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Exhibit 10.2

 

TRANSITION PROPERTY PURCHASE AND SALE AGREEMENT

by and between

AEP TEXAS RESTORATION FUNDING LLC,

Issuer

and

AEP TEXAS INC.,

Seller

Dated as of September 18, 2019

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TABLE OF CONTENTS

 

Page

 

ARTICLE I DEFINITIONS       SECTION 1.01. Definitions 1 SECTION 1.02. Other
Definitional Provisions 2   ARTICLE II CONVEYANCE OF TRANSITION PROPERTY      
SECTION 2.01. Conveyance of Transition Property 2 SECTION 2.02. Conditions to
Conveyance of Transition Property 3   ARTICLE III REPRESENTATIONS AND WARRANTIES
OF SELLER       SECTION 3.01. Organization and Good Standing 4 SECTION 3.02. Due
Qualification 5 SECTION 3.03. Power and Authority 5 SECTION 3.04. Binding
Obligation 5 SECTION 3.05. No Violation 5 SECTION 3.06. No Proceedings 5 SECTION
3.07. Approvals 6 SECTION 3.08. The Transition Property 6 SECTION 3.09.
Limitations on Representations and Warranties 9   ARTICLE IV COVENANTS OF THE
SELLER       SECTION 4.01. Existence 10 SECTION 4.02. No Liens 10 SECTION 4.03.
Delivery of Collections 10 SECTION 4.04. Notice of Liens 10 SECTION 4.05.
Compliance with Law 10 SECTION 4.06. Covenants Related to System Restoration
Bonds and Transition  Property 11 SECTION 4.07. Protection of Title 12 SECTION
4.08. Nonpetition Covenants 12 SECTION 4.09. Taxes 13 SECTION 4.10. Issuance
Advice Letter 13 SECTION 4.11. Tariff 13 SECTION 4.12. Notice of Breach to
Rating Agencies, Etc 13

 

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SECTION 4.13. Use of Proceeds 13 SECTION 4.14. Further Assurances 13   ARTICLE V
THE SELLER       SECTION 5.01. Liability of Seller; Indemnities 13 SECTION 5.02.
Merger, Conversion or Consolidation of, or Assumption of the Obligations of,
Seller 16 SECTION 5.03. Limitation on Liability of Seller and Others 16  
ARTICLE VI MISCELLANEOUS PROVISIONS       SECTION 6.01. Amendment 17 SECTION
6.02. PUCT Condition 17 SECTION 6.03. Notices 19 SECTION 6.04. Assignment 19
SECTION 6.05. Limitations on Rights of Third Parties 19 SECTION 6.06.
Severability 20 SECTION 6.07. Separate Counterparts 20 SECTION 6.08. Headings 20
SECTION 6.09. Governing Law 20 SECTION 6.10. Assignment to Indenture Trustee 20
SECTION 6.11. Limitation of Liability 20 SECTION 6.12. Waivers 21       EXHIBITS
Exhibit A Form of Bill of Sale  

  

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This TRANSITION PROPERTY PURCHASE AND SALE AGREEMENT (this “Agreement”), dated
as of September 18, 2019, is between AEP Texas Restoration Funding LLC, a
Delaware limited liability company (the “Issuer”), and AEP Texas Inc., a
Delaware corporation (together with its successors in interest to the extent
permitted hereunder, the “Seller”).

 

RECITALS

 

WHEREAS, the Issuer desires to purchase the Transition Property created pursuant
to the Securitization Law;

 

WHEREAS, the Seller is willing to sell its rights and interests under the
Financing Order to the Issuer whereupon such rights and interests will become
the Transition Property;

 

WHEREAS, the Issuer, in order to finance the purchase of the Transition
Property, will issue the System Restoration Bonds under the Indenture; and

 

WHEREAS, the Issuer, to secure its obligations under the System Restoration
Bonds and the Indenture, will pledge, among other things, all right, title and
interest of the Issuer in and to the Transition Property and this Agreement to
the Indenture Trustee for the benefit of the Secured Parties.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the parties hereto agree as follows:

 

ARTICLE I
DEFINITIONS

 

SECTION 1.01.          Definitions. (a) Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to them in that
certain Indenture (including Appendix A thereto) dated as of the date hereof
between the Issuer and U.S. Bank National Association, a national banking
association, in its capacity as indenture trustee (the “Indenture Trustee”) and
in its separate capacity as a securities intermediary (the “Securities
Intermediary”), as the same may be amended, restated, supplemented or otherwise
modified from time to time.

 

(b)          Whenever used in this Agreement, the following words and phrases
shall have the following meanings:

 

“Bill of Sale” means a bill of sale substantially in the form of Exhibit A
hereto delivered pursuant to Section 2.02(i).

 

“Losses” means (i) any and all amounts of principal and interest on the System
Restoration Bonds not paid when due or when scheduled to be paid in accordance
with their terms and the amounts of any deposits by or to the Issuer required to
have been made in accordance with the terms of the Basic Documents or the
Financing Order which are not made when so required and (ii) any and all other
liabilities, obligations, losses, claims, damages, payments, costs or expenses
of any kind whatsoever.

 

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“Transition Property” means all of the Seller’s rights and interests under the
Financing Order.

 

SECTION 1.02.          Other Definitional Provisions.

 

(a)          All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.

 

(b)          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”.

 

(c)          The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms.

 

ARTICLE II
CONVEYANCE OF TRANSITION PROPERTY

 

SECTION 2.01.          Conveyance of Transition Property. (a) In consideration
of the Issuer’s delivery to or upon the order of the Seller of $231,184,014,
subject to the conditions specified in Section 2.02, the Seller does hereby
irrevocably sell, transfer, assign, set over and otherwise convey to the Issuer,
without recourse or warranty, except as set forth herein, all right, title and
interest of the Seller in and to the Transition Property (such sale, transfer,
assignment, setting over and conveyance of the Transition Property includes, to
the fullest extent permitted by the Securitization Law, the right to impose,
collect and receive System Restoration Charges and the assignment of all
revenues, collections, claims, rights, payments, money or proceeds of or arising
from the System Restoration Charges related to the Transition Property, as the
same may be adjusted from time to time). Such sale, transfer, assignment,
setting over and conveyance is hereby expressly stated to be a sale and,
pursuant to Section 39.308 (as incorporated through Section 36.403(a)) of the
Securitization Law and other applicable law, shall be treated as an absolute
transfer of all of the Seller’s right, title and interest in and to (as in a
true sale), and not as a pledge or other financing of, the Transition Property.
The Seller and the Issuer agree that after giving effect to the sale, transfer,
assignment, setting over and conveyance contemplated hereby the Seller has no
right, title or interest in or to the Transition Property to which a security
interest could attach because (i) it has sold, transferred, assigned, set over
and conveyed all right, title and interest in and to the Transition Property to
the Issuer, (ii) as provided in Section 39.304 (as incorporated through Section
36.403(a)) of the Securitization Law, such rights are only contract rights until
the time of such sale, transfer, assignment, setting over and conveyance and
(iii) as provided in Section 39.309(c) (as incorporated through Section
36.403(a)) of the Securitization Law, appropriate notice has been filed and such
transfer is perfected against all third parties, including subsequent judicial
or other lien creditors. If such sale, transfer, assignment, setting over and
conveyance is held by any court of competent jurisdiction not to be a true sale
as provided in Section 39.308 (as incorporated through Section 36.403(a)) of the
Securitization Law, then such sale, transfer, assignment, setting over and
conveyance shall be treated as a pledge of the Transition Property and as the
creation of a security interest (within the meaning of the Securitization Law
and the UCC) in the Transition Property and, without prejudice to its position
that it has absolutely transferred all of its rights in the Transition Property
to the Issuer, the Seller hereby grants a security interest in the Transition
Property to the Issuer (and to the Indenture Trustee for the benefit of the
Secured Parties) to secure their respective rights under the Basic Documents to
receive the System Restoration Charges and all other Transition Property.

