuer should pay a portion of the
costs of West Penn associated with generating,
transmitting or distributing the electricity
use of which gave rise to the collections of
intangible transition charges related to the
transition bonds. If a court adopted this
position, there could be delays or reductions
in payments to the transition bondholders.
Whether or not West Penn is the debtor in
a bankruptcy case, if a court decided that the
transferred intangible transition property
comes into exis-
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tence only as customers use electricity, a tax
or government lien or other nonconsensual lien
on property of West Penn arising before the
transferred intangible transition property came
into existence could have priority over the
issuer's interest in the transferred intangible
transition property. This could result in a
reduction of amounts paid to the transition
bondholders. Adjustments to the intangible
transition charges may be available to reduce
this risk, although delays in implementation or
challenges to those adjustments may cause a
delay in receipt of payments.
AUTOMATIC STAY MAY PREVENT OR DELAY
ENFORCEMENT OF RIGHTS BY BOND TRUSTEE. If
there is an event of default under the
indenture, the Pennsylvania Competition Act
permits the Pennsylvania Public Utility
Commission to order the segregation and payment
of all intangible transition charges to
transition bondholders. The Pennsylvania
Competition Act provides that the order will be
effective notwithstanding bankruptcy or other
insolvency proceedings with respect to the
utility or its assignee. The Pennsylvania
Public Utility Commission, however, may not
issue this order because of the automatic stay
provisions of the Bankruptcy Code. Also, a
bankruptcy court may not lift the stay to
permit this action by the Pennsylvania Public
Utility Commission. In that event, the bond
trustee may under the indenture seek an order
from the bankruptcy court lifting the automatic
stay with respect to the Pennsylvania Public
Utility Commission action and an order
requiring segregation of the revenues arising
from the transferred intangible transition
property. However, a court may not grant either
order.
BANKRUPTCY OF SERVICER MAY
RESULT IN LOSSES TO TRANSITION
BONDHOLDERS The servicer can commingle collections of
intangible transition charges with its own funds until they are deposited with
the bond trustee. The Pennsylvania Competition
Act provides that the priority of a lien
created under the Pennsylvania Competition Act
is not adversely affected by the commingling of
funds arising with respect to intangible
transition property with funds of the electric
utility. However, in the event of a bankruptcy
of the servicer, the bankruptcy trustee, the
servicer or another party might argue that
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<PAGE> 62
collections of intangible transition charges
held by the servicer were property of the
servicer included in its bankruptcy estate. If
a court adopted this position, there may be
delays in payments due on the transition bonds.
If the servicer became a debtor in a
bankruptcy case, the automatic stay may prevent
the issuer from effecting a transfer of
servicing, even though the servicing agreement
provides that the bond trustee appoint, or
petition the Pennsylvania Public Utility
Commission or a court to appoint, a successor
servicer.
THE TRANSITION BONDS
ABSENCE OF SECONDARY MARKET
FOR TRANSITION BONDS COULD
LIMIT ABILITY TO RESELL
TRANSITION BONDS The underwriters for the transition bonds
may assist in resales of the transition bonds
but they are not required to do so. A secondary
market for the transition bonds may not
develop. If a secondary market for the
transition bonds does develop, it may not
continue or it may not be sufficiently liquid
to allow holders to resell any of the
transition bonds. See "Plan of Distribution for
the Transition Bonds" in this prospectus.
LIMITED SOURCES OF PAYMENTS
FOR THE TRANSITION BONDS MAY
RESULT IN LOSSES TO TRANSITION
BONDHOLDERS The transition bonds are obligations of
the issuer, a special purpose entity, only. The
transition bonds will not represent an interest
in or obligation of West Penn, West Penn
Funding Corporation, the bond trustee or any
entity other than the issuer. The issuer has no
property other than the collateral. The
collateral is the sole source of payment on the
transition bonds. None of the transition bonds
will be guaranteed or insured by West Penn,
West Penn Funding Corporation, the bond trustee
or any affiliates of those entities, other than
the issuer, or any other entity.
ISSUANCE OF ADDITIONAL SERIES
MAY ADVERSELY AFFECT
OUTSTANDING TRANSITION BONDS The issuer may from time to time issue
new series of transition bonds without the
prior review by or consent of the transition
bondholders of any previously issued series. A
new series of transition bonds may not be
issued if it would result in the credit ratings
on any outstanding series of transition bonds
being reduced or withdrawn, but the issuance of
any other series of transition bonds might have
an
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impact on the timing or amount of payments
received by transition bondholders. See "The
Transition Bonds" and "The Indenture--Issuance
in Series or Classes" in this prospectus.
In addition, various matters relating to
the transition bonds require a vote of all
transition bondholders of all series, even
though there may be differences in the
interests or positions among those series or
classes of those series. This could result in
voting outcomes adverse to the interests of one
or more series or classes of transition bonds.
SECURITIES RATINGS ARE LIMITED
AND DO NOT ASSESS TIMING OF
PRINCIPAL PAYMENTS The transition bonds will be rated by one
or more established rating agencies. The
ratings merely analyze the probability that the
issuer will repay the total principal amount of
the transition bonds at final maturity--the
series or class termination date, as
applicable--and will make timely interest
payments. The ratings do not assess the speed
at which the Issuer will repay the principal of
the transition bonds. As a result, any series
or class of transition bonds might be paid
later than scheduled, resulting in a weighted
average life of those transition bonds which is
longer than expected. A security rating is not
a recommendation to buy, sell or hold
securities. There can be no assurance that a
rating will remain in effect for any given
period of time or that a rating will not be
revised or withdrawn entirely by a rating
agency if, in its judgment, circumstances so
warrant.
WEIGHTED AVERAGE LIFE OF
PAYMENTS ON TRANSITION BONDS
MAY BE AFFECTED BY RATE OF
INTANGIBLE TRANSITION CHARGE
COLLECTIONS OR OPTIONAL
REDEMPTION The actual dates on which principal is
paid on each class of transition bonds might be
affected by, among other things, the amount and
timing of receipt of collections of intangible
transition charges. Since the amount of
intangible transition charges collected from
each customer will depend upon the customer's
usage of electricity, the aggregate amount and
timing of collections of intangible transition
charges--and the resulting amount and timing of
principal payments on the transition
bonds--will depend, in part, on actual usage of
electricity and the rate of delinquencies and
write-offs. See "--Servicing--Inaccurate
Projections by Servicer May Result in Losses on
Transition Bonds" above.
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Although the intangible transition
charges will be adjusted from time to time
based in part on the actual rate of collections
of intangible transition charges during prior
billing periods, the servicer may not be able
to forecast accurately actual customer energy
usage and the rate of delinquencies and write-
offs or implement adjustments to the intangible
transition charges. If collections of
intangible transition charges are received at a
slower rate than expected, payments on the
transition bonds may be made later than
expected, resulting in a longer weighted
average life. Because principal will generally
be paid at a rate not to exceed that reflected
in the expected amortization schedule, the
transition bonds are not expected to be retired
earlier than scheduled other than in the event
of a redemption or acceleration.
If so provided in a prospectus
supplement, there may be optional redemptions
of the transition bonds. Future market
conditions may require transition bondholders
to reinvest the proceeds of a redemption at a
rate lower than the rate received on the
transition bonds. The issuer cannot predict
whether it will redeem any series of transition
bonds. See "Certain Weighted Average Life and
Yield Considerations" and "The Transition
Bonds--Credit Enhancement" in this prospectus.
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<PAGE> 65
GLOSSARY OF DEFINED TERMS
You can find a glossary of defined terms used in this prospectus beginning
on page in this prospectus.
AVAILABLE INFORMATION
The issuer has filed with the Securities and Exchange Commission (the
"SEC") a registration statement (as amended, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the transition bonds. This prospectus, which forms a part of the Registration
Statement, and any prospectus supplement describe the material terms of some of
the documents filed as exhibits to the Registration Statement; however, this
prospectus and any prospectus supplement do not contain all of the information
contained in the Registration Statement and its exhibits. Any statements
contained in this prospectus or any prospectus supplement concerning the
provisions of any document filed as an exhibit to the Registration Statement or
otherwise filed with the SEC are not necessarily complete, and in each instance
reference is made to the copy of the document so filed. Each of these statements
is qualified in its entirety by that reference. For further information,
reference is made to the Registration Statement and the exhibits to the
Registration Statement, which are available for inspection without charge at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its regional offices located as follows: Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and New York Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of the Registration Statement and
exhibits thereto may be obtained at the above locations at prescribed rates.
Information filed with the SEC can also be inspected at the SEC site on the
World Wide Web at http://www.sec.gov.
The issuer will file with the SEC the periodic reports as are required by
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules, regulations or orders of the SEC under the Exchange Act. The issuer may
discontinue filing periodic reports under the Exchange Act at the beginning of
the fiscal year following the issuance of the transition bonds of any series if
there are fewer than 300 holders of the transition bonds.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the issuer pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
prospectus and prior to the termination of the offering of the transition bonds
will be deemed to be incorporated by reference into this prospectus and to be a
part hereof. Any statement contained in this prospectus, in a prospectus
supplement or in a document incorporated or deemed to be incorporated by
reference in this prospectus will be deemed to be modified or superseded for
purposes of this prospectus and any prospectus supplement to the extent that a
statement contained in this prospectus, in a prospectus supplement or
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<PAGE> 66
in any separately filed document which also is or is deemed to be incorporated
by reference in this prospectus modifies or supersedes that statement. Any of
these statements so modified or superseded will not be deemed, except as so
modified or superseded, to constitute part of this prospectus or any prospectus
supplement.
The issuer will provide without charge to each person to whom a copy of
this prospectus is delivered, on the written or oral request of any such person,
a copy of any or all of the documents incorporated herein by reference, except
the exhibits to such documents--unless those exhibits are specifically
incorporated by reference in such documents. Written requests for those copies
should be directed to the issuer, c/o [ ]. Telephone requests for
those copies should be directed to the issuer at [ ].
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<PAGE> 67
WEST PENN POWER COMPANY
Incorporated in Pennsylvania in [ ], West Penn is a public utility
corporation engaged in the transmission, distribution and sale of electricity to
approximately 665,000 customers throughout a 10,000 square mile service
territory covering all or portions of 24 counties in southwestern and central
Pennsylvania. West Penn's generation facilities have in the past served those
same customers. In the future, those generation facilities, which will continue
to serve those customers and others in the competitive generation market, may be
transferred to an affiliated or non-affiliated entity. See "The Servicer" in
this prospectus.
The electric and gas utility industries in Pennsylvania are both undergoing
fundamental restructuring. See "The Pennsylvania Competition Act" in this
prospectus. In addition, in 1996, the Federal Energy Regulatory Commission
issued Order No. 888 providing for competition in wholesale generation by
requiring that all public utilities file non-discriminatory, open-access
transmission tariffs.
West Penn is currently not involved in any legal proceedings that could
have a material impact on the issuer, the collateral or the transition bonds.
For a detailed description of the prior litigation relating to the approval of
West Penn's restructuring plan, see "West Penn's Restructuring Plan--Prior
Litigation."
Allegheny Energy, Inc., the parent of West Penn, and DQE, Inc. (the parent
of Duquesne Light Company in Pittsburgh) have entered into an agreement under
which DQE, Inc. would merge into Allegheny Energy in a stock for stock
transaction. However, the proposed merger, which has been conditionally approved
by the Pennsylvania Public Utility Commission (the "PUC"), is currently the
subject of litigation in the United States District Court for the Western
District of Pennsylvania. As described in "West Penn's Restructuring
Plan--Provisions of the Settlement--Authorization to Securitize up to $670
million", the outcome of the DQE merger litigation will not affect the amount of
West Penn's intangible transition charges ("Intangible Transition Charges") and
is not expected to have any impact on the payment of principal of, and interest
on, the transition bonds.
West Penn will enter into the Servicing Agreement with the issuer under
which West Penn, as agent for the issuer, will manage, service and administer,
and make collections in respect of, the Transferred Intangible Transition
Property. See "The Servicing Agreement" in this prospectus. Allegheny Power
Service Corporation, an affiliate of West Penn, will enter into an
administration agreement with the issuer and with West Penn Funding Corporation
to provide specified administrative services (in this capacity, Allegheny Power
Service Corporation is referred to as the "Administrative Agent" in this
prospectus). See "The Issuer" and "West Penn Funding Corporation" in this
prospectus.
West Penn files periodic reports with the SEC as required by the Exchange
Act. Reports filed with the SEC are available for inspection without charge at
the public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and its regional offices located as follows: Chicago
Regional Office, Citicorp
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<PAGE> 68
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and
New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of periodic reports and exhibits to those reports may be obtained
at the above locations at prescribed rates. Information filed with the SEC can
also be inspected at the SEC site on the World Wide Web at http://www.sec.gov.
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<PAGE> 69
THE PENNSYLVANIA COMPETITION ACT
GENERAL
The Pennsylvania Electricity Generation Customer Choice and Competition Act
(the "Pennsylvania Competition Act") was enacted in December 1996 and provides
for the restructuring of the electric utility industry in Pennsylvania. The
Pennsylvania Competition Act requires the unbundling of electric services into
separate generation, transmission and distribution services with open retail
competition for generation services. Generation services may be provided by
electric generation suppliers licensed by the PUC. Under the Pennsylvania
Competition Act, electric generation suppliers are subject to certain limited
financial and disclosure requirements but are otherwise unregulated by the PUC.
Electric distribution and transmission services will remain regulated.
The Pennsylvania Competition Act requires utilities to submit restructuring
plans, including their stranded costs which will result from retail competition
for generation services. Stranded costs include regulatory assets and long-term
purchase power commitments for which full recovery is allowed and other costs,
including investment in generating plants, retirement costs and reorganization
costs, for which an opportunity for recovery is allowed in an amount determined
by the PUC as just and reasonable. Under the Pennsylvania Competition Act,
utilities are subject to a generation rate cap through December 31, 2005 which
provides that total charges to customers cannot exceed rates in place at
December 31, 1996, subject to certain exceptions. The Pennsylvania Competition
Act also caps transmission and distribution rates from December 31, 1996 through
June 30, 2001, subject to specified exceptions. Under the Pennsylvania
Competition Act, each regulated electric utility was required to implement a
retail access pilot program for customers representing 5% of the peak load of
each customer class for the period from November 1, 1997 through December 31,
1998.
RECOVERY OF STRANDED COSTS
As a mechanism for utilities, including West Penn, to recover their allowed
stranded costs, the Pennsylvania Competition Act provides for the imposition and
collection of nonbypassable charges on customers' bills called "competitive
transition charges." Competitive transition charges are assessed to and
collected from all retail customers who have been assigned stranded cost
responsibility and access the utilities' transmission and distribution systems
and may be collected over a maximum period of nine years, except as that period
may be extended by the PUC for good cause shown. As the competitive transition
charges are based on access to the utility's transmission and distribution
system, they will be assessed regardless of whether that customer purchases
electricity from the utility or an independent electric generation supplier. The
Pennsylvania Competition Act provides, however, that the utility's right to
collect competitive transition charges is contingent on the continued operation
at reasonable availability levels of the assets for which the stranded costs
were awarded, except where continued operation is no longer cost efficient
because of the transition to a competitive market. See "Risk Factors--Legal,
Legislative or Regulatory Actions Could Adversely
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<PAGE> 70
Affect Transition Bondholders--Legal Challenges Could Adversely Affect
Transition Bondholders" and "Risk Factors--Nature of Intangible Transition
Property--Lack of Continued Operation of Existing Generation Facilities May
Result in Losses to Transition Bondholders" in this prospectus.
SECURITIZATION OF STRANDED COSTS
The Pennsylvania Competition Act authorizes the PUC to issue qualified rate
orders approving the issuance of transition bonds to facilitate the recovery or
financing of qualified transition expenses of an electric utility or its
assignee. Transition bonds may be issued by a utility, a finance subsidiary of a
utility or a third-party assignee of a utility. Under the Pennsylvania
Competition Act, proceeds of transition bonds are required to be used
principally to reduce qualified transition expenses, including stranded costs,
and the related capitalization costs of the utility. The transition bonds are
secured by intangible transition property and payable from the intangible
transition charges and may have a maximum maturity of ten years. Intangible
transition charges can be imposed only when and to the extent that transition
bonds are issued.
The Pennsylvania Competition Act contains a number of provisions designed
to facilitate the securitization of stranded costs.
Irrevocability of Intangible Transition Property. Under the Pennsylvania
Competition Act, intangible transition property is created by the issuance by
the PUC of a qualified rate order and the declaration by the PUC that the
relevant paragraphs of a qualified rate order are irrevocable. The PUC is
granted the power under the Pennsylvania Competition Act to specify that all or
a portion of that qualified rate order will be irrevocable. The Pennsylvania
Competition Act provides that to the extent that the PUC declares all or a
portion of a qualified rate order irrevocable, the PUC may not, by any
subsequent action, reduce, postpone, impair or terminate either the order or the
intangible transition charge authorized in that order. In addition, under the
Pennsylvania Competition Act, the Commonwealth of Pennsylvania (the
"Commonwealth") pledges and agrees with the holders of the transition bonds, and
with any assignee or finance party, not to limit or alter or in any way impair
or reduce the value of intangible transition property or the intangible
transition charges until the related transition bonds are fully discharged. The
Pennsylvania Competition Act provides, however, that nothing precludes the
Commonwealth from limiting or altering intangible transition property or the
qualified rate order, provided that adequate compensation is made by law for the
full protection of the intangible transition charges collected pursuant to the
qualified rate order and of the holders of the transition bonds and any assignee
or finance party. See "Risk Factors--Legal, Legislative or Regulatory Actions
Could Adversely Affect Transition Bondholders" in this prospectus.
Adjustments of the Intangible Transition Charges. The Pennsylvania
Competition Act requires the PUC to provide in all qualified rate orders a
procedure for expeditiously approving periodic adjustments to the intangible
transition charges. The Pennsylvania Competition Act requires that these
adjustments be made on at least an annual basis on each anniversary of the
issuance of the qualified rate order and at additional intervals as
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<PAGE> 71
specified in that order. The PUC must approve these annual adjustments within 90
days of each request for adjustment.
Nonbypassability. The Pennsylvania Competition Act provides that the
competitive transition charges and the intangible transition charges will be
imposed on customers accessing the utility's transmission and distribution
system even if those customers elect to purchase electricity from another
supplier or if the customer chooses to operate self-generation equipment in
tandem with accessing the utility's transmission and distribution system. The
Pennsylvania Competition Act further provides that to the extent that the
utility, or any assignee of intangible transition property, assigns, sells,
transfers or pledges any interest in intangible transition property, the PUC
authorizes the utility to contract with that assignee for the utility:
(1) to continue to operate the system to provide electric services to
the utility's customers,
(2) to impose and collect the applicable intangible transition
charges for the benefit and account of the assignee,
(3) to make periodic adjustments of the intangible transition
charges, and
(4) to account for and remit the applicable intangible transition
charges to or for the account of the assignee free of any charge, deduction
or surcharge of any kind.
In addition, to the extent specified in the qualified rate order, the
obligations of the utility under any of these contracts:
(1) will be binding upon the utility, its successors and assigns, and
(2) will be required by the PUC to be undertaken and performed by the
utility and any other entity which provides electric service to a person
that is a customer of the utility located within the utility's retail
electric service territory, as a condition to providing service to that
customer or the municipal entity providing those services in place of the
utility.
Creation of a Statutory Lien on Intangible Transition Property. The
Pennsylvania Competition Act provides that a valid and enforceable security
interest in intangible transition property automatically attaches from the time
the related transition bonds are issued and is enforceable against all third
parties (including judicial lien creditors) if (i) value is given by purchasers
of the transition bonds and (ii) a filing is made with the PUC to perfect the
security interest within 10 days from issuance of the transition bonds. The
Pennsylvania Competition Act also provides that security interests in the
intangible transition property are created and perfected only by means of a
separate filing with the PUC in accordance with the provisions of the
Pennsylvania Competition Act. Upon perfection, the statutorily created lien
attaches both to intangible transition property and to all revenues and proceeds
of intangible transition property, whether or not accrued. The Pennsylvania
Competition Act provides that this filing will take precedence over any other
filing and will be enforceable against the assignee and all third parties,
including judicial lien creditors, subject only to rights of any third parties
holding security interests
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in intangible transition property previously perfected in accordance with the
Pennsylvania Competition Act. The Pennsylvania Competition Act provides that
priority of security interests in intangible transition property will not be
defeated or adversely affected by (i) commingling of revenues with other funds
of the utility or (ii) changes to the qualified rate order or the intangible
transition charges.
Characterization of Transfer of Transferred Intangible Transition Property
as True Sale. The Pennsylvania Competition Act provides that a transfer by the
utility or an assignee of intangible transition property will be treated as a
true sale of the transferor's right, title and interest and not as a pledge or
other financing, other than for federal and state income and franchise tax
purposes, if (i) the parties expressly state in governing documents that a
transfer is to be a sale or other absolute transfer and (ii) the transaction is
approved in a qualified rate order. See "Risk Factors--Bankruptcy; Creditors'
Rights" in this prospectus.
JURISDICTION OVER DISPUTES; STANDING
Actions against customers for nonpayment of the intangible transition
charges may only be brought by the utility, its successor or any other entity
providing electric service to the customers. In addition, the Pennsylvania
Competition Act grants to the PUC exclusive jurisdiction over all disputes
arising out of the obligations to impose and collect the intangible transition
charges by a utility, its successor or any other entity which provides electric
service to a customer.
POSSIBLE FEDERAL PREEMPTION OF THE PENNSYLVANIA COMPETITION ACT
At least one bill was introduced in the 105th Congress, First Session,
prohibiting the recovery of stranded costs such as West Penn's stranded costs
("Stranded Costs") described in this prospectus, which could negate the
existence of West Penn's intangible transition property ("Intangible Transition
Property"). That bill, H.R. 1230 (The Consumers Electric Power Act of 1997,
"H.R. 1230"), was introduced on April 8, 1997 but died at the end of that
Congressional session after having been referred to the House Commerce Committee
and the Subcommittee on Energy and Power. No prediction can be made as to
whether any future bills that prohibit the recovery of stranded costs will
become law or, if they become law, what their final form or effect will be.
There is no assurance that the courts would consider this preemption a "taking."
Moreover, even if a preemption of the Pennsylvania Competition Act or the QRO by
the federal government were considered a "taking," for which the government had
to pay the estimated market value of the Transferred Intangible Transition
Property at the time of the taking, there is no assurance that this compensation
would be sufficient to pay the full amount of principal of and interest on the
transition bonds, and transition bondholders could suffer a loss of their
investment. See "Risk Factors--Legal, Legislative or Regulatory Actions Could
Adversely Affect Transition Bondholders--Federal Legislation May Result in
Losses to Transition Bondholders" in this Prospectus and "--Possible
Commonwealth Amendment or Repeal of the Pennsylvania Competition Act" below.
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POSSIBLE COMMONWEALTH AMENDMENT OR REPEAL OF THE PENNSYLVANIA COMPETITION ACT
Under the Pennsylvania Competition Act, the Commonwealth has pledged to and
agreed with transition bondholders that it will not limit or alter or in any way
impair or reduce the value of intangible transition property or intangible
transition charges approved by a qualified rate order, until the transition
bonds and interest thereon are fully paid and discharged. The Pennsylvania
Competition Act also provides, however, that subject to the requirements of law,
nothing contained in the Pennsylvania Competition Act precludes this limitation
or alteration by the Commonwealth if "adequate compensation is made by law" for
the full protection of the intangible transition charges collected pursuant to a
qualified rate order and of transition bondholders. It is unclear what "adequate
compensation . . . by law" would be afforded to transition bondholders by the
Commonwealth if it attempts to limit or alter Intangible Transition Property or
Intangible Transition Charges. Accordingly, no assurance can be given that this
provision would fully compensate transition bondholders for their investment and
would not adversely affect the price of the transition bonds or the timing of
payments with respect to the transition bonds. See "Risk Factors--Legal,
Legislative or Regulatory Actions Could Adversely Affect Transition
Bondholders--Changes in Law May Result in Losses to Transition Bondholders" in
this prospectus.
In the opinion of Cravath, Swaine & Moore, counsel to West Penn, under the
Contract Clause of the United States Constitution, the Commonwealth could not
repeal or amend the Pennsylvania Competition Act--by way of legislative
process--or take any other action that substantially impairs the rights of the
transition bondholders, unless that action is a reasonable exercise of the
Commonwealth's sovereign powers and of a character appropriate to the public
purpose justifying that action. To date, no cases addressing these issues in the
context of transition bonds have been decided. There have been cases in which
courts have applied the Contract Clause of the United States Constitution and
parallel state constitutional provisions to strike down legislation, reducing or
eliminating taxes or public charges which supported bonds issued by public
instrumentalities, or otherwise reducing or eliminating the security for those
bonds. Based upon such case law, in the opinion of Cravath, Swaine & Moore, it
would appear unlikely that the Commonwealth could reduce, modify, alter or take
any other action with respect to intangible transition property which would
substantially impair the rights of transition bondholders, unless the action is
reasonable and appropriate to further a legitimate public purpose.
Moreover, under the Taking Clause of the United States Constitution, the
Commonwealth could not repeal or amend the Pennsylvania Competition Act--by way
of legislative process--or take any action that violates its pledge and
agreement described in the first paragraph of this subheading without paying
just compensation to the transition bondholders if doing so would constitute a
permanent appropriation of the property interest of transition bondholders in
the intangible transition property and deprive the transition bondholders of
their reasonable expectations arising from their investments in the transition
bonds. There is no assurance, however, that, even if a court
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<PAGE> 74
were to award such just compensation, it would be sufficient to pay the full
amount of principal of and interest on the transition bonds.
In addition, there can be no assurance that a repeal of or amendment to the
Pennsylvania Competition Act will not be sought or adopted or that any action by
the Commonwealth may not occur, any of which might constitute a violation of the
Commonwealth's pledge and agreement with the transition bondholders. If this
occurs, costly and time-consuming litigation might ensue. That litigation might
adversely affect the price and liquidity of the transition bonds and the dates
of payments of principal thereof and, accordingly, the weighted average lives
thereof. Moreover, given the lack of judicial precedent directly on point, and
the novelty of the security for the transition bondholders, the outcome of that
litigation cannot be predicted with certainty, and accordingly, transition
bondholders could incur a loss of their investment.
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WEST PENN'S RESTRUCTURING PLAN
GENERAL
In accordance with the provisions of the Pennsylvania Competition Act, in
August 1997, West Penn filed with the PUC a comprehensive restructuring plan
(the "Restructuring Plan") detailing its proposal to implement full customer
choice of electric generation suppliers. West Penn's Restructuring Plan
identified $1.2 billion of recoverable retail electric generation-related
stranded costs.
On May 29, 1998, the PUC adopted an Opinion and Order which modified West
Penn's proposed Restructuring Plan (the "PUC Restructuring Order"). The PUC
Restructuring Order authorized West Penn to recover stranded costs of $593
million (or $524.2 million in the event of a merger of DQE, Inc. into Allegheny
Energy). In response to West Penn's petition on June 12, 1998 requesting
reconsideration of the PUC Restructuring Order, the PUC entered an order that
increased the amount of stranded costs recoverable by West Penn by $522,000 (the
"PUC Reconsideration Order"). In response in part to the PUC Restructuring Order
and the PUC Reconsideration Order, West Penn and other parties filed appeals to
the Commonwealth Court of Pennsylvania and a civil complaint action in the U.S.
District Court for the Western District of Pennsylvania. In addition, West Penn
filed an original jurisdiction action for declaratory judgment with the
Commonwealth Court of Pennsylvania on September 2, 1998.
On November 3, 1998, West Penn and certain of the parties who appealed West
Penn's Restructuring Plan filed a Joint Petition for Full Settlement of West
Penn's Restructuring Plan and Related Court Proceedings (the "Joint Petition").
On November 4, 1998, the Joint Petition was tentatively approved by the PUC. On
November 19, 1998, the PUC issued the Final Order approving the Joint Petition.
The remaining appeals to the Restructuring Plan were withdrawn. The settlement
effected by the Joint Petition is referred to in this Prospectus as the
"Settlement."
PROVISIONS OF THE SETTLEMENT
Recovery of Stranded Costs. The Settlement authorizes West Penn to
recover $670 million of Stranded Costs ($630 million in the event that the
merger with DQE, Inc. is consummated), together with a return of 11.0% thereon.
For good cause shown, the PUC authorized the recovery of Stranded Costs over a
10-year transition period beginning January 1, 1999 and ending December 31,
2008. Recovery of Stranded Costs and the allowed return are to be through
competitive transition charges (with respect to West Penn, the "Competitive
Transition Charges") designed to recover the Stranded Costs. The Competitive
Transition Charges have been established assuming a specified annual growth in
sales and will be reconciled annually to actual sales.
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The following table shows the estimated average levels of West Penn's
Competitive Transition Charges for the years 1999 through 2008, based on the
annual sales growth assumed in the Settlement.
TABLE 1
ANNUAL STRANDED COST
AMORTIZATION AND RETURN
<TABLE>
<CAPTION>
REVENUES EXCLUDING
GROSS RECEIPTS TAX(3)
----------------------------------
ANNUAL CTC WITH CTC REVENUE RETURN
YEAR SALES GRT(2) WITH GRT TOTAL @11.0% AMORTIZATION
- ---- ---------- --------- ----------- --------- ------- ------------
MWH(1) CENTS/KWH $(000) $(000) $(000) $(000)
<S> <C> <C> <C> <C> <C> <C>
1999.................... 20,740,356 0.62 128,547 122,891 71,259 51,632
2000.................... 21,157,130 0.60 126,890 121,307 65,362 55,945
2001.................... 21,490,380 0.56 120,367 115,071 59,212 55,859
2002.................... 21,860,286 0.54 118,054 112,860 52,859 60,001
2003.................... 22,146,130 0.53 117,381 112,216 45,942 66,274
2004.................... 22,693,011 0.48 108,930 104,137 38,694 65,443
2005.................... 23,102,818 0.45 103,950 99,376 31,366 68,010
2006.................... 23,405,954 0.44 102,470 97,961 23,563 74,399
2007.................... 23,697,105 0.43 101,374 96,914 15,000 81,914
2008.................... 23,934,076 0.43 101,959 97,473 5,481 91,992
Total......... 1,129,923 1,080,206 408,736 671,470
</TABLE>
- ------------
(1) Subject to reconciliation of actual sales and collections.
(2) Figures result in the recovery of $670 million of Stranded Costs plus the
allowed return on those costs at projected usage levels in the period during
which the Competitive Transition Charges will be collected in accordance
with the terms of the Settlement. The Competitive Transition Charges are
subject to adjustment.
(3) The utilities gross receipts tax is imposed on public utilities (including
electric utilities) organized under the laws of, or doing business in, the
Commonwealth and is currently levied at the rate of 4.4% on each dollar of
the utility's gross receipts arising from certain sales of energy.
Authorization to Securitize up to $670 Million. As part of its approval
of the Settlement, the PUC issued the QRO allowing West Penn to securitize up to
$670 million of Stranded Cost recovery through the issuance of transition bonds.
If the merger with DQE, Inc. is consummated, West Penn will not thereafter issue
transition bonds of an aggregate principal amount in excess of $630 million. If
West Penn has already at that time issued transition bonds in excess of $630
million in accordance with the QRO, the costs of servicing the entire amount of
those transition bonds, including interest, principal and all other related
fees, costs, credit enhancements and charges will nevertheless constitute
Qualified Transition Expenses which thereafter will be recovered through
Intangible Transition Charges. However, at the next Adjustment Date, West Penn
will establish a credit adjustment to customers' bills to account for the
difference between $630 million and the actual principal amount of the
transition bonds outstanding. This credit adjustment will not affect the amount
of Intangible Transition Charges and is not expected to have any impact on the
payment of principal of, and interest on, the transition bonds.
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The Intangible Transition Charges associated with the issuance of
transition bonds may not be imposed for service periods after December 31, 2008.
Seventy-five percent of the annual net savings resulting from West Penn's
securitization of stranded costs will be returned to retail customers through a
reduction to the Competitive Transition Charges. In addition, West Penn's
Competitive Transition Charges will be reduced by the amount of the Intangible
Transition Charges. See "The QRO and the Intangible Transition Charges" in this
prospectus.
Unbundling of Rates and Rate Reductions and Rate Caps. The Settlement
requires West Penn to unbundle its retail electric rates on January 1, 1999 into
the following components:
(1) distribution and transmission charges,
(2) Competitive Transition Charges and, if applicable, Intangible
Transition Charges and
(3) a shopping credit for generation.
The sum of the Competitive Transition Charges and the shopping credit
equals the maximum amount West Penn can charge customers who do not or cannot
choose to purchase electricity from alternate electric generation suppliers
(referred to as serving as the "provider of last resort").
The Settlement required West Penn to reduce rates by 2.5% effective January
1, 1999, and that 2.5% rate decrease will continue in effect through December
31, 1999. The Settlement also extends the rate caps on generation rates at
higher levels than required by the Pennsylvania Competition Act, until December
31, 2008 and extends rate caps on transmission and distribution rates until
December 31, 2005. West Penn's unbundled rates, rate reductions and rate caps
are reflected in the schedule of system-wide average rates included in the
Settlement and shown in Table 2 below.
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TABLE 2
SCHEDULE OF SYSTEM-WIDE AVERAGE RATES (PER KILOWATT-HOUR ("KWH"))(1)
<TABLE>
<CAPTION>
T&D SHOPPING GENERATION
EFFECTIVE DATE TRANSMISSION(2) DISTRIBUTION RATE CAP(3) CTC(4) CREDIT RATE CAP
- -------------- --------------- ------------ ----------- ------- -------- -----------
(1) (2) (3)=(1)+(2) (4) (5) (6)=(4)+(5)
$KWH $KWH $KWH $KWH $KWH $KWH
<S> <C> <C> <C> <C> <C> <C>
January 1, 1999....... $0.0041 $0.0118 $0.0159 $0.0062 $0.0316 $0.0378
January 1, 2000....... 0.0041 0.0132 0.0173 0.0060 0.0318 0.0378
January 1, 2001....... 0.0041 0.0132 0.0173 0.0056 0.0322 0.0378
January 1, 2002....... 0.0041 0.0132 0.0173 0.0054 0.0324 0.0378
January 1, 2003....... 0.0041 0.0132 0.0173 0.0053 0.0325 0.0378
January 1, 2004....... 0.0041 0.0132 0.0173 0.0048 0.0330 0.0378
January 1, 2005....... 0.0041(5) 0.0132(5) 0.0173(5) 0.0045 0.0333 0.0378
January 1, 2006....... (3) (3) N/A 0.0044 0.0362 0.0406
January 1, 2007....... (3) (3) N/A 0.0043 0.0363 0.0406
January 1, 2008....... (3) (3) N/A 0.0043 0.0391 0.0434
</TABLE>
- ------------
(1) All prices reflect average retail billing for all Rate Schedules (including
gross receipts tax). The average prices as presented in this table reflect
the profile of service contained in West Penn's proof of revenue set forth
in the Restructuring Plan.
(2) The transmission prices listed are for unbundled rates only. The PUC does
not regulate the rates for transmission service.
(3) The T&D (Transmission & Distribution) Rate Cap under Section 2804(4) of the
Pennsylvania Competition Act will be extended until December 31, 2005.
(4) Figures result in the recovery of $670 million of Stranded Costs plus the
allowed return on those costs at projected usage levels in the period during
which the Competitive Transition Charges will be collected in accordance
with the terms of the Settlement. The Competitive Transition Charges are
subject to adjustment. Intangible Transition Charges will be deducted from
the Competitive Transition Charges.
(5) Effective until December 31, 2005.
The Pennsylvania Competition Act authorizes electric distribution companies
to recover changes in their state tax liability resulting from the introduction
of competition in the electric market through adjustments in the rates charged
to customers, which in certain circumstances set forth in the regulations
adopted by the PUC may result in rates exceeding the applicable rate cap. West
Penn may apply for this recovery of state tax liability changes in accordance
with the procedures outlined in the PUC's regulations if West Penn in fact
experiences adverse consequences to its state tax liability as contemplated in
the Pennsylvania Competition Act.
Competitive Metering and Billing. As provided in the Settlement, on
September 1, 1999, West Penn unbundled its retail electric rates for metering,
meter reading, and billing and collection services to provide credits for those
customers that have elected to have alternate suppliers perform these services.
Effective September 1, 1999, PUC licensed entities, including electric
generation suppliers, may act as agents to provide a single bill and provide
associated billing and collection services to retail customers located in West
Penn's retail electric service territory. The PUC-licensed entities, including
electric generation suppliers, may also finance, install, own, maintain,
calibrate and remotely read advanced meters for service to retail customers
located in West Penn's service territory. An electric generation supplier or
other third party that bills on behalf of West Penn must comply with all
applicable billing and disclosure requirements absent waiver by the PUC,
including the unbundling of transmission and distribution rates. Only West Penn
can physically disconnect or reconnect a customer's distribution
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service. Physical termination of the service may only be permitted for failure
to pay for transmission and distribution service or provider of last resort
service. See also "The QRO and the Intangible Transition Charges--The Intangible
Transition Charges" in this prospectus.
Customer Choice. Under the Settlement, customer choice of electric
generation suppliers is being phased in between January 1, 1999 and January 2,
2000 with one-third of each Rate Schedule entitled to choose their electric
generation supplier by January 1, 1999, an additional one-third by January 2,
1999 and the remaining one-third by January 2, 2000.
PROVIDER OF LAST RESORT
Under the Restructuring Plan, West Penn will act as a provider of last
resort for all retail electric customers in its retail electric service
territory who do not choose or cannot choose to purchase power from alternative
suppliers through December 31, 2010, subject to certain terms, conditions and
qualifications. On January 1, 2001, 20% of all of West Penn's residential
customers, determined by random selection, including low-income and
inability-to-pay customers, and without regard to whether those customers are
obtaining generation service from an electric generation supplier, will be
assigned to a provider of last resort other than West Penn if there is a
qualifying bid (the service provided by this supplier, "Competitive Default
Service"). This alternative supplier (the "Competitive Default Supplier") will
be selected on the basis of an energy and capacity market price bidding process
approved, established and maintained by the PUC among electric generation
suppliers who meet specified qualifications. The right to provide Competitive
Default Service will be rebid annually, unless an alternative bidding term is
approved by the PUC. If, 30 days prior to the annual bid, the number of
residential customers served by Competitive Default Service has fallen below
17%, a further random selection of customers will be assigned to Competitive
Default Service to restore the number of customers to the 20% level. The further
random selection will be made from the customers not already assigned to
Competitive Default Service and customers served by electric generation
suppliers other than West Penn.
In February, 1999, certain utilities, customer advocates and electric
generation suppliers convened to develop proposed regulations on Competitive
Default Service. On Friday, February 26, the Chairman of the group forwarded a
suggested procedure for choosing a Competitive Default Supplier to the PUC.
Under those suggested procedures, entities that desire to act as a Competitive
Default Supplier have until April 1, 2000 to submit both their qualifications to
act as a Competitive Default Supplier and their bid for providing this service.
Competitive Default Service will begin on January 1, 2001 for 20% of West Penn's
residential customers. The suggested procedures would require an electric
generation supplier to provide, among other things, proof that it has received
the requisite licenses from the state and federal governments, proof that it
meets certain creditworthiness standards and assurances that it can acquire
additional bonding as necessary. The supplier of Competitive Default Service
will be required to provide billing, including its payment of Intangible
Transition Charges and other revenues, to
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West Penn on the terms and conditions set forth in West Penn's tariff for those
entities who currently provide competitive billing services to customers.
The suggested procedures will not become final until the PUC adopts them.
The PUC may choose to reject or modify the suggested procedures. The PUC has no
time deadline for rendering its decision on this issue. The PUC may allow a
public comment period before reaching a final resolution of these issues.
Other Provisions. The Settlement also provides for flexible generation
service pricing for residential customers served by Competitive Default Service,
authorization of West Penn to transfer its generation assets to a separate
subsidiary, inclusion under the capped transmission and distribution rates of
.01 cent per kilowatt-hour for a sustainable energy and economic development
fund and expansion of West Penn's program for low-income customers.
PRIOR LITIGATION
Prior litigation occurred with respect to the constitutionality of the
Pennsylvania Competition Act in another restructuring case. Indianapolis Power &
Light Company ("IP&L") appealed the first qualified rate order granted to PECO
Energy Company ("PECO Energy") by the PUC in May, 1997, filing an action in the
Commonwealth Court challenging the Pennsylvania Competition Act, alleging that
the Pennsylvania Competition Act's provision allowing PECO Energy to recover
stranded costs discriminates against interstate commerce in violation of the
Commerce Clause of the United States Constitution. In an opinion dated May 7,
1998, the Commonwealth Court of Pennsylvania dismissed IP&L's action, holding,
as a matter of law, that the Pennsylvania Competition Act does not violate the
Commerce Clause. Following that dismissal, IP&L petitioned the Pennsylvania
Supreme Court for allowance of appeal. In the petition, IP&L claimed that the
payment of stranded costs to PECO Energy discriminates against interstate
commerce by favoring in-state electricity producers over out-of-state
electricity producers. On September 29, 1998, the Pennsylvania Supreme Court
denied IP&L's petition for allowance of appeal. On December 28, 1998, IP&L filed
a petition for a writ of certiorari with the United States Supreme Court to
appeal the Commonwealth Court's decision on the claim described in this
paragraph. On March 8, 1999, the United States Supreme Court denied the
petition.
Two additional actions, one filed by the Utility Workers Union of America
and one filed by a group of plaintiffs including State Senator Vincent J. Fumo
alleged that the adoption of the Pennsylvania Competition Act violated certain
provisions of the Pennsylvania Constitution governing legislative procedure. The
PUC filed preliminary objections seeking dismissal of these actions at the
pleading stage, on the ground that enactment of the Pennsylvania Competition Act
did not violate these Pennsylvania constitutional provisions as a matter of law.
The Commonwealth Court of Pennsylvania upheld the PUC's preliminary objections
and dismissed both actions with prejudice. The appeal period has expired without
appeals being filed and the dismissal of these actions is final and
non-appealable.
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On June 26, 1998, West Penn filed a complaint in the United States District
Court for the Western District of Pennsylvania seeking injunctive and monetary
relief on the grounds that the PUC's implementation of the Pennsylvania
Competition Act through its PUC Restructuring Order entered on May 29, 1998, was
contrary to and preempted by federal statutory law, including the Federal Power
Act and the Public Utility Regulatory Policies Act of 1978, and effected a
taking of West Penn's property without just compensation, impaired the
obligation of West Penn's regulatory compact, deprived West Penn of property
without due process of law, and deprived West Penn of these and other rights
secured by the Civil Rights Act, 42 U.S.C. sec.1983, and the Constitution of the
United States.
On September 2, 1998, West Penn also filed a Petition for Review in the
Commonwealth Court of Pennsylvania, invoking that Court's original jurisdiction,
to enjoin the implementation of the Pennsylvania Competition Act by the PUC as
violative of law and as a deprivation of West Penn's constitutional rights.
On June 26, 1998, West Penn filed a Petition for Review in the Commonwealth
Court of Pennsylvania appealing the Commission Order entered May 29, 1998, as
violative of law and contrary to the Constitution.
Numerous petitions for reconsideration, cross-appeals and interventions
were filed in the aforesaid West Penn proceedings, and numerous appeals were
taken by parties in their own right.
All the aforesaid proceedings resulting from West Penn's restructuring were
withdrawn with prejudice by the parties pursuant to the terms of the Joint
Petition. The appeal period of the PUC's Final Order of November 19, 1998
approving the Settlement has lapsed without appeal or request for
reconsideration. However, there can be no assurance that other parties will not
bring lawsuits related to the Settlement.
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THE QRO AND THE INTANGIBLE TRANSITION CHARGES
THE QRO
As part of its approval of the Settlement, the PUC issued a qualified rate
order to West Penn on November 19, 1998 which was supplemented by a supplemental
qualified rate order issued by the PUC to West Penn on [ ], 1999
(collectively, the "QRO"). In the QRO, the PUC determined that West Penn's
recovery of Stranded Costs as set forth in the Settlement is just and reasonable
and in the public interest and that securitization of up to $670 million of
Stranded Costs as set forth in the Settlement is just and reasonable and in the
public interest.
Authorization of Issuance of Transition Bonds. In the QRO, the PUC
authorized the issuance of transition bonds in an aggregate principal amount not
to exceed $670 million. If the merger with DQE, Inc. is consummated, West Penn
will not thereafter issue transition bonds of an aggregate principal amount in
excess of $630 million. If West Penn has already at that time issued transition
bonds in excess of $630 million in accordance with the QRO, the costs of
servicing the entire amount of those transition bonds, including interest,
principal and all other related fees, costs, credit enhancements and charges
will nevertheless constitute Qualified Transition Expenses which thereafter will
be recovered through Intangible Transition Charges. However, at the next
Adjustment Date, West Penn will establish a credit adjustment to customers'
bills to account for the difference between $630 million and the actual
principal amount of the transition bonds outstanding. This credit adjustment
will not affect the amount of Intangible Transition Charges and is not expected
to have any impact on the payment of principal of, and interest on, the
transition bonds.
West Penn, or any assignee of West Penn to whom Intangible Transition
Property is sold, may issue and sell, in reliance on the QRO, one or more series
of transition bonds, each series in one or more classes, secured by Intangible
Transition Property, provided that the final maturity of any series of
transition bonds may not be later than ten years from the date of issuance and
in no event after September 25, 2009. West Penn, or its assignee, is also
authorized to refinance transition bonds in a face amount not to exceed the
unamortized principal thereof.
The QRO provides that West Penn retains the sole discretion whether to
issue or cause the issuance of transition bonds. Within 120 days after each
issuance of transition bonds, West Penn is required to file with the PUC a
description of the financing structure of the transition bonds, including the
principal amount, the price at which each series or class of transition bonds
was sold, payment schedules, interest rate and other financing costs and the
final plans for West Penn's use of the proceeds of that offering.
Notwithstanding that filing, the final structure of each issuance of transition
bonds is not subject to change or revision by the PUC after the date of that
issuance.
Authorization to Impose Intangible Transition Charges. Pursuant to the
QRO, the PUC determined that it was just and reasonable and in the public
interest for West Penn to recover from its customers, through Intangible
Transition Charges, $670 million of Stranded Costs. Under the QRO, the PUC
authorized West Penn to impose on and
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collect from customers, either directly or through bills rendered by electric
generation suppliers, Intangible Transition Charges in an amount sufficient to
recover Qualified Transition Expenses. In accordance with the Pennsylvania
Competition Act, the PUC found that good cause had been shown to extend the
payment period for assessing new Intangible Transition Charges for service
rendered up to December 31, 2008.
In accordance with the Settlement, the rate reductions included as part of
the Settlement anticipated the benefits of securitization, and no rate
adjustment will be made upon issuance of any transition bonds. After January 1,
1999, Competitive Transition Charges will be reduced by the sum of the amount of
Intangible transition charges associated with the issuance of Transition Bonds
and 75% of the annual net savings resulting from West Penn's securitization of
Stranded Costs.
In the QRO, the PUC approves the allocation and methodology for imposing
Competitive Transition Charges and Intangible Transition Charges on customers.
The QRO also authorizes West Penn to make annual adjustments to Intangible
Transition Charges if collections of these Intangible Transition Charges fall
below or exceed the amount necessary to ensure the receipt by the transition
bond trustee of revenues sufficient to fully recover the Qualified Transition
Expenses in accordance with, among other things, the applicable Expected
Amortization Schedule, except that those adjustments after the period commencing
12 months prior to the last scheduled payment date for the payment of principal
on each series of transition bonds may be quarterly or monthly if necessary to
ensure full recovery of Intangible Transition Charges. The QRO states that the
revenues received by the transition bond trustee through Intangible Transition
Charges shall be determined to be sufficient for the foregoing purpose if, and
only if, the collections of Intangible Transition Charges ("ITC Collections") so
received are sufficient to amortize the transition bonds, fund any reserves and
to pay premiums, if any, on those transition bonds, after payment of accrued
interest, redemption premiums, if any, related credit enhancement, servicing
fees and other related costs and expenses, in accordance with the terms thereof.
For each annual adjustment, the QRO directs West Penn to file with the PUC (i)
an accounting of Intangible Transition Charges received by the transition bond
trustee for the previous annual period; (ii) a statement of any over-or-under
receipts; and (iii) the charge or credit to be added to Intangible Transition
Charges to ensure that the Intangible Transition Charges received by the
transition bond trustee will be sufficient to amortize the Qualified Transition
Expenses in accordance with the amortization schedule for the transition bonds
and the corresponding reduction or increase in Competitive Transition Charges.
The QRO provides that, in accordance with the Pennsylvania Competition Act, the
PUC shall approve all annual adjustments within 90 days of West Penn's annual
adjustment filing. The QRO also provides that, during the period commencing 12
months prior to the last scheduled payment date for the payment of principal on
each series of transition bonds, the adjustments will become effective on the
first day of the next calendar month with not less than 15 days' notice.
Authorization to Sell Intangible Transition Property. Under the QRO, the
PUC concluded that it is in the public interest, and authorized West Penn and
any assignee of West Penn, to assign, sell, transfer or pledge Intangible
Transition Property in an amount
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sufficient to recover all of West Penn's Qualified Transition Expenses. The PUC
directed West Penn to use the proceeds from the sale of Intangible Transition
Property to reduce Stranded Costs and related capitalization.
The QRO provides that, to the extent that West Penn, or any assignee,
assigns, sells, transfers, or pledges any interest in Intangible Transition
Property created by the QRO, the PUC authorizes West Penn to contract, for a
specified fee, with that assignee for West Penn to continue to operate the
system to provide electric services to West Penn's customers, to impose and
collect the applicable Intangible Transition Charges for the benefit and account
of the assignee, to make periodic adjustments of Intangible Transition Charges
contemplated under the QRO and to account for and remit the applicable
Intangible Transition Charges to or for the account of the assignee free of any
charge, deduction or surcharge of any kind, other than the specified contractual
fee referred to above. The QRO also authorizes West Penn to contract with the
issuers of transition bonds and an alternative party, which may be a trustee,
that the alternative party will replace West Penn under its contract with those
issuers and perform the obligations of West Penn contemplated in the QRO. The
obligations of West Penn:
(1) shall be binding upon West Penn, its successors and assigns and
(2) shall be required by the PUC to be undertaken and performed only
by West Penn and any other entity which provides transmission and
distribution services to a person who was a customer of West Penn located
within West Penn's certificated territory on January 1, 1997, or who became
a customer of electric services within such territory after January 1,
1997, and is still located within that territory.
Irrevocability of QRO. The QRO declares that the paragraphs in the QRO
concerning the recovery of $670 million of West Penn's Stranded Costs through
the issuance of transition bonds, the imposition of Intangible Transition
Charges on Customers in an amount sufficient to recover Qualified Transition
Expenses, the methodology and allocation and timing of adjustments to the
Intangible Transition Charges and the sale of Intangible Transition Property,
among other things, are irrevocable for purposes of the Pennsylvania Competition
Act, and the PUC accordingly agrees that it will not, directly or indirectly, by
any subsequent action, reduce, postpone, impair or terminate the QRO or the
Intangible Transition Charges. In the QRO, the PUC further declared that the
right, title and interest of West Penn and any assignee in the QRO and the
Intangible Transition Charges, the rates and other charges authorized by the
QRO, and all revenues, collections, claims, payments, money or proceeds of or
arising from the same constitute Intangible Transition Property.
THE INTANGIBLE TRANSITION CHARGES
Calculation of the Intangible Transition Charges. The Qualified
Transition Expenses authorized in the QRO are to be recovered from customers in
each of West Penn's separate Rate Schedules. The Intangible Transition Charges
initially will be calculated by determining the total amount of Intangible
Transition Charges required to be billed to each Customer Category, based on
current estimates of sales growth, in
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order to generate ITC Collections sufficient to ensure timely recovery of
Qualified Transition Expenses in accordance with the Expected Amortization
Schedule. The amount determined for each Customer Category will then be
allocated to each Rate Schedule within that Customer Category based on the
allocation of Stranded Cost recovery borne by each Rate Schedule through current
electric rates approved by the PUC.
The Intangible Transition Charges will reduce Competitive Transition
Charges, as periodically adjusted, and will appear as a separate line item on
each Customer's bill. West Penn will adjust the non-securitized elements of its
generation charges, rather than the Intangible Transition Charges approved by
the QRO, to bring the charges into compliance with the applicable rate cap.
ITC Collections will vary with changes in usage, number of customers, rate
of delinquencies and write-offs or other factors. Variations in ITC Collections
will be addressed by recalculating the Intangible Transition Charges on each
Calculation Date. See "Description of the Seller's Business" in the related
prospectus supplement and "The ITC Adjustment Process" below.
Initial Billing and Termination of ITC Collections. Intangible Transition
Charges for each series of transition bonds will be assessed on all customer
bills rendered on or after the effective date of the rates for Intangible
Transition Charges associated with the relevant series issuance date. For
instance, if a particular series issuance date is January 1 and the rates for
Intangible Transition Charges are effective January 1, bills rendered on or
after January 1 will be assessed Intangible Transition Charges with respect to
that series. Upon each adjustment of Intangible Transition Charges or issuance
of additional series of transition bonds, the adjusted Intangible Transition
Charges will be assessed in the same manner. The imposition of Intangible
Transition Charges as a result of the issuance of transition bonds will result
in a reduction in any Competitive Transition Charges then in effect in an amount
equal to the sum of such Intangible Transition Charges and 75% of the annual net
savings resulting from West Penn's securitization of Stranded Costs, so that the
total amount billed to customers generally will decrease from that which would
have been billed if there had been no securitization.
The servicer, or electric generation supplier or other third-party biller,
will continue to bill the Intangible Transition Charges until the series
termination date or class termination date, if applicable, with respect to each
series or class, as applicable, but in no event will new intangible transition
charges be imposed for service periods later than December 31, 2008. Upon the
series termination date or class termination date, as applicable, relating to
the series or class, as applicable, of transition bonds having the latest series
termination date or class termination date, as applicable, the servicer will
cease assessing the Intangible Transition Charges. However, the servicer, or
electric generation supplier or other third-party biller, will continue to
collect the Intangible Transition Charges previously billed to customers. To the
extent that ITC Collections exceed the amount necessary to amortize fully all
transition bonds and pay interest on the transaction bonds and applicable fees
and expenses and to fund the Overcollateraliza-
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tion Subaccount and Capital Subaccount, those ITC Collections will be retained
by the issuer.
The ITC Adjustment Process. In order to enhance the likelihood that the
actual ITC Collections are neither more nor less than the amount necessary,
among other things, to amortize the transition bonds of each series in
accordance with the Expected Amortization Schedule therefor, to replenish the
Capital Subaccount up to the Required Capital Amount and to fund the
Overcollateralization Subaccount to the Calculated Overcollateralization Level,
the Servicing Agreement requires the servicer to seek, and the Pennsylvania
Competition Act and the QRO require the PUC to approve, adjustments to the
Intangible Transition Charges based on actual ITC Collections and updated
assumptions by the servicer as to projected future sales from which Intangible
Transition Charges are allocated, expected delinquencies and write-offs, and
future expenses relating to Intangible Transition Property and the transition
bonds. Adjustments will be made to the Intangible Transition Charges imposed
upon customers to reflect shortfalls in or excesses of ITC Collections for the
period since the last adjustment, including amounts of shortfalls or excesses
resulting from inaccurate forecasts by the servicer. For example, if actual
electricity consumption is less than the servicer forecasted because of an
unusually mild summer, and this resulted in an ITC Collection shortfall, the
servicer would be required to seek an adjustment from the PUC to the Intangible
Transition Charges imposed thereafter to compensate for that shortfall as
described in this section and in "The Servicing Agreement--Servicing
Procedures--ITC Adjustment Process" in this prospectus.
In addition, the adjustments will take into account any projected trends in
customers or billed revenues from which intangible transition charges are
allocated in order to prevent shortfalls or excesses of ITC Collections from
arising in future periods so that if, for example, usage is declining at an
accelerating pace, that trend will be taken into account in the calculation of
the current adjustment. The QRO provides for annual adjustments, except that
adjustments after the period commencing 12 months prior to the last scheduled
payment date for the payment of principal on each series of transition bonds may
be made quarterly or monthly. If at the time of issuance of a series, the
servicer determines that those additional adjustments are required, the dates
for those adjustments will be specified in the prospectus supplement for that
series. These adjustments will cease with respect to a series on the final
Adjustment Date specified in the related prospectus supplement for that series.
The servicer will file an Adjustment Request with the PUC on or before each
Calculation Date, requesting modifications to the Intangible Transition Charges
which are designed, among other things, to result in the outstanding principal
balance of each series equaling the amount provided for in the Expected
Amortization Schedule therefor, the amount on deposit in the
Overcollateralization Subaccount equaling the Calculated Overcollateralization
Level and the amount on deposit in the Capital Subaccount equaling the Required
Capital Amount, by (i) the next Adjustment Date or the payment date immediately
following that Adjustment Date, as specified in the related prospectus
supplement, or (ii) the expected final payment date, as applicable, for each
series, taking
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into account any amounts on deposit in the Reserve Subaccount other than certain
customer prepayments of Intangible Transition Charges, if any, not allocable to
the period covered by the applicable Adjustment Request. The Pennsylvania
Competition Act and the QRO require the PUC to approve those annual adjustments
within 90 days of the Calculation Date. The adjustments to the Intangible
Transition Charges are expected to be implemented on each Adjustment Date. For a
discussion of customer prepayments, see "--Competitive Billing--Termination
Fees" below in this prospectus.
COMPETITIVE BILLING
The Restructuring Plan and subsequent orders of the PUC give customers who
purchase electric generation from electric generation suppliers the opportunity
to choose from several billing source options as of September 1, 1999:
consolidated billing from the utility, consolidated billing from the electric
generation supplier or separate billing from the utility and from the electric
generation supplier providing billing services. Any electric generation supplier
that provides consolidated billing is required to pay the utility amounts billed
by the utility to the electric generation supplier, including the Intangible
Transition Charges, regardless of the electric generation supplier's ability to
collect those amounts from its customers. In that event, the electric generation
supplier will replace the customer as the obligor with respect to those
Intangible Transition Charges, and the servicer, on behalf of the issuer, will
generally have no right to collect those Intangible Transition Charges from the
customer. The servicer will have the right to bill and collect Intangible
Transition Charges and other amounts payable to the servicer directly from all
of the electric generation supplier's consolidated billing customers following
certain payment defaults by an electric generation supplier and the expiration
of the applicable grace period and can disconnect electric service to those
customers. See "Risk Factors--Servicing--It May Be More Difficult to Collect
Intangible Transition Charges Due to Billing By Third Parties" in this
prospectus.
The Restructuring Plan sets forth, and future orders of the PUC will set
forth, guidelines governing metering, billing and other activities by electric
generation suppliers. The PUC has determined that if an electric generation
supplier provides consolidated billing, the electric generation supplier must
first establish its creditworthiness by either:
(1) demonstrating that it has an investment grade rating for its own
long-term debt or
(2) depositing with the PUC a letter of credit or other mechanism
sufficient to cover 30 days of its expected collections from Intangible
Transition Charges.
While the Restructuring Plan and PUC orders provide that an electric
generation supplier that bills customers must comply with all billing, financial
and disclosure requirements applicable to electric generation suppliers, the PUC
may waive any of those requirements at any time in the future. See also "Risk
Factors--Servicing--It May Be More Difficult to Collect Intangible Transition
Charges Due to Billing By Third Parties" in this prospectus.
59
<PAGE> 88
Termination Fees. The Restructuring Plan requires West Penn to allow
certain customers to pay Competitive Transition Charges, and perhaps Intangible
Transition Charges, in a lump sum, based on a calculation that takes into
account each of those customer's last 12 months of demand and West Penn's
weighted average cost of capital. Electric sales revenue attributable to
customers who will be eligible to exercise this option was [ ]% of total
sales revenue for the 1998 fiscal year. Only one customer has elected to
exercise this option to date, but that prepayment will not have any effect on
West Penn's Intangible Transition Charges. Any prepayment of Intangible
Transition Charges will be deposited into the Reserve Subaccount and allocated
pro rata among the outstanding transition bonds in accordance with the principal
amount and remaining months or years to maturity, so as to apply those
prepayments ratably over the remaining life of the outstanding transition bonds.
Only the portion of those customer prepayments allocable to the period covered
by any Adjustment Request will be used to calculate the adjustments to the
Intangible Transition Charges for the period covered by that Adjustment Request.
The recovery of both Competitive Transition Charges and Intangible
Transition Charges from industrial and commercial customers that significantly
reduce their purchases of electricity generation from West Penn through the
installation of onsite generation equipment will be governed by special rules
set forth in the Restructuring Plan. These special arrangements were designed so
that customers who operate generation equipment in parallel with West Penn's
transmission and distribution system pay their fully allocated share of Stranded
Costs through Competitive Transition Charges and Intangible Transition Charges.
For each self-generating customer, the servicer will determine annually, after
the end of each calendar year in which Competitive Transition Charges or
Intangible Transition Charges are assessed, whether that customer purchased at
least 10% fewer kilowatt-hours of electricity through the transmission and
distribution system than the customer purchased in the applicable base year. For
customers who began self-generation on or after January 1, 1997, the base year
is the immediately preceding calendar year. For all others, the base year is
1996.
If the ratio between (1) the amount of usage difference caused by the
onsite generation and (2) the base year usage is 10% or more, the servicer will
bill the customer separately in an amount equal to the difference between (x)
the total Competitive Transition Charges and Intangible Transition Charges that
the customer would have paid using usage and demand data for the base year, as
adjusted for any portion not related to self-generation, and (y) the total
Competitive Transition Charges and Intangible Transition Charges that the
customer did pay in the preceding calendar year. There are other special rules
for customers whose peak load during 1996 was at least 4 megawatts and who can
prove that they were actively self-generating as of December 31, 1996 or
earlier. West Penn does not expect the number of customers who self-generate or
the kilowatt-hours produced by self-generation to be significant. The
calculation of the Intangible Transition Charges and any adjusted Intangible
Transition Charges will reflect actual self-generation at the time of that
calculation and the servicer's projection with respect to future
self-generation.
60
<PAGE> 89
THE SERVICER
WEST PENN POWER COMPANY
RETAIL ELECTRIC SERVICE TERRITORY
West Penn serves 665,000 customers in an area of approximately 10,000
square miles in 24 counties of southwestern and central Pennsylvania. The
service area is primarily rural and suburban, and its economy is significantly
industry-based.
In order better to address the competitive environment for generation of
electricity, West Penn is in the process of establishing a separate subsidiary
to own its electric generation assets. Separation of the generation function
from transmission, distribution, and corporate services will allow for more
flexibility in West Penn's operations.
CUSTOMERS AND OPERATING REVENUES
West Penn's customer base is divided into three general customer categories
(each, a "Customer Category"): residential, commercial and industrial.
Individual rate schedules (each, a "Rate Schedule") are created by the PUC and
are subject to change. Those changes will be reflected in any Adjustment Request
filed with the PUC by the Servicer. The Rate Schedules in each Customer Category
are:
Residential Rate Schedules:
Schedule 10 -- The only residential service schedule, available to all
residential customers in West Penn's service area.
Commercial Rate Schedules:
Schedule 20 -- For small-to-medium commercial and small industrial
customers.
Schedule 22 -- For churches, schools, non-profit colleges and universities.
Closed to new customers as of August 30, 1979.
Schedule 23 -- For athletic field lighting for schools, communities, civic
organizations, and other public institutions. Closed to new
customers as of August 28, 1985.
Schedule 24 -- For fairs, carnivals, and other similar temporary
enterprises.
Tariff 37 -- For Pennsylvania State University Main Campus.
Industrial Rate Schedules:
Schedule 30 -- For customers with demands in excess of 100 kilowatts,
generally large commercial and medium-sized industrial
customers.
Schedule 40 -- For customers with demands in excess of 2000 kilowatts and
service voltages in excess of 25 kilovolts, generally large
industrial customers.
Schedule 41 -- For customers with demands in excess of 2000 kilowatts and
service voltages in excess of 25 kilovolts, generally large
industrial customers. Closed to new customers as of December
31, 1998
61
<PAGE> 90
Schedule 44 -- For customers with interruptible demands in excess of 5000
kilovolt-amperes and service voltages in excess of 25
kilovolts, generally large industrial customers able to
withstand interruptions in service. Closed to new customers
as of December 31, 1998.
Schedule 46 -- For customers with demands in excess of 30,000
kilovolt-amperes and service voltages in excess of 25
kilovolts, generally very large industrial customers. Closed
to new customers as of December 31, 1998.
Schedules 51-56 -- For various types of street and outdoor lighting. Closed
to new customers as of June 6, 1997.
Schedules 57-59 -- For outdoor lighting of various types.
Schedule 71 -- For municipal street and highway lighting. Closed to new
customers as of August 26, 1978.
Schedules 85 and 86 -- For cogeneration and alternative generation.
Schedule 90 -- For sale of surge suppression devices.
Total Customers. The following tables show, for the last five years, the
number of retail electric customers and the percentage of all retail electric
customers by Rate Schedule (Table 3), retail electric usage by Rate Schedule
(Table 4), and retail electric revenues by Rate Schedule (Table 5). For the pro
forma Intangible Transition Charges assessed to individual Rate Schedules as of
any series issuance date and any adjustment thereto, in each case giving effect
to the issuance of transition bonds on that date, see the related prospectus
supplement. There can be no assurance that total customers, the composition of
total customers by Customer Category and Rate Schedule or usage levels or
revenues for each Customer Category and Rate Schedule will remain at or near the
levels reflected in the following tables.
TABLE 3
RETAIL ELECTRIC CUSTOMERS FOR THE YEAR ENDED
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
------------------ ------------------ ------------------ ------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
NUMBER OF % OF NUMBER OF % OF NUMBER OF % OF NUMBER OF % OF NUMBER OF % OF
CUSTOMERS TOTAL CUSTOMERS TOTAL CUSTOMERS TOTAL CUSTOMERS TOTAL CUSTOMERS TOTAL
--------- ------ --------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESIDENTIAL
Schedule 10 564,940 86.98% 569,897 86.83% 571,938 86.89% 575,526 86.61% 579,194 86.53%
Sub-Total 564,940 86.98% 569,897 86.83% 571,938 86.89% 575,526 86.61% 579,194 86.53%
COMMERCIAL
Schedule 20 72,148 11.11% 73,837 11.25% 75,214 11.40% 76,485 11.51% 78,024 11.66%
Schedule 22 1,961 0.30% 1,858 0.28% 1,748 0.26% 1,724 0.26% 1,608 0.24%
Schedule 23 47 0.01% 44 0.01% 40 0.01% 38 0.01% 38 0.01%
Schedule 24 3 0.00% 5 0.00% 4 0.00% 5 0.00% 7 0.00%
Tariff 37 1 0.00% 1 0.00% 1 0.00% 1 0.00% 1 0.00%
Sub-Total 74,160 11.42% 75,745 11.54% 77,007 11.67% 78,253 11.78% 79,678 11.90%
</TABLE>
62
<PAGE> 91
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
------------------ ------------------ ------------------ ------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
NUMBER OF % OF NUMBER OF % OF NUMBER OF % OF NUMBER OF % OF NUMBER OF % OF
CUSTOMERS TOTAL CUSTOMERS TOTAL CUSTOMERS TOTAL CUSTOMERS TOTAL CUSTOMERS TOTAL
--------- ------ --------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL
Schedule 30 2,278 0.35% 2,256 0.34% 2,247 0.34% 2,291 0.34% 2,322 0.35%
Schedule 40 83 0.01% 88 0.01% 91 0.01% 97 0.01% 99 0.01%
Schedule 41 3 0.00% 2 0.00% 2 0.00% 2 0.00% 1 0.00%
Schedule 44 2 0.00% 2 0.00% 1 0.00% 1 0.00% 1 0.00%
Schedule 46 2 0.00% 2 0.00% 2 0.00% 2 0.00% 2 0.00%
Schedule 86 4 0.00% 4 0.00% 4 0.00% 4 0.00% 4 0.00%
Lighting 8,049 1.24% 8,354 1.27% 8,444 1.28% 8,343 1.26% 8,017 1.20%
Sub-Total 10,421 1.60% 10,708 1.63% 10,791 1.64% 10,740 1.62% 10,446 1.56%
Total 649,521 100.00% 656,350 100.00% 659,726 100.00% 664,519 100.00% 669,318 100.00%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
</TABLE>
West Penn classifies the commercial customer and industrial customer categories
differently for rate-setting purposes than it does for purposes of displaying
the data set forth in Table 3 above and Tables 4, 5, 6, 7, 8 and 9 below.
