Exhibit 4.8


 


EXECUTION COPY


 


 


AMENDED AND RESTATED CASH MANAGEMENT

AGREEMENT


 


 


DATED 12th March, 2004


 


HALIFAX plc


 


and


 


PERMANENT MORTGAGES TRUSTEE LIMITED


 


and


 


PERMANENT FUNDING (NO. 1) LIMITED


 


and


 


THE BANK OF NEW YORK


 


 





LONDON


 

















 


CONTENTS


 


	
  Clause

  	
   

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Definitions and
  Interpretation

  	
   

  
	
  2.

  	
  Appointment of Cash Manager

  	
   

  
	
  3.

  	
  The Services

  	
   

  
	
  4.

  	
  Payments, Accounts, Ledgers

  	
   

  
	
  5.

  	
  Early Repayment Fees

  	
   

  
	
  6.

  	
  Swaps

  	
   

  
	
  7.

  	
  No Liability

  	
   

  
	
  8.

  	
  Costs and Expenses

  	
   

  
	
  9.

  	
  Information

  	
   

  
	
  10.

  	
  Remuneration

  	
   

  
	
  11.

  	
  Covenants of Cash Manager

  	
   

  
	
  12.

  	
  Services Non-Exclusive

  	
   

  
	
  13.

  	
  Termination

  	
   

  
	
  14.

  	
  Further Assurance

  	
   

  
	
  15.

  	
  Miscellaneous

  	
   

  
	
  16.

  	
  Confidentiality

  	
   

  
	
  17.

  	
  Notices

  	
   

  
	
  18.

  	
  Variation and Waiver

  	
   

  
	
  19.

  	
  No Partnership

  	
   

  
	
  20.

  	
  Assignment

  	
   

  
	
  21.

  	
  Amendments

  	
   

  
	
  22.

  	
  Exclusion of Third
  Party Rights

  	
   

  
	
  23.

  	
  Counterparts

  	
   

  
	
  24.

  	
  Governing
  Law and Submission to Jurisdiction

  	
   

  



 


Schedule


 


	
  1.

  	
  The Cash Management
  Services

  	
   

  
	
  2.

  	
  Cash
  Management and Maintenance of Ledgers

  	
   

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Part
  1

  	
  Form of
  Mortgages Trustee Quarterly Report

  	
   

  
	
   

  	
  Part 2

  	
  Form of Funding 1
  Quarterly Report

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signatories

  	
   

  



 

















 


THIS CASH MANAGEMENT AGREEMENT is made on 12th March, 2004


 


BETWEEN:


 


(1)                                  HALIFAX
plc, a
public limited company incorporated under the laws of England and Wales whose
registered office is at Trinity Road, Halifax, West Yorkshire HX1 2RG, in its
capacity as Cash Manager;


 


(2)                                  HALIFAX
plc, a
public limited company incorporated under the laws of England and Wales whose
registered office is at Trinity Road, Halifax, West Yorkshire HX1 2RG, in its
capacity as Seller of the Loans and one of the Beneficiaries;


 


(3)                                  PERMANENT
MORTGAGES TRUSTEE LIMITED (registered number 83116), a private company
incorporated under the laws of Jersey, Channel Islands whose registered office
is at 47 Esplanade, St. Helier, Jersey, JE1 0BD, Channel Islands, in its
capacity as the Mortgages Trustee;


 


(4)                                  PERMANENT
FUNDING (NO. 1) LIMITED (registered number 4267660), a private limited
company incorporated under the laws of England and Wales whose registered
office is at Blackwell House, Guildhall Yard, London EC2V 5AE, in its capacity
as Funding 1 and one of the Beneficiaries; and


 


(5)                                  THE
BANK OF NEW YORK, a New York banking corporation acting through its
offices at 48th Floor, One Canada Square, London E14 5AL, acting in its
capacity as Security Trustee, which expression shall include such company and
all other persons or companies for the time being acting as Security Trustee
(or co trustee) pursuant to the terms of the Funding 1 Deed of Charge.


 


WHEREAS:


 


(A)                              On the Initial Closing Date and on several
subsequent dates, the Seller agreed to sell and assign certain mortgage loans
(together with their related security) it had originated to the Mortgages
Trustee. The Mortgage Trustee holds the assigned mortgage loans as bare trustee
for Funding 1 and the Seller pursuant to the terms of the Mortgages Trust Deed.


 


(B)                                On the Initial Closing Date and several
subsequent Closing Dates, Funding 1 has used the proceeds of Intercompany Loans
granted to it by Issuers to pay the Seller for an increased share in the trust.


 


(C)                                The Cash Manager has agreed to provide Cash
Management Services to the Mortgages Trustee, Funding 1 and the Security
Trustee on the terms and subject to the conditions contained in the Cash
Management Agreement dated 14th June, 2002, as amended and restated by this
Agreement and from time to time (the Cash Management Agreement) in relation to, inter alia,
the Trust Property.


 


(D)                               The parties to the Cash Management
Agreement have agreed to amend and restate the terms of that Agreement as set
out herein.


 


IT IS HEREBY AGREED as follows:


 


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1.                                      DEFINITIONS AND INTERPRETATION


 


1.1                                 The master definitions and
construction schedule signed by, amongst others, the parties to this Agreement
and dated 12th March, 2004 (as the same may be amended, varied or supplemented
from time to time with the consent of the parties to this Agreement) (the Master
Definitions and Construction Schedule) is expressly and specifically
incorporated into this Agreement and, accordingly, the expressions defined in
the Master Definitions and Construction Schedule (as so amended, varied or
supplemented from time to time) shall, except where the context otherwise
requires and save where otherwise defined herein, have the same meanings in
this Agreement, including the Recitals hereto and this Agreement shall be
construed in accordance with the interpretation provisions set out in Clause 2
of the Master Definitions and Construction Schedule.


 


1.2                                 This Agreement amends and
restates the Cash Management Agreement made on 14th June, 2002 (the Principal Agreement).  As of the date of this Agreement, any future
rights or obligations (excluding such obligations accrued to the date of this
Agreement) of a party under the Principal Agreement shall be extinguished and
shall instead be governed by this Agreement.


 


1.3                                 Any reference in this
Agreement to any discretion, power or right on the part of the Mortgages
Trustee shall be exercised by the Mortgages Trustee only as directed by the
Beneficiaries but subject in each case to the provisions of Clause 16.2
of the Mortgages Trust Deed.


 


2.                                      APPOINTMENT OF CASH MANAGER


 


2.1                               Appointment


 


Until
termination pursuant to Clause 13, the Mortgages Trustee, Funding 1
and the Security Trustee (according to their respective estates and interests)
each hereby appoints the Cash Manager as its lawful agent to provide the Cash
Management Services set out in this Agreement, including in relation to:


 


(a)                                  the Mortgages Trust; and


 


(b)                                 Funding 1,


 


and the
Cash Manager in each case hereby accepts such appointment on the terms and
subject to the conditions of this Agreement.


 


2.2                               Duties prescribed by
Transaction Documents


 


For the
avoidance of doubt and in connection with the powers conferred under Clause 2.1,
save as expressly provided elsewhere in this Agreement, nothing herein shall be
construed so as to give the Cash Manager any powers, rights, authorities,
directions or obligations other than as specified in this Agreement or any of
the other Transaction Documents.


 


2.3                               Appointment conditional upon
issuance of First Issuer Notes


 


The appointment
pursuant to Clause 2.1 is conditional upon the issue of the First Issuer
Notes and the making of the First Issuer Term Advances under the First Issuer
Intercompany Loan Agreement and shall take effect upon and from the Initial
Closing Date automatically without any further action on the part of any person
PROVIDED
THAT if the issue of the First Issuer Notes by the First Issuer has
not occurred by 14th June, 2002, or such later date as the


 


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First
Issuer and the Lead Manager may agree this Agreement shall cease to be of
further effect.


 


3.                                      THE SERVICES


 


3.1                               General


 


The
Cash Manager shall provide the services set out in this Agreement (including,
without limitation, the Schedules to this Agreement) (the Cash
Management Services).


 


3.2                               Approvals and authorisations


 


The
Cash Manager shall maintain, or procure the maintenance of, the approvals,
authorisations, consents and licences required in connection with the
respective businesses of the Mortgages Trustee and Funding 1 and shall prepare
and submit, or procure the preparation and submission of, on behalf of the
Mortgages Trustee and Funding 1, all necessary applications and requests for
any further approvals, authorisations, consents or licences which may be
required in connection with the respective businesses of the Mortgages Trustee
and Funding 1 and shall, so far as it is reasonably able to do so, perform the
Cash Management Services in such a way as not to prejudice the continuation of
any such approvals, authorisations, consents or licences.


 


3.3                               Compliance with Transaction
Documents, etc.


 


The
Cash Management Services shall include procuring (so far as the Cash Manager,
using its reasonable endeavours, is able so to do) compliance by the Mortgages
Trustee and Funding 1 with all applicable legal requirements and with the terms
of the Transaction Documents to which each of the Mortgages Trustee and/or
Funding 1 is a party, PROVIDED ALWAYS THAT the Cash Manager shall
not lend or provide any sum to the Mortgages Trustee or Funding 1 (other than
as expressly contemplated by the Transaction Documents) and the Cash Manager
shall have no liability whatsoever to the Mortgages Trustee, Funding 1, the
Security Trustee or any other person for any failure by the Mortgages Trustee
or Funding 1 to make any payment due under any of the Transaction Documents
(other than to the extent arising from (i) the Cash Manager failing to make a
payment in its capacity as Servicer or Funding 1 Swap Provider or in any other
capacity under the Transaction Documents, or (ii) the Cash Manager failing to
perform any of its obligations under any of the Transaction Documents).


 


3.4                               Liability of Cash Manager


 


(a)                                  The Cash Manager shall
indemnify each of the Mortgages Trustee, Funding 1 and the Security Trustee on
demand on an after Tax basis for any loss, liability, claim, expense or damage
suffered or incurred by any of them in respect of the negligence, bad faith or
wilful default of the Cash Manager in carrying out its functions as Cash
Manager under this Agreement or under the other Transaction Documents or as a
result of a breach by the Cash Manager of the terms and provisions of this
Agreement or such other Transaction Documents to which the Cash Manager is a
party (in its capacity as Cash Manager) in relation to such functions.