 

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(b)          Subject to Section 2.02, the Issuer does hereby purchase the
Transition Property from the Seller for the consideration set forth in Section
2.01(a).

 

SECTION 2.02.                  Conditions to Conveyance of Transition Property.
The obligation of the Issuer to purchase Transition Property on the Closing Date
shall be subject to the satisfaction of each of the following conditions:

 

(i)                 on or prior to the Closing Date, the Seller shall have
delivered to the Issuer a duly executed Bill of Sale identifying the Transition
Property to be conveyed on the Closing Date;

 

(ii)                on or prior to the Closing Date, the Seller shall have
received the Financing Order creating the Transition Property;

 

(iii)               as of the Closing Date, the Seller is 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;

 

(iv)              as of the Closing Date, the representations and warranties of
the Seller set forth in this Agreement shall be true and correct with the same
force and effect as if made on the Closing Date (except to the extent that they
relate to an earlier date); on and as of the Closing Date no breach of any
covenant or agreement of the Seller contained in this Agreement has occurred and
is continuing; and no Servicer Default shall have occurred and be continuing;

 

(v)               as of the Closing Date, (A) the Issuer shall have sufficient
funds available to pay the purchase price for the Transition Property to be
conveyed on such date and (B) all conditions to the issuance of the System
Restoration Bonds intended to provide such funds set forth in the Indenture
shall have been satisfied or waived;

 

(vi)              on or prior to the Closing Date, the Seller shall have taken
all action required to transfer to the Issuer ownership of the Transition
Property to be conveyed on such date, free and clear of all Liens other than
Liens created by the Issuer pursuant to the Basic Documents and to perfect such
transfer, including, without limitation, filing any statements or filings under
the Securitization Law or the UCC; and the Issuer or the Servicer, on behalf of
the Issuer, shall have taken any action required for the Issuer to grant the
Indenture Trustee a first priority perfected security interest in the System
Restoration Bond Collateral and maintain such security interest as of such date;

 

(vii)             the Seller shall have delivered to the Rating Agencies and the
Issuer any Opinions of Counsel required by the Rating Agencies;

 

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(viii)             the Seller shall have received and delivered to the Issuer
and the Indenture Trustee an opinion or opinions of outside tax counsel (as
selected by the Seller, and in form and substance reasonably satisfactory to the
Issuer and the Underwriters) to the effect that (i) the Issuer will not be
subject to United States federal income tax as an entity separate from its sole
owner and that the System Restoration Bonds will be treated as debt of the
Issuer's sole owner for United States federal income tax purposes, and (ii) the
issuance of the System Restoration Bonds will not result in gross income to the
Seller. The opinion of outside tax counsel described above may, if the Seller so
chooses, be conditioned on the receipt by the Seller of one or more letter
rulings from the Internal Revenue Service (unless the Internal Revenue Service
has announced that it will not rule on the issues described in this paragraph)
and in rendering such opinion outside tax counsel shall be entitled to rely on
the rulings contained in such ruling letters and to rely on the representations
made, and information supplied, to the Internal Revenue Service in connection
with such letter rulings;

 

(ix)               on and as of the Closing Date, each of the LLC Agreement, the
Servicing Agreement, this Agreement, the Indenture, the Financing Order, the
Tariff and the Securitization Law shall be in full force and effect;

 

(x)                the System Restoration Bonds shall have received a rating or
ratings required by the Financing Order; and

 

(xi)               the Seller shall have delivered to the Indenture Trustee and
the Issuer an Officers’ Certificate confirming the satisfaction of each
condition precedent specified in this Section 2.02.

 

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER

 

Subject to Sections 3.09, the Seller makes the following representations and
warranties, as of the Closing Date, and the Seller acknowledges that the Issuer
has relied thereon in acquiring the Transition Property. The representations and
warranties shall survive the sale and transfer of Transition Property to the
Issuer and the pledge thereof to the Indenture Trustee pursuant to the
Indenture. The Seller agrees that (i) the Issuer may assign the right to enforce
the following representations and warranties to the Indenture Trustee and (ii)
the representations and warranties inure to the benefit of the Issuer and the
Indenture Trustee.

 

SECTION 3.01.          Organization and Good Standing. The Seller is a
corporation duly organized and validly existing and is in good standing under
the laws of the state of its organization, with the requisite corporate or other
power and authority to own its properties as such properties are currently owned
and to conduct its business as such business is now conducted by it, and has the
requisite corporate or other power and authority to obtain the Financing Order
and own the rights and interests under the Financing Order and to sell and
assign those rights and interests to the Issuer, whereupon (subject to the
effectiveness of the Issuance Advice Letter) such rights and interests shall
become “transition property” as defined in Section 39.302(8) (as incorporated
through Section 36.403(a)) of the Securitization Law.

 

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SECTION 3.02.          Due Qualification. The Seller is duly qualified to do
business and is 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 or obtain such licenses and
approvals would not be reasonably likely to have a material adverse effect on
the Seller’s business, operations, assets, revenues or properties).

 

SECTION 3.03.          Power and Authority. The Seller has the requisite
corporate or other 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 all necessary action on the part of the
Seller under its organizational or governing documents and laws.

 

SECTION 3.04.          Binding Obligation. This Agreement constitutes a legal,
valid and binding obligation of the Seller enforceable against it in accordance
with its terms, subject to applicable insolvency, reorganization, moratorium,
fraudulent transfer and other laws relating to or affecting creditors’ or
secured parties’ rights generally from time to time in effect and to general
principles of equity (including concepts of materiality, reasonableness, good
faith and fair dealing), 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
and will not: (i) conflict with or 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 Seller’s organizational documents, or any indenture or other
agreement or instrument to which the Seller is a party or by which it or any of
its property is bound; (ii) result in the creation or imposition of any Lien
upon any of the Seller’s properties pursuant to the terms of any such indenture,
agreement or other instrument (other than any Lien that may be granted in the
Issuer’s favor or any Lien created in favor of the Indenture Trustee for the
benefit of the Holders pursuant to Section 39.309 (as incorporated through
Section 36.403(a)) of the Securitization Law or any Lien that may be granted
under the Basic Documents); or (iii) violate any existing law or any existing
order, rule or regulation applicable to the Seller of any Governmental Authority
having jurisdiction over the Seller or its properties.

 

SECTION 3.06.          No Proceedings. There are no proceedings pending and, to
the Seller’s knowledge, there are no proceedings threatened and, to the Seller’s
knowledge, there are no investigations pending or threatened, before any
Governmental Authority having jurisdiction over the Seller or its properties
involving or relating to the Seller or the Issuer or, to the Seller’s knowledge,
any other Person: (i) asserting the invalidity of the Securitization Law, the
Financing Order, this Agreement, any of the other Basic Documents or the System
Restoration Bonds, (ii) seeking to prevent the issuance of the System
Restoration Bonds or the consummation of any of the transactions contemplated by
this Agreement or any of the other Basic Documents, (iii) 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 Securitization Law, the Financing Order, this
Agreement, any of the other Basic Documents or the System Restoration Bonds or
(iv) seeking to adversely affect the federal income tax or state income or
franchise tax classification of the System Restoration Bonds as debt.

 

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SECTION 3.07.          Approvals. Except for UCC financing statement filings and
other filings under the Securitization Law, no approval, authorization, consent,
order or other action of, or filing with, any Governmental Authority 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 and those that the Seller, in its capacity as Servicer under
the Servicing Agreement, is required to make in the future pursuant to the
Servicing Agreement.