[describe differences.]
TABLE 4
ACTUAL RETAIL ELECTRIC USAGE (PER MEGAWATT-HOUR "MWH") FOR THE YEAR ENDED
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
------------------- ------------------- ------------------- ------------------- -------------------
% OF % OF % OF % OF % OF
MWH TOTAL MWH TOTAL MWH TOTAL MWH TOTAL MWH TOTAL
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESIDENTIAL
Schedule 10 5,748,127 34.04% 5,767,542 33.08% 5,948,711 33.28% 5,766,850 32.22% 5,809,350 32.10%
Sub-Total 5,748,127 34.04% 5,767,542 33.08% 5,948,711 33.28% 5,766,850 32.22% 5,809,350 32.10%
COMMERCIAL
Schedule 20 2,018,381 11.95% 2,090,358 11.99% 2,153,748 12.05% 2,168,078 12.12% 2,216,039 12.25%
Schedule 22 98,538 0.58% 89,102 0.51% 81,534 0.46% 64,818 0.36% 52,501 0.29%
Schedule 23 511 0.00% 474 0.00% 470 0.00% 477 0.00% 499 0.00%
Schedule 24 33 0.00% 23 0.00% 22 0.00% 21 0.00% 27 0.00%
Tariff 37 198,979 1.18% 208,512 1.20% 211,766 1.18% 211,579 1.18% 222,083 1.23%
Sub-Total 2,316,442 13.72% 2,388,469 13.70% 2,447,540 13.69% 2,444,973 13.66% 2,491,149 13.77%
INDUSTRIAL
Schedule 30 3,857,797 22.84% 3,927,383 22.52% 3,971,239 22.22% 4,047,248 22.62% 4,071,011 22.50%
Schedule 40 3,077,059 18.22% 3,355,885 19.25% 3,540,235 19.81% 3,978,829 22.23% 3,820,137 21.11%
Schedule 41 106,216 0.63% 46,904 0.27% 46,300 0.26% 46,786 0.26% 19,068 0.11%
Schedule 44 118,103 0.70% 117,590 0.67% 72,775 0.41% 69,027 0.39% 78,958 0.44%
Schedule 46 1,583,201 9.37% 1,751,510 10.05% 1,766,040 9.88% 1,460,804 8.16% 1,723,975 9.53%
Schedule 86 9 0.00% 31 0.00% 182 0.00% 3 0.00% 15 0.00%
Lighting 80,639 0.48% 80,951 0.46% 81,182 0.45% 81,181 0.45% 81,271 0.45%
Sub-Total 8,823,024 52.25% 9,280,264 53.22% 9,477,953 53.03% 9,683,878 54.11% 9,794,435 54.13%
Total 16,887,593 100.00% 17,436,275 100.00% 17,874,204 100.00% 17,895,701 100.00% 18,094,934 100.00%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
</TABLE>
63
<PAGE> 92
TABLE 5
RETAIL ELECTRIC REVENUES (DOLLARS IN THOUSANDS) FOR THE YEAR ENDED
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
----------------- ----------------- ----------------- ----------------- -----------------
% OF % OF % OF % OF % OF
$(000S) TOTAL $(000S) TOTAL $(000S) TOTAL $(000S) TOTAL $(000S) TOTAL
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESIDENTIAL
Schedule 10 $376,023 40.74% $395,209 40.18% $403,243 40.54% $389,460 39.76% $381,918 39.88%
Sub-Total 376,023 40.74% 395,209 40.18% 403,243 40.54% 389,460 39.76% 381,918 39.88%
COMMERCIAL
Schedule 20 $130,657 14.16% $140,324 14.27% $143,273 14.40% $143,473 14.65% $140,749 14.70%
Schedule 22 6,597 0.71% 6,518 0.66% 5,969 0.60% 4,810 0.49% 3,539 0.37%
Schedule 23 75 0.01% 76 0.01% 72 0.01% 71 0.01% 65 0.01%
Schedule 24 4 0.00% 4 0.00% 3 0.00% 3 0.00% 4 0.00%
Tariff 37 8,490 0.92% 9,233 0.94% 9,263 0.93% 9,049 0.92% 9,120 0.95%
Sub-Total 145,823 15.80% 156,145 15.88% 158,580 15.94% 157,406 16.07% 153,477 16.02%
INDUSTRIAL
Schedule 30 $194,859 21.11% $206,145 20.96% 205,646 20.67% $208,172 21.25% $203,325 21.23%
Schedule 40 121,857 13.20% 136,249 13.85% 140,287 14.10% 152,368 15.56% 142,684 14.90%
Schedule 41 4,713 0.51% 2,142 0.22% 2,204 0.22% 2,090 0.21% 756 0.08%
Schedule 44 4,305 0.47% 4,296 0.44% 2,582 0.26% 1,944 0.20% 2,207 0.23%
Schedule 46 64,478 6.99% 71,817 7.30% 70,653 7.10% 56,485 5.77% 61,748 6.45%
Schedule 86 33 0.00% 37 0.00% 42 0.00% 39 0.00% 38 0.00%
Lighting 10,944 1.19% 11,494 1.17% 11,537 1.16% 11,554 1.18% 11,620 1.21%
Sub-Total 401,189 43.46% 432,180 43.94% 432,951 43.52% 432,652 44.17% 422,378 44.10%
Total $923,035 100.00% $983,534 100.00% $994,774 100.00% $979,518 100.00% $957,773 100.00%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
</TABLE>
CONCENTRATIONS. For the period ended December 31, 1998, the largest ten
residential customers represented less than 1% of West Penn's total retail
electric revenues. For the period ended December 31, 1998, the largest
commercial customer and the largest ten commercial customers represented
approximately 6.15% and 6.85%, respectively, of West Penn's retail electric
revenues from commercial customers. For the period ended December 31, 1998, the
largest industrial customer and the largest ten industrial customers represented
approximately 9.17% and 29.31%, respectively, of West Penn's retail electric
revenues from industrial customers. For the period ended December 31, 1998, the
largest ten residential customers represented less than 1% of West Penn's total
retail electric sales. For the period ended December 31, 1998, the largest
commercial customer and the largest ten commercial customers represented
approximately 8.94% and 9.66%, respectively, of West Penn's retail electric
sales from commercial customers. For the period ended December 31, 1998, the
largest industrial customer and the largest ten industrial customers represented
approximately 10.73% and 33.08%, respectively, of West Penn's retail electric
sales from industrial customers. There can be no assurance that current
customers will remain customers or that the levels of customer concentration in
the future will be similar to those set forth above. See "Risk
Factors--Servicing--Inaccurate Projections by Servicer May Result in Losses to
Transition Bondholders" in this prospectus.
64
<PAGE> 93
Delinquency and Write-Off Experience. The following tables set forth the
delinquency and write-off experience with respect to payments to West Penn by
Customer Category for each of the periods indicated below. There can be no
assurance that the future delinquency and write-off experience for West Penn or
for the Intangible Transition Charges will be similar to the historical
experience set forth below:
TABLE 6
DELINQUENCIES AS A PERCENTAGE OF BILLED RETAIL ELECTRIC REVENUES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
--------------------------------------------------------
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
RESIDENTIAL
30+ days........................ 1.332% 1.234% 1.293% 1.231% 1.228%
60+ days........................ 0.532 0.506 0.608 0.421 0.417
90+ days........................ 0.172 0.155 0.255 0.154 0.147
120+ days....................... 0.102 0.102 0.258 0.170 0.160
COMMERCIAL
30+ days........................ 0.206% 0.263% 0.380% 0.330% 0.407%
60+ days........................ 0.045 0.042 0.106 0.070 0.053
90+ days........................ 0.015 0.016 0.043 0.031 0.028
120+ days....................... 0.027 0.020 0.059 0.071 0.040
INDUSTRIAL
30+ days........................ 0.075% 0.138% 0.192% 0.090% 0.138%
60+ days........................ 0.020 0.076 0.030 0.038 0.024
90+ days........................ 0.012 0.006 0.012 0.037 0.019
120+ days....................... 0.016 0.007 0.009 0.009 0.003
</TABLE>
- ------------
TABLE 7
NET WRITE-OFFS AS A PERCENTAGE OF BILLED RETAIL ELECTRIC REVENUES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
--------------------------------------------------------
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
RESIDENTIAL....................... 0.84% 0.92% 1.36% 1.57% 1.37%
COMMERCIAL........................ 0.07 0.06 0.09 0.21 0.19
INDUSTRIAL........................ 0.05 0.05 0.28 0.18 0.12
TOTAL............................. 0.38 0.41 0.68 0.74 0.64
</TABLE>
- ------------
During the last five years, an increased number of bankruptcy filings have
resulted in an increase in delinquencies and net write-offs in the residential
and industrial Customer Categories. In addition, all Customer Categories were
affected by Allegheny Energy's internal reorganization that occurred in 1996. As
part of that reorganization, credit and collection responsibilities, which had
been performed by field locations, were transferred to a centralized customer
call center. In the later part of 1996 and most of 1997, Allegheny Energy
focused primarily on answering customer calls on a timely basis with other
functions including credit and collection being a secondary concern. Beginning
65
<PAGE> 94
in 1998, Allegheny Energy once again began to emphasize credit and collection
practices, which contributed to a 14% reduction in losses in 1998.
West Penn does not expect the delinquency or write-off experience with
respect to ITC Collections to differ substantially from the rates indicated
above.
FORECASTING CUSTOMERS AND USAGE
Accurate projections of the number of customers, usage and retail electric
revenue are important in setting and maintaining the Intangible Transition
Charges or any adjusted Intangible Transition Charges at levels sufficient to
recover interest on and principal of the transition bonds in accordance with the
Expected Amortization Schedule, to maintain the Calculated Overcollateralization
Level, to maintain the Required Capital Amount and to pay the bond trustee's
fee, the administrative agent's fee, the Servicing Fee and the other expenses
and costs included in Qualified Transition Expenses. See "The QRO and the
Intangible Transition Charges--The Intangible Transition Charges" and "Risk
Factors--Servicing--Inaccurate projections by Servicer May Result in Losses to
Transition Bondholders" in this prospectus.
West Penn's customer and energy forecasts are a subset of the Allegheny
Power forecasts and are produced by employees of Allegheny Power Service
Corporation ("APSC") using econometrics and end-use models based on demographic
data, historical sales and customer data, and projections of economic and
employment variables for West Penn's service territory produced by Data
Resources Inc. ("DRI"). DRI is an independent, nationally-known economic
forecasting firm. West Penn's service area forecasts are derived from DRI's
macroeconomic models of the U.S. economy. A set of disaggregated customer and
energy sales models use the national and service area economic forecasts and
end-use data as inputs to produce the detailed customer and sales forecasts.
Although the external economic projections form the foundation of the forecast,
judgment, assumptions and specific information about certain customer segments
provided by APSC employees also play important roles in the final forecast. West
Penn's forecasts of customers and energy sales are reviewed and approved
internally by senior management executives.
Residential customer sales are forecasted using a combination of end-use
and econometric models. Separate forecasts of customers and average use per
customer are combined to produce the forecast of residential customer sales. The
customer forecasts are based primarily on service area demographics and
population forecasts. Average use per customer forecasts are based on
electricity price, weather and saturations of electric space heating and major
household appliances and their corresponding levels of energy use. The model for
total residential customers is driven by population and persons per household in
the service area. Historical and forecast values of the population series are
obtained through DRI's Regional Information Service. Persons per household are
derived from Residential Appliance Saturation Surveys, and are forecasted as a
function of national persons per household, also obtained from DRI. The number
of residential electric heat customers is typically modeled as a function of
real income per customer, total residential customers and the price of
electricity relative to the competing fuel. The
66
<PAGE> 95
models for average use per customer are driven by use per appliance, number of
appliances, temperature and price of electricity. Regional personal income is
the primary driver in the appliance models. Some appliance models are
constrained so that the number of appliances will not exceed a pre-determined
percentage of total residential customers. The constraints are established in
cooperation with field contacts. The residential customer sales forecast is the
product of the forecast of the average use per customer and the number of
customers.
Service area employment, temperature and price of electricity drive the
models for commercial customer sales. Non-manufacturing employment is used as
the employment driver.
Industrial customer sales are forecasted by major two-digit Standard
Industrial Classification (SIC) codes. The primary specification for the
industrial models assumes that the sale of electricity is a function of
electricity price, employment and industrial production by SIC. Primary SICs
modeled are Mining; Cement, Clay and Stone; Chemicals; Glass; Steel; Fabricated
Metals; and Other Manufacturing.
Actual sales can deviate from forecasted sales for many reasons, including,
but not limited to, weather variations, changes in the general economic climate
and levels of business activity, customer's use of more energy efficient
appliances and technologies, and changes in laws and regulations which affect
energy use.
The temperature-sensitive nature of the residential, commercial and
wholesale loads in the West Penn service territory causes deviations from normal
weather to be potentially the largest contributor to load variances in the
near-term. As the number of electrically-heated and air conditioned buildings in
the service area increases, the sensitivity of demand to temperature also
increases. All West Penn forecasts are intended to represent loads most likely
to occur, given normal temperatures. Therefore, variances from the forecast due
to temperature deviations from normal are to be expected, but should offset over
time and have no effect on average growth.
Variations between actual and projected customers and energy sales are
shown in Table 8 and Table 9. Weather variation played a significant role in the
forecast variances experienced in 1997 and 1998, particularly for the
residential and commercial Customer Categories. The forecast variance for the
industrial Customer Category in 1998 was due in large part to an unanticipated
decline in steel load and one large customer which began to self-generate. There
can be no assurance that the future variance between actual and projected
customers and sales in the aggregate, or by Customer Category, will be similar
to the historical experience set forth in the tables.
67
<PAGE> 96
TABLE 8
VARIANCE FROM YEAR-AHEAD FORECAST: NUMBER OF CUSTOMERS
FOR THE YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
RESIDENTIAL
Forecasted............................. 570,494 576,399 581,899 584,460 586,512
Actual................................. 571,682 576,372 578,465 581,943 585,316
Variance............................... 0.2% 0.0% -0.6% -0.4% -0.2%
COMMERCIAL
Forecasted............................. 65,562 68,067 69,232 70,263 71,350
Actual................................. 65,896 67,720 68,764 69,941 71,158
Variance............................... 0.5% -0.5% -0.7% -0.5% -0.3%
INDUSTRIAL
Forecasted............................. 11,280 11,538 11,870 12,144 12,351
Actual................................. 11,398 11,666 11,940 12,076 12,307
Variance............................... 1.0% 1.1% 0.6% -0.6% -0.4%
STREETLIGHTING
Forecasted............................. 520 553 550 566 563
Actual................................. 547 557 558 561 539
Variance............................... 5.2% 0.7% 1.5% -0.9% -4.3%
</TABLE>
TABLE 9
VARIANCE FROM YEAR-AHEAD FORECAST: ENERGY SALES (GWH)
FOR THE YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
RESIDENTIAL
Forecasted....................................... 5,697 5,826 5,844 5,974 6,127
Actual........................................... 5,763 5,781 5,963 5,781 5,823
Variance......................................... 1.2% -0.8% 2.0% -3.2% -5.0%
COMMERCIAL
Forecasted....................................... 3,640 3,741 3,856 3,986 4,080
Actual........................................... 3,632 3,769 3,854 3,872 3,993
Variance......................................... -0.2% 0.7% -0.1% -2.9% -2.1%
INDUSTRIAL
Forecasted....................................... 7,604 7,659 8,204 8,256 8,608
Actual........................................... 7,442 7,834 8,006 8,191 8,226
Variance......................................... -2.1% 2.3% -2.4% -0.8% -4.4%
STREETLIGHTING
Forecasted....................................... 53 51 52 52 52
Actual........................................... 52 52 52 52 52
Variance......................................... -1.9% 2.0% 0.0% 0.0% 0.0%
</TABLE>
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<PAGE> 97
BILLING PROCESS
West Penn operates on a continuous billing cycle, with an approximately
equal number of bills being distributed each business day. For the year ended
December 31, 1998, West Penn mailed out an average of 33,000 bills daily. West
Penn bills the majority of its customers monthly. Accounts with potential
billing errors are held by the computer system for review. This review examines
accounts that have abnormally high or low bills, potential meter-reading errors,
safety problems as identified by the meter-reading staff and possible meter
malfunctions. Subject to statutory and legal requirements, West Penn may change
its billing policies and procedures from time to time. It is expected that any
of these changes would be designed to enhance West Penn's ability to make timely
recovery of amounts billed to customers.
LIMITED INFORMATION ON CUSTOMERS' CREDITWORTHINESS
Under the Servicing Agreement, any changes instituted by West Penn will
apply to the servicing of Intangible Transition Property so long as West Penn is
the servicer.
Under Pennsylvania law, West Penn is obligated to provide service to new
customers in the residential Customer Category. West Penn initiated a Customer
Verification Process in May 1999. The primary purpose of this process is to
verify the social security number of new customers. If the customer is unwilling
to provide, or if West Penn is unable to verify, the provided social security
number, the customer will be required to complete a notarized service
application to obtain electric service. West Penn is currently reviewing options
that can be taken at the earliest stages to reduce the costs associated with
delinquent accounts. West Penn relies on the information provided by the
customer and its customer information system audits to indicate whether the
customer has been previously served by West Penn.
PAYMENT PLANS
As part of its obligation to provide universal service, West Penn will
continue the reduced payment program (the Low Income Payment and Usage Reduction
Program (LIPURP)) provided to certain low income customers who are currently
served under or otherwise qualify for Rate Schedule 10. Customers must be
referred to this program or request admittance and must demonstrate annual
household gross income below 150% of the federal poverty guidelines. Customers
in LIPURP will be placed on a payment plan based on a percentage of income or
annualized average payment. An additional $5.00 per month payment will be
required toward the pre-program arrearages. A LIPURP debt reduction incentive
will be awarded to those customers that reach yearly recertification and have
less than three late payments during their program year. If the customer meets
these criteria, 20% of their accounts receivable balance will be applied to any
existing pre-program arrearage. West Penn has established the following funding
levels through the year 2002: $1,750,000 for 1999; $3,130,000 for 2000;
$4,510,000 for 2001; and $5,880,000 for 2002. After 2002, West Penn expects the
annual costs of LIPURP to be $5.88 million. Pursuant to the Restructuring Plan,
West Penn estimates 18,000 customers will participate in LIPURP annually. This
ensures all eligible
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customers are able to participate yet not exceed the total annual LIPURP costs
of $5.88 million. As of March 30, 1999, there were approximately 300 customers
enrolled in the LIPURP. Pursuant to the provisions of the Pennsylvania
Competition Act, the PUC has adopted regulations which establish reporting
requirements for universal service programs, such as LIPURP, that are applicable
to all electric distribution companies, including West Penn.
As of [ ], 1999, approximately 31,000 of West Penn's customers
have entered into payment plans with West Penn, including those customers
enrolled in LIPURP. The total amount of billings under these payment plans is
approximately $14 million. Under these payment plans, West Penn customers agree
to pay delinquent bills over a period of time negotiated between West Penn and
each customer. Once a payment plan is entered into, the amount covered under
that plan is no longer considered delinquent unless that customer subsequently
fails to make any payment required to be paid on the date specified under that
customer's payment plan.
In 1998, approximately 78% of total bill payments were received by West
Penn via the U.S. Mail. During the same period, approximately 14% of total
payments were paid in person at approximately 200 payment agencies (which are
located in unaffiliated businesses or organizations, such as supermarkets and
convenience stores) throughout the retail electric service territory. Other
payment methods include credit card payments and direct debits of customer
accounts through local banks, which accounted for approximately 8% of bill
payments collected in 1998.
COLLECTION PROCESS FOR THE RESIDENTIAL CUSTOMER CATEGORY
Customer bills are due approximately 20 days after mailing. If the customer
does not pay the bill by the due date, the customer will not be considered for
termination until the next bill is rendered, which is approximately 30 days from
the last mailing date. West Penn's collection process is based on delinquent
balance and an internal credit score, which is derived from the customer's
credit history with West Penn. Each delinquent customer is scored for
approximate risk based on outstanding balance, payment habits, and previous
termination history. The score has been used since late 1996 to segment
customers into three specific collection strategies. The lowest risk customers
are sent a friendly reminder letter with no collection activity, since most
customers in this category usually pay late and pay the associated finance
charges. The next segment of customers are moved into a proactive collection
program which is a reminder letter and a collection call strategy designed to
remind the customer of the delinquency. Customers in the third segment are moved
into an aggressive service termination process that is initiated by mailing a
ten-day termination notice. If no payment is made within four business days of
the termination date, a 72-hour personal contact is attempted by telephone. If
the initial phone attempt is unsuccessful, a second attempt is made on the next
business day after 6 p.m. If two telephone attempts are not completed, a 72-hour
notice will be given at the property. If sufficient payment has not been
received by the termination date, the account is sent for service termination by
a designated West Penn employee. If the designated employee makes contact with a
responsible adult, the service is terminated. If the designated employee does
not make
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contact, a 48-hour deferred notice is left. Two days later, the service is
terminated with or without contact if sufficient payment has not been made.
Power is not customarily disconnected if the delinquent customer is subject
to a PUC mandated winter moratorium (the "Winter Moratorium"), which requires
special approval from the PUC prior to the disconnection of electricity of
certain customers in the residential Customer Category from December 1 through
March 31 of each year. Currently, these accounts are managed during the Winter
Moratorium through a combination of letters, proactive phone contacts and
negotiated payment plans. Delinquencies which accumulate during the Winter
Moratorium continue to contribute to the credit scoring, which can lead to
termination after the Winter Moratorium.
If a customer's account is finaled, either because the customer has moved
or the customer has failed to remedy a delinquent account, the account is acted
upon with a series of letters and phone contact. When collection efforts prove
unsuccessful, the account is placed with an outside agency at approximately 169
days from the date the initial bill was issued. Once written off, the
uncollected account is monitored for four years and may be collected at any
point during that time.
If a customer declares bankruptcy, a review is conducted to assess whether
the account is current. The accounts of bankrupt customers having delinquencies
are finaled, and efforts are initiated to submit claims in the bankruptcy of
these customers. Deposits are required for delinquent bankrupt customers for
which West Penn is required to continue services. These deposits are maintained
until the bankruptcy claimed is finaled and payment history is deemed
satisfactory.
COLLECTION PROCESS FOR THE COMMERCIAL AND INDUSTRIAL CUSTOMER CATEGORY
Customer bills are due approximately 15 days after mailing. If the customer
does not pay the bill by the due date, the customer will not be considered for
termination until the next bill is rendered, which is approximately 30 days from
the last mailing date. West Penn's collection process is based on delinquent
balance and an internal credit score, which is derived from the customer's
credit history with West Penn. In addition, the collection process of selective
large commercial and industrial customers is based on providing special handling
of accounts and attention to detail because of the importance of each customer
as a source of revenue. The delinquency of individual customers may result from
differing circumstances, and it is the operational policy of West Penn in
serving these accounts to have a firm understanding of individual customers so
that the collection strategy can be matched to the particular account, while
ensuring that regulations are followed and collection actions are performed
legally. Each delinquent customer is scored for approximate risk based on
outstanding balance, payment habits, and previous termination history. The score
has been used since late 1996 to segment customers into three specific
collection strategies. The lowest risk customers are sent a friendly reminder
letter with no collection activity, since most customers in this category
usually pay late and pay the associated finance charges. The next segment of
customers are moved into a proactive collection program which is a reminder
letter and a collection call strategy designed to remind the customer of the
delinquency. Customers in the third
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<PAGE> 100
segment are moved into an aggressive service termination process that is
initiated by mailing a ten-day termination notice. If no payment is made within
four business days of the termination date, a 72-hour personal contact is
attempted by telephone. If the initial phone attempt is unsuccessful, a second
attempt is made on the next business day after 6 p.m. If two telephone attempts
are completed, a 72-hour notice will be given at the property. If sufficient
payment has not been received by the termination date, the account is sent for
service termination by a designated West Penn employee. Service is terminated
with or without field contact if sufficient payment has not been made.
If a customer's account is finaled, either because the customer has moved
or the customer has failed to remedy a delinquent account, the account is acted
upon with a series of letters and phone contact. When collection efforts prove
unsuccessful, the account is placed with an outside agency at approximately 128
days from the date the initial bill was issued. Once written off, the
uncollected account is monitored for four years and may be collected at any
point during that time.
If a customer declares bankruptcy, a review is conducted to assess whether
the account is current. The accounts of bankrupt customers having delinquencies
are finaled, and efforts are initiated to submit claims in the bankruptcy of
these customers. Deposits are required for delinquent bankrupt customers for
which West Penn is required to continue services. These deposits are maintained
until the bankruptcy claimed is finaled and payment history is deemed
satisfactory.
APPLICATION OF CUSTOMER PAYMENTS
The Pennsylvania Competition Act provides that the PUC require the
unbundling of electric utility services, tariffs and customer bills to separate
the charges for generation, transmission and distribution for billing cycles
beginning in January, 1999. In the event that a customer makes a partial payment
toward an outstanding balance, the payment will be applied first to Intangible
Transition Charges, when implemented, then to the Competitive Transition
Charges, then to transmission and distribution charges and finally to electric
generation charges.
West Penn offers two billing options to choice customers. A customer may
elect to receive a single bill from West Penn which would include charges
incurred from the electric supplier and West Penn or the customer may elect dual
billing. With dual billing, the customer will receive one bill from the electric
generation supplier for electric generation and one bill from West Penn for
Intangible Transition Charges, Competitive Transition Charges and transmission
and distribution charges. Pursuant to the Settlement, a third option, a single
bill from the electric generation supplier containing West Penn's charges will
be implemented on or after September 1, 2000.
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West Penn's electric tariff approved by the PUC in the Restructuring Plan
provides that when West Penn is providing dual billing and a customer remits a
partial payment to West Penn, the payment will be applied as follows:
(1) To the outstanding balance before direct access to electric
generation from electric generation suppliers or the installment amount for
a payment agreement on this balance;
(2) To the balance due for state tax charges;
(3) To the balance due or the installment amount for a payment
agreement for Intangible Transition Charges, when implemented;
(4) To the balance due or the installment amount for a payment
agreement for Competitive Transition Charges;
(5) To the balance due or the installment amount for a payment
agreement for fixed and variable utility distribution service charges;
(6) To the current state tax charges;
(7) To the current Intangible Transition Charges, when implemented;
(8) To the current Competitive Transition Charges;
(9) To the current fixed and variable utility distribution service
charges;
(10) To the balance due for prior charges for energy and capacity (if
West Penn is the provider of last resort);
(11) To the current charges for energy and capacity charges (if West
Penn is the provider of last resort); and
(12) To the non-basic service charges.
If the customer elects the single bill option and remits a partial payment,
the payment is applied as follows using the allocation among the charges as
detailed under the dual bill option:
(1) West Penn's past due bills for basic service charges;
(2) West Penn's current bills for basic service charges;
(3) Suppliers' past due bills for basic service charges;
(4) Suppliers' current bills for basic service charges;
(5) West Penn's past due bills for non-basic service charges;
(6) West Penn's current bills for non-basic service charges;
(7) Suppliers' past due bills for non-basic service charges; and
(8) Suppliers' current bills for non-basic service charges.
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ELECTRIC GENERATION SUPPLIERS AND OTHER THIRD-PARTY BILLERS
The servicer, on behalf of the issuer, will pursue any electric generation
supplier or other third party that fails to remit the applicable Intangible
Transition Charges in a manner similar to that by which the servicer will pursue
any failure by a customer to remit Intangible Transition Charges. The servicer
will have the right to bill and collect Intangible Transition Charges and other
amounts payable to the issuer or the servicer directly from all customers
electing consolidated billing from an electric generation supplier or other
third party as follows: if the servicer does not receive payment for undisputed
charges within 25 calendar days for customers in the residential Customer
Category or 20 calendar days for customers in the commercial and industrial
Customer Categories after the charges are communicated to the electric
generation supplier or other third party, then the servicer may provide notice
of breach to the electric generation supplier or other third party at any time
thereafter, at the servicer's discretion. Upon notice of a breach, the electric
generation supplier or other third party will have 20 calendar days to cure that
breach. If the electric generation supplier or other third party has not cured
that breach within 20 calendar days, the servicer may terminate consolidated
billing by the electric generation supplier or other third party and take over
billing functions for the customer. In no event will these procedures result in
a customer being sent two bills covering the same service. Neither West Penn nor
the servicer will pay any shortfalls resulting from the failure of any electric
generation suppliers or other third parties to forward ITC Collections to the
servicer. See "Risk Factors--Servicing--It May Be More Difficult to Collect
Intangible Transition Charges Due to Billing By Third Parties" in this
prospectus.
YEAR 2000 COMPLIANCE
West Penn is faced with the task of addressing the Year 2000 issue. The
Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year and other programming
techniques which constrain date calculations or assign special meanings to
certain dates. Any of West Penn's computer systems that have date-sensitive
software or microprocessors may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations of West Penn, in its capacity
as servicer, or of any successor servicer, electric generation suppliers or
other third parties, including, among other things, a temporary inability to
deliver electricity, measure usage, read meters, process transactions, send
bills or operate electric generation stations. In addition, the Year 2000 issue
could affect the ability of customers to receive bills sent by West Penn or make
payments on those bills. West Penn has not investigated and has no intention of
investigating the Year 2000 issue as it relates to any customer's ability to
receive bills sent by West Penn or make payments on bills. See "Risk
Factors--Servicing--Potential Computer Program Problems Beginning In The Year
2000 May Result in Payment Delays on Transition Bonds" in this prospectus.
To minimize problems related to the Year 2000 issue, West Penn is
proceeding with a comprehensive effort to continue operations without
significant problems in 2000 and
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beyond. An Executive Task Force is coordinating the efforts of 24 separate Year
2000 teams, representing all business and support units in West Penn.
In May 1998, the North American Electric Reliability Council (NERC), of
which West Penn is a member, accepted a request from the United States
Department of Energy to coordinate the industry's Year 2000 efforts. The
electric utility industry and West Penn have segmented the Year 2000 problem
into the following components:
-- Computer hardware and software;
-- Embedded chips in various equipment; and
-- Vendors and other organizations on which West Penn relies for
critical materials and services.
The industry's and West Penn's efforts for each of these three components
include assessment of the problem areas and remediation, testing and contingency
plans for critical functions for which remediation and testing are not possible
or which do not provide reasonable assurance. Contingency plans include
alternate methods of certain operations to help avoid electric service or
business interruptions, and the review and update of restoration of service
plans to mitigate the severity and length of interruptions in the unlikely event
that any should occur.
The NERC has established a goal of having the industry achieve a state of
Year 2000 readiness for critical systems by June 30, 1999, and, to monitor
progress, requires each utility to prepare and submit a monthly report showing
progress and dated plans. By order dated July 9, 1998, the PUC initiated a
proceeding requiring each utility that cannot meet a Year 2000 readiness date of
March 31, 1999, for mission critical systems to file contingency plans by that
date. On March 30, 1999, West Penn reported to the PUC that, except for a few
items, its critical electricity production and delivery systems were Year 2000
ready pending final confirmation system testing of its power stations in April
and May. West Penn has determined that as of June 30, 1999, all of its critical
components and systems related to safety and the production and distribution of
electricity and nearly all of its important business systems, including
accounting and billing, are Year 2000 ready. West Penn anticipates that the
remediation and testing work on the remaining business and non-critical systems
will be completed by September 30, 1999. West Penn has defined Year 2000 ready
to mean that a determination has been made by testing or other means that a
component or system will be able to perform its critical functions, or that
contingency plans are in place to overcome any inability to do so.
Integrated electric utilities are uniquely reliant on each other to avoid,
in a worst case situation, cascading failure of the entire electrical system.
West Penn is working with the Edison Electric Institute, the Electric Power
Research Institute, the NERC and the East Central Area Reliability Agreement
Group to capitalize on industry-wide experiences and to participate in
industry-wide testing and contingency planning. The NERC, on January 11, 1999,
issued a press release stating, based on the individual NERC reports it had
received from 98% of the electrical industry, that "although there
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is clearly much more work to be done, we have found that North America's
electric power supply and delivery systems are well on their way to being Y2K
ready."
As part of the ongoing NERC program, West Penn participated in an
industry-wide Year 2000 drill on April 9, 1999, and will participate in more
extensive industry-wide drill planned for September 9, 1999. During the April
test, West Penn was able to maintain adequate communications under a simulated
failure of selected systems, and obtained valuable information for improvement
of its plans. NERC has reported that the industry-wide tests produced similar
results. On December 31, 1999, West Penn will have extra staff in critical areas
of the system to implement these and other contingency plans if they are
required.
It is West Penn's opinion that the "most reasonably likely worst case
scenario" is that there could be isolated problems at various West Penn
facilities or at the facilities of neighboring utilities that may have somehow
escaped discovery in the identification, remediation and testing process, and
that these problems may cause isolated disruptions of service. All utilities,
including West Penn, have experience in the implementation of existing emergency
plans and are currently expanding their emergency plans to include contingency
plans to respond quickly to any of these events. West Penn intends to review and
update these plans to minimize any Year 2000 problems.
West Penn is aware of the importance of electricity to its customers and is
using its best efforts to avoid any serious Year 2000 problems. Despite the
Company's best efforts, including working with internal resources, external
vendors and industry associations, West Penn cannot guarantee that it will be
able to conduct all of its operations without Year 2000 interruptions. Any Year
2000 problems could have a material adverse impact on the operations and
financial condition of West Penn and on the collection of Intangible Transition
Charges. The costs associated with the potential impact are speculative and not
presently quantifiable.
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WEST PENN FUNDING CORPORATION
West Penn Funding Corporation, a special purpose corporation organized
under the laws of the State of Delaware, was formed on [ ], 1999.
Pursuant to the Transfer Agreement, West Penn will contribute the Transferred
Intangible Transition Property to West Penn Funding Corporation in exchange for
[ ] shares of the outstanding capital stock of West Penn Funding
Corporation, representing 100% of the outstanding capital stock of West Penn
Funding Corporation. Accordingly, West Penn Funding Corporation will be a wholly
owned subsidiary of West Penn. West Penn Funding Corporation is a recently
formed special purpose corporation and, as of the date of this prospectus, has
not carried on any business activities and has no operating history.
West Penn Funding Corporation has been created for the purpose of owning
the issuer, entering into the LLC Agreement and the Transfer Agreement, selling
the Transferred Intangible Transition Property to the issuer pursuant to the
Sale Agreement, receiving funds from the issuer from the sale of the Transferred
Intangible Transition Property pursuant to the Sale Agreement, making loans to
affiliates -- including making loans, on an arms-length basis, of the net
proceeds from the transition bonds to West Penn or its affiliates in exchange
for interest-bearing notes --, engaging in investing activities and performing
activities that are necessary, suitable or convenient to accomplish these
purposes. Following the sale of the Transferred Intangible Transition Property
to the issuer, West Penn Funding Corporation will have no ownership or other
interest in the Transferred Intangible Transition Property and will have no
right to collect any Intangible Transition Charges.
The Administrative Agent, an affiliate of West Penn, will provide corporate
administrative services, such as providing notices and preparing financial
reports, for West Penn Funding Corporation pursuant to an administrative
agreement between West Penn Funding Corporation and the Administrative Agent
(the "Seller Administration Agreement"). West Penn Funding Corporation will
reimburse the Administrative Agent for the cost of services provided computed in
accordance with the applicable provisions of the Public Utility Holding Company
Act of 1935.
The following is a list of the principal officers and directors of West
Penn Funding Corporation. All of these officers have served in the capacities
set forth below since [ ], 1999, unless otherwise indicated, and
all directors have served in such capacity since [ ], 1999. The
officers and directors will devote that time as is necessary to the affairs of
West Penn Funding Corporation. West Penn Funding Corporation will have
sufficient officers, directors and employees to carry on its business.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------- ---- -------
<S> <C> <C>
[ ] [ ] [ ]
[ ] [ ] [ ]
[ ] [ ] [ ]
</TABLE>
[Brief bio]
[Brief bio]
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<PAGE> 106
[Brief bio]
No compensation has been paid by West Penn Funding Corporation to any
officer or director of West Penn Funding Corporation since West Penn Funding
Corporation was formed. The officers and directors of West Penn Funding
Corporation will not be compensated by West Penn Funding Corporation for their
services on behalf of West Penn Funding Corporation. Each officer serves at the
discretion of West Penn Funding Corporation's board of directors. West Penn
Funding Corporation's organizational documents limit, to the extent permitted by
Delaware law, the personal liability of each officer and director of West Penn
Funding Corporation to West Penn Funding Corporation for monetary damages
resulting from breaches of that officer's or director's duty of care. West Penn
Funding Corporation's organizational documents provide that officers and
directors of West Penn Funding Corporation shall be indemnified against
liabilities incurred in connection with their services on behalf of West Penn
Funding Corporation, including liabilities under applicable securities laws.
West Penn Funding Corporation has no intent to file, and West Penn has
advised West Penn Funding Corporation that it has no intent to cause the filing
of, a voluntary petition for relief under the Bankruptcy Code with respect to
West Penn Funding Corporation so long as West Penn Funding Corporation is
solvent and does not reasonably foresee becoming insolvent.
The Sale Agreement requires West Penn Funding Corporation to take all
reasonable steps to continue its identity as a separate legal entity and to make
it apparent to third persons that it is an entity with assets and liabilities
distinct from those of West Penn, other affiliates or any other person, and
that, except for financial reporting purposes (to the extent required by
generally accepted accounting principles) and for state and federal income and
franchise tax purposes, it is not a division of West Penn or any of its
affiliated entities or any other person.
The principal place of business of West Penn Funding Corporation is c/o
[ ], [ ] and its telephone number is [ ].
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<PAGE> 107
THE ISSUER
West Penn Funding LLC, a special purpose, single member limited liability
company organized under the laws of the State of Delaware, was formed on May 26,
1999 pursuant to a limited liability company agreement (as amended and restated,
the "LLC Agreement"). As of the issuance date of the transition bonds, West Penn
Funding Corporation is the sole member of the issuer. The assets of the issuer
will consist of the Transferred Intangible Transition Property, the other
collateral and any money distributed to the issuer from the Collection Account
in accordance with the indenture. The issuer is a recently formed special
purpose limited liability company and, as of the date of this prospectus, has
not carried on any business activities and has no operating history. Audited
financial statements of the issuer are included as an integral part of this
prospectus.
The issuer has been created for the purpose of purchasing and owning the
Transferred Intangible Transition Property, issuing transition bonds from time
to time, pledging its interest in the Transferred Intangible Transition Property
and other collateral to the bond trustee under the indenture in order to secure
the transition bonds and performing activities that are necessary, suitable or
convenient to accomplish these purposes, including but not limited to activities
relating to any necessary hedge or swap transaction or credit enhancement.
The issuer will enter into the Servicing Agreement with West Penn under
which West Penn, as agent for the issuer, will manage, service and administer,
and make collections in respect of, the Transferred Intangible Transition
Property. See "The Servicing Agreement" in this prospectus.
In addition, Allegheny Power Service Corporation, an affiliate of West
Penn, will provide corporate administrative services, such as providing notices
and preparing financial reports, for the issuer pursuant to an administration
agreement between the issuer and the Administrative Agent (the "Issuer
Administration Agreement", and together with the Seller Administration
Agreement, the "Administration Agreements"). The issuer will reimburse the
Administrative Agent for the cost of services provided computed in accordance
with the applicable provisions of the Public Utility Holding Company Act of
1935.
The following is a list of the principal officers and directors of the
issuer. All of these officers have served in the capacities set forth below
since [ ], 1999, unless otherwise indicated, and all directors
have served in such capacity since [ ], 1999. The officers and
directors will devote that time as is necessary to the affairs of the issuer.
The issuer will have sufficient officers, directors and employees to carry on
its business.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------- ---- -------
<S> <C> <C>
[ ] [ ] [ ]
[ ] [ ] [ ]
[ ] [ ] [ ]
</TABLE>
[Brief bio]
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<PAGE> 108
[Brief bio]
[Brief bio]
No compensation has been paid by the issuer to any officer or director of
the issuer since the issuer was formed. The officers and directors of the
issuer, other than the independent director[s], will not be compensated by the
issuer for their services on behalf of the issuer. The initial compensation for
the independent director[s] will be $[5,000] per year. Each officer serves at
the discretion of the issuer's board of directors. West Penn is an affiliate of
the issuer. The issuer's organizational documents limit, to the extent permitted
by Delaware law, the personal liability of each officer and director of the
issuer to the issuer for monetary damages resulting from breaches of that
officer's or director's duty of care. The issuer's organizational documents
provide that officers and directors of the issuer shall be indemnified against
liabilities incurred in connection with their services on behalf of the issuer,
including liabilities under applicable securities laws.
The LLC Agreement provides that the issuer shall dissolve and, after
satisfaction of the creditors of the issuer as required by applicable law,
property held by the Issuer will be distributed to West Penn Funding
Corporation, or in the event of a transfer to any other owner, that other owner,
thirty years from the date of its formation or sooner, at the option and
expense, and upon written instruction, of West Penn Funding Corporation, but in
no event before payment in full of all series of transition bonds.
The issuer has no intent to file, and West Penn Funding Corporation has
advised the issuer that it has no intent to cause the filing of, a voluntary
petition for relief under the Bankruptcy Code with respect to the issuer so long
as the issuer is solvent and does not reasonably foresee becoming insolvent.
The LLC Agreement requires the issuer to take all reasonable steps to
continue its identity as a separate legal entity and to make it apparent to
third persons that it is an entity with assets and liabilities distinct from
those of West Penn, West Penn Funding Corporation, other affiliates of West Penn
or any other person, and that, except for financial reporting purposes (to the
extent required by generally accepted accounting principles) and for state and
federal income and franchise tax purposes, it is not a division of West Penn
Funding Corporation or any of its affiliated entities or any other person.
The principal place of business of the issuer is c/o [ ] and
its telephone number is [ ].
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USE OF PROCEEDS
The issuer will use the proceeds of the issuance of the transition bonds to
pay certain expenses of issuance and to purchase the Transferred Intangible
Transition Property from West Penn Funding Corporation. West Penn Funding
Corporation proposes using the proceeds it receives from the sale of the
Transferred Intangible Transition Property for general corporate purposes and
may from time to time loan, in an arms-length transaction, those net proceeds to
West Penn or its affiliates in exchange for interest-bearing notes. West Penn or
that affiliate would use the proceeds of any such loans principally to reduce
Stranded Costs and related capitalization and to reduce some of its existing
indebtedness.
THE TRANSITION BONDS
The transition bonds will be issued under and secured by a base indenture
between the issuer and the bond trustee substantially in the form filed as an
exhibit to the Registration Statement of which this prospectus forms a part. The
terms of each series of transition bonds will be provided in a separate
supplement to the base indenture. A form of this supplement is filed as an
exhibit to the Registration Statement of which this prospectus forms a part. The
following summary describes all material terms and provisions of the transition
bonds. The particular terms of the transition bonds of any series offered by any
prospectus supplement will be described in that prospectus supplement. Please
see the form of indenture and transition bonds and the related prospectus
supplement for a complete description of all terms and provisions of the
transition bonds, portions of which are summarized in this section.
GENERAL
The transition bonds may be issued in one or more series, each comprised of
one or more classes. The terms of all transition bonds of the same series will
be identical in all respects, unless that series is comprised of more than one
class, in which case the terms of all transition bonds of the same class will be
identical in all respects.
The supplemental indenture will specify the following terms of the related
series of transition bonds and, if applicable, the classes thereof:
(1) the designation of the series and, if applicable, the classes
thereof;
(2) the aggregate principal amount of the transition bonds of the
series and, if applicable, each class thereof;
(3) the bond rate of the series and, if applicable, each class
thereof or the formula, if any, used to calculate the applicable bond rate
or bond rates;
(4) the payment dates for the series;
(5) the expected final payment date of the series and, if
applicable, each class thereof;
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(6) the series termination date for the series and, if applicable,
the class termination dates for each class thereof;
(7) the issuance date for the series;
(8) the place or places for payments with respect to the series;
(9) the authorized initial denominations for the series;
(10) the provisions, if any, for redemption of the series by the
issuer;
(11) the Expected Amortization Schedule for the series;
(12) the overcollateralization amount (the "Overcollateralization
Amount") with respect to the series and the amount anticipated to be on
deposit in the Overcollateralization Subaccount for all series of
transition bonds as of each payment date (the "Calculated
Overcollateralization Level") for each payment date;
(13) the amount of capital required to be deposited by the issuer
(the "Required Capital Amount") into the Capital Subaccount upon the
issuance of each series of transition bonds, which represents a capital
contribution from West Penn Funding Corporation;
(14) the Calculation Dates and Adjustment Dates for the series;
(15) the terms of any credit enhancement applicable to the series or
class;
(16) the terms of any hedge or swap transaction applicable to the
series or class; and
(17) any other terms of the series or class that are not inconsistent
with the provisions of the indenture.
The applicable prospectus supplement will set forth the procedure for the
manner of the issuance of the transition bonds of each series. Generally, each
series of transition bonds will initially be represented by one or more
transition bonds registered in the name of Cede & Co., as the nominee of DTC.
The transition bonds will be available for purchase in initial denominations
specified in the applicable prospectus supplement (which denominations will be
not less than $1,000). Unless and until definitive transition bonds are issued
under the limited circumstances described in this prospectus, no transition
bondholder will be entitled to receive a physical bond representing a transition
bond. All references in this prospectus to actions by transition bondholders
will refer to actions taken by DTC upon instructions from the Participants and
all references in this prospectus to payments, notices, reports and statements
to transition bondholders will refer to payments, notices, reports and
statements to DTC or Cede & Co., as the registered holder of each series of
transition bonds, for distribution to transition bondholders in accordance with
DTC's procedures with respect thereto. See "--Book-Entry Registration" and
"--Definitive Transition Bonds" below.
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INTEREST AND PRINCIPAL
Interest will accrue on the principal balance of transition bonds of a
series or class at the bond rate specified in or determined in the manner
specified in the applicable prospectus supplement and will be payable to the
transition bondholders of that series or class on each payment date, commencing
on the payment date specified in the related prospectus supplement.
On any payment date with respect to any series, the issuer will make
principal payments on such series only until the outstanding principal balance
thereof has been reduced to the principal balance specified for such payment
date in the Expected Amortization Schedule for such series on such payment date
and only to the extent funds are available therefor as described in this
prospectus. Accordingly, principal of such series or class of transition bonds
may be paid later than reflected in the Expected Amortization Schedule therefor.
See "Risk Factors--Nature of Intangible Transition Property," "--The Transition
Bonds--Uncertain Weighted Average Life" and "Certain Weighted Average Life and
Yield Considerations" in this prospectus.
The failure to make a scheduled payment of principal on the transition
bonds, other than upon redemption or on the series termination date or, if
applicable, class termination date, does not constitute an Event of Default
under the indenture. The entire unpaid principal amount of the transition bonds
will be due and payable if an Event of Default under the indenture occurs and is
continuing and the bond trustee or the holders of a majority in principal amount
of the transition bonds of all series then outstanding have declared the
transition bonds to be immediately due and payable. See "The Indenture--Events
of Default; Rights Upon Event of Default" and "Certain Weighted Average Life and
Yield Considerations" in this prospectus.
FLOATING RATE TRANSITION BONDS
In connection with the issuance of a class or classes of floating rate
transition bonds, the issuer may arrange for one or more hedge or swap
transactions. If the issuer enters into or arranges for any hedge or swap
transaction, the applicable prospectus supplement will include a description of:
(1) the material terms of that transaction;
(2) the identity of the counterparty or counterparties;
(3) any payments under that hedge or swap transaction to be made by
or to the issuer or the bond trustee, as assignee of the issuer;
(4) deposits in and withdrawals from any subaccount of the Collection
Account with respect to that class or classes of floating rate transition
bonds and that transaction;
(5) the formula for calculating the floating rate of interest of that
class or classes prior to termination of that transaction; and
(6) the rights of transition bondholders with respect to the
termination of or specified other events related to that transaction.
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REDEMPTION
Redemption provisions, if any, for any series will be specified in the
related prospectus supplement, including the premiums, if any, payable upon
redemption. The redemption price in any event will not be less than the
principal balance thereof, plus interest at the applicable bond rate accrued to
the redemption date. Unless the context requires otherwise, all references in
this prospectus to principal of the transition bonds of a series being redeemed
includes any resulting premium that might be payable on those transition bonds,
as described in the applicable prospectus supplement.
Notice of redemption of any series of transition bonds will be given by the
bond trustee to each registered holder of a transition bond to be redeemed by
first-class mail, postage prepaid, mailed not less than five days nor more than
45 days prior to the date of redemption or in such other manner or at such other
time as may be specified in the related prospectus supplement. Notice of
optional redemption may be conditioned upon the deposit of moneys with the bond
trustee before the redemption date and that notice shall be of no effect unless
those moneys are so deposited.
All transition bonds called for redemption will cease to bear interest on
the specified redemption date, provided funds for their redemption are on
deposit with the bond trustee at that time, and shall no longer be considered
"outstanding" under the Indenture. The transition bondholders of those
transition bonds will have no further rights with respect thereto, except to
receive payment of the redemption price thereof and unpaid interest accrued to
the date fixed for redemption, from the bond trustee.
CREDIT ENHANCEMENT
Credit enhancement with respect to the transition bonds of all series will
be provided by adjustments to the Intangible Transition Charges and amounts on
deposit in the Reserve Subaccount, the Overcollateralization Subaccount and the
Capital Subaccount. In addition, for any series of transition bonds or one or
more classes thereof, additional credit enhancement may be provided with respect
thereto. The amounts and types of credit enhancement, and the provider of credit
enhancement, if any, with respect to each series of transition bonds or one or
more classes thereof will be described in the applicable prospectus supplement.
Credit enhancement may be in the form of an additional reserve account,
additional overcollateralization, a financial guaranty insurance policy, letter
of credit, credit or liquidity facility, maturity guaranty, repurchase
obligation, third-party payment or other support, cash deposit or other credit
enhancement, or any combination of the foregoing, as may be set forth in the
applicable prospectus supplement. If specified in the applicable prospectus
supplement, credit enhancement for a series of transition bonds may cover one or
more other series of transition bonds.
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If any additional credit enhancement is provided with respect to a series
offered hereby, the applicable prospectus supplement will include a description
of:
(1) the amount payable under that credit enhancement;
(2) any conditions to payment thereunder not otherwise described in
this prospectus;
(3) the conditions, if any, under which the amount payable under that
credit enhancement may be reduced and under which that credit enhancement
may be terminated or replaced; and
(4) any material provisions of any applicable agreement relating to
that credit enhancement.
Additionally, in certain cases, the applicable prospectus supplement may
describe certain information with respect to the provider of any third-party
credit enhancement, including:
(1) a brief description of its principal business activities;
(2) its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business;
(3) if applicable, the identity of regulatory agencies which exercise
primary jurisdiction over the conduct of its business; and
(4) its total assets and stockholders' equity or policyholders'
surplus, if applicable, as of a date specified in the applicable prospectus
supplement.
BOOK-ENTRY REGISTRATION
All classes of transition bonds will be book-entry transition bonds, which
are initially represented by one or more bonds registered in the name of Cede &
Co. ("Cede"), as nominee of The Depository Trust Company ("DTC"), or another
securities depository and are available only in the form of book-entries
("Book-Entry Transition Bonds"); provided, however, the applicable prospectus
supplement relating to a series of transition bonds may provide that the
transition bonds of such series or a class thereof will be issued as definitive
transition bonds. Transition bondholders may also hold transition bonds of a
class through Cedel Bank, societe anonyme ("CEDEL") or the Euroclear System
("Euroclear") (in Europe), if they are participants in such systems or
indirectly through organizations that are participants in such systems
("Participants").
Cede, as nominee for DTC, will hold the global bond or bonds representing
the transition bonds. CEDEL and Euroclear will hold omnibus positions on behalf
of their participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries which in turn
will hold those positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank, N.A. will act as depositary for CEDEL and
Morgan Guaranty Trust Company of New York will act as depositary for Euroclear
(in these capacities, the "Depositaries").
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DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to Section 17A of the Exchange Act. DTC
was created to hold securities for its Participants and to facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entries, thereby eliminating the need for physical movement of
bonds. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations, and may include certain other
organizations, including the Underwriters. Indirect access to the DTC system
also is available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL or
Euroclear Participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depositary. Cross-market transactions will require delivery of instructions
to the relevant European international clearing system by the counterparty in
that system in accordance with its rules and procedures and within its
established deadlines (European time). The relevant European international
clearing system will, if the transaction meets its settlement requirements,
deliver instructions to its Depositary to take action to effect final settlement
on its behalf by delivering or receiving transition bonds in DTC, and making or
receiving payments in accordance with normal procedures for same-day funds
settlement applicable to DTC. CEDEL Participants and Euroclear Participants may
not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a Participant will be made during
subsequent settlement processing and dated the Business Day following the DTC
settlement date. These credits or any transactions in such Transition Bonds
settled during that processing will be reported to the relevant Euroclear or
CEDEL Participant on that business day. Cash received in CEDEL or Euroclear as a
result of sales of transition bonds by or through a CEDEL Participant or a
Euroclear Participant to a DTC Participant will be received with value on the
DTC settlement date but will be available in the relevant CEDEL or Euroclear
cash account only as of the business day following settlement in DTC.
Transition bondholders that are not direct or indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, transition bonds may do so only through direct or indirect Participants. In
addition, transition bondholders will receive all payments of principal and
interest on the transition bonds, through the Participants who in turn will
receive them from DTC. Under a book-entry format, transition bondholders will
receive payments after the related payment date, because,
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while payments are required to be forwarded to Cede, as nominee for DTC, on each
of those dates, DTC will forward such payments to its Participants, which
thereafter will be required to forward them to indirect Participants or holders
of beneficial interests in the transition bonds. The issuer and the bond
trustee, and any paying agent, transfer agent or registrar may treat the
registered holder in whose name any transition bond is registered--expected to
be Cede--as the absolute owner thereof, whether or not such transition bond is
overdue and notwithstanding any notice of ownership or writing thereon or any
notice to the contrary, for the purpose of making payments and for all other
purposes.
Unless and until definitive transition bonds are issued, it is anticipated
that the only "holder" of transition bonds of any series will be Cede, as
nominee of DTC. Transition bondholders will only be permitted to exercise their
rights as transition bondholders indirectly through Participants and DTC. All
references herein to actions by transition bondholders thus refer to actions
taken by DTC upon instructions from its Participants, and all references herein
to payments, notices, reports and statements to transition bondholders refer to
payments, notices, reports and statements to Cede, as the registered holder of
the transition bonds, for payments to the beneficial owners of the transition
bonds in accordance with DTC procedures.
While any Book-Entry Transition Bonds of a series are outstanding, except
under the circumstances described below, under the rules, regulations and
procedures creating and affecting DTC and its operations (the "Rules"), DTC is
required to make book-entry transfers among Participants on whose behalf it acts
with respect to the Book-Entry Transition Bonds and is required to receive and
transmit payments of principal of, and interest on, the Book-Entry Transition
Bonds. Participants with whom transition bondholders have accounts with respect
to Book-Entry Transition Bonds are similarly required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
transition bondholders. Accordingly, although transition bondholders will not
possess physical bonds, the Rules provide a mechanism by which transition
bondholders will receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of indirect Participants and certain banks, the ability of holders of
beneficial interests in the transition bonds to pledge transition bonds to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of those transition bonds, may be limited due to the lack of
definitive transition bonds.
DTC has advised the bond trustee that it will take any action permitted to
be taken by a transition bondholder under the indenture only at the direction of
one or more Participants to whose account with DTC the transition bonds are
credited.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of securities. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL
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provides to CEDEL Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. CEDEL interfaces with domestic markets in
several countries. As a professional depository, CEDEL is subject to regulation
by the Luxembourg Monetary Institute. CEDEL Participants are recognized
financial institutions around the world including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include any Underwriters, agents or dealers with
respect to a series of transition bonds offered hereby. Indirect access to CEDEL
is also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a CEDEL
Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
securities and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 29 currencies, including United
States dollars. The Euroclear System includes various other services, including
securities lending and borrowing, and interfaces with domestic markets in
several countries generally similar to the arrangements for crossmarket
transfers with DTC described in the fifth paragraph of this subheading. The
Euroclear System is operated by Morgan Guaranty Trust Company of New York, out
of its Brussels, Belgium office (the "Euroclear Operator"), under contract with
Euroclear Clearance System S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks--including central banks--securities brokers and dealers and other
professional financial intermediaries. Indirect access to Euroclear is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation that is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of Euroclear and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific securities to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf
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of Euroclear Participants and has no record of or relationship with persons
holding through Euroclear Participants.
Payments with respect to transition bonds held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant systems' rules and procedures, to
the extent received by its Depositary. These payments will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "United States Taxation" in this prospectus.
CEDEL or the Euroclear Operator, as the case may be, will take any other
action permitted to be taken by a Transition Bondholder under the Indenture on
behalf of a CEDEL Participant or Euroclear Participant only in accordance with
its relevant rules and procedures and subject to its Depositary's ability to
effect those actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of transition bonds among Participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform these procedures and these procedures may be discontinued at any time.
DEFINITIVE TRANSITION BONDS
Each series or class of transition bonds will be issued in fully
registered, certificated form to transition bondholders or their nominees,
rather than to DTC or its nominee, only if:
(1) the issuer advises the bond trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as
depository with respect to that series or class of transition bonds and the
issuer is unable to locate a qualified successor;
(2) the issuer, at its option, elects to terminate the book-entry
system through DTC; or
(3) after the occurrence of an Event of Default under the indenture,
transition bondholders representing at least a majority of the outstanding
principal amount of the transition bonds of all series advise the bond
trustee through DTC in writing that the continuation of a book-entry system
through DTC, or a successor thereto, is no longer in the transition
bondholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC will be required to notify all affected transition bondholders
through Participants of the availability of definitive transition bonds. Upon
surrender by DTC of the definitive bonds representing the applicable transition
bonds and receipt of instructions for re-registration, the bond trustee will
authenticate and deliver definitive transition bonds, and thereafter the bond
trustee will recognize the holders of these definitive transition bonds as
transition bondholders under the indenture.
Payments of principal of, and interest on, the applicable transition bonds
will thereafter be made by the bond trustee, as paying agent, in accordance with
the
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procedures set forth in the Indenture directly to holders of definitive
transition bonds in whose names the definitive transition bonds were registered
at the close of business on the related record date. These payments will be made
by check mailed to the address of such holder as it appears on the register
maintained by the bond trustee. The final payment on any transition bond,
however, will be made only upon presentation and surrender of that transition
bond at the office or agency specified in the notice of final payment to
transition bondholders.
Definitive transition bonds will be transferable and exchangeable at the
offices of the transfer agent and registrar, which will initially be the bond
trustee. No service charge will be imposed for any registration of transfer or
exchange, but the transfer agent and registrar may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
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CERTAIN WEIGHTED AVERAGE LIFE
AND YIELD CONSIDERATIONS
The rate of principal payments on each series or class of transition bonds,
the aggregate amount of each interest payment on each series or class of
transition bonds and the actual final payment date of each series or class of
transition bonds will be dependent on the rate and timing of receipt of ITC
Collections. Accelerated receipts of ITC Collections will not, however, result
in payment of principal on the transition bonds earlier than the related
expected final payment dates since receipts in excess of the amounts necessary
to amortize the transition bonds in accordance with the applicable Expected
Amortization Schedule will be deposited in the Overcollateralization Subaccount
or Reserve Subaccount. However, delayed receipts of ITC Collections may result
in principal payments on the transition bonds occurring more slowly than as
reflected in the Expected Amortization Schedule or later than the related
expected final payment dates. Redemption of any class or series of transition
bonds in accordance with the terms thereof will result in payment of principal
earlier than the related expected final payment dates.
The actual payments on each payment date for each series or class of
transition bonds and the weighted average life thereof will be affected
primarily by the rate of ITC Collections and the timing of receipt of ITC
Collections, as well as amounts available in the Reserve Subaccount, the
Overcollateralization Subaccount and the Capital Subaccount. Because the
Intangible Transition Charges will be calculated based on estimates of usage and
revenue, the aggregate amount of ITC Collections and the rate of principal
amortization on the transition bonds will depend, in part, on actual energy
usage by customers and the rate of delinquencies and write-offs. Although the
Intangible Transition Charges will be adjusted from time to time based in part
on the actual rate of ITC Collections, no assurances are given that the servicer
will be able to forecast accurately actual electricity usage impacting billed
revenue from which Intangible Transition Charges are allocated and the rate of
delinquencies and write-offs or implement adjustments to the Intangible
Transition Charges that will cause ITC Collections to be received at any
particular rate. See "Risk Factors--Nature of Intangible Transition Property"
and "The QRO and the Intangible Transition Charges--The Intangible Transition
Charges--The ITC Adjustment Process" in this prospectus.
If ITC Collections are received at a slower rate than expected, transition
bonds may be retired later than expected. Because principal will only be paid at
a rate not faster than that contemplated in the Expected Amortization Schedule
for each series or class, except in the event of a redemption or the
acceleration of the final payment date of the transition bonds after an Event of
Default as specified in the indenture, the transition bonds are not expected to
be paid earlier than scheduled. A payment on a date that is earlier than
forecasted will result in a shorter weighted average life, and a payment on a
date that is later than forecasted will result in a longer weighted average
life. In addition, if a larger portion of the delayed payments on the transition
bonds is received in later years, this will result in a longer weighted average
life of the transition bonds.
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THE TRANSFER AGREEMENT
The following summary describes all material terms and provisions of the
Transfer Agreement pursuant to which West Penn is contributing to West Penn
Funding Corporation Intangible Transition Property. The Transfer Agreement may
be amended by the parties to that agreement, with the consent of the bond
trustee, provided that notice of the substance of that amendment is provided by
West Penn Funding Corporation to each Rating Agency. The form of the Transfer
Agreement has been filed as an exhibit to the Registration Statement of which
this prospectus forms a part. Please see that form of Transfer Agreement for a
complete description of all terms and provisions of the Transfer Agreement,
portions of which are summarized in this section.
CONTRIBUTION OF INTANGIBLE TRANSITION PROPERTY
On the series issuance date for the first series of transition bonds (the
"Initial Contribution Date"), pursuant to the Transfer Agreement, West Penn will
contribute to West Penn Funding Corporation, without recourse, except as
provided in that agreement, Initial Intangible Transition Property representing
the irrevocable right to receive through Intangible Transition Charges amounts
sufficient to recover Qualified Transition Expenses with respect to that series
of transition bonds. In consideration of that initial contribution, West Penn
Funding Corporation shall issue [ ] shares of its outstanding capital
stock, representing 100% of West Penn Funding Corporation's outstanding capital
stock. In addition, West Penn may from time to time offer to contribute
additional Intangible Transition Property to West Penn Funding Corporation,
subject to the satisfaction of certain conditions (each, a "Subsequent
Contribution"). Each Subsequent Contribution may be made in consideration of the
issuance by West Penn Funding Corporation to West Penn of additional shares of
West Penn Funding Corporation's capital stock. If any of these offers is
accepted by West Penn Funding Corporation, the Subsequent Contribution will be
effective on a date (a "Subsequent Contribution Date") specified in a written
notice provided by West Penn to West Penn Funding Corporation.
In accordance with the Pennsylvania Competition Act, upon the execution and
delivery of the Transfer Agreement and the related bill of sale, the
contribution of the Initial Intangible Transition Property will be perfected as
against all third persons, including judicial lien creditors, and upon the
execution of a subsequent bill of sale and an addition notice, a contribution of
Subsequent Intangible Transition Property will also be perfected against all
third persons, including judicial lien creditors.
"Initial Intangible Transition Property" means Intangible Transition
Property, as identified in the related bill of sale, contributed to West Penn
Funding Corporation on the Initial Contribution Date pursuant to the Transfer
Agreement in connection with the issuance of the initial series of transition
bonds. "Subsequent Intangible Transition Property" means Intangible Transition
Property, as identified in the related bill of sale, contributed to West Penn
Funding Corporation on any Subsequent Contribution Date pursuant to the Transfer
Agreement in connection with the subsequent issuance of a series of transition
bonds.
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West Penn's accounting records and computer systems will reflect the
contribution and sale of Intangible Transition Property to West Penn Funding
Corporation.
Each contribution of Intangible Transition Property under the Transfer
Agreement is subject to the satisfaction or waiver of each of the following
conditions:
(1) on or prior to the Initial Contribution Date or Subsequent
Contribution Date, as applicable, West Penn shall have delivered to West
Penn Funding Corporation a duly executed bill of sale identifying the
Intangible Transition Property to be conveyed on that date, in the form
required by the Transfer Agreement;
(2) as of the Initial Contribution Date or the Subsequent
Contribution Date, as applicable, West Penn was not insolvent and will not
have been made insolvent by that sale, and West Penn is not aware of any
pending insolvency with respect to itself;
(3) as of the Initial Contribution Date or the Subsequent
Contribution Date, as applicable, no breach by West Penn of its
representations, warranties or covenants in the Transfer Agreement shall
exist, and no Servicer Default shall have occurred and be continuing;
(4) as of the Initial Contribution Date or the Subsequent
Contribution Date, as applicable, the issuer shall have sufficient funds
available to pay the purchase price for the Transferred Intangible
Transition Property to be conveyed on that date pursuant to the Sale
Agreement, and all conditions to the issuance of one or more series of
transition bonds intended to provide those funds set forth in the indenture
shall have been satisfied or waived;
(5) on or prior to the Initial Contribution Date or Subsequent
Contribution Date, as applicable, West Penn shall have taken all action
required to transfer to West Penn Funding Corporation ownership of the
Transferred Intangible Transition Property to be conveyed on that date,
free and clear of all liens other than liens created by the issuer pursuant
to the indenture, and West Penn Funding Corporation shall have taken any
action required for West Penn Funding Corporation to transfer to the issuer
ownership of the Transferred Intangible Transition Property to be conveyed
on that date, free and clear of all liens other than liens created by the
issuer pursuant to the indenture, and the issuer shall have taken, or the
servicer shall have taken on behalf of the issuer, any action required for
the issuer to grant the bond trustee a first priority perfected security
interest in the collateral and maintain such security interest as of such
date;
(6) in the case of a contribution of Subsequent Intangible Transition
Property only, West Penn shall have provided West Penn Funding Corporation,
the issuer and the Rating Agencies with a timely addition notice specifying
the Subsequent Contribution Date for that Subsequent Intangible Transition
Property, on or prior to that Subsequent Contribution Date;
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(7) West Penn shall have delivered to the Rating Agencies, West Penn
Funding Corporation and the issuer the opinion of counsel specified in the
Transfer Agreement and certain other opinions of counsel to the bond
trustee; and
(8) West Penn shall have delivered to West Penn Funding Corporation,
the bond trustee and the issuer an officers' certificate confirming the
satisfaction of each condition precedent specified above.