 


(b)                                 For the avoidance of doubt,
the Cash Manager shall not be liable in respect of any loss, liability, claim,
expense or damage suffered or incurred by the Mortgages Trustee, Funding 1, or
the Security Trustee and/or any other person as a result of the proper
performance of the Cash Management Services by the Cash Manager save to the
extent that such loss, liability, claim, expense or damage is suffered or
incurred as a result of any negligence, bad faith or wilful default of the Cash
Manager or as a result of a breach by the Cash Manager of the


 


3

















 


terms and provisions of this Agreement or
any of the other Transaction Documents to which the Cash Manager is a party (in
its capacity as Cash Manager) in relation to such functions.


 


4.                                      PAYMENTS, ACCOUNTS, LEDGERS


 


4.1                               Bank Accounts


 


(a)                                  The Cash Manager hereby
confirms that the Mortgages Trustee GIC Account has been established on or
before the date hereof pursuant to the Bank Account Agreement and the Mortgages
Trustee Guaranteed Investment Contract and that the Mortgages Trustee GIC
Account Mandate in the agreed form will apply thereto at the Initial Closing
Date.  The Cash Manager undertakes (to
the extent to which the same is within its control) that at the Initial Closing
Date the Mortgages Trustee GIC Account will be operative and that the Cash
Manager will not create or permit to subsist any Security Interest in relation
to the Mortgages Trustee GIC Account (but without prejudice to the Mortgages
Trust).


 


(b)                                 The Cash Manager hereby
confirms that the Funding 1 GIC Account has been established on or before the
date hereof pursuant to the Bank Account Agreement and the Funding 1 Guaranteed
Investment Contract and that the Funding 1 GIC Account Mandate in the agreed
form will apply thereto at the Initial Closing Date.  The Cash Manager undertakes (to the extent to which the same is
within its control) that at the Initial Closing Date the Funding 1 GIC Account
will be operative and that the Cash Manager will not knowingly create or permit
to subsist any Security Interest in relation to the Funding 1 GIC Account other
than as created under or permitted pursuant to the Funding 1 Deed of Charge.


 


(c)                                  The Cash Manager hereby
confirms that the Funding 1 Transaction Account has been established on or
before the date hereof and that the Funding 1 Transaction Account Mandate in
the agreed form will apply thereto at the Initial Closing Date.  The Cash Manager undertakes (to the extent
to which the same is within its control) that at the Initial Closing Date the
Funding 1 Transaction Account will be operative and that the Cash Manager will
not knowingly create or permit to subsist any Security Interest in relation to
the Funding 1 Transaction Account other than as created under or permitted
pursuant to the Funding 1 Deed of Charge.


 


4.2                               Mortgages Trustee Ledgers


 


(a)                                  The Cash Manager shall open
and maintain in the books of the Mortgages Trustee certain ledgers to be known
as the Revenue Ledger and the Principal Ledger which shall together reflect the
aggregate of all amounts of cash standing to the credit of the Mortgages
Trustee GIC Account from time to time.


 


(b)                                 The Cash Manager shall also
open and maintain in the books of the Mortgages Trustee certain ledgers to be
known as the Losses Ledger and the Funding 1 Share/Seller Share Ledger.


 


(c)                                  The Cash Manager shall make
credits and debits to the Mortgages Trustee Ledgers in the manner described in paragraphs 9,
10, 11, 12 and 13 of Schedule 2.


 


4.3                               Funding 1 Ledgers


 


(a)                                  The Cash Manager shall open
and maintain in the books of Funding 1 certain ledgers to be known as the
Funding 1 Revenue Ledger, the Funding 1 Principal Ledger, the General Reserve
Ledger, the Cash Accumulation Ledger and, if the Liquidity Reserve Fund is
established, the Liquidity Reserve Ledger which shall together reflect the
aggregate of all amounts of cash standing to the credit of the Funding 1 GIC
Account and the Funding 1


 


4

















 


Transaction Account and all amounts
invested in Authorised Investments purchased from amounts standing to the
credit of the Funding 1 GIC Account and the Funding 1 Transaction Account from
time to time.


 


(b)                                 The Cash Manager shall also open
and maintain in the books of Funding 1 certain ledgers to be known as (i) the
Principal Deficiency Ledger, which comprised, on the Initial Closing Date,
three sub-ledgers known as the AAA Principal Deficiency Sub Ledger, the AA
Principal Deficiency Sub Ledger and the BBB Principal Deficiency Sub Ledger,
and shall comprise on the Fourth Issuer Closing Date, four sub-ledgers known as
the AAA Principal Deficiency Sub Ledger, the AA Principal Deficiency Sub
Ledger, the A Principal Deficiency Sub Ledger, and the BBB Principal Deficiency
Sub Ledger (ii) the Intercompany Loan Ledger and (iii) the Funding 1 Liquidity
Facility Ledger.  If Funding 1 enters
into New Intercompany Loan Agreements and the New Term Advances advanced
thereunder have different Term Advance Ratings to the Term Advance Ratings
assigned to the existing Term Advances (including the Fourth Issuer Term
Advances), then the Cash Manager shall establish new sub-ledgers in respect of
the Principal Deficiency Ledger, which shall correspond to the Term Advance
Ratings assigned to each such New Term Advance.


 


(c)                                  The Cash Manager shall make
credits and debits to the Funding 1 Ledgers in accordance with the provisions
of paragraphs
9, 10, 14, 15, 16, 17, 18 and 19 of Schedule 2.


 


4.4                               Bank Accounts


 


(a)                                  The Cash Manager shall procure
that so far as it may be able in relation to all Loans comprised in the
Portfolio, the following amounts are paid into the Mortgages Trustee GIC
Account:


 


(i)                                     all Monthly Payments, other
interest received under and in respect of the Loans and any costs or other
amounts received under the Loans (including in any such case amounts recovered
on enforcement of rights against any Borrower or guarantor of the Borrower, any
Property or any of the Borrower’s or guarantor’s other property or assets);


 


(ii)                                  all final releases and all
repayments or prepayments of principal under the Loans;


 


(iii)                               any amount received by or on
behalf of the Mortgages Trustee pursuant to any Halifax Insurance Policy or the
Buildings Policies; and


 


(iv)                              any other amounts whatsoever
received by or on behalf of the Mortgages Trustee after the Initial Closing
Date,


 


and the
Cash Manager shall procure that all interest earned on the Mortgages Trustee
GIC Account is credited to such account.


 


(b)                                 The Cash Manager shall procure
that the following amounts are paid into the Funding 1 GIC Account:


 


(i)                                     all Funding 1 Revenue
Receipts;


 


(ii)                                  all Funding 1 Principal
Receipts;


 


(iii)                               all amounts received by
Funding 1 pursuant to the Funding 1 Swap Agreement; and


 


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(iv)                              any other amounts whatsoever
received by or on behalf of Funding 1 after the Initial Closing Date,


 


and the
Cash Manager shall procure that all interest earned on the Funding 1 Bank
Accounts and all investment proceeds from Authorised Investments purchased from
amounts standing to the credit of the Funding 1 GIC Account are credited to
such account.


 


(c)                                  The Cash Manager shall procure
that all Liquidity Drawings are paid into the Funding 1 Transaction Account.


 


(d)                                 The Cash Manager shall procure
that all transfers and withdrawals of amounts standing to the credit of the
Funding 1 Transaction Account and the Funding 1 GIC Account shall be made in
accordance with the provisions of the Funding 1 Deed of Charge.


 


(e)                                  Each of the payments into the
Mortgages Trustee GIC Account and the Funding 1 GIC Account referred to in Clauses
4.4(a), (b), (c) and (d) shall be made forthwith
upon receipt by the Mortgages Trustee, Funding 1 or the Cash Manager, as the
case may be, of the amount in question.


 


(f)                                    For the avoidance of doubt, as
soon as reasonably practicable after becoming aware of the same, the Cash
Manager may, and shall, withdraw Cash from, as the case may be, the Mortgages
Trustee GIC Account, the Funding 1 Transaction Account or the Funding 1 GIC
Account if, and to the extent that, such Cash was credited thereto in error and
shall use its reasonable endeavours to ensure that such Cash is applied
correctly thereafter.


 


(g)                                 The Cash Manager shall
promptly notify each of the Mortgages Trustee, Funding 1 and the Security
Trustee of any additional account which supplements or replaces any account
specifically referred to in the definitions of the “Mortgages Trustee GIC
Account”, the “Funding 1 Transaction Account” or the “Funding 1 GIC Account” in
the Master Definitions and Construction Schedule.


 


(h)                                 Each of the Cash Manager, the
Mortgages Trustee and Funding 1 undertakes that, so far as it is able to
procure the same, the Mortgages Trustee GIC Account, the Funding 1 Transaction
Account and the Funding 1 GIC Account and all instructions and Mandates in
relation thereto will continue to be operative and will not, save as provided
in Clause
4.6 below or as permitted pursuant to the Bank Account Agreement, be
changed without the prior written consent of the Security Trustee (such consent
not to be unreasonably withheld or delayed). 
For the avoidance of doubt, the Cash Manager may change the Authorised
Signatories in respect of any instructions or Mandates relating to Funding 1
and/or the Mortgages Trustee, without the prior written consent of the Security
Trustee, in accordance with Clause 4.2 of the Bank Account Agreement.


 


(i)                                     The Cash Manager and Funding 1
agree that the Cash Manager shall procure that (i) the tranche of the Advance
being made available to Funding 1 pursuant to paragraph 2(a) of the First
Start-Up Loan Agreement for the purposes of funding the Reserve Fund and (ii)
the tranche (if any) of any New Start-up Loan Agreement for the purposes of
funding further the Reserve Fund (or any other similar reserve fund) shall be
credited to the Funding 1 GIC Account promptly upon receipt of such amounts by
Funding 1, and the Reserve Ledger shall record such credit.


 


(j)                                     The Cash Manager shall give
all notices and make all determinations and withdrawals under the Funding 1
Liquidity Facility Agreement on behalf of Funding 1, as set out therein.