 

SECTION 3.08.          The Transition Property.

 

(a)          Information. Subject to subsection (f) below, at the Closing Date,
all written information, as amended or supplemented from time to time, provided
by the Seller to the Issuer with respect to the Transition Property (including
the Expected Amortization Schedule, the Financing Order and the Issuance Advice
Letter relating thereto) is true and correct in all material respects.

 

(b)          Title. It is the intention of the parties hereto that (other than
for federal income tax purposes and, to the extent consistent with applicable
state tax law, state income and franchise tax purposes) the transfers and
assignments herein contemplated each constitute a sale and absolute transfer of
the Transition Property from the Seller to the Issuer and that no interest in,
or right or title to, the Transition Property shall be part of the Seller’s
estate in the event of the filing of a bankruptcy petition by or against the
Seller under any bankruptcy law. No portion of the Transition Property has been
sold, transferred, assigned or pledged or otherwise conveyed by the Seller to
any Person other than the Issuer, and no security agreement, financing statement
or equivalent security or lien instrument listing the Seller as debtor covering
all or any part of the Transition Property is on file or of record in any
jurisdiction, except such as may have been filed, recorded or made in favor of
the Issuer or the Indenture Trustee in connection with the Basic Documents. The
Seller has not authorized the filing of and is not aware (after due inquiry) of
any financing statement against it that includes a description of collateral
including the Transition Property other than any financing statement filed,
recorded or made in favor of the Issuer or the Indenture Trustee in connection
with the Basic Documents. The Seller is not aware (after due inquiry) of any
judgment or tax lien filings against either the Seller or the Issuer. At the
Closing Date, immediately prior to the sale of the Transition Property
hereunder, the Seller is the original and the sole owner of the Transition
Property free and clear of all Liens and rights of any other Person, and no
offsets, defenses or counterclaims exist or have been asserted with respect
thereto.

 

(c)          Transfer Filings. On the Closing Date, immediately upon the sale
hereunder, the Transition Property shall be validly transferred and sold to the
Issuer, the Issuer shall own all the Transition Property free and clear of all
Liens (except for any Lien created in favor of the Holders pursuant to Section
39.309 (as incorporated through Section 36.403(a)) of the Securitization Law or
any Lien that may be granted under the Basic Documents) and all filings and
action to be made or taken by the Seller (including, without limitation, filings
with the Secretary of State of the State of Texas under the Securitization Law)
necessary in any jurisdiction to give the Issuer a perfected ownership interest
(subject to any Lien created in favor of the Indenture Trustee for the benefit
of the Holders pursuant to Section 39.309 (as incorporated through Section
36.403(a)) of the Securitization Law and any Lien that may be granted under the
Basic Documents) in the Transition Property have been made or taken. No further
action is required to maintain such ownership interest (subject to any Lien
created in favor of the Indenture Trustee for the benefit of the Holders
pursuant to Section 39.309 (as incorporated through Section 36.403(a)) of the
Securitization Law and any Lien that may be granted under the Basic Documents)
and to give the Indenture Trustee a first priority perfected security interest
in the Transition Property. All filings and action have also been made or taken
to perfect the security interest in the Transition Property granted by the
Seller to the Issuer (subject to any Lien created in favor of the Indenture
Trustee for the benefit of the Holders pursuant to Section 39.309 (as
incorporated through Section 36.403(a)) of the Securitization Law and any Lien
that may be granted under the Basic Documents) and, to the extent necessary, the
Indenture Trustee pursuant to Section 2.01.

 

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(d)          Financing Order, Issuance Advice Letter and Tariff; Other
Approvals. On the Closing Date, under the laws of the State of Texas and the
United States in effect on the Closing Date, (i) the Financing Order pursuant to
which the rights and interests of the Seller, including the right to impose,
collect and receive the System Restoration Charge and, in and to the Transition
Property transferred on such date have been created, is Final and non-appealable
and is in full force and effect; (ii) as of the issuance of the System
Restoration Bonds, the System Restoration Bonds are entitled to the protection
of the Securitization Law and, accordingly, the Financing Order, the System
Restoration Charges and the Issuance Advice Letter are not revocable by the
PUCT; (iii) as of the issuance of the System Restoration Bonds, the Tariff is in
full force and effect and is not subject to modification by the PUCT except as
provided under Section 39.307 (as incorporated through Section 36.403(a)) of the
Securitization Law; (iv) the process by which the Financing Order creating the
Transition Property transferred on such date was adopted and approved, and the
Financing Order, Issuance Advice Letter and Tariff themselves, comply with all
applicable laws, rules and regulations; (v) the Issuance Advice Letter and the
Tariff relating to the Transition Property transferred on such date have been
filed in accordance with the Financing Order creating the Transition Property
transferred on such date and an officer of the Seller has provided the
certification to the PUCT required by the Issuance Advice Letter; and (vi) no
other approval, authorization, consent, order or other action of, or filing with
any Governmental Authority is required in connection with the creation of the
Transition Property transferred on such date, except those that have been
obtained or made.

 

(e)          State Action. Under the Securitization Law, the State of Texas has
pledged that it will not take or permit any action that would impair the value
of the Transition Property transferred on such date, or, except as permitted by
Section 39.307 (as incorporated through Section 36.403(a)) of the Securitization
Law, reduce, alter or impair the System Restoration Charges relating to the
Transition Property until the principal, interest and premium and any other
charges incurred and contracts to be performed in connection with the System
Restoration Bonds relating to the Transition Property have been paid and
performed in full. Under the laws of the State of Texas and the United States,
the State of Texas could not constitutionally take any action of a legislative
character including the repeal or amendment of the Securitization Law, which
would substantially limit, alter or impair the Transition Property or other
rights vested in the Holders pursuant to the Financing Order or substantially
limit, alter, impair or reduce the value or amount of the Transition Property,
unless such action is a reasonable exercise of the sovereign powers of the State
of Texas and of a character reasonable and appropriate to further a legitimate
public purpose, and, under the takings clauses of the United States and Texas
Constitutions, the State of Texas could not repeal or amend the Securitization
Law or take any other action in contravention of its pledge quoted above without
paying just compensation to the Holders, as determined by a court of competent
jurisdiction if doing so would constitute a permanent appropriation of a
substantial property interest of the Holders in the Transition Property and
deprive the Holders of their reasonable expectations arising from their
investments in the System Restoration Bonds. There is no assurance, however,
that, even if a court were to award just compensation it would be sufficient to
pay the full amount of principal and interest on the System Restoration Bonds.

 

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(f)           Assumptions. On the Closing Date, based upon the information
available to the Seller on such date, the assumptions used in calculating the
System Restoration Charges are reasonable and are made in good faith.
Notwithstanding the foregoing, the Seller makes no representation or warranty,
express or implied, that amounts actually collected arising from those System
Restoration Charges will in fact be sufficient to meet the payment obligations
on the related System Restoration Bonds or that the assumptions used in
calculating such System Restoration Charges will in fact be realized.