REPRESENTATIONS AND WARRANTIES OF WEST PENN
In the Transfer Agreement, West Penn will make representations and
warranties to West Penn Funding Corporation--and acknowledge that such
representations and warranties are also for the benefit of the issuer, as
assignee of West Penn Funding Corporation, and the bond trustee, as collateral
assignee of the issuer--as of the Initial Contribution Date and any Subsequent
Contribution Date to the effect, among other things, that:
(1) all information provided by West Penn to West Penn Funding
Corporation with respect to the Transferred Intangible Transition Property
is correct in all material respects;
(2) the transfers and assignments contemplated by the Transfer
Agreement constitute outright transfers of the Initial Intangible
Transition Property or the Subsequent Intangible Transition Property, as
the case may be, from West Penn to West Penn Funding Corporation, and the
beneficial interest in and title to the Transferred Intangible Transition
Property would not be part of the debtor's estate in the event of the
filing of a bankruptcy petition by or against West Penn under any
bankruptcy law;
(3) West Penn is the sole owner of the Intangible Transition Property
being contributed to West Penn Funding Corporation on the Initial
Contribution Date or Subsequent Contribution Date, as applicable, the
Transferred Intangible Transition Property has been validly transferred to
West Penn Funding Corporation free and clear of all liens other than liens
created by the issuer pursuant to the indenture and all filings, including
filings with the PUC under the Pennsylvania Competition Act, necessary in
any jurisdiction to give West Penn Funding Corporation a valid ownership
interest in Transferred Intangible Transition Property free and clear of
all liens of West Penn or anyone claiming through West Penn and to give
West Penn Funding Corporation a first priority perfected security interest
in Transferred Intangible Transition Property have been made, other than
any such filings--except for filings with the PUC under the Pennsylvania
Competition Act and filings under the Uniform Commercial Code with the
Secretary of State of the State of Delaware--the absence of which would not
have an adverse impact on (x) the ability of the servicer to collect
Intangible Transition Charges with respect to the Transferred Intangible
Transition Property or (y) the rights of West Penn Funding Corporation with
respect to the Transferred Intangible Transition Property;
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(4) the QRO has been issued by the PUC in accordance with the
Pennsylvania Competition Act, the QRO and the process by which it was
issued comply with all applicable laws, rules and regulations and the QRO
is in full force and effect;
(5) as of the date of issuance of any series of transition bonds,
such transition bonds are entitled to the protections provided by the
Pennsylvania Competition Act and, accordingly, the provisions of the QRO
relating to the Intangible Transition Property and Intangible Transition
Charges are not revocable by the PUC;
(6) (x) under the Pennsylvania Competition Act, neither the
Commonwealth of Pennsylvania nor the PUC may limit, alter or in any way
impair or reduce the value of Intangible Transition Property or Intangible
Transition Charges approved by the QRO or any rights thereunder, except
such a limitation or alteration may be made by the Commonwealth of
Pennsylvania or the PUC if adequate compensation is made by law for the
full protection of the Intangible Transition Charges and of transition
bondholders;
(y) under the Contract Clauses of the Constitutions of the
Commonwealth of Pennsylvania and the United States, neither the
Commonwealth of Pennsylvania nor the PUC can take any action that
substantially impairs the rights of the transition bondholders unless such
action is a reasonable exercise of the Commonwealth of Pennsylvania's
sovereign powers and appropriate to further a legitimate public purpose;
and
(z) under the Takings Clauses of the Constitutions of the
Commonwealth of Pennsylvania and the United States, if such action
constitutes a permanent appropriation of the property interest of
transition bondholders in the Intangible Transition Property and deprives
the transition bondholders of their reasonable expectations arising from
their investments in transition bonds, just compensation, as determined by
a court of competent jurisdiction, must be provided to transition
bondholders;
(7) there is no order by any court providing for the revocation,
alteration, limitation or other impairment of the Pennsylvania Competition
Act, QRO, Intangible Transition Property or the Intangible Transition
Charges or any rights arising under any of them or which seeks to enjoin
the performance of any obligations under the QRO;
(8) no other approval, authorization, consent, order or other action
of, or filing with any court, federal or state regulatory body,
administrative agency or other governmental instrumentality is required in
connection with the creation of Intangible Transition Property, except
those that have been obtained or made;
(9) except as disclosed by West Penn to West Penn Funding Corporation
there are no proceedings or investigations pending or, to the best of West
Penn's knowledge, threatened before any court, federal or state regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over West Penn or its properties challenging the QRO or the
Pennsylvania Competition Act;
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(10) no failure on the Initial Contribution Date or any Subsequent
Contribution Date or any time thereafter to satisfy any condition imposed
by the Pennsylvania Competition Act with respect to the recovery of
stranded costs will adversely affect the creation or contribution under the
Transfer Agreement of the Intangible Transition Property or the right to
collect Intangible Transition Charges;
(11) the assumptions used in calculating Intangible Transition
Charges are reasonable and made in good faith;
(12) (x) Intangible Transition Property, other than Intangible
Transition Property, if any, retained by West Penn, constitutes a current
property right;
(y) Intangible Transition Property includes, without limitation, (A)
the irrevocable right of West Penn Funding Corporation and the issuer, as
assignee of West Penn Funding Corporation, to receive through Intangible
Transition Charges an amount sufficient to recover all of West Penn's
Qualified Transition Expenses described in the QRO in an amount equal to
the aggregate principal amount of transition bonds plus an amount
sufficient to provide for any credit enhancement, including the
Overcollateralization Amount relating to each series of transition bonds,
to fund any reserves and to pay interest, premium, if any, servicing fees
and other expenses relating to the transition bonds, and (B) all right,
title and interest of West Penn or its assignee applicable to the
transition bonds in the QRO and in all revenues, collections, claims,
payments, money, or proceeds of or arising from the Intangible Transition
Charges applicable to the transition bonds set forth in the QRO to the
extent that in accordance with the Pennsylvania Competition Act, the QRO
and the rates and charges authorized under the QRO are declared to be
irrevocable; and
(z) the QRO, including the right to collect Intangible Transition
Charges, has been declared to be irrevocable by the PUC;
(13) West Penn is a corporation duly organized and in good standing
under the laws of the Commonwealth of Pennsylvania, with corporate power
and authority to own its properties and conduct its business as currently
owned or conducted;
(14) West Penn has the corporate power and authority to execute and
deliver the Transfer Agreement and to carry out its terms, West Penn has
full corporate power and authority to own the Intangible Transition
Property and transfer the Initial Intangible Transition Property, in the
case of the Initial Contribution Date, and the Subsequent Intangible
Transition Property, in the case of each Subsequent Contribution Date, as
applicable, and West Penn has duly authorized that transfer to West Penn
Funding Corporation by all necessary corporate action and the execution,
delivery and performance of the Transfer Agreement have been duly
authorized by West Penn by all necessary corporate action;
(15) the Transfer Agreement constitutes a legal, valid and binding
obligation of West Penn, enforceable against West Penn in accordance with
its terms, subject to customary exceptions relating to bankruptcy and
equitable principles;
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(16) the consummation of the transactions contemplated by the
Transfer Agreement and the fulfillment of the terms thereof do 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 West Penn, or any indenture,
agreement or other instrument to which West Penn 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--other than any rights under the Transfer
Agreement--pursuant to the terms of any such indenture, agreement or other
instrument; nor violate any law or any order, rule or regulation applicable
to West Penn of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over West Penn or its properties;
(17) except for continuation filings under the Uniform Commercial
Code, 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 West Penn of the Transfer Agreement, the
performance by West Penn of the transactions contemplated by the Transfer
Agreement or the fulfillment by West Penn of the terms of the Transfer
Agreement, except those which have previously been obtained or made;
(18) there are no proceedings or investigations pending or, to West
Penn's best knowledge, threatened, before any court, federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over West Penn or its properties:
(x) asserting the invalidity of the Transfer Agreement, the
Sale Agreement, the Servicing Agreement, any bills of sale for
Intangible Transition Property, the LLC Agreement, the certificate of
formation filed with the State of Delaware to form the Issuer or the
Certificate of Incorporation of West Penn Funding Corporation
(collectively, the "Basic Documents") or the transition bonds;
(y) seeking to prevent the issuance of transition bonds or the
consummation of the transactions contemplated by the Basic Documents or
the transition bonds; or
(z) except as disclosed by West Penn to West Penn Funding
Corporation, seeking any determination or ruling that could be
reasonably expected to materially and adversely affect the performance
by West Penn of its obligations under, or the validity or
enforceability of, the Basic Documents or the transition bonds;
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(19) after giving effect to the contribution of any Transferred
Intangible Transition Property under the Transfer Agreement, West Penn
(v) is solvent and expects to remain solvent;
(w) is adequately capitalized to conduct its business and
affairs considering its size and the nature of its business and
intended purposes;
(x) is not engaged nor does it expect to engage in a business
for which its remaining property represents an unreasonably small
capital;
(y) believes that it will be able to pay its debts as they
become due and that such belief is reasonable;
(z) is able to pay its debts as they mature and does not intend
to incur, or believe that it will incur, indebtedness that it will not
be able to repay at its maturity; and
(20) West Penn 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 shall require those qualifications, licenses
or approvals, except where the failure to so qualify would not be
reasonably likely to have a material adverse effect on West Penn's
business, operations, assets, revenues, properties or prospects.
Subject to the conditions set forth below, West Penn will be required to
repurchase the Intangible Transition Property and pay the deferred repurchase
price specified below in the following two circumstances: first, if West Penn
breaches any representation or warranty specified in (2), (3), (4), (5), (7) or
(12) above that has a material adverse effect on the transition bondholders or
second, if West Penn breaches any representation or warranty specified in (6),
(8), (9), (13), (14), (15) or (16) above and the full amount of losses
attributable to such breach are reasonably expected to be incurred beyond a
90-day period immediately following such breach. In both circumstances, West
Penn will be required to repurchase the Intangible Transition Property and, on
each payment date following that repurchase, West Penn will be required to pay
(each of these payments by West Penn collectively is referred to as the
"Deferred Repurchase Price") to the bond trustee, as assignee of the issuer, for
deposit in the General Subaccount of the Collection Account, an amount
sufficient to make the payments contemplated by clauses (1) through (8) in the
first paragraph of "The Indenture--Allocations and Payments".
West Penn will not be obligated, however, for a breach in the first
circumstance--i.e., a breach of the representations or warranties in (2), (3),
(4), (5), (7) or (12) above--if, within 90 days after the date of the occurrence
thereof, that breach is cured or West Penn takes remedial action so that there
is not and will not be a material adverse effect on the transition bondholders
as a result of that breach.
In the event that within that 90-day period, the breach is cured or West
Penn takes the remedial action described in the paragraph above, any amounts
paid by West Penn
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to the bond trustee, as assignee of the issuer, which have not been distributed
pursuant to the indenture will be returned to West Penn at the end of that
90-day period.
West Penn also shall indemnify West Penn Funding Corporation, the issuer
and the bond trustee and certain other related parties, against:
(1) all taxes, other than any taxes imposed on transition bondholders
solely as a result of their ownership of transition bonds, resulting from
the acquisition or holding of Transferred Intangible Transition Property by
West Penn Funding Corporation or the issuer or the issuance and sale by the
issuer of transition bonds; and
(2) any liabilities, obligations, losses, damages, payments or
expenses which result from (x) West Penn's willful misconduct, bad faith or
gross negligence in the performance of its duties under the Transfer
Agreement, (y) West Penn's reckless disregard of its obligations and duties
under the Transfer Agreement, or (z) West Penn's breach of any
representations or warranties in (1), (10), (11), (17), (18) or (19) above;
provided, that the amount of those losses for which West Penn shall be
obligated to provide indemnification shall not exceed the amount of the
Deferred Repurchase Price.
If an event like that occurs, upon receipt of written notice of the breach
by West Penn from West Penn Funding Corporation, the issuer or bond trustee,
West Penn will notify the servicer of the occurrence of that event so that the
servicer may calculate the amount of indemnification in accordance with the
provisions of the Servicing Agreement. If such breach continues unremedied
beyond the Initial Loss Calculation Date, West Penn shall pay such amount to the
bond trustee for deposit into the General Subaccount of the Collection Account.
Amounts on deposit in the Reserve Subaccount and the Capital Subaccount shall
not be available to satisfy any indemnification amounts owed by West Penn under
the Transfer Agreement.
West Penn will not indemnify West Penn Funding Corporation, the issuer or
the bond trustee on behalf of the transition bondholders as a result of the
Commonwealth of Pennsylvania's exercise of its power under the Pennsylvania
Competition Act or a change in law by legislative enactment or constitutional
amendment or the Commonwealth's limitation, alteration, impairment or reduction
of the value of Intangible Transition Property or Intangible Transition Charges
after the issuance date of any series of transition bonds in breach of the
pledge of the Commonwealth under the Pennsylvania Competition Act. See "Risk
Factors--Legal, Legislative or Regulatory Actions Could Adversely Affect
Transition Bondholders--Legal Challenges Could Adversely Affect Transition
Bondholders" and "--Changes in Law May Result in Losses to Transition
Bondholders" in this prospectus.
In addition to the foregoing representations and warranties, West Penn has
also covenanted, among other things, that it will deliver all ITC Collections it
receives or the proceeds thereof, other than collections of Intangible
Transition Charges relating to Intangible Transition Property retained by West
Penn, to the servicer and will promptly
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notify the bond trustee of any lien on any Intangible Transition Property other
than the conveyances under the Transfer Agreement, the Sale Agreement or the
indenture.
West Penn shall also be obligated to take those legal or administrative
actions, including defending against or instituting and pursuing legal actions
and appearing or testifying at hearings or similar proceedings, as may be
reasonably necessary:
(1) to protect West Penn Funding Corporation, the issuer and the
transition bondholders from claims, state actions or other actions or
proceedings of third parties which, if successfully pursued, would result
in a breach of any of West Penn's representations and warranties in the
Transfer Agreement; or
(2) to block or overturn any attempts to cause a repeal of,
modification of or supplement to the Pennsylvania Competition Act, the QRO
or the rights of holders of Intangible Transition Property by legislative
enactment or constitutional amendment that would be adverse to the holders
of Intangible Transition Property.
In addition, West Penn is required to execute and file those filings,
including filings with the PUC pursuant to the Pennsylvania Competition Act, as
may be required to fully preserve, maintain and protect the interests of West
Penn Funding Corporation in the Transferred Intangible Transition Property.
Other than as described in the previous paragraph, West Penn shall not be under
any obligation to appear in, prosecute or defend any legal action that shall not
be incidental to its obligations under the Transfer Agreement and that in its
opinion may involve it in any expense or liability.
CERTAIN MATTERS REGARDING WEST PENN
The Transfer Agreement provides that certain persons which succeed to the
major part of the electric distribution business of West Penn shall be the
successor to West Penn if such persons execute an agreement of assumption to
perform every obligation of West Penn under the Transfer Agreement. The Transfer
Agreement further requires that:
(1) immediately after giving effect to that transaction, no
representation or warranty made in the Transfer Agreement shall have been
breached and no Servicer Default, and no event that, after notice or lapse
of time, or both, would become a Servicer Default shall have occurred and
be continuing;
(2) the Rating Agencies shall have received prior written notice of
that transaction; and
(3) certain officers' certificates and opinions of counsel shall have
been delivered to West Penn Funding Corporation, the issuer and the bond
trustee.
GOVERNING LAW
The Transfer Agreement will be governed by and construed under the laws of
the State of New York.
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THE SALE AGREEMENT
The following summary describes all material terms and provisions of the
Sale Agreement pursuant to which West Penn Funding Corporation is selling and
the issuer is purchasing Intangible Transition Property. The Sale Agreement may
be amended by the parties to that agreement, with the consent of the bond
trustee, provided notice of the substance of that amendment is provided by the
issuer to each Rating Agency. The form of the Sale Agreement has been filed as
an exhibit to the Registration Statement of which this prospectus forms a part.
Please see that form of Sale Agreement for a complete description of all terms
and provisions of the Sale Agreement, portions of which are summarized in this
section.
SALE AND ASSIGNMENT OF INTANGIBLE TRANSITION PROPERTY
On the series issuance date for the first series of transition bonds (the
"Initial Transfer Date"), pursuant to the Sale Agreement, West Penn Funding
Corporation will sell and assign to the issuer, without recourse, except as
provided in that agreement, the Initial Intangible Transition Property
contributed by West Penn to West Penn Funding Corporation pursuant to the
Transfer Agreement and all rights of West Penn Funding Corporation under the
Transfer Agreement. The net proceeds received from the sale of the transition
bonds issued on the Initial Transfer Date will be applied to the purchase of
that Transferred Intangible Transition Property. In addition, West Penn Funding
Corporation may from time to time offer to sell any additional Intangible
Transition Property which may be contributed to West Penn Funding Corporation by
West Penn pursuant to the Transfer Agreement to the issuer, subject to the
satisfaction of certain conditions (each, a "Subsequent Sale"). Each Subsequent
Sale will be financed through the issuance of an additional series of transition
bonds. If any of these offers is accepted by the issuer, the Subsequent Sale
will be effective on a date (a "Subsequent Transfer Date") specified in a
written notice provided by West Penn Funding Corporation to the issuer.
In accordance with the Pennsylvania Competition Act, upon the execution and
delivery of the Sale Agreement and the related bill of sale, the transfer of the
Initial Intangible Transition Property will be perfected as against all third
persons, including judicial lien creditors, and upon the execution of a
subsequent bill of sale and an addition notice, a transfer of Subsequent
Intangible Transition Property will also be perfected against all third persons,
including judicial lien creditors.
West Penn Funding Corporation's accounting records and computer systems
will reflect the sale and assignment of Intangible Transition Property to the
issuer, and West Penn Funding Corporation shall treat the transition bonds as
debt of West Penn Funding Corporation for federal income tax purposes so long as
any of the transition bonds are outstanding.
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Each sale of Intangible Transition Property under the Sale Agreement is
subject to the satisfaction or waiver of each of the following conditions:
(1) on or prior to the Initial Transfer Date or Subsequent Transfer
Date, as applicable, West Penn Funding Corporation shall have delivered to
the issuer a duly executed bill of sale identifying the Intangible
Transition Property to be conveyed on that date, in the form required by
the Sale Agreement;
(2) as of the Initial Transfer Date or the Subsequent Transfer Date,
as applicable, West Penn Funding Corporation was not insolvent and will not
have been made insolvent by that sale, and West Penn Funding Corporation is
not aware of any pending insolvency with respect to itself;
(3) as of the Initial Transfer Date or the Subsequent Transfer Date,
as applicable, no breach by West Penn Funding Corporation of its
representations, warranties or covenants in the Sale Agreement shall exist,
no Servicer Default shall have occurred and be continuing and no breach by
West Penn of its representations and warranties in the Transfer Agreement
shall exist;
(4) as of the Initial Transfer Date or the Subsequent Transfer Date,
as applicable, the issuer shall have sufficient funds available to pay the
purchase price for the Transferred Intangible Transition Property to be
conveyed on that date, and all conditions to the issuance of one or more
series of transition bonds intended to provide those funds set forth in the
Indenture shall have been satisfied or waived;
(5) on or prior to the Initial Transfer Date or Subsequent Transfer
Date, as applicable, West Penn Funding Corporation shall have taken all
action required to transfer to the issuer ownership of the Transferred
Intangible Transition Property to be conveyed on that date, free and clear
of all liens other than liens created by the issuer pursuant to the
indenture, and the issuer shall have taken, or the servicer shall have
taken on behalf of the issuer, any action required for the issuer to grant
the bond trustee a first priority perfected security interest in the
collateral and maintain that security interest as of that date;
(6) in the case of a sale of Subsequent Intangible Transition
Property only, West Penn Funding Corporation shall have provided the issuer
and the Rating Agencies with a timely addition notice specifying the
Subsequent Transfer Date for that Subsequent Intangible Transition
Property, on or prior to that Subsequent Transfer Date;
(7) West Penn Funding Corporation shall have delivered to the Rating
Agencies and the issuer the opinion of counsel specified in the Sale
Agreement and certain other opinions of counsel to the bond trustee; and
(8) West Penn Funding Corporation shall have delivered to the bond
trustee and the issuer an officers' certificate confirming the satisfaction
of each condition precedent specified above.
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REPRESENTATIONS AND WARRANTIES OF WEST PENN FUNDING CORPORATION
In the Sale Agreement, West Penn Funding Corporation will make
representations and warranties to the issuer as of the Initial Transfer Date and
any Subsequent Transfer Date to the effect, among other things, that:
(1) all information provided by West Penn Funding Corporation to the
issuer with respect to the Transferred Intangible Transition Property is
correct in all material respects;
(2) the transfers and assignments contemplated by the Sale Agreement
constitute sales of the Initial Intangible Transition Property or the
Subsequent Intangible Transition Property, as the case may be, from West
Penn Funding Corporation to the issuer, and the beneficial interest in and
title to the Transferred Intangible Transition Property would not be part
of the debtor's estate in the event of the filing of a bankruptcy petition
by or against West Penn Funding Corporation under any bankruptcy law;
(3) West Penn Funding Corporation is the sole owner of the Intangible
Transition Property being sold to the issuer on the Initial Transfer Date
or Subsequent Transfer Date, as applicable, the Transferred Intangible
Transition Property has been validly transferred and sold to the issuer
free and clear of all liens other than liens created by the issuer pursuant
to the indenture and all filings, including filings with the PUC under the
Pennsylvania Competition Act, necessary in any jurisdiction to give the
issuer a valid ownership interest in Transferred Intangible Transition
Property free and clear of all liens of West Penn Funding Corporation or
anyone claiming through West Penn Funding Corporation and to give the bond
trustee a first priority perfected security interest in Transferred
Intangible Transition Property have been made, other than any
filings--except for filings with the PUC under the Pennsylvania Competition
Act and filings under the Uniform Commercial Code with the Secretary of
State of the State of Delaware--the absence of which would not have an
adverse impact on (x) the ability of the servicer to collect Intangible
Transition Charges with respect to the Transferred Intangible Transition
Property or (y) the rights of the issuer or the bond trustee with respect
to the Transferred Intangible Transition Property;
(4) West Penn Funding Corporation is a corporation duly organized and
in good standing under the laws of the State of [Delaware], with corporate
power and authority to own its properties and conduct its business as
currently owned or conducted;
(5) West Penn Funding Corporation has the corporate power and
authority to execute and deliver the Sale Agreement and to carry out its
terms, West Penn Funding Corporation has full corporate power and authority
to own the Intangible Transition Property and sell and assign the Initial
Intangible Transition Property, in the case of the Initial Transfer Date,
and the Subsequent Intangible Transition Property, in the case of each
Subsequent Transfer Date, as applicable, and West Penn Funding Corporation
has duly authorized that sale and assignment to the
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issuer by all necessary corporate action and the execution, delivery and
performance of the Sale Agreement have been duly authorized by West Penn
Funding Corporation by all necessary corporate action;
(6) the Sale Agreement constitutes a legal, valid and binding
obligation of West Penn Funding Corporation, enforceable against West Penn
Funding Corporation in accordance with its terms, subject to customary
exceptions relating to bankruptcy and equitable principles;
(7) the consummation of the transactions contemplated by the Sale
Agreement and the fulfillment of the terms thereof do 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 West Penn Funding Corporation, or any
indenture, agreement or other instrument to which West Penn Funding
Corporation 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 West Penn Funding
Corporation of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over West Penn Funding Corporation or its properties;
(8) except for continuation filings under the Uniform Commercial
Code, 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 West Penn Funding Corporation of the Sale
Agreement, the performance by West Penn Funding Corporation of the
transactions contemplated by the Sale Agreement or the fulfillment by West
Penn Funding Corporation of the terms of the Sale Agreement, except those
which have previously been obtained or made;
(9) there are no proceedings or investigations pending or, to West
Penn Funding Corporation's best knowledge, threatened, before any court,
federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over West Penn Funding
Corporation or its properties:
(x) asserting the invalidity of the Basic Documents or the
transition bonds;
(y) seeking to prevent the issuance of transition bonds or the
consummation of the transactions contemplated by the Basic Documents or
the transition bonds; or
(z) except as disclosed by West Penn Funding Corporation to the
issuer, seeking any determination or ruling that could be reasonably
expected to materially and adversely affect the performance by West
Penn Funding Corporation of its obligations under, or the validity or
enforceability of, the Basic Documents or the transition bonds;
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(10) after giving effect to the sale of any Transferred Intangible
Transition Property under the Sale Agreement, West Penn Funding
Corporation:
(v) is solvent and expects to remain solvent;
(w) is adequately capitalized to conduct its business and
affairs considering its size and the nature of its business and
intended purposes;
(x) is not engaged nor does it expect to engage in a business
for which its remaining property represents an unreasonably small
capital;
(y) believes that it will be able to pay its debts as they
become due and that such belief is reasonable; and
(z) is able to pay its debts as they mature and does not intend
to incur, or believe that it will incur, indebtedness that it will not
be able to repay at its maturity; and
(11) West Penn Funding Corporation 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 shall require such
qualifications, licenses or approvals, except where the failure to so
qualify would not be reasonably likely to have a material adverse effect on
West Penn Funding Corporation's business, operations, assets, revenues,
properties or prospects.
West Penn Funding Corporation shall indemnify the issuer and the bond
trustee and certain other related parties, against:
(1) all taxes, other than any taxes imposed on transition bondholders
solely as a result of their ownership of transition bonds, resulting from
the acquisition or holding of Transferred Intangible Transition Property by
the issuer or the issuance and sale by the issuer of transition bonds; and
(2) any liabilities, obligations, losses, damages, payments or
expenses which result from (x) West Penn Funding Corporation's willful
misconduct, bad faith or gross negligence in the performance of its duties
under the Sale Agreement, (y) West Penn Funding Corporation's reckless
disregard of its obligations and duties under the Sale Agreement, or (z)
West Penn Funding Corporation's breach of any representations or
warranties.
If an event like that occurs, upon receipt of written notice of the breach
by West Penn Funding Corporation from the issuer or bond trustee, West Penn
Funding Corporation will notify the servicer of the occurrence of that event so
that the servicer may calculate the amount of indemnification in accordance with
the provisions of the Servicing Agreement. Amounts on deposit in the Reserve
Subaccount and the Capital Subaccount shall not be available to satisfy any
indemnification amounts owed by West Penn Funding Corporation under the Sale
Agreement.
In addition to the foregoing representations and warranties, West Penn
Funding Corporation has also covenanted, among other things, that it will
deliver all ITC
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Collections it receives or the proceeds thereof, other than collections of
Intangible Transition Charges relating to Intangible Transition Property
retained by West Penn Funding Corporation, to the servicer and will promptly
notify the bond trustee of any lien on any Intangible Transition Property other
than the conveyances under the Sale Agreement or the indenture.
West Penn Funding Corporation shall also be obligated to take those legal
or administrative actions, including defending against or instituting and
pursuing legal actions and appearing or testifying at hearings or similar
proceedings, as may be reasonably necessary:
(1) to protect the issuer and the transition bondholders from claims,
state actions or other actions or proceedings of third parties which, if
successfully pursued, would result in a breach of any of West Penn Funding
Corporation's representations and warranties in the Sale Agreement; or
(2) to block or overturn any attempts to cause a repeal of,
modification of or supplement to the Pennsylvania Competition Act, the QRO
or the rights of holders of Intangible Transition Property by legislative
enactment or constitutional amendment that would be adverse to the holders
of Intangible Transition Property.
West Penn Funding Corporation is required to execute and file such filings,
including filings with the PUC pursuant to the Pennsylvania Competition Act, as
may be required to fully preserve, maintain and protect the interests of the
issuer in the Transferred Intangible Transition Property. Other than as
described in the previous paragraph, West Penn Funding Corporation shall not be
under any obligation to appear in, prosecute or defend any legal action that
shall not be incidental to its obligations under the Sale Agreement and that in
its opinion may involve it in any expense or liability.
CERTAIN MATTERS REGARDING WEST PENN FUNDING CORPORATION
The Sale Agreement requires West Penn Funding Corporation to take all
reasonable steps to continue its identity as a separate legal entity and to make
it apparent to third persons that it is an entity with assets and liabilities
distinct from those of West Penn, other affiliates or any other person, and
that, except for financial reporting purposes (to the extent required by
generally accepted accounting principles) and for state and federal income and
franchise tax purposes, it is not a division of West Penn or any of its
affiliated entities or any other person.
GOVERNING LAW
The Sale Agreement will be governed by and construed under the laws of the
State of New York.
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THE SERVICING AGREEMENT
The following summary describes all material terms and provisions of the
Servicing Agreement pursuant to which the servicer is undertaking to service
Intangible Transition Property. The form of the Servicing Agreement has been
filed as an exhibit to the Registration Statement of which this prospectus forms
a part. Please see that form of Servicing Agreement for a complete description
of all terms and provisions of the Servicing Agreement, portions of which are
summarized in this section.
The Servicing Agreement may be amended by the parties to that agreement
with the consent of the bond trustee under the indenture.
SERVICING PROCEDURES
General. The servicer, as agent for the issuer, will manage, service and
administer, and make collections in respect of the Transferred Intangible
Transition Property. The servicer's duties will include:
(1) calculating and billing the Intangible Transition Charges and
collecting, from customers, electric generation suppliers and other third
parties, as applicable, and posting all ITC Collections;
(2) responding to inquiries by customers, electric generation
suppliers and other third parties, the PUC, or any federal, local or other
state governmental authority with respect to the Transferred Intangible
Transition Property and Intangible Transition Charges;
(3) 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;
(4) selling, as agent for the issuer, defaulted or written-off
accounts in accordance with the servicer's usual and customary practices;
and
(5) taking action in connection with adjustments to the Intangible
Transition Charges as described below under "--ITC Adjustment Process."
See also "The QRO and the Intangible Transition Charges--Competitive Billing" in
this prospectus.
The servicer shall notify the issuer, the bond trustee and the Rating
Agencies in writing of any laws or PUC regulations promulgated after the
execution of the Servicing Agreement that have a material adverse effect on the
servicer's ability to perform its duties under the Servicing Agreement.
The servicer shall institute any action or proceeding necessary to compel
performance by the PUC or the Commonwealth of any of their obligations or duties
under the Pennsylvania Competition Act or the QRO with respect to the Intangible
Transition Property. The cost of any action like that shall be payable from ITC
Collections as an operating expense at the time those costs are incurred.
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ITC Adjustment Process. Among other things, the Servicing Agreement
requires the servicer to seek, and the Pennsylvania Competition Act and the QRO
require the PUC to approve, adjustments to the Intangible Transition Charges
charged to each Rate Schedule within any Customer Category based on actual ITC
Collections and updated assumptions by the servicer as to projected future sales
from which Intangible Transition Charges are allocated, expected delinquencies
and write-offs and future payments and expenses relating to the Intangible
Transition Property and the transition bonds. The servicer is required to file
requests with the PUC for those adjustments (each, an "Adjustment Request") on
October 1 of each year and on the additional date or dates specified in the
prospectus supplement for any series of transition bonds (each, a "Calculation
Date"). In accordance with the Pennsylvania Competition Act and the QRO, the PUC
has 90 days to approve annual adjustments. In addition, the QRO provides that
adjustments after the period commencing 12 months prior to the last scheduled
payment date for the payment of principal on each series of transition bonds may
be implemented quarterly or monthly.
The servicer agrees to calculate these adjustments to result in the
outstanding principal balance of each series equaling the amount provided in the
Expected Amortization Schedule, and the amount on deposit in the
Overcollateralization Subaccount equaling the Calculated Overcollateralization
Level, by (1) the next Adjustment Date or the payment date immediately
succeeding such Adjustment Date, as specified in the related prospectus
supplement, or (2) the expected final payment date, as applicable, for each
series, taking into account any amounts on deposit in the Reserve Subaccount
other than certain customer prepayments of Intangible Transition Charges, if
any, not allocable to the period covered by the applicable Adjustment Request.
For a discussion of customer prepayments, see "The QRO and the Intangible
Transition Charges--Competitive Billing--Termination Fees" in this prospectus.
The adjustments to the Intangible Transition Charges are expected to be
implemented on or prior to January 1 of each year, and, with respect to each
series of transition bonds, after the period commencing 12 months prior to the
last scheduled payment date for the payment of principal on each series of
transition bonds on the date or dates specified in the related prospectus
supplement (each, an "Adjustment Date"). Those adjustments to the Intangible
Transition Charges will cease with respect to each series on the final
Adjustment Date specified in the prospectus supplement for that series.
ITC Collections. The servicer is required to remit all ITC Collections,
from whatever source, and all proceeds of other collateral, if any, of the
issuer received by the servicer, to the bond trustee for deposit pursuant to the
indenture on each Remittance Date. As long as West Penn or any successor to West
Penn's electric distribution business is the servicer, the "Remittance Date" is
the [ ] day of each month--or if the [ ] is not a Business Day, the
immediately succeeding Business Day--provided that, among other things:
(1) West Penn or its successor maintains a short-term rating of at
least "A-1" by S&P, "P-1" by Moody's and, if rated by Fitch IBCA, Inc.
("Fitch
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IBCA"), "F-2" by Fitch IBCA--and for five Business Days following a
reduction in, any such rating; or
(2) the Rating Agency Condition will have been satisfied with respect
to each of the Rating Agencies other than Moody's, to which notice will be
sent, and any conditions or limitations imposed by such Rating Agencies in
connection therewith are complied with.
Otherwise, the Remittance Date is two Business Days after any ITC
Collections or proceeds of other collateral are received by the servicer. A
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in the City of Greensburg, Pennsylvania, the City of
New York or the State of Delaware are required by law or executive order to
remain closed. The period from the 1st day of the month to and including the
last day of the same month is referred to in this prospectus as the "Collection
Period." Until ITC Collections are remitted to the Collection Account, the
servicer will not segregate them from its general funds. Remittances of ITC
Collections will not include interest on these collections prior to the
Remittance Date or late fees from customers, which the servicer will be entitled
to retain.
SERVICER ADVANCES
If specified in the related annex to the Servicing Agreement, the servicer
will make advances of interest or principal on the related series of transition
bonds in the manner and to the extent specified in such annex.
SERVICING COMPENSATION; RELEASES
The issuer agrees to pay the servicer the Servicing Fees with respect to
their respective series of transition bonds. The Servicing Fee for each series,
together with any portion of such Servicing Fee that remains unpaid from prior
payment dates, will be paid solely to the extent funds are available therefor as
described under "The Indenture--Allocations and Payments" in this prospectus.
The Servicing Fee will be paid prior to the payment of or provision for any
amounts in respect of interest on and principal of the transition bonds.
In the Servicing Agreement, the servicer releases the issuer and the bond
trustee from any and all claims, subject to certain exceptions relating to the
Transferred Intangible Transition Property or the Servicer's servicing
activities with respect thereto.
SERVICER DUTIES
In the Servicing Agreement, the servicer has agreed, among other things,
that, in servicing the Transferred Intangible Transition Property:
(1) except where the failure to comply with any of the following
would not adversely affect the issuer's or the bond trustee's interests in
Intangible Transition Property;
(w) it will manage, service, administer and make collections in
respect of the Transferred Intangible Transition Property with
reasonable care and in
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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;
(x) it will follow standards, policies and procedures in
performing its duties as servicer that are customary in the servicer's
industry;
(y) it will use all reasonable efforts, consistent with its
customary servicing procedures, to enforce and maintain rights in
respect of the Transferred Intangible Transition Property;
(z) it will calculate the Intangible Transition Charges in
compliance with the Pennsylvania Competition Act, the QRO and any
applicable tariffs;
(2) it will keep on file, in accordance with customary procedures,
all documents related to Intangible Transition Property and will maintain
accurate and complete accounts, records and computer systems pertaining to
the Intangible Transition Property; and
(3) it will use all reasonable efforts consistent with its customary
servicing procedures to collect all amounts owed in respect of Intangible
Transition Property as they become due.
The duties of the servicer set forth in the Servicing Agreement are
qualified by any PUC regulations or orders in effect at the time those duties
are to be performed.
SERVICER REPRESENTATIONS AND WARRANTIES
In the Servicing Agreement, the servicer will make representations and
warranties as of each date that West Penn Funding Corporation sells or otherwise
transfers any Intangible Transition Property to the issuer to the effect, among
other things, that:
(1) 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 conduct its business as those
properties are currently owned and that business is presently conducted and
to execute, deliver and carry out the terms of the Servicing Agreement and
has the power, authority and legal right to service the Transferred
Intangible Transition Property;
(2) the servicer is duly qualified to do business as a foreign
corporation in good standing in all jurisdictions in which it is required
to do so;
(3) the servicer's execution, delivery and performance of the
Servicing Agreement have been duly authorized by the servicer by all
necessary corporate action;
(4) the Servicing Agreement constitutes a legal, valid and binding
obligation of the servicer, enforceable against the servicer in accordance
with its terms, subject to customary exceptions relating to bankruptcy and
equitable principles;
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(5) the consummation of the transactions contemplated by the
Servicing Agreement does not conflict with or result in any breach of the
terms and provisions of or constitute a default under the servicer's
articles of incorporation or by-laws or any material agreement to which the
servicer is a party or bound, result in the creation or imposition of any
lien upon the servicer's properties or violate any law or any order, rule
or regulation applicable to the servicer or its properties;
(6) except for filings with the PUC for revised Intangible Transition
Charges and Uniform Commercial Code continuation filings, no governmental
approvals, authorizations, consents, orders, or other actions or filings
are required for the servicer to execute, deliver and perform its
obligations under the Servicing Agreement, except those which have
previously been obtained or made; and
(7) no proceeding or investigation is 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 (x) 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, the Servicing Agreement or (y) relating to the servicer and which might
adversely affect the federal or state income tax attributes of the
transition bonds.
SERVICER INDEMNIFICATION
Under the Servicing Agreement, the servicer agrees to indemnify the issuer,
the bond trustee, on behalf of the transition bondholders, and certain other
related parties, against any costs, expenses, losses, damages, claims and
liabilities that may be imposed upon, incurred by or asserted against that
person as a result of:
(1) the servicer's willful misfeasance, bad faith or gross negligence
in the performance of its duties or observance of its covenants under the
Servicing Agreement or the servicer's reckless disregard of its obligations
and duties under the Servicing Agreement; and
(2) the servicer's breach of any of its representations or warranties
under the Servicing Agreement.
STATEMENTS TO ISSUER AND BOND TRUSTEE
For each Adjustment Date, the servicer will provide to the issuer, the bond
trustee and each of the Rating Agencies a statement indicating, with respect to
the Transferred Intangible Transition Property:
(1) the outstanding principal balance for each series and the amount
provided in the Expected Amortization Schedule for each series as of the
immediately preceding payment date;
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(2) the amount on deposit in the Overcollateralization Subaccount and
the Calculated Overcollateralization Level as of the immediately preceding
payment date;
(3) the amount on deposit in the Capital Subaccount and the Required
Capital Amount as of the immediately preceding payment date;
(4) the sum of the amounts provided in the Expected Amortization
Schedule for each outstanding series for each payment date prior to the
next Adjustment Date and the servicer's projection of the aggregate
principal amount of all series as of each payment date prior to the next
Adjustment Date;
(5) 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;
(6) 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
(7) the projected ITC Collections from the payment date immediately
preceding the Adjustment Date through the next Adjustment Date.
Moreover, 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 that Remittance Date pursuant to the indenture.
In addition, 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 the
holders of transition bonds of that series. On the basis of this information,
the bond trustee will furnish to the transition bondholders on each payment date
the report described under "The Indenture--Reports to Transition Bondholders" in
this prospectus.
EVIDENCE AS TO COMPLIANCE
The Servicing Agreement will provide that a firm of independent public
accountants will furnish to the issuer, the bond trustee and the Rating
Agencies, on or before March 31 of each year, beginning March 31, 2000, a
statement as to compliance by the servicer during the preceding calendar year,
or the relevant portion thereof, with certain standards relating to the
servicing of Intangible Transition Property. This report (the "Annual
Accountant's Report") will state that the firm has performed certain procedures
in connection with the servicer's compliance with the servicing procedures of
the Servicing Agreement, identifying the results of such procedures and
including any exceptions noted. The Annual Accountant's Report will also
indicate that the accounting
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firm providing that report is independent of the servicer within the meaning of
the Code of Professional Ethics of the American Institute of Certified Public
Accountants.
The Servicing Agreement will also provide for delivery to the issuer and
the bond trustee on or before March 31 of each year, a certificate signed by an
officer of the servicer to the effect that the servicer has fulfilled its
material obligations under the Servicing Agreement for the preceding calendar
year, or the relevant portion thereof, or, if there has been a material default
in the fulfillment of any such obligation, describing each such material
default. The servicer has agreed to give the issuer, each Rating Agency and the
bond trustee notice of any Servicer Default under the Servicing Agreement.
CERTAIN MATTERS REGARDING THE SERVICER
Pursuant to the QRO, West Penn may assign its obligations under the
Servicing Agreement to any electric distribution company, as such term is
defined in the Pennsylvania Competition Act, which succeeds to the major part of
West Penn's electric distribution business. Prior to any such assignment, the
servicer shall provide written notice thereof to each of the Rating Agencies.
Under the Servicing Agreement, certain persons which succeed to the major part
of the electric distribution business of the servicer, which persons assume the
obligations of the servicer, will be the successor of the servicer under the
Servicing Agreement. The Servicing Agreement further requires that:
(1) immediately after giving effect to that transaction, no
representation or warranty made by the servicer in the Servicing Agreement
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;
(2) certain officers' certificates and opinions of counsel shall have
been delivered to the issuer, the bond trustee and the Rating Agencies; and
(3) prior written notice shall have been received by the Rating
Agencies.
The Servicing Agreement provides that, subject to the foregoing provisions,
West Penn shall not resign from the obligations and duties imposed on it as
servicer except upon a determination, communicated to the issuer, the bond
trustee and each Rating Agency and evidenced by an opinion of counsel, that the
performance of its duties under the Servicing Agreement are no longer
permissible under applicable law. No such resignation shall become effective
until a successor servicer has assumed the servicing obligations and duties of
West Penn under the Servicing Agreement.
In addition, the QRO and the Pennsylvania Competition Act require that the
servicer's responsibility to collect the applicable Intangible Transition
Charges and other obligations under the Servicing Agreement must be undertaken
and performed by any other entity that provides transmission and distribution
service to the customers.
Except as expressly provided in the Servicing Agreement, the servicer will
not be liable to the issuer for any action taken or for refraining from taking
any action pursuant
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to the Servicing Agreement or for errors in judgment, except to the extent that
liability is imposed by reason of the servicer's willful misfeasance, bad faith
or gross negligence in the performance of its duties or by reason of reckless
disregard of obligations and duties under the Servicing Agreement.
SERVICER DEFAULTS
"Servicer Defaults" under the Servicing Agreement will include, among other
things:
(1) any failure by the servicer to deliver 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;
(2) any failure by the servicer, duly to observe or perform in any
material respect any other covenant or agreement in the Servicing Agreement
or any other Basic Document to which it is a party, which failure
materially and adversely affects Intangible Transition Property and which
continues unremedied for 30 days after notice of that failure has been
given to the servicer, by the issuer or the bond trustee or after discovery
of that failure by an officer of the servicer, as the case may be;
(3) any representation or warranty made by the servicer in the
Servicing Agreement shall prove to have been incorrect when made, which has
a material adverse effect on any of the transition bondholders and the
issuer and which continues unremedied for 60 days after notice of such
failure has been given to the servicer by the issuer or the bond trustee;
and
(4) certain events of insolvency, readjustment of debt, marshaling of
assets and liabilities, or similar proceedings with respect to the servicer
and certain actions by the servicer indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations.
The bond trustee may waive any default by the servicer, except a default in
making any required remittances to the bond trustee.
RIGHTS UPON SERVICER DEFAULT
As long as a Servicer Default under the Servicing Agreement remains
unremedied, the bond trustee may terminate all the rights and obligations of the
servicer under the Servicing Agreement, other than the Servicer's
indemnification obligation and obligation to continue performing its functions
as Servicer until a successor servicer is appointed, whereupon a successor
servicer appointed by the bond trustee will succeed to all the responsibilities,
duties and liabilities of the servicer under the Servicing Agreement and will be
entitled to similar compensation arrangements. Upon a Servicer Default based
upon the commencement of a case by or against the servicer under the Bankruptcy
Code or similar laws (the "Insolvency Laws"), the bond trustee and the issuer
may be prevented from effecting a transfer of servicing. See "Risk
Factors--Bankruptcy; Creditors' Rights" in this prospectus.
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The bond trustee may make arrangements for compensation to be paid to any
successor servicer, which in no event may be greater than the servicing
compensation paid to the servicer under the Servicing Agreement. See "Risk
Factors--Bankruptcy; Creditors' Rights" in this prospectus.
In addition, upon a Servicer Default because of a failure to make required
remittances, the issuer or its pledgees or transferees will have the right to
apply to the PUC for sequestration and payment of revenues arising from the
Intangible Transition Property.
SUCCESSOR SERVICER
In accordance with the provisions of the QRO and pursuant to the provisions
of the Servicing Agreement, if for any reason a third party assumes or succeeds
to the role of the servicer under the Servicing Agreement, the Servicing
Agreement will require the servicer to cooperate with the issuer, the bond
trustee and the successor servicer in terminating the servicer's rights and
responsibilities under the Servicing Agreement, including the transfer to the
successor servicer of all documentation pertaining to Intangible Transition
Property and all cash amounts then held by the servicer for remittance or
subsequently acquired by the servicer. The Servicing Agreement will provide that
the servicer shall be liable for all reasonable costs and expenses incurred in
transferring servicing responsibilities to the successor servicer. A successor
servicer may not resign unless it is prohibited from serving by law. The
predecessor servicer is obligated, on an ongoing basis, to 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 under the Servicing Agreement.
GOVERNING LAW
The Servicing Agreement will be governed by and construed under the laws of
the State of New York.
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THE INDENTURE
The following summary describes all material terms and provisions of the
indenture pursuant to which transition bonds will be issued. The form of the
indenture, including the form of the supplemental indenture, has been filed as
an exhibit to the Registration Statement of which this prospectus forms a part.
Please see that form of indenture, including that form of supplemental
indenture, for a complete description of all terms and provisions of the
indenture and supplemental indenture, portions of which are summarized in this
section. See "West Penn Power Company" in this prospectus.
SECURITY
To secure the payment of principal of and premium, if any, and interest on,
and any other amounts owing in respect of, the transition bonds pursuant to the
indenture, the issuer will grant to the bond trustee for the benefit of the
transition bondholders a security interest in all of the issuer's right, title
and interest in and to the following collateral:
(1) the Transferred Intangible Transition Property sold by West Penn
Funding Corporation to the issuer from time to time pursuant to the Sale
Agreement and all proceeds thereof;
(2) the Transfer Agreement, except for certain provisions for
indemnification of West Penn Funding Corporation and the issuer;
(3) all bills of sale delivered by West Penn pursuant to the Transfer
Agreement;
(4) the Sale Agreement, except for certain provisions for
indemnification of the issuer;
(5) all bills of sale delivered by West Penn Funding Corporation
pursuant to the Sale Agreement;
(6) the Servicing Agreement, except for certain provisions for
indemnification of the issuer;
(7) the Collection Account and all amounts on deposit in that account
from time to time;
(8) any hedge or swap agreements to which the issuer is a party;
(9) all other property of whatever kind owned from time to time by
the issuer including all accounts, accounts receivable and chattel paper;
(10) all present and future claims, demands, causes and choses in
action in respect of any or all of the foregoing; and
(11) all payments on or under, and all proceeds of every kind and
nature whatsoever in respect of, any or all of the foregoing;
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provided that cash or other property distributed to the issuer from the
Collection Account in accordance with the provisions of the indenture will not
be subject to the lien of the indenture.
See "--Allocation and Payments" below.
ISSUANCE IN SERIES OR CLASSES
Transition bonds may be issued under the indenture from time to time to
finance the purchase by the issuer of Intangible Transition Property (a
"Financing Issuance") or to pay the cost of refunding, through redemption or
payment, all or part of the transition bonds (a "Refunding Issuance"). Any
series of transition bonds may include one or more classes which differ, among
other things, as to interest rate and amortization of principal. The terms of
all transition bonds of the same series will be identical, unless such series is
comprised of more than one class, in which case the terms of all transition
bonds of the same class will be identical. The particular terms of the
transition bonds of any series and, if applicable, classes thereof, will be set
forth in the related prospectus supplement for that series. The terms of that
series and any classes thereof will not be subject to prior review by, or
consent of, the transition bondholders of any previously issued series. See
"Risk Factors--The Transition Bonds--Issuance of Additional Series May Adversely
Affect Outstanding Transition Bonds," "The Transition Bonds" and "West Penn
Power Company" in this prospectus.
Under the indenture, the bond trustee will authenticate and deliver an
additional series of transition bonds only upon receipt by the bond trustee of,
among other things, a certificate of the issuer that no Event of Default has
occurred and is continuing, an opinion of counsel to the issuer and evidence of
satisfaction that the issuance of that additional series of transition bonds
will not result in any Rating Agency reducing or withdrawing its then-current
rating of any outstanding series or class of transition bonds (the notification
in writing by each Rating Agency to West Penn, West Penn Funding Corporation,
the servicer, the bond trustee and the issuer that any action will not result in
such a reduction or withdrawal is referred to in this prospectus as the "Rating
Agency Condition").
In addition, in connection with the issuance of the each new series, the
bond trustee will have to provide a certificate or opinion of a firm of
independent certified public accountants of recognized national reputation to
the effect that, based on the assumptions used in calculating the initial
Intangible Transition Charges with respect to the Transferred Intangible
Transition Property or, if applicable, the most recent revised Intangible
Transition Charges with respect to the Transferred Intangible Transition
Property, after giving effect to the issuance of that series and the application
of the proceeds therefrom, that Intangible Transition Charges will be sufficient
to pay all fees and expenses of servicing the transition bonds, interest on each
series of transition bonds when due and principal of each series of transition
bonds in accordance with the Expected Amortization Schedule therefor and to fund
the Calculated Overcollateralization Level as of each payment date.
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If the issuance is a Refunding Issuance, the amount of money necessary to
pay premiums, if any, and the outstanding principal balance of and interest on
the transition bonds being refunded shall be deposited into a separate account
with the bond trustee.
COLLECTION ACCOUNT
Under the indenture, the issuer will establish one or more segregated trust
accounts in the bond trustee's name, which collectively comprise the Collection
Account, with the bond trustee or at another Eligible Institution. The
Collection Account will be divided into subaccounts, which need not be separate
bank accounts: the General Subaccount, the Overcollateralization Subaccount, the
Capital Subaccount, the Reserve Subaccount and, if required by the indenture,
one or more Defeasance Subaccounts and a Loss Subaccount. All amounts in the
Collection Account not allocated to any other subaccount will be allocated to
the General Subaccount. Unless the context indicates otherwise, references in
this prospectus to the Collection Account include all of the subaccounts
contained in the Collection Account. All monies deposited from time to time in
the Collection Account, all deposits therein pursuant to the indenture, and all
investments made in Eligible Investments with those monies, shall be held by the
bond trustee in the Collection Account as part of the collateral.
"Eligible Institution" means
(1) the corporate trust department of the bond trustee; or
(2) a depository institution organized under the laws of the United
States of America or any state (or any domestic branch of a foreign bank),
which (x) has (A) a long-term unsecured debt rating of "AAA" by S&P and
"Aa3" by Moody's and (B) a short-term rating of "A-1+" by S&P and "P-1" by
Moody's, or any other long-term, short-term or certificate of deposit
rating acceptable to the Rating Agencies and (y) whose deposits are insured
by the Federal Deposit Insurance Corporation.
So long as no default or Event of Default has occurred and is continuing,
all funds in the Collection Account may be invested in any of the following:
(1) direct obligations of, or obligations fully and unconditionally
guaranteed as to timely payment by, the United States of America;
(2) demand deposits, time deposits, certificates of deposit, or
bankers' acceptances of Eligible Institutions which are described in clause
(x) of the preceding paragraph;
(3) commercial paper, other than commercial paper issued by West Penn
or the servicer or any of their affiliates, having, at the time of
investment or contractual commitment to invest, a rating in the highest
rating category from each Rating Agency;
(4) money market funds which have the highest rating from each Rating
Agency;
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(5) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States of America
or certain agencies or instrumentalities thereof the obligations of which
are backed by the full faith and credit of the United States of America,
entered into with an Eligible Institution; or
(6) any other investment permitted by each Rating Agency
(collectively, the "Eligible Investments"), in each case which mature no
later than the Business Day prior to the next payment date for that series
or class.
The bond trustee will have access to the Collection Account for the purpose
of making deposits in and withdrawals from the Collection Account in accordance
with the Indenture.
On each Remittance Date, the servicer will remit all ITC Collections, from
whatever source, and all proceeds of other collateral received by the servicer
to the bond trustee under the indenture for deposit pursuant to the indenture.
Further, the bond trustee will deposit all Indemnity Amounts remitted to the
bond trustee by West Penn or the servicer or otherwise received by the bond
trustee, and any Deferred Repurchase Price remitted by West Penn into the
General Subaccount of the Collection Account. "Indemnity Amounts" means any
amounts paid by West Penn or the servicer to the bond trustee, for itself or on
behalf of the transition bondholders, in respect of the indemnification
obligations pursuant to the Transfer Agreement and the Servicing Agreement, but
excluding any Deferred Repurchase Price paid pursuant to the Transfer Agreement.
Loss Amounts remitted by West Penn to the bond trustee shall be deposited in the
Loss Subaccount. "Loss Amounts" means any amounts remitted by West Penn to the
bond trustee pursuant to the Transfer Agreement for losses as a result of
certain willful misconduct, bad faith, gross negligence, or reckless disregard
of its obligations in the Transfer Agreement or the breach of certain
representations and warranties therein by West Penn. See "The Transfer
Agreement" and the "The Servicing Agreement" in this prospectus.
General Subaccount. ITC Collections remitted by the servicer to the bond
trustee, as well as any Deferred Repurchase Price and Indemnity Amounts remitted
by West Penn or the servicer or otherwise received by the bond trustee or the
issuer, shall be deposited in the General Subaccount. On each payment date, the
bond trustee will draw on amounts in the General Subaccount to make the
allocations and payments described in "--Allocations and Payments" below.
Reserve Subaccount. ITC Collections available on any payment date above
that necessary to pay:
(1) amounts payable in respect of fees and expenses of the bond
trustee, the Administrative Agent and the servicer and other fees and
expenses,
(2) amounts distributable to the transition bondholders in respect of
principal of and interest paid on that payment date,
(3) amounts required to replenish the Capital Subaccount and
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(4) amounts required to replenish and fund the Overcollateralization
Subaccount, including certain customer prepayments of Intangible Transition
Charges, if any, will be allocated to the Reserve Subaccount.
Amounts in the Reserve Subaccount will be invested in Eligible
Investments, and the issuer will be entitled to earnings on those amounts,
subject to the limitations described under "--Allocations and Payments"
below. On each payment date, the bond trustee will draw on amounts in the
Reserve Subaccount, if any, to the extent amounts available in the General
Subaccount and the Loss Subaccount--with respect to payments contemplated
by (1) through (8) in "--Allocations and Payments" below--are insufficient
to make scheduled distributions to the transition bondholders and pay
expenses of the issuer, the bond trustee, the Administrative Agent, the
servicer and certain other fees and expenses. See "--Allocations and
Payments" below.
Overcollateralization Subaccount. ITC Collections to the extent
available, as described under "--Allocation and Payments" below, will be
deposited in the Overcollateralization Subaccount on each payment date up to the
Calculated Overcollateralization Level for all series. Amounts in the
Overcollateralization Subaccount will be invested in Eligible Investments and
the issuer will be entitled to earnings on those amounts, subject to the
limitations described under "--Allocations and Payments" below. On each payment
date, the bond trustee will draw on amounts in the Overcollateralization
Subaccount to the extent amounts on deposit in the General Subaccount, the Loss
Subaccount (with respect to payments contemplated by (1) through (8) in
"--Allocations and Payments" below) and the Reserve Subaccount are insufficient
to make scheduled distributions to the transition bondholders and to pay
expenses of the issuer, the bond trustee, the Administrative Agent and the
servicer and certain other fees and expenses. If any series or class of
transition bonds is redeemed or any series is fully amortized as of any payment
date, the amount by which amounts on deposit in the Overcollateralization
Subaccount exceed the Calculated Overcollateralization Level for all series will
be released to the issuer, free of the lien of the indenture.
Capital Subaccount. Upon the issuance of each series of transition bonds,
West Penn Funding Corporation will make a capital contribution in the amount of
the Required Capital Amount to the issuer, and the issuer will pay that amount
to the bond trustee for deposit into the Capital Subaccount which will be
invested in Eligible Investments, and the issuer will be entitled to earnings on
those amounts subject to the limitations described under "--Allocations and
Payments" below. The bond trustee will draw on amounts in the Capital
Subaccount, if any, to the extent amounts available in the General Subaccount,
the Loss Subaccount--with respect to payments contemplated by (1) through (8) in
"--Allocations and Payments" below--, the Reserve Subaccount and the
Overcollateralization Subaccount are insufficient to make scheduled
distributions to the transition bondholders and to pay expenses of the issuer,
the bond trustee, the Administrative Agent and the servicer and certain other
fees and expenses. If any series or class of transition bonds is redeemed or any
series is fully amortized as of any payment date, the amount by which amounts on
deposit in the Capital Subaccount
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exceed the Required Capital Amount will be released to the issuer, free of the
lien of the indenture.
Loss Subaccount. Prior to the deposit of any Loss Amounts in the
Collection Account, the issuer shall establish the Loss Subaccount, and any Loss
Amounts remitted by West Penn to the bond trustee shall be deposited in that
subaccount. The bond trustee will draw on amounts in the Loss Subaccount, if
any, as described under "--Allocations and Payments" below.
Defeasance Subaccount. In the event funds are remitted to the bond
trustee in connection with the exercise of the Legal Defeasance Option or the
Covenant Defeasance Option, the issuer shall establish a Defeasance Subaccount
for each series to be defeased into which those funds shall be deposited. All
amounts in the Defeasance Subaccount will be applied by the bond trustee, in
accordance with the provisions of the transition bonds and the indenture, to the
payment to the holders of the particular transition bonds for the payment or
redemption of which those amounts were deposited with the bond trustee,
including all sums due for principal, premium, if any, and interest. See
"--Legal Defeasance and Covenant Defeasance" below.
ALLOCATIONS AND PAYMENTS
On each payment date, the bond trustee shall apply all amounts on deposit
in the General Subaccount of the Collection Account and any investment earnings
on each of the subaccounts of the Collection Account in the following priority:
(1) all amounts owed to the bond trustee, including legal fees and
expenses, Indemnity Amounts and Loss Amounts, will be paid to the bond
trustee;
(2) the Servicing Fee and all unpaid Servicing Fees from prior
payment dates will be paid to the servicer;
(3) the fees owed to the Administrative Agent under the
Administration Agreements will be paid to the Administrative Agent;
(4) so long as no Event of Default has occurred and is continuing or
would be caused by that payment, all operating expenses other than those
referred to in clauses (1), (2) and (3) above will be paid to the persons
entitled thereto, provided that the amount paid on any payment date
pursuant to this clause (4) may not exceed $[12,500] in the aggregate for
all series;
(5) interest due and payable on the transition bonds, together with
any overdue interest at the applicable bond rate and, to the extent
permitted by law, interest on that overdue interest, will be paid to the
transition bondholders;
(6) any principal of any series or class of the transition bonds
payable as a result of acceleration triggered by an Event of Default, any
principal of any series or class of transition bonds payable on a series
termination date or class termination date, as applicable, and any
principal of and premium on a series or class of transition bonds payable
on a Redemption Date will be paid to the transition bondholders;
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(7) an amount up to the principal amount of the transition bonds that
is scheduled to be paid by that payment date in accordance with the
Expected Amortization Schedule will be paid to the transition bondholders
in respect of principal on the transition bonds;
(8) all unpaid operating expenses, Indemnity Amounts and Loss Amounts
will be paid to the persons entitled thereto;
(9) an amount, if any, necessary to fund the balance of the Capital
Subaccount up to the Required Capital Amount will be transferred to the
Capital Subaccount;
(10) Overcollateralization with respect to all series of transition
bonds for that payment date will be transferred to the
Overcollateralization Subaccount up to the Calculated Overcollateralization
Level;
(11) the balance, if any, will be allocated to the Reserve
Subaccount; and
(12) following repayment of all outstanding series of transition
bonds, the balance, if any, will be released to the issuer free from the
lien of the indenture.
If on any payment date funds on deposit in the General Subaccount are
insufficient to make the payments and transfers contemplated by clauses (1)
through (10) above, the bond trustee will draw from amounts on deposit in the
following subaccounts up to the amount of such shortfall, in order to make such
payments and transfers: (1) from the Loss Subaccount, with respect to the
payments or transfers contemplated by clauses (1) through (8) above only, and
(2) thereafter from the Reserve Subaccount, then from the Overcollateralization
Subaccount and finally from the Capital Subaccount.
All payments to transition bondholders of a series pursuant to clauses (5)
or (6) of the first paragraph under "--Allocation and Payments" shall be made
pro rata based on the respective outstanding principal amounts of transition
bonds of that series held by those transition bondholders, unless, in the case
of a series comprised of two or more classes, the applicable supplemental
indenture for that series specifies otherwise. All payments to transition
bondholders of a class pursuant to clause (5) or (6) of the first paragraph
under "Allocation and Payments" shall be made pro rata based on the respective
outstanding principal amounts of transition bonds of that class held by those
transition bondholders.
REPORTS TO TRANSITION BONDHOLDERS
With respect to each series of transition bonds, on or prior to each
payment date, the bond trustee will deliver a statement prepared by the bond
trustee to each transition bondholder of that series which will include, to the
extent applicable, the following information, and any other information so
specified in the applicable supplemental indenture, as to the transition bonds
of that series with respect to that payment date or the period since the
previous payment date, as applicable:
(1) the amount paid to those transition bondholders in respect of
principal;
(2) the amount paid to those transition bondholders in respect of
interest;
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(3) the outstanding principal balance and the amount provided in the
Expected Amortization Schedule, in each case for that series and as of the
most recent payment date;
(4) the amount on deposit in the Overcollateralization Subaccount and
the Calculated Overcollateralization Level, in each case for all series and
as of the most recent payment date;
(5) the amount on deposit in the Capital Subaccount as of the most
recent payment date; and
(6) the amount, if any, on deposit in the Reserve Subaccount as of
the most recent payment date.
MODIFICATION OF INDENTURE
Without the consent of any of the holders of the outstanding transition
bonds but with prior notice to the Rating Agencies, the issuer and the bond
trustee may execute a supplemental indenture for any of the following purposes:
(1) to correct or amplify the description of the collateral, or to
better assure, convey and confirm unto the bond trustee the collateral, or
to subject to the lien of the indenture additional property;
(2) to evidence the succession, in compliance with the applicable
provisions of the indenture, of another person to the issuer, and the
assumption by any such successor of the covenants of the issuer contained
in the indenture and in the transition bonds;
(3) to add to the covenants of the issuer, for the benefit of the
holders of the transition bonds, or to surrender any right or power therein
conferred upon the issuer;
(4) to convey, transfer, assign, mortgage or pledge any property to
or with the bond trustee;
(5) to cure any ambiguity, to correct or supplement any provision of
the indenture or in any supplemental indenture which may be inconsistent
with any other provision of the indenture or in any supplemental indenture
or to make any other provisions with respect to matters or questions
arising under the indenture or in any supplemental indenture; provided,
however, that (x) that action shall not, as evidenced by an officers
certificate, adversely affect in any material respect the interests of any
transition bondholder and (y) the Rating Agency Condition shall have been
satisfied with respect thereto by all Rating Agencies other than
Moody's--however, notice of that action shall be provided to Moody's;
(6) to evidence and provide for the acceptance of the appointment
under the indenture by a successor bond trustee with respect to the
transition bonds and to add to or change any of the provisions of the
indenture as shall be necessary to facilitate the administration of the
trusts under the indenture by more than one bond trustee, pursuant to
certain requirements of the indenture;
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(7) to modify, eliminate or add to the provisions of the indenture to
the extent as shall be necessary to effect the qualification of the
indenture under the Trust Indenture Act of 1939, as amended, or under any
similar federal statute hereafter enacted and to add to the indenture the
other provisions as may be expressly required by the Trust Indenture Act of
1939, as amended;
(8) to set forth the terms of any series that has not previously been
authorized by a supplemental indenture; or
(9) to provide for any hedge or swap transactions with respect to any
floating rate series or class of transition bonds or any series or class
specific credit enhancement; provided, however, that (x) such action shall
not, as evidenced by an officers certificate, adversely affect in any
material respect the interests of any transition bondholder and (y) the
Rating Agency Condition shall have been satisfied with respect thereto by
all Rating Agencies other than Moody's--however, notice of such action
shall be provided to Moody's.
Additionally, without the consent of any of the transition bondholders, the
issuer and bond trustee may execute a supplemental indenture to add provisions
to, or change in any manner or eliminate any provisions of, the indenture, or to
modify in any manner the rights of the transition bondholders under the
indenture; provided, however:
(1) that action shall not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of any transition
bondholder and
(2) that the Rating Agency Condition shall have been satisfied with
respect to that action.
The issuer and the bond trustee also may, with prior notice to the Rating
Agencies and with the consent of the holders of not less than a majority of the
outstanding amount of the transition bonds of each series or class to be
affected, execute a supplemental indenture for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, the indenture or modifying in any manner the rights of the transition
bondholders under the indenture; provided, however, that no such supplemental
indenture shall, without the consent of the holder of each outstanding
transition bond of each series or class affected thereby:
(1) change the date of payment of any installment of principal of or
premium, if any, or interest on any transition bond, or reduce the
principal amount of any transition bond, the interest rate specified on any
transition bond or the redemption price or the premium, if any, with
respect to any transition bond, change the provisions of the indenture and
the related applicable supplemental indenture relating to the application
of collections on, or the proceeds of the sale of, the collateral to
payment of principal of or premium, if any, or interest on the transition
bonds, or change any place of payment where, or the coin or currency in
which, any transition bond or any interest on a transition bond is payable;
(2) impair the right to institute suit for the enforcement of certain
provisions of the indenture regarding payment;
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(3) reduce the percentage of the aggregate amount of the outstanding
transition bonds, or of a series or class thereof, the consent of the
holders of which is required for any supplemental indenture, or the consent
of the holders of which is required for any waiver of compliance with
certain provisions of the indenture or of certain defaults thereunder and
their consequences provided for in the indenture;
(4) reduce the percentage of the outstanding amount of the transition
bonds required to direct the bond trustee to direct the issuer to sell or
liquidate the collateral;
(5) modify any provision of the section of the indenture relating to
the consent of transition bondholders with respect to supplemental
indentures, except to increase any percentage specified therein or to
provide that certain additional provisions of the indenture or the Basic
Documents cannot be modified or waived without the consent of the holder of
each outstanding transition bond affected thereby;
(6) modify any of the provisions of the indenture in such a manner as
to affect the amount of any payment of interest, principal or premium, if
any, payable on any transition bond on any payment date or to affect the
rights of transition bondholders to the benefit of any provisions for the
mandatory redemption of the transition bonds contained in the indenture or
change the redemption dates, Expected Amortization Schedule or series
termination dates or class termination dates of any transition bonds;
(7) decrease the Required Capital Amount with respect to any series,
the Overcollateralization Amount or the Calculated Overcollateralization
Level with respect to any payment date;
(8) modify or alter the provisions of the indenture regarding the
voting of transition bonds held by the issuer, West Penn Funding
Corporation, an affiliate of either of them or any obligor on the
transition bonds;
(9) decrease the percentage of the aggregate principal amount of the
transition bonds required to amend the sections of the indenture which
specify the applicable percentage of the aggregate principal amount of the
transition bonds necessary to amend the indenture or certain other related
agreements; or
(10) permit the creation of any lien ranking prior to or on a parity
with the lien of the indenture with respect to any of the collateral for
the transition bonds or, except as otherwise permitted or contemplated in
the indenture, terminate the lien of the indenture on any property at any
time subject to the lien of the indenture or deprive the holder of any
transition bond of the security provided by the lien of the indenture.