 


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4.5                               Withdrawals


 


The
Cash Manager may make withdrawals:


 


(a)                                  on behalf of the Mortgages
Trustee from the Mortgages Trustee GIC Account; and


 


(b)                                 on behalf of Funding 1 from
the Funding 1 GIC Account, but only until receipt of an Intercompany Loan
Acceleration Notice served by the Security Trustee on Funding 1 (with a copy to
the Cash Manager and the Mortgages Trustee); and


 


(c)                                  on behalf of Funding 1 from
the Funding 1 Transaction Account, but only until receipt of an Intercompany
Loan Acceleration Notice served by the Security Trustee on Funding 1 (with a
copy to the Cash Manager and the Mortgages Trustee),


 


respectively
as permitted by this Agreement, the Mortgages Trust Deed, the Bank Account
Agreement, the Mortgages Trustee Guaranteed Investment Contract, the Funding 1
Guaranteed Investment Contract, the Funding 1 Liquidity Facility Agreement and
the Funding 1 Deed of Charge, but shall not in carrying out its functions as
Cash Manager under this Agreement otherwise make withdrawals from the Mortgages
Trustee GIC Account or the Funding 1 Bank Accounts.


 


4.6                               Cash Management


 


In administering
the Mortgages Trustee GIC Account, the Funding 1 Transaction Account and the
Funding 1 GIC Account on behalf of the Mortgages Trustee, Funding 1 and the
Security Trustee respectively, the Cash Manager shall comply with the
provisions of Schedule 2 prior to receipt by the Cash Manager of a copy of
any Intercompany Loan Acceleration Notice served by the Security Trustee on
Funding 1.


 


5.                                      EARLY REPAYMENT FEES


 


The
Cash Manager shall withdraw any Early Repayment Fees paid into the Mortgages
Trustee GIC Account and pay the same to the Seller, by telegraphic transfer to
such account as may be specified by the Seller from time to time, promptly
following a request for such withdrawal being received from the Seller.  For the avoidance of doubt, the Cash Manager
shall not record the receipt or withdrawal of Early Repayment Fees in any of
the ledgers maintained under this Agreement.


 


6.                                      SWAPS


 


6.1                               Computations under Funding 1
Swap


 


On each
Calculation Date, the Cash Manager shall determine, in accordance with the
terms of the Funding 1 Swap, in respect of the relevant Calculation Period:


 


(a)                                  the Average Fixed Rate Loan
Balance, the Average Variable Rate Loan Balance and the Average Tracker Rate
Loan Balance (each as defined in the Funding 1 Swap Agreement);


 


(b)                                 the weighted average of the
fixed rates of interest charged to borrowers of Fixed Rate Loans;


 


(c)                                  the Tracker Swap Rate; and


 


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(d)                                 the Variable Rate Swap SVR,


 


and
shall notify Funding 1 and the Security Trustee of such amounts, balances and
rates.


 


6.2                               Termination of Funding 1 Swap


 


If on
or prior to the date of the earlier of either (i) the reduction of the
aggregate principal amount outstanding of all Intercompany Loans to zero or
(ii) the service of an Intercompany Loan Acceleration Notice, the Funding 1
Swap is terminated, then the Cash Manager (on behalf of Funding 1 and the
Security Trustee) shall purchase a new hedge against the possible variance
between (1) the Mortgages Trustee Variable Base Rate payable on the Variable
Rate Loans, the fixed rates of interest payable on the Fixed Rate Loans and the
Tracker Swap Rate and (2) a LIBOR-based rate for three-month sterling deposits,
on terms acceptable to Funding 1 and the Rating Agencies with a new Funding 1
swap provider whom the Rating Agencies have previously confirmed in writing
will not cause the then current rating of any Notes to be downgraded.  The Cash Manager may apply any early
termination payment received from the Funding 1 Swap Provider pursuant to the
Funding 1 Swap for such purpose.


 


7.                                      NO LIABILITY


 


Save as
otherwise provided in this Agreement, the Cash Manager shall have no liability
for the obligations of either the Mortgages Trustee, Funding 1 or the Security
Trustee under any of the Transaction Documents or otherwise and nothing herein
shall constitute a guarantee, or similar obligation, by the Cash Manager of
either the Mortgages Trustee, Funding 1 or the Security Trustee in respect of
any of them.


 


8.                                      COSTS AND EXPENSES


 


8.1                                 Subject to and in accordance
with the applicable Funding 1 Priority of Payments set out in the Funding 1
Deed of Charge, Funding 1 will on each Funding 1 Interest Payment Date
reimburse the Cash Manager for all out-of-pocket costs, expenses and charges
(together with any amounts in respect of Irrecoverable VAT due thereon)
properly incurred by the Cash Manager in the performance of the Cash Management
Services including any such costs, expenses or charges not reimbursed to the
Cash Manager on any previous Funding 1 Interest Payment Date and the Cash
Manager shall supply the Mortgages Trustee or Funding 1 with an appropriate VAT
invoice issued by the Cash Manager or, if the Cash Manager has treated the
relevant cost, expense or charge as a disbursement for VAT purposes, by the
person making the supply.


 


8.2                                 Unless and until otherwise
agreed by Funding 1 and the Security Trustee in writing (notified to the Cash
Manager), Funding 1 shall be solely responsible for reimbursing the Cash
Manager for the out-of-pocket costs, expenses and charges (together with any
amounts in respect of Irrecoverable VAT due thereon) referred to in Clause 8.1 above.


 


9.                                      INFORMATION


 


9.1                               Use of I.T. systems


 


(a)                                  The Cash Manager represents
and warrants that at the date hereof in respect of the software which is to be
used by the Cash Manager in providing the Cash Management Services it has in
place all necessary licences and/or consents from the respective licensor or
licensors (if any) of such software.


 


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(b)                                 The Cash Manager undertakes
that it shall for the duration of this Agreement, use reasonable endeavours to:


 


(i)                                     ensure that the licences
and/or consents referred to in paragraph (a) are maintained in full force and
effect; and


 


(ii)                                  except in so far as it would
breach any other of its legal obligations, grant to any person to whom it may
sub-contract or delegate the performance of all or any of its powers and
obligations under this Agreement and/or to such person as the Mortgages Trustee
and Funding 1 elect as a substitute cash manager in accordance with the terms
of this Agreement a licence to use any proprietary software together with any
updates which may be made thereto from time to time.


 


(c)                                  The Cash Manager shall use
reasonable endeavours to maintain in working order the information technology
systems used by the Cash Manager in providing the Cash Management Services.


 


(d)                                 The Cash Manager shall pass to
any person to whom it may sub-contract or delegate the performance of all or
any of its powers and obligations under this Agreement and/or to such person as
the Mortgages Trustee and Funding 1 elect as a substitute cash manager in
accordance with the terms of this Agreement the benefit of any warranties in
relation to the software insofar as the same are capable of assignment.


 


9.2                               Bank Account Statements


 


The
Cash Manager shall take all reasonable steps to ensure that it receives:


 


(a)                                  a monthly bank statement in
relation to the Mortgages Trustee GIC Account (and any additional or supplemental
bank account of the Mortgages Trustee) and that it furnishes a copy of such
statement to the Mortgages Trustee, each of the Beneficiaries and the Security
Trustee; and


 


(b)                                 monthly bank statements in
relation to each of the Funding 1 Transaction Account and the Funding 1 GIC
Account (and any additional or supplemental bank account of the Funding 1
Trustee) and that it furnishes a copy of such statements to Funding 1 and the
Security Trustee.


 


9.3                               Access to Books and Records


 


Subject
to all applicable laws, the Cash Manager shall permit the Auditors of the
Mortgages Trustee and Funding 1 and any other person nominated by the Security
Trustee or the Beneficiaries (to whom the Cash Manager has no reasonable
objection) at any time during normal office hours upon reasonable notice to
have access, or procure that such person or persons are granted access, to all
books of record and account relating to the Cash Management Services provided
by the Cash Manager and related matters in accordance with this Agreement.


 


9.4                               Statutory Obligations


 


The
Cash Manager will use its reasonable endeavours, on behalf of the Mortgages
Trustee and Funding 1, to prepare or procure the preparation of and file all
reports, annual returns, financial statements, statutory forms and other
returns which each of the Mortgages Trustee and Funding 1 is required by law to
prepare and file.  Subject to approval
thereof by the directors of the Mortgages Trustee or Funding 1 (as
appropriate), the Cash Manager shall


 


9

















 


cause
such accounts to be audited by the Auditors and shall procure so far as it is
able so to do that the Auditors shall make a report thereon as required by law
and copies of all such documents shall be delivered to the Mortgages Trustee,
the Security Trustee and Funding 1 (as appropriate) and the Rating Agencies as
soon as practicable after the end of each accounting reference period of the
Mortgages Trustee or Funding 1 (as appropriate).


 


9.5                               Information Covenants


 


(a)                                  The Cash Manager shall provide
the Mortgages Trustee, Funding 1, the Security Trustee, the Seller and the
Rating Agencies:


 


(i)                                     quarterly with a report in, or
substantially in, the form set out in Part 1 of Schedule 3 in respect of the
Mortgages Trustee; and


 


(ii)                                  quarterly with a report in, or
substantially in, the form set out in Part 2 of Schedule 3 in respect of
Funding 1.


 


(b)                                 The Cash Manager shall
provide, or procure the provision of, to the Mortgages Trustee, Funding 1, the
Security Trustee and the Rating Agencies copies of any annual returns or
financial statements referred to in Clause 9.4 as soon as reasonably
practicable after the preparation thereof.


 


(c)                                  The Cash Manager shall notify
the Rating Agencies in writing of the details of (i) any material amendment to
the Transaction Documents, (ii) the occurrence of an Intercompany Loan Event of
Default or Potential Intercompany Loan Event of Default and (iii) any other
information relating to the Cash Manager as the Rating Agencies and the
Security Trustee may reasonably request in connection with its obligations
under this Agreement, PROVIDED THAT the Security Trustee shall
not make such a request more than once every three months unless, in the belief
of the Security Trustee, an Intercompany Loan Event of Default, a Note Event of
Default or Cash Manager Termination Event (as defined in Clause 13.1) shall have
occurred and is continuing or a Potential Intercompany Loan Event of Default or
a Potential Note Event of Default shall have accrued and is continuing PROVIDED
FURTHER THAT such request does not adversely interfere with the Cash
Manager’s day to day provision of the Cash Management Services under the other
terms of this Agreement.


 


(d)                                 The Cash Manager shall, at the
request of the Security Trustee, furnish the Security Trustee and the Rating
Agencies with such other information relating to its business and financial
condition as it may be reasonable for the Security Trustee to request in
connection with this Agreement, PROVIDED THAT such request does not
adversely interfere with the Cash Manager’s day to day provision of the Cash
Management Services under the other terms of this Agreement.