 

(g)          Creation of Transition Property. Upon the effectiveness of the
Financing Order, the Issuance Advice Letter and the Tariff with respect to the
Transition Property and the transfer of the Transition Property pursuant to this
Agreement: (i) the rights and interests of the Seller under the Financing Order,
including the right to impose, collect and receive the System Restoration
Charges authorized in the Financing Order, become “transition property” as
defined in Section 39.302(8) (as incorporated through Section 36.403(a)) of the
Securitization Law; (ii) the Transition Property constitutes a present property
right vested in the Issuer; (iii) the Transition Property includes (A) the
right, title and interest of the Seller in the Financing Order and the System
Restoration Charges and (B) the right to impose, collect and obtain periodic
adjustments (with respect to adjustments, in the manner and with the effect
provided in Section 4.01(b) of the Servicing Agreement) of such System
Restoration Charges, and the rates and other charges authorized by the Financing
Order and all revenues, collections, claims, payments, money or proceeds of or
arising from the System Restoration Charges; (iv) the owner of the Transition
Property is legally entitled to bill System Restoration Charges and collect
payments in respect of the System Restoration Charges in the aggregate
sufficient to pay the interest on and principal of the System Restoration Bonds
in accordance with the Indenture, to pay the fees and expenses of servicing the
System Restoration Bonds, to replenish the Capital Subaccount to the Required
Capital Level until the System Restoration Bonds are paid in full or until the
last date permitted for the collection of payments in respect of the System
Restoration Charge under the Financing Order, whichever is earlier, and the
Customer class allocation percentages in the Financing Order do not prohibit the
owner of the Transition Property from obtaining adjustments and effecting
allocations to the System Restoration Charges in order to collect payments of
such amounts; and (v) the Transition Property is not subject to any Lien other
than any Lien created in favor of the Indenture Trustee for the benefit of the
Holders pursuant to Section 39.309 (as incorporated through Section 36.403(a))
of the Securitization Law or any Lien that may be granted under the Basic
Documents.

 

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(h)          Nature of Representations and Warranties. The representations and
warranties set forth in this Section 3.08, insofar as they involve conclusions
of law, are made not on the basis that the Seller purports to be a legal expert
or to be rendering legal advice, but rather to reflect the parties’ good faith
understanding of the legal basis on which the parties are entering into this
Agreement and the other Basic Documents and the basis on which the Holders are
purchasing the System Restoration Bonds, and to reflect the parties’ agreement
that, if such understanding turns out to be incorrect or inaccurate, the Seller
will be obligated to indemnify the Issuer and its permitted assigns (to the
extent required by and in accordance with Section 5.01), and that the Issuer and
its permitted assigns will be entitled to enforce any rights and remedies under
the Basic Documents, on account of such inaccuracy to the same extent as if the
Seller had breached any other representations or warranties hereunder.

 

(i)           Prospectus. As of the date hereof, the information describing the
Seller under the caption “The Depositor, Seller, Initial Servicer and Sponsor”
in the prospectus dated September 11, 2019 relating to the System Restoration
Bonds is true and correct in all material respects.

 

(j)           Solvency. After giving effect to the sale of the 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
purpose;

 

(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)               reasonably believes that it will be able to pay its debts as
they come due; and

 

(v)                is able to pay its debts as they mature and does not intend
to incur, or believes that it will not incur, indebtedness that it will not be
able to repay at its maturity.

 

(k)          No Court Order. There is no order by any court providing for the
revocation, alteration, limitation or other impairment of the Securitization
Law, the Financing Order, the Issuance Advice Letter, the Transition Property or
the System Restoration Charges or any rights arising under any of them or that
seeks to enjoin the performance of any obligations under the Financing Order.

 

(l)           Survival of Representations and Warranties The representations and
warranties set forth in this Section 3.08 shall survive the execution and
delivery of this Agreement and may not be waived by any party hereto except
pursuant to a written agreement executed in accordance with Article VI and as to
which the Rating Agency Condition has been satisfied.

 

SECTION 3.09.          Limitations on Representations and Warranties. Without
prejudice to any of the other rights of the parties, the Seller will not be in
breach of any representation or warranty, as a result of a change in law by
means of any legislative enactment, constitutional amendment or voter
initiative. THE SELLER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
THAT BILLED SYSTEM RESTORATION CHARGES WILL BE ACTUALLY COLLECTED FROM
CUSTOMERS.

 

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ARTICLE IV
COVENANTS OF THE SELLER

 

SECTION 4.01.          Existence. Subject to Section 5.02, so long as any of the
System Restoration Bonds are Outstanding, the Seller (a) will keep in full force
and effect its existence and remain in good standing under the laws of the
jurisdiction of its organization, (b) will obtain and preserve its qualification
to do business, in each case to the extent that in each such jurisdiction such
existence or qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the other Basic Documents to which the Seller
is a party and each other instrument or agreement necessary or appropriate to
the proper administration of this Agreement and the transactions contemplated
hereby or to the extent necessary for the Seller to perform its obligations
hereunder or thereunder and (c) will continue to operate its electric
transmission and distribution system to provide service to its customers (or, if
transmission and distribution are split, to provide distribution service
directly to its customers).

 

SECTION 4.02.          No Liens. Except for the conveyances hereunder or any
Lien under Section 39.309 (as incorporated through Section 36.403(a)) of the
Securitization Law in favor of the Indenture Trustee for the benefit of the
Holders and any Lien that may be granted under the Basic Documents, the Seller
will not sell, pledge, assign or transfer, or grant, create, incur, assume or
suffer to exist any Lien on, any of the Transition Property, or any interest
therein, and the Seller shall defend the right, title and interest of the Issuer
and the Indenture Trustee, on behalf of the Secured Parties, in, to and under
the Transition Property against all claims of third parties claiming through or
under the Seller. AEP Texas, in its capacity as Seller, will not at any time
assert any Lien against, or with respect to, any of the Transition Property.

 

SECTION 4.03.          Delivery of Collections. In the event that the Seller
receives any SRC Collections or other payments in respect of the System
Restoration Charges or the proceeds thereof other than in its capacity as the
Servicer, the Seller agrees to pay to the Servicer, on behalf of the Issuer, all
payments received by it in respect thereof as soon as practicable after receipt
thereof. Prior to such remittance to the Servicer by the Seller, the Seller
agrees that such amounts are held by it in trust for the Issuer and the
Indenture Trustee. If the Seller becomes a party to any future trade receivables
purchase and sale arrangement or similar arrangement under which it sells all or
any portion of its accounts receivables, the Seller and the other parties to
such arrangement shall enter into an intercreditor agreement in connection
therewith and the terms of the documentation evidencing such trade receivables
purchase and sale arrangement or similar arrangement shall expressly exclude
System Restoration Charges from any receivables or other assets pledged or sold
under such arrangement.

 

SECTION 4.04.          Notice of Liens. The Seller shall notify the Issuer and
the Indenture Trustee promptly after becoming aware of any Lien on any of the
Transition Property, other than the conveyances hereunder, any Lien under the
Basic Documents or any Lien under Section 39.309 (as incorporated through
Section 36.403(a)) of the Securitization Law created in favor of the Indenture
Trustee for the benefit of the Holders.

 

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 Authority applicable to it,
except to the extent that failure to so comply would not materially adversely
affect the Issuer’s or the Indenture Trustee’s interests in the Transition
Property or under any of the other Basic Documents to which the Seller is party
or the Seller’s performance of its obligations hereunder or under any of the
other Basic Documents to which it is party.

 

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SECTION 4.06.          Covenants Related to System Restoration Bonds and
Transition Property.

 

(a)          So long as any of the System Restoration Bonds are outstanding, the
Seller shall treat the Transition Property as the Issuer’s property for all
purposes other than financial reporting, state or federal regulatory or tax
purposes, and treat the System Restoration Bonds as debt for all purposes and
specifically as debt of the Issuer, other than for financial reporting, state or
federal regulatory or tax purposes.

 

(b)          Solely for the purposes of federal taxes and, to the extent
consistent with applicable state, local and other tax law, for purposes of
state, local and other taxes, so long as any of the System Restoration Bonds are
outstanding, the Seller agrees to treat the System Restoration Bonds as
indebtedness of the Seller (as the sole owner of the Issuer) secured by the
System Restoration Bond Collateral unless otherwise required by appropriate
taxing authorities.

