Exhibit 10.2
BGS BONDABLE TRANSITION PROPERTY SERVICING AGREEMENT
between
PSE&G TRANSITION FUNDING II LLC
Issuer
and
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
Servicer
Dated as of _________, 2005
TABLE OF CONTENTS
Page
ARTICLE I Definitions............................................................................................4
Section 1.01. Definitions...............................................................................4
Section 1.02. Other Definitional Provisions.............................................................4
ARTICLE II Appointment and Authorization of Servicer.............................................................5
Section 2.01. Appointment of Servicer; Acceptance of Appointment........................................5
Section 2.02. Authorization.............................................................................5
Section 2.03. Dominion and Control over Transferred BGS Bondable Transition Property....................5
ARTICLE III Billing Services.....................................................................................6
Section 3.01. Duties of Servicer........................................................................6
Section 3.02. Collection and Allocation of the BGS Transition Bond Charge...............................7
Section 3.03. Payment of TBC Collections................................................................7
Section 3.04. Servicing and Maintenance Standards.......................................................9
Section 3.05. Servicer's Certificates..................................................................10
Section 3.06. Annual Statement as to Compliance........................................................10
Section 3.07. Annual Independent Certified Public Accountants' Report..................................10
Section 3.08. BGS Bondable Transition Property Documentation...........................................11
Section 3.09. Computer Records; Audits of Documentation................................................11
Section 3.10. Defending Transferred BGS Bondable Transition Property Against Claims....................12
Section 3.11. Opinions of Counsel......................................................................12
ARTICLE IV Services Related to BGS Transition Bond Charge Adjustments...........................................13
Section 4.01. BGS Transition Bond Charge Adjustments...................................................13
ARTICLE V The Servicer..........................................................................................13
Section 5.01. Representations and Warranties of Servicer...............................................13
Section 5.02. Indemnities of Servicer; Release of Claims...............................................15
Section 5.03. Merger or Consolidation of, or Assumption of the Obligations of, Servicer................17
Section 5.04. Assignment of Servicer's Obligations.....................................................18
Section 5.05. Limitation on Liability of Servicer and Others...........................................18
Section 5.06. PSE&G Not To Resign as Servicer..........................................................19
Section 5.07. Monthly Servicing Fee....................................................................19
Section 5.08. Servicer Expenses........................................................................19
Section 5.09. Subservicing.............................................................................19
Section 5.10. No Servicer Advances.....................................................................20
Section 5.11. Remittances..............................................................................20
Section 5.12. Protection of Title......................................................................20
TABLE OF CONTENTS
(continued)
ARTICLE VI Servicer Default.....................................................................................21
Section 6.01. Servicer Default.........................................................................21
Section 6.02. Notice of Servicer Default...............................................................22
Section 6.03. Waiver of Past Defaults..................................................................22
Section 6.04. Appointment of Successor.................................................................22
Section 6.05. Cooperation with Successor...............................................................23
ARTICLE VII Miscellaneous Provisions............................................................................23
Section 7.01. Amendment................................................................................23
Section 7.02. Notices..................................................................................25
Section 7.03. Limitations on Rights of Others..........................................................25
Section 7.04. Severability.............................................................................25
Section 7.05. Separate Counterparts....................................................................26
Section 7.06. Headings.................................................................................26
Section 7.07. GOVERNING LAW............................................................................26
Section 7.08. Assignment to the Trustee................................................................26
Section 7.09. Nonpetition Covenants....................................................................26
Section 7.10. Termination..............................................................................26
ANNEX 1 TBC Adjustment Process and Reports--
PSE&G Transition Funding II LLC
APPENDIX A Master Definitions
EXHIBIT A Servicing Procedures
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BGS BONDABLE TRANSITION PROPERTY SERVICING AGREEMENT, dated as of
_________, 2005, by and between PSE&G TRANSITION FUNDING II LLC, a Delaware
limited liability company, as issuer (the "Issuer"), and PUBLIC SERVICE
ELECTRIC AND GAS COMPANY, a New Jersey corporation ("PSE&G"), as the servicer
of the BGS Bondable Transition Property hereunder (together with each
successor to PSE&G (in the same capacity) pursuant to Section 5.03, 5.04 or
6.04, the "Servicer").
W I T N E S S E T H:
WHEREAS the Servicer is willing to service the Transferred BGS Bondable
Transition Property purchased from the Seller by the Issuer; and
WHEREAS the Issuer, in connection with ownership of Transferred BGS
Bondable Transition Property, desires to engage the Servicer to carry out the
functions described herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally
bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Capitalized terms used but not otherwise
defined herein have the meanings assigned to them in Appendix A hereto.
Section 1.02. Other Definitional Provisions.
(a) "Agreement" means this BGS Bondable Transition Property Servicing
Agreement, as the same may be amended, supplemented or otherwise modified from
time to time.
(b) Non-capitalized terms used herein which are defined in the
Competition Act, as the context requires, have the meanings assigned to such
terms in the Competition Act, but without giving effect to amendments to the
Competition Act after the date hereof which have a material adverse effect on
the Issuer or the BGS Transition Bondholders.
(c) All terms defined in this Agreement have the defined meanings when
used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(d) 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".
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms.
ARTICLE II
APPOINTMENT AND AUTHORIZATION OF SERVICER
Section 2.01. Appointment of Servicer; Acceptance of Appointment. Subject
to Section 5.06 and Article VI, the Issuer hereby appoints the Servicer, and
the Servicer hereby accepts such appointment, to perform the Servicer's
obligations pursuant to this Agreement on behalf of and for the benefit of the
Issuer in accordance with the terms of this Agreement. This appointment and
the Servicer's acceptance thereof may not be revoked except in accordance with
the express terms of this Agreement.
Section 2.02. Authorization. With respect to all or any portion of the
Transferred BGS Bondable Transition Property, the Servicer shall be, and
hereby is, authorized and empowered by the Issuer to:
(a) execute and deliver, on behalf of itself, the Issuer, or both, as
the case may be, any and all instruments, documents or notices, and
(b) on behalf of itself, the Issuer, or both, as the case may be,
make any filing and participate in proceedings of any kind with any
governmental authorities, including with the BPU.
The Issuer shall furnish the Servicer with such documents as have been
prepared by the Servicer for execution by the Issuer, and with such other
documents as may be in the Issuer's possession, 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 Transferred BGS Bondable
Transition Property. Notwithstanding any other provision herein, the Servicer
and the Issuer agree that the Issuer shall have dominion and control over the
Transferred BGS Bondable Transition Property, and the Servicer, in accordance
with the terms hereof, is acting solely as the servicing agent of the Issuer
with respect to the Transferred BGS Bondable Transition Property. The Servicer
hereby agrees that it shall not take any action that is not authorized by this
Agreement, the Competition Act or the Financing Order, that is not consistent
with its customary procedures and practices, or that shall impair the rights
of the Issuer with respect to the Transferred BGS Bondable Transition
Property, in each case unless such action is required by law or court or
regulatory order.