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ENFORCEMENT OF THE TRANSFER AGREEMENT, THE SALE AGREEMENT AND THE SERVICING
AGREEMENT
The indenture will provide that the issuer will take all lawful actions to
enforce its rights under the Transfer Agreement, the Sale Agreement and the
Servicing Agreement in a commercially reasonable manner and to compel or secure
the performance and observance by West Penn, West Penn Funding Corporation and
the servicer of each of their respective material obligations to the issuer
under or in connection with the Transfer Agreement, the Sale Agreement and the
Servicing Agreement. So long as no Event of Default occurs and is continuing,
the issuer may exercise any and all rights, remedies, powers and privileges
lawfully available to the issuer under or in connection with the Transfer
Agreement, the Sale Agreement and the Servicing Agreement. However, if the
issuer and West Penn Funding Corporation or servicer propose to amend, modify,
waive, supplement, terminate or surrender, or agree to any amendment,
modification, supplement, termination, waiver or surrender of, the process for
adjusting Intangible Transition Charges, the issuer shall notify the bond
trustee and the bond trustee shall notify transition bondholders of that
proposal and the bond trustee shall consent thereto only with the consent of the
holder of each outstanding transition bond of each series or class affected
thereby.
If an Event of Default occurs and is continuing, the bond trustee may, and,
at the direction of the holders of a majority of the outstanding principal
amount of the transition bonds of all series shall, exercise all rights,
remedies, powers, privileges and claims of the issuer against West Penn, West
Penn Funding Corporation or the servicer under or in connection with the Sale
Agreement and the Servicing Agreement, and any right of the issuer to take that
action shall be suspended.
MODIFICATIONS TO THE TRANSFER AGREEMENT, THE SALE AGREEMENT AND THE SERVICING
AGREEMENT
With the consent of the bond trustee, the Transfer Agreement, the Sale
Agreement and the Servicing Agreement may be amended at any time and from time
to time, without the consent of the transition bondholders, provided that the
amendment shall not, as evidenced by an officer's certificate, adversely affect
the interest of any transition bondholder or change the adjustment process for
the Intangible Transition Charges. The bond trustee shall not withhold its
consent to that amendment so long as the Rating Agency Condition is satisfied in
connection therewith by each Rating Agency other than Moody's--and the issuer
shall have furnished Moody's with written notice of that amendment prior to the
effectiveness thereof--and the foregoing officer's certificate is provided.
No amendment, modification, waiver, supplement, termination or surrender of
the terms of the Transfer Agreement, the Sale Agreement or Servicing Agreement,
or waiver of timely performance or observance by West Penn, West Penn Funding
Corporation or the servicer under the Transfer Agreement, Sale Agreement or
Servicing Agreement, respectively, in each case in a way as would adversely
affect the interests of transition bondholders is permitted nor shall the bond
trustee consent thereto. If the issuer, West
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Penn, West Penn Funding Corporation or the servicer shall otherwise propose to
amend, modify, waive, supplement, terminate or surrender, or agree to any
amendment, modification, waiver, supplement, termination or surrender of the
terms of the Transfer Agreement, the Sale Agreement or the Servicing Agreement
or waive timely performance or observance by West Penn, West Penn Funding
Corporation or the servicer under the Transfer Agreement, the Sale Agreement or
Servicing Agreement, respectively, the issuer shall notify the bond trustee and
the bond trustee shall notify the transition bondholders thereof. The bond
trustee shall consent thereto only with the consent of the holders of at least a
majority of the outstanding principal amount of the transition bonds of each
series or class.
The issuer shall furnish to each of the Rating Agencies:
(1) prior to the execution of any such amendment or consent, written
notification of the substance of that amendment or consent and
(2) promptly after the execution of any such amendment or consent, a
copy of that amendment or consent.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
An "Event of Default" is defined in the indenture as being:
(1) a default for five days or more in the payment of any interest on
any transition bond;
(2) a default in the payment of the then unpaid principal of any
transition bond of any series on the series termination date for that
series or, if applicable, any class on the class termination date for that
class;
(3) a default in the payment of the redemption price for any
transition bond on the redemption date therefor;
(4) a default in the observance or performance of any covenant or
agreement of the issuer made in the indenture, other than those
specifically dealt with in (1), (2) or (3) above, and the continuation of
any such default for a period of thirty days after notice thereof is given
to the issuer by the bond trustee or to the issuer and the bond trustee by
the holders of at least 25% in outstanding principal amount of the
transition bonds of any series; and
(5) certain events of bankruptcy, insolvency, receivership or
liquidation of the issuer.
If an Event of Default occurs and is continuing, the bond trustee or
holders of a majority in principal amount of the transition bonds of all series
then outstanding may declare the principal of all series of the transition bonds
to be immediately due and payable. That declaration may, under certain
circumstances, be rescinded by the holders of a majority in principal amount of
all series of the transition bonds then outstanding.
If the transition bonds of all series have been declared to be due and
payable following an Event of Default, the bond trustee may, in its discretion,
either sell the
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collateral or elect to have the issuer maintain possession of the collateral and
continue to apply distributions on the collateral as if there had been no
declaration of acceleration. The bond trustee is prohibited from selling the
collateral following an Event of Default other than a default in the payment of
any principal, a default for five days or more in the payment of any interest on
any transition bond of any series or a default on the payment of the price set
for redemption in the related supplemental indenture for any transition bond on
the date for redemption therefor set in the related supplemental indenture
unless:
(1) the holders of 100% of the principal amount of all series of
transition bonds consent to that sale;
(2) the proceeds of that sale or liquidation are sufficient to pay in
full the principal of and premium, if any, and accrued interest on the
outstanding transition bonds; or
(3) the bond trustee determines that funds provided by the collateral
would not be sufficient on an ongoing basis to make all payments on the
transition bonds of all series as those payments would have become due if
the transition bonds had not been declared due and payable, and the bond
trustee obtains the consent of the holders of 66 2/3% of the aggregate
outstanding amount of the transition bonds of each series.
Subject to the provisions of the indenture relating to the duties of the
bond trustee, in case an Event of Default occurs and is continuing, the bond
trustee will be under no obligation to exercise any of the rights or powers
under the indenture at the request or direction of any of the holders of
transition bonds of any series if the bond trustee reasonably believes it will
not be adequately indemnified against the costs, expenses and liabilities which
might be incurred by it in complying with that request. Subject to those
provisions for indemnification and certain limitations contained in the
indenture, the holders of a majority in principal amount of the outstanding
transition bonds of all series will have the right to direct the time, method
and place of conducting any proceeding or any remedy available to the bond
trustee; provided that, among other things:
(1) that direction shall not conflict with any rule of law or with
the indenture;
(2) subject to certain provisions in the indenture, any direction to
the bond trustee to sell or liquidate the collateral shall be by the
holders of 100% of the principal amount of all series of transition bonds
then outstanding; and
(3) the bond trustee may take any other action deemed proper by the
bond trustee that is not inconsistent with that direction.
The holders of a majority in principal amount of the transition bonds of
all series then outstanding may, in certain cases, waive any default with
respect thereto, except a default in the payment of principal of or premium, if
any, or interest on any of the transition bonds or a default in respect of a
covenant or provision of the indenture that cannot be modified without the
waiver or consent of all of the holders of the outstanding transition bonds of
all series and classes affected.
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No transition bondholder of any series will have the right to institute any
proceeding, judicial or otherwise, or to avail itself of the remedies provided
in Section 2812(d)(3)(v) of the Pennsylvania Competition Act, with respect to
the indenture, unless:
(1) that holder previously has given to the bond trustee written
notice of a continuing Event of Default;
(2) the holders of not less than 25% in principal amount of the
outstanding transition bonds of each series have made written request of
the bond trustee to institute such proceeding in its own name as bond
trustee;
(3) that holder or holders have offered the bond trustee security or
indemnity reasonably satisfactory to the bond trustee against the costs,
expenses, and liabilities to be incurred in complying with that request;
(4) the bond trustee for 60 days after its receipt of such notice,
request and offer has failed to institute that proceeding; and
(5) no direction inconsistent with that written request has been
given to the bond trustee during that 60-day period by the holders of a
majority in principal amount of the outstanding transition bonds of all
series.
CERTAIN COVENANTS
The issuer will keep in effect its existence, rights and franchises as a
limited liability company under Delaware law, provided that the issuer may
consolidate with or merge into another entity or sell substantially all of its
assets to another entity and dissolve if:
(1) the entity formed by or surviving that consolidation or merger or
to whom substantially all of those assets are sold is organized under the
laws of the United States or any state thereof and shall expressly assume
by a supplemental indenture the due and punctual payment of the principal
of and premium, if any, and interest on all transition bonds and the
performance of the issuer's obligations under the indenture;
(2) that entity expressly assumes all obligations and succeeds to all
rights of the issuer under the Transfer Agreement, the Sale Agreement and
the Servicing Agreement pursuant to an assignment and assumption agreement
executed and delivered to the bond trustee;
(3) no default or Event of Default will have occurred and be
continuing immediately after giving effect to that merger, consolidation or
sale;
(4) the Rating Agency Condition will have been satisfied with respect
to that consolidation or merger or sale by each Rating Agency, except
Moody's--and the issuer shall have furnished Moody's with prior written
notice of that consolidation, merger or sale;
(5) the issuer has received an opinion of counsel to the effect that
that consolidation or merger or sale of assets would have no material
adverse tax
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consequence to the issuer or any transition bondholder, that consolidation
or merger or sale complies with the indenture and all conditions precedent
therein provided relating to that consolidation or merger or sale and will
result in the bond trustee maintaining a continuing valid first priority
security interest in the collateral;
(6) none of the Intangible Transition Property, the QRO or West
Penn's, West Penn Funding Corporation's, the servicer's or the issuer's
rights under the Pennsylvania Competition Act or the QRO are impaired
thereby; and
(7) any action that is necessary to maintain the lien and security
interest created by the indenture will have been taken.
The issuer will from time to time execute and deliver those documents, make
all filings and take any other action necessary or advisable to, among other
things, maintain and preserve the lien and security interest--and priority
thereof--of the indenture and will not permit the validity of the indenture to
be impaired, the lien to be amended, hypothecated, subordinated or terminated or
discharged, or any person to be released from any covenants or obligations
except as expressly permitted by the indenture, nor will it permit any lien,
charge, excise, claim, security interest, mortgage or other encumbrance, other
than the lien and security interest created by the indenture, to be created on
or extend to or otherwise arise upon or burden the collateral or any part
thereof or any interest therein or the proceeds thereof, or permit the lien of
the indenture not to constitute a continuing valid first priority security
interest in the collateral.
The issuer may not, among other things:
(1) except as expressly permitted by the indenture, the Sale
Agreement or the Servicing Agreement sell, transfer, exchange or otherwise
dispose of any of the collateral unless directed to do so by the bond
trustee in accordance with the indenture; or
(2) claim any credit on, or make any deduction from the principal or
premium, if any, or interest payable in respect of, the transition bonds,
other than amounts properly withheld under the Code, or assert any claim
against any present or former transition bondholder because of the payment
of taxes levied or assessed upon the issuer.
The issuer may not engage in any business other than purchasing and
owning the Transferred Intangible Transition Property, issuing transition
bonds from time to time, pledging its interest in the collateral to the
bond trustee under the indenture in order to secure the transition bonds,
and performing activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto.
The issuer may not issue, incur, assume or guarantee any indebtedness
except for the transition bonds or guarantee or otherwise become
contingently liable in connection with the obligations, stocks or dividends
of, or own, purchase, repurchase or acquire--or agree contingently to do
so--any stock, obligations, assets or securities of, or any other interest
in, or make any capital contribution to, any other person, except that the
issuer may invest funds in Eligible Investments. The issuer
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may not, except as contemplated by the indenture, the Sale Agreement, the
Servicing Agreement and certain related documents, including the LLC
Agreement, make any loan or advance or credit to any person. The issuer
will not make any expenditure--by long-term or operating lease or
otherwise--for capital assets--either realty or personalty--other than
Intangible Transition Property purchased from West Penn Funding Corporation
pursuant to, and in accordance with, the Sale Agreement. The issuer may not
make any payments, distributions or dividends to any holder of beneficial
interests in the issuer in respect of that beneficial interest, except in
accordance with the indenture.
The issuer will cause the servicer to deliver to the bond trustee the
Annual Accountant's Report, compliance certificates and monthly reports
regarding distributions and other statements required by the Servicing
Agreement. See "The Servicing Agreement" in this prospectus.
LIST OF TRANSITION BONDHOLDERS
Any transition bondholder or group of transition bondholders--each of whom
has owned a transition bond for at least six months--may, by written request to
the bond trustee, obtain access to the list of all transition bondholders
maintained by the bond trustee for the purpose of communicating with other
transition bondholders with respect to their rights under the indenture or the
transition bonds. The bond trustee may elect not to afford the requesting
transition bondholders access to the list of transition bondholders if it agrees
to mail the desired communication or proxy, on behalf and at the expense of the
requesting transition bondholders, to all transition bondholders.
ANNUAL COMPLIANCE STATEMENT
The issuer will be required to file annually with the bond trustee a
written statement as to the fulfillment of its obligations under the indenture.
In addition, the issuer shall furnish to the bond trustee an opinion of counsel
concerning filings made by the issuer on an annual basis and before the
effectiveness of any amendment to the Transfer Agreement, the Sale Agreement or
the Servicing Agreement.
BOND TRUSTEE'S ANNUAL REPORT
If required by the Trust Indenture Act of 1939, as amended, the bond
trustee will be required to mail each year to all transition bondholders a brief
report relating to, among other things, its eligibility and qualification to
continue as the bond trustee under the indenture, any amounts advanced by it
under the indenture, the amount, interest rate and maturity date of certain
indebtedness owing by the issuer to it in the bond trustee's individual
capacity, the property and funds physically held by the bond trustee as such,
any additional issue of a series of transition bonds not previously reported and
any action taken by it that materially affects the transition bonds of any
series and that has not been previously reported.
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SATISFACTION AND DISCHARGE OF INDENTURE
The indenture will be discharged with respect to the transition bonds of
any series upon the delivery to the bond trustee for cancelation of all the
transition bonds of that series or upon the expected final payment date or the
date of redemption therefor, provided that the issuer has deposited funds
sufficient for the payment in full of all of the transition bonds of that series
with the bond trustee and the issuer has delivered to the bond trustee the
officer's certificate and opinion of counsel specified in the indenture. Those
deposited funds will be segregated and held apart solely for paying those
transition bonds, and those transition bonds shall not be entitled to any
amounts on deposit in the Collection Account other than amounts on deposit in
the Defeasance Subaccount for those transition bonds.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The issuer may, at any time, terminate:
(1) all of its obligations under the indenture with respect to the
transition bonds of any series ("Legal Defeasance Option") or
(2) its obligations to comply with certain covenants, including certain
of the covenants described under "The Indenture--Certain Covenants" (the
"Covenant Defeasance Option").
The issuer may exercise the Legal Defeasance Option with respect to any
series of transition bonds notwithstanding its prior exercise of the Covenant
Defeasance Option with respect to that series.
If the issuer exercises the Legal Defeasance Option with respect to any
series, that series of transition bonds shall be entitled to payment only from
the funds or other obligations set aside under the indenture for payment thereof
on the expected final payment date or redemption date therefor as described
below. That series of transition bonds shall not be subject to payment through
redemption or acceleration prior to that expected final payment date or
redemption date, as applicable. If the issuer exercises the Covenant Defeasance
Option with respect to any series, the transition bonds of that series may not
be accelerated because of an Event of Default relating to a default in the
observance or performance of any covenant or agreement of the issuer made in the
indenture.
The issuer may exercise the Legal Defeasance Option or the Covenant
Defeasance Option with respect to any series of transition bonds only if:
(1) the issuer irrevocably deposits or causes to be deposited in
trust with the bond trustee cash or U.S. Government Obligations for the
payment of principal of and premium, if any, and interest on those
transition bonds to the expected final payment date or redemption date
therefor, as applicable, that deposit to be made in the Defeasance
Subaccount for such series of transition bonds;
(2) the issuer delivers to the bond trustee a certificate from a
nationally recognized firm of independent accountants expressing its
opinion that the payments
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of principal and interest when due and without reinvestment will provide
cash at the times and in the amounts as will be sufficient to pay in
respect of the transition bonds of that series:
(x) principal in accordance with the Expected Amortization
Schedule therefor, or if that series is to be redeemed, the redemption
price of that redemption on the redemption date therefor, and
(y) interest when due;
(3) in the case of the Legal Defeasance Option, 95 days pass after
the deposit is made and during the 95-day period no default relating to
events of bankruptcy, insolvency, receivership or liquidation of the Issuer
occurs and is continuing at the end of the period;
(4) no default has occurred and is continuing on the day of that
deposit and after giving effect thereto;
(5) in the case of the Legal Defeasance Option, the issuer delivers
to the bond trustee an opinion of counsel stating that:
(x) the issuer has received from, or there has been published
by, the Internal Revenue Service a ruling; or
(y) since the date of execution of the Indenture, there has
been a change in the applicable federal income tax law;
in either case to the effect that, and based thereon that opinion shall
confirm that, the holders of the transition bonds of that series will not
recognize income, gain or loss for federal income tax purposes as a result
of the exercise of such Legal Defeasance Option and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if that Legal Defeasance had not
occurred;
(6) in the case of the Covenant Defeasance Option, the issuer
delivers to the bond trustee an opinion of counsel to the effect that the
holders of the transition bonds of that series will not recognize income,
gain or loss for federal income tax purposes as a result of the exercise of
such Covenant Defeasance Option and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred; and
(7) the issuer delivers to the bond trustee a certificate of an
authorized officer of the issuer and an opinion of counsel, each stating
that all conditions precedent to the satisfaction and discharge of the
transition bonds of that series have been complied with as required by the
indenture.
There will be no other conditions to the exercise by the issuer of its
Legal Defeasance Option or its Covenant Defeasance Option.
"U.S. Government Obligations" means direct obligations, or certificates
representing an ownership interest in such obligations, of the United States of
America, including any
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agency or instrumentality thereof, for the payment of which the full faith and
credit of the United States of America is pledged and which are not callable at
the issuer's option.
THE BOND TRUSTEE
[ ] will be the bond trustee under the indenture. The bond
trustee may resign at any time by so notifying the issuer. The holders of a
majority in principal amount of the transition bonds of all series then
outstanding may remove the bond trustee by so notifying the bond trustee and may
appoint a successor bond trustee. The issuer will remove the bond trustee if the
bond trustee ceases to be eligible to continue as so under the indenture, the
bond trustee becomes insolvent, a receiver or other public officer takes charge
of the bond trustee or its property or the bond trustee becomes incapable of
acting. If the bond trustee resigns or is removed or a vacancy exists in the
office of bond trustee for any reason, the issuer will be obligated to appoint a
successor bond trustee eligible under the indenture. Any resignation or removal
of the bond trustee and appointment of a successor bond trustee will not become
effective until acceptance of the appointment by a successor bond trustee. The
issuer is required under the indenture to provide the Rating Agencies with
written notice of any successor bond trustee.
The bond trustee shall at all times satisfy the requirements of the Trust
Indenture Act and have a combined capital and surplus of at least $50 million
and a long term debt rating of "Baa3" or better by Moody's and "BBB-" by Fitch
IBCA--if currently rated by Fitch IBCA. If the bond trustee consolidates with,
merges or converts into, or transfers all or substantially all of its corporate
trust business or assets to, another entity, the resulting, surviving or
transferee entity shall without any further action be the successor bond
trustee.
GOVERNING LAW
The indenture will be governed by and construed under the laws of the State
of New York.
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UNITED STATES TAXATION
GENERAL
This section summarizes the material U.S. tax consequences to holders of
transition bonds. However, the discussion is limited in the following ways:
-- The discussion only covers you if you buy your transition bonds in
the initial offering.
-- The discussion only covers you if you hold your transition bonds as
a capital asset--that is, for investment purposes--and if you do not
have a special tax status.
-- The discussion does not cover tax consequences that depend upon your
particular tax circumstances. You should consult your tax advisor
about the consequences of holding transition bonds in your
particular situation.
-- The discussion is based on current law. Changes in the law may
change the tax treatment of the transition bonds.
-- The discussion generally does not cover state, local or foreign law.
-- The discussion does not apply to you if you are a non-U.S. holder of
transition bonds and if you (a) own 10% or more of the voting stock
of Allegheny Energy, (b) are a "controlled foreign corporation" with
respect to Allegheny Energy, or (c) are a bank making a loan in the
ordinary course of its business.
TAXATION OF THE ISSUER AND OF THE TRANSITION BONDS
The issuer is a wholly owned subsidiary of West Penn Funding Corporation
and has not elected to be taxed as a corporation for federal income tax
purposes. As such, the issuer will be treated as a division of West Penn Funding
Corporation and will not be treated as a separate taxable entity.
West Penn has received a ruling from the IRS that (1) the issuance of the
QRO by the PUC will not result in the recognition of gross income by West Penn
or West Penn Funding Corporation, (2) the issuance of the transition bonds will
not result in the recognition of gross income by West Penn or West Penn Funding
Corporation and (3) the transition bonds will be classified as obligations of
West Penn Funding Corporation. In the opinion of our tax counsel, Cravath,
Swaine & Moore, based on the ruling, for U.S. federal income tax purposes the
transition bonds will be treated as debt of West Penn Funding Corporation
secured by a pledge of the collateral. We have relied on the ruling and the
opinion in preparing this section.
IF YOU ARE CONSIDERING BUYING TRANSITION BONDS, WE SUGGEST THAT YOU CONSULT
YOUR TAX ADVISORS ABOUT THE TAX CONSEQUENCES OF HOLDING THE TRANSITION BONDS IN
YOUR PARTICULAR SITUATION.
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TAX CONSEQUENCES TO U.S. HOLDERS
This section applies to you if you are a "U.S. Holder". A "U.S. Holder" is:
-- an individual U.S. citizen or resident alien;
-- a corporation, or entity taxable as a corporation, that was created
under U.S. law (federal or state); or
-- an estate or trust whose worldwide income is subject to U.S. federal
income tax.
If a partnership holds transition bonds, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. We suggest that partners of partnerships holding transition bonds
consult their tax advisors.
INTEREST
-- If you are a cash method taxpayer, including most individual
holders, you must report that interest in your income when you
receive it.
-- If you are an accrual method taxpayer, you must report that interest
in your income as it accrues.
SALE OR RETIREMENT OF TRANSITION BONDS
On a sale or retirement of a transition bond:
-- You will have taxable gain or loss equal to the difference between
the amount received by you and your tax basis in the transition
bond. Your tax basis in the transition bond is your cost, subject to
certain adjustments.
-- Your gain or loss will generally be capital gain or loss, and will
be long term capital gain or loss if you held the transition bond
for more than one year.
-- If you sell the transition bond between interest payment dates, a
portion of the amount you receive reflects interest that has accrued
on the transition bond but has not yet been paid by the sale date.
That amount is treated as ordinary interest income and not as sale
proceeds.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under the tax rules concerning information reporting to the IRS:
-- Assuming you hold your transition bonds through a broker or other
securities intermediary, the intermediary is required to provide
information to the IRS concerning interest and retirement proceeds
we pay on transition bonds you own, unless an exemption applies.
-- Similarly, unless an exemption applies, you must provide the
intermediary with your Taxpayer Identification Number for its use in
reporting information to the IRS. If you are an individual, this is
your social security number. You are also required to comply with
other IRS requirements concerning information reporting.
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-- If you are subject to these requirements but do not comply, the
intermediary is required to withhold 31% of all amounts payable to
you on the transition bonds, including principal payments. If the
intermediary withholds payments, you may use the withheld amount as
a credit against your federal income tax liability.
-- All U.S. Holders that are individuals are subject to these
requirements. Some U.S. Holders, including all corporations,
tax-exempt organizations and individual retirement accounts, are
exempt from these requirements.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
This section applies to you if you are a "Non-U.S. Holder." A "Non-U.S.
Holder" is:
-- an individual that is a nonresident alien;
-- a corporation organized or created under non-U.S. law; or
-- an estate or trust that is not taxable in the U.S. on its worldwide
income.
WITHHOLDING TAXES
Generally, payments of principal and interest on the transition bonds will
not be subject to U.S. withholding taxes.
However, in order for the exemption from withholding taxes to apply to you,
you must meet one of the following requirements:
-- You provide your name, address, and a signed statement that you are
the beneficial owner of the transition bond and are not a U.S.
Holder. This statement is generally made on Form W-8 or Form W-8BEN.
-- You or your agent claim an exemption from withholding tax under an
applicable tax treaty. This claim is generally made on Form 1001 or
Form W-8BEN.
-- You or your agent claim an exemption from withholding tax on the
ground that the income is effectively connected with the conduct of
a trade or business in the U.S. This claim is generally made on Form
4224 or Form W-8ECI.
We suggest that you consult your tax advisor about the specific methods to
satisfy these requirements. These procedures will change on January 1, 2001. In
addition, a claim for exemption will not be valid if the person receiving the
claim has actual knowledge that the statements on the applicable form are false.
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SALE OR RETIREMENT OF TRANSITION BONDS
If you sell a transition bond or it is redeemed, you will not be subject to
federal income tax on any gain unless one of the following applies:
-- The gain is connected with a trade or business that you conduct in
the U.S.
-- You are an individual, you are present in the U.S. for at least 183
days during the year in which you dispose of the transition bond,
and certain other conditions are satisfied.
-- The gain represents accrued interest, in which case the rules for
interest would apply.
U.S. TRADE OR BUSINESS
If you hold a transition bond in connection with a trade or business that
you are conducting in the U.S.:
-- Any interest on the transition bond, and any gain from disposing of
the transition bond, generally will be subject to income tax as if
you were a U.S. Holder.
-- If you are a corporation, you may be subject to the "branch profits
tax" on your earnings that are connected with your U.S. trade or
business, including earnings from the transition bond. This tax is
30%, but may be reduced or eliminated by an applicable income tax
treaty.
ESTATE TAXES
If you are an individual, the transition bonds will not be subject to U.S.
estate tax when you die. However, this rule only applies if, at the time of your
death, payments on the transition bond would not have been connected to a trade
or business that you were conducting in the U.S.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. rules concerning information reporting and backup withholding are
described above under "Tax Consequences to U.S. Holders--Information Reporting
and Backup Withholding". Under these rules:
-- Principal and interest payments received by you will be
automatically exempt from the usual rules if you provide the tax
certifications needed to avoid withholding tax on interest, as
described above under "Tax Consequences to U.S. Holders--Information
Reporting and Backup Withholding". The exemption does not apply if
the recipient of the applicable form knows that the form is false.
However, interest payments made to you will be reported to the IRS
on Form 1042-S.
-- Sale proceeds you receive on a sale of your transition bonds through
a broker may be subject to information reporting and/or backup
withholding if you are not eligible for an exemption. In particular,
information reporting and backup
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reporting may apply if you use the U.S. office of a broker, and
information reporting--but not backup withholding--may apply if you
use the foreign office of a broker if the broker has certain
connections to the U.S. We suggest that you consult your tax advisor
concerning information reporting and backup withholding on a sale.
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ERISA CONSIDERATIONS
Employee benefit plans are permitted to purchase transition bonds.
ERISA and/or Section 4975 of the Code impose certain requirements on
employee benefit plans and certain other plans and arrangements, including
individual retirement accounts and annuities, Keogh plans and certain collective
investment funds or insurance company general or separate accounts in which
those plans, accounts or arrangements are invested (collectively, "Plans"), and
on persons who are fiduciaries with respect to Plans. ERISA imposes on Plan
fiduciaries certain general fiduciary requirements. In addition, Section 406 of
ERISA and Section 4975 of the Code prohibit a broad range of "prohibited
transactions" involving assets of a Plan ("Plan Assets") and persons who have
certain specified relationships to the Plan ("parties in interest" under ERISA
and "disqualified persons" under the Code), unless a statutory or administrative
exemption is available.
Additional prohibited transactions could arise if assets of the issuer were
considered to be Plan Assets with respect to any Plan that acquired transition
bonds. However, the transition bonds are debt for state law purposes and should
not be considered to have "substantial equity features". As a result, a Plan's
acquisition of transition bonds should not cause assets of the Issuer to be
considered to be Plan Assets.
If you are considering whether to purchase transition bonds with Plan
Assets, we suggest that you consult with your legal advisor and refer to the
related prospectus supplement for further guidance.
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PLAN OF DISTRIBUTION
The transition bonds of each series may be sold to or through underwriters
named in the related prospectus supplement (the "Underwriters") by a negotiated
firm commitment underwriting and public reoffering by the Underwriters or any
other underwriting arrangement as may be specified in the related prospectus
supplement or may be offered or placed either directly or through agents. The
issuer and the bond trustee intend that transition bonds will be offered through
various methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of a particular
series of transition bonds may be made through a combination of these methods.
The distribution of transition bonds may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to the
prevailing market prices or in negotiated transactions or otherwise at varying
prices to be determined at the time of sale.
The transition bonds may be offered through one or more different methods,
including offerings through underwriters. It is not anticipated that any of the
transition bonds will be listed on any securities exchange.
In connection with the sale of the transition bonds, Underwriters or agents
may receive compensation in the form of discounts, concessions or commissions.
Underwriters may sell transition bonds to particular dealers at prices less a
concession. Underwriters may allow, and these dealers may reallow, a concession
to other dealers. Underwriters, dealers and agents that participate in the
distribution of the transition bonds of a series may be deemed to be
underwriters, and any discounts or commissions received by them from the issuer
and any profit on the resale of the transition bonds by them may be deemed to be
underwriting discounts and commissions under the Securities Act. These
Underwriters or agents will be identified, and any compensation received from
the issuer will be described, in the related prospectus supplement.
Under agreements which may be entered into by West Penn, West Penn Funding
Corporation, the issuer and the bond trustee, Underwriters and agents who
participate in the distribution of the transition bonds may be entitled to
indemnification by West Penn, West Penn Funding Corporation and the issuer
against liabilities specified therein, including under the Securities Act.
The Underwriters may, from time to time, buy and sell transition bonds, but
there can be no assurance that an active secondary market will develop and there
is no assurance that any such market, if established, will continue.
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RATINGS
It is a condition of any Underwriter's obligation to purchase the
transition bonds that each class receive the rating indicated in the related
prospectus supplement, which will be in one of the four highest categories, from
at least one Rating Agency.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rating
Agency. No person is obligated to maintain the rating on any transition bonds,
and, accordingly, there can be no assurance that the ratings assigned to any
class of transition bonds upon initial issuance will not be lowered or withdrawn
by a Rating Agency at any time thereafter. If a rating of any class of
transition bonds is revised or withdrawn, the liquidity of that class of
transition bonds may be adversely affected. In general, ratings address credit
risk and do not represent any assessment of any particular rate of principal
payments on the transition bonds other than the payment in full of each series
or class of transaction bonds by the applicable series termination date or class
termination date.
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LEGAL MATTERS
Certain legal matters relating to the issuance of the transition bonds will
be passed upon for the issuer by Cravath, Swaine & Moore, New York, New York and
for the Underwriters by Latham & Watkins, New York, New York. Certain legal
matters relating to the issuer and issuance of the transition bonds under the
laws of the State of Delaware will be passed upon for the issuer by Richards,
Layton & Finger, P.A., Wilmington, Delaware. Certain legal matters relating to
the federal tax consequences of the issuance of the transition bonds will be
passed upon for the issuer by Cravath, Swaine & Moore. [Certain legal matters
relating to the state tax consequences of the issuance of the transition bonds
will be passed upon for the issuer by [ ]].
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GLOSSARY OF DEFINED TERMS
Set forth below is a glossary of defined terms used in this prospectus.
"ADJUSTMENT DATE" means, with respect to any series of transition bonds,
each date on which adjustments to the Intangible Transition Charges are
implemented, all as specified in the related prospectus supplement.
"ADJUSTMENT REQUEST" means each request filed by the servicer with the PUC
for adjustments to the Intangible Transition Charges charged to each Rate
Schedule within any Customer Category based on actual ITC Collections and
updated assumptions by the servicer as to the projected future sales from which
Intangible Transition Charges are allocated, expected delinquencies and
write-offs and future payments and expenses relating to the Intangible
Transition Property and the transition bonds.
"ADMINISTRATIVE AGENT" means Allegheny Power Service Corporation, as
administrative agent under the Administration Agreements, and its permitted
successors and assigns under that agreement.
"BANKRUPTCY CODE" means Title 11 of the United States Code, as the same may
be amended, modified or supplemented from time to time.
"BASIC DOCUMENTS" means, collectively, the Transfer Agreement, the Sale
Agreement, the Servicing Agreement, the Administrative Agreements, any bills of
sale for Intangible Transition Property, the LLC Agreement, the certificate of
formation filed with the State of Delaware to form the issuer and the
certificate of incorporation of West Penn Funding Corporation.
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on
which banking institutions in the City of New York, the City of Greensburg,
Pennsylvania or the State of Delaware are required by law or executive order to
remain closed.
"CALCULATED OVERCOLLATERALIZATION LEVEL" means the amount anticipated to be
on deposit in the Overcollateralization Subaccount for all series of transition
bonds as of each payment date, as specified in each prospectus supplement.
"CALCULATION DATE" means, with respect to any series of transition bonds,
each date on which the servicer is required to file an Adjustment Request, as
specified in the related prospectus supplement.
"CAPITAL SUBACCOUNT" means a subaccount of the Collection Account in which
the amount of capital required to be held by the issuer for a series of
transition bonds will be deposited by West Penn Funding Corporation on the date
of issuance of that series.
"COLLECTION ACCOUNT" means the single collection account for all series of
transition bonds established by the issuer and held by the bond trustee under
the indenture.
"CUSTOMER CATEGORY" means each of the following three categories of West
Penn customers: residential, commercial and industrial, including street
lighting.
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"DEFERRED REPURCHASE PRICE" means any payment required to be made by West
Penn as a result of West Penn's obligation to repurchase the Intangible
Transition Property pursuant to the Transfer Agreement.
"EVENT OF DEFAULT" means an event of default under the indenture, including
the defaults described under "The Indenture--Events of Default; Rights Upon
Event of Default."
"EXPECTED AMORTIZATION SCHEDULE" means, with respect to any series of
transition bonds, the expected amortization schedule for the principal balance
of that series, as set forth in the related prospectus supplement.
"GENERAL SUBACCOUNT" means a subaccount of the Collection Account into
which funds received from ITC Collections will initially be allocated.
"INDEMNITY AMOUNTS" means any amounts paid by West Penn or the servicer to
the bond trustee, for itself or on behalf of the transition bondholders, in
respect of the indemnification obligations pursuant to the Transfer Agreement
and the Servicing Agreement, but excluding any Deferred Repurchase Price paid
pursuant to the Transfer Agreement.
"INITIAL LOSS CALCULATION DATE" means the payment date immediately
following the date which is 90 days after receipt of written notice from the
issuer or the bond trustee of an event requiring indemnification by West Penn.
"ITC COLLECTIONS" means collections of Intangible Transition Charges.
"LLC AGREEMENT" means the Amended and Restated Limited Liability Company
Agreement of the issuer, as amended and supplemented from time to time.
"LOSS AMOUNTS" means any amounts remitted by West Penn to the bond trustee
pursuant to the Transfer Agreement for losses as a result of willful misconduct,
bad faith, gross negligence or reckless disregard of West Penn's obligations in
that agreement or the breach of certain representations and warranties in that
agreement by West Penn.
"LOSS SUBACCOUNT" means a subaccount of the Collection Account which will
be established if West Penn is required to remit to the bond trustee loss
amounts resulting from breaches of representations and warranties under the
Transfer Agreement between West Penn and West Penn Funding Corporation.
"OVERCOLLATERALIZATION SUBACCOUNT" means a subaccount of the Collection
Account into which the Overcollateralization Amount will be deposited over the
expected life of a series of transition bonds.
"PUC" means the Pennsylvania Public Utility Commission or any successor
thereto.
"QRO" means the qualified rate order issued by the PUC to West Penn on
November 19, 1998, as supplemented by a supplemental qualified rate order issued
by the PUC to West Penn on [ ], 1999.
145
<PAGE> 174
"QUALIFIED TRANSITION EXPENSES", as set forth in the QRO, means,
collectively, the aggregate principal amount of the transition bonds and an
amount sufficient to provide for any credit enhancement to fund any reserves,
and to pay interest, premiums, if any, costs of defeasance, servicing fees and
other fees, costs and charges relating to transition bonds.
"RATE SCHEDULES" means any of the 21 rate schedules into which the Customer
Categories are divided.
"RATING AGENCY" means any rating agency rating the transition bonds of any
class or series at the time of issuance of that class or series at the request
of the issuer.
"RATING AGENCY CONDITION" means, with respect to any action, the
notification in writing by each Rating Agency to West Penn, West Penn Funding
Corporation, the servicer, the bond trustee and the issuer that any such action
will not result in a reduction or withdrawal of the then current rating by that
Rating Agency of any outstanding series or class of transition bonds.
"REQUIRED CAPITAL AMOUNT" means the amount of capital required to be
deposited by the issuer into the Capital Subaccount upon the issuance of a
series of transition bonds, which represents a capital contribution from West
Penn Funding Corporation.
"RESERVE SUBACCOUNT" means a subaccount of the Collection Account into
which will be deposited the excess, if any, of ITC Collections over amounts then
scheduled to be paid or due on a series of transition bonds, plus related
expenses and amounts needed to make required deposits to the
Overcollateralization Subaccount and the Capital Subaccount.
"SALE AGREEMENT" means the Intangible Transition Property Sale Agreement
between the issuer and West Penn Funding Corporation, as amended and
supplemented from time to time.
"SERVICER DEFAULT" means a default of the servicer under the Servicing
Agreement, including the defaults described under the "The Servicing
Agreement--Servicer Defaults."
"SERVICING AGREEMENT" means the Servicing Agreement between West Penn, as
servicer, and the issuer, as amended and supplemented from time to time.
"TRANSFER AGREEMENT" means the Intangible Transition Property Transfer
Agreement between West Penn and West Penn Funding Corporation, as amended and
supplemented from time to time.
"TRANSFERRED INTANGIBLE TRANSITION PROPERTY" means Intangible Transition
Property which is transferred from West Penn to West Penn Funding Corporation
pursuant to the Transfer Agreement and the related bill of sale and then sold by
West Penn Funding Corporation to the issuer pursuant to the Sale Agreement and
the related bill of sale.
"WEST PENN" means West Penn Power Company, a Pennsylvania corporation.
146
<PAGE> 175
WEST PENN FUNDING LLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Financial Statements:
[ ]... F-
[ ]... F-
Notes to Financial Statements............................... F-
</TABLE>
F-1
<PAGE> 176
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
West Penn Funding LLC
Issuer
West Penn Power Company
Originator and Servicer
SERIES 1999-A
$[ ]
Transition Bonds
$[ ] Class A-1
$[ ] Class A-2
$[ ] Class A-3
$[ ] Class A-4
[$[ ] Class A-5]
------------------------
PROSPECTUS SUPPLEMENT
------------------------
Underwriters
MORGAN STANLEY DEAN WITTER
[ ]
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE
TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE TRANSITION BONDS IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED.
WE DO NOT CLAIM THE ACCURACY OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS AS OF ANY DATE OTHER THAN THE DATES STATED ON THEIR
RESPECTIVE COVERS.
DEALERS WILL DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS OF THESE SECURITIES AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS. IN ADDITION, ALL DEALERS SELLING THESE SECURITIES WILL DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS UNTIL [ ], 1999.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 177
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Fee............................................ $278
Printing and Engraving Expenses............................. *
Trustees' Fees and Expenses................................. *
Legal Fees and Expenses..................................... *
Blue Sky Fees and Expenses.................................. *
Accountants' Fees and Expenses.............................. *
Rating Agency Fees.......................................... *
Miscellaneous Fees and Expenses............................. *
----
Total.................................................. $*
====
</TABLE>
- ------------
* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF MEMBERS AND MANAGERS
Section 18-108 of the Delaware Limited Liability Company Act provides that,
subject to specified standards and restrictions, if any, as are set forth in the
limited liability company agreement, a limited liability company shall have the
power to indemnify and hold harmless any member or manager or other person from
and against any and all claims and demands whatsoever.
The Amended and Restated Limited Liability Company Agreement (the "LLC
Agreement") of West Penn Funding LLC (the "Issuer") provides that, to the
fullest extent permitted by law, the Issuer shall indemnify its members and
managers against any liability incurred in connection with any proceeding in
which any member or manager may be involved as a party or otherwise by reason of
the fact that the member or manager is or was serving in its capacity as a
member or manager, unless this liability is based on or arises in connection
with the member's or manager's own willful misconduct or gross negligence, the
failure to perform the obligations set forth in the LLC Agreement, or taxes,
fees or other charges on, based on or measured by any fees, commissions or
compensation received by the managers in connection with any of the transactions
contemplated by the LLC Agreement and related agreements.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
4.1.1 Limited Liability Company Agreement of West Penn Funding
LLC.
4.1.2 Form of Amended and Restated Limited Liability Company
Agreement of West Penn Funding LLC.*
4.2 Certificate of Formation for West Penn Funding LLC.
</TABLE>
II-1
<PAGE> 178
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
4.3 Form of Indenture.
4.4 Form of Transition Bonds.*
5.1 Opinion of [Richards, Layton & Finger, P.A.] relating to
legality of the Transition Bonds.*
5.2 Opinion of Cravath, Swaine & Moore, relating to legality of
the Transition Bonds.*
8.1.1 Opinion of Cravath, Swaine & Moore with respect to material
federal tax matters.*
8.1.2 Opinion of [ ] with respect to material state tax
matters.*
10.1 Form of Transfer Agreement.
10.2 Form of Sale Agreement.
10.3 Form of Servicing Agreement.
10.4 Joint Petition for Full Settlement of West Penn Power
Company's Restructuring Plan and Related Appeals and
Application for a Qualified Rate Order and Application for
Transfer of Generation Assets dated November 3, 1998.*
23.1 Consent of Cravath, Swaine & Moore (included in its opinion
filed as Exhibits 5.2 and 8.1.1).*
23.2 Consent of [Richards, Layton & Finger, P.A.] (included in
its opinion filed as Exhibit 5.1).*
23.3 Consent of [Accountants].*
24.1 Power of Attorney.*
25.1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of [ ], as Bond Trustee under
the Indenture.*
27.1 Financial Data Schedule.*
99.1 Qualified Rate Order issued November 19, 1998.*
99.2 Supplemental Qualified Rate Order issued [ ],
1999.*
99.3 Internal Revenue Service Private Letter Ruling pertaining to
Transition Bonds.*
</TABLE>
- ------------
* To be filed by amendment
ITEM 17. UNDERTAKINGS
The undersigned Registrant on behalf of West Penn Funding LLC (the
"Issuer") hereby undertakes as follows:
(a) (1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement; (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as
amended; (ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) of the Securities Act of 1933,
as amended, if, in the aggregate, the changes in volume and price represent no
more than a twenty percent change in the maximum aggregate offering price set
forth in the "Calculation of
II-2
<PAGE> 179
Registration Fee" table in the effective Registration Statement; and (iii) to
include any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change in
such information in the Registration Statement; provided, however, that
(a)(1)(i) and (a)(1)(ii) will not apply if the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, as amended, that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering hereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, as amended, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(and, where applicable, each filing of any employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended),
with respect to the Issuer that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) That insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to members, managers,
directors, officers and controlling persons of the registrant pursuant to the
provisions described under Item 15 above, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, and is, theretofore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a member, manager, director, officer
or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such member, manager, director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933, as amended, and will be governed by the
final adjudication of such issue.
(d) That, for purposes of determining any liability under the Securities
Act of 1933, as amended, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(i) or (4) or 497(h) under the
II-3
<PAGE> 180
Securities Act of 1933, as amended, shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(e) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(f) The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act of 1939, as amended, in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Trust Indenture Act of 1939, as amended.
II-4
<PAGE> 181
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and that the security rating
requirement of Form S-3 will be met by the time of sale, and has duly caused
this Amendment No. 1 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Greensburg,
Commonwealth of Pennsylvania, on August 9, 1999.
WEST PENN FUNDING LLC,
by /s/ CAROL G. RUSS
------------------------------------
Name: Carol G. Russ
Title: Sole Member
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed on behalf of
West Penn Funding LLC on August 9, 1999 by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ CAROL G. RUSS Principal and Chief Executive Officer
- ----------------------------------------------------- (Principal Executive Officer)
Carol G. Russ
/s/ CAROL G. RUSS Chief Financial Officer and Chief
- ----------------------------------------------------- Accounting Officer (Principal
Carol G. Russ Financial Officer and Principal
Accounting Officer)
/s/ CAROL G. RUSS Sole Member
- -----------------------------------------------------
Carol G. Russ
</TABLE>
II-5
<PAGE> 182
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
4.1.1 Limited Liability Company Agreement of West Penn Funding
LLC.
4.1.2 Form of Amended and Restated Limited Liability Agreement of
West Penn Funding LLC.*
4.2 Certificate of Formation for West Penn Funding LLC.
4.3 Form of Indenture.
4.4 Form of Transition Bonds.*
5.1 Opinion of [Richards, Layton & Finger, P.A.] relating to
legality of the Transition Bonds.*
5.2 Opinion of Cravath, Swaine & Moore, relating to legality of
the Transition Bonds.*
8.1.1 Opinion of Cravath, Swaine & Moore with respect to material
federal tax matters.*
8.1.2 Opinion of [ ] with respect to material state
tax matters.*
10.1 Form of Transfer Agreement.
10.2 Form of Sale Agreement.
10.3 Form of Servicing Agreement.
10.4 Joint Petition for Full Settlement of West Penn Power
Company's Restructuring Plan and Related Appeals and
Application for a Qualified Rate Order and Application for
Transfer of Generation Assets dated November 3, 1998.*
23.1 Consent of Cravath, Swaine & Moore (included in its opinion
filed as Exhibits 5.2 and 8.1.1).*
23.2 Consent of [Richards, Layton & Finger, P.A.] (included in
its opinion filed as Exhibit 5.1).*
23.3 Consent of [Accountants].*
24.1 Power of Attorney.*
25.1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of [ ], as Bond Trustee
under the Indenture.*
27.1 Financial Data Schedule.*
99.1 Qualified Rate Order issued November 19, 1998.*
99.2 Supplemental Qualified Rate Order issued [ ],
1999.*
99.3 Internal Revenue Service Private Letter Ruling pertaining to
Transition Bonds.*
</TABLE>
- ------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 4.1.1
LIMITED LIABILITY COMPANY AGREEMENT
OF
WEST PENN FUNDING LLC
This Limited Liability Company Agreement (this "Agreement") of West Penn
Funding LLC (the "Company"), is entered into by Carol G. Russ, an individual, as
the sole member (the "Initial Member"). As used in this Agreement, the term
"Member" means the Initial Member, and includes any person or entity admitted as
an additional member of the Company or a substitute member of the Company
pursuant to the provisions of this Agreement.
The Initial Member, by execution of this Agreement, hereby forms a
limited liability company pursuant to and in accordance with the Delaware
Limited Liability Company Act (6 Del.C. Section 18-101, et seq.), as amended
from time to time (the "Act"), and hereby agrees as follows:
1. Name. The name of the limited liability company formed hereby is
West Penn Funding LLC.
2. Certificates. Howard L. Siegel, as an authorized person within the
meaning of the Act, shall execute, deliver and file the Certificate of Formation
with the Secretary of State of the State of Delaware. Upon the filing of the
Certificate of Formation with the Secretary of State of the State of Delaware,
his powers as an authorized person shall cease and the Member shall thereafter
be designated as an authorized person within the meaning of the Act. The Member
or an Officer (as hereinafter defined) shall execute, deliver and file any other
certificates (and any amendments and/or restatements thereof) necessary for the
Company to qualify to do business in a jurisdiction in which the Company may
wish to conduct business.
3. Purpose. The Company is formed for the object and purpose of, and
the nature of the business to be conducted and promoted by the Company is,
engaging in any lawful act or activity for which limited liability companies may
be formed under the Act.
4. Powers. In furtherance of its purposes, but subject to all of the
provisions of this Agreement, the Company shall have the power and is hereby
authorized to:
a. acquire by purchase, lease, contribution of property or
otherwise, own, hold, sell, convey, transfer or dispose of any real or personal
property which may be necessary, convenient or incidental to the accomplishment
of the purpose of the Company;
b. act as a trustee, executor, nominee, bailee, director,
officer, agent or in some other fiduciary capacity for any person or entity and
to exercise all of the powers, duties, rights and responsibilities associated
therewith;
<PAGE> 2
2
c. take any and all actions necessary, convenient or
appropriate as trustee, executor, nominee, bailee, director, officer, agent or
other fiduciary, including the granting or approval of waivers, consents or
amendments of rights or powers relating thereto and the execution of appropriate
documents to evidence such waivers, consents or amendments;
d. operate, purchase, maintain, finance, improve, own, sell,
convey, assign, mortgage, lease or demolish or otherwise dispose of any real or
personal property which may be necessary, convenient or incidental to the
accomplishment of the purposes of the Company;
e. borrow money and issue evidences of indebtedness in
furtherance of any or all of the purposes of the Company, and secure the same by
mortgage, pledge or other lien on the assets of the Company;
f. invest any funds of the Company pending distribution or
payment of the same pursuant to the provisions of this Agreement;
g. prepay in whole or in part, refinance, recast, increase,
modify or extend any indebtedness of the Company and, in connection therewith,
execute any extensions, renewals or modifications of any mortgage or security
agreement securing such indebtedness;
h. enter into, perform and carry out contracts of any kind,
including, without limitation, contracts with the Member or any person or entity
affiliated with the Member, necessary to, in connection with, convenient to, or
incidental to the accomplishment of the purposes of the Company;
i. employ or otherwise engage employees, managers, contractors,
advisors, attorneys and consultants and pay reasonable compensation for such
services;
j. enter into partnerships, limited liability companies,
trusts, associations, corporations or other ventures with other persons or
entities in furtherance of the purposes of the Company; and
k. do such other things and engage in such other activities
related to the foregoing as may be necessary, convenient or incidental to the
conduct of the business of the Company, and have and exercise all of the powers
and rights conferred upon limited liability companies formed pursuant to the
Act.
5. Principal Business Office. The principal business office of the
Company shall be located at such location as may hereafter be determined by the
Member.
<PAGE> 3
3
6. Registered Office. The address of the registered office of the
Company in the State of Delaware is c/o The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801.
7. Registered Agent. The name and address of the registered agent of
the Company for service of process on the Company in the State of Delaware is
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, DE 19801.
8. Members. The name and the mailing address of the Initial Member
are set forth on Schedule A attached hereto.
9. Limited Liability. Except as otherwise provided by the Act, the
debts, obligations and liabilities of the Company, whether arising in contract,
tort or otherwise, shall be solely the debts, obligations and liabilities of the
Company, and the Member shall not be obligated personally for any such debt,
obligation or liability of the Company solely by reason of being a member of the
Company.
10. Capital Contributions. The Initial Member is deemed admitted as
the Member of the Company upon its execution and delivery of this Agreement. The
Initial Member shall contribute the amount of cash to the Company as listed on
Schedule A attached hereto.
11. Additional Contributions. The Initial Member is not required to
make any additional capital contribution to the Company. However, a Member may
make additional capital contributions to the Company at any time. To the extent
that the Member makes an additional capital contribution to the Company, the
Member shall revise Schedule A of this Agreement.
12. Allocation of Profits and Losses. The Company's profits and losses
shall be allocated to the Member.
13. Distributions. Distributions shall be made to the Member at the
times and in the aggregate amounts determined by the Member. Notwithstanding any
provision to the contrary contained in this Agreement, the Company shall not
make a distribution to any Member on account of its interest in the Company if
such distribution would violate Section 18-607 of the Act or other applicable
law.
14. Management. In accordance with Section 18-402 of the Act,
management of the Company shall be vested in the Member. The Member shall have
the power to do any and all acts necessary, convenient or incidental to or for
the furtherance of the purposes described herein, including all powers,
statutory or otherwise, possessed by members of a limited liability company
under the laws of the State of Delaware. The Member has the authority to bind
the Company. The Member may act by written consent.
<PAGE> 4
4
15. Officers. The Member may, from time to time as it deems advisable,
appoint officers of the Company (the "Officers") and assign in writing titles
(including, without limitation, President, Vice President, Secretary, and
Treasurer) to any such person. Unless the Member decides otherwise, if the title
is one commonly used for officers of a business corporation formed under the
Delaware General Corporation Law, the assignment of such title shall constitute
the delegation to such person of the authorities and duties that are normally
associated with that office. Any delegation pursuant to this Section 15 may be
revoked at any time by the Member. An Officer may be removed with or without
cause by the Member.
16. Other Business. The Member may engage in or possess an interest in
other business ventures (unconnected with the Company) of every kind and
description, independently or with others. The Company shall not have any rights
in or to such independent ventures or the income or profits therefrom by virtue
of this Agreement.
17. Exculpation and Indemnification. No Member or Officer shall be
liable to the Company, any other person or entity who has an interest in the
Company for any loss, damage or claim incurred by reason of any act or omission
performed or omitted by such Member or Officer in good faith on behalf of the
Company and in a manner reasonably believed to be within the scope of the
authority conferred on such Member or Officer by this Agreement, except that a
Member or Officer shall be liable for any such loss, damage or claim incurred by
reason of such Member's or Officer's willful misconduct. To the full extent
permitted by applicable law, a Member or Officer shall be entitled to
indemnification from the Company for any loss, damage or claim incurred by such
Member or Officer by reason of any act or omission performed or omitted by such
Member or Officer in good faith on behalf of the Company and in a manner
reasonably believed to be within the scope of the authority conferred on such
Member or Officer by this Agreement, except that no Member or Officer shall be
entitled to be indemnified in respect of any loss, damage or claim incurred by
such Member or Officer by reason of willful misconduct with respect to such acts
or omissions; provided, however, that any indemnity under this Section 17 shall
be provided out of and to the extent of Company assets only, and no Member shall
have personal liability on account thereof.
18. Assignments. A Member may assign in whole or in part its limited
liability company interest in the Company with the written consent of the
Member. If a Member transfers all of its interest in the Company pursuant to
this Section, the transferee shall be admitted to the Company upon its execution
of an instrument signifying its agreement to be bound by the terms and
conditions of this Agreement. Such admission shall be deemed effective
immediately prior to the transfer, and, immediately following such admission,
the transferor Member shall cease to be a member of the Company.
19. Resignation. A Member may resign from the Company with the written
consent of the Initial Member. If a Member is permitted to resign pursuant to
this Section, an additional member of the Company shall be admitted to the
Company, subject to Section 20, upon its execution of an instrument signifying
its agreement to be bound by
<PAGE> 5
5
the terms and conditions of this Agreement. Such admission shall be deemed
effective immediately prior to the resignation, and, immediately following such
admission, the resigning Member shall cease to be a member of the Company.
20. Admission of Additional Members. One (1) or more additional
members of the Company may be admitted to the Company with the written consent
of the Member.
21. Dissolution.
a. The Company shall dissolve, and its affairs shall be wound
up upon the first to occur of the following: (i) the written consent of the
Member, (ii) the retirement, resignation or dissolution of the Member or the
occurrence of any other event which terminates the continued membership of the
Member in the Company unless the business of the Company is continued in a
manner permitted by the Act, or (iii) the entry of a decree of judicial
dissolution under Section 18-802 of the Act.
b. The bankruptcy of the Member will not cause the Member to
cease to be a member of the Company and upon the occurrence of such an event,
the business of the Company shall continue without dissolution.
c. In the event of dissolution, the Company shall conduct only
such activities as are necessary to wind up its affairs (including the sale of
the assets of the Company in an orderly manner), and the assets of the Company
shall be applied in the manner, and in the order of priority, set forth in
Section 18-804 of the Act.
22. Separability of Provisions. Each provision of this Agreement shall
be considered separable and if for any reason any provision or provisions herein
are determined to be invalid, unenforceable or illegal under any existing or
future law, such invalidity, unenforceability or illegality shall not impair the
operation of or affect those portions of this Agreement which are valid,
enforceable and legal.
23. Entire Agreement. This Agreement constitutes the entire agreement
of the Member with respect to the subject matter hereof.
24. Governing Law. This Agreement shall be governed by, and construed
under, the laws of the State of Delaware (without regard to conflict of laws
principles), all rights and remedies being governed by said laws.
25. Amendments. This Agreement may not be modified, altered,
supplemented or amended except pursuant to a written agreement executed and
delivered by the Member.
<PAGE> 6
6
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, has duly executed this Agreement as of the ____ day of May, 1999.
By: /s/ Carol G. Russ
----------------------------------
Carol G. Russ
<PAGE> 7
Schedule A
to West Penn Funding LLC Limited Liability Company Agreement
MEMBER
<TABLE>
<CAPTION>
Agreed Value of Percentage
Name Mailing Address Capital Contribution Interest
- ---- --------------- -------------------- --------
<S> <C> <C> <C>
Carol G. Russ 800 Cabin Hill Drive $1 100%
Greensburg, PA 15601
</TABLE>
<PAGE> 1
EXHIBIT 4.2
CERTIFICATE OF FORMATION
OF
WEST PENN FUNDING LLC
This Certificate of Formation of West Penn Funding LLC (the "LLC"),
dated as of May 26, 1999, is being duly executed and filed by Howard L. Siegel,
as an authorized person, to form a limited liability company under the Delaware
Limited Liability Company Act (6 Del C. Section 18-101, et. seq.).
FIRST. The name of the limited liability company formed hereby is
West Penn Funding LLC.
SECOND. The address of the registered office of the LLC in the State
of Delaware is c/o The Corporation Trust Company, Corporation Trust Center, 1209
Orange Street, Wilmington, DE 19801.
THIRD. The name and address of the registered agent for service of
process on the LLC in the State of Delaware are The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation as of the date first above written.
/s/ Howard L. Siegel
---------------------------------
Name: Howard L. Siegel
Authorized Person
<PAGE> 1
EXHIBIT 4.3
================================================================================
WEST PENN FUNDING LLC,
Issuer
and
[ ],
Bond Trustee
------------------------------
INDENTURE
Dated as of [ ], 1999
------------------------------
Securing Transition Bonds
Issuable in Series
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TABLE OF CONTENTS
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ARTICLE I Definitions and Incorporation by Reference
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SECTION 1.01. Definitions........................................................................2
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.................................11
SECTION 1.03. Rules of Construction.............................................................11
ARTICLE II
The Transition Bonds
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SECTION 2.01. Form..............................................................................11
SECTION 2.02. Execution, Authentication and Delivery............................................12
SECTION 2.03. Denominations; Transition Bonds Issuable in Series................................12
SECTION 2.04. Temporary Transition Bonds........................................................13
SECTION 2.05. Registration; Registration of Transfer and Exchange...............................14
SECTION 2.06. Mutilated, Destroyed, Lost or Stolen Transition Bonds.............................15
SECTION 2.07. Persons Deemed Owner..............................................................15
SECTION 2.08. Payment of Principal, Premium, if any, and Interest; Interest on Overdue
Principal and Premium, if any; Principal, Premium and Interest Rights
Preserved........................................................................16
SECTION 2.09. Cancelation.......................................................................16
SECTION 2.10. Authentication and Delivery of Transition Bonds...................................17
SECTION 2.11. Book-Entry Transition Bonds.......................................................21
SECTION 2.12. Notices to Clearing Agency........................................................22
SECTION 2.13. Definitive Transition Bonds.......................................................22
ARTICLE III
Covenants
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SECTION 3.01. Payment of Principal, Premium, if any, and Interest...............................22
SECTION 3.02. Maintenance of Office or Agency...................................................22
SECTION 3.03. Money for Payments To Be Held in Trust............................................23
SECTION 3.04. Existence.........................................................................24
SECTION 3.05. Protection of Collateral..........................................................24
SECTION 3.06. Opinions as to Collateral.........................................................24
SECTION 3.07. Performance of Obligations........................................................25
SECTION 3.08. Negative Covenants................................................................25
SECTION 3.09. Annual Statement as to Compliance.................................................26
SECTION 3.10. Issuer May Consolidate, etc., Only on Certain Terms...............................26
SECTION 3.11. Successor or Transferee...........................................................27
SECTION 3.12. No Other Business.................................................................27
SECTION 3.13. No Borrowing......................................................................27
SECTION 3.14. Guarantees, Loans, Advances and Other Liabilities.................................27
SECTION 3.15. Capital Expenditures..............................................................27
SECTION 3.16. Restricted Payments...............................................................28
SECTION 3.17. Notice of Events of Default.......................................................28
SECTION 3.18. Inspection........................................................................28
SECTION 3.19. Adjusted Overcollateralization Schedules..........................................28
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SECTION 3.20. Transfer Agreement, Sale Agreement and Servicing Agreement
Covenants........................................................................28
SECTION 3.21. Taxes.............................................................................30
SECTION 3.22. Separate Entity...................................................................30
ARTICLE IV
Satisfaction and Discharge; Defeasance
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SECTION 4.01. Satisfaction and Discharge of Indenture; Defeasance...............................30
SECTION 4.02. Conditions to Defeasance..........................................................32
SECTION 4.03. Application of Trust Money........................................................33
SECTION 4.04. Repayment of Moneys Held by Paying Agent..........................................33
ARTICLE V
Remedies
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SECTION 5.01. Events of Default.................................................................33
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment................................34
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Bond Trustee..............35
SECTION 5.04. Remedies; Priorities..............................................................36
SECTION 5.05. Optional Preservation of the Collateral...........................................37
SECTION 5.06. Limitation of Proceedings.........................................................37
SECTION 5.07. Unconditional Rights of Transition Bondholders To Receive
Principal, Premium, if any, and Interest.........................................38
SECTION 5.08. Restoration of Rights and Remedies................................................38
SECTION 5.09. Rights and Remedies Cumulative....................................................38
SECTION 5.10. Delay or Omission Not a Waiver....................................................39
SECTION 5.11. Control by Transition Bondholders.................................................39
SECTION 5.12. Waiver of Past Defaults...........................................................39
SECTION 5.13. Undertaking for Costs.............................................................39
SECTION 5.14. Waiver of Stay or Extension Laws..................................................40
SECTION 5.15. Action on Transition Bonds........................................................40
ARTICLE VI
The Bond Trustee
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SECTION 6.01. Duties and Liabilities of Bond Trustee............................................40
SECTION 6.02. Rights of Bond Trustee............................................................41
SECTION 6.03. Individual Rights of Bond Trustee.................................................42
SECTION 6.04. Bond Trustee's Disclaimer.........................................................42
SECTION 6.05. Notice of Defaults................................................................42
SECTION 6.06. Reports by Bond Trustee to Holders................................................42
SECTION 6.07. Compensation and Indemnity........................................................43
SECTION 6.08. Replacement of Bond Trustee.......................................................43
SECTION 6.09. Successor Bond Trustee by Merger..................................................44
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee.....................................44
SECTION 6.11. Eligibility; Disqualification.....................................................45
SECTION 6.12. Preferential Collection of Claims Against Issuer..................................45
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ARTICLE VII
Transition Bondholders' Lists and Reports
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SECTION 7.01. Issuer To Furnish Bond Trustee Names and Addresses of
Transition Bondholders...........................................................46
SECTION 7.02. Preservation of Information; Communications to Transition Bondholders.............46
SECTION 7.03. Reports by Issuer.................................................................46
SECTION 7.04. Reports by Bond Trustee...........................................................47
SECTION 7.05. Provision of Servicer Reports.....................................................47
ARTICLE VIII
Accounts, Disbursements and Releases
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SECTION 8.01. Collection of Money...............................................................47
SECTION 8.02. Collection Account................................................................47
SECTION 8.03. Release of Collateral.............................................................50
SECTION 8.04. Opinion of Counsel................................................................51
SECTION 8.05. Reports by Independent Accountants................................................51
ARTICLE IX
Supplemental Indentures
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SECTION 9.01. Supplemental Indentures Without Consent of Transition Bondholders.................51
SECTION 9.02. Supplemental Indentures with Consent of Transition Bondholders....................53
SECTION 9.03. Execution of Supplemental Indentures..............................................54
SECTION 9.04. Effect of Supplemental Indenture..................................................54
SECTION 9.05. Conformity with Trust Indenture Act...............................................54
SECTION 9.06. Reference in Transition Bonds to Supplemental Indentures..........................55
ARTICLE X
Redemption of Transition Bonds
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SECTION 10.01. Optional Redemption by Issuer.....................................................55
SECTION 10.02. Form of Redemption Notice.........................................................55
SECTION 10.03. Payment of Redemption Price.......................................................56
ARTICLE XI
Miscellaneous
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SECTION 11.01. Compliance Certificates and Opinions, etc.........................................56
SECTION 11.02. Form of Documents Delivered to Bond Trustee.......................................57
SECTION 11.03. Acts of Transition Bondholders....................................................57
SECTION 11.04. Notices, etc., to Bond Trustee, Issuer and Rating Agencies........................58
SECTION 11.05. Notices to Transition Bondholders; Waiver.........................................58
SECTION 11.06. Alternate Payment and Notice Provisions...........................................59
SECTION 11.07. Conflict with Trust Indenture Act.................................................59
SECTION 11.08. Effect of Headings and Table of Contents..........................................59
SECTION 11.09. Successors and Assigns............................................................59
SECTION 11.10. Separability......................................................................59
SECTION 11.11. Benefits of Indenture.............................................................59
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SECTION 11.12. Legal Holidays....................................................................59
SECTION 11.13. GOVERNING LAW.....................................................................60
SECTION 11.14. Counterparts......................................................................60
SECTION 11.15. Issuer Obligation.................................................................60
SECTION 11.16. No Petition.......................................................................60
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INDENTURE dated as of [ ], 1999, between WEST
PENN FUNDING LLC, a Delaware limited liability company (the
"Issuer"), and [ ], a [ ], as trustee (the "Bond
Trustee").
The Issuer has duly authorized the execution and delivery of this
Indenture to provide for one or more Series of Transition Bonds, issuable as
provided in this Indenture. Each such Series of Transition Bonds will be issued
only under a separate Series Supplement to this Indenture duly executed and
delivered by the Issuer and the Bond Trustee. The Issuer is entering into this
Indenture, and the Bond Trustee is accepting the trusts created hereby, each for
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and each intending to be legally bound hereby.