 

(c)          So long as any of the System Restoration Bonds are outstanding, the
Seller shall disclose in its financial statements that the Issuer and not the
Seller is the owner of the Transition Property and that the assets of the Issuer
are not available to pay creditors of the Seller or its Affiliates (other than
the Issuer).

 

(d)          So long as any of the System Restoration Bonds are outstanding, the
Seller shall not own or purchase any System Restoration Bonds.

 

(e)          So long as the System Restoration Bonds are outstanding, the Seller
shall disclose the effects of all transactions between the Seller and the Issuer
in accordance with generally accepted accounting principles.

 

(f)           The Seller agrees that, upon the sale by the Seller of the
Transition Property to the Issuer pursuant to this Agreement, (i) to the fullest
extent permitted by law, including applicable PUCT Regulations and the
Securitization Law, the Issuer shall have all of the rights originally held by
the Seller with respect to the Transition Property, including the right (subject
to the terms of the Servicing Agreement) to exercise any and all rights and
remedies to collect any amounts payable by any Customer or REP in respect of the
Transition Property, notwithstanding any objection or direction to the contrary
by the Seller (and the Seller agrees not to make any such objection or to take
any such contrary action) and (ii) any payment by any Customer or REP directly
to the Issuer shall discharge such Customer’s or REP’s obligations, if any, in
respect of the Transition Property to the extent of such payment,
notwithstanding any objection or direction to the contrary by the Seller.

 

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(g)          So long as any of the System Restoration Bonds are outstanding, (i)
in all proceedings relating directly or indirectly to the Transition Property,
the Seller shall affirmatively certify and confirm that it has sold all of its
rights and interests in and to such property (other than for financial reporting
or tax purposes), (ii) the Seller shall not make any statement or reference in
respect of the Transition Property that is inconsistent with the ownership
interest of the Issuer (other than for financial accounting or tax purposes or
as required by state or federal regulatory purposes), (iii) the Seller shall not
take any action in respect of the Transition Property except solely in its
capacity as the Servicer thereof pursuant to the Servicing Agreement or as
otherwise contemplated by the Basic Documents, (iv) the Seller shall not sell
transition property under a separate financing order in connection with the
issuance of additional transition bonds or system restoration bonds unless the
Rating Agency Condition shall have been satisfied, and (v) neither the Seller
nor the Issuer shall take any action, file any tax return, or make any election
inconsistent with the treatment of the Issuer, for purposes of federal taxes
and, to the extent consistent with applicable state, local and other tax law,
for purposes of state, local and other taxes, as a disregarded entity that is
not separate from the Seller (or, if relevant, from another sole owner of the
Issuer).

 

SECTION 4.07.          Protection of Title. The Seller shall execute and file
such filings, including, without limitation, filings with the Secretary of State
of the State of Texas pursuant to the Securitization Law, and cause to be
executed and filed such filings, all in such manner and in such places as may be
required by law to fully preserve, maintain, protect and perfect the ownership
interest of the Issuer and the first priority security interest of the Indenture
Trustee in the Transition Property, including, without limitation, all filings
required under the Securitization Law and the UCC relating to the transfer of
the ownership of the rights and interest in the Transition Property by the
Seller to the Issuer or the pledge of the Issuer’s interest in the Transition
Property to the Indenture Trustee. The Seller shall deliver or cause to be
delivered to the Issuer and the Indenture Trustee file-stamped copies of, or
filing receipts for, any document filed as provided above, as soon as available
following such filing. The Seller shall institute any action or proceeding
necessary to compel performance by the PUCT, the State of Texas or any of their
respective agents, of any of their obligations or duties under the
Securitization Law, the Financing Order or the Issuance Advice Letter, and 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, in each case as may be reasonably necessary (i)
to protect the Issuer and the Secured Parties from claims, state actions or
other actions or proceedings of third parties which, if successfully pursued,
would result in a breach of any representation set forth in Article III or any
covenant set forth in Article IV and (ii) to block or overturn any attempts to
cause a repeal of, modification of or supplement to the Securitization Law, the
Financing Order, the Issuance Advice Letter or the rights of Holders by
legislative enactment or constitutional amendment that would be materially
adverse to the Issuer or the Secured Parties or which would otherwise cause an
impairment of the rights of the Issuer or the Secured Parties. The costs of any
such actions or proceedings will be payable by the Seller.

 

SECTION 4.08.          Nonpetition Covenants. Notwithstanding any prior
termination of this Agreement or the Indenture, the Seller shall not, prior to
the date which is one year and one day after the termination of the Indenture
and payment in full of the System Restoration Bonds or any other amounts owed
under the Indenture, petition or otherwise invoke or cause the Issuer to invoke
the process of any Government Authority for the purpose of commencing or
sustaining an involuntary case against the Issuer under any federal or state
bankruptcy, insolvency or similar law, appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Issuer or any substantial part of the property of the Issuer, or ordering the
winding up or liquidation of the affairs of the Issuer.

 

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SECTION 4.09.          Taxes. So long as any of the System Restoration Bonds are
outstanding, the Seller shall, and shall cause each of its subsidiaries to, pay
all 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
Transition Property; provided that no such tax need be paid if the Seller or one
of its Affiliates is contesting the same in good faith by appropriate
proceedings promptly instituted and diligently conducted and if the Seller or
such Affiliate has established appropriate reserves as shall be required in
conformity with generally accepted accounting principles.

 

SECTION 4.10.          Issuance Advice Letter. The Seller hereby agrees not to
withdraw the filing of any Issuance Advice Letter with the PUCT.

 

SECTION 4.11.          Tariff. The Seller hereby agrees to make all reasonable
efforts to keep the Tariff in full force and effect at all times.

 

SECTION 4.12.          Notice of Breach to Rating Agencies, Etc. Promptly after
obtaining knowledge thereof, in the event of a breach in any material respect
(without regard to any materiality qualifier contained in such representation,
warranty or covenant) of any of the Seller’s representations, warranties or
covenants contained herein, the Seller shall promptly notify the Issuer, the
Indenture Trustee, the PUCT and the Rating Agencies of such breach (with prior
written notice to the Servicer in order to enable compliance with Section 8.14
of the Servicing Agreement). For the avoidance of doubt, any breach which would
adversely affect scheduled payments on the System Restoration Bonds will be
deemed to be a material breach for purposes of this Section 4.12.

 

SECTION 4.13.          Use of Proceeds. The Seller shall use the proceeds of the
sale of the Transition Property in accordance with the Financing Order and the
Securitization Law.

 

SECTION 4.14.          Further Assurances. Upon the request of the Issuer, the
Seller shall execute and deliver such further instruments and do such further
acts as may be reasonably necessary to carry out more effectually the provisions
and purposes of this Agreement.

 

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 Indenture Trustee
(for the benefit of the Secured Parties) and each of their respective officers,
directors, employees, trustees, managers and agents for, and defend and hold
harmless each such Person from and against, any and all taxes (other than taxes
imposed on Holders as a result of their ownership of a System Restoration Bond)
that may at any time be imposed on or asserted against any such Person as a
result of the sale of the Transition Property to the Issuer, including any
franchise, sales, gross receipts, general corporation, tangible personal
property, privilege or license taxes but excluding any taxes imposed as a result
of a failure of such Person to withhold or remit taxes with respect to payments
on any System Restoration Bond; it being understood that the Holders shall be
entitled to enforce their rights against the Seller under this Section 5.01(b)
solely through a cause of action brought for their benefit by the Indenture
Trustee.