 


10.                               REMUNERATION


 


10.1                        Fee payable


 


(a)                                  Subject to paragraph
(b) below, Funding 1 shall pay to the Cash Manager for its Cash
Management Services hereunder a cash management fee which shall be agreed in
writing between Funding 1, the Security Trustee and the Cash Manager from time
to time.


 


(b)                                 Unless and until otherwise
agreed by Funding 1 and the Security Trustee in writing (notified to the Cash
Manager), Funding 1 shall be solely responsible for paying the cash management
fee to the Cash Manager which is referred to in paragraph (a) above.


 


10

















 


10.2                        Payment of fee


 


The
cash management fee referred to in Clause 10.1 shall be paid to the Cash
Manager in arrear on each Funding 1 Interest Payment Date in the manner
contemplated by and in accordance with the provisions of the applicable Funding
1 Priority of Payments.


 


11.                               COVENANTS OF CASH MANAGER


 


11.1                        Covenants


 


The
Cash Manager hereby covenants with and undertakes to each of the Mortgages
Trustee, Funding 1 and the Security Trustee that without prejudice to any of
its specific obligations hereunder:


 


(a)                                  it will devote all due skill,
care and diligence to the performance of its obligations and the exercise of
its discretions hereunder;


 


(b)                                 it will comply with any proper
directions, orders and instructions which the Mortgages Trustee, Funding 1 or
the Security Trustee may from time to time give to it in accordance with the
provisions of this Agreement and, in the event of any conflict, those of the
Security Trustee shall prevail;


 


(c)                                  it will use its reasonable
endeavours to keep in force all licences, approvals, authorisations and
consents which may be necessary in connection with the performance of the Cash
Management Services and prepare and submit all necessary applications and
requests for any further approval, authorisation, consent or licence required
in connection with the performance of the Cash Management Services;


 


(d)                                 save as otherwise agreed with
the Mortgages Trustee, Funding 1 and the Security Trustee, it will provide free
of charge to the Mortgages Trustee and Funding 1 during normal office hours
office space, facilities, equipment and staff sufficient to fulfil the
obligations of the Mortgages Trustee and Funding 1 under this Agreement;


 


(e)                                  it will not knowingly fail to
comply with any legal requirements in the performance of the Cash Management
Services;


 


(f)                                    it will make all payments
required to be made by it pursuant to this Agreement on the due date for
payment thereof for value on such day without set-off (including, without
limitation, in respect of any fees owed to it) or counterclaim; and


 


(g)                                 it will not without the prior
written consent of the Security Trustee amend or terminate any of the
Transaction Documents save in accordance with their terms.


 


11.2                        Duration of covenants


 


The
covenants of the Cash Manager in Clause 11.1 shall remain in force until
this Agreement is terminated but without prejudice to any right or remedy of
the Mortgages Trustee and/or Funding 1 and/or the Security Trustee arising from
breach of any such covenant prior to the date of termination of this Agreement.


 


12.                               SERVICES NON-EXCLUSIVE


 


Nothing
in this Agreement shall prevent the Cash Manager from rendering or performing
services similar to those provided for in this Agreement to or for itself or
other persons, firms


 


11

















 


or companies
or from carrying on business similar to or in competition with the business of
the Mortgages Trustee, Funding 1 or the Security Trustee.


 


13.                               TERMINATION


 


13.1                        Cash Manager Termination
Events


 


If any
of the following events (Cash Manager Termination Events) shall
occur:


 


(a)                                  default is made by the Cash
Manager in the payment on the due date of any payment due and payable by it
under this Agreement or in the performance of its obligations under Clauses 4.4 and
4.5
and such default continues unremedied for a period of three London Business
Days after the earlier of the Cash Manager becoming aware of such default; or


 


(b)                                 default is made by the Cash
Manager in the performance or observance of any of its other covenants and
obligations under this Agreement, which in the reasonable opinion of Funding 1
and/or the Security Trustee is materially prejudicial to the interests of the
Funding 1 Secured Creditors and such default continues unremedied for a period
of twenty days after the earlier of the Cash Manager becoming aware of such
default and receipt by the Cash Manager of written notice from the Security
Trustee requiring the same to be remedied;


 


(c)                                  an Insolvency Event occurs,


 


then
Funding 1 and/or the Security Trustee may at once or at any time thereafter
while such default continues by notice in writing to the Cash Manager terminate
its appointment as Cash Manager under this Agreement with effect from a date
(not earlier than the date of the notice) specified in the notice.


 


13.2                        Resignation of Cash Manager


 


The
appointment of the Cash Manager under this Agreement may be terminated upon the
expiry of not less than 12 months’ notice of termination given by the Cash
Manager to the Mortgages Trustee, Funding 1 and the Security Trustee PROVIDED
THAT:


 


(a)                                  the Mortgages Trustee, Funding
1 and the Security Trustee consent in writing to such termination;


 


(b)                                 a substitute cash manager
shall be appointed, such appointment to be effective not later than the date of
such termination;


 


(c)                                  such substitute cash manager
has cash management experience and is approved by the Mortgages Trustee,
Funding 1 and the Security Trustee;


 


(d)                                 the substitute cash manager
enters into an agreement substantially on the same terms as the relevant
provisions of this Agreement and the Cash Manager shall not be released from
its obligations under the relevant provisions of this Agreement until such
substitute cash manager has entered into such new agreement and the rights of
the Mortgages Trustee and Funding 1 under such agreement are charged in favour
of the Security Trustee on terms satisfactory to the Security Trustee; and


 


12

















 


(e)                                  the then current ratings of
the Notes are not adversely affected as a result thereof, unless otherwise
agreed by an Extraordinary Resolution (as defined in the trust deeds of each
Issuer) of the holders of each class of the Notes of each Issuer.


 


13.3                        Effect of Termination


 


(a)                                  On and after termination of
the appointment of the Cash Manager under this Agreement pursuant to this
Clause 13, all authority and power of the Cash Manager under this Agreement
shall be terminated and be of no further effect and the Cash Manager shall not
thereafter hold itself out in any way as the agent of the Mortgages Trustee,
Funding 1 or the Security Trustee pursuant to this Agreement.


 


(b)                                 Upon termination of the
appointment of the Cash Manager under this Agreement pursuant to this Clause 13,
the Cash Manager shall:


 


(i)                                     forthwith deliver (and in the
meantime hold on trust for, and to the order of, the Mortgages Trustee, Funding
1 or the Security Trustee, as the case may be) to the Mortgages Trustee,
Funding 1 or the Security Trustee, as the case may be or as it shall direct,
all books of account, papers, records, registers, correspondence and documents
in its possession or under its control relating to the affairs of or belongings
of the Mortgages Trustee, Funding 1 or the Security Trustee, as the case may be
(if practicable, on the date of receipt), any monies then held by the Cash Manager
on behalf of the Mortgages Trustee, Funding 1 or, the Security Trustee and any
other assets of the Mortgages Trustee, Funding 1 and the Security Trustee;


 


(ii)                                  take such further action as
the Mortgages Trustee, Funding 1 or the Security Trustee, as the case may be,
may reasonably direct at the expense of the Mortgages Trustee, Funding 1 or the
Security Trustee, as the case may be (including in relation to the appointment
of a substitute cash manager), provided that the Mortgages Trustee or the Security
Trustee, as the case may be, shall not be required to take or direct to be
taken such further action unless it has been indemnified to its satisfaction
(and in the event of a conflict between the directors of Funding 1, the
Mortgages Trustee and the Security Trustee, the director of the Security
Trustee shall prevail);


 


(iii)                               provide all relevant
information contained on computer records in the form of magnetic tape,
together with details of the layout of the files encoded on such magnetic
tapes; and


 


(iv)                              co-operate and consult with
and assist the Mortgages Trustee, Funding 1 or the Security Trustee or its
nominee, as the case may be (which shall, for the avoidance of doubt, include
any Receiver appointed by it), for the purposes of explaining the file layouts
and the format of the magnetic tapes generally containing such computer records
on the computer system of the Mortgages Trustee, Funding 1, or the Security
Trustee or such nominee, as the case may be.


 


13.4                        Notice of event of default


 


The
Cash Manager shall deliver to the Mortgages Trustee, Funding 1 and the Security
Trustee as soon as reasonably practicable but in any event within three London
Business Days of becoming aware thereof a notice of any Cash Manager
Termination Event or any event which with the giving of notice or expiry of any
grace period or certification, as specified in such Cash Manager Termination
Event would constitute the same or any Intercompany Loan Event of Default or
any Potential Intercompany Loan Event of Default.


 


13

















 


13.5                        General provisions relating to
termination


 


(a)                                  Termination of this Agreement
or the appointment of the Cash Manager under this Agreement shall be without
prejudice to the liabilities of the Mortgages Trustee, Funding 1 and the
Security Trustee to the Cash Manager or vice versa incurred before the date of
such termination.  The Cash Manager
shall have no right of set-off or any lien in respect of such amounts against amounts
held by it on behalf of the Mortgages Trustee, Funding 1 or the Security
Trustee.


 


(b)                                 This Agreement shall terminate
automatically at such time as Funding 1 has no further interest in the Trust
Property and the Intercompany Loans have been fully repaid or Funding 1’s
obligations under the Intercompany Loans have been otherwise discharged.


 


(c)                                  On termination of the
appointment of the Cash Manager under the provisions of this Clause 13,
the Cash Manager shall be entitled to receive all fees and other monies accrued
up to (but excluding) the date of termination but shall not be entitled to any
other or further compensation.  Such
monies so receivable by the Cash Manager shall be paid by Funding 1, on the
dates on which they would otherwise have fallen due hereunder and under the
terms of the Funding 1 Deed of Charge. 
For the avoidance of doubt, such termination shall not affect the Cash
Manager’s rights to receive payment of all amounts (if any) due to it from
Funding 1 other than under this Agreement.


 


(d)                                 Any provision of this
Agreement which is stated to continue after termination of the Agreement shall
remain in full force and effect notwithstanding termination.


 


14.                               FURTHER ASSURANCE


 


14.1                        Co-operation, etc.


 


The
parties hereto agree that they will co-operate fully to do all such further
acts and things and execute any further documents as may be necessary or
desirable to give full effect to the arrangements contemplated by this
Agreement.