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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 BGS Transition Bond
Charge. The Servicer's duties will include:
(i) obtaining meter reads, calculating and billing the BGS
Transition Bond Charge in accordance with the Financing Order and
collecting (from Customers and Third Parties, as applicable) all TBC
Collections;
(ii) responding to inquiries by Customers, Third Parties, the
BPU, or any federal, local or other State governmental authority with
respect to the BGS Transition Bond Charge;
(iii) delivering bills to customers and Third Parties,
accounting for TBC Collections, investigating and resolving
delinquencies, processing and depositing collections, making periodic
remittances and furnishing periodic reports to the Issuer, the BPU,
the 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 for accounts of its own
electric service customers; and
(v) taking action in connection with BGS Transition Bond Charge
Adjustments as is 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 the
Competition Act, the Financing Order and any BPU 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 set forth in Annex 1 which, among other
things, relate to data acquisition, usage and ▇▇▇▇ calculation, billing,
customer service functions, collections, payment processing and
remittance.
(b) Notification of Laws and Regulations. The Servicer shall
immediately notify the Issuer, the BPU, the Trustee and the Rating
Agencies in writing of any laws or BPU Regulations hereafter promulgated
that have a material adverse effect on the Servicer's ability to perform
its duties under this Agreement.
(c) Other Information. Upon the reasonable request of the Issuer, the
BPU, the Trustee or any Rating Agency, the Servicer shall provide to the
Issuer, the BPU, the Trustee or the Rating Agencies, as the case may be,
any public financial information in
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respect of the Servicer, or any material information regarding the
Transferred BGS Bondable Transition Property to the extent it is
reasonably available to the Servicer, that may be reasonably necessary
and permitted by law for the Issuer, the BPU, the Trustee or the Rating
Agencies to monitor the performance by the Servicer hereunder. In
addition, so long as any of the BGS Transition Bonds of any Series are
outstanding, the Servicer shall provide to the Issuer, the BPU and to the
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 BGS Transition Bond Charge.
Section 3.02. Collection and Allocation of the BGS Transition Bond
Charge.
(a) The Servicer shall use all reasonable efforts, consistent with its
customary servicing procedures, to collect all amounts owed in respect of the
BGS Transition Bond Charge 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 the BGS Transition Bond Charge, except as contemplated in this Agreement or
as required by law or court or BPU Regulations; provided, however, that the
Servicer may 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. The Servicer shall enforce the obligations of any Third Parties
providing billing and collection services with respect to the BGS Transition
Bond Charge.
(b) As specified in the Petition and the Financing Order, any amounts
received by the Servicer from a Customer that represent a partial payment
toward an outstanding balance will be applied in the following manner:
(i) to sales taxes (which the Servicer collects as trustee for the
State of New Jersey and not for its own account or for that of the
Issuer);
(ii) pro rata to the BGS Transition Bond Charge and the Servicer's
other charges and taxes, where any of such charges are in arrears, based
on their proportion to the Servicer's total charges in arrears for that
period; and
(iii) pro rata to the BGS Transition Bond Charge and the Servicer's
other charges and taxes, where any of such charges are current charges,
based on their proportion to the Servicer's total current charges
assessed for that period.
PSE&G's other charges may include gas charges which may be billed together
with electric charges, the market transition charge, the MTC-Tax and all other
charges which PSE&G and any Third Party may be authorized to ▇▇▇▇ and collect
from Customers on account of electric and gas service. If there is more than
one Series of BGS Transition Bonds, the Servicer shall allocate partial
payments among such Series, pro rata, based on the respective outstanding
amounts payable with respect to such Series.
Section 3.03. Payment of TBC Collections. (a) The Servicer shall prepare
annually a Collections Curve for each Billing Month, based on statistically
significant random sampling of actual TBC Collections. With the exception of
the Monthly Servicing Fee, which the Servicer is
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entitled to withhold from TBC Collections pursuant to Section 5.07 hereof, the
Servicer agrees to remit TBC Collections for each Billing Month to the Trustee
for deposit in the Collection Account not later than the corresponding
Reconciliation Date or Dates following such Billing Month. In addition, the
Servicer agrees to make periodic payments on account of TBC Collections to the
Trustee for deposit in the Collection Account as follows:
(i) on each Monthly Remittance Date, for so long as the Servicer
has satisfied the conditions of Section 5.11(b), the Servicer shall
remit to the Trustee for each of the seven preceding Billing Months
an amount equal to the amount of TBC Collections estimated to have
been received during the preceding calendar month, based on the
applicable Collections Curve then in effect for those seven preceding
Billing Months, and
(ii) on each Daily Remittance Date, for so long as the Servicer
has not satisfied the conditions of Section 5.11(b), the Servicer
shall remit to the Trustee for the Billing Month in which such Daily
Remittance Date occurs and for each of the six preceding Billing
Months an amount equal to the amount of TBC Collections estimated to
have been received during the Business Day which is two Business Days
preceding such Daily Remittance Date for those seven Billing Months
(including the Billing Month in which such Daily Remittance Date
occurs), including (for the first Daily Remittance Date following a
period when the Servicer had been remitting on a monthly Remittance
Date) any amounts on deposit with the Servicer (for the Billing Month
and any prior Billing Month) prior to such Daily Remittance Date
during a period when the Servicer had been remitting on a Monthly
Remittance Date, provided that,
(x) in the case of each such Billing Month other than the Billing
Month in which such Daily Remittance Date occurs, such estimate
shall be made by dividing (1) the amount of TBC Collections
estimated to be received during the calendar month in which
such Daily Remittance Date occurs ("the current remittance
month"), based on the applicable Collections Curve then in
effect, for each of those six preceding Billing Months, divided
by (2) the number of Business Days in the current remittance
month,
(y) in the case of the Billing Month in which such Daily Remittance
Date occurs, such estimate shall be made, by
first, determining the amount of TBC Collections estimated to be
received during that Billing Month, based on the applicable
Collections Curve then in effect, for each day on which bills
are sent in such Billing Month (each, a "Billing Day"; such
estimated TBC Collections during such Billing Month for each
Billing Day being the "Billing Month Estimated Collections" for
such Billing Day),
second, dividing the amount of the Billing Month Estimated
Collections for such Billing Day by the number of Business Days
remaining in such
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Billing Month (for each Billing Day, the "Daily Billing Month
Estimated Collections" for such Billing Month),
third, for each Daily Remittance Date during such Billing Month,
summing the amount of the Daily Billing Month Estimated
Collections for each Billing Day in such Billing Month through
the Business Day which is two Business Days preceding such Daily
Remittance Date, and
(z) for each Daily Remittance Date, any unremitted Daily Billing
Month Estimated Collections received in the preceding
Billing Month on a Business Day that is two Business Days
preceding such Daily Remittance Date in accordance with
subclause (y) above shall be remitted on such Daily
Remittance Date.
(b) On or before each Reconciliation Date, the Servicer shall determine
whether there exists a Curve Payment Shortfall or an Excess Curve Payment by
comparing the actual TBC Collections to the Collection Curve Payments
previously made to the Trustee in respect of (i) for each Annual
Reconciliation Date, each of the twelve Billing Months beginning 19 months
before the month in which such Reconciliation Date occurs (or from the first
Series Issuance Date, if less than 19 months have elapsed), and (ii) for each
Monthly Reconciliation Date, the Billing Month that is eight months prior to
the Billing Month in which such Reconciliation Date occurs. In the event that
there is a Curve Payment Shortfall with respect to the applicable Billing
Months or Billing Month, as the case may be, the Servicer shall pay the Curve
Payment Shortfall to the Trustee for deposit into the Collection Account on
that Reconciliation Date. In the event that there is an Excess Curve Payment
for the applicable Billing Months or Billing Month, as the case may be, the
Servicer may either (A) reduce the amount that the Servicer is required to
remit to the Trustee for deposit in the Collection Account on the following
Remittance Date (and, if necessary, succeeding Remittance Dates) by the amount
of the Excess Curve Payment, or (B) require the Trustee to pay to the Servicer
from the General Subaccount the amount of the Excess Curve Payment, which upon
payment shall become the property of the Servicer.