GRANTING CLAUSE
The Issuer hereby Grants to the Bond Trustee as trustee for the
benefit of the Holders of the Transition Bonds from time to time issued and
outstanding, all of the Issuer's right, title and interest in and to (a) the
Intangible Transition Property transferred by the Seller to the Issuer from time
to time pursuant to the Sale Agreement and all proceeds thereof, (b) the
Transfer Agreement except for Section 5.01 thereof solely to the extent such
Section provides for indemnification of the Seller and the Issuer, (c) all Bills
of Sale delivered by the Transferor pursuant to the Transfer Agreement, (d) the
Sale Agreement except for Section 5.01 thereof solely to the extent such Section
provides for indemnification of the Issuer, (e) all Bills of Sale delivered by
the Seller pursuant to the Sale Agreement, (f) the Servicing Agreement except
for Section 5.02(b) thereof solely to the extent such Section provides for
indemnification of the Issuer, (g) the Collection Account and all amounts on
deposit therein from time to time, (h) any Swap Agreements to which the Issuer
is a party, (i) all other property of whatever kind owned from time to time by
the Issuer including all accounts, accounts receivable and chattel paper, (j)
all present and future claims, demands, causes and choses in action in respect
of any or all of the foregoing and (k) all payments on or under and all proceeds
of every kind and nature whatsoever in respect of any or all of the foregoing,
including all proceeds of the conversion, voluntary or involuntary, into cash or
other liquid property, all cash proceeds, accounts, accounts receivable, general
intangibles, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, insurance proceeds, condemnation awards, rights to payment of any and
every kind, and other forms of obligations and receivables, instruments and
other property which at any time constitute all or part of or are included in
the proceeds of any of the foregoing (collectively, the "Collateral"); provided
that cash or other property distributed to the Issuer from the Collection
Account in accordance with the provisions of this Indenture will not be subject
to the lien of this Indenture.
To have and to hold in trust to secure the payment of principal of
and premium, if any, and interest on, and any other amounts (including all fees,
expenses, counsel fees and other amounts due and owing to the Bond Trustee)
owing in respect of, the Transition Bonds equally and ratably without prejudice,
preference, priority or distinction, except as expressly provided in this
Indenture and to secure performance by the Issuer of all of the Issuer's
obligations under this Indenture with respect to the Transition Bonds, all as
provided in this Indenture.
The Bond Trustee, as trustee on behalf of the Holders of the
Transition Bonds, acknowledges such Grant, accepts the trusts hereunder in
accordance with the provisions hereof and agrees to perform its duties herein
required.
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ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions. (a) Except as otherwise specified
herein or as the context may otherwise require, each of the following terms has
the respective meaning set forth below for all purposes of this Indenture.
"Act" has the meaning specified in Section 11.03(a).
"Adjustment Date" means, with respect to any Series of Transition
Bonds, the date or dates specified as such in the Series Supplement therefor.
"Administration Agreements" has the meaning specified in the
Servicing Agreement.
"Administrative Agent" means Allegheny Power Service Corporation,
as administrative agent, under the Administration Agreements, and its permitted
successors and assigns thereunder.
"Affiliate" means, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Authorized Initial Denominations" means, with respect to any
Series of Transition Bonds, $1,000 and integral multiples thereof, or such other
denominations as may be specified in the Series Supplement therefor.
"Authorized Officer" means the Manager of the Issuer, or any
officer who is authorized to act for the Issuer and who is identified on the
list of Authorized Officers delivered by the Issuer to the Bond Trustee as of
the date hereof (as such list may be modified or supplemented from time to time
thereafter).
"Basic Documents" means the Certificate of Formation, the LLC
Agreement, the Transfer Agreement, the Sale Agreement, the Servicing Agreement
and any Bills of Sale.
"Bills of Sale" means any bills of sale delivered by the
Transferor pursuant to the Transfer Agreement and any bills of sale delivered by
the Seller pursuant to the Sale Agreement.
"Bond Rate" means, with respect to any Series or Class, the rate
at which interest accrues on the principal balance of Transition Bonds of such
Series or Class, as specified in the Series Supplement therefor.
"Bond Trustee" means [ ], a [ ] or any successor bond
trustee under this Indenture, not in its individual capacity but solely as bond
trustee under this Indenture.
"Book-Entry Transition Bonds" means beneficial interests in the
Transition Bonds, ownership and transfers of which shall be made through book
entries by a Clearing Agency as described in Section 2.11.
"Business Day" has the meaning specified in the Servicing
Agreement.
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"Calculated Overcollateralization Level" means, with respect to
any Series of Transition Bonds, the amount specified as such in the Series
Supplement therefor.
"Calculation Date" means, with respect to any Series of Transition
Bonds, such date or dates specified as such in the Series Supplement therefor.
"Capital Subaccount" has the meaning specified in Section 8.02(a).
"Certificate of Formation" means the certificate of formation of
the Issuer substantially in the form of Exhibit [ ] to the LLC Agreement.
"Class" means, with respect to any Series, any one of the classes
of Transition Bonds of that Series.
"Class Termination Date" means, with respect to any Class, the
termination date therefor, as specified in the Series Supplement therefor.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with
the Clearing Agency.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, and Treasury Regulations promulgated thereunder.
"Collateral" has the meaning specified in the granting clause of
this Indenture.
"Collection Account" has the meaning specified in Section 8.02(a).
"Collection Period" has the meaning specified in the Servicing
Agreement.
"Corporate Trust Office" means the principal office of the Bond
Trustee at which at any particular time its corporate trust business shall be
administered, which office at date of the execution of this Indenture is located
at [ ], Attention: [ ] or at such other address as the Bond Trustee may
designate from time to time by notice to the Transition Bondholders and the
Issuer, or the principal corporate trust office of any successor Bond Trustee
(the address of which the successor Bond Trustee will notify the Transition
Bondholders and the Issuer).
"Covenant Defeasance Option" has the meaning specified in Section
4.01(b).
"Counterparty" means the counterparty with respect to any Swap
Agreement.
"Default" means any occurrence that is, or with notice or the
lapse of time or both would become, an Event of Default.
"Defeasance Subaccount" has the meaning specified in Section
8.02(a).
"Definitive Transition Bonds" has the meaning specified in Section
2.11.
"DTC Agreement" means the agreement between the Issuer, the Bond
Trustee and The Depository Trust Company, as the initial Clearing Agency, dated
as of the Closing Date, relating to the Transition Bonds, substantially in the
form of Exhibit C hereto, as the same may be amended and supplemented from time
to time.
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"Eligible Deposit Account" means either (a) a segregated account
with an Eligible Institution or (b) a segregated trust account with the
corporate trust department of a depository institution organized under the laws
of the United States of America or any State (or any domestic branch of a
foreign bank), having corporate trust powers and acting as trustee for funds
deposited in such account, so long as any of the securities of such depository
institution shall have a credit rating from each Rating Agency in one of its
generic rating categories which signifies investment grade.
"Eligible Guarantor Institution" means a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor
institution," including (as such terms are defined therein) (i) a bank; (ii) a
broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association that is a participant in a securities transfer association.
"Eligible Institution" means (a) the corporate trust department of
the Bond Trustee or (b) a depository institution organized under the laws of the
United States of America or any State (or any domestic branch of a foreign
bank), which (i) has (A) a long-term unsecured debt rating of "AAA" by Standard
& Poor's and "Aa3" by Moody's and (B) a short-term rating of "A-1+" by Standard
& Poor's and "P-1" by Moody's, or any other long-term, short-term or certificate
of deposit rating acceptable to the Rating Agencies and (ii) whose deposits are
insured by the FDIC.
"Eligible Investments" mean book-entry securities, negotiable
instruments or securities represented by instruments in bearer or registered
form which evidence:
(a) direct obligations of, or obligations fully and
unconditionally guaranteed as to timely payment by, the United States of
America;
(b) demand deposits, time deposits, certificates of deposit or
bankers' acceptances of any Eligible Institution; provided, however, that
at the time of the investment or contractual commitment to invest therein
such Eligible Institution shall have the credit ratings set forth in
clause (i) of the Definition of Eligible Institution.
(c) commercial paper (other than commercial paper of the Seller or
the Servicer or any of their affiliates) having, at the time of the
investment or contractual commitment to invest therein, a rating from
each of the Rating Agencies in the highest rating category granted
thereby;
(d) investments in money market funds having a rating from each of
the Rating Agencies in the highest rating category granted thereby
(including funds for which the Bond Trustee or any of its Affiliates is
investment manager or advisor);
(e) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States of
America or any agency or instrumentality thereof the obligations of which
are backed by the full faith and credit of the United States of America,
in either case entered into with an Eligible Institution; and
(f) any other investment permitted by each of the Rating Agencies;
provided, however, that (i) any book-entry security, instrument or security
having a maturity of one month or less that would be an Eligible Investment but
for its failure (or the failure of the obligor thereon) to have the rating
specified above shall be an Eligible Investment if such book-entry security,
instrument or security (or the obligor thereon) has a long-term unsecured debt
rating of at least "A2" by Moody's (or the equivalent thereof by the other
Rating Agencies) or a short-term rating of at least "P-1" by Moody's (or the
equivalent thereof by the other Rating
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Agencies), and (ii) any book-entry security, instrument or security having a
maturity of greater than one month that would be an Eligible Investment but for
its failure (or the failure of the obligor thereon) to have the rating
specified above shall be an Eligible Investment if such book-entry security,
instrument or security (or the obligor thereon) has a long-term unsecured debt
rating of at least "A1" by Moody's (or the equivalent thereof by the other
Rating Agencies) and a short-term rating of at least "P-1" by Moody's (or the
equivalent thereof by the other Rating Agencies).
"Event of Default" has the meaning specified in Section 5.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Executive Officer" means, with respect to any corporation, the
Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
President, Executive Vice President, any Vice President, the Secretary or the
Treasurer of such corporation; and with respect to any partnership, any general
partner thereof.
"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 final payment date therefor, as
specified in the Series Supplement therefor.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor.
"Financing Issuance" means an issuance of a new Series of
Transition Bonds hereunder to provide funds to finance the purchase by the
Issuer of Intangible Transition Property.
"Fitch IBCA" has the meaning specified in the Servicing Agreement.
"General Subaccount" has the meaning specified in Section 8.02(a).
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create, and grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal,
interest and other payments in respect of the Collateral and all other moneys
payable thereunder, to give and receive notices and other communications, to
make waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the Granting party or otherwise and generally to do
and receive anything that the Granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Holder" or "Transition Bondholder" means the Person in whose name
a Transition Bond is registered on the Transition Bond Register.
"Indemnity Amounts" means any amounts paid by the Transferor, the
Seller or the Servicer to the Bond Trustee, for itself or on behalf of the
Transition Bondholders, pursuant to Section 5.01(b), 5.0l(c)(ii) and 5.01(e) of
the Transfer Agreement, Section 5.01(b), Section 5.01(c)(ii) and Section 5.01(d)
of the Sale Agreement or Section 5.02(b) of the Servicing Agreement or by the
Issuer to the Bond Trustee pursuant to Section 5.07 of this Indenture;
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provided, however, that Indemnity Amounts shall exclude any Deferred Repurchase
Price paid pursuant to Section 5.01(c)(ii) of the Transfer Agreement.
"Indenture" or "this Indenture" means this instrument as
originally executed and, as from time to time supplemented or amended by one or
more indentures supplemental hereto entered into pursuant to the applicable
provisions hereof, as so supplemented or amended, or both, and shall include the
forms and terms of the Transition Bonds established hereunder.
"Independent" means, when used with respect to any specified
Person, that the Person (a) is in fact independent of the Issuer, any other
obligor upon the Transition Bonds, the Transferor, the Seller and any Affiliate
of any of the foregoing Persons, (b) does not have any direct financial interest
or any material indirect financial interest in the Issuer, any such other
obligor, the Transferor, the Seller or any Affiliate of any of the foregoing
Persons and (c) is not connected with the Issuer, any such other obligor, the
Transferor, the Seller or any Affiliate of any of the foregoing Persons as an
officer, employee, promoter, underwriter, trustee, partner, director or person
performing similar functions.
"Independent Certificate" means a certificate or opinion to be
delivered to the Bond Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.01, made by
an Independent appraiser or other expert appointed by an Issuer Order and
approved by the Bond Trustee in the exercise of reasonable care, and such
opinion or certificate shall state that the signer has read the definition of
"Independent" in this Indenture and that the signer is Independent within the
meaning thereof.
"Intangible Transition Charges Adjustment Process" means the
process by which Intangible Transition Charges are adjusted pursuant to the
Servicing Agreement and the Statute.
"Issuer" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the Transition Bonds.
"Issuer Order" and "Issuer Request" means a written order or
request signed in the name of the Issuer by any one of its Authorized Officers
and delivered to the Bond Trustee.
"Legal Defeasance Option" has the meaning specified in Section
4.01(b).
"Lien" has the meaning specified in the Servicing Agreement.
"LLC Agreement" means the Amended and Restated Limited Liability
Company Agreement of the Issuer dated as of [ ], 1999, as amended and
supplemented from time to time.
"Loss Amounts" means any amounts remitted by the Transferor to the
Bond Trustee pursuant to Section 5.01(c)(i) of the Transfer Agreement and any
amounts remitted by the Seller to the Bond Trustee pursuant to Section
5.01(c)(i) of the Sale Agreement.
"Loss Subaccount" has the meaning specified in Section 8.02(a).
"Manager" means [ ], as manager of the Issuer pursuant to the LLC
Agreement.
"Moody's" has the meaning specified in the Servicing Agreement.
"Officer's Certificate" means a certificate signed by any
Authorized Officer of the Issuer, under the circumstances described in, and
otherwise complying with, the applicable
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requirements of Section 11.01, and delivered to the Bond Trustee. Unless
otherwise specified, any reference in this Indenture to an Officer's Certificate
shall be to an Officer's Certificate of any Authorized Officer of the Issuer.
"Operating Expenses" means 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, the fees owed under the Administration
Agreements, and legal and accounting fees, costs and expenses of the Issuer.
"Opinion of Counsel" means one or more written opinions of counsel
who may, except as otherwise expressly provided in this Indenture, be employees
of or counsel to the Issuer and who shall be reasonably satisfactory to the Bond
Trustee, and which opinion or opinions shall be addressed to the Bond Trustee,
as Bond Trustee, and shall comply with any applicable requirements of Section
11.01, and shall be in a form reasonably satisfactory to the Bond Trustee.
"Outstanding" means, as of the date of determination, all
Transition Bonds theretofore authenticated and delivered under this Indenture
except:
(i) Transition Bonds theretofore canceled by the Transition Bond
Registrar or delivered to the Transition Bond Registrar for cancelation;
(ii) Transition Bonds or portions thereof the payment for which
money in the necessary amount has been theretofore deposited with the
Bond Trustee or any Paying Agent in trust for the Holders of such
Transition Bonds; (provided, however, that if such Transition Bonds are
to be redeemed, notice of such redemption has been duly given pursuant to
this Indenture or provision therefor, satisfactory to the Bond Trustee,
made); and
(iii) Transition Bonds in exchange for or in lieu of other
Transition Bonds which have been authenticated and delivered pursuant to
this Indenture unless proof satisfactory to the Bond Trustee is presented
that any such Transition Bonds are held by a bona fide purchaser;
provided that in determining whether the Holders of the requisite Outstanding
Amount of the Transition Bonds or any Series or Class thereof have given any
request, demand, authorization, direction, notice, consent or waiver hereunder
or under any Basic Document, Transition Bonds owned by the Issuer, any other
obligor upon the Transition Bonds, the Transferor, the Seller or any Affiliate
of any of the foregoing Persons shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Bond Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Transition Bonds that the Bond Trustee knows to
be so owned shall be so disregarded. Transition Bonds so owned that have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Bond Trustee the pledgee's right so to act with
respect to such Transition Bonds and that the pledgee is not the Issuer, any
other obligor upon the Transition Bonds, the Transferor, the Seller or any
Affiliate of any of the foregoing Persons.
"Outstanding Amount" means the aggregate principal amount of all
Transition Bonds or, if the context requires, all Transition Bonds of a Series
or Class Outstanding at the date of determination.
"Overcollateralization" means, with respect to any Payment Date,
an amount that, if deposited to the Overcollateralization Subaccount, would
cause the balance in such subaccount to equal the Calculated
Overcollateralization Level for such Payment Date, without regard to investment
earnings.
<PAGE> 13
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"Overcollateralization Amount" means, with respect to any Series
of Transition Bonds, the amount specified as such in the Series Supplement
therefor.
"Overcollateralization Subaccount" has the meaning specified in
Section 8.02(a).
"Paying Agent" means the Bond Trustee or any other Person that
meets the eligibility standards for the Bond Trustee specified in Section 6.11
and is authorized by the Issuer to make the payments of principal of or premium,
if any, or interest on the Transition Bonds on behalf of the Issuer.
"Payment Date" means, with respect to any Series or Class, each
date or dates specified as Payment Dates for such Series or Class in the Series
Supplement therefor.
"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.
"Predecessor Transition Bond" means, with respect to any
particular Transition Bond, every previous Transition Bond evidencing all or a
portion of the same debt as that evidenced by such particular Transition Bond;
and, for the purpose of this definition, any Transition Bond authenticated and
delivered under Section 2.06 in lieu of a mutilated, lost, destroyed or stolen
Transition Bond shall be deemed to evidence the same debt as the mutilated,
lost, destroyed or stolen Transition Bond.
"Proceeding" means any suit in equity, action at law or other
judicial or administrative proceeding.
"Projected Transition Bond Balance" means, as of any date, the sum
of the amounts provided for in the Expected Amortization Schedules for each
outstanding Series of Transition Bonds and such date.
"Rating Agency" means any rating agency rating the Transition
Bonds of any Class or Series at the time of issuance thereof at the request of
the Issuer . If no such organization or successor is any longer in existence,
"Rating Agency" shall be a nationally recognized statistical rating organization
or other comparable Person designated by the Issuer, notice of which designation
shall be given to the Bond Trustee 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.
"Record Date" means, with respect to any Payment Date for a
Series, the date set forth as such in the Series Supplement therefor.
"Redemption Date" means, with respect to any Series or Class, the
date for the redemption of the Transition Bonds of such Series or Class pursuant
to Section 10.01 or the Series Supplement for such Series or Class.
"Redemption Price" has the meaning specified in Section 10.01.
"Refunding Issuance" means issuance of a new Series of Transition
Bonds hereunder to pay the cost of refunding, through redemption or payment on
the Expected Final Payment Date for a Series or Class of Transition Bonds, all
or part of the Transition Bonds of such Series or Class to the extent permitted
by the terms thereof.
<PAGE> 14
9
"Registered Holder" means, as of any date, the Person in whose
name a Transition Bond is registered on the Transition Bond Register on such
date.
"Required Capital Amount" means, for each Outstanding Series of
Transition Bonds, the amount specified as such in the Series Supplement
therefor.
"Reserve Subaccount" has the meaning specified in Section 8.02(a).
"Responsible Officer" means, with respect to the Bond Trustee, any
officer within the Corporate Trust Office of the Bond Trustee, including any
Vice President, Assistant Vice President, Secretary, Assistant Secretary, or any
other officer of the Bond Trustee customarily performing functions similar to
those performed by any of the above designated officers and also, with respect
to a particular matter, any other officer to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
"Retiring Bond Trustee" has the meaning specified in Section 6.08.
"Sale Agreement" means the Intangible Transition Property Sale
Agreement dated as of [ ], 1999, between the Issuer and the Seller, as
amended and supplemented from time to time.
"Schedule Revision Date" means (i) the date on which a new Series
of Transition Bonds is issued or any outstanding Series of Transition Bonds is
redeemed or defeased, (ii) any Adjustment Date on which the Intangible
Transition Charges are changed or revised and (iii) any Payment Date on which
payments are not made in accordance with the Expected Amortization Schedule.
"Series" means any series of Transition Bonds issued and
authenticated pursuant to this Indenture.
"Series Issuance Date" means, with respect to any Series, the date
on which the Transition Bonds of such Series are to be originally issued in
accordance with Section 2.10 and the Series Supplement for such Series.
"Series Supplement" means an indenture supplemental to this
Indenture that authorizes a particular Series of Transition Bonds.
"Series Termination Date" means, with respect to any Series, the
termination date therefor, as specified in the Series Supplement for such
Series.
"Servicing Agreement" means the Servicing Agreement dated as of [
], 1999, between the Issuer and the Servicer, as amended and supplemented from
time to time.
"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 of the Servicing Agreement.
"Standard & Poor's" has the meaning specified in the Servicing
Agreement.
"State" means any one of the 50 states of the United States of
America or the District of Columbia.
"Successor Servicer" has the meaning specified in Section 3.20(h).
<PAGE> 15
10
"Swap Agreement" means any ISDA Master Agreement, interest rate
swap agreement or agreement with respect to any hedge or similar transaction
entered into by the Issuer.
"Transfer Agreement" means the Intangible Transition Property
Transfer Agreement dated as of [ ], 1999, between the Transferor and the
Seller, as amended and supplemented from time to time.
"Transition Bond" means any of the transition bonds (as defined in
the Statute) issued and authenticated pursuant to this Indenture.
"Transition Bond Balance" means, as of any date, the aggregate
outstanding principal amount of all Series of Transition Bonds on such date.
"Transition Bond Owner" means, with respect to a Book-Entry
Transition Bond, the Person who is the beneficial owner of such Book-Entry
Transition Bond, as reflected on the books of the Clearing Agency, or on the
books of a Person maintaining an account with such Clearing Agency (directly as
a Clearing Agency Participant or as an indirect participant, in each case in
accordance with the rules of such Clearing Agency).
"Transition Bond Register" and "Transition Bond Registrar" have
the respective meanings specified in Section 2.05.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of
1939 as in force on the date hereof, unless otherwise specifically provided.
"UCC" has the meaning specified in the Servicing Agreement.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
(b) Except as otherwise specified herein or as the context may
otherwise require, each of the following terms has the meaning set forth in the
Transfer Agreement for all purposes of this Indenture, and the definitions of
such terms are equally applicable both to the singular and plural forms of such
terms:
<TABLE>
<CAPTION>
Term Section of Transfer Agreement
---- -----------------------------
<S> <C>
Deferred Repurchase Price........................... Section 1.01(a)
Initial Intangible Transition Property.............. Section 1.01(a)
Intangible Transition Charges....................... Section 1.01(a)
Intangible Transition Property...................... Section 1.01(a)
ITC Collections..................................... Section 1.01(a)
PUC ................................................ Section 1.01(a)
Qualified Rate Order ............................... Section 1.01(a)
Seller ............................................. Section 1.01(a)
Servicer ........................................... Section 1.01(a)
Servicer Default ................................... Section 1.01(a)
Statute ............................................ Section 1.01(a)
Subsequent Intangible Transition Property........... Section 1.01(a)
</TABLE>
<PAGE> 16
11
<TABLE>
<CAPTION>
Term Section of Transfer Agreement
---- -----------------------------
<S> <C>
Transferor.......................................... Section 1.01(a)
Transferred Intangible Transition Property.......... Section 1.01(a)
</TABLE>
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. Each of the
following TIA terms used in this Indenture has the following meaning:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Transition Bonds.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Bond
Trustee.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by such definitions.
SECTION 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the
plural include the singular; and
(vi) the words "herein", "hereof", "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
ARTICLE II
The Transition Bonds
SECTION 2.01. Form. The Transition Bonds and the Bond Trustee's
certificate of authentication shall be in substantially the forms set forth in
Exhibit A hereto, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture or by the
related Series Supplement and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may,
consistently herewith, be determined by the Authorized Officers of the Issuer
executing such Transition Bonds, as evidenced by their execution of such
Transition Bonds. Any portion of the text of any Transition Bond may be set
forth on the reverse thereof, with an appropriate reference thereto on the face
of the Transition Bond. Each Transition Bond shall be dated the date of its
authentication.
<PAGE> 17
12
The Transition Bonds shall be typewritten, printed, lithographed
or engraved or produced by any combination of these methods (with or without
steel engraved borders), all as determined by the Authorized Officers of the
Issuer executing such Transition Bonds, as evidenced by their execution of such
Transition Bonds.
Each Transition Bond shall bear upon its face the designation so
selected for the Series or Class to which it belongs. The terms of all
Transition Bonds of the same Series shall be the same, unless such Series is
comprised of one or more Classes, in which case the terms of all Transition
Bonds of the same Class shall be the same.
All Definitive Transition Bonds shall bear the legend set forth in
Exhibit A to the applicable Series Supplement.
SECTION 2.02. Execution, Authentication and Delivery. The
Transition Bonds shall be executed on behalf of the Issuer by an Authorized
Officer of the Issuer. The signature of any such Authorized Officer on the
Transition Bonds may be manual or facsimile.
Transition Bonds bearing the manual or facsimile signature of
individuals who were at any time Authorized Officers of the Issuer shall bind
the Issuer, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Transition
Bonds or did not hold such offices at the date of such Transition Bonds.
At any time and from time to time after the execution and delivery
of this Indenture, the Issuer may deliver Transition Bonds executed on behalf of
the Issuer to the Bond Trustee pursuant to an Issuer Order for authentication;
and the Bond Trustee shall authenticate and deliver such Transition Bond as in
this Indenture provided and not otherwise.
No Transition Bond shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose, unless there appears on
such Transition Bond a certificate of authentication substantially in the form
provided for herein executed by the Bond Trustee by the manual signature of one
of its authorized signatories, and such certificate upon any Transition Bond
shall be conclusive evidence, and the only evidence, that such Transition Bond
has been duly authenticated and delivered hereunder.
SECTION 2.03. Denominations; Transition Bonds Issuable in Series.
The Transition Bonds of each Series shall be issuable as registered Transition
Bonds in the Authorized Initial Denominations specified in the Series Supplement
therefor.
The Transition Bonds may, at the election of and as authorized by
an Authorized Officer of the Issuer, and set forth in a Series Supplement, be
issued in one or more Series (each comprised of one or more Classes), and shall
be designated generally as the "Transition Bonds" of the Issuer, with such
further particular designations added or incorporated in such title for the
Transition Bonds of any particular Series or Class as an Authorized Officer of
the Issuer may determine and be set forth in the Series Supplement therefor.
Each Series of Transition Bonds shall be created by a Series
Supplement authorized by an Authorized Officer of the Issuer and establishing
the terms and provisions of such Series. The several Series and Classes thereof
may differ as between Series and Classes, in respect of any of the following
matters:
(i) designation of the Series and, if applicable, the Classes
thereof;
(ii) the aggregate principal amount of the Transition Bonds of the
Series and, if applicable, each Class thereof;
<PAGE> 18
13
(iii) the Bond Rate of the Series and, if applicable, each Class
thereof or the formula, if any, used to calculate the applicable Bond
Rate or Bond Rates for the Series;
(iv) the Payment Dates for the Series;
(v) the Expected Final Payment Date of the Series, and, if
applicable, each Class thereof;
(vi) the Series Termination Date for the Series and, if
applicable, the Class Termination Dates for each Class thereof;
(vii) the Series Issuance Date for the Series;
(viii) the place or places for payments with respect to the
Series;
(ix) the Authorized Initial Denominations for the Series;
(x) the provisions, if any, for redemption of the Series by the
Issuer;
(xi) the Expected Amortization Schedule for the Series;
(xii) the Overcollateralization Amount with respect to the Series
and the Calculated Overcollateralization Level for each Payment Date;
(xiii) the Required Capital Amount;
(xiv) the Calculation Dates and Adjustment Dates for the Series;
(xv) the credit enhancement applicable to the Series; and
(xvi) any other terms of the Series or Class that are not
inconsistent with the provisions of this Indenture.
SECTION 2.04. Temporary Transition Bonds. Pending the preparation
of definitive Transition Bonds, or by agreement of the purchasers of all
Transition Bonds or, in the case of Transition Bonds held in a book-entry only
system by a Clearing Agency, the Issuer may execute, and upon receipt of an
Issuer Order the Bond Trustee shall authenticate and deliver, temporary
Transition Bonds which are printed, lithographed, typewritten, mimeographed or
otherwise produced, of the tenor of the definitive Transition Bonds in lieu of
which they are issued and with such variations not inconsistent with the terms
of this Indenture as the Authorized Officers of the Issuer executing such
Transition Bonds may determine, as evidenced by their execution of such
Transition Bonds.
If temporary Transition Bonds are issued, the Issuer will cause
definitive Transition Bonds to be prepared without unreasonable delay except
where temporary Transition Bonds are held by a Clearing Agency. After the
preparation of definitive Transition Bonds, the temporary Transition Bonds shall
be exchangeable for definitive Transition Bonds upon surrender of the temporary
Transition Bonds at the office or agency of the Issuer to be maintained as
provided in Section 3.02, without charge to the Holder. Upon surrender for
cancelation of any one or more temporary Transition Bonds, the Issuer shall
execute and the Bond Trustee shall authenticate and deliver in exchange therefor
a like initial principal amount of definitive Transition Bonds in Authorized
Initial Denominations. Until so exchanged, the temporary Transition Bonds shall
in all respects be entitled to the same benefits under this Indenture as
definitive Transition Bonds.
<PAGE> 19
14
SECTION 2.05. Registration; Registration of Transfer and Exchange.
The Issuer shall cause to be kept a register (the "Transition Bond Register") in
which, subject to such reasonable regulations as it may prescribe, the Issuer
shall provide for the registration of Transition Bonds and the registration of
transfers of Transition Bonds. The Bond Trustee shall be "Transition Bond
Registrar" for the purpose of registering Transition Bonds and transfers of
Transition Bonds as herein provided. Upon any resignation of any Transition Bond
Registrar, the Issuer shall promptly appoint a successor or, if it elects not to
make such an appointment, assume the duties of Transition Bond Registrar.
If a Person other than the Bond Trustee is appointed by the Issuer
as Transition Bond Registrar, the Issuer will give the Bond Trustee prompt
written notice of the appointment of such Transition Bond Registrar and of the
location, and any change in the location, of the Transition Bond Register, and
the Bond Trustee shall have the right to inspect the Transition Bond Register at
all reasonable times and to obtain copies thereof, and the Bond Trustee shall
have the right to rely upon a certificate executed on behalf of the Transition
Bond Registrar by an Authorized Officer thereof as to the names and addresses of
the Holders of the Transition Bonds and the principal amounts and number of such
Transition Bonds.
Upon surrender for registration of transfer of any Transition Bond
at the office or agency of the Issuer to be maintained as provided in Section
3.02, the Issuer shall execute, and the Bond Trustee shall authenticate and the
Transition Bondholder shall obtain from the Bond Trustee, in the name of the
designated transferee or transferees, one or more new Transition Bonds in any
Authorized Initial Denominations, of a like Series (and, if applicable, Class)
and aggregate initial principal amount.
At the option of the Holder, Transition Bonds may be exchanged for
other Transition Bonds of a like Series (and, if applicable, Class) and
aggregate initial principal amount in Authorized Initial Denominations, upon
surrender of the Transition Bonds to be exchanged at such office or agency.
Whenever any Transition Bonds are so surrendered for exchange, the Issuer shall
execute, and the Bond Trustee shall authenticate and the Transition Bondholder
shall obtain from the Bond Trustee, the Transition Bonds which the Transition
Bondholder making the exchange is entitled to receive.
All Transition Bonds issued upon any registration of transfer or
exchange of Transition Bonds shall be the valid obligations of the Issuer,
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Transition Bonds surrendered upon such registration of
transfer or exchange.
Every Transition Bond presented or surrendered for registration of
transfer or exchange shall be duly endorsed by, or be accompanied by a written
instrument of transfer in the form set forth in Exhibit A hereto or such other
form as is satisfactory to the Bond Trustee duly executed by, the Holder thereof
or such Holder's attorney duly authorized in writing, with such signature
guaranteed by an Eligible Guarantor Institution in the form set forth in such
Transition Bond.
No service charge shall be made to a Holder for any registration
of transfer or exchange of Transition Bonds, but, other than in respect of
exchanges pursuant to Section 2.04 or 9.06 not involving any transfer, the
Issuer may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Transition Bonds.
The preceding provisions of this Section notwithstanding, the
Issuer shall not be required to make, and the Transition Bond Registrar need not
register, transfers or exchanges of Transition Bonds selected for redemption or
transfers or exchanges of any Transition Bond for a period of 15 days preceding
the date on which final payment of principal is to be made with respect to such
Transition Bond.
<PAGE> 20
15
SECTION 2.06. Mutilated, Destroyed, Lost or Stolen Transition
Bonds. If (i) any mutilated Transition Bond is surrendered to the Bond Trustee,
or the Bond Trustee receives evidence to its satisfaction of the destruction,
loss or theft of any Transition Bond, and (ii) there is delivered to the Bond
Trustee such security or indemnity as may be required by it to hold the Issuer
and the Bond Trustee harmless, then, in the absence of notice to the Issuer, the
Transition Bond Registrar or the Bond Trustee that such Transition Bond has been
acquired by a bona fide purchaser, the Issuer shall execute, and upon the
Issuer's request the Bond Trustee shall authenticate and deliver, in exchange
for or in lieu of any such mutilated, destroyed, lost or stolen Transition Bond,
a replacement Transition Bond of like Series (and, if applicable, Class), tenor
and initial principal amount in Authorized Initial Denominations, bearing a
number not contemporaneously outstanding; provided, however, that if any such
destroyed, lost or stolen Transition Bond, but not a mutilated Transition Bond,
shall have become or within seven days shall be due and payable, or shall have
been called for redemption, instead of issuing a replacement Transition Bond,
the Issuer may pay such destroyed, lost or stolen Transition Bond when so due or
payable or upon the Redemption Date without surrender thereof. If, after the
delivery of such replacement Transition Bond or payment of a destroyed, lost or
stolen Transition Bond pursuant to the proviso to the preceding sentence, a bona
fide purchaser of the original Transition Bond in lieu of which such replacement
Transition Bond was issued presents for payment such original Transition Bond,
the Issuer and the Bond Trustee shall be entitled to recover such replacement
Transition Bond (or such payment) from the Person to whom it was delivered or
any Person taking such replacement Transition Bond from such Person to whom such
replacement Transition Bond was delivered or any assignee of such Person, except
a bona fide purchaser, and shall be entitled to recover upon the security or
indemnity provided therefor to the extent of any loss, damage, cost or expense
incurred by the Issuer or the Bond Trustee in connection therewith.
Upon the issuance of any replacement Transition Bond under this
Section, the Issuer may require the payment by the Holder of such Transition
Bond of a sum sufficient to cover any tax or other governmental charge that may
be imposed in relation thereto and any other reasonable expenses (including the
fees and expenses of the Bond Trustee) connected therewith.
Every replacement Transition Bond issued pursuant to this Section
in replacement of any mutilated, destroyed, lost or stolen Transition Bond shall
constitute an original additional contractual obligation of the Issuer, whether
or not the mutilated, destroyed, lost or stolen Transition Bond shall be at any
time enforceable by anyone, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Transition Bonds
duly issued hereunder.
The provisions of this Section are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Transition Bonds.
SECTION 2.07. Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Transition Bond, the Issuer, the Bond Trustee
and any agent of the Issuer or the Bond Trustee may treat the Person in whose
name any Transition Bond is registered (as of the day of determination) as the
owner of such Transition Bond for the purpose of receiving payments of principal
of and premium, if any, and interest on such Transition Bond and for all other
purposes whatsoever, whether or not such Transition Bond be overdue, and neither
the Issuer, the Bond Trustee nor any agent of the Issuer or the Bond Trustee
shall be affected by notice to the contrary.
SECTION 2.08. Payment of Principal, Premium, if any, and Interest;
Interest on Overdue Principal and Premium, if any; Principal, Premium and
Interest Rights Preserved. (a) The Transition Bonds shall accrue interest as
provided in the form of Transition Bond attached to the Series Supplement for
such Transition Bonds, at the applicable Bond Rate
<PAGE> 21
16
specified therein, and such interest shall be payable on each Payment Date as
specified therein. Any instalment of interest, principal or premium, if any,
payable on any Transition Bond which is punctually paid or duly provided for by
the Issuer on the applicable Payment Date shall be paid to the Person in whose
name such Transition Bond (or one or more Predecessor Transition Bonds) is
registered on the Record Date for such Payment Date, by check mailed
first-class, postage prepaid to such Person's address as it appears on the
Transition Bond Register on such Record Date or in such other manner as may be
provided in the related Series Supplement, except that with respect to
Transition Bonds registered on a Record Date in the name of the nominee of the
Clearing Agency (initially, such nominee to be Cede & Co.), payments will be
made by wire transfer in immediately available funds to the account designated
by such nominee and except for the final instalment of principal and premium, if
any, payable with respect to such Transition Bond on a Payment Date which shall
be payable as provided in clause (b) below. The funds represented by any such
checks returned undelivered shall be held in accordance with Section 3.03
hereof.
(b) The principal of each Transition Bond of each Series (and, if
applicable, Class) shall be payable in instalments on each Payment Date
specified in the Expected Amortization Schedule included in the form of
Transition Bond attached to the Series Supplement for such Transition Bonds, but
only to the extent that moneys are available for such payment pursuant to
Section 8.02. Failure to pay in accordance with such Expected Amortization
Schedule because moneys are not so available pursuant to Section 8.02 to make
such payments shall not constitute a Default or Event of Default under this
Indenture. Notwithstanding the foregoing, the entire unpaid principal amount of
the Transition Bonds of any Series or Class shall be due and payable, if not
previously paid (i) on the Series Termination Date (or, if applicable, Class
Termination Date) therefor, (ii) on the date on which the Transition Bonds of
all Series have been declared immediately due and payable in accordance with
Section 5.02 or (iii) on the Redemption Date, if any, therefor. The Bond Trustee
shall notify the Person in whose name a Transition Bond is registered at the
close of business on the Record Date second preceding the Payment Date on which
the Issuer expects that the final instalment of principal of and premium, if
any, and interest on such Transition Bond will be paid. Such notice shall be
mailed no later than five days prior to such final Payment Date and shall
specify that such final instalment of principal and premium, if any, will be
payable to the Person in whose name a Transition Bond is registered at the close
of business on the Record Date immediately preceding such final Payment Date and
only upon presentation and surrender of such Transition Bond and shall specify
the place where such Transition Bond may be presented and surrendered for
payment of such instalment. Notices in connection with redemptions of Transition
Bonds shall be mailed to Transition Bondholders as provided in Section 10.03.
(c) If the Issuer defaults in a payment of interest on the
Transition Bonds of any Series, the Issuer shall pay defaulted interest (plus
interest on such defaulted interest at the applicable Bond Rate to the extent
lawful) in any lawful manner. The Issuer may pay such defaulted interest to the
Persons who are Transition Bondholders on a subsequent special record date,
which date shall be at least five Business Days prior to the payment date. The
Issuer shall fix or cause to be fixed any such special record date and payment
date, and, at least 15 days before any such special record date, the Issuer
shall mail to each affected Transition Bondholder a notice that states the
special record date, the payment date and the amount of defaulted interest to be
paid.
SECTION 2.09. Cancelation. All Transition Bonds surrendered for
payment, registration of transfer, exchange or redemption shall, if surrendered
to any Person other than the Bond Trustee, be delivered to the Bond Trustee and
shall be promptly canceled by the Bond Trustee. The Issuer may at any time
deliver to the Bond Trustee for cancelation any Transition Bonds previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Transition Bonds so delivered shall be promptly
canceled by the Bond Trustee. No Transition Bonds shall be authenticated in lieu
of or in exchange for any Transition Bonds canceled as provided in this Section,
except as expressly permitted by this
<PAGE> 22
17
Indenture. All canceled Transition Bonds may be held or disposed of by the Bond
Trustee in accordance with its standard retention or disposal policy as in
effect at the time unless the Issuer shall direct by an Issuer Order that they
be destroyed or returned to it; provided that such Issuer Order is timely and
the Transition Bonds have not been previously disposed of by the Bond Trustee.
SECTION 2.10. Authentication and Delivery of Transition Bonds. The
Issuer may issue Transition Bonds of a new Series from time to time as a
Financing Issuance or a Refunding Issuance.
Transition Bonds of a new Series may from time to time be executed
by the Issuer and delivered to the Bond Trustee for authentication and thereupon
the same shall be authenticated and delivered by the Bond Trustee upon Issuer
Request and upon delivery by the Issuer, at the Issuer's expense, to the Bond
Trustee of the following:
(1) Trust Action. An Issuer Order authorizing and directing the
execution, authentication and delivery of the Transition Bonds by the
Bond Trustee and specifying the principal amount of Transition Bonds to
be authenticated.
(2) Authorizations. Either (i) a certificate of authentication or
other official document evidencing the due authorization, approval or
consent of any governmental body or bodies at the time having
jurisdiction, together with an Opinion of Counsel that the Bond Trustee
is entitled to rely on that the authorization, approval, or consent of no
other governmental body is required for the valid issuance,
authentication and delivery of such Transition Bonds, or (ii) an Opinion
of Counsel that no such authorization, approval, or consent of any
governmental body is required, except for, in the case of (i) and (ii),
such registrations as are required under the Blue Sky and securities laws
of any State.
(3) Authorizing Certificate. A certified resolution of the Issuer
authorizing the execution and delivery of the Series Supplement for the
Transition Bonds applied for and the execution, authentication and
delivery of such Transition Bonds.
(4) A Series Supplement for the Series of Transition Bonds applied
for, which shall set forth the provisions and form of the Transition
Bonds of such Series (and, if applicable, each Class thereof).
(5) Certificates of the Issuer. (a) An Officer's Certificate from
the Issuer, dated as of the Series Issuance Date, stating: (i) that no
Default has occurred and is continuing under this Indenture and that the
issuance of the Transition Bonds applied for will not result in any
Default; (ii) that the Issuer has appointed the firm of independent
certified public accountants as contemplated in Section 8.05; (iii) that
attached thereto are duly executed, true and complete copies of the
Transfer Agreement, the Sale Agreement and the Servicing Agreement; (iv)
that all filings with the PUC pursuant to the Statute and all UCC
financing statements with respect to the Collateral which are required to
be filed by the terms of the Transfer Agreement, the Sale Agreement, the
Servicing Agreement or this Indenture have been filed as required; and
(v) that all conditions precedent provided in the Indenture relating to
the authentication and delivery of the Transition Bonds have been
complied with.
(b) An Officer's Certificate from the Transferor, dated as of the
Series Issuance Date, to the effect that, in the case of the Intangible
Transition Property to be transferred to the Seller on such date
immediately prior to the conveyance thereof to the Seller pursuant to the
Transfer Agreement:
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(i) the Transferor is the sole owner of such Intangible
Transition Property; such Intangible Transition Property has been
validly transferred and sold to the Seller free and clear of all
Liens (other than Liens created by the Issuer pursuant to this
Indenture); the Transferor has the corporate power and authority
to own, sell and assign such Intangible Transition Property to the
Seller; and the Transferor has duly authorized such sale and
assignment to the Seller by all necessary corporate action; and
(ii) the attached copy of the Qualified Rate Order creating
such Intangible Transition Property is true and correct and is in
full force and effect.
(c) An Officer's Certificate from the Seller, dated as of the
Series Issuance Date, to the effect that, in the case of the Intangible
Transition Property to be transferred to the Issuer on such date
immediately prior to the conveyance thereof to the Issuer pursuant to the
Sale Agreement: the Seller is the sole owner of such Intangible
Transition Property; such Intangible Transition Property has been validly
transferred and sold to the Issuer free and clear of all Liens (other
than Liens created by the Issuer pursuant to this Indenture); the Seller
has the corporate power and authority to own, sell and assign such
Intangible Transition Property to the Issuer; and the Seller has duly
authorized such sale and assignment to the Issuer by all necessary
corporate action.
(6) Opinion of Counsel. An Opinion of Counsel, portions of which
may be delivered by counsel for the Issuer and portions of which may be
delivered by counsel for the Transferor, the Seller and the Servicer,
dated as of the Series Issuance Date, to the collective effect that:
(a) the Issuer has the power and authority to execute and
deliver the Series Supplement and this Indenture and to issue the
Transition Bonds applied for, each of the Series Supplement and
this Indenture, and the Transition Bonds applied for have been
duly authorized and executed, and the Issuer is duly organized and
in good standing under the laws of the jurisdiction of its
organization;
(b) the Transition Bonds applied for, when authenticated in
accordance with the provisions of the Indenture and delivered,
will constitute valid and binding obligations of the Issuer
entitled to the benefits of the Indenture and the related Series
Supplement;
(c) the Indenture (including the related Series
Supplement), the Sale Agreement and the Servicing Agreement are
valid and binding agreements of the Issuer, enforceable in
accordance with their respective terms except as such
enforceability may be subject to bankruptcy, insolvency,
reorganization and other similar laws affecting the rights of
creditors generally and general principles of equity (regardless
of whether such enforceability is considered in a proceeding in
equity or at law);
(d) the Transfer Agreement is a valid and binding agreement
of the Transferor, enforceable against the Transferor in
accordance with its terms except as such enforceability may be
subject to bankruptcy, insolvency, reorganization and other
similar laws affecting the rights of creditors generally and
general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law);
(e) the Sale Agreement is a valid and binding agreement of
the Seller, enforceable against the Seller in accordance with its
terms except as such enforceability may be subject to bankruptcy,
insolvency, reorganization and
<PAGE> 24
19
other similar laws affecting the rights of creditors generally and
general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law);
(f) the Servicing Agreement is a valid and binding
agreement of the Servicer, enforceable against the Servicer in
accordance with its terms except as such enforceability may be
subject to bankruptcy, insolvency, reorganization and other
similar laws affecting the rights of creditors generally and
general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law);
(g) upon the delivery of a fully executed Bill of Sale
delivered to the Issuer pursuant to Section 2.03(i) of the
Transfer Agreement in connection with the issuance of Transition
Bonds applied for and the payment of the purchase price of the
related Intangible Transition Property by the Seller to the
Transferor pursuant to such Bill of Sale and the Transfer
Agreement, then (I) the transfer of the Intangible Transition
Property purported to be conveyed thereby by the Transferor to the
Seller pursuant to such Bill of Sale and the Transfer Agreement
conveys all of the Transferor's right, title and interest in such
Intangible Transition Property to the Seller and will be treated
under state law as an absolute transfer of all of the Transferor's
right, title, and interest in such Intangible Transition Property,
other than for federal and state income tax purposes, (II) such
transfer of such Intangible Transition Property is perfected,
(III) such transfer has a priority over any other assignment or
transfer of such Intangible Transition Property, and (IV) such
Intangible Transition Property is free and clear of all liens
created prior to its transfer to the Seller pursuant to such Bill
of Sale and the Transfer Agreement;
(h) upon the delivery of a fully executed Bill of Sale
delivered to the Issuer pursuant to Section 2.03(i) of the Sale
Agreement in connection with the issuance of Transition Bonds
applied for and the payment of the purchase price of the related
Intangible Transition Property by the Issuer to the Seller
pursuant to such Bill of Sale and the Sale Agreement, then (I) the
transfer of the Intangible Transition Property purported to be
conveyed thereby by the Seller to the Issuer pursuant to such Bill
of Sale and the Sale Agreement conveys all of the Seller's right,
title and interest in such Intangible Transition Property to the
Issuer and will be treated under state law as an absolute transfer
of all of the Seller's right, title, and interest in such
Intangible Transition Property, other than for federal and state
income tax purposes, (II) such transfer of such Intangible
Transition Property is perfected, (III) such transfer has a
priority over any other assignment or transfer of such Intangible
Transition Property, and (IV) such Intangible Transition Property
is free and clear of all liens created prior to its transfer to
the Issuer pursuant to such Bill of Sale and the Sale Agreement;
(i)(I) to the extent that the provisions of Section 2812 of
the Statute apply to the grant of a security interest by the
Issuer in the Collateral pursuant to this Indenture, then upon the
giving of value by the Bond Trustee to the Issuer with respect to
the Collateral, (A) this Indenture creates in favor of the Bond
Trustee a security interest in the rights of the Issuer in the
Collateral, (B) such security interest is valid and enforceable
against the Issuer and third parties (subject to the rights of any
third parties holding security interests in such Collateral
perfected in the manner described in Section 2812 of the Statute),
and has attached, (C) such security interest is perfected, and (D)
such perfected security interest is of first priority; and (II) to
the extent that the provisions of Section 2812 of the Statute do
not apply to the grant of a security interest by the Issuer in the
Collateral pursuant to this Indenture, then upon the giving of
value
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by the Bond Trustee to the Issuer with respect to the Collateral,
(A) this Indenture creates in favor of the Bond Trustee a security
interest in the rights of the Issuer in the Collateral, (B) such
security interest is enforceable against the Issuer and third
parties with respect to such Collateral, (C) such security
interest is perfected, and (D) such perfected security interest is
of first priority;
(j) the Indenture has been duly qualified under the Trust
Indenture Act and either the Series Supplement for the Transition
Bonds applied for has been duly qualified under the Trust
Indenture Act or no such qualification of such Series Supplement
is necessary;
(k) the Issuer is not an "investment company" or under the
"control" of an "investment company" as such terms are defined
under the Investment Company Act of 1940, as amended;
(l) all instruments furnished to the Bond Trustee conform
to the requirements of this Indenture and constitute all the
documents required to be delivered hereunder for the Bond Trustee
to authenticate and deliver the Transition Bonds applied for, and
all conditions precedent provided for in this Indenture relating
to the authentication and delivery of the Transition Bonds have
been complied with;
(m) either (A) the registration statement covering the
Transition Bonds is effective under the Securities Act of 1933
and, to the best of such counsel's knowledge and information, no
stop order suspending the effectiveness of such registration
statement has been issued under the Securities Act of 1933 nor
have proceedings therefor been instituted or threatened by the
Commission or (B) the Transition Bonds are exempt from the
registration requirements under the Securities Act of 1933;
(n) the Indenture (including the related Series Supplement)
has been duly authorized, executed and delivered by the Issuer;
and
(o) the Transfer Agreement, the Sale Agreement and the
Servicing Agreement have been duly authorized, executed and
delivered by the Issuer, the Transferor, the Seller and the
Servicer as applicable.
(7) Accountant's Certificate or Opinion. A certificate or opinion,
addressed to the Issuer and the Bond Trustee complying with the
requirements of Section 11.01 hereof, of a firm of Independent certified
public accountants of recognized national reputation to the effect that
(a) such accountants are Independent with respect to the Issuer within
the meaning of the Indenture, and are independent public accountants
within the meaning of the standards of The American Institute of
Certified Public Accountants, and (b) with respect to the Collateral,
they have made such calculations as they deemed necessary for the purpose
and determined that, based on the assumptions used in calculating the
initial Intangible Transition Charges with respect to the Transferred
Intangible Transition Property or, if applicable, the most recent revised
Intangible Transition Charges with respect to the Transferred Intangible
Transition Property, and taking into account amounts on deposit in the
Reserve Subaccount, as of the Series Issuance Date for such Series (after
giving effect to the issuance of such Series and the application of the
proceeds therefrom) such Intangible Transition Charges are sufficient to
(a) pay Operating Expenses when incurred, (b) pay interest on each Series
of Transition Bonds at their respective Bond Rates when due[, or, with
respect to Classes or Series for which a Swap Agreement is in effect and
any payments due thereunder from the applicable Counterparty are being
received by the Issuer, regular fixed payments due to the related
Counterparties (not including any breakage or termination
<PAGE> 26
21
payments)], (c) pay principal of the Transition Bonds of all Series in
accordance with their respective Expected Amortization Schedules, (d)
replenish the Capital Subaccount up to the Required Capital Amount as of
each Payment Date and (e) fund the Calculated Overcollateralization Level
as of each Payment Date.
(8) Rating Agency Condition. The Bond Trustee shall receive
written notice from each Rating Agency that the Rating Agency Condition
will be satisfied with respect to the issuance of such new Series.
(9) Bills of Sale. If the issuance of an additional Series of
Transition Bonds is a Financing Issuance, the Bill of Sale delivered to
the Issuer under the Sale Agreement and the Bill of Sale delivered to the
Seller under the Transfer Agreement, in each case with respect to the
Intangible Transition Property being purchased with the proceeds of such
Financing Issuance.
(10) Moneys for Refunding. If the issuance of a Series of
Transition Bonds is a Refunding Issuance, the amount of money necessary
to pay the outstanding principal balance of, and premium and interest on,
the Transition Bonds being refunded to either the Redemption Date for
Transition Bonds being refunded upon redemption, such money to be
deposited into a separate account with the Bond Trustee.
SECTION 2.11. Book-Entry Transition Bonds. Unless otherwise specified in
the related Series Supplement, each Series of Transition Bonds, upon original
issuance, will be issued in the form of a typewritten Transition Bond or
Transition Bonds representing the Book-Entry Transition Bonds, to be delivered
to The Depository Trust Company, the initial Clearing Agency, by, or on behalf
of, the Issuer. Such Transition Bond shall initially be registered on the
Transition Bond Register in the name of Cede & Co., the nominee of the initial
Clearing Agency, and no Transition Bond Owner will receive a definitive
Transition Bond representing such Transition Bond Owner's interest in such
Transition Bond, except as provided in Section 2.13. Unless and until
definitive, fully registered Transition Bonds (the "Definitive Transition
Bonds") have been issued to Transition Bond Owners pursuant to Section 2.13:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Transition Bond Registrar and the Bond Trustee shall be
entitled to deal with the Clearing Agency for all purposes of this
Indenture (including the payment of principal of and premium, if any, and
interest on the Transition Bonds and the giving of instructions or
directions hereunder) as the sole holder of the Transition Bonds, and
shall have no obligation to the Transition Bond Owners;
(iii) to the extent that the provisions of this Section conflict
with any other provisions of this Indenture, the provisions of this
Section shall control;
(iv) the rights of Transition Bond Owners shall be exercised only
through the Clearing Agency and shall be limited to those established by
law and agreements between such Transition Bond Owners and the Clearing
Agency or the Clearing Agency Participants. Pursuant to the DTC
Agreement, unless and until Definitive Transition Bonds are issued
pursuant to Section 2.13, the initial Clearing Agency will make
book-entry transfers among the Clearing Agency Participants and receive
and transmit payments of principal of and premium, if any, and interest
on the Transition Bonds to such Clearing Agency Participants; and
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Holders of Transition
Bonds evidencing a specified percentage of the Outstanding Amount of the
Transition Bonds or a Series or Class thereof, the Clearing Agency shall
be deemed to represent such percentage only to the
<PAGE> 27
22
extent that it has received instructions to such effect from Transition
Bond Owners or Clearing Agency Participants owning or representing,
respectively, such required percentage of the beneficial interest in the
Transition Bonds or such Series or Class and has delivered such
instructions to the Bond Trustee.
SECTION 2.12. Notices to Clearing Agency. Whenever a notice or
other communication to the Transition Bondholders is required under this
Indenture, unless and until Definitive Transition Bonds shall have been issued
to Transition Bond Owners pursuant to Section 2.13, the Bond Trustee shall give
all such notices and communications specified herein to be given to Transition
Bondholders to the Clearing Agency, and shall have no obligation to the
Transition Bond Owners.
SECTION 2.13. Definitive Transition Bonds. If (i) the Issuer
advises the Bond Trustee in writing that the Clearing Agency is no longer
willing or able to properly discharge its responsibilities as depository with
respect to any Series or Class of Transition Bonds and the Issuer is unable to
locate a qualified successor, (ii) the Issuer, at its option, advises the Bond
Trustee in writing that it elects to terminate the book-entry system through the
Clearing Agency with respect to any Series or Class of Transition Bonds or (iii)
after the occurrence of an Event of Default, Transition Bond Owners representing
beneficial interests aggregating at least a majority of the Outstanding Amount
of the Transition Bonds of all Series advise the Bond Trustee through the
Clearing Agency in writing that the continuation of a book-entry system through
the Clearing Agency is no longer in the best interests of the Transition Bond
Owners, then the Clearing Agency shall notify all affected Transition Bond
Owners and the Bond Trustee of the occurrence of any such event and of the
availability of Definitive Transition Bonds to affected Transition Bond Owners
requesting the same. Upon surrender to the Bond Trustee of the typewritten
Transition Bond or Transition Bonds representing the Book-Entry Transition Bonds
by the Clearing Agency, accompanied by registration instructions, the Issuer
shall execute and the Bond Trustee shall authenticate the Definitive Transition
Bonds in accordance with the instructions of the Clearing Agency. None of the
Issuer, the Transition Bond Registrar or the Bond Trustee shall be liable for
any delay in delivery of such instructions and may conclusively rely on, and
shall be protected in relying on, such instructions. Upon the issuance of
Definitive Transition Bonds, the Bond Trustee shall recognize the Holders of the
Definitive Transition Bonds as Transition Bondholders.
ARTICLE III
Covenants
SECTION 3.01. Payment of Principal, Premium, if any, and Interest.
The Issuer will duly and punctually pay the principal of and premium, if any,
and interest on the Transition Bonds in accordance with the terms of the
Transition Bonds and this Indenture; provided that except on the Series
Termination Date, the Class Termination Date, or the Redemption Date for a
Series or Class of Transition Bonds or upon the acceleration of the Transition
Bonds following the occurrence of an Event of Default, the Issuer shall only be
obligated to pay the principal of such Transition Bonds on each Payment Date
therefor to the extent moneys are available for such payment pursuant to Section
8.02. Amounts properly withheld under the Code by any Person from a payment to
any Transition Bondholder of interest or principal or premium, if any, shall be
considered as having been paid by the Issuer to such Transition Bondholder for
all purposes of this Indenture.
SECTION 3.02. Maintenance of Office or Agency. The Issuer will
maintain in the Borough of Manhattan, the City of New York, an office or agency
where Transition Bonds may be surrendered for registration of transfer or
exchange, and where notices and demands to or upon the Issuer in respect of the
Transition Bonds and this Indenture may be served. The Issuer hereby initially
appoints the Bond Trustee to serve as its agent for the foregoing purposes. The
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Issuer will give prompt written notice to the Bond Trustee of the location, and
of any change in the location, of any such office or agency. If at any time the
Issuer shall fail to maintain any such office or agency or shall fail to furnish
the Bond Trustee with the address thereof, such surrenders, notices and demands
may be made or served at the Corporate Trust Office, and the Issuer hereby
appoints the Bond Trustee as its agent to receive all such surrenders, notices
and demands.
SECTION 3.03. Money for Payments To Be Held in Trust. As provided
in Section 8.02(a), all payments of principal of, or premium and interest on,
the Transition Bonds that are to be made from amounts withdrawn from the
Collection Account pursuant to Section 8.02(d), (e) or (f) or Section 4.03 shall
be made on behalf of the Issuer by the Bond Trustee or by another Paying Agent,
and no amounts so withdrawn from the Collection Account for payments of
Transition Bonds shall be paid over to the Issuer except as provided in this
Section and in Section 8.02.
The Issuer will cause each Paying Agent other than the Bond
Trustee to execute and deliver to the Bond Trustee an instrument in which such
Paying Agent shall agree with the Bond Trustee (and if the Bond Trustee acts as
Paying Agent, it hereby so agrees), subject to the provisions of this Section,
that such Paying Agent will:
(i) hold all sums held by it for the payment of principal of, or
premium or interest on, the Transition Bonds in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and pay such sums to
such Persons as herein provided;
(ii) give the Bond Trustee notice of any Default by the Issuer (or
any other obligor upon the Transition Bonds) of which the Paying Agent
has actual knowledge in the making of any payment required to be made
with respect to the Transition Bonds;
(iii) at any time during the continuance of any such Default, upon
the written request of the Bond Trustee, forthwith pay to the Bond
Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to the
Bond Trustee all sums held by the Paying Agent in trust for the payment
of Transition Bonds if at any time the Paying Agent ceases to meet the
standards required to be met by a Paying Agent at the time of its
appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Transition Bonds of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Bond Trustee all sums held in trust
by such Paying Agent, such sums to be held by the Bond Trustee upon the same
trusts as those upon which the sums were held by such Paying Agent; and upon
such payment by any Paying Agent to the Bond Trustee, such Paying Agent shall be
released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any
money held by the Bond Trustee or any Paying Agent in trust for the payment of
any amount of principal of, premium on, if any, or interest on any Transition
Bond and remaining unclaimed for two years after such amount has become due and
payable shall be discharged from such trust and be paid to the Issuer; and the
Holder of such Transition Bond shall thereafter, as an unsecured general
creditor, look only to the Issuer for payment thereof (but only to the extent of
the amounts so
<PAGE> 29
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paid to the Issuer), and all liability of the Bond Trustee or such Paying Agent
with respect to such trust money shall thereupon cease; provided, however, that
the Bond Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Issuer cause to be published once, in a
newspaper published in the English language, customarily published on each
Business Day and of general circulation in the City of New York, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The Bond
Trustee may also adopt and employ, at the expense of the Issuer, any other
reasonable means of notification of such repayment (including mailing notice of
such repayment to Holders whose Transition Bonds have been called but have not
been surrendered for redemption or whose right to or interest in moneys due and
payable but not claimed is determinable from the records of the Bond Trustee or
of any Paying Agent, at the last address of record for each such Holder).
SECTION 3.04. Existence. Subject to Section 3.10, the Issuer will
keep in full effect its existence, rights and franchises as a limited liability
company under the laws of the State of Delaware (unless it becomes, or any
successor Issuer hereunder is or becomes, organized under the laws of any other
State or of the United States of America, in which case the Issuer will keep in
full effect its existence, rights and franchises under the laws of such other
jurisdiction) and will obtain and preserve its qualification to do business in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Indenture, the Transition Bonds,
the Collateral and each other instrument or agreement included therein.
SECTION 3.05. Protection of Collateral. The Issuer will from time
to time execute and deliver all such supplements and amendments hereto and all
such filings (including filings with the PUC pursuant to the Statute), financing
statements, continuation statements, instruments of further assurance and other
instruments, and will take such other action necessary or advisable to:
(i) maintain and preserve the lien and security interest (and the
priority thereof) of this Indenture or carry out more effectively the
purposes hereof;
(ii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iii) enforce any of the Collateral;
(iv) preserve and defend title to the Collateral and the rights of
the Bond Trustee and the Transition Bondholders in the Collateral against
the claims of all Persons and parties; or
(v) pay any and all taxes levied or assessed up on all or any part
of the Collateral.
The Issuer hereby designates the Bond Trustee its agent and attorney-in-fact to
execute any filing with the PUC, financing statement, continuation statement or
other instrument required by the Bond Trustee pursuant to this Section.
SECTION 3.06. Opinions as to Collateral. (a) On or before [July
1st] in each calendar year, beginning at least 3 months after the issuance of
the first Series of the Transition Bonds while any Series is outstanding, the
Issuer shall furnish to the Bond Trustee an Opinion of Counsel either stating
that, in the opinion of such counsel, such action has been taken with respect to
the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and, with
respect to the execution and filing of any filings with the PUC pursuant to the
Statute, financing statements and continuation
<PAGE> 30
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statements as is necessary to maintain the lien and security interest, and the
first priority thereof, created by this Indenture and reciting the details of
such action or stating that in the opinion of such counsel no such action is
necessary to maintain such lien and security interest, and the first priority
thereof. Such Opinion of Counsel shall also describe the recording, filing,
re-recording and refiling of this Indenture, any indentures supplemental hereto
and any other requisite documents, and the execution and filing of any filings
with the PUC, financing statements and continuation statements that will, in the
opinion of such counsel, be required to maintain the lien and security interest
of this Indenture until [July 1] in the following calendar year.
(b) Prior to the effectiveness of any amendment to the Transfer
Agreement, the Sale Agreement or the Servicing Agreement, the Issuer shall
furnish to the Bond Trustee 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 fully
to preserve and protect the interest of the Issuer and the Bond Trustee in the
Transferred Intangible Transition Property and the proceeds thereof, and
reciting the details of such filings or referring to prior Opinions of Counsel
in which such details are given, or (B) stating that, in the opinion of such
counsel, no such action shall be necessary to preserve and protect such
interest.
SECTION 3.07. Performance of Obligations. (a) The Issuer (i) will
diligently pursue any and all actions to enforce its rights under each
instrument or agreement included in the Collateral and (ii) will not take any
action and will use its best efforts not to permit any action to be taken by
others that would release any Person from any of such Person's covenants or
obligations under any such instrument or agreement or that would result in the
amendment, hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any such instrument or agreement, except, in
each case, as expressly provided in this Indenture, the Transfer Agreement, the
Sale Agreement or the Servicing Agreement or such other instrument or agreement.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Bond Trustee in an Officer's Certificate of the
Issuer shall be deemed to be action taken by the Issuer. Initially, the Issuer
has contracted with the Servicer and the Administrative Agent to assist the
Issuer in performing its duties under this Indenture.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in the Sale Agreement, the Servicing
Agreement and in all other instruments and agreements included in the
Collateral.
(d) Without derogating from the absolute nature of the assignment
granted to the Bond Trustee under this Indenture or the rights of the Bond
Trustee hereunder, but subject to Section 3.20, the Issuer agrees that it will
not, without the prior written consent of the Bond Trustee or the Holders of at
least a majority in Outstanding Amount of the Transition Bonds of all Series,
amend, modify, waive, supplement, terminate or surrender, or agree to any
amendment, modification, supplement, termination, waiver or surrender of, the
terms of any Collateral or the Basic Documents. If any such amendment,
modification, supplement or waiver shall be so consented to by the Bond Trustee
or such Holders, the Issuer agrees to execute and deliver, in its own name and
at its own expense, such agreements, instruments, consents and other documents
as shall be necessary or appropriate in the circumstances. The Issuer agrees
that no such amendment, modification, supplement or waiver shall adversely
affect the rights of the Holders of the Transition Bonds outstanding at the time
of any such amendment, modification, supplement or waiver.
SECTION 3.08. Negative Covenants. The Issuer shall not:
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(i) except as expressly permitted by this Indenture or the Sale
Agreement or the Servicing Agreement, sell, transfer, exchange or
otherwise dispose of any of the Collateral, unless directed to do so by
the Bond Trustee in accordance with Article V;
(ii) claim any credit on, or make any deduction from the principal
or premium, if any, or interest payable in respect of, the Transition
Bonds (other than amounts properly withheld from such payments under the
Code) or assert any claim against any present or former Transition
Bondholder by reason of the payment of taxes levied or assessed upon the
Issuer or any part of the Collateral;
(iii) A permit the validity or effectiveness of this Indenture to
be impaired, or permit the lien of this Indenture to be amended,
hypothecated, subordinated, terminated or discharged, or permit any
Person to be released from any covenants or obligations with respect to
the Transition Bonds under this Indenture except as may be expressly
permitted hereby, (B) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance (other than the lien and
security interest created by this Indenture) to be created on or extend
to or otherwise arise upon or burden the Collateral or any part thereof
or any interest therein or the proceeds thereof or (C) permit the lien
of this Indenture not to constitute a continuing valid first priority
security interest in the Collateral.
SECTION 3.09. Annual Statement as to Compliance. The Issuer will
deliver to the Bond Trustee, within 120 days after the end of each fiscal year
of the Issuer (commencing with the fiscal year 1999), an Officer's Certificate
stating, as to the Authorized Officer signing such Officer's Certificate, that
(i) a review of the activities of the Issuer during such year (or
relevant portion thereof) and of performance under this Indenture has
been made under such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based on
such review, the Issuer has complied with all conditions and covenants
under this Indenture throughout such calendar year (or relevant portion
thereof), or, if there has been a default in complying with any such
condition or covenant, describing each such default and the nature and
status thereof.