 


14.2                        Powers of attorney


 


Without
prejudice to the generality of Clause 14.1, the Mortgages Trustee, Funding
1 and the Security Trustee shall upon request by the Cash Manager forthwith
give to the Cash Manager such further powers of attorney or other written
authorisations, mandates or instruments as are necessary to enable the Cash
Manager to perform the Cash Management Services.


 


14.3                        Change of Security Trustee


 


In the
event that there is any change in the identity of the Security Trustee or an
additional Security Trustee is appointed in accordance with the Funding 1 Deed
of Charge, as the case may be, the Cash Manager shall execute such documents
with any other parties to this Agreement and take such actions as such new
Security Trustee may reasonably require for the purposes of vesting in such new
Security Trustee the rights of the Security Trustee under this Agreement and
under the Funding 1 Deed of Charge and releasing the retiring Security Trustee
from further obligations thereunder and while any of the Notes of any Issuer
remains outstanding shall give notice thereof to the Rating Agencies.


 


14

















 


14.4                        No obligation on Security
Trustee


 


Nothing
herein contained shall impose any obligation or liability on the Security
Trustee to assume or perform any of the obligations of the Mortgages Trustee,
Funding 1 or the Cash Manager hereunder or render it liable for any breach
thereof.


 


15.                               MISCELLANEOUS


 


15.1                        No set-off


 


Each of
the Seller and the Cash Manager agrees that it will not:


 


(a)                                  set off or purport to set off
any amount which either the Mortgages Trustee or Funding 1 is or will become
obliged to pay to it under this Agreement against any amount from time to time
standing to the credit of or to be credited to the Mortgages Trustee GIC
Account, the Funding 1 Transaction Account or the Funding 1 GIC Account or any
replacement or additional bank account of either the Mortgages Trustee or
Funding 1; or


 


(b)                                 make or exercise any claims or
demands, any rights of counterclaim or any other equities against or withhold
payment of any and all sums of money which may at any time and from time to
time be standing to the credit of the Mortgages Trustee GIC Account, the
Funding 1 Transaction Account or the Funding 1 GIC Account or any replacement
of additional bank account of either the Mortgages Trustee or Funding 1.


 


15.2                        No Petition


 


The
Cash Manager agrees that for so long as any Notes of any Issuer are outstanding
it will not petition or commence proceedings for the administration (including,
for the avoidance of doubt, the filing of documents with the court or the service
of a notice of intention to appoint an administrator) or winding up of the
Mortgages Trustee, Funding 1 or any Issuer or participate in any ex parte
proceedings with regard thereto.


 


15.3                        No recourse


 


(a)                                  In relation to all sums due
and payable by the Mortgages Trustee or Funding 1 to the Cash Manager, the Cash
Manager agrees that it shall have recourse only to sums paid to or received by
(or on behalf of) the Mortgages Trustee or Funding 1 pursuant to the provisions
of the Transaction Documents.


 


(b)                                 For the avoidance of doubt,
the Security Trustee shall not be liable to pay any amounts due under Clauses 6 and
8,
and without prejudice to the obligations of the Mortgages Trustee or Funding 1,
as the case may be, or any receiver appointed pursuant to the Funding 1 Deed of
Charge in respect of such amounts.


 


(c)                                  Notwithstanding any other
provisions of this Agreement, all obligations to, and rights of, the Security
Trustee under or in connection with this Agreement (other than its obligations
under Clause
14) shall automatically terminate upon the discharge in full of the
Funding 1 Secured Obligations, PROVIDED THAT this shall be without
prejudice to any claims in respect of such obligations and rights arising on or
prior to such date.


 


15

















 


16.                               CONFIDENTIALITY


 


During
the continuance of this Agreement or after its termination, each of the
Mortgages Trustee, the Cash Manager, the Seller, Funding 1 and the Security
Trustee shall use its best endeavours not to disclose to any person, firm or
company whatsoever any information relating to the business, finances or other
matters of a confidential nature of any other party hereto of which it may
exclusively by virtue of being party to the Transaction Documents have become
possessed and shall use all reasonable endeavours to prevent any such
disclosure as aforesaid, PROVIDED HOWEVER that the provisions of
this Clause
16 shall not apply:


 


(a)                                  to any information already
known to the recipient otherwise than as a result of entering into any of the
Transaction Documents;


 


(b)                                 to any information
subsequently received by the recipient which it would otherwise be free to
disclose;


 


(c)                                  to any information which is or
becomes public knowledge otherwise than as a result of the conduct of the
recipient;


 


(d)                                 to any extent that the
recipient is required to disclose the same pursuant to any law or order of any
court of competent jurisdiction or pursuant to any direction, request or
requirement (whether or not having the force of law) of any central bank or any
governmental or other authority (including, without limitation, any official
bank examiners or regulators);


 


(e)                                  to the extent that the
recipient needs to disclose the same for determining the existence of, or
declaring, a Note Event of Default, an Intercompany Loan Event of Default or a
Cash Manager Termination Event, the protection or enforcement of any of its
rights under any of the Transaction Documents or in connection herewith or
therewith or for the purpose of discharging, in such manner as it thinks fit,
its duties under or in connection with such agreements in each case to such
persons as require to be informed of such information for such purposes; or


 


(f)                                    in relation to any information
disclosed to the professional advisers of the recipient or (in connection with
a prospective rating of any debt issued or to be issued by an Issuer or any New
Issuer) to any Rating Agency or any prospective new cash manager or prospective
new security trustee.


 


17.                               NOTICES


 


Any
notices to be given pursuant to this Agreement to any of the parties hereto
shall be sufficiently served if sent by prepaid first class post, by hand or
facsimile transmission and shall be deemed to be given (in the case of
facsimile transmission) when despatched, (where delivered by hand) on the day
of delivery if delivered before 17.00 hours on a London Business Day or on the
next London Business Day if delivered thereafter or on a day which is not a
London Business Day or (in the case of first class post) when it would be
received in the ordinary course of the post and shall be sent:


 


(a)                                  in the case of the Cash
Manager, to Halifax plc, Trinity Road, Halifax, West Yorkshire HX1 2RG
(LP/3/3/SEC) (facsimile number +44 (0) 113 235 7511) for the attention of the
Head of Mortgage Securitisation with a copy to HBOS Treasury Services plc, 33
Old Broad Street, London EC2N 1HZ (facsimile number +44 (0) 20 7574 8784) for
the attention of Head of Capital Markets and Securitisation;


 


16

















 


(b)                                 in the case of the Mortgages
Trustee, to Permanent Mortgages Trustee Limited, Blackwell House, Guildhall
Yard, London EC2V 5AE (facsimile number +44 (0) 20 7556 0975) for the attention
of the Secretary with a copy to HBOS Treasury Services plc, 33 Old Broad
Street, London EC2N 1HZ (facsimile number +44 (0) 20 7574 8784) for the
attention of Head of Capital Markets and Securitisation;


 


(c)                                  in the case of the Seller, to
Halifax plc, Trinity Road, Halifax, West Yorkshire HX1 2RG (LP/3/3/SEC) (facsimile
number +44 (0) 113 235 7511) for the attention of the Head of Mortgage
Securitisation with a copy to HBOS Treasury Services plc, 33 Old Broad Street,
London EC2N 1HZ (facsimile number +44 (0) 20 7574 8784) for the attention of
Head of Capital Markets and Securitisation;


 


(d)                                 in the case of Funding 1, to
Permanent Funding (No.1) Limited, Blackwell House, Guildhall Yard, London EC2V
5AE (facsimile number +44 (020) 7556 0975) for the attention of the Secretary
with a copy to HBOS Treasury Services plc, 33 Old Broad Street, London EC2N 1HZ
(facsimile number +44 (020) 7574 8784) for the attention of Head of Capital
Markets & Securitisation; and


 


(e)                                  in the case of the Security
Trustee, to The Bank of New York, One Canada Square, London E14 5AL (facsimile
number +44 (0) 20 7964 6061/6399) for the attention of Global Structured
Finance - Corporate Trust,


 


or to
such other address or facsimile number or for the attention of such other
person or entity as may from time to time be notified by any party to the others
by written notice in accordance with the provisions of this Clause 17.


 


18.                               VARIATION AND WAIVER


 


No
variation or waiver of this Agreement shall be effective unless it is in
writing and signed by (or by some person duly authorised by) each of the parties.  No single or partial exercise of, or failure
or delay in exercising, any right under this Agreement shall constitute a
waiver or preclude any other or further exercise of that or any other right.


 


19.                               NO PARTNERSHIP


 


It is
hereby acknowledged and agreed by the parties that nothing in this Agreement
shall be construed as giving rise to any partnership between any of the
parties.


 


20.                               ASSIGNMENT


 


20.1                        Assignment by the Mortgages
Trustee and Funding 1


 


Neither
of the Mortgages Trustee nor Funding 1 may assign or transfer any of its
respective rights and obligations under this Agreement without the prior
written consent of:


 


(a)                                  in the case of the Mortgages
Trustee, each of the Beneficiaries and the Security Trustee; and


 


(b)                                 in the case of Funding 1, each
of the Security Trustee and the Cash Manager,


 


except
that Funding 1 may assign its respective rights hereunder without such consent
pursuant to the Funding 1 Deed of Charge.


 


17

















 


20.2                        No assignment by Cash Manager


 


The
Cash Manager may not assign or transfer any of its rights and obligations under
this Agreement without the prior written consent of the Mortgages Trustee, each
of the Beneficiaries, Funding 1 and the Security Trustee.


 


21.                               AMENDMENTS


 


Subject
to Clause
25 of the Funding 1 Deed of Charge (Supplemental Provisions
Regarding the Security Trustee), any amendments to this Agreement will be made
only with the prior written consent of each party to this Agreement.


 


22.                               EXCLUSION OF THIRD PARTY RIGHTS


 


The
parties to this Agreement do not intend that any term of this Agreement should
be enforced, by virtue of the Contracts (Rights of Third Parties) Act 1999, by
any person who is not a party to this Agreement.


 


23.                               COUNTERPARTS


 


This
Agreement may be executed in any number of counterparts (manually or by
facsimile) each of which, when executed and delivered, shall constitute an
original, but all the counterparts shall together constitute but one and the
same instrument provided, however, that this Agreement shall have no force or
effect until it is executed by the last party to execute the same and shall be
deemed to have been executed and delivered in the place where such last party
executed this Agreement.