(c) The Servicer agrees and acknowledges that it holds all TBC
Collections collected by it for the benefit of the Issuer and that all amounts
will be remitted by the Servicer in accordance with this Agreement without any
surcharge, fee, offset, charge or other deduction and without making any claim
to reduce its obligation to remit all TBC Collections collected by it, except
(i) as set forth in clause (b) above, (ii) the Monthly Servicing Fee which it
may withhold pursuant to Section 5.07 hereof and (iii) late fees permitted by
Section 5.07.
Section 3.04. Servicing and Maintenance Standards. The Servicer shall, on
behalf of the Issuer:
(a) manage, service, administer and make collections in respect of
the Transferred BGS Bondable Transition Property with reasonable care and
in material compliance with applicable law, including all applicable BPU
Regulations, using the same degree of care and diligence that the
Servicer exercises with respect to billing and collection activities that
the Servicer conducts for itself and others;
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(b) follow standards, policies and procedures in performing its
duties as Servicer that are customary in the electric distribution
industry;
(c) use all reasonable efforts, consistent with its customary
servicing procedures, to enforce and maintain the Issuer's and the
Trustee's rights in respect of the Transferred BGS Bondable Transition
Property; and
(d) calculate the BGS Transition Bond Charge in compliance with the
Competition Act, the Financing Order and any applicable tariffs;
except where the failure to comply with any of the foregoing would not
materially and adversely affect the Issuer's or the Trustee's interest in the
Transferred BGS Bondable Transition Property. The Servicer shall follow such
customary and usual practices and procedures as it shall deem necessary or
advisable in its servicing of the Transferred BGS Bondable Transition
Property, which, in the Servicer's judgment, may include the taking of legal
action pursuant to Section 3.10 or otherwise. Notwithstanding the foregoing,
the Servicer shall not change its customary and usual practices and procedures
in any manner that would materially and adversely affect the Issuer's or the
Trustee's interest in the Transferred BGS Bondable Transition Property unless
it shall have provided the Rating Agencies with prior written notice.
Section 3.05. Servicer's Certificates. The Servicer will provide to the
Issuer, the BPU and to the Trustee the statements and certificates specified
in Annex 1.
Section 3.06. Annual Statement as to Compliance.
The Servicer shall deliver to the Issuer, the BPU, the Trustee and each
Rating Agency, on or before March 31 of each year beginning March 31, 2006 to
and including March 31 succeeding the retiring of the BGS Transition Bonds, an
Officers' Certificate, stating that:
(a) a review of the activities of the Servicer during the preceding
calendar year (or relevant portion thereof in the case of the first such
Officer's Certificate) and of its performance under this Agreement has
been made under such officers' supervision, and
(b) 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 and its status.
Section 3.07. Annual Independent Certified Public Accountants' Report.
(a) The Servicer shall cause a firm of independent certified public
accountants (which may also provide other services to the Servicer or the
Seller) to prepare, and the Servicer shall deliver to the Issuer, the BPU to
the Trustee and to each Rating Agency, on or before March 31 of each year,
beginning March 31, 2006 to and including the March 31 succeeding the
retirement of all BGS 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
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compliance with its obligations under this Agreement during the preceding
calendar year (or, in the case of the first Annual Accountant's Report, the
period of time from the Initial Transfer Date until December 31, 2005),
identifying the results of such procedures and including any exceptions noted.
In the event such accounting firm requires the Trustee or the Issuer to agree
or consent to the procedures performed by such firm, the Issuer shall direct
the Trustee in writing to so agree; it being understood and agreed that the
Trustee will deliver such letter of agreement or consent in conclusive
reliance upon the direction of the Issuer, and the Trustee will not make any
independent inquiry or investigation as to, and shall have no obligation or
liability in respect of, the sufficiency, validity or correctness of such
procedures.
(b) The Annual Accountant's Report shall also indicate that the
accounting firm providing such report is independent of the Servicer within
the meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants.
Section 3.08. BGS Bondable Transition Property Documentation. To assure
uniform quality in servicing the Transferred BGS Bondable Transition Property
and to reduce administrative costs, the Servicer shall keep on file, in
accordance with its customary procedures, all BGS Bondable Transition Property
Documentation, it being understood that the Servicer is acting solely as the
servicing agent and custodian for the Issuer with respect to the BGS Bondable
Transition Property Documentation.
Section 3.09. Computer Records; Audits of Documentation.
(a) Safekeeping. The Servicer shall maintain accurate and complete
accounts, records and computer systems pertaining to the Transferred BGS
Bondable Transition Property and the BGS Bondable Transition Property
Documentation in accordance with its standard accounting procedures and in
sufficient detail to permit reconciliation between payments or recoveries on
(or with respect to) the BGS Transition Bond Charge and the TBC Collections
from time to time remitted to the Trustee pursuant to Section 3.03 and to
enable the Issuer to comply with this Agreement and the Indenture. The
Servicer shall conduct, or cause to be conducted, periodic audits of the BGS
Bondable Transition Property Documentation held by it under this Agreement and
of the related accounts, records and computer systems, in such a manner as
shall enable the Issuer and the Trustee, as pledgee of the Issuer, to verify
the accuracy of the Servicer's record keeping. The Servicer shall promptly
report to the Issuer, the BPU and to the Trustee any failure on the Servicer's
part to hold the BGS Bondable 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 Trustee of the BGS Bondable Transition Property Documentation. The
Servicer's duties to hold the BGS Bondable Transition Property Documentation
on behalf of the Issuer set forth in this Section 3.09, to the extent such BGS
Bondable Transition Property Documentation has not been previously transferred
to a successor Servicer, shall terminate three years after the earlier of the
date on which (i) the Servicer is succeeded by a successor Servicer pursuant
to the provisions of this Agreement or (ii) no BGS Transition Bonds of any
Series are outstanding.
(b) Maintenance of and Access to Records. The Servicer shall maintain the
BGS Bondable Transition Property Documentation at ▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇ or at such
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other office as shall be specified to the Issuer, the BPU and to the Trustee
by written notice not later than 30 days prior to any change in location. The
Servicer shall permit the Issuer, the BPU and the 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 Transferred BGS Bondable
Transition Property, the BGS Transition Bond Charge and the BGS Bondable
Transition Property Documentation. The failure of the Servicer to provide
access to such information as a result of an obligation or applicable law
(including BPU Regulations) prohibiting disclosure of information regarding
customers shall not constitute a breach of this Section 3.09(b).
Section 3.10. Defending Transferred BGS Bondable Transition Property
Against Claims. The Servicer shall institute and maintain any action or
proceeding necessary to compel performance by the BPU or the State of New
Jersey of any of their obligations or duties under the Competition Act or the
Financing Order with respect to the Transferred BGS Bondable Transition
Property, and the Servicer agrees to take such legal or administrative
actions, including defending against or instituting and pursuing legal actions
and appearing or testifying at hearings or similar proceedings, as may be
reasonably necessary to block or overturn any attempts to cause a repeal of,
modification of or supplement to the Competition Act or the Financing Order,
as the case may be, or the rights of holders of Transferred BGS Bondable
Transition Property that would be adverse to BGS Transition Bondholders. The
costs of any such action reasonably allocated by the Servicer to the
Transferred BGS Bondable Transition Property shall be payable from TBC
Collections as an Operating Expense in accordance with the Indenture. The
Servicer's obligations pursuant to this Section 3.10 shall survive and
continue notwithstanding the fact that the payment of Operating Expenses
pursuant to the Indenture may be delayed (it being understood that the
Servicer may be required to advance its own funds to satisfy its obligations
under this Section 3.10).