 

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(c)          The Seller shall indemnify the Issuer and the Indenture Trustee
(for the benefit of the Secured Parties) and each of their respective officers,
directors, employees, trustees, managers, and agents for, and defend and hold
harmless each such Person from and against, any and all taxes (other than taxes
imposed on Holders as a result of their ownership of a System Restoration Bond)
that may at any time be imposed on or asserted against any such Person as a
result of the Issuer’s ownership and assignment of the Transition Property, the
issuance and sale by the Issuer of the System Restoration Bonds or the other
transactions contemplated in the Basic Documents, including any franchise,
sales, gross receipts, general corporation, tangible personal property,
privilege or license taxes but excluding any taxes imposed as a result of a
failure of such Person to withhold or remit taxes with respect to payments on
any System Restoration Bond.

 

(d)          The Seller shall indemnify the Issuer, the Indenture Trustee (for
the benefit of the Secured Parties) and each of their respective officers,
directors, employees and agents for, and defend and hold harmless each such
Person from and against all Losses that may be imposed on, incurred by or
asserted against each such Person, in each such case, as a result of the
Seller’s breach of any of its representations, warranties or covenants contained
in this Agreement.

 

(e)          Indemnification under Sections 5.01(b), 5.01(c), 5.01(d) and
5.01(f) shall include reasonable out-of-pocket fees and expenses of
investigation and litigation (including reasonable attorney’s fees and
expenses), except as otherwise expressly provided in this Agreement.

 

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(f)           The Seller shall indemnify the Indenture Trustee (for itself) and
each Independent Manager, and any of their respective officers, directors,
employees and agents (each, an “Indemnified Person”) for, and defend and hold
harmless each such Person from and against, any and all Losses incurred by any
of such Indemnified Persons as a result of the Seller’s breach of any of its
representations and warranties or covenants contained in this Agreement, except
to the extent of Losses either resulting from the willful misconduct, bad faith
or gross negligence of such 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 Seller’s breach. The Seller shall not be
required to indemnify an Indemnified Person for any amount paid or payable by
such Indemnified Person in the settlement of any action, proceeding or
investigation without the prior written consent of the Seller which consent
shall not be unreasonably withheld. Promptly after receipt by an Indemnified
Person of notice of the commencement of any action, proceeding or investigation,
such Indemnified Person shall, if a claim in respect thereof is to be made
against the Seller under this Section 5.01(f), notify the Seller in writing of
the commencement thereof. Failure by an Indemnified Person to so notify the
Seller shall relieve the Seller from the obligation to indemnify and hold
harmless such Indemnified Person under this Section 5.01(f) only to the extent
that the Seller suffers actual prejudice as a result of such failure. With
respect to any action, proceeding or investigation brought by a third party for
which indemnification may be sought under this Section 5.01(f), the Seller shall
be entitled to conduct and control, at its expense and with counsel of its
choosing that is reasonably satisfactory to such Indemnified Person, the defense
of any such action, proceeding or investigation (in which case the Seller shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the Indemnified Person except as set forth below); provided that the
Indemnified Person shall have the right to participate in such action,
proceeding or investigation through counsel chosen by it and at its own expense.
Notwithstanding the Seller’s election to assume the defense of any action,
proceeding or investigation, the Indemnified Person shall have the right to
employ separate counsel (including local counsel), and the Seller shall bear the
reasonable fees, costs and expenses of such separate counsel if (i) the
defendants in any such action include both the Indemnified Person and the Seller
and the Indemnified Person shall have reasonably concluded that there may be
legal defenses available to it that are different from or additional to those
available to the Seller, (ii) the Seller shall not have employed counsel
reasonably satisfactory to the Indemnified Person to represent the Indemnified
Person within a reasonable time after notice of the institution of such action,
(iii) the Seller shall authorize the Indemnified Person to employ separate
counsel at the expense of the Seller or (iv) in the case of the Indenture
Trustee, such action exposes the Indenture Trustee to a material risk of
criminal liability or forfeiture or a Servicer Default has occurred and is
continuing. Notwithstanding the foregoing, the Seller shall not be obligated to
pay for the fees, costs and expenses of more than one separate counsel for the
Indemnified Persons other than one local counsel, if appropriate.

 

(g)          The Seller shall indemnify the Servicer (if the Servicer is not the
Seller) for the costs of any action instituted by the Servicer pursuant to
Section 5.02(d) of the Servicing Agreement which are not paid as Operating
Expenses in accordance with the priorities set forth in Section 8.02(e) of the
Indenture.

 

(h)          The remedies provided in this Agreement are the sole and exclusive
remedies against the Seller for breach of its representations and warranties in
this Agreement.

 

(i)           Indemnification under this Section 5.01 shall survive any repeal
of, modification of, or supplement to, or judicial invalidation of, the
Securitization Law or the Financing Order and shall survive the resignation or
removal of the Indenture Trustee or the termination of this Agreement and will
rank in priority with other general, unsecured obligations of the Seller. The
Seller shall not indemnify any party under this Section 5.01 for any changes in
law after the Closing Date, whether such changes in law are effected by means of
any legislative enactment, constitutional amendment or any final and
non-appealable judicial decision.

 

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SECTION 5.02.          Merger, Conversion or Consolidation of, or Assumption of
the Obligations of, Seller. Any Person (a) into which the Seller may be merged,
converted or consolidated and which is a Permitted Successor, (b) that may
result from any merger, conversion or consolidation to which the Seller shall be
a party and which is a Permitted Successor, (c) that may succeed to the
properties and assets of the Seller substantially as a whole and which is a
Permitted Successor, (d) which is a successor entity resulting from the division
of the Seller into two or more Persons and which is a Permitted Successor, or
(e) which otherwise succeeds to all or substantially all of the electric
transmission and distribution business of the Seller (or, if transmission and
distribution are not provided by a single entity, which provides wire service
directly to customers taking service at facilities, premises or loads located in
the Texas AEP Central Division as of the date of the Financing Order) (a
“Permitted Successor”) and which Person in any of the foregoing cases executes
an agreement of assumption to perform all of the obligations of the Seller
hereunder (including the Seller’s obligations under Section 5.01 incurred at any
time prior to or after the date of such assumption), shall be the successor to
the Seller under this Agreement without further act on the part of any of the
parties to this Agreement; provided, however, that (i) immediately after giving
effect to such transaction, no representation, warranty or covenant made
pursuant to Article III or Article IV shall be 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 Seller shall
have delivered to the Issuer, the Indenture Trustee and each Rating Agency an
Officer’s Certificate and an Opinion of Counsel from external counsel stating
that such consolidation, merger, division or succession and such agreement of
assumption comply with this Section 5.02 and that all conditions precedent, if
any, provided for in this Agreement relating to such transaction have been
complied with, (iii) the Seller shall have delivered to the Issuer, the
Indenture Trustee and each Rating Agency an Opinion of Counsel from external
counsel of the Seller either (A) stating that, in the opinion of such counsel,
all filings to be made by the Seller and the Issuer, including filings with the
PUCT pursuant to the Securitization Law, have been authorized, executed and
filed that are necessary to fully maintain the respective interest of the Issuer
and the Indenture Trustee in all of the 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 maintain such interests, (iv) the Seller shall
have delivered to the Issuer, the Indenture Trustee, the Rating Agencies and the
PUCT an Opinion of Counsel from independent tax counsel stating that, for
federal income tax purposes, such consolidation, conversion, merger, division or
succession and such agreement of assumption will not result in a material
federal income tax consequence to the Issuer or the Holders of System
Restoration Bonds and (v) the Seller shall have given the Rating Agencies prior
written notice of such transaction (with prior written notice to the Servicer in
order to enable compliance with Section 8.14 of the Servicing Agreement). When
any Person (or more than one Person) acquires the properties and assets of the
Seller substantially as a whole or otherwise becomes the successor, whether by
merger, conversion, consolidation, sale, transfer, lease, management contract or
otherwise, to all or substantially all of the electric transmission and
distribution business of the Seller (or, if transmission and distribution are
not provided by a single entity, provides wire service directly to customers
taking service at facilities, premises or loads located in the Texas AEP Central
Division as of the date of the Financing Order) in accordance with the terms of
this Section 5.02, then upon satisfaction of all of the other conditions of this
Section 5.02, the preceding Seller shall automatically and without further
notice be released from all of its obligations hereunder.