 


24.                               GOVERNING LAW AND SUBMISSION TO
JURISDICTION


 


24.1                           This Agreement is governed by,
and shall be construed in accordance with, the laws of England.


 


24.2                           Each party to this Agreement
hereby irrevocably submits to the non-exclusive jurisdiction of the English
courts in any action or proceeding arising out of or relating to this
Agreement, and hereby irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined by such courts.  Each party to this Agreement hereby
irrevocably waives, to the fullest extent it may possibly do so, any defence or
claim that the English courts are an inconvenient forum for the maintenance or
hearing of such action or proceeding. 
The Mortgages Trustee irrevocably appoints Structured Finance Management
Limited at Blackwell House, Guildhall Yard, London EC2V 5AE as its agent for
the service of process.


 


IN WITNESS WHEREOF the parties have caused this Agreement to
be executed the day and year first before written.


 


18

















 


SCHEDULE 1


 


THE CASH MANAGEMENT SERVICES


 


The Cash
Manager shall:


 


(a)                                  operate the Mortgages Trustee GIC Account,
the Funding 1 GIC Account and the Funding 1 Transaction Account or any other
Bank Account and ensure that payments are made into and from such accounts in
accordance with this Agreement, the Mortgages Trust Deed, the Funding 1 Deed of
Charge, the Bank Account Agreement, the Mortgages Trustee Guaranteed Investment
Contract, the Funding 1 Guaranteed Investment Contract and any other applicable
Transaction Document PROVIDED HOWEVER THAT nothing herein shall
require the Cash Manager to make funds available to the Mortgages Trustee or
Funding 1 to enable such payments to be made other than as expressly required
by the provisions of this Agreement;


 


(b)                                 keep records for all taxation purposes
(including, without limitation VAT);


 


(c)                                  assist the auditors of the Mortgages
Trustee and Funding 1 and provide such information to them as they may
reasonably request for the purpose of carrying out their duties as auditors;


 


(d)                                 make all filings, give all notices and make
all registrations and other notifications required in the day-to-day operation
of the respective businesses of the Mortgages Trustee and Funding 1 or required
to be given by the Mortgages Trustee or Funding 1 pursuant to the Transaction
Documents;


 


(e)                                  arrange for all payments due to be made by
the Mortgages Trustee and/or Funding 1 under any of the Transaction Documents, PROVIDED
THAT such monies are at the relevant time available to the Mortgages
Trustee and/or Funding 1 and PROVIDED FURTHER that nothing herein shall
constitute a guarantee by the Cash Manager of all or any of the obligations of
the Mortgages Trustee or Funding 1 under any of the Transaction Documents;


 


(f)                                    without prejudice to the role of and in
conjunction with the relevant Corporate Services Provider under the relevant
Corporate Services Agreement, keep general books of account and records of the
Mortgages Trustee and Funding 1; provide accounting services, including
reviewing receipts and payments, supervising and assisting in the preparation
of interim statements and final accounts and supervising and assisting in the
preparation of Tax returns;


 


(g)                                 without prejudice to the role of and in
conjunction with the relevant Corporate Services Provider under the relevant
Corporate Services Agreement, provide or procure the provision of company
secretarial and administration services to the Mortgages Trustee and Funding 1
including the keeping of all registers and the making of all returns and
filings required by applicable law or by US or UK regulatory authorities
(including the Securities and Exchange Commission), co-operate in the convening
of board and general meetings and provide registered office facilities;


 


(h)                                 itself on behalf of the Mortgages Trustee and
Funding 1, PROVIDED THAT such monies are at the relevant time available
to the Mortgages Trustee and Funding 1, pay all the out-of-pocket expenses of
the Mortgages Trustee and Funding 1, incurred by the Cash Manager on behalf of
the Mortgages Trustee and Funding 1 in the performance of the Cash Manager’s
duties hereunder including without limitation:


 


(i)                                     all Taxes which may be due or payable by
the Mortgages Trustee and Funding 1;


 


19

















 


(ii)                                  all registration, transfer, filing and
other fees and other charges payable in respect of the sale by the Seller of
the Portfolio to the Mortgages Trustee;


 


(iii)                               all necessary filing and other fees in
compliance with regulatory requirements;


 


(iv)                              all legal and audit fees and other
professional advisory fees;


 


(v)                                 all communication expenses including
postage, courier and telephone charges; and


 


(vi)                              all premiums payable by the Mortgages
Trustee in respect of the Insurance Policies;


 


(i)                                     at the request of Funding 1 (but also with
the prior written consent of the Security Trustee), invest monies standing from
time to time to the credit of the Funding 1 GIC Account and the Funding 1
Liquidity Stand-by Account, if any, in Authorised Investments, subject to the
following provisions:


 


(i)                                     any such Authorised Investment shall be
made in the joint names of Funding 1 and the Security Trustee; and


 


(ii)                                  any costs properly and reasonably incurred
in making and changing Authorised Investments will be reimbursed to the Cash
Manager and the Security Trustee by Funding 1; and


 


(iii)                               all income or other distributions arising
on, or proceeds following the disposal or maturity of, Authorised Investments
shall be credited to the Funding 1 GIC Account;


 


(iv)                              the Security Trustee and the Cash Manager
shall not be responsible (save where any loss results from the Security
Trustee’s or the Cash Manager’s, as the case may be, own fraud, wilful default
or negligence or that of their respective officers or employees) for any loss
occasioned by reason of any such Authorised Investments whether by depreciation
in value or otherwise provided that such Authorised Investments were made in
accordance with the above provisions.


 


20

















 


SCHEDULE 2


 


CASH MANAGEMENT AND MAINTENANCE OF LEDGERS


 


1.                                      Determination


 


(a)                                  On each Calculation Date based on the
amount of monies standing to the credit of the Mortgages Trustee GIC Account as
at close of business on the London Business Day immediately preceding the
relevant Calculation Date, the Cash Manager shall determine each of the
following:


 


(i)                                     the amount of Principal Receipts and
Revenue Receipts received during the preceding Calculation Period;


 


(ii)                                  the amount of any Mortgages Trust Available
Revenue Receipts received during the preceding Calculation Period; and


 


(iii)                               the amount of Mortgages Trust Available
Revenue Receipts and Principal Receipts to be distributed to Funding 1 and to
the Seller on the Distribution Date immediately following the relevant
Calculation Date.


 


(b)                                 On each Calculation Date, the Cash Manager
shall determine each of the following:


 


(i)                                     the amount of any Losses incurred on the
Loans in the period from the immediately preceding Calculation Date to the
relevant Calculation Date;


 


(ii)                                  the Funding 1 Share, the Seller Share, the
Funding 1 Share Percentage and the Seller Share Percentage in accordance with Clause 8
of the Mortgages Trust Deed; and


 


(iii)                               the Minimum Seller Share in accordance with
Clause
9.2 of the Mortgages Trust Deed.


 


(c)                                  Four Business Days prior to each Funding 1
Interest Payment Date the Cash Manager shall determine each of the following:


 


(i)                                     the amount of any Funding 1 Available
Revenue Receipts to be applied on the following Funding 1 Interest Payment Date
in accordance with the Funding 1 Pre-Enforcement Revenue Priority of Payments;


 


(ii)                                  the amount of any Funding 1 Available
Principal Receipts to be applied on the following Funding 1 Interest Payment
Date in accordance with Funding 1’s Principal Priorities of Payments; and


 


(iii)                               the amount of any Funding 1 Income Deficit.


 


(d)                                 The Cash Manager shall make all the
determinations referred to in paragraphs 1(a) to (c) above on the basis of the
following assumptions:


 


(i)                                     that the amount of any Losses will not
increase;


 


(ii)                                  that any debit balance on the Principal
Deficiency Ledger will not increase; and


 


21

















 


(iii)                               such other assumptions (including without
limitation as to the amount of any payments or provisions to be made in accordance
with the applicable Funding 1 Priority of Payments during the period from and
including the Intercompany Loan Determination Date prior to each Funding 1
Interest Payment Date to and excluding such Funding 1 Interest Payment Date) as
the Cash Manager considers appropriate.


 


The
Cash Manager shall on request notify the Mortgages Trustee, Funding 1 and the
Security Trustee in writing of any such other assumptions and shall take
account of any representations made by the Mortgages Trustee, Funding 1 and the
Trustee (as the case may be) in relation thereto.


 


(e)                                  The Cash Manager shall:


 


(i)                                     make or procure to be made all returns and
filings required to be made by Funding 1 and the Mortgages Trustee;


 


(ii)                                  provide or procure the provision of company
secretarial and administration services to Funding 1 and the Mortgages Trustee
including the keeping of all registers and the making of all returns required
by applicable law or by UK regulatory authorities, co-operate in the convening
of board and general meetings and provide registered office facilities;


 


(iii)                               itself on behalf of Funding 1 and the
Mortgages Trustee, provided that such moneys are at the relevant time available
to Funding 1 and the Mortgages Trustee, pay all out-of-pocket expenses of
Funding 1 and the Mortgages Trustee incurred in the performance of the Cash
Manager’s duties hereunder including, without limitation, all fees payable to
the London Stock Exchange Limited.


 


(f)                                    The Cash Manager shall, if necessary,
perform all currency conversions free of charge, cost or expense at the
relevant exchange rate (for the purposes of any calculations referred to above,
(i) all percentages resulting from such calculations will be rounded, if
necessary, to the nearest one hundred-thousandth of a percentage point (e.g.
9.876541% being rounded down to 9.87654% and (ii) any currency amounts used in
or resulting from such calculations will be rounded in accordance with the
relevant market practice).


 


(g)                                 Each determination made in accordance with
this paragraph 1 shall (in the absence of bad faith, wilful default, negligence
and manifest error) be final and binding on all persons.


 


2.                                      Notification of Determinations


 


(a)                                  The Cash Manager will cause each
determination of Principal Receipts, Revenue Receipts, Losses, Mortgages Trust
Available Revenue Receipts, the Funding 1 Share and the Seller Share, the
Funding 1 Share Percentage, the Seller Share Percentage and the Minimum Seller
Share to be notified forthwith in writing to the Mortgages Trustee, the
Beneficiaries and the Security Trustee.