Section 3.11. Opinions of Counsel. The Servicer shall deliver to the
Issuer, the BPU and to the Trustee:
(a) promptly after the execution and delivery of this Agreement and
of the Sale Agreement and of each amendment hereto or thereto, and on
each Transfer Date, an Opinion of Counsel either:
(i) to the effect that, in the opinion of such counsel, all UCC
filings that are necessary to fully preserve and protect the
interests of the Trustee in the Transferred BGS Bondable Transition
Property have been executed and will be filed as required, and
reciting the details of such filings or referring to prior Opinions
of Counsel in which such details are given, or
(ii) to the effect that, in the opinion of such counsel, no such
action is 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 full
calendar months after the Initial Transfer Date, an Opinion of Counsel,
dated as of a date during such 90-day period, either:
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(i) to the effect that, in the opinion of such counsel, all UCC
filings have been executed and filed that are necessary to preserve
fully and protect fully the interest of the Trustee in the
Transferred BGS Bondable 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 is 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 BGS TRANSITION BOND CHARGE ADJUSTMENTS
Section 4.01. BGS Transition Bond Charge Adjustments. The Servicer shall
perform the calculations and take the actions relating to adjusting the BGS
Transition Bond Charge, as set forth in Annex 1.
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 Transferred BGS
Bondable Transition Property and in entering into this Agreement. The
representations and warranties shall survive the execution and delivery of
this Agreement, the sale of the Transferred BGS Bondable Transition Property
to the Issuer and the pledge thereof to the Trustee pursuant to the Indenture.
(a) Organization and Good Standing. The Servicer is a corporation duly
organized and in good standing under the laws of the State of its
incorporation, with the corporate power and authority to own its properties
and to conduct its business as such properties are currently owned and such
business is presently conducted and to execute, deliver and carry out the
terms of this Agreement, and has the power, authority and legal right to
service the Transferred BGS Bondable 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
Transferred BGS Bondable 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 Transferred BGS Bondable
Transition Property).
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(c) Power and Authority. The Servicer has the corporate power and
authority to execute and deliver this Agreement and to carry out its terms;
and the execution, delivery and performance of this Agreement have been duly
authorized by the Servicer by all necessary corporate action.
(d) Binding Obligation. This Agreement constitutes a legal, valid and
binding obligation of the Servicer enforceable against the Servicer in
accordance with its terms subject to bankruptcy, receivership, insolvency,
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 will not conflict with,
result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time) a default under, the articles of
incorporation or by-laws of the Servicer, or any indenture, agreement or other
instrument to which the Servicer is a party or by which it is bound; or result
in the creation or imposition of any Lien upon any of its properties pursuant
to the terms of any such indenture, agreement or other instrument; or violate
any law or any order, rule or regulation applicable to the Servicer of any
court or of any federal or State regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over the Servicer or
its properties.
(f) Approvals. Except for filings with the BPU for adjusting the BGS
Transition Bond Charge pursuant to Section 4.01 and Annex 1, filing of
financing statements under the UCC 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) seeking to prevent the issuance of the BGS Transition Bonds
or the consummation of any of the transactions contemplated by this
Agreement or any of the other Basic Documents;
(ii) seeking any determination or ruling that might materially
and adversely affect the performance by the Servicer of its
obligations under, or the validity or enforceability against the
Servicer of, this Agreement or any of the other Basic Documents; or
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(iii) relating to the Servicer and which might materially and
adversely affect the federal or State income, gross receipts or
franchise tax attributes of the BGS Transition Bonds.
(h) Reports and Certificates. Each report and certificate delivered in
connection with any filing made to the BPU by the Servicer on behalf of the
Issuer with respect to the BGS Transition Bond Charge or BGS Transition Bond
Charge 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.
(b) The Servicer shall indemnify the Issuer and the Trustee (for itself
and on behalf of the BGS Transition Bondholders) and each of their respective
trustees, members, managers, officers, directors, employees and agents for,
and defend and hold harmless each such Person from and against, any and all
Losses that may be imposed upon, incurred by or asserted against any such
Person as a result of:
(i) the Servicer's willful misconduct, recklessness or gross
negligence in the performance of its duties or observance of its
covenants under this Agreement or the Servicer's reckless disregard
of its obligations and duties under this Agreement;
(ii) the Servicer's breach of any of its representations or
warranties in this Agreement; and
(iii) litigation and related expenses relating to its status and
obligations as Servicer,
provided, however, that the Servicer shall not be liable for any Losses
resulting from the willful misconduct or gross negligence of any Person
indemnified pursuant to this Section 5.02 (each, an "Indemnified Person") or
resulting from a breach of a representation or warranty made by such
Indemnified Person in any of the Basic Documents that gives rise to the
Servicer's breach.
Promptly after receipt by an Indemnified Person of notice of its involvement
in any action, proceeding or investigation, such Indemnified Person shall, if
a claim for indemnification in respect thereof is to be made against the
Servicer under this Section 5.02, notify the Servicer in writing of such
involvement. Failure by an Indemnified Person to so notify the Servicer shall
relieve the Servicer from the obligation to indemnify and hold harmless such
Indemnified Person under this Section 5.02 only to the extent that the
Servicer suffers actual prejudice as a result of such failure. With respect to
any action, proceeding or investigation brought by a third party for
15
which indemnification may be sought under this Section 5.02, the Servicer
shall be entitled to assume the defense of any such action, proceeding or
investigation. Upon assumption by the Servicer of the defense of any such
action, proceeding or investigation, the Indemnified Person shall have the
right to participate in such action or proceeding and to retain its own
counsel (including local counsel), and the Servicer shall bear the reasonable
fees, costs and expenses of such separate counsel. The Indemnified Person
shall not settle or compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought under this Section 5.02
(whether or not the Servicer is an actual or potential party to such claim or
action) unless the Servicer agrees in writing to such settlement, compromise
or consent and such settlement, compromise or consent includes an
unconditional release of the Servicer from all liability arising out of such
claim, action, suit or proceeding.
(c) The Servicer shall indemnify the Trustee and its respective 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 is due to the willful misconduct, bad faith or gross
negligence of the Trustee; provided, however, that the foregoing indemnity is
extended to the Trustee solely in its individual capacity and not for the
benefit of the BGS Transition Bondholders or any other Person. Such amounts
with respect to the Trustee shall be deposited and distributed in accordance
with the Indenture.
(d) Any Servicer that is not subject to retail electric rate regulation
by the BPU shall indemnify electric ratepayers in the historic service
territory of PSE&G for any and all Losses (including, but not limited to,
increased BGS Transition Bond Charges) that may be imposed upon or incurred by
such retail electric ratepayers as a result of:
(i) any such Servicer's willful misconduct, recklessness or
gross negligence in the performance of its obligations, duties and
covenants under this Agreement;
(ii) any such Servicer's breach of any of its representations or
warranties in this Agreement; and
(iii) litigation and related expenses relating to any such
Servicer's status and obligations as Servicer.