 

SECTION 5.03.          Limitation on Liability of Seller and Others. The Seller
and any director, officer, 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 4.07, 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.

 

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ARTICLE VI
MISCELLANEOUS PROVISIONS

 

SECTION 6.01.          Amendment. This Agreement may be amended in writing by
the Seller and the Issuer with ten Business Days’ prior written notice given to
the Rating Agencies and, if the contemplated amendment may in the judgment of
the PUCT increase ongoing Qualified Costs, the consent of the PUCT pursuant to
Section 6.02, but without the consent of any of the Holders, (i) to cure any
ambiguity, to correct or supplement any provisions in this Agreement or for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions in this Agreement or of modifying in any manner the rights of
the Holders; provided, however, that such action shall not, as evidenced by an
Officer’s Certificate delivered to the Issuer and the Indenture Trustee,
adversely affect in any material respect the interests of any Holder or (ii) to
conform the provisions hereof to the description of this Agreement in the
Prospectus.

 

In addition, this Agreement may be amended in writing by the Seller and the
Issuer with (i) the prior written consent of the Indenture Trustee, (ii) the
satisfaction of the Rating Agency Condition, (iii) the satisfaction of the
condition set forth below in Section 6.02, (iv) if such amendment may in the
judgment of the PUCT increase ongoing Qualified Costs, the consent of the PUCT
pursuant to Section 6.02 and (v) if any amendment would adversely affect in any
material respect the interest of any Holder of the System Restoration Bonds, the
consent of a majority of the Holders of each affected Tranche of System
Restoration Bonds. In determining whether a majority of Holders have consented,
System Restoration Bonds owned by the Issuer, Seller or any Affiliate of the
Issuer or Seller shall be disregarded, except that, in determining whether the
Indenture Trustee shall be protected in relying upon any such consent, the
Indenture Trustee shall only be required to disregard any System Restoration
Bonds it actually knows to be so owned. Promptly after the execution of any such
amendment or consent, the Issuer shall furnish copies of such amendment or
consent to each of the Rating Agencies.

 

It shall not be necessary for the consent of Holders pursuant to this Section to
approve the particular form of any proposed amendment or consent, but it shall
be sufficient if such consent shall approve the substance thereof.

 

Prior to the execution of any amendment to this Agreement, the Issuer and the
Indenture Trustee shall be entitled to receive and rely upon an Opinion of
Counsel from external counsel of the Seller stating that the execution of such
amendment is authorized or permitted by this Agreement and that all conditions
precedent have been satisfied and the Opinion of Counsel referred to in Section
3.01(c)(i) of the Servicing Agreement. The Issuer and the Indenture Trustee may,
but shall not be obligated to, enter into any such amendment which affects the
Indenture Trustee’s own rights, duties or immunities under this Agreement or
otherwise.

 

SECTION 6.02.          PUCT Condition. Notwithstanding anything to the contrary
in Section 6.01, no amendment or modification of this Agreement shall be
effective unless the process set forth in this Section 6.02 has been followed.

 

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(a)          At least thirty-one (31) days prior to the effectiveness of any
such amendment or modification and after obtaining the other necessary approvals
set forth in Section 6.01, (except that the consent of the Indenture Trustee may
be subject to the consent of the Holders if such consent is required or sought
by the Indenture Trustee in connection with such amendment or modification), the
Seller shall have delivered to the PUCT’s executive director and general counsel
written notification of any proposed amendment or modification, which
notification shall contain:

 

(i)                 a reference to Docket No. 49308;

 

(ii)                an Officer’s Certificate stating that the proposed amendment
or modification has been approved by all parties to this Agreement;

 

(iii)               a statement identifying the person to whom the PUCT or its
staff is to address any response to the proposed amendment or modification or to
request additional time; and

 

(iv)              a statement as to the possible effect of the amendment or
modification on the ongoing Qualified Costs.

 

(b)          The PUCT or its staff shall, within thirty (30) days of receiving
the notification complying with Section 6.02(a) above, either:

 

(i)                 provide notice of its determination that the proposed
amendment or modification will not under any circumstances have the effect of
increasing the ongoing Qualified Costs related to the System Restoration Bonds,

 

(ii)                provide notice of its consent or lack of consent to the
person specified in Section 6.02(a)(iii) above, or

 

(iii)               be conclusively deemed to have consented to the proposed
amendment or modification,

 

unless, within thirty (30) days of receiving the notification complying with
Section 6.02(a) above, the PUCT or its staff delivers to the office of the
person specified in Section 6.02(a)(iii) above a written statement requesting an
additional amount of time not to exceed thirty (30) days in which to consider
whether to consent to the proposed amendment or modification. If the PUCT or its
staff requests an extension of time in the manner set forth in the preceding
sentence, then the PUCT shall either provide notice of its consent or lack of
consent or notice of its determination that the proposed amendment or
modification will not under any circumstances increase ongoing Qualified Costs
to the person specified in Section 6.02(a)(iii) no later than the last day of
such extension of time or be conclusively deemed to have consented to the
proposed amendment or modification on the last day of such extension of time.
Any amendment or modification requiring the consent of the PUCT shall become
effective on the later of (i) the date proposed by the parties to such amendment
or modification and (ii) the first day after the expiration of the thirty
(30)-day period provided for in this Section 6.02(b), or, if such period has
been extended pursuant hereto, the first day after the expiration of such period
as so extended.

 

(c)          Following the delivery of a notice to the PUCT by the Seller under
Section 6.02(a), the Seller and the Issuer shall have the right at any time to
withdraw from the PUCT further consideration of any notification of a proposed
amendment or modification. Such withdrawal shall be evidenced by the prompt
written notice thereof by the Seller to the PUCT, the Indenture Trustee, the
Issuer and the Servicer.

 

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SECTION 6.03.          Notices. All demands, notices and communications upon or
to the Seller, the Issuer, the Indenture Trustee, the PUCT or the Rating
Agencies under this Agreement shall be sufficiently given for all purposes
hereunder if in writing, and delivered personally, sent by documented delivery
service or, to the extent receipt is confirmed telephonically, sent by telecopy
or other form of electronic transmission:

 

(a)          in the case of the Seller, to AEP Texas Inc., at 1 Riverside Plaza,
Columbus, Ohio 43215, Attention: Treasurer, Telephone: (614) 716-1000,
Facsimile: (614) 716-2807;

 

(b)          in the case of the Issuer, to AEP Texas Restoration Funding LLC at
539 N. Carancahua Street, Suite 1700, Corpus Christi, Texas 78401, Attention:
Manager, Telephone: (361) 881-5399, Facsimile: (361) 880-6128;

 

(c)          in the case of the Indenture Trustee, to the Corporate Trust
Office;

 

(d)          in the case of the PUCT, to 1701 N. Congress Avenue, Austin, Texas
78701, Attention: Executive Director and General Counsel, Telephone: (512)
936-7040, Facsimile: (512) 936-7036;

 

(e)          in the case of Moody’s, to Moody’s Investors Service, Inc.,
ABS/RMBS Monitoring Department, 25th Floor, 7 World Trade Center, 250 Greenwich
Street, New York, New York 10007, Email: ServicerReports@moodys.com (all such
notices to be delivered to Moody’s in writing by email), and solely for purposes
of Rating Agency Condition communications: abscormonitoring@moodys.com;

 

(f)           in the case of Standard & Poor’s, to Standard & Poor’s Ratings
Group, Inc., Structured Credit Surveillance, 55 Water Street, New York, New York
10041, Telephone: (212) 438-8991, Email: servicer_reports@spglobal.com (all such
notices to be delivered to Standard & Poor’s in writing by email); or

 

(h)          as to each of the foregoing, at such other address as shall be
designated by written notice to the other parties.