 


(b)                                 The Cash Manager will cause each
determination of the Funding 1 Income Deficit (if any), the Funding 1 Liquidity
Shortfall (if any), the Funding 1 Available Principal Receipts and Funding 1
Available Revenue Receipts to be notified forthwith in writing to Funding 1 and
the Security Trustee.


 


22

















 


3.                                      Priority of Payments for
Mortgages Trust Available Revenue Receipts


 


The
Cash Manager shall (unless the intended recipient of the relevant payment
agrees otherwise) on each Distribution Date withdraw Cash from the Mortgages
Trustee GIC Account and/or, in the case of sums to be provided for, retain Cash
in the amounts required (to the extent that such withdrawal does not cause the
Mortgages Trustee GIC Account to become overdrawn or, if any amounts are
retained by way of provision for the relevant liability and are thus not
withdrawn, to the extent that withdrawal of those amounts that are withdrawn
would not, if such retained amounts were also to be withdrawn, cause the
balance on the Mortgages Trustee GIC Account to become overdrawn). The
aggregate amount of the withdrawal shall equal the Mortgages Trust Available
Revenue Receipts on each Distribution Date. The withdrawal shall be used to
make the payments and provisions in the order of priority set out in Clause 10.2
of the Mortgages Trust Deed (in each case only if and to the extent that
payments or provisions of a higher priority have been made in full).


 


4.                                      Priority of Payments for Mortgages
Trust Available Principal Receipts


 


The
Cash Manager shall (unless the intended recipient of the relevant payment
agrees otherwise) on each Distribution Date, withdraw Cash from the Mortgages
Trustee GIC Account (to the extent only that such withdrawal does not cause the
Mortgages Trustee GIC Account to become overdrawn) in an aggregate amount equal
to the Mortgages Trust Available Principal Receipts on each Distribution Date
to make the payments in the order of priority set out in Clause 11 of the Mortgages
Trust Deed.


 


5.                                      Priority of Payments for
Funding 1 Available Revenue Receipts


 


Funding
1 Available Revenue Receipts will be applied by the Cash Manager on each
Funding 1 Interest Payment Date until enforcement of the Funding 1 Security
pursuant to the Funding 1 Deed of Charge or until such time as there are no
amounts outstanding under any Intercompany Loan Agreement, in making such
payments and provisions in the order of priority set out in the Funding 1
Pre-Enforcement Revenue Priority of Payments (in each case only if and to the
extent that payments or provisions of a higher priority have been made in full)
as set out in Part 1 of Schedule 3 to the Funding 1 Deed of Charge (as the same
may be amended, varied or restated from time to time).


 


6.                                      Priority of Payments for
Funding 1 Available Principal Receipts


 


Funding
1 Available Principal Receipts will be applied by the Cash Manager on each
Funding 1 Interest Payment Date until enforcement of the Funding 1 Security
pursuant to the Funding 1 Deed of Charge or until such time as there are no
amounts outstanding under any Intercompany Loan Agreement, in making such
payments and provisions in the order of priority (in each case only if and to
the extent that payments or provisions of a higher priority have been made in
full) set out in Part 2 of Schedule 3 to the Funding 1 Deed of Charge.


 


7.                                      Funding 1 Income
Deficit/Funding 1 Liquidity Facility


 


(a)                                  If the Cash Manager determines four
Business Days prior to a Funding 1 Interest Payment Date that there will be a
Funding 1 Income Deficit, then the Cash Manager, on behalf of Funding 1, shall
pay or provide for such Funding 1 Income Deficit by applying Funding 1
Principal Receipts (plus any part of the balance of the Cash Accumulation
Ledger which is not comprised in Funding 1 Available Principal Receipts) to
make good such Funding 1 Income Deficit, and the Cash Manager shall make a
corresponding entry in the relevant Funding 1 Ledgers as described in
paragraphs 11 and 16 below.


 


23

















 


(b)                                 If the Cash Manager determines there are no
(or insufficient) amounts standing to the credit of the Funding 1 Principal
Ledger and the Cash Accumulation Ledger to cure the Funding 1 Income Deficit
then on the London Business Day immediately preceding a Funding 1 Interest
Payment Date the Cash Manager will, subject to paragraph (c) below, (i) direct
Funding 1 to request a drawing pursuant to Clause 5.1 of the Funding 1 Liquidity
Facility Agreement to apply towards such Funding 1 Income Deficit.


 


(c)                                  A Funding 1 Liquidity Drawing may not be
used to pay interest or principal (as applicable) on the Term Advances if and
to the extent that there are funds standing to the credit of the Liquidity
Reserve Fund that are available to cure such Funding 1 Income Deficit on such
Funding 1 Interest Payment Date.


 


8.                                      Other Payments


 


Each of
the Beneficiaries and the Cash Manager agrees, and the Mortgages Trustee
concurs, that (save as otherwise specified below) the following payments may be
made from the Mortgages Trustee GIC Account (to the extent that withdrawal of
those amounts would not cause the balance of the Mortgages Trustee GIC Account
to become overdrawn) on any date:


 


(i)                                     if any amount has been received from a
Borrower for the express purpose of payment being made to a third party for the
provision of a service (including giving insurance cover) to either that
Borrower or the Seller or the Mortgages Trustee, to pay such amount when due to
such third party or, in the case of the payment of an insurance premium, where
such third party and the Cash Manager have agreed that payment of commission
should be made by deduction from such insurance premium, to pay such amount
less such commissions when due to such third party and to pay such commission
to the Cash Manager and to pay any premiums in respect of any Insurance Policy
or other insurance policy relating to any Loan comprised in the Portfolio;


 


(ii)                                  to pay to any person (including the Cash
Manager) any amounts due arising from any overpayment by any person or arising
from any reimbursement by any person of any such overpayment (including, for
the avoidance of doubt, where arising from the failure of a direct debit);


 


(iii)                               to pay when due (but subject to any right
to refuse or withhold payment or of set-off that has arisen by reason of the
Borrower’s breach of the terms of the relevant Mortgage or Loan) any amount
payable to a Borrower under the terms of the Mortgage or the Loan to which that
Borrower is a party, and to pay when due any amount payable by the Mortgages
Trustee to the Seller pursuant to Clauses 3.3, 4.4 and 5.2 of the Mortgage Sale
Agreement;


 


(iv)                              to pay to the Seller any amounts
(including, for the avoidance of doubt, any Early Repayment Fees) received and
held by the Mortgages Trustee on trust for the Seller pursuant to Clause 5
of the Mortgage Sale Agreement;


 


(v)                                 to pay when due and payable any amounts due
and payable by the Mortgages Trustee to third parties and incurred without
breach by the Mortgages Trustee of the Mortgages Trust Deed and not provided
for payment elsewhere in this paragraph 8;


 


(vi)                              to refund any amounts due arising from the
rejection of any payments in respect of a Loan and any other amounts which have
not been received by the Mortgages Trustee as cleared funds; and


 


24

















 


(vii)                           to refund to the Seller any amounts which
represent amounts received from Borrowers but which do not form part of the
Mortgage Account balance or comprise unpaid interest as at the relevant date
and which are amounts owed by such Borrowers in respect of the period prior to
the date on which the Mortgage Loan (together with its Related Security)
relating to such Mortgage Account was transferred to the Mortgages Trustee as
and when identified by the Cash Manager and if a Borrower fails to pay the full
amount that it owes, the Cash Manager shall be obliged to refund to the Seller
only such portion of the amount which relates to any period prior to such
transfer.


 


9.                                      Use of Ledgers


 


The
Cash Manager shall forthwith record monies received or payments made by it on
behalf of the Mortgages Trustee or Funding 1 in the ledgers in the manner set
out in this Agreement.  If, at any time,
the Cash Manager is in any doubt as to which ledger a particular amount should
be credited or debited, it shall consult with the Security Trustee thereon.


 


Except
in the case of the Principal Deficiency Ledger, a debit item shall only be made
in respect of any of the Mortgages Trustee Ledgers and the Funding 1 Ledgers
and the corresponding payment or transfer (if any) may only be made from the
Mortgages Trustee GIC Account, the Funding 1 GIC Account or the Funding 1
Transaction Account, as the case may be, to the extent that such entry does not
cause the relevant ledger to have a debit balance. In the case of the Principal
Deficiency Ledger and each Principal Deficiency Sub Ledger, a credit item shall
only be made to the extent that such entry does not cause such ledger to have a
credit balance.


 


10.                               Revenue Ledger


 


The
Cash Manager shall ensure that:


 


(a)                                  the following amounts shall be credited to
the Revenue Ledger:


 


(i)                                     all Revenue Receipts; and


 


(ii)                                  all interest received by the Mortgages
Trustee on the Mortgages Trustee GIC Account; and


 


(b)                                 any payment or provision made under
paragraph 3 above shall be debited to the Revenue Ledger.


 


11.                               Principal Ledger


 


The
Cash Manager shall ensure that:


 


(a)                                  all Principal Receipts shall be credited to
the Principal Ledger; and


 


(b)                                 any payment or provision made under
paragraph 4 above shall be debited to the Principal Ledger.


 


12.                               Losses Ledger


 


The
Cash Manager shall ensure that all Losses shall be recorded in the Losses
Ledger.


 


25

















 


13.                               Funding 1 Share/Seller Share
Ledger


 


The Cash
Manager shall ensure that the Current Funding 1 Share and the Current Funding 1
Share Percentage of the Trust Property and the Current Seller Share and the
Current Seller Share Percentage of the Trust Property are recorded in the
Funding 1 Share/Seller Share Ledger on the Initial Closing Date and thereafter
on each Distribution Date.


 


14.                               Funding 1 Revenue Ledger


 


The
Cash Manager shall ensure that:


 


(a)                                  the following amounts shall be credited to
the Funding 1 Revenue Ledger:


 


(i)                                     all Funding 1 Revenue Receipts;


 


(ii)                                  all interest received by Funding 1 in
respect of the Funding 1 Bank Accounts;


 


(iii)                               all amounts received by Funding 1
representing income on any Funding 1 Authorised Investments;


 


(iv)                              all amounts (other than any early
termination payment which is to be used to acquire, if necessary, a new swap)
received by Funding 1 under the Funding 1 Swap Agreement; and


 


(v)                                 any amount debited to the Funding 1
Principal Ledger under paragraph 16(b)(ii) below; and


 


(b)                                 any payment or provision made under paragraph
5 above shall be debited to the Funding 1 Revenue Ledger.