The BPU shall be entitled to enforce this Section 5.02(d) for the benefit of
retail electric ratepayers in the historic service territory of PSE&G. If so
directed by the BPU, any successor Servicer that is not subject to retail
electric rate regulation by the BPU and that is obligated to make payments
pursuant to this Section 5.02(d) shall make such payments either to the
Trustee, for deposit to the Collection Account and for allocation to the
Reserve Subaccount therein, or to such other person or account as shall be
specified by the BPU.
(e) The Servicer's indemnification obligations under Section 5.02(b) and
(c) for events occurring prior to the removal or resignation of the Trustee or
the termination of this Agreement shall survive the resignation or removal of
the Trustee or the termination of this
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Agreement and shall include reasonable costs, fees and expenses of
investigation and litigation (including the Issuer's and the Trustee's
reasonable attorneys' fees and expenses).
(f) Except to the extent expressly provided for in the Basic Documents
(including the Servicer's claims with respect to the Monthly Servicing Fees
and the Seller's claim for payment of the purchase price of the Transferred
BGS Bondable Transition Property), the Servicer hereby releases and discharges
the Issuer (including its Member, Managers, officers, employees and agents, if
any), and the Trustee (including its respective officers, directors and
agents) (collectively, the "Released Parties") from any and all actions,
claims and demands whatsoever, which the Servicer shall or may have against
any such Person relating to the Transferred BGS Bondable Transition Property
or the Servicer's activities with respect thereto other than any actions,
claims and demands arising out of the willful misconduct, bad faith or gross
negligence of the Released Parties.
(g) The Servicer will not indemnify any person for any loss, damages,
liability, obligation, claim, action, suit or payment resulting solely from a
downgrade in the ratings on the BGS Transition Bonds or for any consequential
damages, including any loss of market value of the BGS Transition Bonds,
resulting from any default or any downgrade of the ratings on the BGS
Transition Bonds.
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 all or 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 all or 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 all or 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 all or the major part of
the electric distribution business of the Servicer, or
(e) which may otherwise succeed to all or 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 under this Agreement, shall be the
successor to the Servicer 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 Section 5.01 shall have
been
17
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 Servicer shall have delivered to the Issuer, the BPU
and the Trustee an Officers' Certificate and an Opinion of Counsel
each stating that such consolidation, merger or succession and such
agreement of assumption comply with this Section 5.03 and that all
conditions precedent, if any, provided for in this Agreement relating
to such transaction have been complied with;
(iii) the Servicer shall have delivered to the Issuer, the BPU
and to the Trustee an Opinion of Counsel either:
(A) stating that, in the opinion of such counsel, all
filings to be made by the Servicer, including UCC filings, that
are necessary fully to preserve and protect the interests of the
Trustee in the Transferred BGS Bondable Transition Property have
been executed and filed and reciting the details of such filings,
or
(B) stating that, in the opinion of such counsel, no such
action is necessary to preserve and protect such interests;
(iv) the Rating Agencies shall have received prior written
notice of such transaction; and
(v) the Servicer shall have delivered to the Issuer, the BPU and
the Trustee an opinion of independent tax counsel (as selected by,
and in form and substance reasonably satisfactory to, the Servicer,
and which may be based on a ruling from the Internal Revenue Service)
to the effect that, for federal income tax purposes, such
consolidation or merger will not result in a material adverse federal
income tax consequence to the Servicer, the Issuer, the Trustee or
the then existing BGS Transition Bondholders.
The Servicer shall not consummate any transaction referred to in subclauses
(a), (b), (c), (d) or (e) above except upon execution of the above described
agreement of assumption and compliance with subclauses (i), (ii), (iii), (iv)
and (v) above. When any Person acquires the properties and assets of the
Servicer substantially as a whole and becomes the successor to the Servicer in
accordance with the terms of this Section 5.03, then upon the satisfaction of
all of the other conditions of this Section 5.03, the Servicer shall
automatically and without further notice be released from its obligations
hereunder.
Section 5.04. Assignment of Servicer's Obligations. The Servicer may
assign any or all of its obligations hereunder to any successor if either (i)
the Rating Agency Condition and any other condition specified in the Financing
Order have been satisfied, or (ii) the Servicer is replaced by a successor
pursuant to Section 5.03 hereof.
Section 5.05. Limitation on Liability of Servicer and Others. The
Servicer shall not be liable to the Issuer or the Trustee, 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
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judgment; provided, however, that this provision shall not protect the
Servicer against any liability that would otherwise be imposed by reason of
willful misconduct, bad faith or gross negligence in the performance of its
duties or by reason of reckless disregard of obligations and duties under this
Agreement. The Servicer and any director, officer, employee or agent of the
Servicer may rely in good faith on the advice of counsel reasonably acceptable
to the Trustee or on any document of any kind, prima facie properly executed
and submitted by any Person, respecting any matters arising under this
Agreement.
Except as provided in this Agreement, the Servicer shall not be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its duties to service the Transferred BGS Bondable Transition
Property in accordance with this Agreement or related to its obligation to pay
indemnification, and that in its reasonable opinion may cause it to incur any
expense or liability.
Section 5.06. PSE&G Not To Resign as Servicer. Subject to the provisions
of Sections 5.03 and 5.04, PSE&G shall not resign from the obligations and
duties 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 PSE&G shall be communicated to the Issuer, the
BPU, the Trustee and each Rating Agency at the earliest practicable time (and,
if such communication is not in writing, shall be confirmed in writing at the
earliest practicable time), and any such determination shall be evidenced by
an Opinion of Counsel to such effect delivered to the Issuer, the BPU and the
Trustee concurrently with or promptly after such notice. No such resignation
shall become effective until a successor Servicer has assumed the servicing
obligations and duties hereunder of the Servicer in accordance with Section
6.04.
Section 5.07. Monthly Servicing Fee. The Issuer agrees to pay the
Servicer the Monthly Servicing Fee with respect to all Series of BGS
Transition Bonds. On any Monthly Remittance Date, the Servicer shall be
entitled to withhold the amount of the Monthly Servicing Fee from TBC
Collections as compensation under this Agreement unless the Trustee has
notified the Servicer in writing that the Issuer does not hold sufficient
funds to pay amounts owed in such month to the Trustee. For so long as PSE&G
is the Servicer, the Monthly Servicing Fee shall be $__________. The Servicer
shall be entitled to retain as additional compensation net investment income
on TBC Collections related to the Transferred BGS Bondable Transition Property
received by the Servicer during any Collection Period prior to remittance to
the Collection Account and the late fees, if any, paid by Customers to the
Servicer. The foregoing fees constitute a fair and reasonable price for the
obligations to be performed by the Servicer.
Section 5.08. Servicer Expenses. Except as otherwise expressly provided
herein, the Servicer shall be required to pay all expenses incurred by it in
connection with its activities hereunder, including fees and disbursements of
independent accountants and counsel, taxes imposed on the Servicer and
expenses incurred in connection with reports to BGS Transition Bondholders and
shall not be entitled to any additional payment or reimbursement therefor.
Section 5.09. Subservicing. The Servicer may at any time appoint a
subservicer to perform all or any portion of its obligations as Servicer
hereunder; provided, however, the Rating Agency Condition shall have been
satisfied in connection therewith; and provided further that
19
the Servicer shall remain obligated and be liable to the Issuer, the Trustee
and the BGS Transition Bondholders for the servicing and administering of the
Transferred BGS Bondable Transition Property in accordance with the provisions
hereof without diminution of such obligation and liability by virtue of the
appointment of such subservicer and to the same extent and under the same
terms and conditions as if the Servicer alone were servicing and administering
the Transferred BGS Bondable Transition Property. The fees and expenses of the
subservicer shall be as agreed between the Servicer and its subservicer from
time to time, and none of the Issuer, the Trustee or the BGS Transition
Bondholders shall have any responsibility therefor. Any such appointment shall
not constitute a Servicer resignation under Section 5.06.