SECTION 3.10. Issuer May Consolidate, etc., Only on Certain
Terms. The Issuer shall not consolidate or merge with or into any other Person
or sell substantially all of its assets to any other Person, unless:
(i) the Person (if other than the Issuer) formed by or surviving
such consolidation or merger or to whom substantially all of such assets
are sold shall be a Person organized and existing under the laws of the
United States of America or any State and shall expressly assume by an
indenture supplemental hereto, executed and delivered to the Bond
Trustee, in form satisfactory to the Bond Trustee, the due and punctual
payment of the principal of and premium, if any, and interest on all
Transition Bonds and the performance or observance of every agreement and
covenant of this Indenture on the part of the Issuer to be performed or
observed, all as provided herein and in the applicable Series Supplement
or Series Supplements;
(ii) the Person (if other than the Issuer) formed by or surviving
such consolidation or merger or to whom substantially all of such assets
are sold shall expressly assume all obligations and succeed to all rights
of the Issuer under the Transfer Agreement, the Sale Agreement and the
Servicing Agreement pursuant to an assignment and assumption agreement
executed and delivered to the Bond Trustee, in form satisfactory to the
Bond Trustee;
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(iii) immediately after giving effect to such consolidation or
merger or sale, no Default or Event of Default shall have occurred and be
continuing;
(iv) the Rating Agency Condition shall have been satisfied with
respect to such consolidation or merger or sale by each Rating Agency
[except Moody's (and the Issuer shall have furnished Moody's with prior
written notice of such consolidation, merger or sale)];
(v) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Bond Trustee) to the effect
that such consolidation or merger or sale (a) will not have any material
adverse tax consequence to the Issuer or any Transition Bondholder, (b)
complies with this Indenture and all of the conditions precedent herein
relating to such transaction and (c) will result in the Bond Trustee
maintaining a continuing valid first priority security interest in the
Collateral;
(vi) none of the Intangible Transition Property, the Qualified
Rate Order, the Transferor's, the Seller's, the Servicer's or the
Issuer's rights under the Statute or the Qualified Rate Order are
impaired thereby; and
(vii) any action as is necessary to maintain the lien and security
interest created by this Indenture shall have been taken.
SECTION 3.11. Successor or Transferee. (a) Upon any consolidation
or merger of the Issuer in accordance with Section 3.10, the Person formed by or
surviving such consolidation or merger (if other than the Issuer) shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under this Indenture with the same effect as if such Person had been
named as the Issuer herein.
(b) Upon any sale by the Issuer of substantially all of its assets
in a sale which complies with Section 3.10, West Penn Funding LLC will be
released from every covenant and agreement of this Indenture to be observed or
performed on the part of the Issuer with respect to the Transition Bonds and
from every covenant and agreement of the Sale Agreement and the Servicing
Agreement to be observed or performed on the part of the Issuer.
SECTION 3.12. No Other Business. The Issuer shall not engage in
any business other than purchasing and owning Intangible Transition Property,
issuing Transition Bonds from time to time, pledging its interest in the
Collateral to the Bond Trustee under this Indenture in order to secure the
Transition Bonds and performing activities that are necessary, suitable or
convenient to accomplish these purposes or are incidental thereto.
SECTION 3.13. No Borrowing. The Issuer shall not issue, incur,
assume, guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Transition Bonds.
SECTION 3.14. Guarantees, Loans, Advances and Other Liabilities.
Except as contemplated by the Sale Agreement, the Servicing Agreement, this
Indenture or the LLC Agreement, the Issuer shall not make any loan or advance or
credit to, or guarantee (directly or indirectly or by an instrument having the
effect of assuring another's payment or performance on any obligation or
capability of so doing or otherwise), endorse or otherwise become contingently
liable, directly or indirectly, in connection with the obligations, stocks or
dividends of, or own, purchase, repurchase or acquire (or agree contingently to
do so) any stock, obligations, assets or securities of, or any other interest
in, or make any capital contribution to, any other Person, except that the
Issuer may invest funds in Eligible Investments.
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SECTION 3.15. Capital Expenditures. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty) other than Intangible Transition Property
purchased from the Seller pursuant to, and in accordance with, the Sale
Agreement.
SECTION 3.16. Restricted Payments. The Issuer shall not, directly
or indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to any owner of a beneficial interest in the Issuer or otherwise with
respect to any ownership or equity interest in, or ownership security of, the
Issuer, (ii) redeem, purchase, retire or otherwise acquire for value any such
ownership or equity interest or security or (iii) set aside or otherwise
segregate any amounts for any such purpose. The Issuer will not, directly or
indirectly, make payments to or distributions from the Collection Account except
in accordance with this Indenture and the Basic Documents.
SECTION 3.17. Notice of Events of Default. The Issuer agrees to
deliver to the Bond Trustee and the Rating Agencies written notice in the form
of an Officer's Certificate of any Default or Event of Default hereunder, its
status and what action the Issuer is taking or proposes to take with respect
thereto within five days after the occurrence thereof.
SECTION 3.18. Inspection. The Issuer agrees that, on reasonable
prior notice, it will permit any representative of the Bond Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports, and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited annually by Independent certified public
accountants, and to discuss the Issuer's affairs, finances and accounts with the
Issuer's officers, employees, and Independent certified public accountants, all
at such reasonable times and as often as may be reasonably requested. The Bond
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Bond Trustee may reasonably determine that such disclosure
is consistent with its obligations hereunder.
SECTION 3.19. Adjusted Overcollateralization Schedules. Not later
than each Schedule Revision Date, the Issuer shall deliver to the Bond Trustee a
replacement Schedule A to the Series Supplement, adjusted to reflect the event
giving rise to such Schedule Revision Date and setting forth the Calculated
Overcollateralization Level for each Payment Date.
SECTION 3.20. Transfer Agreement, Sale Agreement and Servicing
Agreement Covenants. (a) The Issuer agrees to take all such lawful actions to
enforce its rights under the Transfer Agreement, the Sale Agreement and the
Servicing Agreement and to compel or secure the performance and observance by
the Transferor, the Seller and the Servicer, of each of their obligations to the
Issuer under or in connection with the Transfer Agreement, the Sale Agreement
and the Servicing Agreement, respectively, in accordance with the terms thereof.
So long as no Event of Default occurs and is continuing, but subject to Section
3.20(f ), the Issuer may exercise any and all rights, remedies, powers and
privileges lawfully available to the Issuer under or in connection with the
Transfer Agreement, the Sale Agreement and the Servicing Agreement.
(b) If an Event of Default occurs and is continuing, the Bond
Trustee may, and, at the direction (which direction shall be in writing or by
telephone (confirmed in writing promptly thereafter)) of the Holders of a
majority of the Outstanding Amount of the Transition Bonds of all Series shall,
exercise all right, remedies, powers, privileges and claims of the Issuer
against the Transferor, the Seller or the Servicer under or in connection with
the Transfer Agreement, the Sale Agreement and the Servicing Agreement,
respectively, including the right or power to take any action to compel or
secure performance or observance by the Transferor, the Seller or the Servicer
of each of their obligations to the Issuer thereunder and to give any
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consent, request, notice, direction, approval, extension or waiver under the
Transfer Agreement, the Sale Agreement and the Servicing Agreement, and any
right of the Issuer to take such action shall be suspended.
(c) With the consent of the Bond Trustee, the Transfer Agreement,
the Sale Agreement and the Servicing Agreement may be amended, at any time and
from time to time, without the consent of the Transition Bondholders, provided
that (i) such amendment shall not, as evidenced by an Officer's Certificate,
adversely affect the interest of any Transition Bondholder or change the
Intangible Transition Charges Adjustment Process and (ii) the Rating Agency
Condition is satisfied in connection therewith by each Rating Agency other than
Moody's (and the Issuer shall have furnished Moody's with written notice of such
amendment prior to the effectiveness thereof).
(d) No amendment, modification, supplement, termination, waiver or
surrender of, the terms of the Transfer Agreement, the Sale Agreement or the
Servicing Agreement, or waiver of timely performance or observance by the
Transferor, the Servicer or the Seller under the Transfer Agreement, the Sale
Agreement or the Servicing Agreement, respectively, in each case in such a way
as would adversely affect the interests of Transition Bondholders is permitted
nor shall the Bond Trustee consent thereto. If the Issuer, the Transferor, the
Seller or the Servicer shall otherwise propose to amend, modify, waive,
supplement, terminate or surrender, or agree to any amendment, modification,
supplement, termination, waiver or surrender of, the terms of the Transfer
Agreement, the Sale Agreement or the Servicing Agreement or waive timely
performance or observance by the Transferor, the Seller or the Servicer under
the Transfer Agreement, the Sale Agreement or Servicing Agreement, respectively,
the Issuer shall notify the Bond Trustee and the Bond Trustee shall notify the
Transition Bondholders thereof. The Bond Trustee shall consent to such proposed
amendment, modification, supplement or waiver only with the consent of the
Holders of at least a majority of the Outstanding Amount of the Transition Bonds
of each Series or Class. If any such amendment, modification, supplement or
waiver shall be so consented to by the Bond Trustee or such Holders, the Issuer
agrees to execute and deliver, in its own name and at its own expense, such
agreements, instruments, consents and other documents as shall be necessary or
appropriate in the circumstances.
(e) If the Issuer and the Transferor, the Seller or Servicer
propose to amend, modify, waive, supplement, terminate or surrender, or agree to
any amendment, modification, supplement, termination, waiver or surrender of,
the Intangible Transition Charges Adjustment Process, the Issuer shall notify
the Bond Trustee and the Bond Trustee shall notify Transition Bondholders of
such proposal and the Bond Trustee shall consent thereto only with the consent
of the Holder of each Outstanding Transition Bond of each Series or Class
affected thereby.
(f) Promptly following a default by any of the Transferor, the
Seller or Servicer under the Transfer Agreement, the Sale Agreement or the
Servicing Agreement, respectively, and at the Issuer's expense, the Issuer
agrees to take all such lawful actions as the Bond Trustee may request to compel
or secure the performance and observance by the Transferor, the Seller or the
Servicer, as applicable, of each of their obligations to the Issuer under or in
connection with the Transfer Agreement, the Sale Agreement or the Servicing
Agreement in accordance with the terms thereof, and to exercise any and all
rights, remedies, powers and privileges lawfully available to the Issuer under
or in connection with the Transfer Agreement, the Sale Agreement or the
Servicing Agreement to the extent and in the manner directed by the Bond
Trustee, including the transmission of notices of default on the part of the
Transferor, the Seller or the Servicer thereunder and the institution of legal
or administrative actions or proceedings to compel or secure performance by the
Transferor, the Seller or the Servicer of each of their obligations under the
Transfer Agreement, the Sale Agreement and the Servicing Agreement.
(g) If the Issuer shall have knowledge of the occurrence of a
Servicer Default under the Servicing Agreement, the Issuer shall promptly give
written notice thereof to the Bond Trustee and the Rating Agencies, and shall
specify in such notice the action, if any, the Issuer is
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taking with respect to such default. If a Servicer Default shall arise from the
failure of the Servicer to perform any of its duties or obligations under the
Servicing Agreement with respect to the Intangible Transition Property or the
Intangible Transition Charges, the Issuer shall take all reasonable steps
available to it to remedy such failure. The Issuer shall not take any action to
terminate the Servicer's rights and powers under the Servicing Agreement
following a Servicer Default without the prior written consent of the Bond
Trustee or of the Holders of Transition Bonds evidencing not less than 25% of
the Outstanding Amount of the Transition Bonds of all Series and the consent,
not to be unreasonably withheld, of any Counterparties affected thereby.
(h) As promptly as possible after the giving of notice of
termination to the Servicer and the Rating Agencies of the Servicer's rights and
powers pursuant to Section 6.01 of the Servicing Agreement, the Bond Trustee
shall, together with such other Persons, if any, as are specified in Section
6.01 of the Servicing Agreement, appoint a successor Servicer (the "Successor
Servicer"), and such Successor Servicer shall accept its appointment by a
written assumption in a form acceptable to the Issuer and the Bond Trustee. A
person shall qualify as a Successor Servicer only if such Person satisfies the
requirements of Section 6.04 of the Servicing Agreement. If within 30 days after
the delivery of the notice referred to above, a Successor Servicer shall not
have been appointed and accepted its appointment as such, the Bond Trustee may
petition the PUC or a court of competent jurisdiction to appoint a Successor
Servicer. In connection with any such appointment, the Issuer may make such
arrangements for the compensation of such Successor Servicer as it and such
Successor Servicer shall agree, subject to the limitations set forth below and
in the Servicing Agreement, and in accordance with Section 6.04 of the Servicing
Agreement, the Issuer shall enter into an agreement with such Successor Servicer
for the servicing of the Intangible Transition Property (such agreement to be in
form and substance satisfactory to the Bond Trustee).
(i) Upon termination of the Servicer's rights and powers pursuant
to the Servicing Agreement, the Bond Trustee shall promptly notify the Issuer,
the Transition Bondholders and the Rating Agencies. As soon as a Successor
Servicer is appointed, the Issuer shall notify the Bond Trustee, the Transition
Bondholders and the Rating Agencies of such appointment, specifying in such
notice the name and address of such Successor Servicer.
SECTION 3.21. Taxes. So long as any of the Transition Bonds are
outstanding, the Issuer shall pay all material taxes, including gross receipts
taxes, assessments and governmental charges imposed upon it or any of its
properties or assets or with respect to any of its franchises, business, income
or property before any penalty accrues thereon if the failure to pay any such
taxes, assessments and governmental charges would, after any applicable grace
periods, notices or other similar requirements, result in a Lien on the
Collateral.
SECTION 3.22. Separate Entity. The Issuer shall take all
reasonable steps to continue its identity as a separate legal entity and to make
it apparent to third persons that it is an entity with assets and liabilities
distinct from those of the Transferor and the Seller, other affiliates or any
other Person, and that, except for financial reporting purposes (to the extent
required by generally accepted accounting principles) and for state and Federal
income and franchise tax purposes, it is not a division of the Transferor, the
Seller or any of its affiliated entities or any other Person.
ARTICLE IV
Satisfaction and Discharge; Defeasance
SECTION 4.01. Satisfaction and Discharge of Indenture; Defeasance.
(a) The Transition Bonds of any Series, all moneys payable with respect thereto
and this Indenture as it applies to such Series shall cease to be of further
effect and the lien hereunder shall be released with respect to such Series,
interest shall cease to accrue on the Transition Bonds of such Series and the
Bond Trustee, on demand of and at the expense of the Issuer, shall execute
proper
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instruments acknowledging satisfaction and discharge of this Indenture with
respect to the Transition Bonds of such Series, when
(A) either
(1) all Transition Bonds of such Series theretofore
authenticated and delivered (other than (i) Transition Bonds that
have been destroyed, lost or stolen and that have been replaced or
paid as provided in Section 2.06 and (ii) Transition Bonds for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid
to the Issuer or discharged from such trust, as provided in
Section 3.03) have been delivered to the Bond Trustee for
cancelation; or
(2) the Expected Final Payment Date or Redemption Date has
occurred with respect to all Transition Bonds of such Series not
theretofore delivered to the Bond Trustee for cancelation, and the
Issuer has irrevocably deposited or caused to be irrevocably
deposited with the Bond Trustee cash, in trust for such purpose,
in an amount sufficient to pay and discharge the entire
indebtedness on such Transition Bonds not theretofore delivered to
the Bond Trustee on the Expected Final Payment Date or Redemption
Date, as applicable, therefor;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder by the Issuer with respect to such Series; and
(C) the Issuer has delivered to the Bond Trustee an Officer's
Certificate, an Opinion of Counsel and (if required by the TIA or the
Bond Trustee) an Independent Certificate from a firm of certified public
accountants, each meeting the applicable requirements of Section 11.01
and each stating that all conditions precedent herein provided for
relating to the satisfaction and discharge of this Indenture with respect
to Transition Bonds of such Series have been complied with.
(b) Subject to Sections 4.01(c) and 4.02, the Issuer at any time
may terminate (i) all its obligations under this Indenture with respect to the
Transition Bonds of any Series ("Legal Defeasance Option") or (ii) its
obligations under Sections 3.04, 3.05, 3.06, 3.07, 3.08, 3.09, 3.10, 3.12, 3.13,
3.14, 3.15, 3.16, 3.17, 3.18, 3.19 and 3.20 and the operation of Section
5.01(iv) ("Covenant Defeasance Option") with respect to any Series of Transition
Bonds. The Issuer may exercise the Legal Defeasance Option with respect to any
Series of Transition Bonds notwithstanding its prior exercise of the Covenant
Defeasance Option with respect to such Series.
If the Issuer exercises the Legal Defeasance Option with respect
to any Series, the maturity of the Transition Bonds of such Series may not be
(a) accelerated because of an Event of Default or (b) except as provided in
Section 4.02, redeemed. If the Issuer exercises the Covenant Defeasance Option
with respect to any Series, the maturity of the Transition Bonds of such Series
may not be accelerated because of an Event of Default specified in Section
5.01(iv).
Upon satisfaction of the conditions set forth herein to the
exercise of the Legal Defeasance Option or the Covenant Defeasance Option with
respect to any Series of Transition Bonds, the Bond Trustee, on demand of and at
the expense of the Issuer, shall execute proper instruments acknowledging
satisfaction and discharge of the obligations that are terminated pursuant to
such exercise.
(c) Notwithstanding Sections 4.01(a) and 4.01(b) above, (i) rights
of registration of transfer and exchange, (ii) rights of substitution of
mutilated, destroyed, lost or stolen Transition Bonds, (iii) rights of
Transition Bondholders to receive payments of principal, premium, if any, and
interest, but only from the amounts deposited with the Bond Trustee for
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such payments, (iv) Sections 4.03 and 4.04, (v) the rights, obligations and
immunities of the Bond Trustee hereunder (including the rights of the Bond
Trustee under Section 6.07 and the obligations of the Bond Trustee under Section
4.03) and (vi) the rights of Transition Bondholders under this Indenture with
respect to the property deposited with the Bond Trustee payable to all or any of
them, shall survive until the Transition Bonds of the Series as to which this
Indenture or certain obligations hereunder have be satisfied and discharged
pursuant to Section 4.01(a) or 4.01(b) and have been paid in full. Thereafter,
the obligations in Sections 6.07 and 4.04 with respect to such Series shall
survive.
SECTION 4.02. Conditions to Defeasance. The Issuer may exercise
the Legal Defeasance Option or the Covenant Defeasance Option with respect to
any Series of Transition Bonds only if:
(a) the Issuer irrevocably deposits or causes to be deposited in
trust with the Bond Trustee cash or U.S. Government Obligations for the
payment of principal of and premium, if any, and interest on such
Transition Bonds to the Expected Payment Date or Redemption Date
therefor, as applicable, such deposit to be made in the Defeasance
Subaccount for such Series of Transition Bonds;
(b) the Issuer delivers to the Bond Trustee a certificate from a
nationally recognized firm of Independent accountants expressing its
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited cash without investment will provide cash at such times and in
such amounts (but, in the case of the Legal Defeasance Option only, not
more than such amounts) as will be sufficient to pay in respect of the
Transition Bonds of such Series (i) subject to clause (ii), principal in
accordance with the Expected Amortization Schedule therefor, (ii) if such
Series is to be redeemed, the Redemption Price therefor on the Redemption
Date therefor and (iii) interest when due;
(c) in the case of the Legal Defeasance Option, 95 days pass after
the deposit is made and during the 95-day period no Default specified in
Section 5.01(v) or (vi) occurs which is continuing at the end of the
period;
(d) no Default has occurred and is continuing on the day of such
deposit and after giving effect thereto;
(e) in the case of the Legal Defeasance Option, the Issuer
delivers to the Bond Trustee an Opinion of Counsel stating that (i) the
Issuer has received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) since the date of execution of this
Indenture, there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such opinion
shall confirm that, the Holders of the Transition Bonds of such Series
will not recognize income, gain or loss for Federal income tax purposes
as a result of the exercise of such Legal Defeasance Option and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance
had not occurred;
(f) in the case of the Covenant Defeasance Option, the Issuer
delivers to the Bond Trustee an Opinion of Counsel to the effect that the
Holders of the Transition Bonds of such Series will not recognize income,
gain or loss for Federal income tax purposes as a result of the exercise
of such Covenant Defeasance Option and will be subject to Federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
and
(g) the Issuer delivers to the Bond Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the satisfaction and
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discharge of the Transition Bonds of such Series to the extent
contemplated by this Article IV have been complied with.
Notwithstanding any other provision of this Section 4.02 to the
contrary, no delivery of cash or U.S. Government Obligations to the Bond Trustee
under this Section shall terminate any obligations of the Issuer under this
Indenture with respect of any Transition Bonds which are to be redeemed prior to
the Expected Final Payment Date therefor until such Transition Bonds shall have
been irrevocably called or designated for redemption on a date thereafter on
which such Transition Bonds may be redeemed in accordance with the provisions of
this Indenture and proper notice of such redemption shall have been given in
accordance with the provisions of this Indenture or the Issuer shall have given
the Bond Trustee, in form satisfactory to the Bond Trustee, irrevocable
instructions to give, in the manner and at the times prescribed herein, notice
of redemption of such Series.
SECTION 4.03. Application of Trust Money. All moneys or U.S.
Government Obligations deposited with the Bond Trustee pursuant to Section 4.01
or 4.02 hereof with respect to any Series of Transition Bonds shall be held in
trust in the Defeasance Subaccount for such Series and applied by it, in
accordance with the provisions of the Transition Bonds and this Indenture, to
the payment, either directly or through any Paying Agent, as the Bond Trustee
may determine, to the Holders of the particular Transition Bonds for the payment
or redemption of which such moneys have been deposited with the Bond Trustee, of
all sums due and to become due thereon for principal, premium, if any, and
interest. Such moneys will be segregated and held apart solely for paying such
Transition Bonds and such Transition Bonds shall not entitled to any amounts on
deposit in the Collection Account other than amounts on deposit in the
Defeasance Subaccount for such Transition Bonds.
SECTION 4.04. Repayment of Moneys Held by Paying Agent. In
connection with the satisfaction and discharge of this Indenture or the Covenant
Defeasance Option or Legal Defeasance Option with respect to the Transition
Bonds of any Series, all moneys then held by any Paying Agent other than the
Bond Trustee under the provisions of this Indenture with respect to such
Transition Bonds shall, upon demand of the Issuer, be paid to the Bond Trustee
to be held and applied according to Section 3.03 and thereupon such Paying Agent
shall be released from all further liability with respect to such moneys.
ARTICLE V
Remedies
SECTION 5.01. Events of Default. "Event of Default" wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) default in the payment of any interest on any Transition Bond
when the same becomes due and payable, and such default shall continue
for a period of five days;
(ii) default in the payment of the then unpaid principal of any
Transition Bond of any Series on the Series Termination Date for such
Series or, if applicable, any Class on the Class Termination Date for
such Class;
(iii) default in the payment of the Redemption Price for any
Transition Bond on the Redemption Date therefor;
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(iv) default in the observance or performance of any covenant
or agreement of the Issuer made in this Indenture (other than a
covenant or agreement, a default in the observance or performance of
which is specifically dealt with in clause (i), (ii) or (iii) above),
and such default shall continue or not be cured, for a period of 30
days after there shall have been given, by registered or certified
mail, to the Issuer by the Bond Trustee or to the Issuer and the Bond
Trustee by the Holders of at least 25% of the Outstanding Amount of the
Transition Bonds of any Series, a written notice specifying such
default or incorrect representation or warranty and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder;
(v) the filing of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Issuer or any
substantial part of the Collateral 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 of the
Issuer or for any substantial part of the Collateral, or ordering the
winding-up or liquidation of the Issuer's affairs, and such decree or
order shall remain unstayed and in effect for a period of 90
consecutive days; or
(vi) the commencement by the Issuer of a voluntary case under
any applicable Federal or state bankruptcy, insolvency or other similar
law now or hereafter in effect, or the consent by the Issuer to the
entry of an order for relief in an involuntary case under any such law,
or the consent by the Issuer to the appointment or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Issuer or for any substantial part of the
Collateral, or the making by the Issuer of any general assignment for
the benefit of creditors, or the failure by the Issuer generally to pay
its debts as such debts become due, or the taking of action by the
Issuer in furtherance of any of the foregoing.
SECTION 5.02. Acceleration of Maturity; Rescission and
Annulment. If an Event of Default occurs and is continuing, then and in every
such case either the Bond Trustee or the Holders of Transition Bonds
representing not less than a majority of the Outstanding Amount of the
Transition Bonds of all Series may, but need not, declare all the Transition
Bonds to be immediately due and payable, by a notice in writing to the Issuer
(and to the Bond Trustee if given by Transition Bondholders), and upon any such
declaration the unpaid principal amount of the Transition Bonds of all Series,
together with accrued and unpaid interest thereon through the date of
acceleration, shall become immediately due and payable.
At any time after such declaration of acceleration of maturity
has been made and before a judgment or decree for payment of the money due has
been obtained by the Bond Trustee as hereinafter in this Article V provided, the
Holders of Transition Bonds representing a majority of the Outstanding Amount of
the Transition Bonds of all Series, by written notice to the Issuer and the Bond
Trustee, may rescind and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Bond Trustee,
for deposit in the General Subaccount of the Collection Account, a sum
sufficient to pay
(A) all payments of principal of and premium, if any,
and interest on all Transition Bonds of all Series and all
other amounts that would then be due hereunder or upon such
Transition Bonds if the Event of Default giving rise to such
acceleration had not occurred; and
(B) all sums paid or advanced by the Bond Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Bond Trustee and its agents
and counsel; and
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(ii) all Events of Default, other than the nonpayment of the
principal of the Transition Bonds of all Series that has become due
solely by such acceleration, have been cured or waived as provided in
Section 5.12.
No such rescission shall affect any subsequent Default or
impair any right consequent thereto.
SECTION 5.03. Collection of Indebtedness and Suits for
Enforcement by Bond Trustee. (a) The Issuer covenants that if (i) Default is
made in the payment of any interest on any Transition Bond when such interest
becomes due and payable and such Default continues for a period of five days,
(ii) Default is made in the payment of the then unpaid principal of any
Transition Bond on the Series Termination Date or Class Termination Date, as
applicable, therefor or (iii) Default is made in the payment of the Redemption
Price or for any Transition Bond on the Redemption Date therefor, the Issuer
will, upon demand of the Bond Trustee, pay to it, for the benefit of the Holders
of the Transition Bonds of such Series, such amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Bond Trustee and its
agents and counsel and the whole amount then due and payable on such Transition
Bonds for principal, premium, if any, and interest, with interest upon the
overdue principal and premium, if any, and, to the extent payment at such rate
of interest shall be legally enforceable, upon overdue instalments of interest,
at the respective Bond Rate of such Series or the applicable Class of such
Series.
(b) In case the Issuer shall fail forthwith to pay the amounts
specified in clause (a) above upon such demand, the Bond Trustee, in its own
name and as trustee of an express trust, may institute a Proceeding for the
collection of the sums so due and unpaid, and may prosecute such Proceeding to
judgment or final decree, and may enforce the same against the Issuer or other
obligor upon such Transition Bonds and collect in the manner provided by law out
of the property of the Issuer or other obligor upon such Transition Bonds,
wherever situated, the moneys adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Bond
Trustee may, as more particularly provided in Section 5.04, in its discretion,
proceed to protect and enforce its rights and the rights of the Transition
Bondholders, by such appropriate Proceedings as the Bond Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy or
legal or equitable right vested in the Bond Trustee by this Indenture or by law
including foreclosing or otherwise enforcing the lien on the Intangible
Transition Property securing the Transition Bonds or applying to the PUC for
sequestration of revenues arising with respect to such Intangible Transition
Property.
(d) In case there shall be pending, relative to the Issuer or
any other obligor upon the Transition Bonds or any Person having or claiming an
ownership interest in the Collateral, Proceedings under Title 11 of the United
States Code or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Issuer or its property or such other
obligor or Person, or in case of any other comparable judicial Proceedings
relative to the Issuer or other obligor upon the Transition Bonds, or to the
creditors or property of the Issuer or such other obligor, the Bond Trustee,
irrespective of whether the principal of any Transition Bonds shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Bond Trustee shall have made any demand pursuant to the
provisions of this Section, shall be entitled and empowered, by intervention in
such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount
of principal, premium, if any, and interest owing and unpaid in respect
of the Transition Bonds and to file such other papers or documents as
may be necessary or advisable in order to have
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the claims of the Bond Trustee (including any claim for reasonable
compensation to the Bond Trustee and each predecessor Bond Trustee,
and their respective agents, attorneys and counsel, and for
reimbursement of all expenses and liabilities incurred, and all
advances made, by the Bond Trustee and each predecessor Bond Trustee,
except as a result of negligence or bad faith) and of the Transition
Bondholders allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to
vote on behalf of the Holders of Transition Bonds in any election of a
trustee, a standby trustee or Person performing similar functions in
any such Proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Transition Bondholders and
of the Bond Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Bond Trustee or the Holders of Transition Bonds allowed in any
judicial proceedings relative to the Issuer, its creditors and its
property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Transition Bondholders
to make payments to the Bond Trustee, and, in the event that the Bond Trustee
shall consent to the making of payments directly to such Transition Bondholders,
to pay to the Bond Trustee such amounts as shall be sufficient to cover
reasonable compensation to the Bond Trustee, each predecessor Bond Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Bond Trustee and each
predecessor Bond Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the
Bond Trustee to authorize or consent to or vote for or accept or adopt on behalf
of any Transition Bondholder any plan of reorganization, arrangement, adjustment
or composition affecting the Transition Bonds or the rights of any Holder
thereof or to authorize the Bond Trustee to vote in respect of the claim of any
Transition Bondholder in any such proceeding except, as aforesaid, to vote for
the election of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this
Indenture, or under any of the Transition Bonds, may be enforced by the Bond
Trustee without the possession of any of the Transition Bonds or the production
thereof in any trial or other Proceedings relative thereto, and any such action
or proceedings instituted by the Bond Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment, subject to the
payment of the expenses, disbursements and compensation of the Bond Trustee,
each predecessor Bond Trustee and their respective agents and attorneys, shall
be for the ratable benefit of the Holders of the Transition Bonds.
(g) In any Proceedings brought by the Bond Trustee (and also
any Proceedings involving the interpretation of any provision of this Indenture
to which the Bond Trustee shall be a party), the Bond Trustee shall be held to
represent all the Holders of the Transition Bonds, and it shall not be necessary
to make any Transition Bondholder a party to any such Proceedings.
SECTION 5.04. Remedies; Priorities. If an Event of Default
occurs and is continuing, the Bond Trustee may do one or more of the following
(subject to Section 5.05):
(i) institute Proceedings in its own name and as trustee of
an express trust for the collection of all amounts then payable on the
Transition Bonds or under this Indenture with respect thereto, whether
by declaration or otherwise, enforce any
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judgment obtained, and collect from the Issuer and any other obligor
upon such Transition Bonds moneys adjudged due;
(ii) institute Proceedings from time to time for the complete
or partial foreclosure of this Indenture with respect to the
Collateral;
(iii) exercise any remedies of a secured party under the UCC or
the Statute or any other applicable law and take any other appropriate
action to protect and enforce the rights and remedies of the Bond
Trustee and the Holders of the Transition Bonds of such Series;
(iv) sell the Collateral or any portion thereof or rights or
interest therein, at one or more public or private sales called and
conducted in any manner permitted by law; and
(v) exercise all rights, remedies, powers, privileges and
claims of the Issuer against the Transferor, the Seller or the Servicer
under or in connection with the Transfer Agreement, the Sale Agreement
or the Servicing Agreement as provided in Section 3.20(b);
provided, however, that the Bond Trustee may not sell or otherwise liquidate any
portion of the Collateral following an Event of Default, other than an Event of
Default described in Section 5.01(i), (ii) or (iii), with respect to any Series
unless (A) the Holders of 100% of the Outstanding Amount of the Transition Bonds
of all Series consent thereto, (B) the proceeds of such sale or liquidation
distributable to the Transition Bondholders of all Series are sufficient to
discharge in full all amounts then due and unpaid upon such Transition Bonds for
principal, premium, if any, and interest or (C) the Bond Trustee determines that
the Collateral will not continue to provide sufficient funds for all payments on
the Transition Bonds of all Series as they would have become due if the
Transition Bonds had not been declared due and payable, and the Bond Trustee
obtains the consent of Holders of 66-2/3% of the Outstanding Amount of the
Transition Bonds of each Series. In determining such sufficiency or
insufficiency with respect to clause (B) and (C), the Bond Trustee may, but need
not, obtain and rely upon an opinion of an Independent investment banking or
accounting firm of national reputation as to the feasibility of such proposed
action and as to the sufficiency of the Collateral for such purpose.
SECTION 5.05. Optional Preservation of the Collateral. If the
Transition Bonds have been declared to be due and payable under Section 5.02
following an Event of Default and such declaration and its consequences have not
been rescinded and annulled, the Bond Trustee may, but need not, elect, as
provided in Section 5.11(iii), to maintain possession of the Collateral and not
sell or liquidate the same. It is the desire of the parties hereto and the
Transition Bondholders that there be at all times sufficient funds for the
payment of principal of and premium, if any, and interest on the Transition
Bonds, and the Bond Trustee shall take such desire into account when determining
whether or not to maintain possession of the Collateral or sell or liquidate the
same. In determining whether to maintain possession of the Collateral or sell or
liquidate the same, the Bond Trustee may, but need not, obtain and rely upon an
opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Collateral for such purpose.
SECTION 5.06. Limitation of Proceedings. No Holder of any
Transition Bond of any Series shall have any right to institute any Proceeding,
judicial or otherwise, or to avail itself of the remedies provided in Section
2812(d)(3)(v) of the Statute, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(i) such Holder has previously given written notice to the
Bond Trustee of a continuing Event of Default;
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(ii) the Holders of not less than 25% of the Outstanding
Amount of the Transition Bonds of each Series have made written request
to the Bond Trustee to institute such Proceeding in respect of such
Event of Default in its own name as Bond Trustee hereunder;
(iii) such Holder or Holders have offered to the Bond Trustee
security or indemnity reasonably satisfactory to the Bond Trustee
against the costs, expenses and liabilities to be incurred in complying
with such request;
(iv) the Bond Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute such
Proceedings; and
(v) no direction inconsistent with such written request has
been given to the Bond Trustee during such 60-day period by the Holders
of a majority of the Outstanding Amount of the Transition Bonds of all
Series;
it being understood and intended that no one or more Holders of Transition Bonds
shall have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Transition Bonds or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
except in the manner herein provided.
In the event the Bond Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of
Transition Bonds, each representing less than a majority of the Outstanding
Amount of the Transition Bonds of all Series, the Bond Trustee in its sole
discretion may determine what action, if any, shall be taken, notwithstanding
any other provisions of this Indenture.
SECTION 5.07. Unconditional Rights of Transition Bondholders
To Receive Principal, Premium, if any, and Interest. Notwithstanding any other
provisions in this Indenture, the Holder of any Transition Bond shall have the
right, which is absolute and unconditional, (a) to receive payment of (i) the
interest, if any, on such Transition Bond on or after the due dates thereof
expressed in such Transition Bond or in this Indenture, (ii) the unpaid
principal, if any, of such Transition Bonds on or after the Series Termination
Date or Class Termination Date therefor or (iii) in the case of redemption,
receive payment of the unpaid principal, if any, of and premium, if any, and
interest, if any, on such Transition Bond on or after the Redemption Date
therefor and (b) to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.
SECTION 5.08. Restoration of Rights and Remedies. If the Bond
Trustee or any Transition Bondholder has instituted any Proceeding to enforce
any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason or has been determined adversely to the
Bond Trustee or to such Transition Bondholder, then and in every such case the
Issuer, the Bond Trustee and the Transition Bondholders shall, subject to any
determination in such Proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Bond Trustee and the Transition Bondholders shall continue as though no such
Proceeding had been instituted.
SECTION 5.09. Rights and Remedies Cumulative. No right or
remedy herein conferred upon or reserved to the Bond Trustee or to the
Transition Bondholders is intended to be exclusive of any other right or remedy,
and every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
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SECTION 5.10. Delay or Omission Not a Waiver. No delay or
omission of the Bond Trustee or any Transition Bondholder to exercise any right
or remedy accruing upon any Default or Event of Default shall impair any such
right or remedy or constitute a waiver of any such Default or Event of Default
or an acquiescence therein. Every right and remedy given by this Article V or by
law to the Bond Trustee or to the Transition Bondholders may be exercised from
time to time, and as often as may be deemed expedient, by the Bond Trustee or by
the Transition Bondholders, as the case may be.
SECTION 5.11. Control by Transition Bondholders. The Holders
of a majority of the Outstanding Amount of the Transition Bonds of all Series
(or, if less than all Series or Classes are affected, the affected Series or
Class or Classes) shall have the right to direct the time, method and place of
conducting any Proceeding for any remedy available to the Bond Trustee with
respect to the Transition Bonds of such Series or Class or Classes or exercising
any trust or power conferred on the Bond Trustee with respect to such Series or
Class or Classes; provided that
(i) such direction shall not be in conflict with any rule of
law or with this Indenture;
(ii) subject to the express terms of Section 5.04, any
direction to the Bond Trustee to sell or liquidate the Collateral shall
be by the Holders of Transition Bonds representing not less than 100%
of the Outstanding Amount of the Transition Bonds of all Series;
(iii) if the conditions set forth in Section 5.05 have been
satisfied and the Bond Trustee elects to retain the Collateral pursuant
to such Section and not sell or liquidate the same, then any direction
to the Bond Trustee by Holders of Transition Bonds representing less
than 100% of the Outstanding Amount of the Transition Bonds of all
Series to sell or liquidate the Collateral shall be of no force and
effect; and
(iv) the Bond Trustee may take any other action deemed proper
by the Bond Trustee that is not inconsistent with such direction;
provided, however, that, subject to Section 6.01, the Bond Trustee need not take
any action that it determines might involve it in liability or might materially
adversely affect the rights of any Transition Bondholders not consenting to such
action.
SECTION 5.12. Waiver of Past Defaults. Prior to the
declaration of the acceleration of the maturity of the Transition Bonds of all
Series as provided in Section 5.02, the Holders of not less than a majority of
the Outstanding Amount of the Transition Bonds of all Series may waive any past
Default or Event of Default and its consequences except a Default (i) in payment
of principal of or premium, if any, or interest on any of the Transition Bonds
or (ii) in respect of a covenant or provision hereof which cannot be modified or
amended without the consent of the Holder of each Transition Bond of all Series
or Classes affected. In the case of any such waiver, the Issuer, the Bond
Trustee and the Holders of the Transition Bonds shall be restored to their
former positions and rights hereunder, respectively; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereto.
Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured and not to have occurred,
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereto.
SECTION 5.13. Undertaking for Costs. All parties to this
Indenture agree, and each Holder of any Transition Bond by such Holder's
acceptance thereof shall be deemed to have
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agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Bond Trustee for any action taken, suffered or omitted by it as Bond
Trustee, the filing by any party litigant in such suit of an undertaking to pay
the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to (a) any suit instituted by the Bond Trustee, (b) any
suit instituted by any Transition Bondholder, or group of Transition
Bondholders, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Transition Bonds of a Series or (c) any suit
instituted by any Transition Bondholder for the enforcement of the payment of
(i) interest on any Transition Bond on or after the due dates expressed in such
Transition Bond and in this Indenture, (ii) the unpaid principal, if any, of any
Transition Bond on or after the Series Termination Date or Class Termination
Date, if applicable, therefor or (iii) in the case of redemption, the unpaid
principal of and premium, if any, and interest on any Transition Bond on or
after the Redemption Date therefor.
SECTION 5.14. Waiver of Stay or Extension Laws. The Issuer
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead or in any manner whatsoever, claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, that may affect the covenants or the performance of
this Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Bond Trustee, but will suffer and permit the execution of every such power
as though no such law had been enacted.
SECTION 5.15. Action on Transition Bonds. The Bond Trustee's
right to seek and recover judgment on the Transition Bonds or under this
Indenture shall not be affected by the seeking, obtaining or application of any
other relief under or with respect to this Indenture. Neither the lien of this
Indenture nor any rights or remedies of the Bond Trustee or the Transition
Bondholders shall be impaired by the recovery of any judgment by the Bond
Trustee against the Issuer or by the levy of any execution under such judgment
upon any portion of the Collateral or upon any of the assets of the Issuer.
ARTICLE VI
The Bond Trustee
SECTION 6.01. Duties and Liabilities of Bond Trustee. (a) If
an Event of Default has occurred and is continuing, the Bond Trustee shall
exercise the rights and powers vested in it by this Indenture and use the same
degree of care and skill in their exercise as a prudent Person would exercise or
use under the circumstances in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Bond Trustee undertakes to perform such duties and
only such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Bond Trustee; and
(ii) in the absence of bad faith on its part, the Bond Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Bond Trustee and conforming to the
requirements of this Indenture.
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(c) The Bond Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Bond Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is
proved that the Bond Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Bond Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.11.
(d) Every provision of this Indenture that in any way relates
to the Bond Trustee is subject to paragraphs (a), (b) and (c) of this Section
6.01.
(e) The Bond Trustee shall not be liable for interest on any
money received by it except as the Bond Trustee may agree in writing with the
Issuer.
(f) Money held in trust by the Bond Trustee need not be
segregated from other funds except to the extent required by law or the terms of
this Indenture or the Transfer Agreement, the Sale Agreement or the Servicing
Agreement.
(g) No provision of this Indenture shall require the Bond
Trustee to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise of any of
its rights or powers, if it shall have reasonable grounds to believe that
repayments of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Bond Trustee shall
be subject to the provisions of this Section and to the provisions of the TIA.
(i) Under no circumstances shall the Bond Trustee be liable
for any indebtedness evidenced by or arising under the Transition Bonds or any
Basic Document.
SECTION 6.02. Rights of Bond Trustee. (a) The Bond Trustee
may rely on any document believed by it to be genuine and to have been signed or
presented by the proper Person. The Bond Trustee need not investigate any fact
or matter stated in the document.
(b) Before the Bond Trustee acts or refrains from acting, it
may require an Officer's Certificate or an Opinion of Counsel. The Bond Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on an Officer's Certificate or an Opinion of Counsel.
(c) The Bond Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Bond Trustee shall not be
responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Bond Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; provided, however, that the Bond Trustee's conduct
does not constitute wilful misconduct, negligence or bad faith.
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(e) The Bond Trustee may consult with counsel, and the advice
or opinion of counsel with respect to legal matters relating to this Indenture
and the Transition Bonds shall be full and complete authorization and protection
from liability in respect to any action taken, omitted or suffered by it
hereunder in good faith and in accordance with the advice or opinion of such
counsel.
SECTION 6.03. Individual Rights of Bond Trustee. The Bond
Trustee in its individual or any other capacity may become the owner or pledgee
of Transition Bonds and may otherwise deal with the Issuer or its affiliates
with the same rights it would have if it were not Bond Trustee. Any Paying
Agent, Transition Bond Registrar, co-registrar or co-paying agent may do the
same with like rights. However, the Bond Trustee must comply with Sections 6.11
and 6.12.
SECTION 6.04. Bond Trustee's Disclaimer. The Bond Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Transition Bonds. The Bond Trustee shall not
be accountable for the Issuer's use of the proceeds from the Transition Bonds,
and the Bond Trustee shall not be responsible for any statement of the Issuer in
the Indenture or in any document issued in connection with the sale of the
Transition Bonds or in the Transition Bonds other than the Bond Trustee's
certificate of authentication. The Bond Trustee shall not be responsible for the
form, character, genuineness, sufficiency, value or validity of any of the
Collateral, or for or in respect of the validity or sufficiency of the
Transition Bonds (other than the certificate of authentication for the
Transition Bonds) or the Basic Documents and the Bond Trustee shall in no event
assume or incur any liability, duty or obligation to any Holder of a Transition
Bond, other than is expressly provided for in this Indenture. The Bond Trustee
shall not be liable for the default or misconduct of the Issuer, the Transferor,
the Seller or the Servicer under any Basic Document or otherwise and the Bond
Trustee shall have no obligation or liability to perform the obligations of the
Issuer.
SECTION 6.05. Notice of Defaults. If a Default occurs and is
continuing with respect to any Series and if it is known to a Responsible
Officer of the Bond Trustee, the Bond Trustee shall mail to each Holder of
Transition Bonds of all Series notice of the Default within 90 days after it
occurs. Except in the case of a Default in payment of principal of or premium,
if any, or interest on any Transition Bond, the Bond Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of Transition
Bondholders.
SECTION 6.06. Reports by Bond Trustee to Holders. (a) The Bond
Trustee shall deliver to each Holder of Transition Bonds such information as may
be required to enable such Holder to prepare its Federal and state income tax
returns.
(b) With respect to each Series of Transition Bonds, on or
prior to each Payment Date therefor, the Bond Trustee will deliver a statement
prepared by the Bond Trustee to each Holder of Transition Bonds which will
include (to the extent applicable) the following information (and any other
information so specified in the Series Supplement for such Series) as to the
Transition Bonds of such Series with respect to such Payment Date or the period
since the previous Payment Date, as applicable:
(i) the amount paid to Holders of such Transition Bonds in
respect of principal, such amount to be expressed as a dollar amount
per thousand;
(ii) the amount paid to Holders of such Transition Bonds in
respect of interest, such amount to be expressed as a dollar amount per
thousand;
(iii) the Transition Bond Balance and the Projected Transition
Bond Balance, in each case for such Series and as of the most recent
Payment Date;
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(iv) the amount on deposit in the Overcollateralization
Subaccount and the Calculated Overcollateralization Level, in each case
for all Series and as of the most recent Payment Date;
(v) the amount on deposit in the Capital Subaccount and the
Required Capital Amount, in each case as of the most recent Payment
Date; and
(vi) the amount, if any, on deposit in the Reserve Subaccount
as of the most recent Payment Date.
(c) The Bond Trustee's responsibility for disbursing the
information described in subsection (b) above to Holders of Transition Bonds is
limited to the availability, timeliness and accuracy of the information provided
by the Servicer pursuant to Section 3.04 and Annex 1 of the Servicing Agreement.
SECTION 6.07. Compensation and Indemnity. The Issuer shall pay
to the Bond Trustee from time to time reasonable compensation for its services.
The Bond Trustee's compensation shall not be limited by any law on compensation
of a trustee of an express trust. The Issuer shall reimburse the Bond Trustee
for all reasonable out-of-pocket expenses, disbursements and advances incurred
or made by it, including costs of collection, in addition to the compensation
for its services. Such expenses shall include the reasonable compensation and
expenses, disbursements and advances of the Bond Trustee's agents, counsel,
accountants and experts. The Issuer shall indemnify and hold harmless the Bond
Trustee from and against any and all costs, damages, expenses, losses,
liabilities or other amounts whatsoever (including counsel fees) incurred by the
Bond Trustee in connection with the administration of this trust, the
enforcement of this trust and all of the Bond Trustee's rights, powers and
duties under this Indenture and the performance by the Bond Trustee of the
duties and obligations of the Bond Trustee under or pursuant to this Indenture.
The Bond Trustee shall notify the Issuer promptly of any claim for which it may
seek indemnity. Failure by the Bond Trustee to so notify the Issuer shall not
relieve the Issuer of its obligations hereunder. The Issuer shall defend the
claim and the Bond Trustee may have separate counsel and the Issuer shall pay
the fees and expenses of such counsel. The Issuer need not reimburse any expense
or indemnify against any loss, liability or expense incurred by the Bond Trustee
(i) through the Bond Trustee's own wilful misconduct, negligence or bad faith or
(ii) to the extent the Bond Trustee was reimbursed for or indemnified against
any such loss, liability or expense by the Transferor pursuant to the Transfer
Agreement, the Seller pursuant to the Sale Agreement or by the Servicer pursuant
to the Servicing Agreement.
When the Bond Trustee incurs expenses after the occurrence of
a Default specified in Section 5.01(v) or (vi) with respect to the Issuer, the
expenses are intended to constitute expenses of administration under Title 11 of
the United States Code or any other applicable Federal or state bankruptcy,
insolvency or similar law.
SECTION 6.08. Replacement of Bond Trustee. The Bond Trustee
may resign at any time by so notifying the Issuer. The Holders of a majority in
Outstanding Amount of the Transition Bonds of all Series may remove the Bond
Trustee by so notifying the Issuer and the Bond Trustee and may appoint a
successor Bond Trustee. The Issuer shall remove the Bond Trustee if:
(i) the Bond Trustee fails to comply with Section 6.11;
(ii) the Bond Trustee is adjudged a bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the
Bond Trustee or its property; or
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(iv) the Bond Trustee otherwise becomes incapable of acting.
If the Bond Trustee resigns or is removed or if a vacancy
exists in the office of Bond Trustee for any reason (the Bond Trustee in such
event being referred to herein as the "Retiring Bond Trustee"), the Issuer shall
promptly appoint a successor Bond Trustee.
A successor Bond Trustee shall deliver a written acceptance of
its appointment to the Retiring Bond Trustee and to the Issuer. Thereupon the
resignation or removal of the Retiring Bond Trustee shall become effective, and
the successor Bond Trustee shall have all the rights, powers and duties of the
Bond Trustee under this Indenture. The successor Bond Trustee shall mail a
notice of its succession to Transition Bondholders. The Retiring Bond Trustee
shall promptly transfer all property held by it as Bond Trustee to the successor
Bond Trustee.
If a successor Bond Trustee does not take office within 60
days after the Retiring Bond Trustee resigns or is removed, the Retiring Bond
Trustee, the Issuer or the Holders of a majority in Outstanding Amount of the
Transition Bonds of all Series may petition any court of competent jurisdiction
for the appointment of a successor Bond Trustee.
If the Bond Trustee fails to comply with Section 6.11, any
Transition Bondholder may petition any court of competent jurisdiction for the
removal of the Bond Trustee and the appointment of a successor Bond Trustee.
The Issuer shall promptly furnish written notification of the
appointment of any successor Bond Trustee pursuant to this Section 6.08 to each
of the Rating Agencies.
Notwithstanding the replacement of the Bond Trustee pursuant
to this Section 6.08, the Issuer's obligations under Section 6.07 shall continue
for the benefit of the Retiring Bond Trustee.
SECTION 6.09. Successor Bond Trustee by Merger. If the Bond
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation or
banking association shall, without any further act, be the successor Bond
Trustee. The Issuer shall promptly furnish written notification of any such
successor Bond Trustee to each of the Rating Agencies.
In case at the time such successor or successors by merger,
conversion consolidation or transfer shall succeed to the trusts created by this
Indenture any of the Transition Bonds shall have been authenticated but not
delivered, any such successor to the Bond Trustee may adopt the certificate of
authentication of any Retiring Bond Trustee, and deliver such Transition Bonds
so authenticated; and in case at that time any of the Transition Bonds shall not
have been authenticated, any successor to the Bond Trustee may authenticate such
Transition Bonds either in the name of any Retiring Bond Trustee hereunder or in
the name of the successor to the Bond Trustee; and in all such cases such
certificates shall have the full force which it is anywhere in the Transition
Bonds or in this Indenture provided that the certificate of the Bond Trustee
shall have.
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Indenture, at any time, for the
purpose of meeting any legal requirement of any jurisdiction in which any part
of the Collateral may at the time be located, the Bond Trustee shall have the
power and may execute and deliver all instruments to appoint one or more Persons
to act as a co-trustee or co-trustees, or separate trustee or separate trustees,
of all or any part of the Collateral, and to vest in such Person or Persons, in
such capacity and for the benefit of the Transition Bondholders, such title to
the Collateral, or any part hereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the Bond Trustee
may consider necessary or desirable. No co-trustee or
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separate trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 6.11 and no notice to Transition Bondholders
of the appointment of any co-trustee or separate trustee shall be required under
Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Bond Trustee shall be conferred or imposed upon and
exercised or performed by the Bond Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Bond Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
the Bond Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Collateral or any portion
thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the
direction of the Bond Trustee;
(ii) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder; and
(iii) the Bond Trustee may at any time accept the resignation
of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Bond
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Indenture and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Bond Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Bond Trustee. Every such instrument shall be filed with the
Bond Trustee.
(d) Any separate trustee or co-trustee may at any time
constitute the Bond Trustee, its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Bond Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
SECTION 6.11. Eligibility; Disqualification. The Bond Trustee
shall at all times satisfy the requirements of TIA Section 310(a). The Bond
Trustee shall have a combined capital and surplus of at least $50,000,000 as set
forth in its most recent published annual report of condition and it shall have
a long term debt rating of "Baa3" or better by Moody's and "BBB-" by Fitch IBCA
(if currently rated by Fitch IBCA). The Bond Trustee shall comply with TIA
Section 310(b), including the optional provision permitted by the second
sentence of TIA Section 310(b)(9); provided, however, that there shall be
excluded from the operation of TIA Section 310(b)(1) any indenture or indentures
under which other securities of the Issuer are outstanding if the requirements
for such exclusion set forth in TIA Section 310(b)(1) are met.
SECTION 6.12. Preferential Collection of Claims Against
Issuer. The Bond Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Bond Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated.
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ARTICLE VII
Transition Bondholders' Lists and Reports
SECTION 7.01. Issuer To Furnish Bond Trustee Names and
Addresses of Transition Bondholders. The Issuer will furnish or cause to be
furnished to the Bond Trustee (a) not more than five days after the earlier of
(i) each Record Date with respect to each Series and (ii) three months after the
last Record Date with respect to each Series, a list, in such form as the Bond
Trustee may reasonably require, of the names and addresses of the Holders of
Transition Bonds of such Series as of such Record Date, (b) at such other times
as the Bond Trustee may request in writing, within 30 days after receipt by the
Issuer of any such request, a list of similar form and content as of a date not
more than 10 days prior to the time such list is furnished; provided, however,
that so long as the Bond Trustee is the Transition Bond Registrar, no such list
shall be required to be furnished.
SECTION 7.02. Preservation of Information; Communications to
Transition Bondholders. (a) The Bond Trustee shall preserve, in as current a
form as is reasonably practicable, the names and addresses of the Holders of
Transition Bonds contained in the most recent list furnished to the Bond Trustee
as provided in Section 7.01 and the names and addresses of Holders of Transition
Bonds received by the Bond Trustee in its capacity as Transition Bond Registrar.
The Bond Trustee may destroy any list furnished to it as provided in such
Section 7.01 upon receipt of a new list so furnished.
(b) Transition Bondholders may communicate pursuant to TIA
Section 312(b) with other Transition Bondholders with respect to their rights
under this Indenture or under the Transition Bonds.
(c) The Issuer, the Bond Trustee and the Transition Bond
Registrar shall have the protection of TIA Section 312(c).
SECTION 7.03. Reports by Issuer. (a) The Issuer shall:
(i) file with the Bond Trustee, within 15 days after the
Issuer is required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may
from time to time by rules and regulations prescribe) which the Issuer
may be required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act;
(ii) file with the Bond Trustee and the Commission in
accordance with rules and regulations prescribed from time to time by
the Commission such additional information, documents and reports with
respect to compliance by the Issuer with the conditions and covenants
of this Indenture as may be required from time to time by such rules
and regulations; and
(iii) supply to the Bond Trustee (and the Bond Trustee shall
transmit by mail to all Transition Bondholders described in TIA Section
313(c)) such summaries of any information, documents and reports
required to be filed by the Issuer pursuant to clauses (i) and (ii) of
this Section 7.03(a) as may be required by rules and regulations
prescribed from time to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of
the Issuer shall end on December 31 of each year.
SECTION 7.04. Reports by Bond Trustee. If required by TIA
Section 313(a), within 60 days after January 1st of each year, commencing with
the year after the issuance of the
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Transition Bonds of any Series, the Bond Trustee shall mail to each Holder of
Transition Bonds of such Series as required by TIA Section 313(c) a brief report
dated as of such date that complies with TIA Section 313(a). The Bond Trustee
also shall comply with TIA Section 313(b); provided, however, that the initial
report so issued shall be delivered not more than 12 months after the initial
issuance of each Series.
A copy of each report at the time of its mailing to Transition
Bondholders shall be filed by the Bond Trustee with the Commission and each
stock exchange, if any, on which the Transition Bonds are listed. The Issuer
shall notify the Bond Trustee if and when the Transition Bonds are listed on any
stock exchange.
SECTION 7.05. Provision of Servicer Reports. Upon the written
request of any Transition Bondholder to the Bond Trustee addressed to the
Corporate Trust Office, the Bond Trustee shall provide such Transition
Bondholder with a copy of the Officer's Certificate referred to in Section 3.05
of the Servicing Agreement and the Annual Accountant's Report referred to in
Section 3.06 of the Servicing Agreement.
ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.01. Collection of Money. Except as otherwise
expressly provided herein, the Bond Trustee may demand payment or delivery of,
and shall receive and collect, directly and without intervention or assistance
of any fiscal agent or other intermediary, all money and other property payable
to or receivable by the Bond Trustee pursuant to this Indenture. The Bond
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Collateral, the Bond Trustee may take such action as may be
appropriate to enforce such payment or performance, including the institution
and prosecution of appropriate Proceedings. Any such action shall be without
prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
SECTION 8.02. Collection Account. (a) On or prior to the
Series Issuance Date for the first Series issued hereunder, the Issuer shall
open, at the Bond Trustee's Corporate Trust Office, or at another Eligible
Institution, one or more segregated trust accounts in the Bond Trustee's name
(collectively, the "Collection Account"). The Collection Account will initially
be divided into subaccounts, which need not be separate bank accounts: a general
subaccount (the "General Subaccount"), an Overcollateralization subaccount (the
"Overcollateralization Subaccount"), a capital subaccount (the "Capital
Subaccount") and a reserve subaccount (the "Reserve Subaccount"). Prior to
depositing funds or U.S. Government Obligations in the Collection Account
pursuant to Sections 4.01 or 4.02, the Issuer shall establish defeasance
subaccounts (each a "Defeasance Subaccount") for each Series for which funds
shall be deposited, as subaccounts of the Collection Account. Prior to any Loss
Amounts being deposited in the Collection Account, the Issuer shall establish a
loss subaccount (the "Loss Subaccount") as a subaccount of the Collection
Account. All amounts in the Collection Account not allocated to any other
subaccount shall be allocated to the General Subaccount. All references to the
Collection Account shall be deemed to include reference to all subaccounts
contained therein. Withdrawals from and deposits to each of the foregoing
subaccounts of the Collection Account shall be made as set forth in Sections
4.01, 4.02, 4.03 and 8.02(c), (d), (e) and (f). The Collection Account shall at
all times be maintained in an Eligible Deposit Account and only the Bond Trustee
shall have access to the Collection Account for the purpose of making deposits
in and withdrawals from the Collection Account in accordance with this
Indenture. Funds in the Collection Account shall not be commingled with any
other moneys. All moneys deposited from time to time in the Collection Account,
all deposits therein pursuant to this Indenture, and all
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investments made in Eligible Investments with such moneys, including all income
or other gain from such investments, shall be held by the Bond Trustee in the
Collection Account as part of the Collateral as herein provided.
(b) So long as no Default or Event of Default has occurred and
is continuing, all or a portion of the funds in the Collection Account shall be
invested in Eligible Investments and reinvested by the Bond Trustee upon Issuer
Order; provided, however, that (i) such Eligible Investments shall not mature
later than the Business Day prior to the next Payment Date for such Series or
Class, (ii) such Eligible Investments shall not be sold, liquidated or otherwise
disposed of at a loss prior to the maturity thereof, and (iii) no funds in the
Defeasance Subaccount for any Series of Transition Bonds shall be invested in
Eligible Investments or otherwise, except that U.S. Government Obligations
deposited by the Issuer with the Bond Trustee pursuant to Sections 4.01 or 4.02
shall remain as such. All income or other gain from investments of moneys
deposited in the Collection Account shall be deposited by the Bond Trustee in
the Collection Account, and any loss resulting from such investments shall be
charged to the Collection Account. The Issuer will not direct the Bond Trustee
to make any investment of any funds or to sell any investment held in the
Collection Account unless the security interest granted and perfected in such
account will continue to be perfected in such investment or the proceeds of such
sale, in either case without any further action by any Person, and, in
connection with any direction to the Bond Trustee to make any such investment or
sale, if requested by the Bond Trustee, the Issuer shall deliver to the Bond
Trustee an Opinion of Counsel, acceptable to the Bond Trustee, to such effect.
Subject to Section 6.01(c), the Bond Trustee shall not in any way be held liable
for the selection of Eligible Investments or for investment losses incurred
thereon except for losses attributable to the Bond Trustee's failure to make
payments on such Eligible Investments issued by the Bond Trustee, in its
commercial capacity as principal obligor and not as Bond Trustee, in accordance
with their terms. The Bond Trustee shall have no liability in respect of losses
incurred as a result of the liquidation of any Eligible Investment prior to its
stated maturity or the failure of the Issuer to provide timely written
investment direction. The Bond Trustee shall have no obligation to invest or
reinvest any amounts held hereunder in the absence of written investment
direction pursuant to an Issuer Order, however, if (i) the Issuer shall have
failed to give investment directions for any funds on deposit in the Collection
Account to the Bond Trustee by 11:00 a.m. Eastern Time (or such other time as
may be agreed by the Issuer and Bond Trustee) on any Business Day; or (ii) a
Default or Event of Default shall have occurred and be continuing but the
Transition Bonds shall not have been declared due and payable pursuant to
Section 5.02; then the Bond Trustee shall, to the fullest extent practicable,
invest and reinvest funds in the Collection Account in one or more Eligible
Investments.
(c) ITC Collections remitted by the Servicer to the Bond
Trustee, any Deferred Repurchase Price remitted by the Transferor to the Bond
Trustee and Indemnity Amounts remitted to the Bond Trustee by the Transferor,
the Seller or the Servicer or otherwise received by the Bond Trustee or the
Issuer shall be deposited in the General Subaccount. Loss Amounts remitted by
the Transferor or the Seller to the Bond Trustee shall be deposited in the Loss
Subaccount.
(d) On each Payment Date, the Bond Trustee shall by 12:00 noon
(New York City time) apply all amounts on deposit in the General Subaccount of
the Collection Account and any investment earnings on each of the subaccounts of
the Collection Account in the following priority:
(i) all amounts owed to the Bond Trustee (including legal
fees and expenses, Indemnity Amounts and Loss Amounts) shall be paid to
the Bond Trustee;
(ii) the Servicing Fee and all unpaid Servicing Fees from
prior Payment Dates shall be paid to the Servicer;
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(iii) the fees owed to the Administrative Agent under the
Administration Agreements shall be paid to the Administrative Agent;
(iv) so long as no Event of Default has occurred and is
continuing or would be caused by such payment, all Operating Expenses
other than (i), (ii) and (iii) above shall be paid to the Persons
entitled thereto, provided that the amount paid on any Payment Date
pursuant to this clause (iv) may not exceed $[12,500] in the aggregate
for all Series;
(v) interest due and payable on the Transition Bonds,
together with any overdue interest at the applicable Bond Rate and, to
the extent permitted by law, interest thereon, will be paid to the
Transition Bondholders;
(vi) any principal of any Series or Class of Transition Bonds
payable as a result of acceleration pursuant to Section 5.02, any
principal of any Series or Class of Transition Bonds payable on a
Series Termination Date or Class Termination Date, as applicable, and
any principal of and premium on a Series or Class of Transition Bonds
payable on a Redemption Date shall be paid to the Transition
Bondholders;
(vii) an amount up to the principal amount of the Transition
Bonds that is scheduled to be paid by such Payment Date in accordance
with the Expected Amortization Schedule shall be paid to the Transition
Bondholders in respect of principal on the Transition Bonds;
(viii) all unpaid Operating Expenses, Indemnity Amounts and Loss
Amounts shall be paid to the Persons entitled thereto;
(ix) an amount, if any, necessary to fund the balance of the
Capital Subaccount up to the Required Capital Amount shall be
transferred to the Capital Subaccount;
(x) Overcollateralization with respect to all Series of
Transition Bonds for such Payment Date shall be transferred to the
Overcollateralization Subaccount;
(xi) the balance, if any, will be allocated to the Reserve
Subaccount; and
(xii) following repayment of all outstanding Series of
Transition Bonds, the balance, if any, will be released to the Issuer,
free from the lien of this Indenture.
If, on any Payment Date funds on deposit in the General
Subaccount are insufficient to make the payments or transfers contemplated by
clauses (i) through (x) above, the Bond Trustee will draw from amounts on
deposit in the following subaccounts up to the amount of such shortfall, in
order to make such payments and transfers:
(i) from the Loss Subaccount, with respect to the payments or
transfers contemplated by clauses (i) through (viii) above only; and
(ii) thereafter, from the Reserve Subaccount, then from the
Overcollateralization Subaccount and finally from the Capital
Subaccount.
All payments to the Transition Bondholders of a Series
pursuant to clauses (v) or (vi) of the first paragraph of Section 8.02(d) shall
be made pro rata based on the respective principal amounts of Transition Bonds
of such Series held by such Holders, unless, in the case of a Series comprised
of two or more Classes, the Series Supplement for such Series provides
otherwise. All payments to Transition Bondholders of a Class pursuant to clause
(v) or (vi) of the first paragraph of Section 8.02(d) shall be made pro rata
based on the respective principal amounts of Transition Bonds of such Class held
by such Holders.
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SECTION 8.03. Release of Collateral. (a) All money and other
property withdrawn from the Collection Account by the Bond Trustee for payment
to the Issuer as provided in this Indenture in accordance with Section 8.02
hereof shall be deemed released from the Indenture when so withdrawn and applied
in accordance with the provisions of Article VIII, without further notice to, or
release or consent by, the Bond Trustee.
(b) So long as the Issuer is not in default hereunder, the
Issuer, through the Servicer, may collect, liquidate, sell or otherwise dispose
of the Transferred Intangible Transition Property, at any time and from time to
time, without any notice to, or release or consent by, the Bond Trustee, but
only as and to the extent permitted by the Basic Documents; provided, however,
that any and all proceeds of such dispositions shall become Collateral and be
deposited to the General Subaccount immediately upon receipt thereof by the
Issuer or any other Person, including the Servicer.
(c) Other than as provided for in clauses (a) and (b) above,
the Bond Trustee shall release property from the lien of this Indenture only
upon receipt of an Issuer Request accompanied by an Officer's Certificate, an
Opinion of Counsel and Independent Certificates in accordance with TIA Sections
314(c) and 314(d)(1) meeting the applicable requirements of Section 11.01 or an
Opinion of Counsel in lieu of such Independent Certificates to the effect that
the TIA does not require any such Independent Certificate.
(d) Subject to the payment of its fees and expenses pursuant
to Section 6.07, the Bond Trustee may, and when required by the provisions of
this Indenture shall, execute instruments to release property from the lien of
this Indenture, or convey the Bond Trustee's interest in the same, in a manner
and under circumstances that are not inconsistent with the provisions of this
Indenture. No party relying upon an instrument executed by the Bond Trustee as
provided in this Article VIII shall be bound to ascertain the Bond Trustee's
authority, inquire into the satisfaction of any conditions precedent or see to
the application of any moneys.
(e) Subject to Section 8.03(c), the Bond Trustee shall, at
such time as there are no Transition Bonds Outstanding and all sums due the Bond
Trustee pursuant to Section 6.07 have been paid, release any remaining portion
of the Collateral that secured the Transition Bonds from the lien of this
Indenture and release to the Issuer or any other Person entitled thereto any
funds then on deposit in the Collection Account.
SECTION 8.04. Opinion of Counsel. The Bond Trustee shall
receive at least five Business Days notice when requested by the Issuer to take
any action pursuant to Section 8.03, accompanied by copies of any instruments
involved, and the Bond Trustee shall also require, as a condition to such
action, an Opinion of Counsel, in form and substance satisfactory to the Bond
Trustee, stating the legal effect of any such action, outlining the steps
required to complete the same, and concluding that all conditions precedent to
the taking of such action have been complied with and such action will not
materially and adversely impair the security for the Transition Bonds
or the rights of the Transition Bondholders in contravention of the provisions
of this Indenture; provided, however, that such Opinion of Counsel shall not be
required to express an opinion as to the fair value of the Collateral. Counsel
rendering any such opinion may rely, without independent investigation, on the
accuracy and validity of any certificate or other instrument delivered to the
Bond Trustee in connection with any such action.