 


15.                               Funding 1 Liquidity Facility
Ledger


 


The
Cash Manager shall ensure that:


 


(a)                                  all Funding 1 Liquidity Facility Drawings
shall be credited to the Funding 1 Liquidity Facility Ledger; and


 


(b)                                 all Funding 1 Liquidity Facility Repayments
shall be noted on the Funding 1 Liquidity Facility Ledger.


 


16.                               Funding 1 Principal Ledger


 


Without
prejudice to paragraph 17 below, the Cash Manager shall ensure that:


 


(a)                                  the following amounts shall be credited to
the Funding 1 Principal Ledger:


 


(i)                                     all Funding 1 Principal Receipts; and


 


(ii)                                  amounts credited to the Principal
Deficiency Ledger under paragraph 5 above and paragraph 17 below; and


 


(b)                                 the following amounts shall be debited to
the Funding 1 Principal Ledger:


 


(i)                                     the aggregate amount of principal repaid on
the Intercompany Loan Agreement pursuant to paragraph 6 above; and


 


26

















 


(ii)                                  on each Funding 1 Interest Payment Date, an
amount equal to the Funding 1 Income Deficit on such Funding 1 Interest Payment
Date.


 


17.                               Principal Deficiency Ledger


 


(a)                                  Without prejudice to paragraph 5 above, the
Cash Manager shall ensure that there shall be debited to the Principal
Deficiency Ledger:


 


(i)                                     deficiencies arising from Losses which have
been allocated to the Funding 1 Share; and


 


(ii)                                  any amount required to be debited to the
Funding 1 Principal Ledger under paragraph 16(b)(ii) above.


 


(b)                                 The Cash Manager shall ensure that there
shall be credited to the Principal Deficiency Ledger any amount to be credited
in accordance with paragraph 5 above.


 


(c)                                  Amounts to be debited to the Principal
Deficiency Ledger shall be debited in the following order:


 


(i)                                     first, to the Principal Deficiency Sub Ledger
corresponding to the Term Advance with the lowest ranking Term Advance Rating
until the debit balance thereon is equal to the then principal amount
outstanding of the corresponding Term Advance(s); and


 


(ii)                                  secondly, to the Principal Deficiency
Sub Ledger corresponding to the Term Advance with the next lowest Term Advance
Rating until the debit balance thereon is equal to the then principal amount
outstanding of corresponding Term Advance(s),


 


and so
on until amounts are debited to the AAA Principal Deficiency Sub Ledger, at
which point there will be an Asset Trigger Event.


 


Losses
on the Loans and/or the application of Funding 1 Available Principal Receipts
to pay interest on the Term Advances will not be recorded on the Principal
Deficiency Ledger to the extent that the Funding 1 Share of the Trust Property
together with amounts standing to the credit of the Funding 1 Cash Accumulation
Ledger and the Funding 1 Principal Ledger, in aggregate, is greater than or
equal to the aggregate Outstanding Principal Balance of the Intercompany Loans
on the relevant Funding 1 Interest Payment Date, after taking account of such
Losses or the relevant application of Principal Receipts.


 


(d)                                 Amounts to be credited to a Principal
Deficiency Ledger shall be credited in the following order:


 


(i)                                     first, to the Principal Deficiency Sub Ledger
corresponding to the Term Advance with the highest ranking Term Advance Rating
until the debit balance thereon is reduced to zero;


 


(ii)                                  secondly, to the Principal Deficiency
Sub Ledger corresponding to the Term Advance with the next highest ranking Term
Advance Rating until the debit balance thereon is reduced to zero; and


 


(iii)                               thirdly, to the Principal Deficiency
Sub Ledger corresponding to the Term Advance with the next highest ranking Term
Advance Rating until the debit balance thereon is reduced to zero,


 


27

















 


and so
on until the balance of the Principal Deficiency Ledger is zero.


 


18.                               General Reserve Ledger


 


(a)                                  A tranche (if any) drawn down on a relevant
Closing Date by Funding 1 pursuant to a Start-Up Loan Agreement for the
purposes of funding the General Reserve Fund (or any other similar reserve
fund) will be credited to the General Reserve Ledger.


 


(b)                                 Amounts shall be credited to the General Reserve
Ledger in accordance with the Funding 1 Priority of Payments above.


 


(c)                                  Amounts shall be debited to the General
Reserve Ledger on each Funding 1 Interest Payment Date in order to be applied
in accordance with the order of priority of payments set out in Schedule 3 to
the Funding 1 Deed of Charge.


 


19.                               Liquidity Reserve Ledger


 


(a)                                  Amounts shall be credited to the Liquidity
Reserve Ledger in accordance with the Funding 1 Priority of Payments above.


 


(b)                                 Amounts shall be debited to the Liquidity
Reserve Ledger to the extent permitted on each 
relevant Funding 1 Interest Payment Date in order to be applied in
accordance with the priority of payments set out in Schedule 3 to the Funding 1
Deed of Charge.


 


20.                               Intercompany Loan Ledger


 


The
Cash Manager shall ensure that all payments of interest and repayments of
principal on each of the Term Advances are recorded in the Intercompany Loan
Ledger.


 


21.                               Cash Accumulation Ledger


 


The
Cash Manager shall ensure that all Funding 1 Principal Receipts reserved by Funding
1 to pay the relevant Bullet Term Advances are recorded on the Cash
Accumulation Ledger.


 


28

















 


SCHEDULE 3


 


PART 1


 


FORM OF MORTGAGES TRUSTEE QUARTERLY REPORT


 


 


Permanent Mortgages Trustee Limited


Profit & Loss Account


 


	
  Period
  Ended

  	
   

  	
  This
  Quarter

  	
   

  	
  Prior
  Quarter

  	
   

  
	
   

  	
   

  	
  £

  	
   

  	
  £

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest
  Receivable - Mortgages

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Interest
  Payable - Mortgages

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Net
  Operating Income

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fees
  Receivable

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fees
  Payable

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Operating
  Expenses

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Profit/loss
  on ordinary activities before tax

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Taxation

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Profit/loss
  on ordinary activities after tax

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Dividend

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Retained
  profit brought forward

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Retained
  profit for the year

  	
   

  	
  0

  	
   

  	
  0

  	
   

  



 


29

















 


	
  Permanent Mortgages Trustee Limited

  Balance Sheet

  	
   

  	
  £

  	
   

  	
  £

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Period Ended

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fixed Asset Investments

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  New
  Loans

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  Interest
  Receivable

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  Other
  Debtors

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  Cash
  at Bank

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Creditors: Amounts falling due within one year

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accruals

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  Interest
  Payable Accrual

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  Taxation

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  Net
  current assets

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  Total
  Assets less current liabilities

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  Share
  Capital

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  Reserves

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
  Diff

  	
   

  	
  0

  	
   

  



 


30

















 


PART 2


 


FORM OF FUNDING 1 QUARTERLY REPORT


 


Permanent Funding (No. 1) Limited


Profit & Loss Account


 


	
  Period
  Ended

  	
   

  	
  This
  Quarter

  	
   

  	
  Prior
  Quarter

  	
   

  
	
   

  	
   

  	
  £

  	
   

  	
  £

  	
   

  
	
  Interest
  Receivable - Mortgages

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest
  Receivable - Cash Deposits

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Interest
  Payable - Intercompany Loan

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest
  Payable

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Net
  Operating Income

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Other
  Income

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Insurance
  Commission  Operating Expenses

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deferred
  Consideration

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Profit/loss
  on ordinary activities before tax

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Taxation

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Profit/loss
  on ordinary activities after tax

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Dividend

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Retained
  profit brought forward

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Retained
  profit for the year

  	
   

  	
  0

  	
   

  	
  0

  	
   

  



 


31

















 


	
  Permanent
  Funding (No. 1)

  Limited  Balance Sheet

  	
   

  	
  £

  	
   

  	
  £

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Period Ended

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fixed Asset Investments

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Beneficial
  Interest in Mortgage portfolio

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest
  Receivable

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  Deferred
  Expenditure (costs of Securing)

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  Other
  debtors

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  Cash
  at Bank

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Reserve
  Funding 1

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Transaction
  Account

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  Funding
  1 GIC Account

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  Creditors: Amounts falling due within one year

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accruals

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  Deferred
  Consideration Creditor

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  Interest
  Payable Accrual

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  Taxation

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  Net
  current assets

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Creditors: Amounts falling due after one year

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Intercompany
  Loan

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  Start
  Up Loan

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  Total
  Assets less current liabilities

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Share
  Capital

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  Reserves

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
  Diff

  	
   

  	
  0

  	
   

  



 


32

















 


	
  Permanent Funding (No. 1) Limited

  	
   

  	
   

  	
   

  
	
  Notes to Balance Sheet

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Period Ended

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Balance on Cash Accumulation Ledger

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Available Credit Enhancement

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  General
  Reserve Fund at closing

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Last
  Quarter Closing General Reserve Fund

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Drawings
  to make a bullet repayment

  	
   

  	
   

  	
   

  
	
  Other
  drawings

  	
   

  	
   

  	
   

  
	
  Closing
  General Reserve Fund Balance

  	
   

  	
   

  	
   

  
	
  Target
  General Reserve Fund Balance

  	
   

  	
   

  	
   

  



 


	
  Principal
  Deficiency Ledger

  	
   

  	
  AAA

  	
   

  	
  AA

  	
   

  	
  BBB

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Opening
  PDL Balance

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Losses
  this Quarter

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PDL
  top up from Revenue Income

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Closing
  PDL Balance

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Subordinated Loan Outstanding

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Initial
  Balance

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Last
  Quarter Closing Outstanding

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accrued
  Interest

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Repayments
  Made

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Closing
  Balance

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


33

















 


SIGNATORIES


 


	
  Signed by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  HALIFAX plc

  	
  )

  
	
  as Cash Manager

  	
  )

  
	
   

  	
   

  
	
  Signed by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  HALIFAX plc

  	
  )

  
	
  as Seller

  	
  )

  
	
   

  	
   

  
	
  Signed by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  PERMANENT MORTGAGES TRUSTEE

  	
  )

  
	
  LIMITED

  	
  )

  
	
   

  	
   

  
	
  Signed by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  PERMANENT FUNDING (NO. 1) LIMITED

  	
  )

  
	
   

  	
   

  
	
  Signed by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  BANK OF NEW YORK

  	
  )

  



 


34