Section 5.10. No Servicer Advances. The Servicer shall not make any
advances of interest on or principal of the BGS Transition Bonds.
Section 5.11. Remittances.
(a) The Servicer shall remit TBC Collections (from whatever source) in
accordance with Section 3.03(a)(ii), and all proceeds of other Collateral of
the Issuer, if any, received by the Servicer, to the Trustee for deposit
pursuant to the Indenture, not later than each Daily Remittance Date. The
Servicer shall promptly remit any Indemnity Amounts paid or received by it
immediately to the Trustee for deposit pursuant to the Indenture.
(b) Notwithstanding the foregoing clause (a), as long as:
(i) PSE&G or any successor to PSE&G's electric distribution
business remains the Servicer,
(ii) no Servicer Default has occurred and is continuing, and,
(iii) with respect to ▇▇▇▇▇'▇ and Fitch only, PSE&G maintains a
long-term rating on its senior, unsecured debt of "Baa2" by ▇▇▇▇▇'▇
and "BBB" by Fitch, or better, or, if the senior, unsecured debt of
PSE&G is downgraded to "Baa3" by ▇▇▇▇▇'▇ or "BBB-" by Fitch, PSE&G
shall received within 30 days of such downgrading, confirmation from
▇▇▇▇▇'▇ and Fitch that remittances in accordance with Section
3.03(a)(i) will not adversely affect their respective ratings on the
BGS Transition Bonds, or if the long-term, unsecured debt of PSE&G is
downgraded below "Baa3" by ▇▇▇▇▇'▇ or "BBB-" by Fitch, PSE&G shall
have received within 48 hours of such downgrading, confirmation from
▇▇▇▇▇'▇ and Fitch that remittances in accordance with Section
3.03(a)(i) will not adversely affect their respective ratings on the
BGS Transition Bonds,
the Servicer need not make the daily remittances required by clause (a), but
in lieu thereof, shall remit all TBC Collections (from whatever source) in
accordance with Section 3.03(a)(i), and all proceeds of other Collateral of
the Issuer, if any, received by the Servicer during any Collection Period, to
the Trustee for deposit pursuant to the Indenture, not later than the
corresponding Monthly Remittance Date.
Section 5.12. Protection of Title. The Servicer shall execute and file
such filings and cause to be executed and filed such filings, all in such
manner and in such places as may be
20
required by law fully to preserve, maintain and protect the interests of the
Trustee in the Transferred BGS Bondable Transition Property, including all
filings required under the UCC relating to the transfer of ownership of or a
security interest in the Transferred BGS Bondable Transition Property by the
Seller to the Issuer or the security interest granted by the Issuer to the
Trustee in the Transferred BGS Bondable Transition Property. The Servicer
shall deliver (or cause to be delivered) to the Issuer, the BPU and the
Trustee file-stamped copies of, or filing receipts for, any document filed as
provided above, as soon as available following such filing.
ARTICLE VI
SERVICER DEFAULT
Section 6.01. Servicer Default. If any one of the following events (a
"Servicer Default") occurs and is continuing:
(a) any failure by the Servicer to remit to the Trustee, on behalf of
the Issuer, any required remittance that continues unremedied for a
period of five Business Days after written notice of such failure is
received by the Servicer and the BPU from the Issuer or the Trustee; or
(b) any failure by the Servicer duly to observe or perform in any
material respect any other covenant or agreement of the Servicer set
forth in this Agreement, which failure:
(i) materially and adversely affects the Transferred BGS
Bondable Transition Property or the rights of the BGS Transition
Bondholders, and
(ii) continues unremedied for a period of 60 days after written
notice of such failure has been given to the Servicer by the Issuer,
the BPU or by the Trustee or after discovery of such failure by an
officer of the Servicer; or
(c) any representation or warranty made by the Servicer in this
Agreement proves to have been incorrect when made, which has a material
adverse effect on the Issuer or the BGS Transition Bondholders and which
material adverse effect continues unremedied for a period of 60 days
after the date on which written notice thereof has been given to the
Servicer by the Issuer, the BPU or the Trustee or after discovery of such
failure by an officer of the Servicer, as the case may be; 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, either the Trustee may, or shall upon the written
instruction of the BPU (acting on behalf of Customers) or the Holders of a
majority of the outstanding principal amount of the BGS Transition Bonds of
all Series, by notice then given in writing to the Servicer and to the Trustee
if given by the Holders (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 6.04 to continue
performing its functions as Servicer until a successor Servicer is appointed)
of the Servicer under this Agreement. In addition, upon a Servicer Default,
the Issuer
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and the Trustee shall be entitled to apply to the BPU or any court of
competent jurisdiction for sequestration and payment to the Trustee of
revenues arising with respect to the Transferred BGS Bondable Transition
Property.
On or after the receipt by the Servicer of a Termination Notice, all
authority and power of the Servicer under this Agreement, whether with respect
to the Transferred BGS Bondable Transition Property, the related BGS
Transition Bond Charge or otherwise, shall, upon appointment of a successor
Servicer pursuant to Section 6.04, without further action, pass to and be
vested in such successor Servicer and, without limitation, the Trustee is
hereby authorized and empowered to execute and deliver, on behalf of the
predecessor Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such Termination Notice,
whether to complete the transfer of the BGS Bondable Transition Property
Documentation and related documents, or otherwise. The predecessor Servicer
shall cooperate with the successor Servicer, the Trustee and the Issuer in
effecting the termination of the responsibilities and rights of the
predecessor Servicer under this Agreement, including the transfer to the
successor Servicer for administration by it of all cash amounts that shall at
the time be held by the predecessor Servicer for remittance, or shall
thereafter be received by it with respect to the Transferred BGS Bondable
Transition Property or the related BGS Transition Bond Charge. As soon as
practicable after receipt by the Servicer of such Termination Notice, the
Servicer shall deliver the BGS Bondable Transition Property Documentation to
the successor Servicer. All reasonable costs and expenses (including attorneys
fees and expenses) incurred in connection with transferring the BGS Bondable
Transition Property Documentation to the successor Servicer and amending this
Agreement to reflect such succession as Servicer pursuant to this Section 6.01
shall be paid by the predecessor Servicer upon presentation of reasonable
documentation of such costs and expenses. Termination of PSE&G as Servicer
shall not terminate PSE&G's rights or obligations under the Sale Agreement.
Section 6.02. Notice of Servicer Default. The Servicer shall deliver to
the Issuer, the BPU, the Trustee and each Rating Agency promptly after having
obtained knowledge thereof, but in no event later than five Business Days
thereafter, written notice in an Officer's Certificate of any event or
circumstance 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 Trustee, with the consent of
BPU and Holders of the majority of the outstanding principal amount of the BGS
Transition Bonds of all Series, on behalf of all BGS Transition Bondholders,
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 Trustee of TBC Collections in accordance with
Section 3.03. Upon any such waiver of a past default, such default shall cease
to exist, and any Servicer Default arising therefrom shall be 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.