SECTION 8.05. Reports by Independent Accountants. The Issuer
shall appoint a firm of Independent certified public accountants of recognized
national reputation for purposes of preparing and delivering the reports or
certificates of such accountants required by this Indenture and the related
Series Supplements. Upon any resignation by such firm the Issuer shall promptly
appoint a successor thereto that shall also be a firm of Independent certified
public accountants of recognized national reputation. If the Issuer shall fail
to appoint a successor to a firm of Independent certified public accountants
that has resigned within 15 days after such resignation, the Bond Trustee shall
promptly notify the Issuer of such failure in
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writing. If the Issuer shall not have appointed a successor within 10 days
thereafter the Bond Trustee shall promptly appoint a successor firm of
Independent certified public accountants of recognized national reputation. The
fees of such firm of Independent certified public accountants and its successor
shall be payable by the Issuer.
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of
Transition Bondholders. (a) Without the consent of the Holders of any Transition
Bonds but with prior notice to the Rating Agencies, the Issuer and the Bond
Trustee, when authorized by an Issuer Order, at any time and from time to time,
may enter into one or more indentures supplemental hereto (which shall conform
to the provisions of the Trust Indenture Act as in force at the date of the
execution thereof), in form satisfactory to the Bond Trustee, for any of the
following purposes:
(i) to correct or amplify the description of the Collateral,
or to better assure, convey and confirm unto the Bond Trustee the
Collateral, or to subject to the lien of this Indenture additional
property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Transition Bonds contained;
(iii) to add to the covenants of the Issuer, for the benefit of
the Holders of the Transition Bonds, or to surrender any right or power
herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Bond Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture which may be
inconsistent with any other provision herein or in any supplemental
indenture or to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental
indenture; provided, however, that (i) such action shall not, as
evidenced by an Opinion of Counsel, adversely affect in any material
respect the interests of any Transition Bondholder and (ii) the Rating
Agency Condition shall have been satisfied with respect thereto by all
Rating Agencies other than Moody's (and prior written notice of such
action shall be provided to Moody's);
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor bond trustee with respect to the
Transition Bonds and to add to or change any of the provisions of this
Indenture as shall be necessary to facilitate the administration of the
trusts hereunder by more than one bond trustee, pursuant to the
requirements of Article VI;
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
Federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA;
(viii) to set forth the terms of any Series that has not
theretofore been authorized by a Series Supplement; or
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(ix) to provide for any hedge or swap transactions with
respect to any floating rate Series or Class of Transition Bonds or any
Series or Class specific credit enhancement; provided, however, that
(i) such action shall not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of any
Transition Bondholder and (ii) the Rating Agency Condition shall have
been satisfied with respect thereto by all Rating Agencies other than
Moody's (and prior written notice of such action shall be provided to
Moody's).
The Bond Trustee is hereby authorized to join in the execution
of any such supplemental indenture and to make any further appropriate
agreements and stipulations that may be therein contained.
(b) The Issuer and the Bond Trustee, when authorized by an
Issuer Order, may, also without the consent of any of the Holders of the
Transition Bonds, enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Transition Bonds under this Indenture;
provided, however, that (i) such action shall not, as evidenced by an Opinion of
Counsel, adversely affect the interests of any Transition Bondholder and (ii)
the Rating Agency Condition shall have been satisfied with respect thereto.
SECTION 9.02. Supplemental Indentures with Consent of
Transition Bondholders. The Issuer and the Bond Trustee, when authorized by an
Issuer Order, also may, with prior notice to the Rating Agencies and with the
consent of the Holders of not less than a majority of the Outstanding Amount of
the Transition Bonds of each Series or Class to be affected, by Act of such
Holders delivered to the Issuer and the Bond Trustee, enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to, or
changing in any manner or eliminating any of the provisions of, this Indenture
or of modifying in any manner the rights of the Holders of the Transition Bonds
under this Indenture; provided, however, that no such supplemental indenture
shall, without the consent of the Holder of each Outstanding Transition Bond of
each Series or Class affected thereby:
(i) change the date of payment of any instalment of principal
of or premium, if any, or interest on any Transition Bond, or reduce
the principal amount thereof, the interest rate thereon or the
redemption price or the premium, if any, with respect thereto, change
the provisions of this Indenture and the related applicable Series
Supplement relating to the application of collections on, or the
proceeds of the sale of, the Collateral to payment of principal of or
premium, if any, or interest on the Transition Bonds, or change any
place of payment where, or the coin or currency in which, any
Transition Bond or the interest thereon is payable;
(ii) impair the right to institute suit for the enforcement of
the provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Transition Bonds on or after the respective due
dates thereof (or, in the case of redemption, on or after the
Redemption Date);
(iii) reduce the percentage of the Outstanding Amount of the
Transition Bonds or of a Series or Class thereof, the consent of the
Holders of which is required for any such supplemental indenture, or
the consent of the Holders of which is required for any waiver of
compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this
Indenture or modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
<PAGE> 58
53
(iv) reduce the percentage of the Outstanding Amount of the
Transition Bonds required to direct the Bond Trustee to direct the
Issuer to sell or liquidate the Collateral pursuant to Section 5.04;
(v) modify any provision of this Section except to increase
any percentage specified herein or to provide that certain additional
provisions of this Indenture or the Basic Documents cannot be modified
or waived without the consent of the Holder of each Outstanding
Transition Bond affected thereby;
(vi) modify any of the provisions of this Indenture in such
manner as to affect the amount of any payment of interest, principal or
premium, if any, payable on any Transition Bond on any Payment Date or
to affect the rights of the Holders of Transition Bonds to the benefit
of any provisions for the mandatory redemption of the Transition Bonds
contained herein or change the Redemption Dates, Expected Amortization
Schedules or Series Termination Dates or Class Termination Dates of any
Transition Bonds;
(vii) decrease the Overcollateralization Amount or Required
Capital Amount with respect to any Series or the Calculated
Overcollateralization Level with respect to any Payment Date;
(viii) modify or alter the provisions of this Indenture
regarding the voting of Transition Bonds held by the Issuer, the
Transferor, the Seller, an Affiliate of any of them or any obligor on
the Transition Bonds;
(ix) decrease the percentage of the aggregate principal amount
of Transition Bonds required to amend the sections of this Indenture
which specify the applicable percentage of the aggregate principal
amount of the Transition Bonds necessary to amend this Indenture or
certain other related agreements; or
(x) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Collateral or, except as otherwise permitted or contemplated herein,
terminate the lien of this Indenture on any property at any time
subject hereto or deprive the Holder of any Transition Bond of the
security provided by the lien of this Indenture.
It shall not be necessary for any Act of Transition
Bondholders under this Section to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such Act shall approve the
substance thereof.
Promptly after the execution by the Issuer and the Bond
Trustee of any supplemental indenture pursuant to this Section, the Bond Trustee
shall mail to the Holders of the Transition Bonds to which such amendment or
supplemental indenture relates, a notice setting forth in general terms the
substance of such supplemental indenture. Any failure of the Bond Trustee to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such supplemental indenture.
SECTION 9.03. Execution of Supplemental Indentures. In
executing, or permitting the additional trusts created by, any supplemental
indenture permitted by this Article IX or the modifications thereby of the
trusts created by this Indenture, the Bond Trustee shall be entitled to receive,
and subject to Sections 6.01 and 6.02, shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental indenture
is authorized or permitted by this Indenture. The Bond Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects the
Bond Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
<PAGE> 59
54
SECTION 9.04. Effect of Supplemental Indenture. Upon the
execution of any supplemental indenture pursuant to the provisions hereof, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith with respect to each Series or Class of Transition Bonds affected
thereby, and the respective rights, limitations of rights, obligations, duties,
liabilities and immunities under this Indenture of the Bond Trustee, the Issuer
and the Holders of the Transition Bonds shall thereafter be determined,
exercised and enforced hereunder subject in all respects to such modifications
and amendments, and all the terms and conditions of any such supplemental
indenture shall be and be deemed to be part of the terms and conditions of this
Indenture for any and all purposes.
SECTION 9.05. Conformity with Trust Indenture Act. Every
amendment of this Indenture and every supplemental indenture executed pursuant
to this Article IX shall conform to the requirements of the TIA as then in
effect so long as this Indenture shall then be qualified under the TIA.
SECTION 9.06. Reference in Transition Bonds to Supplemental
Indentures. Transition Bonds authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article IX may, and if required by
the Bond Trustee shall, bear a notation in form approved by the Bond Trustee as
to any matter provided for in such supplemental indenture. If the Issuer or the
Bond Trustee shall so determine, new Transition Bonds so modified as to conform,
in the opinion of the Bond Trustee and the Issuer, to any such supplemental
indenture may be prepared and executed by the Issuer and authenticated and
delivered by the Bond Trustee in exchange for Outstanding Transition Bonds.
ARTICLE X
Redemption of Transition Bonds
SECTION 10.01. Optional Redemption by Issuer. The Issuer may,
at its option, redeem the Transition Bonds of a Series, in whole or from time to
time in part, as permitted by the related Series Supplement on any Redemption
Date at a price specified in such Series Supplement (such price being called the
"Redemption Price") plus interest accrued on the Transition Bonds to be redeemed
to such Redemption Date. If the Issuer shall elect to redeem the Transition
Bonds of a Series pursuant to this Section 10.01, it shall furnish notice of
such election to the Bond Trustee not later than 25 days prior to the Redemption
Date for such redemption and shall deposit with the Bond Trustee the Redemption
Price of the Transition Bonds to be redeemed plus interest accrued thereon to
such Redemption Date on or prior to such Redemption Date whereupon all such
Transition Bonds shall be due and payable on such Redemption Date upon the
furnishing of a notice complying with Section 10.02 hereof to each Holder of the
Transition Bonds of such Series pursuant to this Section 10.01.
SECTION 10.02. Form of Redemption Notice. Unless otherwise
specified in the Series Supplement relating to a Series of Transition Bonds,
notice of redemption under Section 10.01 hereof shall be given by the Bond
Trustee by first-class mail, postage prepaid, mailed not less than five days nor
more than 45 days prior to the applicable Redemption Date to each Holder of
Transition Bonds to be redeemed, as of the close of business on the Record Date
preceding the applicable Redemption Date at such Holder's address appearing in
the Transition Bond Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the amount of such Transition Bonds to be redeemed;
<PAGE> 60
55
(3) the Redemption Price; and
(4) the place where such Transition Bonds are to be
surrendered for payment of the Redemption Price and accrued interest
(which shall be the office or agency of the Issuer to be maintained as
provided in Section 3.02 hereof).
Notice of redemption of the Transition Bonds to be redeemed
shall be given by the Bond Trustee in the name and at the expense of the Issuer.
Failure to give notice of redemption, or any defect therein, to any Holder of
any Transition Bond selected for redemption shall not impair or affect the
validity of the redemption of any other Transition Bond. Any notice of optional
redemption may be conditioned upon the deposit of sufficient moneys to pay the
Redemption Price and accrued interest with the Bond Trustee before the date
fixed for redemption and such notice shall be of no effect unless such moneys
are so deposited.
SECTION 10.03. Payment of Redemption Price. If (a)
unconditional notice of redemption has been duly mailed or duly waived by the
Holders of all Transition Bonds called for redemption or (b) conditional notice
of redemption has been so mailed or waived and the redemption moneys have been
duly deposited with the Bond Trustee, then in either case the Transition Bonds
called for redemption shall be payable on the applicable Redemption Date at the
applicable Redemption Price. No further interest will accrue on the principal
amount of any Transition Bonds called for redemption after the Redemption Date
for such redemption if payment of the Redemption Price thereof has been duly
provided for, and the Holder of such Transition Bonds will have no rights with
respect thereto, except to receive payment of the Redemption Price thereof and
unpaid interest accrued to the Redemption Date. Payment of the Redemption Price
together with accrued interest shall be made by the Bond Trustee to or upon the
order of the Holders of the Transition Bonds called for redemption upon
surrender of such Transition Bonds, and the Transition Bonds so redeemed shall
cease to be of further effect and the Lien hereunder shall be released with
respect to such Transition Bonds.
ARTICLE XI
Miscellaneous
SECTION 11.01. Compliance Certificates and Opinions, etc. Upon
any application or request by the Issuer to the Bond Trustee to take any action
under any provision of this Indenture, the Issuer shall furnish to the Bond
Trustee (i) an Officer's Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with, (ii) an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with and (iii)
(if required by the TIA) an Independent Certificate from a firm of certified
public accountants meeting the applicable requirements of this Section, except
that, in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture,
no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
<PAGE> 61
56
(c) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is necessary to
enable such signatory to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.
SECTION 11.02. Form of Documents Delivered to Bond Trustee. In
any case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the
Issuer may be based, insofar as it relates to legal matters, upon a certificate
or opinion of, or representations by, counsel, unless such officer knows, or in
the exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Servicer, the Transferor, the Seller or the Issuer, stating that the
information with respect to such factual matters is in the possession of the
Servicer, the Transferor, the Seller or the Issuer, unless such Authorized
Officer or counsel knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to such matters
are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
Whenever in this Indenture, in connection with any application
or certificate or report to the Bond Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Bond Trustee's right to rely upon the truth and accuracy
of any statement or opinion contained in any such document as provided in
Article VI.
SECTION 11.03. Acts of Transition Bondholders. (a) Any
request, demand, authorization, direction, notice, consent, waiver or other
action provided by this Indenture to be given or taken by Transition Bondholders
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Transition Bondholders in person or by agents duly
appointed in writing; and except as herein otherwise expressly provided such
action shall become effective when such instrument or instruments are delivered
to the Bond Trustee, and, where it is hereby expressly required, to the Issuer.
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Transition
Bondholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 6.01) conclusive in
favor of the Bond Trustee and the Issuer, if made in the manner provided in this
Section.
<PAGE> 62
57
(b) The fact and date of the execution by any person of any
such instrument or writing may be proved in any manner that the Bond Trustee
deems sufficient.
(c) The ownership of Transition Bonds shall be proved by the
Transition Bond Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Transition Bonds shall bind
the Holder of every Transition Bond issued upon the registration thereof or in
exchange therefor or in lieu thereof, in respect of anything done, omitted or
suffered to be done by the Bond Trustee or the Issuer in reliance thereon,
whether or not notation of such action is made upon such Transition Bond.
SECTION 11.04. Notices, etc., to Bond Trustee, Issuer and
Rating Agencies. Any request, demand, authorization, direction, notice, consent,
waiver or Act of Transition Bondholders or other documents provided or permitted
by this Indenture to be made upon, given or furnished to or filed with:
(a) the Bond Trustee by any Transition Bondholder or by the
Issuer shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing, delivered personally, via facsimile
transmission, by reputable overnight courier or by first-class mail,
postage prepaid, to the Bond Trustee at its Corporate Trust Office, or
(b) the Issuer by the Bond Trustee or by any Transition
Bondholder shall be sufficient for every purpose hereunder if in
writing, delivered personally, via facsimile transmission, by reputable
overnight courier or by first-class mail, postage prepaid, to the
Issuer addressed to: West Penn Funding LLC, 800 Cabin Hill Drive,
Greensburg, PA 15601, Attention: [ ], or at any other address
previously furnished in writing to the Bond Trustee by the Issuer. The
Issuer shall promptly transmit any notice received by it from the
Transition Bondholders to the Bond Trustee.
Notices required to be given to the Rating Agencies by the
Issuer or the Bond Trustee shall be in writing, delivered personally, via
facsimile transmission, by reputable overnight courier or by first-class mail,
postage prepaid, to (i) in the case of Fitch IBCA, at the following address:
Fitch IBCA, Inc., 1 State Street Plaza, New York, New York IBCA 10004,
Attention: ABS Surveillance, (ii) in the case of Moody's, at the following
address: Moody's Investors Service, Inc., Attention: ABS Monitoring Department,
99 Church Street, New York, New York 10007 and (iii) in the case of Standard &
Poor's, at the following address: Standard & Poor's Corporation, 26 Broadway
(15th Floor), New York, New York 10004, Attention: Asset Backed Surveillance
Department.
SECTION 11.05. Notices to Transition Bondholders; Waiver.
Where this Indenture provides for notice to Transition Bondholders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and delivered by first-class mail, postage prepaid, to
each Transition Bondholder affected by such event, at their address as it
appears on the Transition Bond Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In any
case where notice to Transition Bondholders is given by mail, neither the
failure to mail such notice nor any defect in any notice so mailed to any
particular Transition Bondholder shall affect the sufficiency of such notice
with respect to other Transition Bondholders, and any notice that is mailed in
the manner herein provided shall conclusively be presumed to have been duly
given.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Transition Bondholders shall be filed with the
Bond Trustee but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such a waiver.
<PAGE> 63
58
In case it shall be impractical to deliver notice in
accordance with the first paragraph of this Section 11.05 to the Holders of
Transition Bonds when such notice is required to be given pursuant to any
provision of this Indenture, then any manner of giving such notice as shall be
satisfactory to the Bond Trustee shall be deemed to be a sufficient giving of
such notice.
Where this Indenture provides for notice to the Rating
Agencies, failure to give such notice shall not affect any other rights or
obligations created hereunder, and shall not under any circumstance constitute a
Default or Event of Default.
SECTION 11.06. Alternate Payment and Notice Provisions.
Notwithstanding any provision of this Indenture or any of the Transition Bonds
to the contrary, the Issuer may enter into any agreement with any Holder of a
Transition Bond providing for a method of payment, or notice by the Bond Trustee
or any Paying Agent to such Holder, that is different from the methods provided
for in this Indenture for such payments or notices. The Issuer will furnish to
the Bond Trustee a copy of each such agreement and the Bond Trustee will cause
payments to be made and notices to be given in accordance with such agreements.
SECTION 11.07. Conflict with Trust Indenture Act. If any
provision hereof limits, qualifies or conflicts with another provision hereof
that is required to be included in this Indenture by any of the provisions of
the TIA, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose
duties on any person (including the provisions automatically deemed included
herein unless expressly excluded by this Indenture) are a part of and govern
this Indenture, whether or not physically contained herein.
SECTION 11.08. Effect of Headings and Table of Contents. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 11.09. Successors and Assigns. All covenants and
agreements in this Indenture and the Transition Bonds by the Issuer shall bind
its successors and permitted assigns, whether so expressed or not.
All agreements of the Bond Trustee in this Indenture shall
bind its successors.
SECTION 11.10. Separability. In case any provision in this
Indenture or in the Transition Bonds shall be invalid, illegal or unenforceable,
the validity, legality, and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
SECTION 11.11. Benefits of Indenture. Nothing in this
Indenture or in the Transition Bonds, express or implied, shall give to any
Person, other than the parties hereto and their successors hereunder, and the
Transition Bondholders, and any other party secured hereunder, and any other
Person with an ownership interest in any part of the Collateral, any benefit or
any legal or equitable right, remedy or claim under this Indenture.
SECTION 11.12. Legal Holidays. In any case where the date on
which any payment is due shall not be a Business Day, then (notwithstanding any
other provision of the Transition Bonds or this Indenture) payment need not be
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on the date on which nominally due, and no
interest shall accrue for the period from and after any such nominal date.
SECTION 11.13. GOVERNING LAW. THIS INDENTURE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW
<PAGE> 64
59
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.14. Counterparts. This Indenture may be executed
in any number of counterparts, each of which so executed shall be deemed to be
an original, but all such counterparts shall together constitute but one and
the same instrument.
SECTION 11.15. Issuer Obligation. No recourse may be taken,
directly or indirectly, with respect to the obligations of the Issuer or the
Bond Trustee on the Transition Bonds or under this Indenture or any certificate
or other writing delivered in connection herewith or therewith, against (i) any
owner of a beneficial interest in the Issuer or (ii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Bond Trustee,
any holder of a beneficial interest in the Issuer or the Bond Trustee or of any
successor or assign of the Bond Trustee, except as any such Person may have
expressly agreed (it being understood that none of the Bond Trustee's
obligations are in its individual capacity).
SECTION 11.16. No Petition. The Bond Trustee, by entering into
this Indenture, and each Transition Bondholder, by accepting a Transition Bond,
hereby covenant and agree that they will not at any time institute against the
Issuer, or join in any institution against the Issuer of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States Federal or state bankruptcy or similar law
in connection with any obligations relating to the Transition Bonds, this
Indenture or any of the Basic Documents.
<PAGE> 65
60
IN WITNESS WHEREOF, the Issuer and the Bond Trustee have
caused this Indenture to be duly executed by their respective officers,
thereunto duly authorized and duly attested, all as of the day and year first
above written.
WEST PENN FUNDING LLC,
by [ ], as Manager,
by
--------------------------------------
Name:
Title:
[Trustee],
by
--------------------------------------
Name:
Title:
<PAGE> 66
================================================================================
WEST PENN FUNDING LLC,
Issuer
and
[ ],
Bond Trustee
------------------------------
SERIES SUPPLEMENT
Dated as of [ ], 1999
------------------------------
================================================================================
<PAGE> 67
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Definitions......................................................................2
SECTION 2. Designation; Series Issuance Dates...............................................4
SECTION 3. Initial Principal Amount; Bond Rate; Expected
Final Payment Date; Series or Class
Termination Date.................................................................4
SECTION 4. Payment Dates; Expected Amortization Schedule
for Principal; Interest; Overcollateralization
Amount; Required Capital Amount..................................................5
SECTION 5. Authorized Initial Denominations.................................................7
SECTION 6. Redemption.......................................................................7
SECTION 7. Credit Enhancement...............................................................7
SECTION 8. Delivery and Payment for the Series 1999-A
Transition Bonds; Form of the Series 1999-A
Transition Bonds.................................................................7
SECTION 9. Confirmation of Indenture........................................................7
SECTION 10. Counterparts.....................................................................7
SECTION 11. Governing Law....................................................................7
SECTION 12. Issuer Obligation................................................................8
Schedule A Calculated Overcollateralization Level
Schedule B Expected Amortization Schedule
Exhibit A Form of Transition Bonds
</TABLE>
<PAGE> 68
SERIES SUPPLEMENT dated as of [ ], 1999 (this "Supplement"), by
and between WEST PENN FUNDING LLC, a Delaware limited liability
company (the "Issuer"), and [ ], a [ ] (the "Bond Trustee"),
as Bond Trustee under the Indenture dated as of [ ], 1999,
between the Issuer and the Bond Trustee (the "Indenture").
PRELIMINARY STATEMENT
Section 9.01 of the Indenture provides, among other things, that the Issuer
and the Bond Trustee may at any time and from time to time enter into one or
more indentures supplemental to the Indenture for the purposes of authorizing
the issuance by the Issuer of a Series of Transition Bonds and specifying the
terms thereof. The Issuer has duly authorized the execution and delivery of this
Supplement and the creation of a Series of Transition Bonds with an initial
aggregate principal amount of $[ ] to be known as the Issuer's
Transition Bonds, Series 1999-A (the "Series 1999-A Transition Bonds"). All acts
and all things necessary to make the Series 1999-A Transition Bonds, when duly
executed by the Issuer and authenticated by the Bond Trustee as provided in the
Indenture and this Supplement and issued by the Issuer, the valid, binding and
legal obligations of the Issuer and to make this Supplement a valid and
enforceable supplement to the Indenture have been done, performed and fulfilled
and the execution and delivery hereof have been in all respects duly and
lawfully authorized. The Issuer and the Bond Trustee are executing and
delivering this Supplement in order to provide for the Series 1999-A Transition
Bonds.
In order to secure the payment of principal of and interest on the Series
1999-A Transition Bonds issued and to be issued under the Indenture and/or any
Series Supplement, the Issuer hereby Grants to the Bond Trustee as trustee for
the benefit of the Holders of the Transition Bonds from time to time issued and
outstanding, all of the Issuer's right, title and interest in and to (a) the
Intangible Transition Property transferred by the Seller to the Issuer from time
to time pursuant to the Sale Agreement and all proceeds thereof, (b) the
Transfer Agreement except for Section 5.01 thereof solely to the extent such
Section provides for indemnification of the Seller and the Issuer, (c) all Bills
of Sale delivered by the Transferor pursuant to the Transfer Agreement, (d) the
Sale Agreement except for Section 5.01 thereof solely to the extent such Section
provides for
<PAGE> 69
2
indemnification of the Issuer, (e) all Bills of Sale delivered by the Seller
pursuant to the Sale Agreement, (f) the Servicing Agreement except for Section
5.02(b) thereof solely to the extent such Section provides for indemnification
of the Issuer, (g) the Collection Account and all amounts on deposit therein
from time to time, (h) all Swap Agreements with respect to the Series 1999-A
Transition Bonds, (i) all other property of whatever kind owned from time to
time by the Issuer including all accounts, accounts receivable and chattel
paper, (j) all present and future claims, demands, causes and choses in action
in respect of any or all of the foregoing and (k) all payments on or under and
all proceeds of every kind and nature whatsoever in respect of any or all of the
foregoing, including all proceeds of the conversion, voluntary or involuntary,
into cash or other liquid property, all cash proceeds, accounts, accounts
receivable, general intangibles, notes, drafts, acceptances, chattel paper,
checks, deposit accounts, insurance proceeds, condemnation awards, rights to
payment of any and every kind, and other forms of obligations and receivables,
instruments and other property which at any time constitute all or part of or
are included in the proceeds of any of the foregoing (collectively, the
"Collateral"); provided that cash or other property distributed to the Issuer
from the Collection Account in accordance with the provisions of the Indenture
will not be subject to the lien of the Indenture.
To have and to hold in trust to secure the payment of principal of and
premium, if any, and interest on, and any other amounts (including all fees,
expenses, counsel fees and other amounts due and owing to the Bond Trustee)
owing in respect of, the Transition Bonds equally and ratably without prejudice,
preference, priority or distinction, except as expressly provided in the
Indenture or any Series Supplement and to secure performance by the Issuer of
all of the Issuer's obligations under the Indenture and all Series Supplements
with respect to the Transition Bonds, all as provided in the Indenture.
The Bond Trustee, as trustee on behalf of the Holders of the Transition
Bonds, acknowledges such Grant, accepts the trusts hereunder in accordance with
the provisions hereof and agrees to perform its duties required in the Indenture
and this Supplement.
SECTION 1. Definitions. (a) Article One of the Indenture provides that the
meanings of certain defined terms used in the Indenture shall, when applied to
the Transition Bonds of a particular Series, be as defined in Article One but
with such additional provisions as are
<PAGE> 70
3
specified in the related Series Supplement. With respect to the Series 1999-A
Transition Bonds, the following definitions shall apply:
"Adjustment Date" shall mean initially each January 1, until October 1,
2007 and on such date and thereafter, the 1st day of each month.
"Authorized Initial Denominations" shall mean $1,000 and integral multiples
thereof.
"Bond Rate" has the meaning set forth in Section 3 of this Supplement.
"Calculated Overcollateralization Level" means, with respect to any Payment
Date, the amount set forth as such in Schedule A hereto, as such Schedule has
been adjusted in accordance with Section 4(d)(ii) hereof.
"Calculation Date" means initially each October 1, until September 1, 2007
and on such date and thereafter the 1st day of each month.
"Class Termination Date" means, with respect to any Class of the Series
1999-A Transition Bonds, the termination date therefor, as specified in Section
3 of this Supplement.
"Expected Amortization Schedule" means Schedule B to this Supplement.
"Expected Final Payment Date" means, with respect to any Class of the
Series 1999-A Transition Bonds, the expected final payment date therefor, as
specified in Section 3 of this Supplement.
"Interest Accrual Period" means, with respect to any Payment Date, the
period from and including the preceding Payment Date (or, in the case of the
first Payment Date, from and including the Series Issuance Date) to and
excluding such Payment Date.
"Overcollateralization Amount" has the meaning set forth in Section 4(d)(i)
of this Supplement.
"Payment Date" has the meaning set forth in Section 4(a) of this
Supplement.
"Record Date" shall mean, with respect to any Payment Date, the close of
business on the day prior to such Payment Date.
<PAGE> 71
4
"Required Capital Amount" has the meaning set forth in Section 4(e) of this
Supplement.
"Series Issuance Date" has the meaning set forth in Section 2(b) of this
Supplement.
"Series Termination Date" has the meaning set forth in Section 3 of this
Supplement.
"Servicing Fee Rate" shall mean [0.25]% per annum so long as ITC Charges
are included in electric bills otherwise sent to Customers or, if ITC Charges
are not included in such bills, [1.50]% per annum.
(b) All terms used in this Supplement that are defined in the Indenture,
either directly or by reference therein, have the meanings assigned to them
therein, except to the extent such terms are defined or modified in this
Supplement or the context clearly requires otherwise.
SECTION 2. Designation; Series Issuance Dates. (a) Designation. The Series
1999-A Transition Bonds shall be designated generally as the Issuer's Transition
Bonds, Series 1999-A and further denominated as Classes A-1 through A-[5].
(b) Series Issuance Date. The Series 1999-A Transition Bonds that are
authenticated and delivered by the Bond Trustee to or upon the order of the
Issuer on [ ], 1999 (the "Series Issuance Date") shall have as their date of
authentication [ ], 1999. Each other Series 1999-A Transition Bond shall be
dated the date of its authentication.
SECTION 3. Initial Principal Amount; Bond Rate; Expected Final Payment
Date; Series or Class Termination Date. The Transition Bonds of each Class of
the Series 1999-A Transition Bonds shall have the initial principal amounts,
bear interest at the rates per annum and shall have
<PAGE> 72
5
Expected Final Payment Dates and Class Termination Dates as set forth below:
<TABLE>
<CAPTION>
Initial Principal Bond Expected Final Class
Class Amount Rate Payment Date Termination Date
----- ------ ---- ------------ ----------------
<S> <C> <C> <C> <C>
A-1
A-2
A-3
A-4
[A-5]
</TABLE>
The Bond Rate shall be computed on the basis of a 360-day year of twelve
30-day months.
SECTION 4. Payment Dates; Expected Amortization Schedule for Principal;
Interest; Overcollateralization Amount; Required Capital Amount. (a) Payment
Dates. The Payment Dates for each Class of the Series 1999-A Transition Bonds
are [ ], [ ], [ ] and [ ] of each year or, if any such date
is not a Business Day, the next succeeding Business Day, commencing on [ ],
1999 and continuing until the earlier of repayment of such Class in full and the
applicable Class Termination Date.
(b) Expected Amortization Schedule for Principal. Unless an Event of
Default shall have occurred and be continuing and the unpaid principal amount of
all Series of Transition Bonds has been declared to be due and payable together
with accrued and unpaid interest thereon, on each Payment Date, the Bond Trustee
shall distribute to the Series 1999-A Transition Bondholders of record as of the
related Record Date amounts payable in respect of the Series 1999-A Transition
Bonds pursuant to Section 8.02(d) of the Indenture as principal, in accordance
with the Expected Amortization Schedule. To the extent that more than one Class
of the Series 1999-A Transition Bonds is to receive payments of principal in
accordance with the Expected Amortization Schedule on any Payment Date, such
amounts will be allocated pro rata between such Classes based on the principal
scheduled to be paid to such Classes in accordance with the Expected
Amortization Schedule on such Payment Date; provided, however, that if one or
more Classes did not receive principal on the prior Payment Date and as a result
their Class Principal Balance was not
<PAGE> 73
6
reduced to the balance indicated in the Expected Amortization Schedule on such
Payment Date, then such Classes will be (i) allocated funds to make up such
shortfalls prior to any Classes receiving funds in respect of principal
scheduled to be paid on the current Payment Date and (ii) allocated funds in
respect of prior shortfalls on a pro rata basis based on the amount of such
shortfalls; provided, however, that other than in the event of a redemption in
no event shall a principal payment pursuant to this Section 4(b) on any Class on
a Payment Date be greater than the amount that reduces the Outstanding Amount of
such Class of Series 1999-A Transition Bonds to the amount specified in the
Expected Amortization Schedule which is attached as Schedule B hereto for such
Class and Payment Date. Not later than each Schedule Revision Date, the Issuer
shall deliver to the Bond Trustee a replacement Schedule B hereto, adjusted to
reflect the event giving rise to such Schedule Revision Date and setting forth
the Expected Amortization Schedule for each Payment Date; provided, however,
that no such replacement schedule shall be required if the event giving rise to
such Schedule Revision Date is a redemption of the Series 1999-A Transition
Bonds in whole.
(c) Interest. Interest will be payable on each Class of the Series 1999-A
Transition Bonds on each Payment Date in an amount equal to one-[quarter] of the
product of (i) the applicable Bond Rate and (ii) the Outstanding Amount of the
related Class of Transition Bonds as of the close of business on the preceding
Payment Date after giving effect to all payments of principal made to the
holders of the related Class of Series 1999-A Transition Bonds on such preceding
Payment Date; and provided, further, that with respect to the initial Payment
Date or, if no payment has yet been made, interest on the outstanding principal
balance will accrue from and including the Series Issuance Date to, but
excluding, the following Payment Date.
(d) Overcollateralization Amount. (i) The Overcollateralization Amount for
the Series 1999-A Transition Bonds shall be $[ ].
(ii) Not later than each Schedule Revision Date, the Issuer shall deliver
to the Bond Trustee a replacement Schedule A hereto, adjusted to reflect the
event giving rise to such Schedule Revision Date and setting forth the
Calculated Overcollateralization Level for each Payment Date; provided, however,
that no such replacement schedule shall be required if the event giving rise to
such Schedule Revision Date is a redemption of the Series 1999-A Transition
Bonds in whole.
<PAGE> 74
7
(e) Required Capital Amount. The Required Capital Amount for the Series
1999-A Transition Bonds shall be equal to 0.50% of the initial principal amount
thereof, or $[ ].
SECTION 5. Authorized Initial Denominations. The Series 1999-A Transition
Bonds shall be issuable in the Authorized Initial Denominations.
SECTION 6. Redemption. (a) Mandatory Redemption. The Series 1999-A
Transition Bonds shall not be subject to mandatory redemption.
(b) Optional Redemption. The Series 1999-A Transition Bonds shall not be
subject to optional redemption by the Issuer except that the Series 1999-A
Transition Bonds may be redeemed in whole at a Redemption Price equal to the
principal amount thereof plus interest at the applicable Bond Rate accrued to
the Redemption Date on any Payment Date on which the Outstanding Amount thereof
(after giving effect to payments that would otherwise be made on such Payment
Date) has been reduced to less than 5% of the initial principal balance thereof.
SECTION 7. Credit Enhancement. No credit enhancement (other than the
Overcollateralization Amount) is provided for the Series 1999-A Transition
Bonds.
SECTION 8. Delivery and Payment for the Series 1999-A Transition Bonds;
Form of the Series 1999-A Transition Bonds. The Bond Trustee shall deliver the
Series 1999-A Transition Bonds to the Issuer when authenticated in accordance
with Section 2.02 of the Indenture. The Series 1999-A Transition Bonds of each
Class shall be in the form of Exhibits A-1 through A-[5] hereto.
SECTION 9. Confirmation of Indenture. As supplemented by this Supplement,
the Indenture is in all respects ratified and confirmed and the Indenture, as so
supplemented by this Supplement, shall be read, taken, and construed as one and
the same instrument.
SECTION 10. Counterparts. This Supplement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all of such counterparts shall together constitute but one and the same
instrument.
SECTION 11. Governing Law. This Supplement shall be construed in accordance
with the laws of the State of New York without reference to its conflict of law
<PAGE> 75
8
provisions, and the obligations, rights and remedies of the parties hereunder
shall be determined in accordance with such laws.
SECTION 12. Issuer Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer or the Bond Trustee on
the Transition Bonds or under this Supplement or any certificate or other
writing delivered in connection herewith or therewith, against (i) any owner of
a beneficial interest in the Issuer or (ii) any partner, owner, beneficiary,
agent, officer, director or employee of the Bond Trustee, any holder of a
beneficial interest in the Issuer or the Bond Trustee or of any successor or
assign of the Bond Trustee, except as any such Person may have expressly agreed
(it being understood that none of the Bond Trustee's obligations are in its
individual capacity).
IN WITNESS WHEREOF, the Issuer and the Bond Trustee have caused this
Supplement to be duly executed by their respective officers thereunto duly
authorized as of the first day of the month and year first above written.
WEST PENN FUNDING LLC,
by [ ],
as Manager,
by
---------------------------------------
Name:
Title:
[ ], not in its individual
capacity but solely as Bond Trustee on behalf
of the Transition Bondholders,
by
---------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.1
================================================================================
INTANGIBLE TRANSITION PROPERTY
TRANSFER AGREEMENT
between
WEST PENN FUNDING CORPORATION
Seller
and
WEST PENN POWER COMPANY
Transferor
Dated as of [ ], 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
Definitions
-----------
<S> <C> <C>
SECTION 1.01. Definitions................................................................... 2
SECTION 1.02. Other Definitional Provisions................................................. 8
ARTICLE II
Conveyance of Intangible Transition Property
--------------------------------------------
SECTION 2.01. Conveyance of Initial Intangible
Transition Property....................................................... 9
SECTION 2.02. Conveyance of Subsequent Intangible
Transition Property....................................................... 10
SECTION 2.03. Conditions to Conveyance of Intangible
Transition Property....................................................... 11
ARTICLE III
Representations and Warranties of Transferor
--------------------------------------------
SECTION 3.01. Organization and Good Standing................................................ 14
SECTION 3.02. Due Qualification............................................................. 14
SECTION 3.03. Power and Authority........................................................... 14
SECTION 3.04. Binding Obligation............................................................ 15
SECTION 3.05. No Violation.................................................................. 15
SECTION 3.06. No Proceedings................................................................ 16
SECTION 3.07. Approvals..................................................................... 16
SECTION 3.08. The Intangible Transition Property............................................ 17
ARTICLE IV
Covenants of the Transferor
---------------------------
SECTION 4.01. Corporate Existence........................................................... 22
SECTION 4.02. No Liens or Conveyances....................................................... 23
SECTION 4.03. Delivery of Collections....................................................... 23
SECTION 4.04. Notice of Liens............................................................... 24
SECTION 4.05. Compliance with Law........................................................... 24
SECTION 4.06. Covenants Related to Intangible
Transition Property....................................................... 24
SECTION 4.07. Notice of Indemnification Events and
Mandatory Repurchase Events............................................... 26
SECTION 4.08. Protection of Title........................................................... 26
</TABLE>
<PAGE> 3
Contents, p. ii
<TABLE>
Page
----
<S> <C> <C>
SECTION 4.09. Taxes......................................................................... 27
ARTICLE V
The Transferor
--------------
SECTION 5.01. Liability of Transferor; Indemnities
and Mandatory Repurchase.................................................. 28
SECTION 5.02. Merger or Consolidation of, or
Assumption of the Obligations of,
Transferor................................................................ 35
SECTION 5.03. Limitation on Liability of Transferor
and Others................................................................ 37
SECTION 5.04. Opinions of Counsel........................................................... 37
ARTICLE VI
Miscellaneous Provisions
------------------------
SECTION 6.01. Amendment..................................................................... 38
SECTION 6.02. Notices....................................................................... 39
SECTION 6.03. Assignment.................................................................... 40
SECTION 6.04. Limitations on Rights of Others............................................... 40
SECTION 6.05. Severability.................................................................. 41
SECTION 6.06. Separate Counterparts......................................................... 41
SECTION 6.07. Headings...................................................................... 41
SECTION 6.08. Governing Law................................................................. 41
SECTION 6.09. Assignment to Issuer and to Bond
Trustee................................................................... 41
SECTION 6.10. Nonpetition Covenant.......................................................... 42
SECTION 6.11. Perfection.................................................................... 43
</TABLE>
<PAGE> 4
INTANGIBLE TRANSITION PROPERTY TRANSFER AGREEMENT dated
as of [ ], 1999, between WEST PENN FUNDING CORPORATION, a
[Delaware] corporation (the "Seller"), and WEST PENN POWER
COMPANY, a Pennsylvania corporation, and its successors in
interest to the extent permitted hereunder, as Transferor
(the "Transferor").
WHEREAS the Transferor desires to contribute from time to time Intangible
Transition Property created pursuant to the Statute and the Qualified Rate Order
in exchange for all of the outstanding capital stock of the Seller;
WHEREAS the Seller is willing to purchase the Intangible Transition
Property;
WHEREAS the Seller intends to sell the Transferred Intangible Transition
Property to the Issuer and the Issuer intends to purchase the Transferred
Intangible Transition Property from the Seller pursuant to the Sale Agreement;
WHEREAS the Issuer, in order to finance the purchase of the Transferred
Intangible Transition Property, will from time to time issue Transition Bonds
under the Indenture;
<PAGE> 5
2
WHEREAS the Issuer, to secure its obligations under all Transition Bonds
and the Indenture, will pledge its right, title and interest in the Transferred
Intangible Transition Property to the Bond Trustee for the benefit of the
Transition Bondholders; and
WHEREAS the Seller has determined that the transactions contemplated by the
Basic Documents are in the best interest of the Seller and its creditors and
represent a prudent and advisable course of action that does not impair the
rights and interests of the Seller's creditors.
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. (a) Whenever used in this Agreement, each of the
following words and phrases shall have the following meaning:
"Addition Notice" means, with respect to the transfer of Subsequent
Intangible Transition Property to the Seller pursuant to Section 2.02, notice,
which shall be given by the Transferor to the Seller and the Rating Agencies not
later than 10 days prior to the related Subsequent Contribution Date, specifying
the Subsequent
<PAGE> 6
3
Contribution Date for such Subsequent Intangible Transition Property.
"Agreement" means this Intangible Transition Property Transfer Agreement,
as the same may be amended and supplemented from time to time.
"Bill of Sale" means a bill of sale substantially in the form of Exhibit A
hereto.
"Business Day" has the meaning specified in the Servicing Agreement.
"Competitive Transition Charges" has the meaning specified in the Servicing
Agreement.
"Corporate Trust Office" means, [Address of Bond Trustee] Attention:
[ ], or the principal corporate trust office of any successor Bond
Trustee (the address of which the successor Bond Trustee will notify the
Transition Bondholders and the Issuer).
"Customers" has the meaning specified in the Servicing Agreement.
"Deferred Repurchase Price" has the meaning specified in Section
5.01(d)(i).
"Fitch IBCA" has the meaning specified in the Servicing Agreement.
"Indemnification Event" has the meaning specified in Section 5.01(c)(i).
"Indenture" means the Indenture dated as of[ ], 1999, between the
Issuer and [ ],
<PAGE> 7
4
as the same may be amended and supplemented from time to time.
"Initial Contribution Date" means [ ], 1999.
"Initial Intangible Transition Property" means the Intangible Transition
Property, as identified in the related Bill of Sale, contributed to the Seller
on the Initial Contribution Date pursuant to such Bill of Sale in connection
with the issuance of the Series 1999-A Transition Bonds.
"Initial Loss Calculation Date" has the meaning specified in Section
5.01(c)(ii).
"Intangible Transition Charges" has the meaning specified in the Servicing
Agreement.
"Intangible Transition Property" has the meaning specified in the Servicing
Agreement.
"ITC Collections" has the meaning specified in the Servicing Agreement.
"Lien" has the meaning specified in the Servicing Agreement.
"Losses" has the meaning specified in the Servicing Agreement.
"Mandatory Repurchase Event" has the meaning specified in Section
5.01(d)(i).
"Moody's" has the meaning specified in the Servicing Agreement.
<PAGE> 8
5
"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 Transferor or the
Servicer, as appropriate.
"Opinion of Counsel" means one or more written opinions of counsel who may
be an employee of or counsel to the Transferor or the Servicer, which counsel
shall be reasonably acceptable to the Bond Trustee, the Seller, the Issuer or
the Rating Agencies, as applicable, and which shall be in form reasonably
satisfactory to the Bond Trustee, the Seller, if applicable.
"PUC" has the meaning specified in the Servicing Agreement.
"PUC Regulations" has the meaning specified in the Servicing Agreement.
"Qualified Rate Order" has the meaning specified in the Servicing
Agreement.
"Qualified Transition Expenses" has the meaning specified in the Servicing
Agreement.
"Rate Schedule" has the meaning specified in the Servicing Agreement.
"Retained Intangible Transition Property" means Intangible Transition
Property other than the Transferred Intangible Transition Property.
<PAGE> 9
6
"Seller" has the meaning specified in the heading of this Agreement.
"Serviced Intangible Transition Property" has the meaning specified in the
Servicing Agreement.
"Servicer" means West Penn, as the servicer of the Intangible Transition
Property, and each successor to West Penn (in the same capacity) pursuant to
Section 5.03 or 6.04 of the Servicing Agreement.
"Servicer Default" means an event specified in Section 6.01 of the
Servicing Agreement.
Servicing Agreement" means the Servicing Agreement dated as of [ ],
1999, between the Issuer and the Servicer, as the same may be amended and
supplemented from time to time.
"Standard & Poor's" has the meaning specified in the Servicing Agreement.
"Statute" has the meaning specified in the Servicing Agreement.
"Subsequent Contribution Date" means any date on which Subsequent
Intangible Transition Property is to be transferred to the Seller pursuant to
Section 2.02.
"Subsequent Intangible Transition Property" means Intangible Transition
Property, as identified in the related Bill of Sale, contributed to the Seller
on any Subsequent Contribution Date in connection with the issuance of a Series
of Transition Bonds.
<PAGE> 10
7
"Third Party" has the meaning specified in the Servicing Agreement.
"Transferor" has the meaning specified in the heading of this Agreement.
"Transferred Intangible Transition Property" means, collectively, the
Initial Intangible Transition Property and any Subsequent Intangible Transition
Property.
"UCC" has the meaning specified in the Servicing Agreement.
"West Penn" has the meaning specified in the Servicing Agreement.
(b) Except as otherwise specified herein or as the context may otherwise
require, each of the following terms has the meaning set forth in the Indenture
for all purposes of this Agreement, and the definitions of such terms are
equally applicable both to the singular and plural forms of such terms:
<TABLE>
<CAPTION>
Term Section of the Indenture
- ---- ------------------------
<S> <C>
Adjustment Date........................ 1.01(a)
Affiliate.............................. 1.01(a)
Basic Documents........................ 1.01(a)
Bond Trustee........................... 1.01(a)
Capital Subaccount..................... 1.01(a)
Collateral............................. 1.01(a)
Collection Account..................... 1.01(a)
General Subaccount..................... 1.01(a)
Holders or Transition
Bondholders.......................... 1.01(a)
Loss Subaccount........................ 1.01(a)
Operating Expenses..................... 1.01(a)
Overcollateralization Amount........... 1.01(a)
Payment Date........................... 1.01(a)
Person................................. 1.01(a)
</TABLE>
<PAGE> 11
8
<TABLE>
<CAPTION>
Term Section of the Indenture
- ---- ------------------------
<S> <C>
Rating Agency.......................... 1.01(a)
Rating Agency Condition................ 1.01(a)
Reserve Subaccount..................... 1.01(a)
Series................................. 1.01(a)
Servicing Fee.......................... 1.01(a)
Transition Bonds....................... 1.01(a)
</TABLE>
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, Schedule and Exhibit references contained in this
Agreement are references to Sections, 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
Conveyance of Intangible Transition Property
SECTION 2.01. Conveyance of Initial Intangible Transition Property. (a) In
consideration of the Seller's delivery to the Transferor of certificates
evidencing [ ] shares of common stock, par value $.01 per share, of the Seller
(which constitutes 100% of the outstanding capital stock of the Seller), subject
to the conditions
<PAGE> 12
9
specified in Section 2.03, the Transferor, pursuant to a Bill of Sale, will
irrevocably contribute, sell, transfer, assign, set over and otherwise convey to
the Seller, without recourse (subject to the obligations herein), all right,
title and interest of the Transferor in and to the Initial Intangible Transition
Property (such contribution, sale, transfer, assignment, set over and conveyance
of the Initial Intangible Transition Property will include, to the fullest
extent permitted by the Statute, the assignment of all revenues, collections,
claims, rights, payments, money or proceeds of or arising from the Intangible
Transition Charges related to the Initial Intangible Transition Property, as the
same may be adjusted from time to time). Such contribution, sale, transfer,
assignment, set over and conveyance will be expressly stated to be a sale and,
pursuant to Section 2812(e) of the Statute, shall be treated as an absolute
transfer of all of the Transferor's right, title and interest (as in a true
sale), and not as a pledge or other financing, of the Initial Intangible
Transition Property. The preceding sentence is the statement referred to in
Section 2812(e) of the Statute. The Transferor agrees and confirms that after
giving effect to the sale contemplated by such Bill of Sale it has no rights in
the Initial Intangible Transition Property to which a security interest of
creditors of the Transferor could attach because it has sold all rights in the
Initial Intangible Transition
<PAGE> 13
10
Property to the Seller pursuant to Section 2812(e) of the Statute.
(b) Subject to the conditions specified in Section 2.03, the Seller,
pursuant to a Bill of Sale, will purchase the Initial Intangible Transition
Property from the Transferor for the consideration set forth in paragraph (a)
above.
(c) The Transferor and the Seller each acknowledge and agree that the
consideration for the Initial Intangible Transition Property sold pursuant to
the Bill of Sale is equal to its fair market value at the time of sale.
SECTION 2.02. Conveyance of Subsequent Intangible Transition Property. The
Transferor may from time to time offer to sell additional Intangible Transition
Property to the Seller, subject to the conditions specified in Section 2.03. If
any such offer is accepted by the Seller, such Subsequent Intangible Transition
Property shall be sold to the Seller effective on the Subsequent Contribution
Date specified in the related Addition Notice, subject to the satisfaction or
waiver of the conditions specified in Section 2.03.
SECTION 2.03. Conditions to Conveyance of Intangible Transition Property.
The Transferor shall be permitted to sell Intangible Transition Property to the
<PAGE> 14
11
Seller only upon the satisfaction or waiver of each of the following conditions:
(i) on or prior to the Initial Contribution Date or Subsequent
Contribution Date, as applicable, the Transferor shall have delivered to
the Seller a duly executed Bill of Sale identifying the Intangible
Transition Property to be conveyed on that date;
(ii) as of the Initial Contribution Date or the Subsequent
Contribution Date, as applicable, the Transferor was not insolvent and will
not have been made insolvent by such sale and the Transferor is not aware
of any pending insolvency with respect to itself;
(iii) as of the Initial Contribution Date or the Subsequent
Contribution Date, as applicable, no breach by the Transferor of its
representations, warranties or covenants in this Agreement shall exist; and
no Servicer Default shall have occurred and be continuing;
(iv) as of the Initial Contribution Date or the Subsequent
Contribution Date, as applicable, (A) the Issuer shall have sufficient
funds available to pay the purchase price for the Transferred Intangible
Transition Property to be conveyed on such date and (B) all conditions to
the issuance of one or more Series of Transition Bonds intended to provide
such funds set forth in the Indenture shall have been satisfied or waived;
<PAGE> 15
12
(v) on or prior to the Initial Contribution Date or Subsequent
Contribution Date, as applicable, the Transferor shall have taken all
action required to transfer to the Seller ownership of the Transferred
Intangible Transition Property to be conveyed on such date, free and clear
of all Liens other than Liens created by the Issuer pursuant to the
Indenture; the Seller shall have taken any action required for the Seller
to transfer to the Issuer ownership of the Transferred Intangible
Transition Property to be conveyed on such date, free and clear of all
Liens other than Liens created by the Issuer pursuant to the Indenture; and
the Issuer or the Servicer, on behalf of the Issuer, shall have taken any
action required for the Issuer to grant the Bond Trustee a first priority
perfected security interest in the Collateral and maintain such security
interest as of such date;
(vi) in the case of a sale of Subsequent Intangible Transition
Property only, on or prior to such Subsequent Contribution Date, the
Transferor shall have provided the Seller, the Issuer and the Rating
Agencies with a timely Addition Notice;
(vii) the Transferor shall have delivered to the Rating Agencies, the
Seller and the Issuer (A) an Opinion of Counsel with respect to the
transfer of the Transferred Intangible Transition Property then being
<PAGE> 16
13
conveyed to the Seller substantially in the form of Exhibit B hereto and
(B) the Opinion of Counsel required by Section 5.04(a); and
(viii) the Transferor shall have delivered to the Bond Trustee, the
Seller and the Issuer an Officers' Certificate confirming the satisfaction
of each condition precedent specified in this Section 2.03.
ARTICLE III
Representations and Warranties of Transferor
As of the Initial Contribution Date and as of any Subsequent Contribution
Date, as applicable, the Transferor makes the following representations and
warranties on which the Seller has relied and will rely in acquiring Transferred
Intangible Transition Property. The Transferor agrees and acknowledges that the
following representations and warranties are also for the benefit of the Issuer,
as assignee of the Seller pursuant to the Sale Agreement, and the Bond Trustee,
as collateral assignee of the Issuer pursuant to the Indenture. The
representations and warranties shall survive the sale of Transferred Intangible
Transition Property to the Seller, the sale of the Transferred Intangible
Transition Property from the Seller to the Issuer pursuant to the Sale Agreement
and the pledge thereof to the Bond Trustee pursuant to the Indenture.
<PAGE> 17
14
SECTION 3.01. Organization and Good Standing. The Transferor is a
corporation duly organized and in good standing under the laws of the
Commonwealth of Pennsylvania, with corporate power and authority to own its
properties and conduct its business as currently owned or conducted.
SECTION 3.02. Due Qualification. The Transferor 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 shall require 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
Transferor's business, operations, assets, revenues, properties or prospects).
SECTION 3.03. Power and Authority. The Transferor has the corporate power
and authority to execute and deliver this Agreement and to carry out its terms;
the Transferor has full corporate power and authority to own the Intangible
Transition Property and contribute, sell and assign the Initial Intangible
Transition Property, in the case of the Initial Contribution Date, and the
Subsequent Intangible Transition Property, in the case of each Subsequent
Contribution Date, as applicable, and the Transferor has duly authorized such
contribution, sale and assignment to the Seller by all necessary corporate
action;
<PAGE> 18
15
and the execution, delivery and performance of this Agreement has been duly
authorized by the Transferor by all necessary corporate action.
SECTION 3.04. Binding Obligation. This Agreement constitutes a legal, valid
and binding obligation of the Transferor enforceable against the Transferor 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).
SECTION 3.05. No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do 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 Transferor, or any indenture,
agreement or other instrument to which the Transferor 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 Transferor of any court or of any Federal or state regulatory body,
administrative agency or other governmental
<PAGE> 19
16
instrumentality having jurisdiction over the Transferor or its properties.
SECTION 3.06. No Proceedings. There are no proceedings or investigations
pending or, to the Transferor's best knowledge, threatened, before any court,
Federal or state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Transferor or its properties (i)
asserting the invalidity of the Basic Documents or the Transition Bonds, (ii)
seeking to prevent the issuance of the Transition Bonds or the consummation of
any of the transactions contemplated by the Basic Documents or the Transition
Bonds or (iii) except as disclosed by the Transferor to the Seller, seeking any
determination or ruling that could reasonably be expected to materially and
adversely affect the performance by the Transferor of its obligations under, or
the validity or enforceability of, the Basic Documents or the Transition Bonds.
SECTION 3.07. Approvals. Except for 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
Transferor of this Agreement, the performance by the Transferor of the
transactions contemplated hereby or the fulfillment by the
<PAGE> 20
17
Transferor of the terms hereof, except those that have been obtained or made.
SECTION 3.08. The Intangible Transition Property. (a) Information. All
information provided by the Transferor to the Seller with respect to the
Transferred Intangible Transition Property is correct in all material respects.
(b) Effect of Transfer. The transfers and assignments herein contemplated
constitute sales of the Initial Intangible Transition Property or the Subsequent
Intangible Transition Property, as the case may be, from the Transferor to the
Seller and the beneficial interest in and title to the Transferred Intangible
Transition Property would not be part of the debtor's estate in the event of the
filing of a bankruptcy petition by or against the Transferor under any
bankruptcy law.
(c) Transfer Filings. The Transferor is the sole owner of the Intangible
Transition Property being sold to the Seller on the Initial Contribution Date or
Subsequent Contribution Date, as applicable; the Transferred Intangible
Transition Property has been validly transferred and sold to the Seller free and
clear of all Liens other than Liens contemplated hereby. All filings, including
filings with the PUC under the Statute, necessary in any jurisdiction to give
the Seller a valid ownership interest in the Transferred Intangible Transition
Property, free and clear
<PAGE> 21
18
of all Liens of the Transferor or anyone claiming through the Transferor, and to
give the Seller a first priority perfected security interest in the Transferred
Intangible Transition Property have been made, other than any such filings
(except for filings with the PUC under the Statute and UCC filings with the
Secretary of State of the State of Delaware) the absence of which would not have
an adverse impact on (i) the ability of the Servicer to collect Intangible
Transition Charges with respect to the Serviced Intangible Transition Property
or (ii) the rights of the Seller with respect to the Transferred Intangible
Transition Property.
(d) Irrevocable; Process Valid; No Litigation; Etc. (i) The Qualified Rate
Order has been issued by the PUC in accordance with the Statute, such order and
the process by which it was issued comply with all applicable laws, rules and
regulations, and such order is in full force and effect. (ii) As of the date of
issuance of any Series of Transition Bonds, such Transition Bonds are entitled
to the protections provided by the Statute and, accordingly, the provisions of
the Qualified Rate Order relating to Intangible Transition Property and
Intangible Transition Charges are not revocable by the PUC. (iii) (a) Under the
Statute, neither the Commonwealth of Pennsylvania nor the PUC may limit, alter
or in any way impair or reduce the value of Intangible Transition Property or
Intangible
<PAGE> 22
19
Transition Charges approved by the Qualified Rate Order or any rights
thereunder, except such a limitation or alteration may be made by the
Commonwealth of Pennsylvania or the PUC if adequate compensation is made by law
for the full protection of the Intangible Transition Charges and of Transition
Bondholders; and (b) under the Contract Clauses of the Constitutions of the
Commonwealth of Pennsylvania and the United States, the Commonwealth of
Pennsylvania and the PUC cannot take any action that substantially impairs the
rights of the Transition Bondholders unless such action is a reasonable exercise
of the Commonwealth of Pennsylvania's sovereign powers and appropriate to
further a legitimate public purpose, and, under the Takings Clauses of the
Pennsylvania and United States Constitutions, in the event such action
constitutes a permanent appropriation of the property interest of Transition
Bondholders in the Intangible Transition Property and deprives the Transition
Bondholders of their reasonable expectations arising from their investments in
Transition Bonds, unless just compensation, as determined by a court of
competent jurisdiction, is provided to Transition Bondholders. (iv) There is no
order by any court providing for the revocation, alteration, limitation or other
impairment of the Statute, Qualified Rate Order, Intangible Transition Property
or the Intangible Transition Charges or any rights arising under any of them or
which seeks to enjoin the
<PAGE> 23
20
performance of any obligations under the Qualified Rate Order. (v) No other
approval, authorization, consent, order or other action of, or filing with, any
court, Federal or state regulatory body, administrative agency or other
governmental instrumentality is required in connection with the creation of the
Intangible Transition Property, except those that have been obtained or made.
(vi) Except as disclosed by the Transferor to the Seller, there are no
proceedings or investigations pending, or to the Transferor's best knowledge,
threatened before any court, Federal or state regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over the
Transferor or its properties challenging the Qualified Rate Order or the
Statute. (vii) No failure on the Initial Contribution Date or any Subsequent
Contribution Date or any time thereafter to satisfy any condition imposed by the
Statute with respect to the recovery of stranded costs will adversely affect the
creation or sale hereunder of Intangible Transition Property or the right to
collect Intangible Transition Charges.
(e) Assumptions. The assumptions used in calculating Intangible Transition
Charges are reasonable and made in good faith.
(f) Creation of Intangible Transition Property. (i) The Intangible
Transition Property other than the Retained Intangible Transition Property
constitutes a
<PAGE> 24
21
current property right, (ii) the Intangible Transition Property includes,
without limitation, (A) the irrevocable right of the Seller and the Issuer, as
assignee of the Seller, to receive through Intangible Transition Charges an
amount sufficient to recover all of the Transferor's Qualified Transition
Expenses described in the Qualified Rate Order in an amount equal to the
aggregate principal amount of Transition Bonds plus an amount sufficient to
provide for any credit enhancement (including the Overcollateralization Amount
relating to each Series of Transition Bonds), to fund any reserves, and to pay
interest, premium, if any, servicing fees and other expenses relating to the
Transition Bonds, and (B) all right, title and interest of the Transferor or its
assignee applicable to the Transition Bonds in the Qualified Rate Order and in
all revenues, collections, claims, payments, money or proceeds of or arising
from the Intangible Transition Charges applicable to the Transition Bonds set
forth in the Qualified Rate Order to the extent that in accordance with the
Statute, the Qualified Rate Order and the rates and charges authorized under the
Qualified Rate Order are declared to be irrevocable and (iii) the Qualified Rate
Order, including the right to collect Intangible Transition Charges, have been
declared to be irrevocable by the PUC.
(g) Solvency. After giving effect to the sale of any Transferred Intangible
Transition Property hereunder,
<PAGE> 25
22
the Transferor (i) is solvent and expects to remain solvent, (ii) is adequately
capitalized to conduct its business and affairs considering its size and the
nature of its business and intended purposes, (iii) is not engaged in nor does
it expect to engage in a business for which its remaining property represents an
unreasonably small capital, (iv) believes that it will be able to pay its debts
as they come due and that such belief is reasonable and (v) is able to pay its
debts as they mature and does not intend to incur, or believe that it will
incur, indebtedness that it will not be able to repay at its maturity.
ARTICLE IV
Covenants of the Transferor
SECTION 4.01. Corporate Existence. Subject to Section 5.02, so long as any
of the Transition Bonds are outstanding, the Transferor will keep in full force
and effect its corporate existence and remain in good standing, in each case
under the laws of the jurisdiction of its incorporation, and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement and each other instrument or agreement to which
the Transferor is a party necessary to the proper administration of this
Agreement and the transactions contemplated hereby.
<PAGE> 26
23
SECTION 4.02. No Liens or Conveyances. Except for the conveyances
hereunder, the Transferor will not sell, pledge, assign or transfer to any other
Person, or grant, create, incur, assume or suffer to exist any Lien on, any of
the Intangible Transition Property, whether now existing or hereafter created,
or any interest therein. The Transferor shall not at any time assert any Lien
against or with respect to any Serviced Intangible Transition Property, and
shall defend the right, title and interest of the Seller, the Issuer, as
assignee of the Seller, and the Bond Trustee, as collateral assignee of the
Issuer, in, to and under the Intangible Transition Property, whether now
existing or hereafter created, against all claims of third parties claiming
through or under the Transferor.
SECTION 4.03. Delivery of Collections. If the Transferor receives
collections in respect of the Intangible Transition Charges, other than
Intangible Transition Charges relating to Retained Intangible Transition
Property, or the proceeds thereof, the Transferor agrees to pay the Servicer all
payments received by the Transferor in respect thereof as soon as practicable
after receipt thereof by the Transferor, but in no event later than two Business
Days after such receipt.
SECTION 4.04. Notice of Liens. The Transferor shall notify the Issuer and
the Bond Trustee promptly after becoming aware of any Lien on any Intangible
Transition
<PAGE> 27
24
Property other than the conveyances hereunder, under the Sale Agreement or under
the Indenture.
SECTION 4.05. Compliance with Law. The Transferor hereby agrees to comply
with its organizational or governing documents and all laws, treaties, rules,
regulations and determinations of any governmental instrumentality applicable to
the Transferor, except to the extent that failure to so comply would not
adversely affect the Seller's, the Issuer's or the Bond Trustee's interests in
the Intangible Transition Property or under any of the Basic Documents or the
Transferor's performance of its obligations hereunder or under any of the other
Basic Documents to which it is a party.
SECTION 4.06. Covenants Related to Intangible Transition Property. (a) So
long as any of the Transition Bonds are outstanding, the Transferor shall treat
the Transition Bonds as debt of the Seller for Federal income tax purposes.
(b) So long as any of the Transition Bonds are outstanding, the Transferor
shall (i) clearly disclose in its financial statements that it is not the owner
of the Serviced Intangible Transition Property and that the assets of the Issuer
are not available to pay creditors of the Transferor or any of its Affiliates
and (ii) clearly disclose the effects of all transactions among the
<PAGE> 28
25
Transferor, the Seller and the Issuer in accordance with generally accepted
accounting principles.
(c) The Transferor agrees that upon the sale by the Transferor of the
Transferred Intangible Transition Property to the Seller pursuant to a Bill of
Sale, (i) to the fullest extent permitted by law, including applicable PUC
Regulations, the Seller shall have all of the rights originally held by the
Transferor with respect to the Transferred Intangible Transition Property (other
than the rights of an electric distribution company set forth in Section 2807 of
the Statute), including the right to collect any amounts payable by any Customer
or Third Party in respect of such Transferred Intangible Transition Property,
notwithstanding any objection or direction to the contrary by the Transferor and
(ii) any payment by any Customer or Third Party to the Seller shall discharge
such Customer's or such Third Party's obligations in respect of such Transferred
Intangible Transition Property to the extent of such payment, notwithstanding
any objection or direction to the contrary by the Transferor.
(d) So long as any of the Transition Bonds are outstanding, (i) the
Transferor shall not make any statement or reference in respect of the
Transferred Intangible Transition Property that is inconsistent with the
ownership thereof by the Seller or, after the sale of the Transferred Intangible
Transition Property by the Seller to the Issuer,
<PAGE> 29
26
the Issuer and (ii) the Transferor shall not take any action in respect of the
Serviced Intangible Transition Property except solely in its capacity as the
Servicer thereof pursuant to the Servicing Agreement or as otherwise
contemplated by the Basic Documents.
SECTION 4.07. Notice of Indemnification Events and Mandatory Repurchase
Events. The Transferor shall deliver to the Seller, the Issuer and the Bond
Trustee promptly after having obtained knowledge thereof, written notice in an
Officers' Certificate of any Indemnification Event or Mandatory Repurchase Event
or any event which, with the giving of notice or the passage of time, would
become an Indemnification Event or Mandatory Repurchase Event.
SECTION 4.08. Protection of Title. The Transferor 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 Seller in the Transferred Intangible Transition Property, including all
filings required under the Statute relating to the transfer of the ownership or
security interest in the Transferred Intangible Transition Property by the
Transferor to the Seller. The Transferor shall deliver (or cause to be
delivered) to the Seller file-stamped copies of, or filing receipts for, any
document filed as provided above, as soon
<PAGE> 30
27
as available following such filing. The Transferor agrees to take such legal or
administrative actions, including defending against or instituting and pursuing
legal actions and appearing or testifying at hearings or similar proceedings, as
may be reasonably necessary (i) to protect the Seller, the Issuer and the
Transition Bondholders from claims, state actions or other actions or
proceedings of third parties which, if successfully pursued, would result in a
breach of any representation or warranty set forth in Article III or (ii) to
block or overturn any attempts to cause a repeal of, modification of or
supplement to the Statute or the Qualified Rate Order or the rights of holders
of Intangible Transition Property by legislative enactment or constitutional
amendment that would be adverse to the holders of Intangible Transition
Property.
SECTION 4.09. Taxes. So long as any of the Transition Bonds are
outstanding, the Transferor shall, and shall cause each of its subsidiaries to,
pay all material taxes, including gross receipts taxes, assessments and
governmental charges imposed upon it or any of its properties or assets or with
respect to any of its franchises, business, income or property before any
penalty accrues thereon if the failure to pay any such taxes, assessments and
governmental charges would, after any applicable grace periods, notices or other
similar requirements, result in a lien on the Intangible Transition
<PAGE> 31
28
Property; provided that no such tax need be paid if the Transferor or one of its
subsidiaries is contesting the same in good faith by appropriate proceedings
promptly instituted and diligently conducted and if the Transferor or such
subsidiary has established appropriate reserves as shall be required in
conformity with generally accepted accounting principles.