 

SECTION 6.04.          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 6.05.          Limitations on Rights of Third Parties. The provisions of
this Agreement are solely for the benefit of the Seller, the Issuer, the
Indenture Trustee (for the benefit of the Secured Parties) and the other Persons
expressly referred to herein, and such Persons shall have the right to enforce
the relevant provisions of this Agreement. 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 Transition Property or under or in
respect of this Agreement or any covenants, conditions or provisions contained
herein.

 

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SECTION 6.06.          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 remainder of such provision (if any) or the remaining
provisions hereof (unless such construction shall be unreasonable), and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

 

SECTION 6.07.          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 6.08.          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 6.09.          Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, 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 6.10.          Assignment to Indenture Trustee. The Seller hereby
acknowledges and consents to any mortgage, pledge, assignment and grant of a
security interest by the Issuer to the Indenture Trustee pursuant to the
Indenture for the benefit of the Secured Parties of all right, title and
interest of the Issuer in, to and under this Agreement, the Transition Property
and the proceeds thereof and the assignment of any or all of the Issuer’s rights
hereunder to the Indenture Trustee for the benefit of the Secured Parties. For
the avoidance of doubt, the Indenture Trustee is a third-party beneficiary of
this Agreement and is entitled to the rights and benefits hereunder and may
enforce the provisions hereof as if it were a party hereto.

 

SECTION 6.11.          Limitation of Liability. It is expressly understood and
agreed by the parties hereto that this Agreement is executed and delivered by
the Indenture Trustee, not individually or personally but solely as Indenture
Trustee on behalf of the Secured Parties, in the exercise of the powers and
authority conferred and vested in it. The Indenture Trustee in acting hereunder
is entitled to all rights, benefits, protections, immunities and indemnities
accorded to it under the Indenture.

 

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SECTION 6.12.          Waivers. Any term or provision of this Agreement may be
waived, or the time for its performance may be extended, by the party or parties
entitled to the benefit thereof; provided, however, that no such waiver
delivered by the Issuer shall be effective unless the Indenture Trustee has
given its prior written consent thereto. Any such waiver shall be validly and
sufficiently authorized for the purposes of this Agreement if, as to any party,
it is authorized in writing by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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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.

 

  AEP TEXAS RESTORATION FUNDING LLC, as Issuer         By: /s/ Renee V. Hawkins
    Name: Renee V. Hawkins     Title: Assistant Treasurer               AEP
TEXAS INC., as Seller         By:

/s/ Renee V. Hawkins

    Name: Renee V. Hawkins     Title: Assistant Treasurer

 

Acknowledged and Accepted:      

U.S. BANK NATIONAL ASSOCIATION,

as Indenture Trustee

       

By:

/s/ Nicholas C. Xeros     Name: Nicholas C. Xeros     Title: Assistant Vice
President  

 

Signature Page to

Transition Property Purchase and Sale Agreement

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EXHIBIT A

 

FORM OF BILL OF SALE

 

This Bill of Sale is being delivered pursuant to the Transition Property
Purchase and Sale Agreement, dated as of September 18, 2019 (the “Sale
Agreement”), by and between AEP Texas Inc. (the “Seller”) and AEP Texas
Restoration Funding LLC (the “Issuer”). All capitalized terms used but not
otherwise defined herein shall have the respective meanings ascribed to such
terms in the Sale Agreement.

 

In consideration of the Issuer’s delivery to or upon the order of the Seller of
$231,184,014, the Seller does hereby irrevocably sell, transfer, assign, set
over and otherwise convey to the Issuer, without recourse or warranty, except as
set forth in the Sale Agreement, all right, title and interest of the Seller in
and to the Transition Property identified on Schedule 1 hereto (such sale,
transfer, assignment, setting over and conveyance of the Transition Property
includes, to the fullest extent permitted by the Securitization Law, the right
to impose, collect and receive System Restoration Charges and the assignment of
all revenues, collections, claims, rights, payments, money or proceeds of or
arising from the System Restoration Charges related to the Transition Property,
as the same may be adjusted from time to time). Such sale, transfer, assignment,
setting over and conveyance is hereby expressly stated to be a sale and,
pursuant to Section 39.308 (as incorporated through Section 36.403(a)) of the
Securitization Law and other applicable law, shall be treated as an absolute
transfer of all of the Seller’s right, title and interest in and to (as in a
true sale), and not as a pledge or other financing of, the Transition Property.
The Seller and the Issuer agree that after giving effect to the sale, transfer,
assignment, setting over and conveyance contemplated hereby the Seller has no
right, title or interest in or to the Transition Property to which a security
interest could attach because (i) it has sold, transferred, assigned, set over
and conveyed all right, title and interest in and to the Transition Property to
the Issuer, (ii) as provided in Section 39.304 (as incorporated through Section
36.403(a)) of the Securitization Law, such rights are only contract rights until
the time of such sale, transfer, assignment, setting over and conveyance and
(iii) as provided in Section 39.309(c) (as incorporated through Section
36.403(a)) of the Securitization Law, appropriate notice has been filed and such
transfer is perfected against all third parties, including subsequent judicial
or other lien creditors. If such sale, transfer, assignment, setting over and
conveyance is held by any court of competent jurisdiction not to be a true sale
as provided in Section 39.308 (as incorporated through Section 36.403(a)) of the
Securitization Law, then such sale, transfer, assignment, setting over and
conveyance shall be treated as a pledge of the Transition Property and as the
creation of a security interest (within the meaning of the Securitization Law
and the UCC) in the Transition Property and, without prejudice to its position
that it has absolutely transferred all of its rights in the Transition Property
to the Issuer, the Seller hereby grants a security interest in the Transition
Property to the Issuer (and, to the extent necessary to qualify the grant as a
security interest under the Securitization Law and the UCC, to the Indenture
Trustee for the benefit of the Secured Parties to secure the right of the Issuer
under the Basic Documents to receive the System Restoration Charges and all
other Transition Property).

 

The Issuer does hereby purchase the Transition Property from the Seller for the
consideration set forth in the preceding paragraph.

 

EXHIBIT A

1

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The Seller and the Issuer each acknowledge and agree that the purchase price for
the Transition Property sold pursuant to this Bill of Sale and the Sale
Agreement is equal to its fair market value at the time of sale.

 

The Seller confirms that (i) each of the representations and warranties on the
part of the Seller contained in the Sale Agreement are true and correct in all
respects on the date hereof as if made on the date hereof and (ii) each
condition precedent that must be satisfied under Section 2.02 of the Sale
Agreement has been satisfied upon or prior to the execution and delivery of this
Bill of Sale by the Seller.

 

This Bill of Sale 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.

 

THIS BILL OF SALE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS, 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 LAW.

 

EXHIBIT A

2

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IN WITNESS WHEREOF, the Seller and the Issuer have duly executed this Bill of
Sale as of the ___ day of ___________, ______.

 

  AEP TEXAS RESTORATION FUNDING LLC         By:  

    Name:     Title:               AEP TEXAS INC.         By:

  

    Name:     Title:

 

EXHIBIT A

3

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SCHEDULE 1
to
BILL OF SALE

Transition Property

 

EXHIBIT A

4

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