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(a) Upon the Servicer's receipt of a Termination Notice pursuant to
Section 6.01 or the Servicer's resignation in accordance with the terms of
this Agreement, the predecessor Servicer shall continue to perform its
functions as Servicer under this Agreement and shall be entitled to receive
the requisite portion of the Monthly Servicing Fees, until a successor
Servicer has assumed in writing the obligations of the Servicer hereunder as
described below. In the event of the Servicer's removal or resignation
hereunder and upon application of the Trustee, the BPU will designate a
successor Servicer. Any appointment of a successor Servicer requires the
consent of the Holders of a majority of the outstanding principal amount of
the BGS Transition Bonds of all Series, and the successor Servicer shall
accept its appointment by a written assumption in form acceptable to the
Issuer and the Trustee. If, within 30 days after the delivery of the
Termination Notice, a new Servicer has not been appointed and accepted such
appointment, the Trustee may petition the BPU or a court of competent
jurisdiction to appoint a successor Servicer under this Agreement. A Person
shall qualify as a successor Servicer only if:
(i) such Person is permitted to perform the duties of the
Servicer pursuant to the Competition Act, the BPU Regulations, the
Financing Order and this Agreement;
(ii) the Rating Agency Condition has been satisfied; and
(iii) such Person enters into a servicing agreement with the
Issuer having substantially the same provisions as this Agreement.
(b) Upon appointment, the successor Servicer shall be the successor
in all respects to the predecessor Servicer under this Agreement and
shall be subject to all the responsibilities, duties and liabilities
arising thereafter relating thereto placed on the predecessor Servicer
and shall be entitled to the Monthly Servicing Fee and all the rights
granted to the predecessor Servicer by the terms and provisions of this
Agreement.
(c) The successor Servicer may resign only if it is prohibited from
serving as such by applicable 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. (a) This Agreement may be amended by the
Servicer and the Issuer, with the consent of the Trustee and the satisfaction
of the Rating Agency Condition. Promptly after the execution of any such
amendment or consent, the Issuer shall furnish written notification of the
substance of such amendment or consent to each of the Rating Agencies.
Prior to the execution of any amendment to this Agreement, the Issuer and
the Trustee shall be entitled to receive and rely upon an Opinion of Counsel
stating that the execution of such amendment is authorized or permitted by
this Agreement and the Opinion of Counsel
23
referred to in Section 3.11. The Issuer and the Trustee may, but shall not be
obligated to, enter into any such amendment which affects their own rights,
duties or immunities under this Agreement or otherwise.
(a) Notwithstanding anything to the contrary in this paragraph, no
amendment or modification of this Agreement shall be effective except upon
satisfaction of the conditions precedent in this paragraph (b).
(i) At least fifteen days prior to the effectiveness of any such
amendment or modification and after obtaining the other necessary
approvals set forth in paragraph (a) above (except that the consent
of the Trustee may be subject to the consent of Holders if such
consent is required or sought by the Trustee in connection with such
amendment or modification), the Servicer shall have delivered to the
BPU's executive director and general counsel written notification of
any proposed amendment, which notification shall contain:
(A) a reference to Docket No. EF03070532;
(B) an officer's certificate stating that the proposed
amendment or modification has been approved by all parties to
this Agreement; and
(C) a statement identifying the person to whom the BPU or
its staff is to address any response to the proposed amendment
or to request additional time.
(ii) If the BPU or its staff, within fifteen days (subject to
extension as provided in clause (iii) below) of receiving a
notification complying with paragraph (a) above, shall have delivered
to the office of the person specified in paragraph (i)(C) above a
written statement that the BPU might object to the proposed amendment
or modification, then such proposed amendment or modification shall
not be effective unless and until the BPU subsequently delivers a
written statement that it does not object to such proposed amendment
or modification.
(iii) If the BPU or its staff, within fifteen days of receiving
a notification complying with paragraph (a) above, shall have
delivered to the office of the person specified in paragraph (i)(C)
above a written statement requesting an additional amount of time not
to exceed thirty days in which to consider such proposed amendment or
modification, then such proposed amendment or modification shall not
be effective if, within such extended period, the BPU shall have
delivered to the office of the person specified in paragraph (i)(C)
above a written statement as described in clause (ii) above, unless
and until the BPU subsequently delivers a written statement that it
does not object to such proposed amendment or modification.
(iv) If the BPU or its staff shall not have delivered written
notice that the BPU might object to such proposed amendment or
modification within the time periods described in clause (ii) or
clause (iii) above, whichever is applicable, then the BPU shall be
conclusively deemed not to have any objection to the proposed
amendment or modification and such amendment or modification may
subsequently become effective upon satisfaction of the other
conditions specified in paragraph (a) above.
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(v) Following the delivery of a notice to the BPU by the
Servicer under clause (ii) above, the Servicer and the Issuer shall
have the right at any time to withdraw from the BPU further
consideration of any proposed amendment.
Section 7.02. Notices. Unless otherwise specifically provided herein, all
notices, directions, consents and waivers required under the terms and
provisions of this Agreement shall be in English and in writing, and any such
notice, direction, consent or waiver may be given by United States first-class
mail, reputable overnight courier service, facsimile transmission or
electronic mail (confirmed by telephone, United States first-class mail or
reputable overnight courier service in the case of notice by facsimile
transmission or electronic mail) or any other customary means of
communication, and any such notice, direction, consent or waiver shall be
effective when delivered or transmitted, or if mailed, five days after deposit
in the United States first-class mail with proper postage for first-class mail
prepaid,
(a) in the case of the Servicer, at PSE&G, ▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇;
(b) in the case of the Issuer, at PSE&G Transition Funding II LLC, ▇▇
▇▇▇▇ ▇▇▇▇▇, ▇-▇▇, ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇;
(c) in the case of the Trustee, at the address provided for notices or
communications to the Trustee in the Indenture;
(d) in the case of Moody's, at ▇▇▇▇▇'▇ Investors Service, Inc., ABS
Monitoring Department, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇;
(e) in the case of Standard & Poor's, at Standard & Poor's Ratings Group,
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: Asset Backed
Surveillance Department;
(f) in the case of Fitch, at Fitch, Inc., ▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ABS Surveillance; and
(g) in the case of the BPU, at [____________];
or, as to each of the foregoing, at such other address as shall be designated
by written notice to the other parties.
Section 7.03. Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Servicer, the Issuer, the BPU, on
behalf of itself and electricity consumers, and the Trustee, on behalf of
itself and the BGS Transition Bondholders, and nothing in this Agreement,
whether express or implied, shall be construed to give to any other Person any
legal or equitable right, remedy or claim in any Collateral or under or in
respect of this Agreement or any covenants, conditions or provisions contained
herein.
Section 7.04. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
25
Section 7.05. Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 7.06. Headings. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
Section 7.07. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 7.08. Assignment to the Trustee. (a) The Servicer hereby
acknowledges and consents to any pledge, assignment and grant of a security
interest by the Issuer to the Trustee pursuant to the Indenture for the
benefit of the BGS Transition Bondholders of all right, title and interest of
the Issuer in, to and under the Transferred BGS Bondable Transition Property
owned by the Issuer and the proceeds thereof and the assignment of any or all
of the Issuer's rights hereunder to the Trustee.
(b) In no event shall the Trustee have any liability for the
representations, warranties, covenants, agreements or other obligations of the
Issuer hereunder or in any of the certificates, notices or agreements
delivered pursuant hereto, as to all of which recourse shall be had solely to
the assets of the Issuer.