ARTICLE V
The Transferor
SECTION 5.01. Liability of Transferor; Indemnities and Mandatory
Repurchase. (a) The Transferor shall be liable in accordance herewith only to
the extent of the obligations specifically undertaken by the Transferor under
this Agreement.
(b) The Transferor shall indemnify the Seller, the Issuer and the Bond
Trustee, for itself and on behalf of the Transition Bondholders, and each of
their respective members, managers, officers, directors and agents for, and
defend and hold harmless each such Person from and against, any and all taxes
(other than any taxes imposed on Transition Bondholders solely as a result of
their ownership of Transition Bonds) that may at any time be imposed on or
asserted against any such Person as a result of the acquisition or holding of
the Transferred Intangible Transition Property by the Seller or the Issuer or
the
<PAGE> 32
29
issuance and sale by the Issuer of the Transition Bonds, including any sales,
gross receipts, general corporation, tangible personal property, privilege or
license taxes.
(c)(i) The Transferor shall indemnify the Seller, the Issuer and the Bond
Trustee, on behalf of the Transition Bondholders, each of their respective
members, managers, officers, directors, and agents, and defend and hold harmless
each such Person from and against, any and all Losses that may be imposed on,
incurred by or asserted against any such Person as a result of (x) the
Transferor's wilful misconduct, bad faith or gross negligence in the performance
of its duties or observance of its covenants under this Agreement, (y) the
Transferor's reckless disre gard of its obligations and duties under this
Agreement or (z) the Transferor's breach of any of its representations or
warranties contained in this Agreement other than those contained in Sections
3.08(b), 3.08(c), 3.08(d)(i), (ii) and (iv) and 3.08(f) (any event described in
any of the foregoing clauses (x), (y) or (z), an "Indemnification Event");
provided, however, that the amount of such Losses (other than those payable
pursuant to Section 5.01(e)) for which the Transferor shall be obligated to
provide indemnification shall not exceed the amount of the Deferred Repurchase
Price. Amounts on deposit in the Reserve Subaccount and the Capital Subaccount
shall not be available
<PAGE> 33
30
to satisfy any Losses for which indemnification is provided in this Agreement.
(ii) If an Indemnification Event shall occur, upon receipt of written
notice thereof by the Transferor from the Seller, the Issuer or the Bond
Trustee, the Transferor shall notify the Servicer of the occurrence of such
event so that the Servicer may, pursuant to Section 7 of Annex 1 to the
Servicing Agreement, calculate (x) on the day which is 90 days after receipt of
such notice by the Transferor (the "Initial Loss Calculation Date") the amount
of Losses expected to be incurred as a result of such Indemnification Event from
and including the time of its occurrence through and including the next Payment
Date after the Initial Loss Calculation Date and (y) to the extent that Losses
may be incurred as a result of such Indemnification Event in an amount exceeding
the amount of Losses calculated pursuant to clause (x) above and unless the
Transferor has paid the Deferred Repurchase Price with respect to such
Indemnification Event pursuant to Section 5.01(d)(i)(B), not later than each
Payment Date succeeding the Initial Loss Calculation Date, the amount of Losses
expected to be incurred as a result of such Indemnification Event from but
excluding such Payment Date through and including the next Payment Date. All
such calculations shall be subject to the approval of the Bond Trustee. If such
Indemnification Event shall continue unremedied beyond the Initial Loss
<PAGE> 34
31
Calculation Date, the Transferor shall pay to the Bond Trustee, as collateral
assignee of the Issuer (as assignee of the Seller), for deposit into the General
Subaccount of the Collection Account, (x) on the Payment Date immediately
following the Initial Loss Calculation Date, the amount of Losses calculated
pursuant to clause (x) and clause (y) of the preceding sentence with respect to
such Payment Date and (y) on each subsequent Payment Date, the amount of Losses
calculated as of such date pursuant to clause (y) of the preceding sentence.
Upon payment pursuant to this Section 5.01(c)(ii), the Transferor shall have no
further obligations with respect to such Losses to the extent of such payments.
(d)(i) In the event of a breach by the Transferor of any representation and
warranty specified in (A) Section 3.08(b), 3.08(c), 3.08(d)(i), (ii) or (iv) or
3.08(f) of this Agreement that has a material adverse effect on the Transition
Bondholders or (B) Sections 3.01, 3.03, 3.04, 3.05 and 3.08(d)(iii), (v) or (vi)
of this Agreement for which the full amount of Losses attributable thereto are
reasonably expected to be incurred beyond a 90-day period immediately following
the occurrence of such Indemnification Event (any event described in clause (A)
or (B), a "Mandatory Repurchase Event"), the Transferor will be required to
repurchase the Transferred Intangible Transition Property and, on each Payment
Date following such
<PAGE> 35
32
repurchase, the Transferor will be required to pay (any such payment by the
Transferor is referred to as the "Deferred Repurchase Price") to the Bond
Trustee, as collateral assignee of the Issuer (as assignee of the Seller), for
deposit in the General Subaccount of the Collection Account, an amount
sufficient to make the payments contemplated by clauses (i) through (viii) of
Section 8.02(d) of the Indenture.
(ii) The Transferor shall not be obligated to pay the Deferred Repurchase
Price pursuant to Section 5.01(d)(i) (A) if within 90 days after the date of the
occurrence thereof such breach is cured or the Transferor takes remedial action
such that there is not and will not be a material adverse effect on the
Transition Bondholders as a result of such breach. In the event that within such
90-day period (i) such breach is cured or (ii) the Transferor takes the remedial
action specified by this Section 5.01(d)(ii), any amounts paid by the Transferor
to the Bond Trustee, as collateral assignee of the Issuer (as assignee of the
Seller) pursuant to Section 5.01(d)(i) which have not been distributed pursuant
to the Indenture shall be returned to the Transferor at the end of such 90-day
period.
(iii) Upon the payment in full by the Transferor of the aggregate amount
of the Deferred Repurchase Price pursuant to Section 5.01(d)(i), neither the
Issuer, the Seller nor any other Person shall have any other claims,
<PAGE> 36
33
rights or remedies against the Transferor for a breach of the representations
and warranties specified in Section 3.08(b), (c), (d)(i), (d)(ii), (d)(iv) or
(f).
(e) The Transferor 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 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 into the
Collection Account and distributed in accordance with the Indenture.
(f) The Transferor's indemnification obligations under Section 5.01(b),(c),
(d) and (e) for events occurring prior to the removal or resignation of the Bond
Trustee or the termination of this Agreement shall survive the resignation or
removal of the Bond Trustee or the termination of this Agreement and shall
include reasonable fees and expenses of investigation and litigation (including
the Bond Trustee's reasonable attorney's fees and expenses).
SECTION 5.02. Merger or Consolidation of, or Assumption of the Obligations
of, Transferor. Any Person (a) into which the Transferor may be merged or
consolidated and which succeeds to the major part of the electric
<PAGE> 37
34
distribution business of the Transferor, (b) which results from the division of
the Transferor into two or more Persons and which succeeds to the major part of
the electric distribution business of the Transferor, (c) which may result from
any merger or consolidation to which the Transferor shall be a party and which
succeeds to the major part of the electric distribution business of the
Transferor, (d) which may succeed to the properties and assets of the Transferor
substantially as a whole and which succeeds to the major part of the electric
distribution business of the Transferor or (e) which may otherwise succeed to
the major part of the electric distribution business of the Transferor, which
Person in any of the foregoing cases executes an agreement of assumption to
perform every obligation of the Transferor under this Agreement, shall be the
successor to the Transferor hereunder without the execution or filing of any
document or any further act by any of the parties to this Agreement; provided,
however, that (i) immediately after giving effect to such transaction, no
representation or warranty made pursuant to Article III shall have been breached
and no Servicer Default, and no event that, after notice or lapse of time, or
both, would become a Servicer Default, shall have occurred and be continuing,
(ii) the Transferor shall have delivered to the Seller, the Issuer and the Bond
Trustee an Officers' Certificate and an Opinion of Counsel
<PAGE> 38
35
each stating that such consolidation, merger or succession and such agreement of
assumption comply with this Section and that all conditions precedent, if any,
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 and (iv) the Transferor shall have delivered to the Seller, the
Issuer and the Bond Trustee 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 fully
to preserve and protect the interest of the Seller in the Transferred 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 described agreement of assumption and
compliance with clauses (i), (ii), (iii) and (iv) above shall be conditions
precedent to the consummation of any transaction referred to in clauses (a),
(b), (c), (d) or (e) above.
SECTION 5.03. Limitation on Liability of Transferor and Others. The
Transferor and any director or officer or employee or agent of the Transferor
may rely in good faith on the advice of counsel or on any document of any kind,
prima facie properly executed and submitted by any
<PAGE> 39
36
Person, respecting any matters arising hereunder. Subject to Section 4.08, the
Transferor shall not be under any obligation to appear in, prosecute or defend
any legal action that is not incidental to its obligations under this Agreement,
and that in its opinion may involve it in any expense or liability.
SECTION 5.04. Opinions of Counsel. The Transferor shall deliver to the
Seller, the Issuer and the Bond Trustee: (a) promptly after the execution and
delivery of this Agreement and of each amendment hereto or to the Servicing
Agreement and on each Subsequent Contribution 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 Seller in the 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 Initial Contribution 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
<PAGE> 40
37
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 Seller in the 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 VI
Miscellaneous Provisions
SECTION 6.01. Amendment. This Agreement may be amended by the Seller and
the Transferor, with the consent of the Issuer and the Bond Trustee. The Seller
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 Seller, the
Issuer and the Bond Trustee shall be entitled to receive and rely upon an
Opinion of Counsel
<PAGE> 41
38
stating that the execution of such amendment is authorized or permitted by this
Agreement and the Opinion of Counsel referred to in Section 5.04(a). The Seller,
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 6.02. Notices. All demands, notices and communications upon or to
the Transferor, the Seller, 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 certified mail, return-receipt requested, and
shall be deemed to have been duly given upon receipt (a) in the case of the
Transferor, to West Penn Power Company, 800 Cabin Hill Drive, Greensburg, PA
15601, Attention of [ ], (b) in the case of the Seller, to West Penn
Funding Corporation, 800 Cabin Hill Drive, Greensburg, PA 15601, Attention of
[ ], (c) in the case of the Issuer, to West Penn Funding LLC, 800 Cabin
Hill Drive, Greensburg PA 15601, Attention of [ ], (d) in the case of the
Bond Trustee, at the Corporate Trust Office, (e) in the case of Moody's, to
Moody's Investors Service, Inc., ABS Monitoring Department, 99 Church Street,
New York, New York 10007, (f) in the case of Standard & Poor's, to Standard &
Poor's Corporation, 26 Broadway (15th Floor), New York, New York 10004,
Attention of Asset Backed Surveillance Department,
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39
and (g) in the case of Fitch IBCA, to Fitch IBCA, Inc., One State Street Plaza,
New York, New York 10004, 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 6.03. Assignment. Notwithstanding anything to the contrary
contained herein, except as pro vided in Section 5.02, this Agreement may not be
assigned by the Transferor.
SECTION 6.04. Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Transferor, the Seller, the Issuer
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 the
Collateral or under or in respect of this Agreement or any covenants, conditions
or provisions contained herein.
SECTION 6.05. 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.
<PAGE> 43
40
SECTION 6.06. 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 6.07. 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 6.08. 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 6.09. Assignment to Issuer and to Bond Trustee. (a) The Transferor
hereby acknowledges and consent to the sale, transfer, assignment and conveyance
of all right, title and interest of the Seller in, to and under the Transferred
Intangible Transition Property and the proceeds thereof and the assignment of
any or all of the Seller's rights hereunder to the Issuer pursuant to the Sale
Agreement.
(b) The Transferor hereby acknowledges and consents to the mortgage,
pledge, assignment and grant of a security interest by the Issuer (as assignee
of the Seller)
<PAGE> 44
41
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
Transferred Intangible Transition Property and the proceeds thereof and the
assignment of any or all of the Issuer's rights under the Sale Agreement to the
Bond Trustee.
SECTION 6.10. Nonpetition Covenant. 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 Intangible
Transition Property notwithstanding any bankruptcy, reorganization or other
insolvency proceedings with respect to the debtor, pledgor or transferor of the
Intangible Transition Property pursuant to Section 2812(d)(3)(v) of the Statute,
the Transferor 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
Seller or the Issuer to invoke the process of any court or government authority
for the purpose of commencing or sustaining a case against the Seller or the
Issuer under any Federal or state bankruptcy, insolvency or similar law or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official of the Seller or the Issuer or any substantial part of
the property of the Seller or the Issuer, or ordering the
<PAGE> 45
42
winding up or liquidation of the affairs of the Seller or the Issuer.
SECTION 6.11. Perfection. In accordance with Section 2812(e) of the
Statute, upon the execution and delivery of this Agreement and the related Bill
of Sale, the transfer of the Initial Intangible Transition Property will be
perfected as against all third persons, including any judicial lien creditors,
and upon the execution and delivery of a Bill of Sale and, if applicable, a
supplement to this Agreement, a transfer of Subsequent Intangible Transition
Property will be perfected against all third persons, including any judicial
lien creditors.
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 CORPORATION,
Seller,
by
--------------------------------
Title:
WEST PENN POWER COMPANY,
Transferor,
by
--------------------------------
Title:
<PAGE> 46
43
Acknowledged and Accepted:
WEST PENN FUNDING LLC,
as Issuer of the Transition
Bonds,
by [ ], as Manager,
by:
----------------------------
Title:
[ ], not
in its individual capacity
but solely as Bond Trustee
on behalf of the Transition
Bondholders,
by
----------------------------
Title:
<PAGE> 1
EXHIBIT 10.2
================================================================================
INTANGIBLE TRANSITION PROPERTY
SALE AGREEMENT
between
WEST PENN FUNDING LLC
Issuer
and
WEST PENN FUNDING CORPORATION
Seller
Dated as of [ ], 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
Definitions
-----------
<S> <C> <C>
SECTION 1.01. Definitions...............................................2
SECTION 1.02. Other Definitional Provisions.............................7
ARTICLE II
Conveyance of Intangible Transition Property
--------------------------------------------
SECTION 2.01. Conveyance of Initial Intangible
Transition Property....................................8
SECTION 2.02. Conveyance of Subsequent Intangible
Transition Property....................................9
SECTION 2.03. Conditions to Conveyance of Intangible
Transition Property...................................10
ARTICLE III
Representations and Warranties of Seller
----------------------------------------
SECTION 3.01. Organization and Good Standing...........................12
SECTION 3.02. Due Qualification........................................13
SECTION 3.03. Power and Authority......................................13
SECTION 3.04. Binding Obligation.......................................14
SECTION 3.05. No Violation.............................................14
SECTION 3.06. No Proceedings...........................................14
SECTION 3.07. Approvals................................................15
SECTION 3.08. The Intangible Transition Property.......................15
ARTICLE IV
Covenants of the Seller
-----------------------
SECTION 4.01. Corporate Existence......................................17
SECTION 4.02. No Liens or Conveyances..................................18
SECTION 4.03. Delivery of Collections..................................18
SECTION 4.04. Notice of Liens..........................................19
SECTION 4.05. Compliance with Law......................................19
SECTION 4.06. Covenants Related to Intangible
Transition Property...................................19
SECTION 4.07. Notice of Indemnification Events.........................21
</TABLE>
<PAGE> 3
Contents, p. ii
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 4.08. Protection of Title......................................21
SECTION 4.09. Taxes....................................................22
SECTION 4.10. Separate Entity..........................................23
ARTICLE V
The Seller
----------
SECTION 5.01. Liability of Seller; Indemnities.........................23
SECTION 5.02. Merger or Consolidation of, or
Assumption of the Obligations of,
Seller................................................26
SECTION 5.03. Limitation on Liability of Seller
and Other.............................................28
SECTION 5.04. Opinions of Counsel......................................28
ARTICLE VI
Miscellaneous Provisions
------------------------
SECTION 6.01. Amendment................................................30
SECTION 6.02. Notices..................................................30
SECTION 6.03. Assignment...............................................31
SECTION 6.04. Limitations on Rights of Others..........................31
SECTION 6.05. Severability.............................................32
SECTION 6.06. Separate Counterparts....................................32
SECTION 6.07. Headings.................................................32
SECTION 6.08. Governing Law............................................32
SECTION 6.09. Assignment to Bond Trustee...............................33
SECTION 6.10. Nonpetition Covenant.....................................33
SECTION 6.11. Perfection...............................................34
</TABLE>
<PAGE> 4
INTANGIBLE TRANSITION PROPERTY SALE AGREEMENT dated
as of [ ], 1999, between WEST PENN FUNDING
LLC, a Delaware limited liability company (the
"Issuer"), and WEST PENN FUNDING CORPORATION, a
[Delaware] corporation, and its successors in
interest to the extent permitted hereunder, as
Seller (the "Seller").
WHEREAS the Seller received a contribution from the Transferor of
Intangible Transition Property created pursuant to the Statute and the
Qualified Rate Order in exchange for all of the outstanding capital stock of
the Seller;
WHEREAS the Issuer desires to purchase from time to time
Intangible Transition Property;
WHEREAS the Seller is willing to sell Intangible Transition
Property to the Issuer;
WHEREAS the Issuer, in order to finance the purchase of the
Transferred Intangible Transition Property, will from time to time issue
Transition Bonds under the Indenture;
WHEREAS the Issuer, to secure its obligations under all
Transition Bonds and the Indenture, will pledge its right, title and interest
in the Transferred Intangible
<PAGE> 5
2
Transition Property to the Bond Trustee for the benefit of the Transition
Bondholders; and
WHEREAS the Issuer has determined that the transactions
contemplated by the Basic Documents are in the best interest of the Issuer and
its creditors and represent a prudent and advisable course of action that does
not impair the rights and interests of the Issuer's creditors.
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. (a) Whenever used in this Agreement,
each of the following words and phrases shall have the following meaning:
"Addition Notice" means, with respect to the transfer of
Subsequent Intangible Transition Property to the Issuer pursuant to Section
2.02, notice, which shall be given by the Seller to the Issuer and the Rating
Agencies not later than 10 days prior to the related Subsequent Transfer Date,
specifying the Subsequent Transfer Date for such Subsequent Intangible
Transition Property.
<PAGE> 6
3
"Agreement" means this Intangible Transition Property Sale
Agreement, as the same may be amended and supplemented from time to time.
"Bill of Sale" means a bill of sale substantially in the form of
Exhibit A hereto.
"Business Day" has the meaning specified in the Servicing
Agreement.
"Competitive Transition Charges" has the meaning specified in the
Servicing Agreement.
"Corporate Trust Office" means [Address of Bond Trustee]
Attention: [ ], or the principal corporate trust office of any successor
Bond Trustee (the address of which the successor Bond Trustee will notify the
Transition Bondholders and the Issuer).
"Customers" has the meaning specified in the Servicing Agreement.
"Fitch IBCA" has the meaning specified in the Servicing
Agreement.
"Indemnification Event" has the meaning specified in Section
5.01(c)(i).
"Indenture" means the Indenture dated as of [ ], 1999,
between the Issuer and [ ], as the same may be amended and supplemented
from time to time.
"Initial Intangible Transition Property" means the Intangible
Transition Property, as identified in the related Bill of Sale, sold to the
Issuer on the Initial Transfer
<PAGE> 7
4
Date pursuant to such Bill of Sale in connection with the issuance of the Series
1999-A Transition Bonds.
"Initial Loss Calculation Date" has the meaning specified in
Section 5.01(c)(ii).
"Initial Transfer Date" means [ ], 1999.
"Intangible Transition Charges" has the meaning specified in the
Servicing Agreement.
"Intangible Transition Property" has the meaning specified in the
Servicing Agreement.
"ITC Collections" has the meaning specified in the Servicing
Agreement.
"Lien" has the meaning specified in the Servicing Agreement.
"Losses" has the meaning specified in the Servicing Agreement.
"Moody's" has the meaning specified in the Servicing Agreement.
"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 Seller or the
Servicer, as appropriate.
"Opinion of Counsel" means one or more written opinions of
counsel who may be an employee of or counsel to the Seller or the Servicer,
which counsel shall be
<PAGE> 8
5
reasonably acceptable to the Bond Trustee, the Issuer or the Rating Agencies,
as applicable, and which shall be in form reasonably satisfactory to the Bond
Trustee, if applicable.
"PUC" has the meaning specified in the Servicing Agreement.
"PUC Regulations" has the meaning specified in the Servicing
Agreement.
"Qualified Rate Order" has the meaning specified in the Servicing
Agreement.
"Qualified Transition Expenses" has the meaning specified in the
Servicing Agreement.
"Rate Schedule" has the meaning specified in the Servicing
Agreement.
"Servicer" means West Penn, as the servicer of the Intangible
Transition Property, and each successor to West Penn (in the same capacity)
pursuant to Section 5.03 or 6.04 of the Servicing Agreement.
"Servicer Default" means an event specified in Section 6.01 of
the Servicing Agreement.
"Servicing Agreement" means the Servicing Agreement dated as
of [ ], 1999, between the Issuer and the Servicer, as the same may be
amended and supplemented from time to time.
"Standard & Poor's" has the meaning specified in the Servicing
Agreement.
<PAGE> 9
6
"Statute" has the meaning specified in the Servicing Agreement.
"Subsequent Intangible Transition Property" means Intangible
Transition Property, as identified in the related Bill of Sale, sold to the
Issuer on any Subsequent Transfer Date in connection with the issuance of a
Series of Transition Bonds.
"Subsequent Transfer Date" means any date on which Subsequent
Intangible Transition Property is to be transferred to the Issuer pursuant to
Section 2.02.
"Third Party" has the meaning specified in the Servicing
Agreement.
"Transfer Agreement" has the meaning specified in the Servicing
Agreement.
"Transferred Intangible Transition Property" means, collectively,
the Initial Intangible Transition Property and any Subsequent Intangible
Transition Property.
"UCC" has the meaning specified in the Servicing Agreement.
"West Penn" has the meaning specified in the Servicing Agreement.
(b) Except as otherwise specified herein or as the context may
otherwise require, each of the following terms has the meaning set forth in the
Indenture for all purposes of this Agreement, and the definitions of such
<PAGE> 10
7
terms are equally applicable both to the singular and plural forms of such
terms:
<TABLE>
<CAPTION>
Term Section of the Indenture
- ---- ------------------------
<S> <C>
Adjustment Date .......................................... 1.01(a)
Affiliate ................................................ 1.01(a)
Basic Documents .......................................... 1.01(a)
Bond Trustee ............................................. 1.01(a)
Capital Subaccount ....................................... 1.01(a)
Collateral ............................................... 1.01(a)
Collection Account ....................................... 1.01(a)
General Subaccount ....................................... 1.01(a)
Holders or Transition
Bondholders ............................................ 1.01(a)
Loss Subaccount .......................................... 1.01(a)
Operating Expenses ....................................... 1.01(a)
Overcollateralization Amount ............................. 1.01(a)
Person ................................................... 1.01(a)
Rating Agency ............................................ 1.01(a)
Rating Agency Condition .................................. 1.01(a)
Reserve Subaccount ....................................... 1.01(a)
Series ................................................... 1.01(a)
Servicing Fee ............................................ 1.01(a)
Transition Bonds ......................................... 1.01(a)
</TABLE>
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, Schedule and Exhibit references contained
in this Agreement are references to Sections, 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
<PAGE> 11
8
of such terms and to the masculine as well as to the feminine and neuter genders
of such terms.
ARTICLE II
Conveyance of Intangible Transition Property
SECTION 2.01. Conveyance of Initial Intangible Transition
Property. (a) In consideration of the Issuer's delivery to or upon the order of
the Seller of $[ ], subject to the conditions specified in Section 2.03,
the Seller, pursuant to a Bill of Sale, will irrevocably sell, transfer,
assign, set over and otherwise convey to the Issuer, without recourse (subject
to the obligations herein), all right, title and interest of the Seller in and
to the Initial Intangible Transition Property (such sale, transfer, assignment,
set over and conveyance of the Initial Intangible Transition Property will
include, to the fullest extent permitted by the Statute, the assignment of all
revenues, collections, claims, rights, payments, money or proceeds of or
arising from the Intangible Transition Charges related to the Initial
Intangible Transition Property, as the same may be adjusted from time to time).
Such sale, transfer, assignment, set over and conveyance will be expressly
stated to be a sale and, pursuant to Section 2812(e) of the Statute, shall be
treated as an absolute transfer of all of the Seller's right, title and
interest (as in a true sale), and not as a pledge or other
<PAGE> 12
9
financing, of the Initial Intangible Transition Property. The preceding
sentence is the statement referred to in Section 2812(e) of the Statute. The
Seller agrees and confirms that after giving effect to the sale contemplated by
such Bill of Sale it has no rights in the Initial Intangible Transition
Property to which a security interest of creditors of the Seller could attach
because it has sold all rights in the Initial Intangible Transition Property to
the Issuer pursuant to Section 2812(e) of the Statute.
(b) Subject to the conditions specified in Section 2.03, the
Issuer, pursuant to a Bill of Sale, will purchase the Initial Intangible
Transition Property from the Seller for the consideration set forth in
paragraph (a) above.
(c) The Seller and the Issuer each acknowledge and agree that the
purchase price for the Initial Intangible Transition Property sold pursuant to
the Bill of Sale is equal to its fair market value at the time of sale.
SECTION 2.02. Conveyance of Subsequent Intangible Transition
Property. The Seller may from time to time offer to sell additional Intangible
Transition Property to the Issuer, subject to the conditions specified in
Section 2.03. If any such offer is accepted by the Issuer, such Subsequent
Intangible Transition Property shall be sold to the Issuer effective on the
Subsequent Transfer Date specified in the
<PAGE> 13
10
related Addition Notice, subject to the satisfaction or waiver of the
conditions specified in Section 2.03.
SECTION 2.03. Conditions to Conveyance of Intangible Transition
Property. The Seller shall be permitted to sell Intangible Transition Property
to the Issuer only upon the satisfaction or waiver of each of the following
conditions:
(i) on or prior to the Initial Transfer Date or Subsequent
Transfer Date, as applicable, the Seller shall have delivered to the
Issuer a duly executed Bill of Sale identifying the Intangible
Transition Property to be conveyed on that date;
(ii) as of the Initial Transfer Date or the Subsequent Transfer
Date, as applicable, the Seller was not insolvent and will not have been
made insolvent by such sale and the Seller is not aware of any pending
insolvency with respect to itself;
(iii) as of the Initial Transfer Date or the Subsequent Transfer
Date, as applicable, no breach by the Seller of its representations,
warranties or covenants in this Agreement shall exist; no Servicer
Default shall have occurred and be continuing; and no breach by the
Transferor of its representations and warranties in the Transfer
Agreement shall exist;
(iv) as of the Initial Transfer Date or the Subsequent Transfer
Date, as applicable, (A) the Issuer
<PAGE> 14
11
shall have sufficient funds available to pay the purchase price for the
Transferred Intangible Transition Property to be conveyed on such date
and (B) all conditions to the issuance of one or more Series of
Transition Bonds intended to provide such funds set forth in the
Indenture shall have been satisfied or waived;
(v) on or prior to the Initial Transfer Date or Subsequent
Transfer Date, as applicable, the Seller shall have taken all action
required to transfer to the Issuer ownership of the Transferred
Intangible Transition Property to be conveyed on such date, free and
clear of all Liens other than Liens created by the Issuer pursuant to
the Indenture; and the Issuer or the Servicer, on behalf of the Issuer,
shall have taken any action required for the Issuer to grant the Bond
Trustee a first priority perfected security interest in the Collateral
and maintain such security interest as of such date;
(vi) in the case of a sale of Subsequent Intangible Transition
Property only, on or prior to such Subsequent Transfer Date, the Seller
shall have provided the Issuer and the Rating Agencies with a timely
Addition Notice;
(vii) the Seller shall have delivered to the Rating Agencies and
the Issuer (A) an Opinion of Counsel with
<PAGE> 15
12
respect to the transfer of the Transferred Intangible Transition Property
then being conveyed to the Issuer substantially in the form of Exhibit B
hereto and (B) the Opinion of Counsel required by Section 5.04(a); and
(viii) the Seller shall have delivered to the Bond Trustee and
the Issuer an Officers' Certificate confirming the satisfaction of each
condition precedent specified in this Section 2.03.
ARTICLE III
Representations and Warranties of Seller
As of the Initial Transfer Date and as of any Subsequent Transfer
Date, as applicable, the Seller makes the following representations and
warranties on which the Issuer has relied and will rely in acquiring
Transferred Intangible Transition Property. The Seller agrees and acknowledges
that the following representations and warranties are also for the benefit of
the Bond Trustee, as collateral assignee of the Issuer pursuant to the
Indenture. The representations and warranties shall survive the sale of
Transferred Intangible Transition Property to the Issuer and the pledge thereof
to the Bond Trustee pursuant to the Indenture.
SECTION 3.01. Organization and Good Standing. The Seller is a
corporation duly organized and in good standing under the laws of the State of
Delaware, with
<PAGE> 16
13
corporate power and authority to own its properties and conduct its business as
currently owned or conducted.
SECTION 3.02. Due Qualification. The Seller 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 shall require 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
Seller's business, operations, assets, revenues, properties or prospects).
SECTION 3.03. Power and Authority. The Seller has the corporate
power and authority to execute and deliver this Agreement and to carry out its
terms; the Seller has full corporate power and authority to own the Intangible
Transition Property and sell and assign the Initial Intangible Transition
Property, in the case of the Initial Transfer Date, and the Subsequent
Intangible Transition Property, in the case of each Subsequent Transfer Date,
as applicable, and the Seller has duly authorized such sale and assignment to
the Issuer by all necessary corporate action; and the execution, delivery and
performance of this Agreement has been duly authorized by the Seller by all
necessary corporate action.
<PAGE> 17
14
SECTION 3.04. Binding Obligation. This Agreement constitutes a
legal, valid and binding obligation of the Seller enforceable against the
Seller in accordance with its terms subject to 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).
SECTION 3.05. No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do 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 Seller, or any indenture, agreement
or other instrument to which the Seller 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 Seller of any court or of any Federal or state regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Seller or its properties.
SECTION 3.06. No Proceedings. There are no proceedings or
investigations pending or, to the Seller's
<PAGE> 18
15
best knowledge, threatened, before any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Seller or its properties (i) asserting the invalidity of the Basic
Documents or the Transition Bonds, (ii) seeking to prevent the issuance of the
Transition Bonds or the consummation of any of the transactions contemplated by
the Basic Documents or the Transition Bonds or (iii) except as disclosed by the
Seller to the Issuer, seeking any determination or ruling that could reasonably
be expected to materially and adversely affect the performance by the Seller of
its obligations under, or the validity or enforceability of, the Basic
Documents or the Transition Bonds.
SECTION 3.07. Approvals. Except for 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 Seller of this Agreement, the performance by the Seller of the
transactions contemplated hereby or the fulfillment by the Seller of the terms
hereof, except those that have been obtained or made.
SECTION 3.08. The Intangible Transition Property. (a)
Information. All information provided by the Seller to the Issuer with respect
to the Transferred
<PAGE> 19
16
Intangible Transition Property is correct in all material respects.
(b) Effect of Transfer. The transfers and assignments herein
contemplated constitute sales of the Initial Intangible Transition Property or
the Subsequent Intangible Transition Property, as the case may be, from the
Seller to the Issuer and the beneficial interest in and title to the
Transferred Intangible Transition Property would not be part of the debtor's
estate in the event of the filing of a bankruptcy petition by or against the
Seller under any bankruptcy law.
(c) Transfer Filings. The Seller is the sole owner of the
Intangible Transition Property being sold to the Issuer on the Initial Transfer
Date or Subsequent Transfer Date, as applicable; the Transferred Intangible
Transition Property has been validly transferred and sold to the Issuer free
and clear of all Liens other than Liens created by the Issuer pursuant to the
Indenture. All filings, including filings with the PUC under the Statute,
necessary in any jurisdiction to give the Issuer a valid ownership interest in
the Transferred Intangible Transition Property, free and clear of all Liens of
the Seller or anyone claiming through the Seller, and to give the Bond Trustee
a first priority perfected security interest in the Transferred Intangible
Transition Property have been made, other than any such filings (except for
filings with the PUC
<PAGE> 20
17
under the Statute and UCC filings with the Secretary of State of the State of
Delaware) the absence of which would not have an adverse impact on (i) the
ability of the Servicer to collect Intangible Transition Charges with respect
to the Serviced Intangible Transition Property or (ii) the rights of the Issuer
or the Bond Trustee with respect to the Transferred Intangible Transition
Property.
(d) Solvency. After giving effect to the sale of any Transferred
Intangible Transition Property hereunder, the Seller (i) is solvent and expects
to remain solvent, (ii) is adequately capitalized to conduct its business and
affairs considering its size and the nature of its business and intended
purposes, (iii) is not engaged in nor does it expect to engage in a business
for which its remaining property represents an unreasonably small capital, (iv)
believes that it will be able to pay its debts as they come due and that such
belief is reasonable and (v) is able to pay its debts as they mature and does
not intend to incur, or believe that it will incur, indebtedness that it will
not be able to repay at its maturity.
ARTICLE IV
Covenants of the Seller
SECTION 4.01. Corporate Existence. Subject to Section 5.02, so
long as any of the Transition Bonds are outstanding, the Seller will keep in
full force and effect
<PAGE> 21
18
its corporate existence and remain in good standing, in each case under the
laws of the jurisdiction of its incorporation, and will obtain and preserve its
qualification to do business in each jurisdiction in which such qualification
is or shall be necessary to protect the validity and enforceability of this
Agreement and each other instrument or agreement to which the Seller is a party
necessary to the proper administration of this Agreement and the transactions
contemplated hereby.
SECTION 4.02. No Liens or Conveyances. Except for the conveyances
hereunder, the Seller will not sell, pledge, assign or transfer to any other
Person, or grant, create, incur, assume or suffer to exist any Lien on, any of
the Intangible Transition Property, whether now existing or hereafter created,
or any interest therein. The Seller shall not at any time assert any Lien
against or with respect to any Serviced Intangible Transition Property, and
shall defend the right, title and interest of the Issuer and the Bond Trustee,
as collateral assignee of the Issuer, in, to and under the Intangible
Transition Property, whether now existing or hereafter created, against all
claims of third parties claiming through or under the Seller.
SECTION 4.03. Delivery of Collections. If the Seller receives
collections in respect of the Intangible Transition Charges or the proceeds
thereof, the Seller agrees to pay the Servicer all payments received by the
<PAGE> 22
19
Seller in respect thereof as soon as practicable after receipt thereof by the
Seller, but in no event later than two Business Days after such receipt.
SECTION 4.04. Notice of Liens. The Seller shall notify the Issuer
and the Bond Trustee promptly after becoming aware of any Lien on any
Intangible Transition Property other than the conveyances hereunder, under the
Transfer Agreement or under the Indenture.
SECTION 4.05. Compliance with Law. The Seller hereby agrees to
comply with its organizational or governing documents and all laws, treaties,
rules, regulations and determinations of any governmental instrumentality
applicable to the Seller, except to the extent that failure to so comply would
not adversely affect the Issuer's or the Bond Trustee's interests in the
Intangible Transition Property or under any of the Basic Documents or the
Seller's performance of its obligations hereunder or under any of the other
Basic Documents to which it is a party.
SECTION 4.06. Covenants Related to Intangible Transition
Property. (a) So long as any of the Transition Bonds are outstanding, the
Seller shall treat the Transition Bonds as debt of the Seller for Federal
income tax purposes.
(b) So long as any of the Transition Bonds are outstanding, the
Seller shall (i) clearly disclose in its financial statements that it is not
the owner of the Transferred Intangible Transition Property and that the
<PAGE> 23
20
assets of the Issuer are not available to pay creditors of the Seller or any of
its Affiliates and (ii) clearly disclose the effects of all transactions
between the Seller and the Issuer in accordance with generally accepted
accounting principles.
(c) The Seller agrees that upon the sale by the Seller of the
Transferred Intangible Transition Property to the Issuer pursuant to a Bill of
Sale, (i) to the fullest extent permitted by law, including applicable PUC
Regulations, the Issuer shall have all of the rights originally held by the
Seller with respect to the Transferred Intangible Transition Property,
including the right to collect any amounts payable by any Customer or Third
Party in respect of such Transferred Intangible Transition Property,
notwithstanding any objection or direction to the contrary by the Seller and
(ii) any payment by any Customer or Third Party to the Issuer shall discharge
such Customer's or such Third Party's obligations in respect of such
Transferred Intangible Transition Property to the extent of such payment,
notwithstanding any objection or direction to the contrary by the Seller.
(d) So long as any of the Transition Bonds are outstanding, the
Seller shall not make any statement or reference in respect of the Transferred
Intangible Transition Property that is inconsistent with the ownership thereof
by the Issuer.
<PAGE> 24
21
SECTION 4.07. Notice of Indemnification Events. The Seller shall
deliver to the Issuer and the Bond Trustee promptly after having obtained
knowledge thereof, written notice in an Officers' Certificate of any
Indemnification Event or any event which, with the giving of notice or the
passage of time, would become an Indemnification Event.
SECTION 4.08. Protection of Title. The Seller 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 Transferred Intangible Transition Property,
including all filings required under the Statute relating to the transfer of
the ownership or security interest in the Transferred Intangible Transition
Property by the Seller to the Issuer. The Seller 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.
The Seller agrees to take such legal or administrative actions, including
defending against or instituting and pursuing legal actions and appearing or
testifying at hearings or similar proceedings, as may be reasonably necessary
(i) to protect the Issuer and the Transition Bondholders from claims, state
actions or other
<PAGE> 25
22
actions or proceedings of third parties which, if successfully pursued, would
result in a breach of any representation or warranty set forth in Article III
or (ii) to block or overturn any attempts to cause a repeal of, modification of
or supplement to the Statute or the Qualified Rate Order or the rights of
holders of Intangible Transition Property by legislative enactment or
constitutional amendment that would be adverse to the holders of Intangible
Transition Property.
SECTION 4.09. Taxes. So long as any of the Transition Bonds are
outstanding, the Seller shall, and shall cause each of its subsidiaries to, pay
all material taxes, including gross receipts taxes, assessments and
governmental charges imposed upon it or any of its properties or assets or with
respect to any of its franchises, business, income or property before any
penalty accrues thereon if the failure to pay any such taxes, assessments and
governmental charges would, after any applicable grace periods, notices or
other similar requirements, result in a lien on the Intangible Transition
Property; provided that no such tax need be paid if the Seller or one of its
subsidiaries is contesting the same in good faith by appropriate proceedings
promptly instituted and diligently conducted and if the Seller or such
subsidiary has established appropriate reserves as shall be
<PAGE> 26
23
required in conformity with generally accepted accounting principles.
SECTION 4.10. Separate Entity. The Seller shall take all
reasonable steps to continue its identity as a separate legal entity and to
make it apparent to third persons that it is an entity with assets and
liabilities distinct from those of West Penn, other affiliates or any other
Person, and that, except for financial reporting purposes (to the extent
required by generally accepted accounting principles) and for state and Federal
income and franchise tax purposes, it is not a division of West Penn or any of
its affiliated entities or any other Person.
ARTICLE V
The Seller
SECTION 5.01. Liability of Seller; Indemnities. (a) The Seller
shall be liable in accordance herewith only to the extent of the obligations
specifically undertaken by the Seller under this Agreement.
(b) The Seller shall indemnify the Issuer and the Bond Trustee,
for itself and on behalf of the Transition Bondholders, and each of their
respective members, managers, officers, directors and agents for, and defend
and hold harmless each such Person from and against, any and all taxes (other
than any taxes imposed on Transition Bondholders solely as a result of their
ownership of
<PAGE> 27
24
Transition Bonds) that may at any time be imposed on or asserted against any
such Person as a result of the acquisition or holding of the Transferred
Intangible Transition Property by the Issuer or the issuance and sale by the
Issuer of the Transition Bonds, including any sales, gross receipts, general
corporation, tangible personal property, privilege or license taxes.
(c)(i) The Seller shall indemnify the Issuer and the Bond
Trustee, on behalf of the Transition Bondholders, each of their respective
members, managers, officers, directors, and agents, and defend and hold
harmless each such Person from and against, any and all Losses that may be
imposed on, incurred by or asserted against any such Person as a result of (x)
the Seller's wilful misconduct, bad faith or gross negligence in the
performance of its duties or observance of its covenants under this Agreement,
(y) the Seller's reckless disregard of its obligations and duties under this
Agreement or (z) the Seller's breach of any of its representations or
warranties contained in this Agreement (any event described in any of the
foregoing clauses (x), (y) or (z), an "Indemnification Event"). Amounts on
deposit in the Reserve Subaccount and the Capital Subaccount shall not be
available to satisfy any Losses for which indemnification is provided in this
Agreement.
(ii) If an Indemnification Event shall occur, upon receipt of
written notice thereof by the Seller from the
<PAGE> 28
25
Issuer or the Bond Trustee, the Seller shall notify the Servicer of the
occurrence of such event so that the Servicer may, pursuant to Section 7 of
Annex 1 to the Servicing Agreement, calculate (x) on the day which is 90 days
after receipt of such notice by the Seller (the "Initial Loss Calculation
Date") the amount of Losses expected to be incurred as a result of such
Indemnification Event from and including the time of its occurrence through and
including the next Payment Date after the Initial Loss Calculation Date and (y)
to the extent that Losses may be incurred as a result of such Indemnification
Event in an amount exceeding the amount of Losses calculated pursuant to clause
(x) above, not later than each Payment Date succeeding the Initial Loss
Calculation Date, the amount of Losses expected to be incurred as a result of
such Indemnification Event from but excluding such Payment Date through and
including the next Payment Date. All such calculations shall be subject to the
approval of the Bond Trustee. If such Indemnification Event shall continue
unremedied beyond the Initial Loss Calculation Date, the Seller shall pay to
the Bond Trustee, as collateral assignee of the Issuer, for deposit into the
General Subaccount of the Collection Account, (x) on the Payment Date
immediately following the Initial Loss Calculation Date, the amount of Losses
calculated pursuant to clause (x) and clause (y) of the preceding sentence with
respect to such Payment Date and
<PAGE> 29
26
(y) on each subsequent Payment Date, the amount of Losses calculated as of such
date pursuant to clause (y) of the preceding sentence. Upon payment pursuant to
this Section 5.01(c)(ii), the Seller shall have no further obligations with
respect to such Losses to the extent of such payments.
(d) The Seller 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 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 into the
Collection Account and distributed in accordance with the Indenture.
(e) The Seller's indemnification obligations under Section
5.01(b),(c) and (d) for events occurring prior to the removal or resignation of
the Bond Trustee or the termination of this Agreement shall survive the
resignation or removal of the Bond Trustee or the termination of this Agreement
and shall include reasonable fees and expenses of investigation and litigation
(including the Bond Trustee's reasonable attorney's fees and expenses).
SECTION 5.02. Merger or Consolidation of, or Assumption of the
Obligations of, Seller. Any Person
<PAGE> 30
27
(a) into which the Seller may be merged or consolidated, (b) which results from
the division of the Seller into two or more Persons, (c) which may result from
any merger or consolidation to which the Seller shall be a party, or (d) which
may succeed to the properties and assets of the Seller substantially as a
whole, which Person in any of the foregoing cases executes an agreement of
assumption to perform every obligation of the Seller under this Agreement,
shall be the successor to the Seller hereunder without the execution or filing
of any document or any further act by any of the parties to this Agreement;
provided, however, that (i) immediately after giving effect to such
transaction, no representation or warranty made pursuant to Article III shall
have been breached and no Servicer Default, and no event that, after notice or
lapse of time, or both, would become a Servicer Default, shall have occurred
and be continuing, (ii) the Seller shall have delivered to the Issuer and the
Bond Trustee an Officers' Certificate and an Opinion of Counsel each stating
that such consolidation, merger or succession and such agreement of assumption
comply with this Section and that all conditions precedent, if any, 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 and (iv) the Seller shall have delivered to the Issuer and the Bond
Trustee an Opinion of Counsel either
<PAGE> 31
28
(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 fully to preserve and protect the interest of the Issuer in the
Transferred 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 described agreement
of assumption and compliance with clauses (i), (ii), (iii) and (iv) above shall
be conditions precedent to the consummation of any transaction referred to in
clauses (a), (b), (c) or (d) above.
SECTION 5.03. Limitation on Liability of Seller and Others. The
Seller and any director or officer or employee or agent of the Seller may rely
in good faith on the advice of counsel or on any document of any kind, prima
facie properly executed and submitted by any Person, respecting any matters
arising hereunder. Subject to Section 4.08, the Seller shall not be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its obligations under this Agreement, and that in its opinion may
involve it in any expense or liability.
SECTION 5.04. Opinions of Counsel. The Seller shall deliver to
the Issuer and the Bond Trustee: (a)
<PAGE> 32
29
promptly after the execution and delivery of this Agreement and of each
amendment hereto or to the Servicing Agreement and on each Subsequent 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
Issuer in the 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 Initial Transfer Date, an Opinion of Counsel, dated as of a date during
such 90-day period, either (i) to the effect that, in the opinion of such
counsel, all 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 Issuer in the 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)
<PAGE> 33
30
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 VI
Miscellaneous Provisions
SECTION 6.01. Amendment. This Agreement may be amended by the
Seller 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 5.04(a). 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 6.02. Notices. All demands, notices and communications
upon or to the Seller, the Issuer, the Bond Trustee or the Rating Agencies
under this Agreement shall be in writing, delivered personally, via facsimile,
reputable
<PAGE> 34
31
overnight courier or by certified mail, return-receipt requested, and shall be
deemed to have been duly given upon receipt (a) in the case of the Seller, to
West Penn Funding Corporation, 800 Cabin Hill Drive, Greensburg, PA 15601,
Attention of [ ], (b) in the case of the Issuer, to West Penn Funding
LLC, 800 Cabin Hill Drive, Greensburg, PA 15601, Attention of [ ],
(c) in the case of the Bond Trustee, at the Corporate Trust Office, (d) in the
case of Moody's, to Moody's Investors Service, Inc., ABS Monitoring Department,
99 Church Street, New York, New York 10007, (e) in the case of Standard &
Poor's, to Standard & Poor's Corporation, 26 Broadway (15th Floor), New York,
New York 10004, Attention of Asset Backed Surveillance Department, and (f) in
the case of Fitch IBCA, to Fitch IBCA, Inc., One State Street Plaza, New York,
New York 10004, 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 6.03. Assignment. Notwithstanding anything to the
contrary contained herein, except as provided in Section 5.02, this Agreement
may not be assigned by the Seller.
SECTION 6.04. Limitaions on Rights of Others. The provisions of
this Agreement are solely for the benefit of the Seller, the Issuer and the
Bond Trustee, on behalf of itself and the Transition Bondholders, and nothing
in this
<PAGE> 35
32
Agreement, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the Collateral or under
or in respect of this Agreement or any covenants, conditions or provisions
contained herein.
SECTION 6.05. 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 6.06. 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 6.07. 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 6.08. 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
<PAGE> 36
33
parties hereunder shall be determined in accordance with such laws.
SECTION 6.09. Assignment to Bond Trustee. The Seller 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 Transferred Intangible Transition Property
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 [Name of 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.
SECTION 6.10. Nonpetition Covenant. 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
Intangible Transition Property notwithstanding any bankruptcy, reorganization
or other insolvency proceedings with respect to the debtor, pledgor or
transferor of the Intangible Transition Property pursuant to Section
2812(d)(3)(v) of the Statute, the Seller shall not, prior to the date which is
one year and one day after the
<PAGE> 37
34
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 any Federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Issuer or any substantial part of the property of the Issuer, or ordering the
winding up or liquidation of the affairs of the Issuer.
SECTION 6.11. Perfection. In accordance with Section 2812(e) of
the Statute, upon the execution and delivery of this Agreement and the related
Bill of Sale, the transfer of the Initial Intangible Transition Property will
be perfected as against all third persons, including any judicial lien
creditors, and upon the execution and delivery of a Bill of Sale and, if
applicable, a supplement to this Agreement, a transfer of Subsequent Intangible
Transition
<PAGE> 38
35
Property will be perfected against all third persons, including any judicial
lien creditors.
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, Issuer,
by [ ], as Manager,
by
---------------------------------
Title:
WEST PENN FUNDING
CORPORATION, Seller,
by
---------------------------------
Title:
Acknowledged and Accepted:
[ ], not
in its individual capacity
but solely as Bond Trustee
on behalf of the Transition
Bondholders,
by
------------------------
Title:
<PAGE> 1
EXHIBIT 10.3
================================================================================
SERVICING AGREEMENT
between
WEST PENN FUNDING LLC
and
WEST PENN POWER COMPANY
Servicer
Dated as of [ ], 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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----
ARTICLE I
Definitions
-----------
<S> <C> <C>
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
</TABLE>
<PAGE> 3
Contents, p. ii
<TABLE>
<CAPTION>
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ARTICLE IV
Services Related to Intangible
------------------------------
Transition Charges Adjustments
------------------------------
<S> <C> <C>
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
</TABLE>
<PAGE> 4
Contents, p. iii
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
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
</TABLE>
<PAGE> 5
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:
<PAGE> 6
2
ARTICLE I
Definitions
SECTION 1.01. Definitions. Whenever used in this Agreement,
each of the following words and phrases shall have the following meaning:
"Administration Agreements" means, collectively, the Seller
Administration Agreement and the Issuer Administration Agreement.
"Administrative Fees" means the fees owed to Allegheny Power
Service Corporation, as administrative agent, under the Administration
Agreements.
"Agreement" means this Servicing Agreement, as the same may be
amended and supplemented from time to time.
"Annual Accountant's Report" has the meaning specified in
Section 3.06(a).
"Bond Trustee" means, [ ], a [ ], as bond
trustee under the Indenture, or any successors to the foregoing.
"Business Day" means any day other than a Saturday, Sunday or
a day on which banking institutions in the City of New York, the City of
Greensburg, Pennsylvania or the State of Delaware are required by law or
executive order to remain closed.
"Class" means, with respect to any Series, any one of the
classes of Transition Bonds of that Series.
<PAGE> 7
3
"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
<PAGE> 8
4
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
<PAGE> 9
5
consent by such Person to the entry of an order for relief in an involuntary
case under any such law, or the consent by such Person to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official for such Person or for any substantial part of
its property, or the making by such Person of any general assignment for the
benefit of creditors, or the failure by such Person generally to pay its debts
as such debts become due, or the taking of action by such Person in furtherance
of any of the foregoing.
"Intangible Transition Charges" means the amounts authorized
by the PUC to be imposed on all Customer bills with respect to the Intangible
Transition Property and collected, through a non-bypassable mechanism, by West
Penn or its successor or by any other entity which provides electric service to
Customers, to recover Qualified Transition Expenses pursuant to the Qualified
Rate Order.
"Intangible Transition Charges Adjustment" means each
adjustment to Intangible Transition Charges related to the Serviced Intangible
Transition Property made in accordance with Section 4.01 and Annex 1 hereto or
in connection with the redemption by the Issuer of Transition Bonds.
"Intangible Transition Property" means the irrevocable right
of West Penn or its successor or assignee
<PAGE> 10
6
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.
<PAGE> 11
7
"Moody's" means Moody's 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
<PAGE> 12
8
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
<PAGE> 13
9
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.
<PAGE> 14
10
"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.
<PAGE> 15
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"Statute" means the Pennsylvania Electricity Generation
Customer Choice and Competition Act, Chapter 28 of Title 66 of the Pennsylvania
Consolidated Statutes, 66 Pa. C.S., Section 2801, et seq.
"Termination Notice" has the meaning specified in Section
6.01(d).
"Third Party" means any third party, including any electric
generation supplier, providing billing or metering services, licensed by the
PUC pursuant to relevant provisions of the Statute and any PUC order.
"Transfer Agreement" means the Intangible Transition Property
Transfer Agreement dated as of [ ], 1999, between the Transferor and the
Seller relating to the transfer of Intangible Transition Property to the
Seller.
"Transfer Date" means each date on which the Seller sells,
conveys, or otherwise transfers any Intangible Transition Property to the
Issuer.
"Transferor" means West Penn Power Company, as transferor
under the Transfer Agreement, and its successors in interest to the extent
permitted hereunder.
"Transition Bonds" means "transition bonds" (as defined in the
Statute) issued by the Issuer.
"UCC" means, unless the context otherwise requires, the
Uniform Commercial Code, as in effect in the relevant jurisdiction, as amended
from time to time.
<PAGE> 16
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"West Penn" means West Penn Power Company, a Pennsylvania
corporation.
SECTION 1.02. Other Definitional Provisions. (a) The words
"hereof", "herein", "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement; Section, Annex, Schedule and Exhibit references
contained in this Agreement are references to Sections, Annexes, Schedules and
Exhibits in or to this Agreement unless otherwise specified; and the term
"including" shall mean "including without limitation".
(b) The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms.
ARTICLE II
Appointment and Authorization of Servicer
SECTION 2.01. Appointment of Servicer; Acceptance of
Appointment. Subject to Section 5.04 and Article VI, the Issuer hereby
appoints the Servicer, and the Servicer hereby accepts such appointment, to
perform the Servicer's obligations pursuant to this Agreement on behalf of and
for the benefit of the Issuer in accordance with the terms of this Agreement.
This appointment and the Servicer's
<PAGE> 17
13
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,
<PAGE> 18
14
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
<PAGE> 19
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Transition Charges; (iii) accounting for ITC Collections,
investigating delinquencies, processing and depositing collections and
making periodic remittances, furnishing periodic reports to the
Issuer, the Bond Trustee and the Rating Agencies; (iv) selling, as the
agent for the Issuer, as its interest may appear, defaulted or written
off accounts in accordance with the Servicer's usual and customary
practices; and (v) taking action in connection with Intangible
Transition Charge Adjustments as set forth herein. Anything to the
contrary notwithstanding, the duties of the Servicer set forth in this
Agreement shall be qualified in their entirety by any PUC Regulations
as in effect at the time such duties are to be performed. Without
limiting the generality of this Section 3.01(a), in furtherance of the
foregoing, the Servicer hereby agrees that it shall also have, and
shall comply with, the duties and responsibilities relating to data
acquisition, usage and bill 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
<PAGE> 20
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
<PAGE> 21
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Charges as and when the same shall become due and shall follow such collection
procedures as it follows with respect to collection activities that the
Servicer conducts for itself or others. The Servicer shall not change the
amount of or reschedule the due date of any scheduled payment of Intangible
Transition Charges, except as contemplated in this Agreement or as required by
law or court or PUC order; provided, however, that the Servicer may take any of
the foregoing actions to the extent that such action would be in accordance
with customary billing and collection practices of the Servicer with respect to
billing and collection activities that it conducts for itself.
(b) Any amounts received by the Servicer from a Customer that
represent a partial payment toward an outstanding balance will be applied first
to state tax charges, then Intangible Transition Charges, then to Competitive
Transition Charges, then to transmission and distribution charges and finally
to electric generation charges. Notwithstanding the foregoing, when West Penn
is providing billing for its transmission and distribution charges which is
separate from billing for generation, any amounts received from Customers
remitting partial payments will be applied in the following priority: (i) to
the outstanding balance before direct access to electric generation from
electric generation suppliers or the
<PAGE> 22
18
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
<PAGE> 23
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collection activities that the Servicer conducts for itself and others; (b)
follow standards, policies and procedures in performing its duties as Servicer
that are customary in the Servicer's industry; (c) use all reasonable efforts,
consistent with its customary servicing procedures, to enforce and maintain
rights in respect of the Intangible Transition Property; and (d) calculate
Intangible Transition Charges in compliance with the Statute, the Qualified
Rate Order and any applicable tariffs, except where the failure to comply with
any of the foregoing would not adversely affect the Issuer's or the Bond
Trustee's interest in the Serviced Intangible Transition Property. The
Servicer shall follow such customary and usual practices and procedures as it
shall deem necessary or advisable in its servicing of all or any portion of the
Serviced Intangible Transition Property, which, in the Servicer's judgment, may
include the taking of legal action pursuant to Section 3.09 hereof or
otherwise.
SECTION 3.04. Servicer's Certificates. (a) The Servicer
will provide to the Issuer, the Bond Trustee and each of the Rating Agencies
the statements and certificates specified in Annex 1 hereto.
SECTION 3.05. Annual Statement as to Compliance; Notice of
Default. (a) The Servicer shall deliver to the Issuer, the Bond Trustee and
each Rating Agency, on or
<PAGE> 24
20
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
<PAGE> 25
21
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
<PAGE> 26
22
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
<PAGE> 27
23
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 800 Cabin Hill
Drive, Greensburg, Pennsylvania 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
<PAGE> 28
24
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
<PAGE> 29
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
<PAGE> 30
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 ownership or lease of
property or the conduct of its business (including the servicing of the
Serviced Intangible Transition Property as required by this Agreement) requires
such qualifications, licenses or approvals (except where the failure to so
qualify would not be reasonably likely to have a material adverse effect on the
Servicer's business, operations, assets, revenues, properties or prospects or
adversely affect the servicing of the Serviced Intangible Transition Property).
(c) Power and Authority. The Servicer has the corporate power and
authority to execute and deliver this Agreement and to carry out its terms; and
the
<PAGE> 32
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 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
<PAGE> 33
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
<PAGE> 34
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.
<PAGE> 35
31
(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
<PAGE> 36
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,
<PAGE> 37
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
<PAGE> 38
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
<PAGE> 39
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
<PAGE> 40
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
<PAGE> 41
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
<PAGE> 42
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.
<PAGE> 43
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
<PAGE> 44
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.
<PAGE> 45
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
<PAGE> 46
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
<PAGE> 47
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
<PAGE> 48
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
<PAGE> 49
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
<PAGE> 50
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-
<PAGE> 51
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
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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, 800 Cabin Hill Drive,
Greensburg, Pennsylvania 15601, 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
Moody's Investors Service, Inc., ABS Monitoring Department, 99 Church Street,
New York, New York 10007, (d) in the case of Standard & Poor's, to Standard &
Poor's Corporation, 26 Broadway (15th Floor), New York, New York 10004,
Attention of Asset Backed Surveillance Department, and (e) in the case of Fitch
IBCA, to Fitch IBCA, Inc., One State Street Plaza, New York, New York 10004,
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.
<PAGE> 53
49
SECTION 7.03. Assignment. Notwithstanding anything to the
contrary contained herein, except as provided in Sections 5.03 and 5.04 and as
provided in the provisions of this Agreement concerning the resignation of the
Servicer, this Agreement may not be assigned by the Servicer.
SECTION 7.04. Limitations on Rights of Others. The
provisions of this Agreement are solely for the benefit of the Servicer, the
Issuer (including its manager and members) and the Bond Trustee, on behalf of
itself and the Transition Bondholders, and nothing in this Agreement, whether
express or implied, shall be construed to give to any other Person any legal or
equitable right, remedy or claim in any Collateral or under or in respect of
this Agreement or any covenants, conditions or provisions contained herein.
SECTION 7.05. Severability. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
<PAGE> 54
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
<PAGE> 55
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.
<PAGE> 56
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:
<PAGE> 57
ANNEX 1
TO
SERVICING AGREEMENT
The Servicer agrees to comply with the following with respect to West Penn
Funding LLC (the "Issuer"):
SECTION 1. Definitions. (a) Capitalized terms used herein
and not otherwise defined shall have the meanings set forth in the Servicing
Agreement dated as of [ ], 1999 (the "Servicing Agreement"), between the
Issuer and West Penn Power Company, as Servicer.
(b) Whenever used in this Annex 1, the following words and
phrases shall have the following meanings:
"Adjustment Date" means, with respect to any Series of
Transition Bonds, such date or dates specified as such in the Series Supplement
therefor.
"Adjustment Request" means an application filed by the
Servicer with the PUC for revised Intangible Transition Charges pursuant to
Section 4(b) of this Annex.
"Available Reserve Amount" means, as of any date, the amount
on deposit in the Reserve Subaccount less the product of (a) the Prepayment
Amount and (b) the difference, expressed as a percentage, between 100% and the
Expected Amortization Percentage for the immediately following Regulatory Year.
"Bond Trustee" has the meaning specified in the Indenture.
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"Calculation Date" means, with respect to any Series of
Transition Bonds, such date or dates specified as such in the Series Supplement
therefor.
"Calculated Overcollateralization Level" means, with respect
to any Series of Transition Bonds, the amount specified as such in the Series
Supplement therefor.
"Capital Subaccount" has the meaning set forth in the
Indenture.
"Class" has the meaning specified in the Indenture.
"Expected Amortization Percentage" means, with respect to any
Regulatory Year, the percentage equivalent of a fraction, the numerator of
which is the aggregate amount of Transition Bonds of all Series to be amortized
during such Regulatory Year as set forth in Expected Amortization Schedules
therefor and the denominator of which is the Projected Transition Bond Balance
on the first day of such Regulatory Year.
"Expected Amortization Schedule" means, with respect to any
Series of Transition Bonds, the expected amortization schedule for principal
thereof, as specified in the Series Supplement therefor.
"Expected Final Payment Date" means, with respect to any
Series or Class of Transition Bonds, the expected
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final payment date therefor, as specified in the Series Supplement therefor.
"Holder" or "Transition Bondholder" has the meaning set forth
in the Indenture.
"Indenture" means the Indenture dated as of [ ], 1999,
between the Issuer and [ ], as amended and supplemented from time to
time, including any Series Supplement.
"Overcollateralization Subaccount" has the meaning set forth
in the Indenture.
"Payment Date" has the meaning specified in the Indenture and
the applicable Series Supplement.
"Prepayment Amount" means, as of any date, the sum of all
amounts currently on deposit in the Reserve Subaccount arising from prepayment
by customers allocable to Intangible Transition Charges.
"Projected Transition Bond Balance" has the meaning specified
in the Indenture.
"Regulatory Period" means with respect to any Series (i) the
period from the Series Issuance Date therefor through and including the first
Adjustment Date (the "Initial Regulatory Period") and (ii) following the
Initial Regulatory Period until [September 25, 2009], each period from and
including each Adjustment Date through but excluding the following Adjustment
Date.
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"Required Capital Amount" means, with respect to any Series of
Transition Bonds, the amount specified as such in the Series Supplement
therefor.
"Reserve Subaccount" has the meaning set forth in the
Indenture.
"Sale Agreement" has the meaning set forth in the Indenture.
"Schedule Revision Date" has the meaning set forth in the
Indenture.
"Series" has the meaning specified in the Indenture.
"Series Issuance Date" has the meaning specified in the
Indenture and the applicable Series Supplement.
"Series Supplement" has the meaning specified in the
Indenture.
"Transferred Intangible Transition Property" has the meaning
specified in the Sale Agreement.
"Transition Bonds" has the meaning specified in the Indenture.
"Transition Bond Balance" has the meaning specified in the
Indenture.
SECTION 2. Adjustment Date Statements. For each Adjustment
Date, the Servicer will provide to the Issuer and the Bond Trustee a statement
indicating (i) the Transition Bond Balance and the Projected Transition Bond
Balance for
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each Series as of the immediately preceding Payment Date, (ii) the amount on
deposit in the Overcollateralization Subaccount and the Calculated
Overcollateralization Level as of the immediately preceding Payment Date, (iii)
the amount on deposit in the Capital Subaccount and the Required Capital Amount
as of the immediately preceding Payment Date, (iv) the Projected Transition
Bond Balance for each Payment Date prior to the next Adjustment Date and the
Servicer's projection of the Transition Bond Balance as of each Payment Date
prior to the next Adjustment Date, (v) the Calculated Overcollateralization
Level for each Payment Date prior to the next Adjustment Date and the
Servicer's projection of the amount on deposit in the Overcollateralization
Subaccount as of each Payment Date prior to the next Adjustment Date, (vi) the
Required Capital Amount for each Payment Date prior to the next Adjustment Date
and the Servicer's projections of the amount on deposit in the Capital
Subaccount as of each Payment Date prior to the next Adjustment Date and (vii)
the projected ITC Collections from the Payment Date immediately preceding the
Adjustment Date through the next Adjustment Date.
SECTION 3. Remittance Date Statements. On or before each
Remittance Date, the Servicer will prepare and furnish to the Issuer and the
Bond Trustee a statement setting forth the aggregate amount remitted or to be
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remitted by the Servicer to the Bond Trustee for deposit on such Remittance
Date pursuant to Section 5.10 of the Servicing Agreement and the Indenture.
SECTION 4. Payment Date Statements. At least three Business
Days before each Payment Date for each Series of Transition Bonds, the Servicer
will prepare and furnish to the Issuer and the Bond Trustee a statement setting
forth the amounts to be paid to Holders of Transition Bonds of such Series
pursuant to Section 8.02(d) of the Indenture.
SECTION 5. Intangible Transition Charges Adjustments. (a)
Prior to each Calculation Date, the Servicer shall calculate (i) the Transition
Bond Balance as of the Payment Date immediately preceding such Calculation Date
(a written copy of which shall be delivered by the Servicer to the Bond Trustee
within five days following such Calculation Date) and (ii) the revised
Intangible Transition Charges with respect to the Transferred Intangible
Transition Property for the then-current Regulatory Period and any subsequent
Regulatory Periods until a Payment Date occurs, such that the Servicer projects
that ITC Collections will be sufficient so that (x) the outstanding principal
balance of each outstanding Series will equal the amount provided for in the
Expected Amortization Schedule therefor, the amount on deposit in the
Overcollateralization Subaccount will equal the Calculated
Overcollateralization
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Level and the amount on deposit in the Capital Subaccount will equal the
Required Capital Amount, by the next Adjustment Date (or the immediately
succeeding Payment Date after such Adjustment Date if specified in the Series
Supplement therefor) or, if earlier with respect to any Series or Class of
Transition Bonds, by the Expected Final Payment Date therefor, taking into
account the Available Reserve Amount.
(b) On each Calculation Date, the Servicer shall (i) file an
Adjustment Request with the PUC for such revised Intangible Transition Charges
with respect to the Transferred Intangible Transition Property to remain in
effect until the earlier of (A) the effective date of the next Intangible
Transition Charges Adjustment with respect to the Transition Bonds, (B) the
Expected Final Payment Date for any Series or Class of Transition Bonds and (C)
[September 25, 2009], (ii) take all reasonable actions and make all reasonable
efforts in order to effectuate such revision to such Intangible Transition
Charges and (iii) promptly send to the Bond Trustee copies of all material
notices and documents relating to such revision.
SECTION 6. Servicer Advances. The Servicer shall not make
any advances of interest or principal on the Transition Bonds of any Series.
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SECTION 7. Loss Calculations. Upon notice from the Seller or
the Transferor, the Servicer shall perform the calculations specified in
Sections 5.01(c)(ii)(x) and 5.01(c)(ii)(y) of the Sale Agreement or the
Transfer Agreement, respectively, in the manner specified in such Sections and
notify the Issuer and the Bond Trustee thereof.
SECTION 8. Schedule Revision Date Schedules. Prior to each
Schedule Revision Date, the Servicer shall deliver to the Issuer replacement
Schedules A and replacement Schedules B to each Series Supplement to which such
Schedule Revision Date applies, adjusted to reflect the event giving rise to
such Schedule Revision Date and setting forth the Calculated
Overcollateralization Level and the Expected Amortization Schedule for each
Payment Date applicable thereto; provided, however, that no such replacement
Schedule A or Schedule B shall be required with respect to a Series if the
event giving rise to such Schedule Revision Date is a redemption of the
Transition Bonds of such Series in whole.