Section 7.09. Nonpetition Covenants. Notwithstanding any prior
termination of this Agreement or the Indenture, the Servicer hereby covenants
and agrees that it shall not, prior to the date which is one year and one day
after the termination of the Indenture and the payment in full of the BGS
Transition Bonds, any other amounts owed under the Indenture, including,
without limitation, any amounts owed to third-party credit enhancers,
acquiesce in, 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 7.10. Termination. This Agreement shall terminate when all BGS
Transition Bonds have been retired, redeemed or defeased in full.
26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective duly authorized officers as of
the date and year first above written.
PSE&G TRANSITION FUNDING II LLC,
as Issuer
By:___________________________________________
Name:
Title: Manager
PUBLIC SERVICE ELECTRIC AND GAS
COMPANY, as Servicer
By:__________________________________________
Name:
Title:
Acknowledged and Accepted:
THE BANK OF NEW YORK,
not in its individual capacity but solely
as Trustee on behalf of the Holders of the
BGS Transition Bonds
By: ________________________________________
Name:
Title:
ANNEX 1
to
SERVICING AGREEMENT
The Servicer agrees to comply with the following with respect to PSE&G
Transition Funding II LLC (the "Issuer"):
SECTION 1. Definitions. Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in Appendix A to the Servicing
Agreement dated as of _________, 2005, between the Issuer and PSE&G, as
Servicer.
SECTION 2. Trustee and Servicer Payment Date Statements. At least one
Business Day before each date on which distributions to the Trustee and
Servicer are to be made pursuant to Sections 8.2(d) and (e) of the Indenture,
the Servicer shall provide the Trustee and the BPU with a statement setting
forth the amounts to be distributed to each of the Trustee and Servicer
pursuant to such Sections.
SECTION 3. Payment Date Statements. At least one Business Day before each
Payment Date, the Servicer shall provide to the Issuer, the Trustee, each
Rating Agency and the BPU, a statement indicating:
1. the amount to be paid to BGS Transition Bondholders of each Series
and Class in respect of principal on such Payment Date in accordance
with Section 8.2 of the Indenture and each Series Supplement
thereto;
2. the amount to be paid to BGS Transition Bondholders of each Series
and Class in respect of interest on such Payment Date in accordance
with Section 8.2 of the Indenture and each Series Supplement
thereto;
3. the Projected BGS Transition Bond Balance and the BGS Transition
Bond Balance for each Series and Class as of that Payment Date
(after giving effect to the payments on such Payment Date);
4. the amount on deposit in the Overcollateralization Subaccount for
each Series and the Scheduled Overcollateralization Level for each
Series, as of that Payment Date (after giving effect to the
transfers to be made from or into the Overcollateralization
Subaccount on such Payment Date);
5. the amount on deposit in the Capital Subaccount for each Series as
of that Payment Date (after giving effect to the transfers to be
made from or into the Capital Subaccount on such Payment Date);
6. the amount, if any, on deposit in the Reserve Subaccount as of that
Payment Date (after giving effect to the transfers to be made from
or into the Reserve Subaccount on such Payment Date);
7. the amounts paid to the Trustee since the preceding Payment Date
pursuant to Section 8.2(d) of the Indenture;
8. the amounts paid to or withheld by the Servicer since the preceding
Payment Date pursuant to Section 8.2(e) of the Indenture; and
9. the amount of any other transfers and payments to be made on such
Payment Date pursuant to Sections 8.2(d), (e), (f), (g) and (i) of
the Indenture.
SECTION 4. Remittance Date Statements. At least one Business Day before
each Remittance Date, and in the case of Daily Remittances, on the last
Remittance Date of such month, the Servicer shall prepare and furnish to the
Issuer, the BPU and the Trustee a statement setting forth the aggregate amount
to be remitted by the Servicer to the Trustee (net of any unreimbursed Excess
Curve Payments) for deposit on such Remittance Date pursuant to the Indenture.
SECTION 5. BGS Transition Bond Charge Adjustments.
(a) Prior to each Calculation Date, the Servicer shall calculate
(i) the BGS Transition Bond Balance as of such
Calculation Date (a written copy of which shall be
delivered by the Servicer to the Trustee within
five Business Days following such Calculation
Date), and
(ii) the revised BGS Transition Bond Charge with
respect to the Transferred BGS Bondable Transition
Property in respect of each Adjustment Date such
that the Servicer projects that TBC Collections
therefrom allocable to the Issuer will be
sufficient so that:
(A) the BGS Transition Bond Balance on the Payment
Date immediately preceding the next Adjustment
Date will equal the Projected BGS Transition Bond
Balance as of such date or, if earlier with
respect to any Series or Class of BGS Transition
Bonds, as of the Payment Date immediately
preceding the Expected Final Payment Date
therefor,
(B) the amount on deposit in the Overcollateralization
Subaccount on the Payment Date immediately
preceding the next Adjustment Date, or if earlier
with respect to any Series or Class of BGS
Transition Bonds, as of the Payment Date
immediately preceding the Expected Final Payment
Date therefor, will equal the Scheduled
Overcollateralization Level for such date,
(C) the amount on deposit in the Capital Subaccount on
the Payment Date immediately preceding the next
Adjustment Date, or if earlier with respect to any
Series or Class of BGS Transition Bonds, as of the
Payment Date immediately preceding the Expected
Final Payment Date therefor, will equal its
required level for such date,
(D) the amount on deposit in the Reserve Subaccount on
the Payment Date immediately preceding the next
January 1 Adjustment Date, will equal zero, and
(E) the TBC Collections will provide for (i)
amortization of the remaining outstanding
principal amount of each Series in accordance with
the Expected Sinking Fund Amortization Schedule
therefor, (ii) payment of interest on each Series
when due, (iii) payment of all Operating Expenses
of the Issuer when due in accordance with the
Indenture, and (iv) deposits to the
Overcollateralization Subaccount such that the
balance therein will equal the Calculated
Overcollateralization Level on each Payment Date.
(b)______On each Calculation Date, the Servicer shall file an Adjustment
Request with the BPU. This filing shall include the data specified in the
Petition and the Financing Order.
(c)______On each Adjustment Date, the Servicer shall
(i) take all reasonable actions and make all reasonable efforts
to effectuate all adjustments to the BGS Transition Bond Charge
either approved by the BPU or effective on an interim basis pending
final approval, and
(ii) promptly send to the Trustee copies of all material notices
and documents relating to such adjustments.
(d)______On each Adjustment Date, the Servicer shall provide Moody's with
a schedule indicating any changes to the BGS Transition Bond Charge.
(e)______If deemed appropriate by the Servicer to protect BGS Transition
Bondholders to remedy a significant and recurring variance between actual and
expected TBC Collections, as authorized by the Financing Order, the Servicer
shall make "non-routine" filings with the BPU for adjustments to the formula
described in Appendices C and F to the Financing Order to assure timely
payment of the Total Payment Requirements (as defined in the Financing Order).
Such filings shall be made at least 90 days prior to the proposed effective
date of the proposed adjustments.
(f)______The Servicer is also required to determine, no sooner than May 1
and not later than May 15 of each year, whether the TBC Collections, without
taking into account amounts in the Capital Subaccount and
Overcollateralization Subaccount, will be sufficient to pay scheduled debt
service and expenses related to the BGS Transition Bonds throughout the end of
the then current calendar year, and to file for an upward Adjustment Request
of the BGS Transition Bond Charge no later than June 1 if a deficiency exists.